6. It promotes economy and efficiency of operation by establishing co-operation.

Acceptances are advantageous to the purchaser (1) in eliminating open accounts; (2) in closing the transaction at the time of purchase; (3) in providing payment coincident with purchase; (4) in facilitating adjustments and settlements.

C. Financial Concentration and Control

231. OUR FINANCIAL OLIGARCHY'

BY LOUIS D. BRANDEIS

The dominant element in our financial oligarchy is the investment banker. Associated banks, trust companies, and life insurance companies are his tools. Controlled railroads, public-service and industrial corporations are his subjects. Though properly but middlemen, these bankers bestride as masters America's business world, so that practically no large enterprise can be undertaken successfully without their participation or approval. These bankers are, of course, able men possessed of large fortunes; but the most potent factor in their control of business is not the possession of extraordinary ability or huge wealth. The key to their power is combination-concentration, intensive and comprehensive-advancing on three distinct lines:

First: There is the obvious consolidation of banks and trust companies; the less obvious affiliations-through stock holdings, voting trusts, and interlocking directorates-of banking institutions which are not legally connected; and the joint transactions, gentlemen's agreements, and "banking ethics" which eliminate competition among the investment bankers.

Second: There is the consolidation of railroads into huge systems, the large combinations of public-service corporations and the formation of industrial trusts, which, by making businesses so "big" that local, independent banking concerns cannot alone supply the necessary funds, has created dependence upon the associated New York bankers.

But combination, however intensive, along these lines only could not have produced the Money Trust; another and more potent factor of combination was added.

Third: Investment bankers, like J. P. Morgan & Co., dealers in bonds, stocks, and notes, encroached upon the functions of the three

'Adapted from Other People's Money, and How the Bankers Use It, pp. 4-22. (Frederick A. Stokes Co., 1914. Originally published in Harper's Weekly.)

other classes of corporations with which their business brought them into contact. They became the directing power in railroads, publicservice and industrial companies through which our great business operations are conducted the makers of bonds and stocks. They became the directing power in the life insurance companies and other corporate reservoirs of the people's savings—the buyers of bonds and stocks. They became the directing power also in banks and trust companies the depositaries of the quick capital of the country-the life-blood of business, with which they and others carried on their operations. Thus four distinct functions, each essential to business, and each exercised, originally, by a distinct set of men, became united in the investment banker. It is to this union of business functions that the existence of the Money Trust is mainly due.

The investment bankers were not content merely to deal in securities, enormous as was that field in itself. They desired to manufacture them also. They became promoters, or allied themselves with promoters. Thus it was that J. P. Morgan & Co. formed the Steel Trust, the Harvester Trust, and the Shipping Trust. And, adding the duties of undertaker to those of midwife, the investment bankers became, in times of corporate disaster, members of securityholders' "Protective Committees"; then they participated as "Reorganization Managers" in the reincarnation of the unsuccessful corporations, and ultimately became directors. It was in this way that the Morgan associates acquired their hold upon the Southern Railway, the Northern Pacific, the Reading, the Erie, the Pere Marquette, the Chicago & Great Western, and the Cincinnati, Hamilton & Dayton. Often they insured the continuance of such control by the device of the voting trust; but even where no voting trust was created a secure hold was acquired upon reorganization. It was in this way also that Kuhn, Loeb & Co. became potent in the Union Pacific and in the Baltimore & Ohio.

But the banker's participation in the management of corporations was not limited to cases of promotion or reorganization. An urgent or extensive need of new money was considered a sufficient reason for the banker's entering a board of directors. Often without even such excuse the investment banker has secured a place upon the Board of Directors through his powerful influence or the control of his customers' proxies. Such seems to have been the fatal entrance of Mr. Morgan into the management of the then prosperous New York,

New Haven & Hartford Railroad in 1892. When once a banker has entered the Board-whatever may have been the occasion-his grip proves tenacious and his influence usually supreme, for he controls the supply of new money.

The investment banker is naturally on the lookout for good bargains in bonds and stocks. Like other merchants, he wants to buy his merchandise cheap. But when he becomes director of a corporation he occupies a position which prevents the transaction by which he acquires its corporate securities from being properly called a bargain. Can there be real bargaining where the same man is on both sides of a trade? The investment banker, through his controlling influence on the Board of Directors, decides that the corporation shall issue and sell the securities, decides the price at which it shall sell them, and decides that it shall sell the securities to himself. The fact that there are other directors besides the banker on the Board does not, in practice, prevent this being the result. The banker, who holds the purse strings, becomes usually the dominant spirit. Through voting trusteeships, exclusive financial agencies, membership on executive or finance committees, or by mere directorships, J. P. Morgan & Co. and their associates held such financial power in at least 32 transportation systems, public-utility corporations, and industrial companies-companies with an aggregate capitalization of $17,273,000,000. Mainly for corporations so controlled J. P. Morgan & Co. procured the public marketing in ten years of security issues aggregating $1,950,000,000. This huge sum does not include any issues marketed privately, nor any issues, however marketed, of intrastate corporations. Kuhn, Loeb & Co. and a few other investment bankers exercise similar control over many other corporations.

Such control of railroads, public-service and industrial corporations assures to the investment bankers an ample supply of securities at attractive prices; and merchandise well bought is half sold. But these bond and stock merchants are not disposed to take even a slight risk as to their ability to market their goods. They saw that if they could control the security-buyers, as well as the security-makers, investment would, indeed, be "a happy hunting-ground"; and they have made it so.

The numerous small investors cannot, in the strict sense, be controlled; but their dependence upon the bankers insures their

being duly influenced. A large part, however, of all bonds issued and of many stocks are bought by the prominent corporate investors; and most prominent among these are the life insurance companies, the trust companies, and the banks. The purchase of a security by these institutions not only relieves the banker of the merchandise, but recommends it strongly to the small investor, who believes that these institutions are wisely managed. These controlled corporate investors are not only large customers, but may be particularly accommodating ones. Individual investors are moody. They buy only when they want to do so. They are sometimes inconveniently reluctant. Corporate investors, if controlled, may be made to buy when the bankers need a market. It was natural that the investment bankers proceeded to get control of the great life insurance companies, as well as of the trust companies and the banks.

The goose that lays golden eggs has been considered a most valuable possession. But even more profitable is the privilege of taking the golden eggs laid by somebody else's goose. The investment bankers and their associates now enjoy that privilege. They control the people through the people's own money. If the bankers' power were commensurate only with their wealth, they would have relatively little influence on American business. Vast fortunes like those of the Astors are no doubt regrettable. They are inconsistent with democracy. They are unsocial. And they seem particularly unjust when they represent largely unearned increment. But the wealth of the Astors does not endanger political or industrial liberty. It is insignificant in amount as compared with the aggregate wealth of America, or even of New York City. It lacks significance largely because its owners have only the income from their own wealth. The Astor wealth is static. The wealth of the Morgan associates is dynamic. The power and the growth of power of our financial oligarchs come from wielding the savings and quick capital of others. In two of the three great life insurance companies the influence of J. P. Morgan & Co. and their associates is exerted without any individual investment by them whatsoever. Even in the Equitable, where Mr. Morgan bought an actual majority of all the outstanding stock, his investment amounts to little more than one-half of 1 per cent of the assets of the company. The fetters which bind the people are forged from the people's own gold.

But the reservoir of other people's money, from which the investment bankers now draw their greatest power, is not the life insurance companies, but the banks and trust companies. Bank deposits represent the really quick capital of the nation. They are the life-blood of businesses. Their effective force is much greater than that of an equal amount of wealth permanently invested. The 34 banks and trust companies which the Pujo Committee declared to be directly controlled by the Morgan associates held $1,983,000,000 in deposits. Control of these institutions means the ability to lend a large part of these funds, directly and indirectly, to themselves, and, what is often even more important, the power to prevent the funds being lent to any rival interests. These huge deposits can, in the discretion of those in control, be used to meet the temporary needs of their subject corporations. When bonds and stocks are issued to finance permanently these corporations, the bank deposits can, in large part, be loaned by the investment bankers in control to themselves and their associates, so that securities bought may be carried by them until sold to investors. Or these bank deposits may be loaned to allied bankers, or jobbers in securities, or to speculators, to enable them to carry the bonds or stocks. Easy money tends to make securities rise in the market. Tight money nearly always makes them fall. The control by the leading investment bankers over the banks and trust companies is so great that they can often determine, for a time, the market for money by lending or refusing to lend on the stock exchange. In this way, among others, they have power to affect the general trend of prices in bonds and stocks. Their power over a particular security is even greater. Its sale on the market may depend upon whether the security is favored or discriminated against, when offered to the bank and trust companies, as collateral for loans.

Furthermore, it is the investment banker's access to other people's money in controlled banks and trust companies which alone enables any individual banking concern to take so large a part of the annual output of bonds and stocks. The banker's own capital, however large, would soon be exhausted. And even the loanable funds of the banks would often be exhausted but for the large deposits made in those banks by the life insurance, railroad, public-service, and industrial corporations which the bankers also control.

But the power of the investment banker over other people's money is often more direct and effective than that exerted through