Readings in Money and Banking / Selected and Adapted

by Chester Arthur Phillips

Striking as the concentration of banking, money, and financial power seems, it is no greater here than abroad, perhaps not so great. In London there are banks with fifty millions of capital, or twice as much as our one largest bank, and deposits of nearly four hundred millions of dollars, or twice as much as our largest bank. Even Canada, with a population less than one-tenth of ours, has a bank as great as our greatest. Relatively its big banks are bigger than ours. Concentration in Canada has gone much farther than here. Six banks in the Dominion hold half its entire banking resources. The autocratic power wielded by the score of great Canadian banks would start a revolution in this country. Germany and France long ago went through the process of bank consolidation.

WHY, THEN, DO WE HEAR FEW COMPLAINTS FROM ABROAD?

Here is a problem to be faced with intellectual honesty. Money power may be a bad thing, but let us not be so dishonest as to declare it a new thing. The New York Clearing House Association may wield power too autocratic, but let it not be overlooked that a similar organisation in London, with only one-third as many members, has long exercised as great power without raising any hue and cry of a Money Trust. Also consider Germany. If you have the time and courage to undertake such a task, go through the ponderous volume issued by the National Monetary Commission telling of the actual results of the great bank system in that country. It is a weary task reading the long-winded testimony of Herr Professor Doctor Governor this and that, but it is worth the labour.

We are told that great banks are more amenable to public opinion than smaller scattered institutions, that the Government is more ably assisted in its financial operations, that fewer reckless loans are made. Quicker prognostication of crises, whether on the Bourse or in commerce and industry, quicker adoption of preventive measures thereby lessening the effects of crises, are other services rendered by concentrated banking in Germany....

In 1907, when there was far less both of co-operation and concentration among the banks of this country than there is to-day, each bank standing weakly isolated and alone, frantically grasped all the cash it could muster. When the panic storm broke banks struggled to call in loans and line their vaults with cash. Business was crippled; industry was squeezed dry of its lifeblood. Last year when Germany was threatened with both war and panic, trouble was averted by the German "Money Trust," which loaned more than $200,000,000. It takes no expert knowledge of finance or banking to perceive that a few great, strong banks, or many smaller ones (provided they are welded closely together) can meet a storm more calmly than scattered, unconnected institutions.

WHERE IS THE VITAL DIFFERENCE?

If concentration is a good thing, how can there be too much of it? Here is the answer. Concentrated power without responsibility may be the worst possible thing. The other great financial nations have money trusts ... too, but each is capped by a vast central bank, more or less a government institution, and from the necessity of the case operated not only with a view to the general welfare but more or less openly and publicly.... The American "Money Trust" is strictly private, responsible to no one. It may act philanthropically if it chooses, but it is governed by nothing but choice. The money kings can, if they wish, exact any price.

R. H. Thomas, former president of the New York Stock Exchange, told the Pujo committee how Wall Street had finally to turn to one man, J. P. Morgan, in the panic of 1907, to save it from complete disaster. He did not know where the relief came from, in what form, nor with what conditions. It just came. Since at that time the entire country was dependent upon Wall Street because its surplus money was there, there is no escaping the fact that the whole financial situation of the country was at the mercy of one man. A 200 per cent. rate for loans would be inconceivable in one of the European financial centres because the central banks of Europe are the guarantors of the stability of the money market. The central banks of Europe depend upon no man, selfish or altruistic. They are the public financial regulators of the whole nation.

Has the Money Power been used to crush and squeeze?... Suppose that it has not been so used. Nevertheless, its control is in the hands of a few men. Even if their action be honest and intended for the public interest, they are necessarily most interested in the great undertakings in which we have seen them to be engaged. By reason of these limitations they must check and limit, if they do not destroy, genuine economic freedom and competition.... A handful of men, responsible to no one but themselves and God, have become masters of the lifeblood of commerce and industry. That this power has been more rapidly concentrated into their hands than the people have supposed is the unavoidable conclusion of this article.

From private persons, acting in private, and dominated in the main by private motives there cannot be expected the wisest and broadest direction of the flow of money—the lifeblood of business. These men have not asked for this power. They know it is too great for them. On the whole they have behaved with singular restraint. But only a fool would suppose that the best system for financing the small farmer in Florida or the small tin can manufacturer in Oregon is to turn over the entire money power of the nation to J. P. Morgan and a few other private persons. How under such a system could the great trusts fail to thrive at the expense of the small man?