As Mr. Reynolds has admitted, the menace is in the concentration of credit. Such power may not thus far have been misused. But as the Pujo committee has said, "whenever the incentive is at hand, the machinery is ready." Those who have the public welfare at heart have no right to assume that such power will never be used to the personal interest of the bankers themselves and to the injury of the public. While I have no great enthusiasm for the popular pastime of rushing to Washington for a statute whenever the economic machinery fails to run smoothly, I am in sympathy with those who are studying the problem of the restoration of an open competitive market for capital.
However, this is a problem of extraordinary difficulty, and I do not myself see the way at present to its solution. I am aware that Congress has enacted legislation with the purpose of destroying this concentration of credit, and that many look upon the Clayton Act, so far as it touches our problem, as a distinct step in advance. Personally I am sceptical as to its efficacy in its present form. The opportunities for evasion are too numerous. However, it can be laid down as a general rule that all statutory enactment which really endures is a product of successive increments of legislation—the result of experimental tests and the knowledge that is gained by experience. It is no argument against the interlocking provisions of the Clayton Act that they do not solve the problem and that they can be evaded readily. Such an attitude of timidity and pessimism assumed twenty-five years ago would never have given us our present air-tight Interstate Commerce Act. It may well be, however, that no relief can be found short of the radical step of employing government credit in aid of public-service industries. So vital is the necessity of the service to the people that the time may come when government loans to transportation corporations will appear to be a logical and natural step. But this is a digression.
Once this free market for capital is assured, the question again arises, Shall the railway board of directors contain banker members? Obviously the only purpose that the railway could then have in admitting bankers to its directorate would be the opportunity to utilize their experience in the direct management of the property. Quite as obviously the principal motive of the banker in accepting membership on a railway board would be to represent the underwriters and to act as fiscal agent. But with the capital market competitive, I can find no serious objection to such relationship. Even under present conditions the banker in the majority of cases respects his trust, refuses to vote on questions involving his personal interest, and performs loyally his service to the railway; but his mere presence on the board as the embodiment of the railway's only source of credit may be sufficient to control the situation in his behoof. However, with a free credit market, the dominating position of the banker largely disappears and he becomes what he ought to be, an expert adviser on financial matters. It may be asked why, if the banker is now to confine his activities to what Mr. Loree has called the "necessarily intimate relation between the banker and the seeker for accommodation," this cannot be accomplished in the same manner as in unincorporated businesses without putting the banker on the directorate. In reply attention may be called to the fact that even in the case of unincorporated businesses, the credit departments of the large banks are virtually in the position of directors, so intimate and comprehensive is their influence and advice. But more than this the business of a railroad is so complex and extensive, its activities are so multifarious, that an intimacy with its affairs sufficient to make the banker's counsel of value would be impossible except by actual presence on the directorate.
Under these changed conditions of credit, I can see greater opportunity for the utilization of the service of expert bankers in railway management. Directorships which have been monopolized in the hands of a few banker specialists in railway securities should then be more widely distributed. It is quite impossible to believe that expert banking talent available for this service is as rare as the present situation would suggest, in which the abilities of a relatively few men are made to do duty in dozens of corporations. This absurd situation springs not from a scarcity of talent but from the narrow market for credit. A liberation of that market would bring latent ability from its hiding-places, and by the infusion of new blood would stimulate the management of our railway enterprises. It would open this field of activity to men "who have been obliged to serve when their abilities entitled them to direct."
FOOTNOTES:
[227] Adapted from the Report of the Committee Appointed to Investigate the Concentration of Control of Money and Credit, 62d Congress, 3d Session, pp. 130-33.
[228] Adapted from Albert W. Atwood, The Borrower and the Money Trust, Review of Reviews, Vol. 46, August. 1912, pp. 207-218.
[229] [Interlocking directorates among the more important banks were prohibited by the Clayton Act, passed in 1914. See p. 624.]
[230] Frank Haigh Dixon, The Economic Significance of Interlocking Directorates in Railway Finance, The Journal of Political Economy, Vol. 23, No. 2, February, 1915, pp. 938-946.