The field thus occupied is uncommonly rich. The life insurance companies are our leading institutions for savings. Their huge surplus and reserves, augmented daily, are always clamoring for investment. No panic or money shortage stops the inflow of new money from the perennial stream of premiums on existing policies and interest on existing investments. The three great companies—the New York Life, the Mutual of New York, and the Equitable—would have over $55,000,000 of new money to invest annually, even if they did not issue a single new policy. In 1904—just before the Armstrong investigation—these three companies had together $1,247,331,738.18 of assets. They had issued in that year $1,025,671,126 of new policies. The New York legislature placed in 1906 certain restrictions upon their growth; so that their new business since has averaged $547,384,212, or only fifty-three per cent. of what it was in 1904. But the aggregate assets of these companies increased in the last eight years to $1,817,052,260.36. At the time of the Armstrong investigation the average age of these three companies was fifty-six years. The growth of assets in the last eight years was about half as large as the total growth in the preceding fifty-six years. These three companies must invest annually about $70,000,000 of new money; and besides, many old investments expire or are changed and the proceeds must be reinvested. A large part of all life insurance surplus and reserves are invested in bonds. The aggregate bond investments of these three companies on January 1, 1913, was $1,019,153,268.93.
It was natural that the investment bankers should seek to control these never-failing reservoirs of capital. George W. Perkins was Vice-President of the New York Life, the largest of the companies. While remaining such he was made a partner in J. P. Morgan & Co., and in the four years preceding the Armstrong investigation, his firm sold the New York Life $38,804,918.51 in securities. The New York Life is a mutual company, supposed to be controlled by its policy-holders. But, as the Pujo Committee funds “the so-called control of life insurance companies by policy-holders through mutualization is a farce” and “its only result is to keep in office a self-constituted, self-perpetuating management.”
The Equitable Life Assurance Society is a stock company and is controlled by $100,000 of stock. The dividend on this stock is limited by law to seven per cent.; but in 1910 Mr. Morgan paid about $3,000,000 for $51,000, par value of this stock, or $5,882.35 a share. The dividend return on the stock investment is less than one-eighth of one per cent.; but the assets controlled amount now to over $500,000,000. And certain of these assets had an especial value for investment bankers;—namely, the large holdings of stock in banks and trust companies.
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The Armstrong investigation disclosed the extent of financial power exerted through the insurance company holdings of bank and trust company stock. The Committee recommended legislation compelling the insurance companies to dispose of the stock within five years. A law to that effect was enacted, but the time was later extended. The companies then disposed of a part of their bank and trust company stocks; but, as the insurance companies were controlled by the investment bankers, these gentlemen sold the bank and trust company stocks to themselves.
Referring to such purchases from the Mutual Life, as well as from the Equitable, the Pujo Committee found:
“Here, then, were stocks of five important trust companies and one of our largest national banks in New York City that had been held by these two life insurance companies. Within five years all of these stocks, so far as distributed by the insurance companies, have found their way into the hands of the men who virtually controlled or were identified with the management of the insurance companies or of their close allies and associates, to that extent thus further entrenching them.”
The banks and trust companies are depositaries, in the main, not of the people’s savings, but of the business man’s quick capital. Yet, since the investment banker acquired control of banks and trust companies, these institutions also have become, like the life companies, large purchasers of bonds and stocks. Many of our national banks have invested in this manner a large part of all their resources, including capital, surplus and deposits. The bond investments of some banks exceed by far the aggregate of their capital and surplus, and nearly equal their loanable deposits.
CONTROLLING OTHER PEOPLE’S QUICK CAPITAL
The goose that lays golden eggs has been considered a most valuable possession. But even more profitable is the privilege of taking the golden eggs laid by somebody else’s goose. The investment bankers and their associates now enjoy that privilege. They control the people through the people’s own money. If the bankers’ power were commensurate only with their wealth, they would have relatively little influence on American business. Vast fortunes like those of the Astors are no doubt regrettable. They are inconsistent with democracy. They are unsocial. And they seem peculiarly unjust when they represent largely unearned increment. But the wealth of the Astors does not endanger political or industrial liberty. It is insignificant in amount as compared with the aggregate wealth of America, or even of New York City. It lacks significance largely because its owners have only the income from their own wealth. The Astor wealth is static. The wealth of the Morgan associates is dynamic. The power and the growth of power of our financial oligarchs comes from wielding the savings and quick capital of others. In two of the three great life insurance companies the influence of J. P. Morgan & Co. and their associates is exerted without any individual investment by them whatsoever. Even in the Equitable, where Mr. Morgan bought an actual majority of all the outstanding stock, his investment amounts to little more than one-half of one per cent. of the assets of the company. The fetters which bind the people are forged from the people’s own gold.