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Other People's Money And How The Bankers Use It | by Louis D. Brandeis



While Louis D. Brandeis's series of articles on the money trust was running in Harper's Weekly many inquiries came about publication in more accessible permanent form. Even without such urgence through the mail, however, it would have been clear that these articles inevitably constituted a book, since they embodied an analysis and a narrative by that mind which, on the great industrial movements of our era, is the most expert in the United States. The inquiries meant that the attentive public recognized that here was a contribution to history. Here was the clearest and most profound treatment ever published on that part of our business development which, as President Wilson and other wise men have said, has come to constitute the greatest of our problems. The story of our time is the story of industry...

TitleOther People's Money And How The Bankers Use It
AuthorLouis D. Brandeis
PublisherFrederick A. Stokes Company
Year1914
Copyright1914, Frederick A. Stokes Company
AmazonOther People's Money and How the Bankers Use It
Other People s Money And How The Bankers Use It 1
-Preface
While Louis D. Brandeis's series of articles on the money trust was running in Harper's Weekly many inquiries came about publication in more accessible permanent form. Even without such urgence throug...
-Arithmetic
About five years before the Metropolitan Traction Company of New York went into the hands of a receiver, Mr. Brandeis came down from Boston, and in a speech at Cooper Union prophesied that that compan...
-Chapter I. Our Financial Oligarchy
President Wilson, when Governor, declared in 1911: The great monopoly in this country is the money monopoly. So long as that exists, our old variety and freedom and individual energy of development ...
-The Dominant Element
The dominant element in our financial oligarchy is the investment banker. Associated banks, trust companies and life insurance companies are his tools. Controlled railroads, public service and industr...
-The Proper Sphere Of The Investment Banker
The original function of the investment banker was that of dealer in bonds, stocks and notes; buying mainly at wholesale from corporations, municipalities, states and governments which need money, and...
-Controlling The Security Makers
But this enlargement of their legitimate field of operations did not satisfy investment bankers. They were not content merely to deal in securities. They desired to manufacture them also. They became ...
-Controlling Security Buyers
Such control of railroads, public service and industrial corporations assures to the investment bankers an ample supply of securities at attractive prices; and merchandise well bought is half sold. Bu...
-Controlling Other People's Quick Capital
The goose that lays golden eggs has been considered a most valuable possession. But even more profitable is the privilege of taking the golden eggs laid by somebody else's goose. The investment banker...
-Having Your 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 suppo...
-Power And Pelf
The operations of so comprehensive a system of concentration necessarily developed in the bankers overweening power. And the bankers1 power grows by what it feeds on. Power begets wealth; and added we...
-Why The Banks Became Investment Bankers
These large profits from promotions, under-writings and security purchases led to a revolutionary change in the conduct of our leading banking institutions. It was obvious that control by the investme...
-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, li...
-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 co...
-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 billion...
-Cementing The Triple Alliance
Care 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 perso...
-The Provincial 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 hereaft...
-The Auxiliaries
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, a...
-The Satellites
The alliance is still further supplemented, as the Pujo Committee shows: Beyond these inner groups and sub-groups are banks and bankers throughout the country who co-operate with them in underwritin...
-The Protection Of Pseudo-Ethics
The organization of the Money Trust is intensive, the combination comprehensive; but one other element was recognized as necessary to render it stable, and to make its dynamic force irresistible. Desp...
-The Evils Resultant
First: These banker-barons levy, through their excessive exactions, a heavy toll upon the whole community; upon owners of money for leave to invest it; upon railroads, public service and industrial co...
-Chapter III. Interlocking Directorates
The practice of interlocking directorates is the root of many evils. It offends laws human and divine. Applied to rival corporations, it tends to the suppression of competition and to violation of the...
-Nullifying The Law
But this wholesome rule of business, so clearly laid down, was practically nullified by courts in creating two unfortunate limitations, as concessions doubtless to the supposed needs of commerce. Fir...
-The Essentials Of Protection
Protection to minority stockholders demands that corporations be prohibited absolutely from making contracts in which a director has a private interest, and that all such contracts be declared not voi...
-Banks As Public-Service Corporations
The practice of interlocking directorates is peculiarly objectionable when applied to banks, because of the nature and functions of those institutions. Bank deposits are an important part of our curre...
-Official Precedents
Nor would the requirement that banks shall make no loan in which a director has a private interest impose undue hardships or restrictions upon bank directors. It might make a bank director dispose of ...
-Scope Of The Prohibition
In the proposals for legislation on this subject, four important questions are presented: 1. Shall the principle of prohibiting interlocking directorates in potentially competing corporations be appl...
-Chapter IV. Serve One Master Only
The Pujo Committee has presented the facts concerning the Money Trust so clearly that the conclusions appear inevitable. Their diagnosis discloses intense financial concentration and the means by whic...
-The Prohibition Of Common Directors In Potentially Competing Corporations
1. National Banks. The objection to common directors, as applied to banking institutions, is clearly shown by the Pujo Committee. As the first and foremost step in applying a remedy, and also for re...
-Prohibiting Corporate Contracts In Which The Management Has A Private Interest
The principle of prohibiting corporate contracts in which the management has a private interest is applied, in the Pujo Committee's recommendations, only to national banks, and in them only to officer...
-Apply The Private Interest Prohibition To All Kinds Of Corporations
The creation of the Money Trust is due quite as much to the encroachment of the investment banker upon railroads, public service, industrial, and life-insurance companies, as to his control of banks a...
-Apply The Private Interest Prohibition To Stockholding Interests
The prohibition against one corporation entering into transactions with another corporation in which one of its directors is also interested, should apply even if his interest in the second corporatio...
-Special Disqualifications
The Stanley Committee, after investigation of the Steel Trust, concluded that the evils of interlocking directorates were so serious that representatives of certain industries which arc largely depend...
-How The Prohibition May Be Limited
The Money Trust cannot be destroyed unless all classes of corporations are included in the prohibition of interlocking directors and of transactions by corporations in which the management has a priva...
-The Power Of Congress
The question may be asked: Has Congress the power to impose these limitations upon the conduct of any business other than national banks? And if the power of Congress is so limited, will not the domin...
-Chapter V. What Publicity Can Do
Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman. And publicity has already p...
-Excessive Bankers' Commissions
The Pujo Committee was unfortunately prevented by lack of time from presenting to the country the evidence covering the amounts taken by the investment bankers as promoters' fees, underwriting commiss...
-How Shall Excessive Charges Be Stopped?
The Pujo Committee recommends, as a remedy for such excessive charges, that interstate corporations be prohibited from entering into any agreements creating a sole fiscal agent to dispose of their sec...
-The Strike Of Capital
A recent British experience supports this view. In a brief period last spring nine different issues, aggregating $135,S40,000, were offered by syndicates on the London market, and on the average only ...
-Publicity As A Remedy
Compel bankers when issuing securities to make public the commissions or profits they are receiving. Let every circular letter, prospectus or advertisement of a bond or stock show clearly what the ban...
-Real Disclosure
But the disclosure must be real. And it must be a disclosure to the investor. It will not suffice to require merely the filing of a statement of facts with the Commissioner of Corporations or with a s...
-Disclose Syndicate Particulars
The required publicity should also include a disclosure of all participants in an underwriting. It is a common incident of underwriting that no member of the syndicate shall sell at less than the synd...
-Chapter VI. Where The Banker Is Superfluous
The abolition of interlocking directorates will greatly curtail the bankers' power by putting an end to many improper combinations. Publicity concerning bankers' commissions, profits and associates, w...
-Banker And Broker
The business of the investment banker must not be confused with that of the bond and stock broker. The two are often combined; but the functions are essentially different. The broker performs a very l...
-How The Banker Can Serve
The banker's services include three distinct functions, and only three: First: Specifically as expert. The investment banker has the responsibility of the ordinary retailor to sell only that merchand...
-Where The Banker Serves Not
It needs no banker experts in value to tell us that bonds of Massachusetts or New York, of Boston, Philadelphia or Baltimore and of scores of lesser American cities, are safe investments. The basic fi...
-Cities That Helped Themselves
In the present year some cities have been led by necessity to help themselves. The bond market was poor. Business was uncertain, money tight and the ordinary investor reluctant. Bankers were loth to t...
-The St. Paul Experiment
St. Paul wisely introduced into its experiment a more democratic feature, which Tom L. Johnson, Cleveland's great mayor, thought out (but did not utilize), and which his friend W. B. Colver, now Edito...
-Salesmanship And Education
Such success as has already been attained is largely due to the unpaid educational work of leading progressive newspapers. But the educational work to be done must not be confined to teaching the peo...
-Savings Banks As Customers
In New York, Massachusetts and the other sixteen states where a system of purely mutual savings banks is general, it is possible, with a little organization, to develop an important market for the dir...
-Cooperation
Bankers obtained their power through combination. Why should not cities and states by means of cooperation free themselves from the bankers? For by cooperation between the cities and the state, the di...
-Corporate Self-Help
Strong corporations with established reputations, locally or nationally, could emancipate themselves from the banker in a similar manner. Public-service corporations in some of our leading cities coul...
-Banker Protectors
It may be urged that reputations often outlive the conditions which justify them, that outlived reputations are pitfalls to the investors; and that the investment banker is needed to guard him from su...
-Chapter VII. Big Men And Little Business
J. P. Morgan & Co. declare, in their letter to the Pujo Committee, that practically all the railroad and industrial development of this country has taken place initially through the medium of the gr...
-The Telephone
The telephone industry is less than forty years old. It is probably America's greatest contribution to industrial development. The bankers had no part in initiating it. The glory belongs to a simple...
-Electrical Machinery
The business of manufacturing electrical machinery and apparatus is only a little over thirty years old. J. P. Morgan & Co. became interested early in one branch of it; but their dominance of the busi...
-The Automobile
The automobile industry is about twenty years old. It is now America's most prosperous business. When Henry B. Joy, President of the Packard Motor Car Company, was asked to what extent the bankers aid...
-How Bankers Arrest Development
But great banking houses have not merely failed to initiate industrial development; they have definitely arrested development because to them the creation of the trusts is largely due. The recital i...
-Trusts And Financial Concentration
The fact that industrial monopolies arrest development is more serious even than the direct burden imposed through extortionate prices. But the most harm-bearing incident of the trusts is their promot...
-Stock Exchange Incidents
The organization of trusts has served in another way to increase the power of the Money Trust. Few of the independent concerns out of which the trusts have been formed, were listed on the New York Sto...
-Trust Ramifications
But the potency of trusts as a factor in financial concentration is manifested in still other ways; notably through their ramifying operations. This is illustrated forcibly by the General Electric Com...
-The Sherman Law
The Money Trust cannot be broken, if we allow its power to be constantly augmented. To break the Money Trust, we must stop that power at its source. The industrial trusts are among its most effective ...
-Chapter VIII. A Curse Of Bigness
Bigness has been an important factor in the rise of the Money Trust: Big railroad systems, Big industrial trusts, Big public service companies; and as instruments of these Big banks and Big trust comp...
-The Harriman Pacifics
J. P. Morgan & Co., in urging the need of large banks and the cooperation of bankers, said: The Attorney-General's recent approval of the Union Pacific settlement calls for a single commitment on ...
-Union Pacific Improvements
The Union Pacific and its auxiliary lines (the Oregon Short Line, the Oregon Railway and Navigation and the Oregon-Washington Railroad) made, in the fourteen years, ending June 30,1912, issues of secu...
-How The Security Proceeds Were Spent
The $375,000,000 securities (except to the extent of about $13,000,000 required for improvements, and the amounts applied for refunding and redemptions) were available to buy stocks and bonds of other...
-The Aftermath
On September 9, 1909, less than twelve years after Mr. Harriman first became a director in the Union Pacific, he died from overwork at the age of 61. But it was not death only that had set a limit to ...
-A Bankers' Paradise
Kuhn, Loeb & Co. were the Union Pacific bankers. It was in pursuance of a promise which Mr. Jacob H. Schiff - the senior partner - had given, pending the reorganization, that Mr. Harriman first became...
-The Burlington
Such railroad combinations produce injury to the public far more serious than the heavy tax of bankers' commissions and profits. For in nearly every case the absorption into a great system of a theret...
-The New Haven Monopoly
The rise of the New Haven Monopoly presents another striking example of combination as a developer of financial concentration; and it illustrates also the use to which large security issues are put....
-The New Haven Bankers
Few, if any, of those 121 companies which the New Haven acquired had, prior to their absorption by it, been financed by J. P. Morgan & Co. The needs of the Boston & Maine and Maine Central - the large...
-The Coal Monopoly
Proof of the cooperation of the anthracite railroads is furnished by the ubiquitous presence of George F. Baker on the Board of Directors of the Reading, the Jersey Central, the Lackawanna, the Lehi...
-Other Railroad Combinations
The cases of the Union Pacific and of the New Haven are typical - not exceptional. Our railroad history presents numerous instances of large security issues made wholly or mainly to effect combination...
-The Pennsylvania
The reports from the Pennsylvania suggest the inquiry whether even this generally well-managed railroad is not Buffering from excessive bigness. After 1898 it, too, bought, in large amounts, stocks in...
-Recommendations
Six years ago the Interstate Commerce Commission, after investigating the Union Pacific transaction above referred to, recommended legislation to remedy the evils there disclosed. Upon concluding rece...
-Chapter IX. The Failure Of Banker-Management
There is not one moral, but many, to be drawn from the Decline of the New Haven and the Fall of Mellen. That history offers texts for many sermons. It illustrates the Evils of Monopoly, the Curse of B...
-The Bankers' Responsibility
Bankers are credited with being a conservative force in the community. The tradition lingers that they are preeminently safe and sane. And yet, the most grievous fault of this banker-managed railroa...
-Why Banker-Management Failed
Now, how can the failure of the banker-management of the New Haven be explained? A few have questioned the ability; a few the integrity of the bankers. Commissioner Prouty attributed the mistakes mad...
-Undivided Loyalty
The banker should be detached from the business for which he performs the banking service. This detachment is desirable, in the first place, in order to avoid conflict of interest. The relation of ban...
-Detachment An Essential
But the objection to banker-management does not rest wholly, or perhaps mainly, upon the importance of avoiding divided loyalty. A complete detachment of the banker from the corporation is necessary i...
-Chapter X. The Inefficiency Of The Oligarchs
We must break the Money Trust or the Money Trust will break us. The Interstate Commerce Commission said in its report on the most disastrous of the recent wrecks on the New Haven Railroad: On this ...
-England's Big Business
England, too, has big business. But her big business is the Cooperative Wholesale Society, with a wonderful story of 50 years of beneficent growth. Its annual turnover is now about $150,000,000 - an a...
-Industrial Democracy
Now, how are the directors of this great business chosen? Not by England's leading bankers, or other notabilities, supposed to possess unusual wisdom; but democratically, by all of the people interest...
-A Remedy For Trusts
Albert Sonnichsen, General Secretary of the Cooperative League, tells in the American Review of Reviews for April, 1913, how the Swedish Wholesale Society curbed the Sugar Trust; how it crushed the Ma...
-Cooperation In America
America has no Wholesale Cooperative Society able to grapple with the trusts. But it has some very strong retail societies, like the Tamarack of Michigan, which has distributed in dividends to its mem...
-People's Savings Banks
The German farmer has achieved democratic banking. The 13,000 little cooperative credit associations, with an average membership of about 90 persons, are truly banks of the people, by the people and f...
-Bankers' Savings Banks
The saving banks of America present a striking contrast to these democratic banks. Our savings banks also have performed a great service. They have provided for the people's funds safe depositories wi...









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previous page: Manual Of Canadian Banking | by H. M. P. Eckardt
  
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next page: Banking, Credits And Finance | by Thomas Herbert Russell