Readings in Money and Banking Part 71

[204] The average value per acre of farm land in the United States rose from $15.57 in 1900 to $32.40 in 1910, a rise of 108 per cent.

_Thirteenth Census, Bulletin on Farms and Farm Property_, p. 15.

[205] _Report_, X, p. 938.

[206] Exclusive of Alaska and Hawaii.

[207] Values in gold.

[208] Cf. _Twelfth Census_, V, pp. xxix and x.x.x. and _Thirteenth Census, Bulletin on Farm and Farm Property by States_, pp. 13 and 15.

[209] Every census since 1870 has shown a larger percentage of the native population living in state or territory of birth.

[210] On this subject see the writer's article on "Agricultural Credit"

in L. H. Bailey's _Cyclopedia of American Agriculture_, IV, p. 270; and his _Report to the Treasurer of the Philippine Islands on The Advisability of Establis.h.i.+ng a Government Agricultural Bank in the Philippine Islands_, pp. 9-11, 151-154.

[211] Cf. E. W. Kemmerer, _Report to the Secretary of War and to the Philippine Commission, on The Agricultural Bank of Egypt_. (Manila, P.

I.: 1906. Also published by Bureau of Insular Affairs, Was.h.i.+ngton, D.

C.)

[212] Cf. E. W. Kemmerer, _An Agricultural Bank for the Philippines, Yale Review_, November, 1907, pp. 262-279.

[213] C. R. Fay, _Co-operation at Home and Abroad_, p. 44. (New York; Macmillan, 1908.)

[214] Fay, _Co-operation_, etc., p. 44.

[215] _An Outline of the European Co-operative Credit Systems_, pp. 12 and 13.

[216] Under "other liabilities" are included in addition to other items the funds which the banks have borrowed from banks and individual capitalists.

[217] The capital of the district banks and of the central bank came largely from the local banks.

[218] In 1909 the figures for Germany were: Loans on current account, M 425,995,403 and Loans for fixed periods, M 1,082,446,388. The International Inst.i.tute of Agriculture, _An Outline_, etc., p. 14.

[219] _Idem_.

[220] _Ibid._, p. 17.

[221] _Idem_.

[222] "Farmers' economic co-operation in the United States has developed enormously during the period under review [1896-1908], and it safe to say that at the present time more than half of the 6,100,000 farms are represented in economic co-operation; the fraction is much larger if it is based on the total number of medium and better sorts of farmers to which the co-operators mostly belong." The most prominent objects are: Insurance, creameries, cheese factories, co-operative selling organizations of numerous kinds, co-operative buying organizations, co-operative warehouses, co-operative telephones, co-operative irrigation, etc. _Annual Report of the Secretary of Agriculture 1908_, pp. 183, 184.

[223] Quoted from a letter from Mr. George K. Holmes, Statistician of the Department of Agriculture, Was.h.i.+ngton, D. C.

[224] For a statement of the more liberal privileges concerning the making continued: of loans on mortgage security conferred on national banks by the Federal Reserve Act see p. 750.--EDITOR.

[225] Adapted from Meyer Jacobstein, _Farm Credit in a Northwestern State, American Economic Review_, Vol. 3, September, 1913, pp. 598-605.

[226] J. F. Ebersole. _Cattle Loan Banks, The Journal of Political Economy_, Vol. 22. No. 6, June, 1914, pp. 577-580.

CHAPTER XXVIII

THE CONCENTRATION OF CONTROL OF MONEY AND CREDIT

HAVE WE A MONEY TRUST?

[227]If by a "money trust" is meant--

An established and well-defined ident.i.ty and community of interest between a few leaders of finance which has been created and is held together through stock holdings, interlocking directorates, and other forms of domination over banks, trust companies, railroads, public-service and industrial corporations, and which has resulted in a vast and growing concentration of control of money and credit in the hands of a comparatively few men--

your committee has no hesitation in a.s.serting as the result of its investigation that this condition, largely developed within the past five years, exists in this country to-day.

The parties to this combination or understanding or community of interest, by whatever name it may be called, may be conveniently cla.s.sified, for the purpose of differentiation, into four separate groups.

First. The first, which for convenience of statement we will call the inner group, consists of J. P. Morgan & Co., the recognised leaders, and George F. Baker and James Stillman in their individual capacities and in their joint administration and control of the First National Bank, the National City Bank, the National Bank of Commerce, the Chase National Bank, the Guaranty Trust Co., and the Bankers Trust Co., with total known resources, in these corporations alone, in excess of $1,300,000,000, and of a number of smaller but important financial inst.i.tutions. This takes no account of the personal fortunes of these gentlemen.

Second. Closely allied with this inner or primary group, and indeed related to them practically as partners in many of their larger financial enterprises, are the powerful international banking houses of Lee, Higginson & Co. and Kidder, Peabody & Co., with three affiliated banks in Boston--the National Shawmut Bank, the First National Bank, and the Old Colony Trust Co.--having at least more than half of the total resources of all the Boston banks; also with interests and representation in other important New England financial inst.i.tutions.

Third. In New York City the international banking house of Messrs. Kuhn, Loeb & Co., with its large foreign clientele and connections, whilst only qualifiedly allied with the inner group, and only in isolated transactions, yet through its close relations with the National City Bank and the National Bank of Commerce and other financial inst.i.tutions with which it has recently allied itself has many interests in common, conducting large joint-account transactions with them, especially in recent years, and having what virtually amounts to an understanding not to compete, which is defended as a principle of "banking ethics."

Together they have with a few exceptions pre-empted the banking business of the important railways of the country.

Fourth. In Chicago this inner group a.s.sociates with and makes issues of securities in joint account or through underwriting partic.i.p.ations primarily with the First National Bank and the Illinois Trust & Savings Bank, and has more or less friendly business relations with the Continental & Commercial National Bank, which partic.i.p.ates at times in the underwriting of security issues by the inner group. These are the three largest financial inst.i.tutions in Chicago, with combined resources (including the two affiliated and controlled state inst.i.tutions of the two national banks) of $561,000,000.

Radiating from these princ.i.p.al groups and closely affiliated with them are smaller but important banking houses, such as Kissel Kinnicut & Co., White. Weld & Co., and Harvey Fisk & Sons, who receive large and lucrative patronage from the dominating groups and are used by the latter as jobbers or distributors of securities the issuing of which they control, but which for reasons of their own they prefer not to have issued or distributed under their own names. Messrs. Lee, Higginson & Co., besides being partners with the inner group, are also frequently utilised in this service because of their facilities as distributors of securities.

Beyond these inner groups and subgroups are banks and bankers throughout the country who co-operate with them in underwriting or guaranteeing the sale of securities offered to the public and who also act as distributors of such securities. It was impossible to learn the ident.i.ty of these corporations, owing to the unwillingness of the members of the inner group to disclose the names of their underwriters, but sufficient appears to justify the statement that there are at least hundreds of them and that they extend into many of the cities throughout this and foreign countries.

The patronage thus proceeding from the inner group and its subgroups is of great value to these banks and bankers, who are thus tied by self-interest to the great issuing houses and may be regarded as a part of this vast financial organisation. Such patronage yields no inconsiderable part of the income of these banks and bankers and without much risk on account of the facilities of the princ.i.p.al groups for placing issues of securities through their domination of great banks and trust companies and their other domestic affiliations and their foreign connections. The underwriting commissions on issues made by this inner group are usually easily earned and do not ordinarily involve the underwriters in the purchase of the underwritten securities. Their interest in the transaction is generally adjusted, unless they choose to purchase part of the securities, by the payment to them of a commission.

There are, however, occasions on which this is not the case. The underwriters are then required to take the securities. Bankers and brokers are so anxious to be permitted to partic.i.p.ate in these transactions under the lead of the inner group that as a rule they join when invited to do so, regardless of their approval of the particular business, lest by refusing they should thereafter cease to be invited.

It can hardly be expected that the banks, trust companies, and other inst.i.tutions that are thus seeking partic.i.p.ations from this inner group would be likely to engage in business of a character that would be displeasing to the latter or that would interfere with their plans or prestige. And so the protection that can be offered by the members of this inner group const.i.tutes the safest refuge of our great industrial combinations and railroad systems against future compet.i.tion. The powerful grip of these gentlemen is upon the throttle that controls the wheels of credit and upon their signal those wheels will turn or stop.

In the case of the pending New York subway financing of $170,000,000 of bonds by Messrs. Morgan & Co. and their a.s.sociates, Mr. Davison estimated that there were from 100 to 125 such underwriters who were apparently glad to agree that Messrs. Morgan & Co., the First National Bank, and the National City Bank should receive 3 per cent.--equal to $5,100,000--for forming this syndicate, thus relieving themselves from all liability, whilst the underwriters a.s.sumed the risk of what the bonds would realise and of being required to take their share of the unsold portion. This transaction furnishes a fair ill.u.s.tration of the basis on which this inner group is able to capitalise its financial power.

It may be that this recently concentrated money power so far has not been abused otherwise than in the possible exaction of excessive profits through absence of compet.i.tion. Whilst no evidence of abuse has come to the attention of the committee from impartial sources, neither has there been adequate proof or opportunity for proof on the subject. Here again the data have not been available.

Sufficient has, however, been developed to demonstrate that neither potentially competing banking inst.i.tutions nor competing railroad or industrial corporations should be subject to a common source of private control.

Your committee is convinced that however well founded may be the a.s.surances of good intentions by those now holding the places of power which have been thus created, the situation is fraught with too great peril to our inst.i.tutions to be tolerated.

THE BORROWER AND THE MONEY TRUST

[228]Some trusts are denounced because of their att.i.tude toward their employes. Many trusts are efficient or inefficient because of the way their millions of labourers work. But let us be fair to Big Business.

Why not examine its one branch where labour is almost absent, where there is no brawn and all brain?