Other People's Money, and How the Bankers Use It

by Louis Dembitz Brandeis

The New Haven System is not a railroad, but an agglomeration of a railroad plus 121 separate corporations, control of which was acquired by the New Haven after that railroad attained its full growth of about 2000 miles of line. In administering the railroad and each of the properties formerly managed through these 122 separate companies, there must arise from time to time difficult questions on which the directors should pass judgment. The real managing directors of the New Haven system during the decade of its decline were: J. Pierpont Morgan, George F. Baker, and William Rockefeller. Mr. Morgan was, until his death in 1913, the head of perhaps the largest banking house in the world. Mr. Baker was, until 1909, President and then Chairman of the Board of Directors of one of America’s leading banks (the First National of New York), and Mr. Rockefeller was, until 1911, President of the Standard Oil Company. Each was well advanced in years. Yet each of these men, besides the duties of his own vast business, and important private interests, undertook to “guide, superintend, govern and manage,” not only the New Haven but also the following other corporations, some of which were similarly complex: Mr. Morgan, 48 corporations, including 40 railroad corporations, with at least 100 subsidiary companies, and 16,000 miles of line; 3 banks and trust or insurance companies; 5 industrial and public-service companies. Mr. Baker, 48 corporations, including 15 railroad corporations, with at least 158 subsidiaries, and 37,400 miles of track; 18 banks, and trust or insurance companies; 15 public-service corporations and industrial concerns. Mr. Rockefeller, 37 corporations, including 23 railroad corporations with at least 117 subsidiary companies, and 26,400 miles of line; 5 banks, trust or insurance companies; 9 public service companies and industrial concerns.

SUBSTITUTES

It has been urged that in view of the heavy burdens which the leaders of finance assume in directing Business-America, we should be patient of error and refrain from criticism, lest the leaders be deterred from continuing to perform this public service. A very respectable Boston daily said a few days after Commissioner McChord’s report on the North Haven wreck:

“It is believed that the New Haven pillory repeated with some frequency will make the part of railroad director quite undesirable and hard to fill, and more and more avoided by responsible men. Indeed it may even become so that men will have to be paid a substantial salary to compensate them in some degree for the risk involved in being on the board of directors.”

But there is no occasion for alarm. The American people have as little need of oligarchy in business as in politics. There are thousands of men in America who could have performed for the New Haven stockholders the task of one “who guides, superintends, governs and manages,” better than did Mr. Morgan, Mr. Baker and Mr. Rockefeller. For though possessing less native ability, even the average business man would have done better than they, because working under proper conditions. There is great strength in serving with singleness of purpose one master only. There is great strength in having time to give to a business the attention which its difficult problems demand. And tens of thousands more Americans could be rendered competent to guide our important businesses. Liberty is the greatest developer. Herodotus tells us that while the tyrants ruled, the Athenians were no better fighters than their neighbors; but when freed, they immediately surpassed all others. If industrial democracy—true coöperation—should be substituted for industrial absolutism, there would be no lack of industrial leaders.

ENGLAND’S BIG BUSINESS

England, too, has big business. But her big business is the Coöperative Wholesale Society, with a wonderful story of 50 years of beneficent growth. Its annual turnover is now about $150,000,000—an amount exceeded by the sales of only a few American industrials; an amount larger than the gross receipts of any American railroad, except the Pennsylvania and the New York Central systems. Its business is very diversified, for its purpose is to supply the needs of its members. It includes that of wholesale dealer, of manufacturer, of grower, of miner, of banker, of insurer and of carrier. It operates the biggest flour mills and the biggest shoe factory in all Great Britain. It manufactures woolen cloths, all kinds of men’s, women’s and children’s clothing, a dozen kinds of prepared foods, and as many household articles. It operates creameries. It carries on every branch of the printing business. It is now buying coal lands. It has a bacon factory in Denmark, and a tallow and oil factory in Australia. It grows tea in Ceylon. And through all the purchasing done by the Society runs this general principle: Go direct to the source of production, whether at home or abroad, so as to save commissions of middlemen and agents. Accordingly, it has buyers and warehouses in the United States, Canada, Australia, Spain, Denmark and Sweden. It owns steamers plying between Continental and English ports. It has an important banking department; it insures the property and person of its members. Every one of these departments is conducted in competition with the most efficient concerns in their respective lines in Great Britain. The Coöperative Wholesale Society makes its purchases, and manufactures its products, in order to supply the 1399 local distributive, coöperative societies scattered over all England; but each local society is at liberty to buy from the wholesale society, or not, as it chooses; and they buy only if the Coöperative Wholesale sells at market prices. This the Coöperative actually does; and it is able besides to return to the local a fair dividend on its purchases.

INDUSTRIAL DEMOCRACY

Now, how are the directors of this great business chosen? Not by England’s leading bankers, or other notabilities, supposed to possess unusual wisdom; but democratically, by all of the people interested in the operations of the Society. And the number of such persons who have directly or indirectly a voice in the selection of the directors of the English Coöperative Wholesale Society is 2,750,000. For the directors of the Wholesale Society are elected by vote of the delegates of the 1399 retail societies. And the delegates of the retail societies are, in turn, selected by the members of the local societies;—that is, by the consumers, on the principle of one man, one vote, regardless of the amount of capital contributed. Note what kind of men these industrial democrats select to exercise executive control of their vast organization. Not all-wise bankers or their dummies, but men who have risen from the ranks of coöperation; men who, by conspicuous service in the local societies have won the respect and confidence of their fellows. The directors are elected for one year only; but a director is rarely unseated. J. T. W. Mitchell was president of the Society continuously for 21 years. Thirty-two directors are selected in this manner. Each gives to the business of the Society his whole time and attention; and the aggregate salaries of the thirty-two is less than that of many a single executive in American corporations; for these directors of England’s big business serve each for a salary of about $1500 a year.

The Coöperative Wholesale Society of England is the oldest and largest of these institutions. But similar wholesale societies exist in 15 other countries. The Scotch Society (which William Maxwell has served most efficiently as President for thirty years at a salary never exceeding $38 a week) has a turn-over of more than $50,000,000 a year.