Meanwhile America’s foreign trade was still out of balance, international trade barriers remained high, there was continued danger of an international contest in currency depreciation, and behind all these sources of discord stood the ugly possibility of war.
The general world-wide economic trend was upward, it was true. Probably the American economic trend was also upward. But the longer the stalemate continued, the more enormous became the difficulties to be surmounted, and the smaller became the chance that, without superlative statesmanship, the country could restore its millions of serfs to economic citizenship.
8
It was a strangely altered world in which the former lords of creation now found themselves. The economic initiative had definitely passed from Wall Street to Washington—at least for the time being—and many of their one-time instruments of power had been blunted or taken away from them.
The House of Morgan, for example, was now no longer permitted to issue securities; it was simply a bank of deposit. Other private banking houses, too, had been compelled to make the choice between deposit banking and investment banking; most of them—including Kuhn, Loeb & Co. and Dillon, Read & Co.—had chosen to issue securities and forego deposits. The commercial banks were now minus their investment affiliates. The traditional machinery for issuing the common stock of new corporations to insiders and then unloading it on the stock market had apparently been somewhat crippled by the Securities Exchange Act of 1934. As for the traditional machinery for manipulating the stock market, power to cripple it had at least been lodged with the Securities and Exchange Commission. The opportunities for corporate insiders to make big profits at the expense of their corporations or their proxy-signers were likewise somewhat limited by the power of publicity: they had to report changes in their share-holdings, salaries and bonuses received, and contracts made with their companies. In many other respects, the well-traveled avenues to easy riches had been closed off or put under Federal traffic control—until it seemed to the men of Wall Street as if they could now do nothing without filling out an elaborate form and waiting until some functionary in Washington gave the word.
Commercial bankers, looking for uses to which to put their depositors’ funds and unable to find many qualified commercial borrowers, were investing in more and more government bonds, until they, too, felt that their destinies were at the disposal of Washington; and now, in the spring of 1935, the federal government was threatening to concentrate more authority in the Federal Reserve Board, increasing its limited power over the volume of check-money. The commercial bankers still retained the right of individual decision about their banks’ investments, but the bounds within which they might do so seemed to be contracting.
How vital and how permanent these changes would prove to be was beyond prediction. The power of governmental regulation depends upon the vigilance, imagination, and honesty of officials—very variable qualities, all of them. An indolent or unwary commission could overlook abuses or deal with them ineptly; a few venal employees in Washington could turn almost any law into a sham. The power of governmental regulation depends likewise upon public opinion—and we have seen how it fared during the seven fat years when public opinion was indulgent. Laws, furthermore, are not eternal; they may be repealed, or else distorted or overridden by the courts. New devices for financial conquest can always be forged, and the principle of community of interest can often accomplish what the law has tried to prevent. For example, to say that the House of Morgan was out of the securities business was to overlook the possibilities of effective working alliances between it and houses of issue; to say that the big New York banks were bereft of their affiliates was to overlook the possibilities of similar working alliances between such banks and investment companies.
The truth was that the extent to which the power of the financiers of Wall Street had been checked could not be measured because this power was being largely held in abeyance. Unwilling to venture into new business on any considerable scale, these men were having little opportunity to test out new methods of maintaining and achieving influence. Broadly speaking, the game of financial conquest was not being played.
Yet it is curious to note the extent to which the fundamental trend toward concentration of economic power was continuing. The big corporations were relatively stronger than ever before. In 1929 the 200 biggest corporations in the country had controlled—according to Berle and Means—some 49 per cent of all non-financial corporate wealth. By the beginning of 1932, according to Means’s estimate, the proportion had increased to about 55 per cent. Since then the NRA had notoriously given an advantage to big as against small corporations and had made it difficult for new concerns to invade the territory of the going companies. No recent comprehensive figures were available, but the scattered evidence did not suggest that the trend was changing. For example, in Chapter VIII we noted that, in the automobile industry, the three biggest companies had so crowded their competitors off the road during the nineteen-twenties that by 1930 they were making 83.3 per cent of all the passenger cars newly registered. By the year 1934 these three biggest companies made, not 83.3 per cent of the passenger cars, but 90.8 per cent of them; and in the month of March, 1935, they made 93.4 per cent of them. The monster corporation had a bigger place than ever before in the dim sun of American business.
The ownership of these monster corporations was now even more widely distributed than in the years of plenty. Here are a few figures which suggest how wide had been the distribution since 1930. The American Telephone and Telegraph Company had 567,000 stockholders at the end of 1930; it had 675,000 at the end of 1934. The General Motors Corporation had 263,000 at the end of 1930, and 350,000 at the end of 1934. The United States Steel Corporation had 145,000 in 1930, and 239,000 at the end of 1934. The General Electric Company had 116,000 in 1930, and 196,000 at the end of 1934. To be sure, the movement appeared to be slackening; a good many large concerns, indeed, had fewer stockholders at the end of 1934 than at the end of 1933. But in general it was still truer in 1935 than in 1930 to say that the working control of most of the very large corporations rested in the hands of groups of insiders who owned only a fraction of the stock; that the vast majority of shareholders regarded their stock certificates as tokens of liquid wealth rather than as tokens of responsible ownership; and that the insiders were subject to very little effective check by the scattered majority owners.
They were subject, as we have noticed, to much more check by government authority than before, but government authorities have usually been amenable to pressure from people who knew exactly what they wanted—and could pay for it. Whether in the future Washington would know what it wanted, whether New York would in the course of time be discovered to be holding the Washington puppet-strings, whether some new conjunction of economic forces would alter the whole nature of the problem of control, were questions impossible to answer in 1935.
Whatever was to happen, it was clear by now that the age of American finance which had begun with the twentieth century had come to a close. Perhaps another one was to come; but if so, the circumstances which conditioned it and the instruments of which it made use would be so altered that this new age could hardly resemble closely the age which had been ushered in by Morgan the Elder in the far-off days of 1900. It would be different not merely because of the New Deal or changing political sentiment, but chiefly because of the play of economic forces beyond the sway of bankers or collectivists or Presidents.
9
And for America, what lay ahead? An attempt to return to the philosophy of laissez-faire, a discarding of restrictions upon business, a new age of emprise for the controllers of property—and, perhaps, new and greater insecurity for the propertyless? A yielding to pressure from this group and that, perhaps a drift into uncontrollable inflation and further disaster? A revolution, a dictatorship, an era of mutual suspicion and bloodshed and tyranny? A new world war? Or, possibly, a not too undisciplined recovery, a relaxation of tensions, a slo
w approach to an era of orderly and distributed abundance?
These, too, were questions impossible to answer. But this much was sure. The problem which confronted the United States was so vast and so complex that the cries of those who shouted frantically for and against the New Deal, for and against freedom for property, for and against proletarian revolt, were like the cries of the blind men in John Godfrey Saxe’s poem—the blind men who were led to an elephant and were asked to describe it, and each felt a portion of it and called out his version of what the creature was like: it was like a spear, it was like a snake, it was like a wall. The problem was nothing less than how to adjust our institutions, under the new circumstances created by the vast financial and economic changes of the past generation, so as to multiply effectively and distribute with some decent approach to fairness the products of the earth, the fruits of labor, and the unprecedented gifts of science—and to do this without destroying human liberty.
Appendix
SOURCES AND OBLIGATIONS
I should like to express, first of all, my sense of obligation to the authors of a few books of which I have made especially extended use. For facts and figures in my first seven chapters I have drawn constantly upon Alexander Dana Noyes’s two concise and authoritative volumes, Forty Years of American Finance (G. P. Putnam’s Sons, 1909) and The War Period of American Finance, 1908–1925 (Putnam, 1926); to any student of the finance of this epoch they are invaluable. For facts with regard to the process of concentration, and still more for underlining the great importance of the topic, I am indebted to Adolf A. Berle, Jr., and Gardiner C. Means as the authors of The Modern Corporation and Private Property (Commerce Clearing House, Inc., 1932). I have also made use at many points of John T. Flynn’s God’s Gold (Har-court, Brace, 1932), an excellent biography of John D. Rockefeller, and of his somewhat one-sided but penetrating Security Speculation: Its Economic Effects (Harcourt, 1934), and to a less extent of various magazine articles of his, and I am indebted to Mr. Flynn himself for many ideas and suggestions.
My other sources have been very numerous and varied; the chief ones may perhaps be best arranged chapter by chapter, though I have made extensive use of several of them.
In Chapter I (“Morgan Calls the Tune”) my primary obligation is to Burton J. Hendrick’s very interesting two-volume Life of Andrew Carnegie (Doubleday, Doran, 1932), a book which has not had the attention it deserves: my account of the Carnegie-Schwab-Morgan negotiations, and especially of the dinner of December 12, 1900, and the subsequent meeting at Morgan’s house, is derived principally from Mr. Hendrick’s narrative, as is my reference to Carnegie’s later years. For the general background of this chapter, as of later chapters, I used Noyes extensively. For the account of economic developments before the twentieth century began, I made considerable use of The United States Since 1865, by Louis M. Hacker and Benjamin B. Kendrick (F. S. Crofts & Co., 1932), a history which is exceptionally strong in economic analysis; of The Rise of American Civilization, by Charles A. Beard and Mary R. Beard (Macmillan, 1927); and of God’s Gold (for Rockefeller, the South Improvement Co., and the rise of the trusts and promoters). I have taken some facts and incidents about Gary and the formation of the Steel Corporation from Ida M. Tarbell’s Life of Elbert H. Gary (Appleton, 1925) and some stories about John W. Gates from Bet-a-Million Gates, by Robert Irving Warshow (Greenberg, 1932). As to Morgan the Elder, I read everything I could lay my hands on, including Lewis Corey’s The House of Morgan (G. Howard Watt, 1930), John K. Winkler’s Morgan the Magnificent (Garden City Publishing Co., 1930), Carl Hovey’s Life Story of J. Pierpont Morgan (New York: Sturgis & Walton, 1911), and biographies of other men, memoirs, etc., in which he incidentally appears. My account of the financing of the Steel Corporation uses facts and figures from the Report of the Commissioner of Corporations on the Steel Industry (1911), which is printed with the monumental Stanley Committee hearings (U. S. Steel Corporation: House Committee on Investigation of the U. S. Steel Corporation, House Resolution 148, 62d Congress, 1st and 2d sessions).
In Chapter II (“The Harriman Challenge”) my indebtedness is chiefly to George Kennan’s E. H. Harriman, a Biography (Houghton Mifflin, 1922). But the story of Harriman’s career and the struggle over the Northern Pacific draws also upon three other biographies: Jacob H. Schiff, His Life and Letters, by Cyrus Adler (Doubleday, Doran, 1928); The Life of James J. Hill, by Joseph Gilpin Pyle (Doubleday, 1917); and The Portrait of a Banker: James Stillman, by Anna Robeson Burr (Duffield, 1927)—an engagingly written book upon which I have drawn in later chapters too. (These biographies are all very favorable to their respective subjects, but illuminating, especially when compared.) The account of Harriman’s talk with a New York banker was given me by the banker himself. Sterling’s part in planning the Northern Pacific coup is from John K. Winkler’s The First Billion (Vanguard, 1934); I have satisfied myself that Mr. Winkler’s evidence was strong. My story of the Northern Pacific panic uses stock quotations and anecdotes from the New York Times, and also data from current issues of the Commercial and Financial Chronicle.
In Chapter III (“The Overlords”) the economic history is based largely upon Noyes, Corey, and Henry Clews’s Fifty Years in Wall Street (New York: Irving Publishing Co., 1908). Readers who are amused at Clews’s social observations should know that his enormous book, written at intervals over a long period of years, is full of delightfully naïve passages and of revealing facts about contemporary finance and financiers. For aid in understanding Roosevelt’s attitude (and for the campaign contributions of 1904) I am indebted to Henry F. Pringle’s judicious Theodore Roosevelt: A Biography (Harcourt, 1931). The Clarence W. Barron quotations are from those two volumes of the journals of a money-minded man, They Told Barron and More They Told Barron, edited and arranged by Arthur Pound and Samuel Taylor Moore (Harper, 1930 and 1931); I have quoted from these books elsewhere too. The account of the spheres of influence in the early years of the century is mostly worked out from data given in the report of the Pujo Committee (see below) and checked from other sources. The Boston manufacturer’s story was told me by the man himself. As to the ten financiers, my sources are largely apparent from the text, but I might add that I made use of God’s Gold, Kennan, Adler, and Burr (as cited above); of an article on George F. Baker in the Boston Sunday Post for June 15, 1924; of numerous magazine articles, and—for Morgan’s religious life—of William Lawrence’s Memories of a Happy Life (Houghton Mifflin, 1926). The Frick-Mellon conversation is from Mellon’s Millions, The Life and Times of Andrew W. Mellon, by Harvey O’Connor (John Day Co., 1933). The quotation of Rogers in court is from an article on “The Taming of Rogers” in the American Magazine, July, 1906. The Crowninshield quotation is from Vogue, Jan., 1923. The news items at the end of the chapter are drawn mostly from the New York Tribune and other newspapers of the period.
In Chapter IV (“Panic”) the background is from Noyes and from articles such as Edwin Lefèvre’s “The Game Got Them,” Everybody’s, Jan., 1908 (from which I have quoted). The story of the Heinze collapse is mostly from the New International Year Book for 1907, the Commercial and Financial Chronicle for Nov. 2, 1907, and current issues of the New York Tribune. As to the subsequent banking phases of the Panic, I studied carefully the exhaustive (and conflicting) testimony of participants as given before the Stanley Committee (see above) and the Pujo Committee (U. S. Banking and Currency Committee, House, 62. Money Trust Investigation. Investigation of the financial and monetary conditions in the United States under House resolutions 429 and 504). I also used Burr, Lawrence, and the interesting account in Thomas W. Lamont’s Henry P. Davison (Harper, 1933), from all of which I have quoted. As to Roosevelt’s part in the Tennessee purchase, Pringle proved especially useful. The quotation of Stillman near the end of the chapter is from John K. Winkler’s The First Billion. For information about the Morgan Library as it was in 1907 I am indebted to Miss Belle da Costa Greene, the librarian.
In Chapter V (“Counter-Offens
ive”) my primary obligation is to John Chamberlain for Farewell to Reform (John Day, 1932), from which I drew both facts and ideas. Other valuable sources were Harold Underwood Faulkner’s The Quest for Social Justice, 1898–1914 (Vol. XI of A History of American Life: Macmillan, 1931); Hacker and Kendrick (especially for their analysis of the position of the Supreme Court); Pringle (especially for his analysis of Roosevelt as a reformer); Roosevelt’s own letters and addresses, and Wilson’s addresses; and Mark Sullivan’s Our Times, from the third volume of which, subtitled Pre-War America (Scribner, 1930), I took data on the Hughes investigation of the insurance companies. On the left-wing labor offensive I used Louis Adamic’s Dynamite (Viking, 1931). I have quoted from Bliss Perry’s Henry Lee Higginson, Life and Letters (Little, Brown, 1921).
In Chapter VI (“Pujo”), my extensive use of the report of the Pujo Committee, and of the record of the hearings before the Committee, is obvious. The data on General Motors are from Arthur Pound’s The Turning Wheel (Doubleday, Doran, 1934); on the beginnings of the utility systems, from The Holding Company, by James C. Bonbright and Gardiner C. Means (McGraw, 1932), which has of course been helpful elsewhere also; on the New Haven, mostly from Faulkner, checked from other sources. The scenes in the Pujo Committee room are based on news stories in the New York Tribune. As to the Wilson reform legislation, The American Leviathan: The Republic in the Machine Age, by Charles A. Beard and William Beard (Macmillan, 1930) proved useful.
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