Part 16

The business men of the late nineteenth century had been nurtured upon the idea of competition. "Every man for himself and the devil take the hindermost" summed up their philosophy. Each person who entered the business arena was met by an array of savage competitors whose motto was "Victory or Death." In the struggle that followed, most of them suffered death.

Capitalist set himself up against capitalist in bitter strife. The railroads gouged the farmers, the manufacturers and the merchants and fought one another. The big business organizations drove the little man to the wall and then attacked their larger rivals. It was a fight to the finish with no quarter asked or given.

The "finish" came with periodic regularity in the seventies, the eighties and the nineties. The number of commercial failures in 1875 was double the number of 1872. The number of failures in 1878 was over three times that of 1871. The same thing happened in the eighties. The liabilities of concerns failing in 1884 were nearly four times the liabilities of those failing in 1880. The climax came in the nineties, after a period of comparative prosperity. Hard times began in 1893. Demand dropped off. Production decreased. Unemployment was widespread. Wages fell. Prices went down, down, under bitter competitive selling, to touch rock bottom in 1896. Business concerns continued to fight one another, though both were going to the wall. Weakened by the struggle, unable to meet the competitive price cutting that was all but the universal business practice of the time, thousands of business houses closed their doors. The effect was cumulative; the fabric of credit, broken at one point, was weakened correspondingly in other places and the guilty and the innocent were alike plunged into the morass of bankruptcy.

The destruction wrought in the business world by the panic of 1893 was enormous. The number of commercial failures for 1893 jumped to 15,242. 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. Competition 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 coördinating 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 passed on that assumption. In reality, the trusts were organized by far seeing men who realized that competition 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 competition. 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.

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 competition.

Again the forces of social organization have triumphed in the face of an almost universal opposition. American business men practiced competition until they found that coöperation 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 class, with clearly marked interests, and a strong feeling of class 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 coördinating 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 classed by the Committee under five heads:--

1. "Through consolidations of competitive or potentially competitive 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 competitive institutions.

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 participate 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 competition 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 assets 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