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.