The American Empire Part 9

The amount of liabilities involved in these failures was $346,780,000.

This catastrophe, coming as it did so close upon the heels of the panics that had immediately preceded it, could not fail to teach its lesson.

Compet.i.tion was not the life, but the death of trade. "Every man for himself" as a policy applied in the business world, led most of those engaged in the struggle over the brink to destruction. There was but one way out--through united action.

The period between 1897 and 1902 was one of feverish activity directed to coordinating the affairs of the business world. Trusts were formed in all of the important branches of industry and trade. The public looked upon the trust as a means of picking pockets through trade conspiracies and the boosting of prices. The Sherman Anti-Trust Law had been pa.s.sed on that a.s.sumption. In reality, the trusts were organized by far seeing men who realized that compet.i.tion was wasteful in practice and unsound in theory. The idea that the failure of one bank or shoe factory was of advantage to other banks and shoe factories, had not stood the test of experience. The tragedies of the nineties had showed conclusively that an injury to one part of the commercial fabric was an injury to all of its parts.

The generation of business men trained since 1900 has had no illusions about compet.i.tion. Rather, it has had as its object the successful combination of various forms of business enterprise into ever larger units. First, there was the uniting of like industries;--cotton mills were linked with cotton mills, mines with mines. Then came the integration of industry--the concentration under one control of all of the steps in the industrial process from the raw material to the finished product,--iron mines, coal mines, blast furnaces, converters, and rail mills united in one organization to take the raw material from the ground and to turn out the finished steel product. Last of all there was the union of unlike industries,--the control, by one group of interests, of as many and as varied activities as could be brought together and operated at a profit. The lengths to which business men have gone in combining various industries is well shown by the recent investigation of the meat packing industry. In the course of that investigation, the Federal Trade Commission was able to show that the five great packers (Wilson, Armour, Swift, Morris and Cudahy) were directly affiliated with 108 business enterprises, including 12 rendering companies; 18 stockyard companies; 8 terminal railway companies; 9 manufacturers of packers' machinery and supplies; 6 cattle loan companies; 4 public service corporations; 18 banks, and a number of miscellaneous companies, and that they controlled 2000 food products not immediately related to the packing industry.[38]

Business is consolidated because consolidation pays--not primarily, through the increase of prices, but through the greater stability, the lessened costs, and the growing security that has accompanied the abolition of compet.i.tion.

Again the forces of social organization have triumphed in the face of an almost universal opposition. American business men practiced compet.i.tion until they found that cooperation was the only possible means of conducting large affairs. Theory advised, "Compete"! Experience warned, "Combine"! Business men--like all other practical people--accepted the dictates of experience as the only sound basis for procedure. Their combination solidified their ranks, preparing them to take their places in a closely knit, dominant cla.s.s, with clearly marked interests, and a strong feeling of cla.s.s consciousness and solidarity.

It was in the consummation of these combinations, integrations and consolidations that the investment banker came into his own as the keystone in the modern industrial arch.

5. _The Investment Banker_

The investment banker is the directing and coordinating force in the modern business world. The necessities of factory production demanding great outlays of capital; the immense financial requirements of corporations; the consolidation of business ventures on a huge scale; the broadened use of corporate securities as investments--all brought the investment banker into the foreground.

Before the Spanish War, the investment banker financed the trusts. After the war he was entrusted with the vast surpluses which the concentration of business control had placed in a few hands. Business consolidation had given the banker position. The control of the surplus brought him power. Henceforth, all who wished access to the world of great industrial and commercial affairs must knock at his door.

This concentration of economic control in the hands of a relatively small number of investment bankers has been referred to frequently as the "Money Trust."

Investment banking monopoly, or as it is sometimes called, the "Money Trust" was examined in detail by the Pujo Committee of the House of Representatives, which presented a summary of its report on February 28, 1913. The committee placed, at the center of its diagram of financial power, J. P. Morgan & Co., the National City Bank, the First National Bank, the Guaranty Trust Co., and the Bankers Trust Co., all of New York. The report refers to Lee, Higginson & Co., of Boston and New York; to Kidder, Peabody & Co., of Boston and New York, and to Kuhn, Loeb & Co., of New York, together with the Morgan affiliations, as being "the most active agents in forwarding and bringing about the concentration of control of money and credit" (p. 56).

The methods by which this control was effected are cla.s.sed by the Committee under five heads:--

1. "Through consolidations of compet.i.tive or potentially compet.i.tive banks and trust companies which consolidations in turn have recently been brought under sympathetic management" (p. 56).

2. Through the purchase by the same interests of the stock of compet.i.tive inst.i.tutions.

3. Through interlocking directorates.

4. "Through the influence which the more powerful banking houses, banks, and trust companies have secured in the management of insurance companies, railroads, producing and trading corporations and public utility corporations, by means of stock holdings, voting trusts, fiscal agency contracts, or representation upon their boards of directors, or through supplying the money requirements of railway, industrial, and public utility corporations and thereby being enabled to partic.i.p.ate in the determination of their financial and business policies" (p. 56).

5. "Through partnership or joint account arrangements between a few of the leading banking houses, banks, and trust companies in the purchase of security issues of the great interstate corporations, accompanied by understandings of recent growth--sometimes called 'banking ethics'--which have had the effect of effectually destroying compet.i.tion between such banking houses, banks, and trust companies in the struggle for business or in the purchase and sale of large issues of such securities" (p. 56).

Morgan & Co., the First National Bank, the National City Bank, the Bankers Trust Co., and the Guaranty Trust Co., which were all closely affiliated, had extended their control until they held,--

118 directorships in 34 banks with combined resources of $2,679,000,000.

30 directorships in 10 insurance companies with total a.s.sets of $2,293,000,000.

105 directorships in 32 transportation systems having a total capital of $11,784,000,000.

63 directorships in 24 producing and trading companies having a total capitalization of $3,339,000,000.

25 directorships in 12 public utility corporations with a total capitalization of $2,150,000,000.

The investment banker had become, what he was ultimately bound to be, the center of the system built upon the century-long struggle to control the wealth of the continent in the interest of the favored few who happened to own the choicest natural gifts.

6. _The Cohesion of Wealth_

The struggle for wealth and power, actively waged among the business men of the United States for more than a century, has thus by a process of elimination, subordination and survival, placed a few small groups of strong men in a position of immense economic power. The growth of surplus and its importance in the world of affairs has made the investment banker the logical center of this business leadership. He, with his immediate a.s.sociates, directs and controls the affairs of the economic world.

The spirit of compet.i.tion ruled the American business world at the beginning of the last century, the forces of combination dominated at its close. The new order was the product of necessity, not of choice.

The life of the frontier had ingrained in men an individualism that chafed under the restraints of combination. It was the compelling forces of impending calamity and the opportunity for greater economic advantage--not the traditions or accepted standards of the business world--that led to the establishment of the centralized wealth power.

American business interests were driven together by the battering of economic loss and lured by the hope of greater economic gains.

Years of struggle and experience, by converting a scattered, individualistic wealth owning cla.s.s into a highly organized, closely knit, h.o.m.ogeneous group with its common interests in the development of industry and the safeguarding of property rights, have brought unity and power to the business world.

Individually the members of the wealth-controlling cla.s.s have learned that "in union there is strength"; collectively they are gripped by the "cohesion of wealth"--the cla.s.s conscious instinct of an a.s.sociated group of human beings who have much to gain and everything to lose.

FOOTNOTES:

[37] The 169 largest railroads in the United States have issued 84,418,796 shares of stock. ("American Labor Year Book," 1917-18, p.

169.) Theoretically, therefore, there might be eighty-four millions of owners of the American railroads.

[38] Summary of the Report of the Federal Trade Commission on the Meat Packing Industry, July 3, 1918, Wash., Govt. Print., 1918.

VIII. THEIR UNITED STATES

1. _Translating Wealth into Power_

The first object of the economic struggle is wealth. The second is power.

At the end of their era of compet.i.tion, the leaders of American business found themselves masters of such vast stores of wealth that they were released from the paralyzing fear of starvation, and were guaranteed the comforts and luxuries of life. Had these men sought wealth as a means of satisfying their physical needs their object would have been attained.

The gratification of personal wants is only a minor element in the lives of the rich. After they have secured the things desired, they strive for the power that will give them control over their fellows.

The possession of things, is, in itself, a narrow field. The control over productive machinery gives him who exercises it the power to enjoy those things which the workers with machinery produce. The control over public affairs and over the forces that shape public opinion give him who exercises it the power to direct the thoughts and lives of the people. It is for these reasons that the keen, self-a.s.sertive, ambitious men who have come to the top in the rough and tumble of the business struggle have steadily extended their ownership and their control.

2. _The Wealth of the United States_

The bulk of American wealth, which consists for the most part of land and buildings, is concentrated in the centers of commerce and industry--in the regions of supreme business power.

The last detailed estimate of the wealth of the United States was made by the Census Bureau for the year 1912. At that time, the total wealth of the country was placed at $187,739,000,000. (The estimate for 1920 is $500,000,000,000.) Roughly speaking, this represented an estimate of exchangeable values. The figures, at best, are rough approximations.

Their importance lies, not in their accuracy, but in the picture which they give of relationships.

The Total Wealth of the United States, Cla.s.sified by Groups, with the Percentage of the Total Wealth in Each Group[39]