CHAPTER VI

MONEY

No attempt will be made in this chapter to enter upon the disputed questions regarding money, but only to point out undenied and undeniable facts in connection with its use and abuse.

Coin, whether gold or silver, is used all over the world as the medium of exchange. But gold and silver available for the purpose of coin are limited in amount and totally inadequate to serve as mediums of exchange without the assistance of other devices. Thus banks of issue are organized for the purpose of issuing paper money. This money is upon its face redeemable in coin, but banks of issue, relying upon the probability that all paper issued will not be redeemed on the same day, issue far more paper money than they have reserve in coin. In England, this reserve is notably small.

Business, too, is conducted largely on credit; that is to say, the trader buys goods not with coin, but with notes or promises to pay gold, relying upon the probability that he will sell the goods before his notes come due and thus be able to meet his notes with the proceeds derived from the sale of the goods purchased with these notes.

Industries, railroad companies, and transportation companies also use credit for the purpose of building and running their roads and factories. This credit takes the shape of permanent bonds and temporary accommodations of the same character as the notes used by private traders. The total number of bonds outstanding at par amount to-day in the United States alone to $13,500,000,000.[115] It is through the ability of railroad companies to issue bonds and credit notes that they are enabled in prosperous periods to extend their roads and factories.

Farmers also borrow largely upon their farms for the purchase of implements, live stock, improvements, etc. Recent figures of bonded indebtedness are not to be obtained; but they figure in the billions.

Again, cash payments are no longer made in coin; they are for the most part made by check. Checks are not paid in coin; they are cleared through clearing houses; the banks in every financial center belong to a clearing house through which they daily settle with one another, paying only differences of accounts in cash. Thus, in 1906, the total transactions of fifty-five banks in New York city amounted to over $103,000,000,000; yet the balances paid in money during the year only amounted to about $3,000,000,000--a proportion of 3.69. So that through the clearing-house system instead of exchanging gold to an amount of $103,000,000,000 the whole business was transacted with only 3.69 per cent thereof in coin.

The above figures tend to show how small a relation is borne by coin to the total exchanges of the world. Indeed, although coin is still the ultimate medium of exchange, commercial and industrial transactions are conducted for the most part through an enormous system of credit built upon a comparatively small amount of coin.

The importance of this is considerable, for it puts those who have coin and those who handle coin in a position which enables them to control the industrial and commercial activities of the Nation. This feature of our money system occasions what are called "financial crises" as distinguished from commercial crises. Commercial crises and industrial crises are due to overproduction. Financial crises are produced for the most part by a breaking down of credit.

Credit may be broken down in many ways. A breakdown may be due to inability on the part of those who handle coin to meet their obligations in coin. It may, however, be due to the unwillingness of those who have and handle money to put this money at the disposal of the industrial public. It is sometimes occasioned by both.

Money is indispensable to the working of the industrial system. It may be regarded as the blood of the industrial system because no farmer can operate his farm, no factory owner his factory, no railroad company its road without money or the equivalent of money--credit. And if money can be compared with the blood in the human body, the banking system must be regarded as its heart; the organ that keeps money in circulation, accommodates circulation to the needs of the body, furnishes the economic body with as much as at periods of exercise it needs; and moderates its circulation when at periods of repose the economic body is less in need of it. It is hardly necessary to point out the extreme importance under these conditions that the heart of this system act for the benefit of the system, and have at no time an interest of its own to act independently of the system or in a manner hostile to it. Now this is exactly the evil of existing monetary conditions. Those who have and handle money have an interest of their own to serve. While it is generally to their interest to use money in making the community prosperous, it is at certain critical periods to their interest on the contrary to withhold money. This is the point upon which emphasis must be put. Let us, with a view to understanding this, consider into how few hands the control of coin tends to be concentrated; and how easy it is for these few to serve their own interests at the expense of the public by withholding coin at moments of utmost need.

A very brief study of the movements of coin in the United States will demonstrate the very few hands in which the control of coin in the country is vested:

Every trust, every corporation, every railroad company makes payments to its stockholders at stated intervals consisting of dividends on stock and interest on bonds. These amounts are large. In 1905 dividends amounted to $840,018,022, and interest to $636,287,621--together a billion and a half.[116] Most of this is paid in New York and produces a regular flow of money from the great corporations to the New York banks.

The great life insurance companies have their principal offices in New York and there flow daily into the coffers of these companies millions of dollars of premiums, amounting in the year to nearly half a billion ($492,676,987 in 1908). During the last half century, 1859-1908, the income from premiums reached the enormous total of $7,870,892,759.[117] All these go into the hands of New York banks and trust companies.

These moneys are, in the ordinary course of business, returned to the industrial public in the shape of accommodations to banks, loans to farmers, factories, railroad companies, etc.; and if these enormous sums that go into the hands of the Wall Street Group are not returned to the industrial system, the industrial system must perish just as the body must perish if its vital functions are not furnished with blood. But as has been stated, it is to the interest of the Group to keep the industrial system prosperous and, therefore, in prosperous times this amount gets back to the country again, the Group receiving a profit on taking in these moneys and on the paying out of them. One thing, however, is certain--that the Group can by withholding money make money scarce. It can by releasing money make it plentiful. The power given to the Group by this order of things is incalculable. If the Group desires to issue securities, it has an interest in making money plentiful. If the Group desires to purchase securities cheaply, it has an interest in making money scarce. The Group is therefore in a position where it can serve its own interests whatever be the direction these interests take.

A banker once described to me the situation as follows:

"The bulk of business is conducted with credit. An enormous credit system is built upon a relatively small amount of gold. The bankers control the gold; by controlling the gold they control credit; by controlling credit they control business.

"This credit and gold system can be compared to an enormous system of reservoirs and irrigation works, the sluices of which are all opened and closed by electricity. It takes a very minute amount of electricity to open and close the sluices; but the man who has control of that small amount of electricity has the whole irrigation system at his mercy. By pressing a button he can furnish water to one region and take it away from another; and if water has been largely used--as in the case of overinvestment--he can, by withholding water altogether, put the whole population of the land irrigated by the system on its knees."

Let us select as a concrete illustration of the workings of this system the events of 1907:

The year prior to the October panic of 1907 was the most prosperous year the country had ever seen. The balance of trade in our favor was $446,000,000[118]; that is to say, Europe owed us $446,000,000 on the year's transactions; the value of our crop exceeded that of the previous year by over $480,000,000; the net earnings of our railroads exceeded those of the previous year by over $260,000,000; the deposits in our banks exceeded those of the previous year by over $880,000,000; the cash held by our banks exceeded that held in the previous year by over $100,000,000; and the Treasury of the United States was bulging with ingots of gold. Nevertheless, the bankers knew that there had been overinvestment. In fifteen years the banks had invested in stocks and bonds no less than $437,000,000. In three years the trust companies had invested no less than $643,000,000 in these securities.[119]

Moreover, immense sums had been loaned by trust companies and cash reserves had fallen from nearly 18 per cent in 1897 to a little over 11 per cent in 1907.[120] The Wall Street Group knew that there had been overinvestment. As one of them said, "We are being overwhelmed by our own prosperity." The breeze was blowing too strong and we were carrying too much sail. The Wall Street Group, however, knowing that a crisis was at hand and determined to realize the fullest possible price for stocks, began selling securities in January, 1907, giving rise to what has been termed "the rich man's panic," which climaxed in March.[121] Securities fell in consequence of this selling on an average of about 40 points. This tended to cripple all weak financial institutions which were no longer able to sell securities with a view to meeting obligations except at a loss. But this weakness did not express itself until October.

The first to suffer was the brokerage firm of Otto Heinze & Company, well-known speculators, particularly in copper stocks. The next to fall were Charles W. Morse and E.R. Thomas, also speculators and directors of the Mercantile National Bank, and others. All banks controlled by these men at once showed weakness. But the panic did not reach its climax until the Knickerbocker Trust Company became involved. To understand the situation of the Knickerbocker Trust Company, a word must be said regarding trust companies and their relations to banks.

Banks in the city of New York are required by law to keep a reserve of 15 per cent of their deposits in coin. Trust companies, not being subject to the banking law in this respect, are not called upon to maintain this reserve. They have, therefore, an advantage over banks because they can invest the whole of their deposits instead of keeping a part of them uninvested in coin. The natural hostility that would arise between trust companies and banks owing to this difference was eliminated in almost every case because trust companies were controlled by the banks. The Knickerbocker Trust Company, however, formed a notable exception to this rule.

Owing to the genius of its President, Charles T. Barney, the Knickerbocker Trust Company had increased its deposits to over eighty millions in 1907. Mr. Barney did not belong to the Wall Street Group in the sense of the word that he acted independently of it, and his extraordinary enterprise and ability aroused the jealousy of the Group. In 1907, the institution having 8,000 depositors with total deposits of $80,000,000, became an independent power which was not to be tolerated by the Group. Under these conditions, it could not be expected that the Group would make any extraordinary effort to save the Knickerbocker Trust Company. It was to the interest of the Group that the Knickerbocker Trust Company should cease to remain an independent financial power.

Everybody knew that the Knickerbocker Trust Company, though temporarily embarrassed, was perfectly sound. The receivers, appointed when its doors closed, so stated and subsequent events have proved that the receivers were right. No one doubts the ability of the Group to save the Knickerbocker Trust Company if it had chosen to do so. But the Group had in its hands an instrument by means of which the ruin of Mr. Barney could be effected: The clearing house has never admitted trust companies to membership, because trust companies were not under the obligation to maintain the 15 per cent reserve above referred to. This matter had come up frequently for discussion and the clearing house had insisted that all trust companies applying for membership to the clearing house should keep a reserve at of least 10 per cent. This the trust companies declined to do; but they nevertheless profited by the clearing-house system by employing banks that were members of the Clearing House Association to do their clearing for them--a dangerous situation that proved the ruin of Mr. Barney. The Bank of Commerce was the clearing-house agent of the Knickerbocker Trust Company; and the Bank of Commerce was controlled by the Wall Street Group. Under these conditions, the Knickerbocker Trust Company was at the mercy of the Wall Street Group.

The Bank of Commerce publicly announced its refusal to clear any longer for the Knickerbocker Trust Company on the 21st of October.[122] Mr. Charles T. Barney was told that no help would be given to the Knickerbocker Trust Company unless he resigned. Understanding this to mean that help would be given if he did resign, he resigned; but help was withheld; the Knickerbocker Trust Company was allowed to go into the hands of receivers, and Mr. Barney committed suicide.

Mr. Barney's corporation was not the only one upon which the Group had its eye. The Group is interested in the General Electric Company, the largest electrical company in America. The only serious rival of the General Electric Company in the country is the Westinghouse Company. Westinghouse was doing a larger business than he had capital for. "He was overwhelmed by his own prosperity." All Westinghouse needed at that time was money in order to protect his business. This money was refused to him.

The Group is also interested in the railroads of the country and indeed controls them. It is one of the bad features of our railroad system that it almost everywhere controls steamship lines and thus prevents the public from having the benefit of cheaper water rates by exacting the same rates on steamboats as upon land. Morse with the supposed backing of the Knickerbocker Trust had organized a system of steamship companies which were running independently of the railroads and threatening their monopoly of freight rates. It was necessary that these steamship lines should be controlled by the various railroad systems with which these lines competed, and Morse's steamship company was forced into the hands of a receiver.

But there was another corporation of still more importance to the Group--the Tennessee Coal and Iron Company.

The Steel Trust had never been able to purchase this company, and this company was in a measure indispensable to them. The Tennessee Coal and Iron Company had the extraordinary advantage of owning inter-bedded coal and iron; that is to say, coal and iron in the same spot. It was thus relieved of the necessity of transporting coal several hundred miles to iron ore or iron ore several hundred miles to coal. This enabled the Tennessee Coal and Iron Company to fix a price for steel independently of the Steel Trust.

As has been explained, although trusts seek to have weak independent concerns in existence if only to prevent strong independent concerns from being organized, they cannot afford to have an independent concern competing with them which is able to fix prices lower than their own. For this reason, the Wall Street Group availed itself of the panic to get control of the Tennessee Coal and Iron Company.

Upon the testimony of Oakleigh Thorne, President of the Trust Company of America, and George W. Perkins of the firm of J.P. Morgan & Company, who is a member of the Finance Board of the United States Steel Corporation, before the Senate Committee on January 19, 1909,[123] it appears that a syndicate had been organized for the purpose of acquiring the stock of the Tennessee Coal and Iron Company. Mr. Oakleigh Thorne was a member of this syndicate, and the Trust Company of America, of which he was president, had loaned on November 1, 1907, $482,700 to this syndicate against the stock of the Tennessee Coal and Iron Company as collateral. It seems that the Trust Company called this loan and that although the stock of the Tennessee Coal and Iron Company was a dividend-paying stock and quoted at 119, the syndicate found it impossible to borrow money upon it. The only condition upon which they could borrow money was selling out to the Steel Trust.

The Steel Trust gave in exchange for the Tennessee Coal and Iron Company stock at 119 its own second mortgage bonds, quoted on the market at that time at 82, and as soon as this exchange was effected the syndicate was furnished with all the money it needed. Wall Street loaned to the syndicate against steel second mortgage bonds the amounts which had previously been refused upon the Tennessee Coal and Iron Company stock. In other words, the Wall Street Group by refusing to loan money to the syndicate against the Tennessee Coal and Iron Company stock, compelled the syndicate to sell this stock to the Steel Trust by agreeing to loan to the syndicate against Steel Trust second mortgage bonds at 82 what they refused to loan to the same syndicate on Tennessee Coal and Iron Company stock at 119.

The New York _Times_ says on this subject:[124]

"What inquiring Senators want to know is, How was it possible for a small group of bankers to get together and, merely by agreement, force out one security by giving preference to another less valuable? This power is regarded as highly dangerous to all classes of securities, placing them entirely at the mercy of the Wall Street Group."

The power of the Wall Street Group to which the _Times_ objects is in times of panic reinforced by no less a power than the United States Government. The United States differs from other countries in not having a government bank for receiving government deposits and distributing them in the ordinary course of banking business. The result is that the receipts of the government accumulate in the United States Treasury, and this tends to increase stringency in periods of panic. It has become, therefore, a rule of the government to step in on such occasions and deposit with its national banks a sufficient amount to relieve stringency. It will be readily seen that this intervention of the Secretary of the Treasury, while indispensable to the public welfare, constitutes a great resource to the Wall Street Group. For the Group can, by withholding cash at periods of stringency, practically compel the government to come to the relief of the market when, for purposes of its own the Group decides to withhold funds. And as the Group includes the best-informed persons regarding the finances of the country, it is to the Group that the Secretary of the Treasury naturally goes for advice on these occasions. The Wall Street Group therefore occupies a position which permits it to call upon the government for funds when it desires to hoard its own funds for its own purposes.

Thus we find Secretary Cortelyou in daily conference with the Wall Street Group at this period; and after the Knickerbocker Trust Company closed its doors on the 22d of October and receivers had been appointed for the three Westinghouse firms on the 23d, Secretary Cortelyou deposited $25,000,000 in the New York banks indicated by the Group. This was just sufficient to prevent ruin but not sufficient to relieve stringency. On November 4th, Judge Gary and Mr. Frick went to see the President and explained to him that the purchase of the Tennessee Coal and Iron Company stock by the Steel Trust was necessary "in order to stop the panic."[125] The President on the same day wrote a letter to the Attorney-General, subsequently communicated to the Senate, in which he explained that in view of the fact that such a purchase would tend "to stop the panic" and that it would not give the Steel Trust more than 60 per cent. of the Steel industry, he did "not feel it a public duty to interpose any objection."

The purchase of the Tennessee Coal and Iron Company having been effected, the United States Government was once more called upon by the Group and on November 17, the President and Secretary Cortelyou announced the issue of 2 per cent Panama bonds for an amount of $50,000,000, and 3 per cent on certificate indebtedness to an amount of $100,000,000. By this time, however, the Group had decided that there was no necessity to maintain panic conditions, and the issue of these bonds was arrested, so that only one-half of the Panama bonds and only $15,000,000 of the Treasury certificates were allotted.

It has been intimated that the Wall Street Group during the whole of this panic was in possession of funds which it purposely withheld. This intimation seems justified by the events which immediately followed the purchase of the Tennessee Coal and Iron stock by the Steel Trust. In November newspapers informed us that our bankers were engaged in "buying gold" in Europe, and during November no less than $63,000,000 were imported and in December a further $44,000,000 were imported; together--over $100,000,000. It is a somewhat singular thing that the public does not seem to have asked for information as to what was meant by this singular expression "buying gold."

The machinery through which gold was brought over to America in November and December was the following: Our farmers had already produced crops and sold them to Europe; the 1907 cotton crop began to move in August--a large part of it was in Europe before the panic. Our wheat crop, though late, was already partly in Europe and on its way there. Those who had produced and sold these crops had drawn against their shipments. These drafts are called "cotton bills"--"wheat bills." Certain bankers with connections abroad make it their special business to buy these bills and present them for payment in Europe at a minute profit called "exchange." But these bankers could not, during the panic, borrow money as usual to buy these bills; and they did not dare to use the money of their depositors for this purpose when they were under imminent danger of a run. So these bills became a drug on the market; they could be got for four cents in the pound cheaper than in average years; and at this price, and at an exceptional profit, the Wall Street Group went into the market and bought them up, presented them for payment and got all the money from Europe that was wanted. This is the process that was called "buying gold." But _who had gold with which to buy these bills? Who had been hoarding gold?_

What do these facts disclose? They disclose that at the time when the Wall Street Group refused help to the Knickerbocker Trust it had at its disposal the gold in the United States Treasury--did not Cortelyou actually put this gold at its disposal?--the credit of the United States Government--did not Cortelyou at its bidding issue all the bonds he was told to issue?--and enough money of its own at the proper moment to purchase cotton and wheat bills at panic prices, so that every ship that in November and December sailed from Europe to New York came laden with gold?

No one can, I think, deny the power of the Group after a fair consideration of these incidents. Let us see how this power was exercised as regards the city of New York.

The Comptroller in a report published in November, 1907 (pages 5 and 6) showed that the city had not only voted, but appropriated over $195,000,000 for, public works, much of which was urgently needed by the city and some of which ought to have been completed four years before. Yet this city of four million inhabitants, whose property is underassessed at $7,000,000,000, was not able to employ its thousands of unemployed at this urgently needed public work because, as Comptroller Metz stated at a crowded meeting, Mr. J. Pierpont Morgan would not give the money to do it with, _and the city could get it from no one else_.[126]

Morgan allowed the city in October to issue $30,000,000 of its bonds at 6 per cent, but refused to permit any further issue until the last day of January. On January 29th, according to the New York _Sun_,[127] Mr. Morgan relented, and the Mayor of the city, the Comptroller, the Deputy Comptroller, the Corporation Counsel, and the City Chamberlain were summoned to Mr. Morgan's library. There at last the imperial consent was given; the richest city in America was allowed by Mr. Morgan to issue its own bonds, but not in an amount large enough to permit of any public works. So the unemployed were left to tramp sleeplessly through our streets.

The Wall Street Group found another important element of profit in the fall of securities during the panic. It has been said that securities fell on an average 40 points when the Group sold securities between January and March, 1907. Mr. James H. Brookmire estimates that they fell another 16 points during the panic. The Group seemed informed as to the exact moment at which securities had reached the bottom price; that is, they knew the moment when the panic was intended to come to an end. I was fortunate enough to be informed by a member of the Group at the right moment. I purchased Northern Pacific stock upon the advice given and, in the course of the year, made 50 per cent profit thereupon. The Group that sold between January and March, 1907, was in a position to buy back stock at less than one-half what they sold it for and, if they chose to realize at the present time, it would make an additional 50 per cent. In other words, it was in a position to make over 100 per cent upon the whole transaction. When we keep in mind the enormous figures which the operations of the Group attain, the amount of profit realized upon this amount alone can be imagined.

I do not wish to be understood as pretending that the facts marshalled in the foregoing pages constitute conclusive proofs that the Group either made money by the panic, or withheld cash and credit for the purpose of making money. It is possible that the sales of stock between January and March and the repurchase of stock in November were effected solely with a view to the public welfare; it is possible that the Knickerbocker Trust Company was allowed to go to the wall solely through error in judgment; it is possible that the Steel Trust reluctantly purchased the Tennessee Coal and Iron Company as Messrs. Gary and Frick explained to the President--solely for the purpose of "stopping the panic." But practical business men are not accustomed to concluding in this fashion. When the keenest appetites of humanity are whetted to the utmost and opportunities are extended for the satisfaction of these appetites, we generally conclude that these opportunities are not refused through pure asceticism; at least not by the Wall Street Group.

When Mrs. Forrest brought action against her husband, Edwin Forrest, the actor, it was proved that the defendant had been seen visiting a house of ill fame; after he entered, a third story front room was lit; the room remained lit for about an hour; the light was extinguished at the end of this period, and a few moments thereafter Mr. Forrest was seen leaving the house. His counsel maintained that this was not conclusive evidence against him; that his profession obliged him to study human nature in every rank of life at close quarters, and that it had not been proved that he visited this house for any other purpose. Charles O'Conor in responding to this part of the defendant's argument, said: "I can see the defendant walking up the steps of this house of ill fame; I can see him enter and ushered into a room full of human nature exclusively of the female sex ready and willing to be studied at close quarters; I can see him select the one which he believed to be able to furnish the best opportunities for this purpose; I can see the two mount the stairs to the third story front and light the gas; and I can see them together there devote an hour to meditation and prayer." The jury was satisfied with the evidence and rendered a verdict for divorce in favor of Mrs. Forrest.

Whatever be the opinion, however, as to whether or not the Wall Street Group withheld funds to effect its purpose during the panic; or whether it made money out of the panic, one thing is perfectly certain--it was in a position where it could have withheld money; it was in a position where it could have made money out of the panic. The question the community has to decide is whether it is willing to leave this power and this temptation to any group of bankers--either to the saints now in control of Wall Street, or possibly to their less worthy successors.

In one of the standard English works on Money,[128] George Clare points out the exorbitant power of the Secretary of our Treasury:

"The New York Market is in fact at the mercy of an autocrat who, having full power to loose or bind large masses of currency at his absolute discretion, decides for himself whether and when money shall be cheap, and whether and when it shall be dear."

This autocratic power is to-day at the disposal of the Wall Street Group--not owing to any improper influence of the Group; not through any improper conduct of the Treasury; but as a necessary result of existing conditions. And if Mr. Clare is right in criticising the wisdom of granting to the Treasury the autocratic power it now enjoys, how much more dangerous is it to grant this autocratic power not to an official who can be removed, but to a group of financiers who cannot be removed? For the power exerted by the Wall Street Group includes not only all the resources of the Treasury, but all the resources of the entire country. It holds the life blood of our economic system in its hands and, because it controls this life blood, it controls politics, education, morals, and religion. And this group of men was not elected to the position it now enjoys by the majority of our citizens; it has usurped the position by virtue of its control over silver and gold.

The fact, however, that the use of silver and gold as our sole medium of exchange gives men control of the most essential things in our life, whom we never elected to that office and who at critical times have a personal interest to serve in opposition to that of the public welfare, is not the only evil connected with their use:

Silver and gold do not furnish us with constant standards of values. At various periods in the history of our civilization, gold and silver have been discovered in enormous quantities, and the effect of the discoveries and the putting of the gold and silver on the market has been and must be of a character to seriously affect the interests of all. When the amount of gold and silver in circulation is increased, prices go up, but wages do not correspondingly rise; and the wage-earner is unconsciously robbed. He goes on receiving the same amount in gold or silver for his work, but the purchasing power of the wage he receives diminishes. Again, when contraction takes place, as for example when silver was demonetized in 1893, a great wrong was done to the farmers who had borrowed money upon their farms; for by demonetizing silver, gold increased correspondingly in value and the farmer was called upon to pay his mortgages with money worth far more than it was prior to the demonetization of silver.

One thing, however, we want to bear in mind, that although farmers suffer by the demonetization of silver and wage-earners suffer by the demonetization of silver, and no change in the amount of silver and gold used as currency takes place without somebody suffering, the financiers and all those who handle money are in a position so to conduct their affairs as to profit by these changes. Meanwhile the rest of the community are in such a position that they have not the knowledge and even if they had the knowledge, would probably not have the ability, to do anything but lose by them.

The average citizen has no knowledge on these subjects whatever, and is therefore at the mercy of financial heretics. He was misled by the greenback craze in the 80's, by the silver craze in the 90's, and is subject to further delusions so long as coin remains the medium of exchange and coin is controlled by a few individuals whose only interest in it is to make out of it the largest fortune possible.

It must not be imagined that an attempt has been made to furnish anything like an exhaustive account of the opportunities which financiers have for profiting at the expense of the public. To do so would require a volume as large as this one devoted entirely to this subject.

For example, at this very time of writing,[129] the papers inform us that Mr. Morgan is hurrying back from Europe to settle the question whether a dividend is to be paid on the common stock of the United States Steel Company. It is known that Mr. Morgan received a very large block of this stock as his compensation for promoting the trust. If he still has enough of this stock to make the payment of a dividend of importance to him, or if he wants to sell at a high price, he will be naturally influenced by this motive to declare a dividend. If, on the other hand, he who best of all knows how prosperous the Company is, desires to purchase more of this stock at a low price, he will be tempted not to declare a dividend. The stock will fall and he will be able to make a large profit by purchasing.

In this manner directors are always able, if they choose, to make money on the declaration of doubtful dividends; and this can be done without its being possible to impute any blame to them, for a declaration of a dividend is always a matter of judgment. It is wise to put aside a certain part of the profits as a reserve to meet hard times, and just how much shall be put aside as a reserve and how much shall be paid out for dividends are matters on which it is very difficult for the best-intentioned men to agree. The directors, however, who control the company can make up their minds beforehand whether they will declare a dividend or not. If they propose to pass a dividend, they can sell as much as the market permits and buy back later at reduced prices. If they decide to declare a dividend, they can buy as much as the market permits and sell later at advanced prices.

Again, there seems to be no standard of morality amongst bankers as regards the profits they make. In the ordinary walks of life, a man is expected to be able to explain what the services are for which he receives any considerable sum of money. This, however, does not seem to be the case with bankers. In 1893, the United States Congress appointed a committee to investigate the rumor that over a million dollars had been remitted to J.P. Morgan & Company, Winslow Lanier & Company and J. & W. Seligman for the purpose of corrupting Congress. Messrs. Morgan, Lanier and Seligman were obliged to admit that a sum of $1,200,000 had been divided among them, "apparently for the use of their names and for nothing else." When asked if it had been remitted for the purpose of corrupting Congress, they denied it; when asked if they were still in possession of this sum, they admitted they were; when asked what the services were for which they had received this sum, they naively stated that they did not know.[130] Such an admission made by a lawyer would be ground for having him disbarred.

The very moral or immoral attitude that permits of bankers receiving enormous sums of money without being able to explain why these moneys were paid to them, pervades the whole financial atmosphere.

The directors of our large corporations corrupt our legislatures; they endow universities and pervert our education; they support the churches and prevent them from preaching the doctrines of Christ; they determine elections so as to secure legislators whom they can control. They are masters, not only of our whole system of production and distribution, but of our government and our laws. And this democracy which in theory is a government of the people, by the people, and for the people, turns out to be a government of the people, by financiers, for financiers.

Nor does it seem possible to put an end to this condition of things so long as our system of production and distribution is competitive; for gold and silver have proved to be altogether the best mediums of exchange, and some medium of exchange we must have in order to carry on trade so long as that trade is left to individual initiative as at present.

The whole community pays tribute to those who have gold and silver and those who handle it, and these last have a personal interest contrary to the interest of the public at moments of the greatest emergency. Competitive conditions have subjected the whole currency of the country to the control of a few men who thereby are masters of our commerce, our manufactures, our exports, our politics, our religion. In view of the fact that this small group practically governs the country in matters of legislation, and by virtue of a sort of class solidarity between the judges and the possessing class, governs the courts also, the men who determine the making and executing of our laws should, in a democracy such as ours, be elected by the people. But they are not elected by the people and they are not removable by the people. They are irremovable usurpers; they are created by economic conditions and, as long as these economic conditions last, they will continue to enjoy the power they now exercise.

FOOTNOTES:

[115] An article by Charles A. Conant in the _Atlantic Monthly_, Jan., 1908.

[116] _Atlantic Monthly_, Charles A. Conant, Jan., 1908, p. 101.

[117] Insurance Year Book: Life and Casualty sections, 1909, p. 236-7.

[118] Statistical abstract of the U.S., 1908.

[119] "Monetary and Banking Systems." By Maurice L. Muhleman, formerly U.S. Deputy Assistant Treasurer at New York.

[120] Ibid.

[121] According to computations made by Mr. James H. Brookmire on quotations of twenty representative railroad stocks, these reached at the highest point in 1906, 138. In March, these securities had gone down to 98.

[122] N.Y. _Press_, Oct. 22, 1907.

[123] See N.Y. _Times_, Jan. 30, 1909.

[124] N.Y. _Times_, February 1, 1909.

[125] The N.Y. _Times_, Jan. 7, 1909.

[126] N.Y. _Sun_, Jan. 17, 1908.

[127] Ibid., Jan. 30, 1908.

[128] "A Money Market Primer," by George Clare. Recommended by the Council of the Institute of Bankers. Revised edition, London, 1896, p. 123.

[129] July 16, 1909.

[130] House Reports, 52d Congress, 2d Session, v. 3, No. 2615, p. 5.