Other People's Money And How the Bankers Use It
OTHER PEOPLE’S MONEY
AND HOW THE BANKERS USE IT
OTHER PEOPLE’S MONEY
AND HOW THE BANKERS USE IT
LOUIS D. BRANDEIS
FREDERICK A. STOKES COMPANY
Copyright, 1913, 1914, by
The McClure Publications
Copyright, 1914, by
Frederick A. Stokes Company
All rights reserved
FASCo March, 1914
While Louis D. Brandeis’s series of articleson the money trust was running in Harper’sWeekly many inquiries came about publicationin more accessible permanent form. Even withoutsuch urgence through the mail, however, itwould have been clear that these articles inevitablyconstituted a book, since they embodied ananalysis and a narrative by that mind which, onthe great industrial movements of our era, is themost expert in the United States. The inquiriesmeant that the attentive public recognized thathere was a contribution to history. Here was theclearest and most profound treatment everpublished on that part of our business developmentwhich, as President Wilson and other wisemen have said, has come to constitute the greatestof our problems. The story of our time is thestory of industry. No scholar of the future willbe able to describe our era with authority unlesshe comprehends that expansion and concentrationwhich followed the harnessing of steam and electricity,the great uses of the change, and the greatviexcesses. No historian of the future, in my opinion,will find among our contemporary documentsso masterful an analysis of why concentrationwent astray. I am but one among many wholook upon Mr. Brandeis as having, in the field ofeconomics, the most inventive and sound mindof our time. While his articles were running inHarper’s Weekly I had ample opportunity toknow how widespread was the belief amongintelligent men that this brilliant diagnosis ofour money trust was the most important contributionto current thought in many years.
“Great” is one of the words that I do not useloosely, and I look upon Mr. Brandeis as a greatman. In the composition of his intellect, oneof the most important elements is his comprehensionof figures. As one of the leading financiersof the country said to me, “Mr. Brandeis’sgreatness as a lawyer is part of his greatness asa mathematician.” My views on this subjectare sufficiently indicated in the following editorialin Harper’s Weekly.
About five years before the Metropolitan TractionCompany of New York went into the hands of a receiver,Mr. Brandeis came down from Boston, and in a speech atCooper Union prophesied that that company must fail.viiLeading bankers in New York and Boston were heartilyrecommending the stock to their customers. Mr. Brandeismade his prophecy merely by analyzing the publishedfigures. How did he win in the Pinchot-Glavis-Ballingercontroversy? In various ways, no doubt; but perhaps themost critical step was when he calculated just how long itwould take a fast worker to go through the Glavis-Ballingerrecord and make a judgment of it; whereupon he decidedthat Mr. Wickersham could not have made his report atthe time it was stated to have been made, and therefore itmust have been predated.
Most of Mr. Brandeis’s other contributions to currenthistory have involved arithmetic. When he succeeded inpreventing a raise in freight rates, it was through an exactanalysis of cost. When he got Savings Bank Insurancestarted in Massachusetts, it was by being able to figure whatinsurance ought to cost. When he made the best contractbetween a city and a public utility that exists in this country,a definite grasp of the gas business was necessary—combined,of course, with the wisdom and originality that makea statesman. He could not have invented the preferentialshop if that new idea had not been founded on a preciseknowledge of the conditions in the garment trades. Whenhe established before the United States Supreme Court theconstitutionality of legislation affecting women only, herelied much less upon reason than upon the amount of knowledgedisplayed of what actually happens to women whenthey are overworked—which, while not arithmetic, is builton the same intellectual quality. Nearly two years beforeMr. Mellen resigned from the New Haven Railroad, Mr.Brandeis wrote to the present editor of this paper a privateletter in which he said:
“When the New Haven reduces its dividends and Mellenresigns, the ‘Decline of New Haven and Fall of Mellen’ willviiimake a dramatic story of human interest with a moral—ortwo—including the evils of private monopoly. Events cannotbe long deferred, and possibly you may want to preparefor their coming.
“Anticipating the future a little, I suggest the followingas an epitaph or obituary notice:
“Mellen was a masterful man, resourceful, courageous,broad of view. He fired the imagination of New England;but, being oblique of vision, merely distorted its judgmentand silenced its conscience. For a while he trampled withimpunity on laws human and divine; but, as he was obsessedwith the delusion that two and two make five, he fell, atlast, a victim to the relentless rules of humble arithmetic.
“‘Remember, O Stranger, Arithmetic is the first of thesciences and the mother of safety.’”
The exposure of the bad financial managementof the New Haven railroad, more than anyother one thing, led to the exposure and comprehensionof the wasteful methods of big businessall over the country and that exposure ofthe New Haven was the almost single-handedwork of Mr. Brandeis. He is a person whofights against any odds while it is necessaryto fight and stops fighting as soon as the fightis won. For a long time very respectable andhonest leaders of finance said that his chargesagainst the New Haven were unsound and inexcusable.He kept ahead. A year before theactual crash came, however, he ceased worrying,for he knew the work had been carried far enoughixto complete itself. When someone asked himto take part in some little controversy shortlybefore the collapse, he replied, “That fight doesnot need me any longer. Time and arithmeticwill do the rest.”
This grasp of the concrete is combined in Mr.Brandeis with an equally distinguished grasp ofbearing and significance. His imagination is asnotable as his understanding of business. Inthose accomplishments which have given him hisplace in American life, the two sides of his mindhave worked together. The arrangement betweenthe Gas Company and the City of Bostonrests on one of the guiding principles of Mr.Brandeis’s life, that no contract is good that isnot advantageous to both parties to it. Behindhis understanding of the methods of obtaininginsurance and the proper cost of it to the laboringman lay a philosophy of the vast advantage tothe fibre and energy of the community that wouldcome from devising methods by which the laboringclasses could make themselves comfortablethrough their whole lives and thus perhaps makingunnecessary elaborate systems of state help.The most important ideas put forth in theArmstrong Committee Report on insurance hadbeen previously suggested by Mr. Brandeis,xacting as counsel for the Equitable policyholders. Business and the more importantstatesmanship were intimately combined in themanagement of the Protocol in New York,which has done so much to improve conditionsin the clothing industry. The welfareof the laborer and his relation to his employerseems to Mr. Brandeis, as it does to all themost competent thinkers today, to constitutethe most important question we have to solve,and he won the case, coming up to the SupremeCourt of the United States, from Oregon, establishingthe constitutionality of special protectivelegislation for women. In the Minimum Wagecase, also from the State of Oregon, which isabout to be heard before the Supreme Court, hetakes up what is really a logical sequence of thelimitation of women’s hours in certain industries,since it would be a futile performance to limittheir hours and then allow their wages to be cutdown in consequence. These industrial activitiesare in large part an expression of his deep andever growing sympathy with the working peopleand understanding of them. Florence Kelleyonce said: “No man since Lincoln has understoodthe common people as Louis Brandeis does.”
xiWhile the majority of Mr. Brandeis’s greatprogressive achievements have been connectedwith the industrial system, some have been politicalin a more limited sense. I worked with himthrough the Ballinger-Pinchot controversy, andI never saw a grasp of detail more brilliantlycombined with high constructive ethical andpolitical thinking. After the man who knewmost about the details of the Interior Departmenthad been cross-examined by Mr. Brandeishe came and sat down by me and said: “Mr.Hapgood, I have no respect for you. I do notthink your motives in this agitation are goodmotives, but I want to say that you have awonderful lawyer. He knows as much aboutthe Interior Department today as I do.” Inthat controversy, the power of the administrationand of the ruling forces in the House andSenate were combined to protect SecretaryBallinger and prevent the truth from comingto light. Mr. Brandeis, in leading the fight forthe conservation side, was constantly hauntedby the idea that there was a mystery somewhere.The editorial printed above hints at how hesolved the mystery, but it would require muchmore space to tell the other sides, the enthusiasmfor conservation, the convincing argumentsxiifor higher standards in office, the connectionof this conspiracy with the country’s largerneeds. Seldom is an audience at a hearing somoved as it was by Mr. Brandeis’s final plea tothe committee.
Possibly his work on railroads will turn out to bethe most significant among the many things Mr.Brandeis has done. His arguments in 1910–11before the Interstate Commerce Commissionagainst the raising of rates, on the ground thatthe way for railroads to be more prosperous wasto be more efficient, made efficiency a nationalidea. It is a cardinal point in his philosophythat the only real progress toward a higher nationallife will come through efficiency in all ouractivities. The seventy-eight questions addressedto the railroads by the Interstate CommerceCommission in December, 1913, embody whatis probably the most comprehensive embodimentof his thought on the subject.
On nothing has he ever worked harder than onhis diagnosis of the Money Trust, and when hislife comes to be written (I hope many years hence)this will be ranked with his railroad work forits effect in accelerating industrial changes. Itis indeed more than a coincidence that so manyof the things he has been contending for havexiiicome to pass. It is seldom that one man putsone idea, not to say many ideas, effectivelybefore the world, but it is no exaggeration to saythat Mr. Brandeis is responsible for the now widespreadrecognition of the inherent weakness ofgreat size. He was the first person who set fortheffectively the doctrine that there is a limit to thesize of greatest efficiency, and the successful demonstrationof that truth is a profound contributionto the subject of trusts. The demonstrationis powerfully put in his testimony before theSenate Committee in 1911, and it is powerfullyput in this volume. In destroying the delusionthat efficiency was a common incident of size, heemphasized the possibility of efficiency throughintensive development of the individual, thusconnecting this principle with his whole study ofefficiency, and pointing the way to industrialdemocracy.
Not less notable than the intellect and theconstructive ability that have gone into Mr.Brandeis’s work are the exceptional moral qualities.Any powerful and entirely sincere crusadermust sacrifice much. Mr. Brandeis has sacrificedmuch in money, in agreeableness of social life,in effort, and he has done it for principle and forhuman happiness. His power of intensive work,xivhis sustained interest and will, and his couragehave been necessary for leadership. No mancould have done what he has done withoutbeing willing to devote his life to making hisdreams come true.
Nor should anyone make the mistake, becausethe labors of Mr. Brandeis and others have recentlybrought about changes, that the systemwhich was being attacked has been undermined.The currency bill has been passed, and as thesewords are written, it looks as if a group of trustbills would be passed. But systems are notended in a day. Of the truths which are embodiedin the essays printed in this book, some arebeing carried out now, but it will be many, manyyears before the whole idea can be made effective;and there will, therefore, be many, many yearsduring which active citizens will be struggling forthose principles which are here so clearly, soeloquently, so conclusively set forth.
The articles reprinted here were all writtenbefore November, 1913. “The Failure of BankerManagement” appeared in Harper’s WeeklyAug. 16, 1913; the other articles, between Nov.22,