VII The Struggle for Wealth and Power
1. Economic Foundations
The people of the United States, through their contests with the American Indians, the Mexicans and the Filipinos, have established that “supreme and extensive political domination” which is one of the chief characteristics of empire.
But the American Empire does not rest upon a political basis. Only the most superficial portions of its superstructure are political in character. Imperialism in the United States, as in every other modern country, is built not upon politics, but upon industry.
The struggle between empires has shifted, in recent years, from the political and the military to the economic field. The old imperialism was based on military conquest and political domination. The new “financial” imperialism is based on economic opportunities and advantages. Under this new régime, territorial domination is subordinated to business profit.
While American public officials were engaged in the routine task of extending the political boundaries of the United States, the foundations of imperial strength were being laid by the masters of industrial life—the traders, manufacturers, bankers, the organizers of trusts and of industrial combinations. These owners and directors of the nation’s wealth have been the real builders of the American Empire.
As the United States has developed, the economic motives have come more and more to the surface, until no modern nation—not England herself—has such a record in the search for material possessions. The pursuit of wealth, in the United States, has been carried forward ruthlessly; brutally. “Anything to win” has been the motto. Man against man, and group against group, they have struggled for gain,—first, in order to “get ahead;” then to accumulate the comforts and luxuries, and last of all, to possess the immense power that goes with the control of modern wealth.
The early history of the country presaged anything but this. The colonists were seeking to escape tyranny, to establish justice and to inaugurate liberty. Their promises were prophetic. Their early deeds put the world in their debt. Forward looking people everywhere thrilled at the mention of the name “America.” Then came the discovery of the fabulous wealth of the new country; the pressure of the growing stream of immigrants; the heaping up of riches; the rapacious search after more! more! the desertion of the dearest principles of America’s early promise, and the transcribing of another story of “economic determinism.”
Until very recent times the American people continued to talk of political affairs as though they were the matters of chief public concern. The recent growth and concentration of economic power have showed plainly, however, that America was destined to play her greatest rôle on the economic field. Capable men therefore ceased to go into politics and instead turned their energies into the whirl of business, where they received a training that made them capable of handling affairs of the greatest intricacy and magnitude.
2. Every Man for Himself
The development of American industry, during the hundred years that began with the War of 1812, led inevitably to the unification of business control in the hands of a small group of wealth owners.
“Every man for himself” was the principle that the theorists of the eighteenth century bequeathed to the industrial pioneers of the nineteenth. The philosophy of individualism fitted well with the temperament and experience of the English speaking peoples; the practice of individualism under the formula “Every man for himself” seemed a divine ordination for the benefit of the new industry.
The eager American population adopted the slogan with enthusiasm. “Every man for himself” was the essence of their frontier lives; it was the breath of the wilderness.
But the idea failed in practice. Despite the assurances of its champions that individualism was necessary to preserve initiative and that progress was impossible without it, like many another principle—fine sounding in theory, it broke down in the application.
The first struggle that confronted the ambitious conqueror of the new world was the struggle with nature. Her stores were abundant, but they must be prepared for human use. Timber must be sawed; soil tilled; fish caught; coal mined; iron smelted; gold extracted. Rivers must be bridged; mountains spanned; lines of communication maintained. The continent was a vast storehouse of riches—potential riches. Before they could be made of actual use, however, the hand of man must transform them and transport them.
These necessary industrial processes were impossible under the “every man for himself” formula. Here was a vast continent, with boundless opportunities for supplying the necessaries and comforts of life—provided men were willing to come together; divide up the work; specialize; and exchange products.
Coöperation—alone—could conquer nature. The basis of this coöperation proved to be the machine. Its means was the system of production and transportation built upon the use of steam, electricity, gas, and labor saving appliances.
When the United States was discovered, the shuttle was thrown by hand; the hammer was wielded by human arm; the mill-stones were turned by wind and water; the boxes and bales were carried by pack-animals or in sailing vessels,—these processes of production and transportation were conducted in practically the same way as in the time of Pharaoh or of Alexander the Great. A series of discoveries and inventions, made in England between 1735 and 1784, substituted the machine for the tool; the power of steam for the power of wind, water or human muscle; and set up the factory to produce, and the railroad and the steamboat to transport the factory product.
American industry, up to 1812, was still conducted on the old, individualistic lines. Factories were little known. Men worked singly, or by twos and threes in sheds or workrooms adjoining their homes. The people lived in small villages or on scattered farms. Within the century American industry was transformed. Production shifted to the factory; about the factory grew up the industrial city in which lived the tens or hundreds of thousands of factory workers and their families.
The machine made a new society. The artisan could not compete with the products of the machine. The home workshop disappeared, and in its place rose the factory, with its tens, its hundreds and its thousands of operatives.
Under the modern system of machine production, each person has his particular duty to perform. Each depends, for the success of his service, upon that performed by thousands of others.
All modern industry is organized on the principle of coöperation, division of labor, and specialization. Each has his task, and unless each task is performed the entire system breaks down.
Never were the various branches of the military service more completely dependent upon each other than are the various departments of modern economic life. No man works alone. All are associated more or less intimately with the activities of thousands and millions of their fellows, until the failure of one is the failure of all, and the success of one is the success of all.
Such a development could have only one possible result,—people who worked together must live together. Scattered villages gave place to industrial towns and cities. People were compelled to coöperate in their lives as well as in their labor.
The theory under which the new industrial society began its operations was “every man for himself.” The development of the system has made every man dependent upon his fellows. The principle demanded an extreme individualism. The practice has created a vast network of inter-relations, that leads the cotton spinner of Massachusetts to eat the meat prepared by the packing-house operative in Omaha, while the pottery of Trenton and the clothing of New York are sent to the Yukon in exchange for fish and to the Golden Gate for fruit. Inside as well as outside the nation, the world is united by the strong hands of economic necessity. None can live to himself, alone. Each depends upon the labor of myriads whom he has never seen and of whom he has never heard. Whether we will or no, they are his brothers-in-labor—united in the Atlas fellowship of those who carry the world upon their shoulders.
The theory of “every man for himself” failed. The practical exigencies involved in subjugating a continent and wresting from nature the means of livelihood made it necessary to introduce the opposite principle,—“In Union there is strength; coöperation achieves all things.”
3. The Struggle for Organization
The technical difficulties involved in the mechanical production of wealth compelled even the individualists to work together. The requirements of industrial organization drove them in the same direction.
The first great problem before the early Americans was the conquest of nature. To this problem the machine was the answer. The second problem was the building of an organization capable of handling the new mechanism of production—an organization large enough, elastic enough, stable enough and durable enough—to this problem the corporation was the answer.
The machine produced the goods. The corporation directed the production, marketed the products and financed both operations.
The corporation, as a means of organizing and directing business enterprise is a product of the last hundred years. A century ago the business of the United States was carried on by individuals, partnerships, and a few joint stock companies. At the time of the last Census, more than four-fifths of the manufactured products were turned out under corporate direction; most of the important mining enterprises were corporate, and the railroads, public utilities, banks and insurance companies were virtually all under the corporate form of organization. Thus the passage of a century has witnessed a complete revolution in the form of organizing and directing business enterprise.
The corporation, as a form of business organization is immensely superior to individual management and to the partnership.
1. The corporation has perpetual life. In the eyes of the law, it is a person that lives for the term of its charter. Individuals die; partnerships are dissolved; but the corporation with its unbroken existence, possesses a continuity and a permanence that are impossible of attainment under the earlier forms of business organization.
2. Liability, under the corporation, is limited by the amount of the investment. The liability of an individual or a partner engaged in business was as great as his ability to pay. The investor in a corporation cannot lose a sum larger than that represented by his investment.
3. The corporation, through the issuing of stocks and bonds, makes it possible to subdivide the total amount invested in one enterprise into many small units.37 These chances for small investment mean that a large number of persons may join in subscribing the capital for a business enterprise. They also mean that one well-to-do person may invest his wealth in a score or a hundred enterprises, thus reducing the risk of heavy losses to a minimum.
4. The corporation is not, as were the earlier forms of organization, necessarily a “one man” concern. Many corporations have upon their boards of directors the leading business men, merchants, bankers and financiers. In this way, the investing public has the assurance that the enterprise will be conducted along business lines, while the business men on the board have an opportunity to get in on the “ground floor.”
The corporation has a permanence, a stability, and a breadth of financial support that are quite impossible in the case of the private venture or of the partnership. It does for business organization what the machine did for production.
The corporation came into favor at a time when business was expanding rapidly. Surplus was growing. Wealth and capital were accumulating. Industrial units were increasing in size. It was necessary to find some means by which the surplus wealth in the hands of many individuals could be brought together, large sums of capital concentrated under one unified control, the investments, thus secured, safeguarded against untoward losses, and the business conservatively and efficiently directed. The corporation was the answer to these needs.
“United we stand” proved to be as true of organizers and investors as it was of producers. The corporation was the common denominator of people with various industrial and financial interests.
The corporation played another rôle of vital consequence. It enabled the banker to dominate the business world. Heretofore, the banker had dealt largely with exchange. The industrial leader was his equal if not his superior. The organization of the corporation put the supreme power in the hands of the banker, who as the intermediary between investor and producer, held the purse strings.
4. Capitalist Against Capitalist
The early American enterprisers—the pioneers—began a single-handed struggle with nature. Necessity forced them to coöperate. They established a new industry. The factory brought them together. They organized their system of industrial direction and control. The corporation united them. They turned on one another in mortal combat, and the frightfulness of their losses forced them to join hands.
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.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 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
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 associates, directs and controls the affairs of the economic world.
The spirit of competition 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 class into a highly organized, closely knit, homogeneous 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 class have learned that “in union there is strength”; collectively they are gripped by the “cohesion of wealth”—the class conscious instinct of an associated 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.