The Concentration of Financial Power
By L. A. S.
Some noteworthy statements regarding recent developments in the banking business in the United States are made in an article contributed to the Independent by Sereno S. Pratt, associate editor of the Wall Street Journal. In the present status of this very important branch of human industry is to be seen a striking sign of the times,—a striking exhibition of the tendency of the age toward concentration of power. What is most significant in the matter is the rapidity with which the change in modern methods of finance, as represented by the great banking establishments, is taking place. Only ten years ago the situation was essentially different from that which is seen to-day. “Centralization is taking the place of federation.” In this brief space of time the power of the clearing-house, which represents federation, has decidedly waned, while that of a few banks of immense deposits has vastly increased. The banking power of the country is being concentrated in a few mammoth institutions. Mr. Pratt says:— The banking power of the world since 1890 has increased 110.25 per cent. The banking power of the United States in the same time has increased 168.47 per cent. The banking power of New York has increased by even a larger percentage than even that of the United States. The resources of the national banks in this city have increased in that time one hundred and ninety-seven per cent, and trust company deposits in the past ten years have grown two hundred and forty per cent. . . . Nearly forty per cent of all the cash resources of the clearing-house banks is held by three banks, and of the increase in resources of all the national banks of the United States in the past year, twenty-two per cent is represented by the increase of five New York institutions. Such facts as these give some idea of the growth of the banking power in the United States, and of its rapid concentration in New York and in a few banks in New York. Equally significant with this increase in power on the part of these institutions is the change which has come in “the methods, spirit, and trend” of the banking business itself. “Commercial banking” has given place, in these great leading institutions, to “financial banking.” The vital relation of the banks to commerce, and the dependence of the latter upon the former, are obvious. The banks and allied institutions may be said to supply the air which commerce must breathe in order to exist. Of the power and interrelation of the leading banks, trust companies, and insurance companies in New York City, Mr. Pratt says:— The three leading life insurance companies, the Mutual, the Equitable, and the New York, with assets of more than $1,100,000,000, or over fifty-four per cent of the total life insurance resources of the country, themselves loaners of $40,000,000 on stock and bond securities, and having on deposit in banks more than $70,000,000, are in intimate alliance with the three most powerful banks, the National City, the National Bank of Commerce, and the First National, having aggregate net deposits of $415,000,000. Mr. McCurdy, of the Mutual, and a number of his fellow trustees are directors in the Bank of Commerce. Mr. Alexander and Mr. Hyde, of the Equitable, and others of that company are directors of the same institution, which has thus become known as the “insurance company” bank. Mr. McCall, of the New York Life, is a director of both the National City and the First National banks, and his vice-president, Mr. Perkins, is not only a director of the National City Bank, but also a partner of J. P. Morgan. Mr. Stillman, of the National City, is a director of the New York Life, and the bank is also represented in the direction of the Equitable, the Mutual, and the Metropolitan Life Insurance companies. Mr. Baker, of the First National, is a trustee of the Mutual Life, and Mr. Snyder, of the Bank of Commerce, is a director of the Equitable. Now these insurance companies and banks have intimate relations, in some cases extending to the point of control, with other banks, trust companies, and savings banks, not only in New York, but in other cities. Thus the National City Bank is at the head of one group consisting of five national banks, three State banks, and four trust companies in New York alone, having aggregate deposits of $400,000,000, while the Bank of Commerce, in connection with the Equitable Life and Mutual Life Insurance companies, is linked with five of the largest trust companies in the city. The First National and the Chase National are bound together so closely as to make practically one financial combination. There are thus three great groups of banks and insurance companies. To one Wall Street attaches the name of Rockefeller. To another it gives the name of Morgan. The third is known as the Mutual-Equitable group. Some would further reduce these three groups to two, and in some things there can be no doubt they move as one. It is not meant by this that the different links of these chains are not in most matters independent of the others, or that there is not competition between the groups, but that on occasions they are subject to the supreme interests which constitute the common bonds between them. Of the new phase of modern banking, designated by the term “financial banking,” Mr. Pratt says:— It was perhaps inevitable, although7to be deplored, that the concentration which has been described should be attended, certainly in New York, which is the financial center of the Western hemisphere, with a distinct trend toward financial banking, as distinguished from commercial banking; that is to say, banking that concerns itself with the sale of securities and the promotion of great enterprises through loans to corporations more than in meeting the credit needs of merchants. When it is said that the three greatest insurance companies own $658,000,000 of securities, that the national banks in New York carry over $200,000,000 of securities, and that the trust companies in this city carry $200,000,000 in stock investments, some idea is obtained of the immense stake these institutions have in the investment market independently of their loans on collaterals, which may be estimated at more than $1,000,000,000. Mr. Pratt quotes “one of the most eminent statesmen in the United States” (whose name he does not give), as saying with reference to the concentration movement which is so strongly marked in the present banking situation:— The strength of the nation should be in the wealth and prosperity of its country towns and villages. But the cities are rapidly sapping their vitality. Population and wealth are concentrated more and more in the great cities. The independent producers and merchants of the smaller cities and towns are being absorbed into the business of the great corporations, whose headquarters are in the big cities. The independent merchant or manufacturer who had his store or shop in a country town, owned his own house there, used the profits of his business in the place where those profits were made, and contributed to its prosperity and influence, is gradually being forced to sell out to the big concern in the city. Thereafter the place of the small independent merchant is taken by a hired man, a superintendent in the pay of the corporation, and the profits of the business, instead of remaining in the town, go to the city. The same process is beginning in the field of banking, and not only is the money of the country being more and more concentrated in the big cities, but I believe that the great city banks will inevitably secure control of local banks in every part of the United States, and thus the process of concentration be carried to the farthest limits. Mr. Pratt inquired what the remedy might be for this state of things, and the statesman replied that he did not know of any remedy. Mr. Pratt observes very truly, that it is in the highest degree important that this tremendous power in the financial and commercial world should be wisely administered. Whether it will be so administered or not, however, is an unanswered question. On this point he says:— The men who have created this concentration, and who control it, in large measure have in their hands the destinies of American business; and if there is any question as to the outcome of the concentration which they represent, it is not so much on account of what they may do as for fear of their successors. For what may be safe in the hands of strong men would be dangerous indeed in the hands of weak men. It is evident that such a concentration of financial power as gives to a few men control of “the destinies of American business,” constitutes those few men the real rulers of the country; for laws enacted by legislatures and by Congress will be but empty forms so long as the business interests of the country are not under the control of the people. This concentration of financial power is a movement toward monarchy, as is the concentration of industrial power effected by the great trusts and labor unions. The founders of this nation ordained a government which diffused among the people the powers which in European governments they had seen concentrated in the persons of kings and emperors. But now, in spite of the Constitution and forms of republican government which they set up, a law which no forms of free government can control is steadily and rapidly effecting such a concentration of powers upon the exercise of which the people are dependent for the enjoyment of life, liberty, and the pursuit of happiness, as will virtually establish a new monarchy even while the forms of republicanism are yet standing. This must be so unless a remedy for the situation is soon found, and as the statesman quoted by Mr. Pratt remarked, there is no remedy in sight. Such developments are to be expected in the last days, when conditions are reached in the religious, political, and industrial spheres which call for the special intervention of God in human affairs, and the termination of the long reign of injustice and selfishness on the earth. In the light of Bible prophecy the meaning of these latter-day developments is very plain.