We are pleased to present, in installments, a very rare yet significant book written by former Congressman Henry George Jr.
Earlier installments are available at the Progress Report Archive.
end of CHAPTER 4, FURTHER TYPES OF PRINCES
Nor is the habit of acting without consultation peculiar to Mr. Morgan. Most of the great corporations having boards of directors composed of men distinguished in the world of finance, manufacturing and transportation are, in fact, conducted by one or two or three men.
Mr. Jacob H. Schiff, senior partner in the banking house of Kuhn, Loeb & Co., and a director in the Equitable Life Assurance Society, complained on the witness stand during the great life insurance investigation in New York that directors do not and cannot direct; that in reality they are dummies. They merely approve of what the manager or managers do. These great privileged corporations become practically one-man corporations. And all the scandal of fancy and useless salaries, of preposterous advertising expenditures, and of more than questionable loans and appropriations revealed by the legislative inquiry are as nothing beside the revelations of power vested in a few hands and the way that power is used to control concentrated power elsewhere.
The Equitable Assurance Society, for instance, has ledger assets and income of close to $440,000,000, while its paid-up capital is only $100,000. Whoever controls a majority interest in that small capital controls the business of the company. Gay young Mr. James Hazen Hyde owned $50,200 par value of this Equitable stock. He therefore was in the end the master of the entire Equitable Society. He transferred that majority interest to Mr. Thomas F. Ryan. The purchase price was presumably several million dollars, for while the par value of this block of Equitable stock can, by the limitation of the charter, earn only $3514 per annum in dividends, the control of the society and the handling of its moneys is worth millions.
Mr. Ryan, who thus became the virtual master of the Equitable, also is believed to control the big Mutual Life and the smaller Washington Life Insurance Companies. The ledger assets and incomes of the three companies approximate $1,000,000,000!
Why does Mr. Ryan want control of these enormous funds? Not because he wishes to engage in the life insurance business. He may know little and care less about such a business, considered in itself. He desires control of its great investment funds because he wants to name the investments in which the funds shall be placed. For many years it was the policy of the insurance companies to invest largely in United States, State and municipal bonds. Late reports show that now such bonds constitute but a small fraction of one per cent. of their assets. What are those assets? Largely railroad stocks and bonds. And who controls the railroads? Mr. Ryan and his railroad-king and banking friends.
Mr. Jacob H. Schiff admitted before the Legislative Investigating Committee in New York, that his banking house had sold many million dollars' worth of securities to the Equitable. Mr. Schiff is and was during these transactions on the finance committee of the Equitable Society, and the transactions were conducted in the teeth of the insurance statutes of the State of New York, which expressly forbids the director of an insurance company from participating in any way in the purchase for such company of securities of another company in which he has interest.
And the relation that Mr. Schiff of Kuhn, Loeb & Co., bankers, held toward the Equitable Life, Mr. George W. Perkins of J. P. Morgan & Co., bankers, held toward the New York Life Insurance Company. As finance committee chairman of the latter company, Mr. Perkins sold to it large quantities of securities of companies promoted by his own banking house.
Is it not clear that men of the Morgan and Ryan type possess great financial powers arising from the privilege of incorporation, and behind that of transportation and other privileges? And these privileges and powers give them potency in legislation by which to protect what they have and to acquire new privileges and powers.
This is constantly shown in our Federal and State capitals, where the lobbies are supported by Privilege. Did not Mr. George W. Perkins, chairman of the finance committee of the New York Life Insurance Company, testify before the legislative investigating committee that his company made a contribution of $48,000 to the Republican National Committee fund in the presidential contest of 1904, and that it likewise made a $50,000 contribution to the same fund in each of the immediately preceding contests? Did it not further appear from testimony that the "big three" insurance companies, New York, Equitable and Mutual, were in the habit of paying regularly into a legislative fund "to effect legislation"?
Observe the things that are to be seen in railroad, tariff and currency legislation at Washington. Take the instance of the bond issue in 1893. The industrial depression coming on and credit being tight, a cry went up that there was not enough gold in the United States Treasury to redeem the paper currency in circulation, and that silver, the bullion price of which had greatly cheapened relatively with gold, would be used, thereby tending to depreciate the currency. Public alarm was quickened by the rumor that a group of individuals, headed by Mr. Morgan, had collected a large quantity of paper money for presentation at the Treasury Department for redemption in gold. The cry was that the Treasury gold supply be increased and kept up. Thereupon the Government sold $100,000,000 of United States bonds for gold. It sold them to a syndicate headed by Mr. Morgan. It received from the syndicate, in addition to the gold, a guarantee that the syndicate would not for a certain period make any effort to have this new Treasury supply drawn upon; or, in other words, that it would not for such time make a raid upon the Treasury. The bonds were sold to the syndicate at a price that enabled the latter to resell to the public shortly afterward and realize millions in clear profit. Here Privilege showed itself strong enough to command the general finances and practically to dictate to the United States Government in a difficult situation. Viewed so, such men might be called Princes of the Road.
The majestic group of marble figures in the pediment of the New York Stock Exchange personify industry, progress, exchange and integrity. But what shall we say of many of the methods of men who are potent there? In a Metropolitan Traction Company suit not long ago the late Mr. William C. Whitney described in a realistic way how "strong men" support a corporation needing help. When asked if such strong men make their profits out of the company, he answered with a laugh, "Not out of the company." The wise knew this to mean that the said strong men make their profits out of the public upon whom the company securities are loaded after manipulation.
United States Senator Chauncey M. Depew, as director of the Equitable Life Assurance Society, demonstrated how a "strong man" can use a strong corporation to help a weak one. From the Equitable company he procured a loan of a quarter of a million dollars for a land speculation company in which he was interested - the Depew Improvement Company. That company could give so little security for the loan that the Senator gave his personal guarantee. But when, subsequently, the Depew company failed and left small assets, the Senator practically repudiated the guarantee. When asked if he did not think the latter fixed any liability upon him, he cheerfully answered, "As a lawyer, I don't think so, and I am informed by the counsel of the receiver that he does not." Nor did the Senator make good his guarantee to the insurance society until driven to do so by an aroused public opinion.
Mr. Thomas Lawson of Boston, brought in conflict with his former Standard Oil associates, swore on the witness stand in the scandalous Boston Gas Trust suit that deals amounting to more than $100,000,000 occurred between himself and Mr. Henry H. Rogers without written agreements. Were the transactions too delicate for record? Mr. Lawson implies that they were.
Certainly many of the transactions of the "big three" insurance companies of New York have been too delicate for entry upon the regular books of those corporations, and had to be kept as "non-ledger" accounts. In the Equitable affairs there appears to have been one item of this nature amounting to more than $600,000.
And what can be made of the books of such banking and fiduciary magnates at the best, when Mr. Perkins, chairman of the finance committee of the New York Life Insurance Company, testifies under oath in the legislative investigation that his company, not wishing to have the public find a certain investment of $800,000 in the bonds of the International Mercantile Marine Company, exchanged those bonds on December 31, 1903, with J. P. Morgan & Co., of which firm Mr. Perkins is a member, for a check of the same amount, $800,000, and then, on January 2, 1904, re-exchanged check and securities? In this way the insurance company, in its sworn report to the Insurance Commissioner of New York, could show $800,000 cash assets, instead of that particular amount of the Marine Company's bonds.
Likewise in the creditors' suit growing out of the financial collapse of Mr. Daniel J. Sully, the cotton plunger. That gentleman swore that his partners, Mr. Frank H. Ray of the Tobacco Trust, and Mr. Edwin Hawley, president of the Iowa Central Railway, had caused his ruin by treacherously selling him out. Mr. Hawley testified that of all their cotton gambling, amounting to millions of dollars, no record was kept.
"I have usually found backers where I saw profit," said Mr. John W. Gates, testifying before the Inter-State Commerce Commission as to how and why he wrested the Louisville and Nashville Railroad out of Mr. August Belmont's hands, and how in the middle of the night he (Gates) was roused from his couch and induced to name his own price to transfer the road to Mr. J. Pierpont Morgan's hands. Mr. Morgan called Mr. Gates "a dangerous element in the railway world"; and Mr. Belmont pointed to the appreciating stock while the road was in Mr. Gates' hands as indicative, not so much of good railroad management, as of "good market management."
What does all this signify? Equality among the citizens? Does it not show, on the contrary, that some have potent advantages? President Woodrow Wilson of Princeton University was reported to have said at a public dinner that such has become the advanced state of Wall Street affairs that "leaders in the world of finance manipulate the destinies of the nation." Who are the "leaders in the world of finance"? They belong to the class who possess special advantages, created or sanctioned by Government -- advantages which, as has been seen, have been placed in four categories: (1) ownership of natural opportunities; (2) taxes on production and its fruits; (3) franchise grants; and (4) powers to manipulate the general finances and juggle the general market, and also court immunities, which powers, when not expressly created, are at least fostered by Government.
What are the comparatively few men possessing these advantages but Princes of Privilege?
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