While Louis D. Brandeis’s series of articles on the money trust was running in Harper’s Weekly many inquiries came about publication in more accessible permanent form. Even without such urgence through the mail, however, it would have been clear that these articles inevitably constituted a book, since they embodied an analysis and a narrative by that mind which, on the great industrial movements of our era, is the most expert in the United States. The inquiries meant that the attentive public recognized that here was a contribution to history. Here was the clearest and most profound treatment ever published on that part of our business development which, as President Wilson and other wise men have said, has come to constitute the greatest of our problems. The story of our time is the story of industry. No scholar of the future will be able to describe our era with authority unless he comprehends that expansion and concentration which followed the harnessing of steam and electricity, the great uses of the change, and the greatvi excesses. No historian of the future, in my opinion, will find among our contemporary documents so masterful an analysis of why concentration went astray. I am but one among many who look upon Mr. Brandeis as having, in the field of economics, the most inventive and sound mind of our time. While his articles were running in Harper’s Weekly I had ample opportunity to know how widespread was the belief among intelligent men that this brilliant diagnosis of our money trust was the most important contribution to current thought in many years.

“Great” is one of the words that I do not use loosely, and I look upon Mr. Brandeis as a great man. In the composition of his intellect, one of the most important elements is his comprehension of figures. As one of the leading financiers of the country said to me, “Mr. Brandeis’s greatness as a lawyer is part of his greatness as a mathematician.” My views on this subject are sufficiently indicated in the following editorial in Harper’s Weekly.


About five years before the Metropolitan Traction Company of New York went into the hands of a receiver, Mr. Brandeis came down from Boston, and in a speech at Cooper Union prophesied that that company must fail.vii Leading bankers in New York and Boston were heartily recommending the stock to their customers. Mr. Brandeis made his prophecy merely by analyzing the published figures. How did he win in the Pinchot-Glavis-Ballinger controversy? In various ways, no doubt; but perhaps the most critical step was when he calculated just how long it would take a fast worker to go through the Glavis-Ballinger record and make a judgment of it; whereupon he decided that Mr. Wickersham could not have made his report at the time it was stated to have been made, and therefore it must have been predated.

Most of Mr. Brandeis’s other contributions to current history have involved arithmetic. When he succeeded in preventing a raise in freight rates, it was through an exact analysis of cost. When he got Savings Bank Insurance started in Massachusetts, it was by being able to figure what insurance ought to cost. When he made the best contract between 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 make a statesman. He could not have invented the preferential shop if that new idea had not been founded on a precise knowledge of the conditions in the garment trades. When he established before the United States Supreme Court the constitutionality of legislation affecting women only, he relied much less upon reason than upon the amount of knowledge displayed of what actually happens to women when they are overworked—which, while not arithmetic, is built on the same intellectual quality. Nearly two years before Mr. Mellen resigned from the New Haven Railroad, Mr. Brandeis wrote to the present editor of this paper a private letter in which he said:

“When the New Haven reduces its dividends and Mellen resigns, the ‘Decline of New Haven and Fall of Mellen’ willviii make a dramatic story of human interest with a moral—or two—including the evils of private monopoly. Events cannot be long deferred, and possibly you may want to prepare for their coming.

“Anticipating the future a little, I suggest the following as 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 judgment and silenced its conscience. For a while he trampled with impunity on laws human and divine; but, as he was obsessed with the delusion that two and two make five, he fell, at last, a victim to the relentless rules of humble arithmetic.

“‘Remember, O Stranger, Arithmetic is the first of the sciences and the mother of safety.’”

The exposure of the bad financial management of the New Haven railroad, more than any other one thing, led to the exposure and comprehension of the wasteful methods of big business all over the country and that exposure of the New Haven was the almost single-handed work of Mr. Brandeis. He is a person who fights against any odds while it is necessary to fight and stops fighting as soon as the fight is won. For a long time very respectable and honest leaders of finance said that his charges against the New Haven were unsound and inexcusable. He kept ahead. A year before the actual crash came, however, he ceased worrying, for he knew the work had been carried far enoughix to complete itself. When someone asked him to take part in some little controversy shortly before the collapse, he replied, “That fight does not need me any longer. Time and arithmetic will do the rest.”

This grasp of the concrete is combined in Mr. Brandeis with an equally distinguished grasp of bearing and significance. His imagination is as notable as his understanding of business. In those accomplishments which have given him his place in American life, the two sides of his mind have worked together. The arrangement between the Gas Company and the City of Boston rests on one of the guiding principles of Mr. Brandeis’s life, that no contract is good that is not advantageous to both parties to it. Behind his understanding of the methods of obtaining insurance and the proper cost of it to the laboring man lay a philosophy of the vast advantage to the fibre and energy of the community that would come from devising methods by which the laboring classes could make themselves comfortable through their whole lives and thus perhaps making unnecessary elaborate systems of state help. The most important ideas put forth in the Armstrong Committee Report on insurance had been previously suggested by Mr. Brandeis,x acting as counsel for the Equitable policy holders. Business and the more important statesmanship were intimately combined in the management of the Protocol in New York, which has done so much to improve conditions in the clothing industry. The welfare of the laborer and his relation to his employer seems to Mr. Brandeis, as it does to all the most competent thinkers today, to constitute the most important question we have to solve, and he won the case, coming up to the Supreme Court of the United States, from Oregon, establishing the constitutionality of special protective legislation for women. In the Minimum Wage case, also from the State of Oregon, which is about to be heard before the Supreme Court, he takes up what is really a logical sequence of the limitation of women’s hours in certain industries, since it would be a futile performance to limit their hours and then allow their wages to be cut down in consequence. These industrial activities are in large part an expression of his deep and ever growing sympathy with the working people and understanding of them. Florence Kelley once said: “No man since Lincoln has understood the common people as Louis Brandeis does.”

xi While the majority of Mr. Brandeis’s great progressive achievements have been connected with the industrial system, some have been political in a more limited sense. I worked with him through the Ballinger-Pinchot controversy, and I never saw a grasp of detail more brilliantly combined with high constructive ethical and political thinking. After the man who knew most about the details of the Interior Department had been cross-examined by Mr. Brandeis he came and sat down by me and said: “Mr. Hapgood, I have no respect for you. I do not think your motives in this agitation are good motives, but I want to say that you have a wonderful lawyer. He knows as much about the Interior Department today as I do.” In that controversy, the power of the administration and of the ruling forces in the House and Senate were combined to protect Secretary Ballinger and prevent the truth from coming to light. Mr. Brandeis, in leading the fight for the conservation side, was constantly haunted by the idea that there was a mystery somewhere. The editorial printed above hints at how he solved the mystery, but it would require much more space to tell the other sides, the enthusiasm for conservation, the convincing argumentsxii for higher standards in office, the connection of this conspiracy with the country’s larger needs. Seldom is an audience at a hearing so moved as it was by Mr. Brandeis’s final plea to the committee.

Possibly his work on railroads will turn out to be the most significant among the many things Mr. Brandeis has done. His arguments in 1910–11 before the Interstate Commerce Commission against the raising of rates, on the ground that the way for railroads to be more prosperous was to be more efficient, made efficiency a national idea. It is a cardinal point in his philosophy that the only real progress toward a higher national life will come through efficiency in all our activities. The seventy-eight questions addressed to the railroads by the Interstate Commerce Commission in December, 1913, embody what is probably the most comprehensive embodiment of his thought on the subject.

On nothing has he ever worked harder than on his diagnosis of the Money Trust, and when his life comes to be written (I hope many years hence) this will be ranked with his railroad work for its effect in accelerating industrial changes. It is indeed more than a coincidence that so many of the things he has been contending for havexiii come to pass. It is seldom that one man puts one idea, not to say many ideas, effectively before the world, but it is no exaggeration to say that Mr. Brandeis is responsible for the now widespread recognition of the inherent weakness of great size. He was the first person who set forth effectively the doctrine that there is a limit to the size of greatest efficiency, and the successful demonstration of that truth is a profound contribution to the subject of trusts. The demonstration is powerfully put in his testimony before the Senate Committee in 1911, and it is powerfully put in this volume. In destroying the delusion that efficiency was a common incident of size, he emphasized the possibility of efficiency through intensive development of the individual, thus connecting this principle with his whole study of efficiency, and pointing the way to industrial democracy.

Not less notable than the intellect and the constructive ability that have gone into Mr. Brandeis’s work are the exceptional moral qualities. Any powerful and entirely sincere crusader must sacrifice much. Mr. Brandeis has sacrificed much in money, in agreeableness of social life, in effort, and he has done it for principle and for human happiness. His power of intensive work,xiv his sustained interest and will, and his courage have been necessary for leadership. No man could have done what he has done without being willing to devote his life to making his dreams come true.

Nor should anyone make the mistake, because the labors of Mr. Brandeis and others have recently brought about changes, that the system which was being attacked has been undermined. The currency bill has been passed, and as these words are written, it looks as if a group of trust bills would be passed. But systems are not ended in a day. Of the truths which are embodied in the essays printed in this book, some are being carried out now, but it will be many, many years before the whole idea can be made effective; and there will, therefore, be many, many years during which active citizens will be struggling for those principles which are here so clearly, so eloquently, so conclusively set forth.

The articles reprinted here were all written before November, 1913. “The Failure of Banker Management” appeared in Harper’s Weekly Aug. 16, 1913; the other articles, between Nov. 22, 1913 and Dec. 17, 1914.

Norman Hapgood.

March, 1914.



I Our Financial Oligarchy
II How the Combiners Combine
III Interlocking Directorates
IV Serve One Master Only!
V What Publicity Can Do
VI Where the Banker is Superfluous
VII Big Men and Little Business
VIII A Curse of Bigness
IX The Failure of Banker-management
X The Inefficiency of the Oligarchs




President Wilson, when Governor, declared in 1911:

“The great monopoly in this country is the money monopoly. So long as that exists, our old variety and freedom and individual energy of development are out of the question. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men, who, even if their actions be honest and intended for the public interest, are necessarily concentrated upon the great undertakings in which their own money is involved and who, necessarily, by every reason of their own limitations, chill and check and destroy genuine economic freedom. This is the greatest question of all; and to this, statesmen2 must address themselves with an earnest determination to serve the long future and the true liberties of men.”

The Pujo Committee—appointed in 1912—found:

“Far more dangerous than all that has happened to us in the past in the way of elimination of competition in industry is the control of credit through the domination of these groups over our banks and industries.”…

“Whether under a different currency system the resources in our banks would be greater or less is comparatively immaterial if they continue to be controlled by a small group.”…

“It is impossible that there should be competition with all the facilities for raising money or selling large issues of bonds in the hands of these few bankers and their partners and allies, who together dominate the financial policies of most of the existing systems…. The acts of this inner group, as here described, have nevertheless been more destructive of competition than anything accomplished by the trusts, for they strike at the very vitals of potential competition in every industry that is under their protection, a condition which if permitted to continue, will3 render impossible all attempts to restore normal competitive conditions in the industrial world….

“If the arteries of credit now clogged well-nigh to choking by the obstructions created through the control of these groups are opened so that they may be permitted freely to play their important part in the financial system, competition in large enterprises will become possible and business can be conducted on its merits instead of being subject to the tribute and the good will of this handful of self-constituted trustees of the national prosperity.”

The promise of New Freedom was joyously proclaimed in 1913.

The facts which the Pujo Investigating Committee and its able Counsel, Mr. Samuel Untermyer, have laid before the country, show clearly the means by which a few men control the business of America. The report proposes measures which promise some relief. Additional remedies will be proposed. Congress will soon be called upon to act.

How shall the emancipation be wrought? On what lines shall we proceed? The facts, when fully understood, will teach us.



The dominant element in our financial oligarchy is the investment banker. Associated banks, trust companies and life insurance companies are his tools. Controlled railroads, public service and industrial corporations are his subjects. Though properly but middlemen, these bankers bestride as masters America’s business world, so that practically no large enterprise can be undertaken successfully without their participation or approval. These bankers are, of course, able men possessed of large fortunes; but the most potent factor in their control of business is not the possession of extraordinary ability or huge wealth. The key to their power is Combination—concentration intensive and comprehensive—advancing on three distinct lines:

First: There is the obvious consolidation of banks and trust companies; the less obvious affiliations—through stockholdings, voting trusts and interlocking directorates—of banking institutions which are not legally connected; and the joint transactions, gentlemen’s agreements, and “banking ethics” which eliminate competition among the investment bankers.

Second: There is the consolidation of railroads into huge systems, the large combinations of5 public service corporations and the formation of industrial trusts, which, by making businesses so “big” that local, independent banking concerns cannot alone supply the necessary funds, has created dependence upon the associated New York bankers.

But combination, however intensive, along these lines only, could not have produced the Money Trust—another and more potent factor of combination was added.

Third: Investment bankers, like J. P. Morgan & Co., dealers in bonds, stocks and notes, encroached upon the functions of the three other classes of corporations with which their business brought them into contact. They became the directing power in railroads, public service and industrial companies through which our great business operations are conducted—the makers of bonds and stocks. They became the directing power in the life insurance companies, and other corporate reservoirs of the people’s savings—the buyers of bonds and stocks. They became the directing power also in banks and trust companies—the depositaries of the quick capital of the country—the life blood of business, with which they and others carried on their operations. Thus four distinct functions, each essential to business,6 and each exercised, originally, by a distinct set of men, became united in the investment banker. It is to this union of business functions that the existence of the Money Trust is mainly due.*

* Obviously only a few of the investment bankers exercise this great power; but many others perform important functions in the system, as hereinafter described. * * * * *

The development of our financial oligarchy followed, in this respect, lines with which the history of political despotism has familiarized us:—usurpation, proceeding by gradual encroachment rather than by violent acts; subtle and often long-concealed concentration of distinct functions, which are beneficent when separately administered, and dangerous only when combined in the same persons. It was by processes such as these that Cæsar Augustus became master of Rome. The makers of our own Constitution had in mind like dangers to our political liberty when they provided so carefully for the separation of governmental powers.


The original function of the investment banker was that of dealer in bonds, stocks and notes; buying mainly at wholesale from corporations,7 municipalities, states and governments which need money, and selling to those seeking investments. The banker performs, in this respect, the function of a merchant; and the function is a very useful one. Large business enterprises are conducted generally by corporations. The permanent capital of corporations is represented by bonds and stocks. The bonds and stocks of the more important corporations are owned, in large part, by small investors, who do not participate in the management of the company. Corporations require the aid of a banker-middleman, for they lack generally the reputation and clientele essential to selling their own bonds and stocks direct to the investor. Investors in corporate securities, also, require the services of a banker-middleman. The number of securities upon the market is very large. Only a part of these securities is listed on the New York Stock Exchange; but its listings alone comprise about sixteen hundred different issues aggregating about $26,500,000,000, and each year new listings are made averaging about two hundred and thirty-three to an amount of $1,500,000,000. For a small investor to make an intelligent selection from these many corporate securities—indeed, to pass an intelligent judgment upon a8 single one—is ordinarily impossible. He lacks the ability, the facilities, the training and the time essential to a proper investigation. Unless his purchase is to be little better than a gamble, he needs the advice of an expert, who, combining special knowledge with judgment, has the facilities and incentive to make a thorough investigation. This dependence, both of corporations and of investors, upon the banker has grown in recent years, since women and others who do not participate in the management, have become the owners of so large a part of the stocks and bonds of our great corporations. Over half of the stockholders of the American Sugar Refining Company and nearly half of the stockholders of the Pennsylvania Railroad and of the New York, New Haven & Hartford Railroad are women. * * * * *

Good-will—the possession by a dealer of numerous and valuable regular customers—is always an important element in merchandising. But in the business of selling bonds and stocks, it is of exceptional value, for the very reason that the small investor relies so largely upon the banker’s judgment. This confidential relation of the banker to customers—and the knowledge of the customers’ private affairs acquired incidentally—is9 often a determining factor in the marketing of securities. With the advent of Big Business such good-will possessed by the older banking houses, preëminently J. P. Morgan & Co. and their Philadelphia House called Drexel & Co., by Lee, Higginson & Co. and Kidder, Peabody, & Co. of Boston, and by Kuhn, Loeb & Co. of New York, became of enhanced importance. The volume of new security issues was greatly increased by huge railroad consolidations, the development of the holding companies, and particularly by the formation of industrial trusts. The rapidly accumulating savings of our people sought investment. The field of operations for the dealer in securities was thus much enlarged. And, as the securities were new and untried, the services of the investment banker were in great demand, and his powers and profits increased accordingly.


But this enlargement of their legitimate field of operations did not satisfy investment bankers. They were not content merely to deal in securities. They desired to manufacture them also. They became promoters, or allied themselves with promoters. Thus it was that J. P. Morgan &10 Company formed the Steel Trust, the Harvester Trust and the Shipping Trust. And, adding the duties of undertaker to those of midwife, the investment bankers became, in times of corporate disaster, members of security-holders’ “Protective Committees”; then they participated as “Reorganization Managers” in the reincarnation of the unsuccessful corporations and ultimately became directors. It was in this way that the Morgan associates acquired their hold upon the Southern Railway, the Northern Pacific, the Reading, the Erie, the Père Marquette, the Chicago and Great Western, and the Cincinnati, Hamilton & Dayton. Often they insured the continuance of such control by the device of the voting trust; but even where no voting trust was created, a secure hold was acquired upon reorganization. It was in this way also that Kuhn, Loeb & Co. became potent in the Union Pacific and in the Baltimore & Ohio.

But the banker’s participation in the management of corporations was not limited to cases of promotion or reorganization. An urgent or extensive need of new money was considered a sufficient reason for the banker’s entering a board of directors. Often without even such excuse the investment banker has secured a11 place upon the Board of Directors, through his powerful influence or the control of his customers’ proxies. Such seems to have been the fatal entrance of Mr. Morgan into the management of the then prosperous New York, New Haven & Hartford Railroad, in 1892. When once a banker has entered the Board—whatever may have been the occasion—his grip proves tenacious and his influence usually supreme; for he controls the supply of new money. * * * * *

The investment banker is naturally on the lookout for good bargains in bonds and stocks. Like other merchants, he wants to buy his merchandise cheap. But when he becomes director of a corporation, he occupies a position which prevents the transaction by which he acquires its corporate securities from being properly called a bargain. Can there be real bargaining where the same man is on both sides of a trade? The investment banker, through his controlling influence on the Board of Directors, decides that the corporation shall issue and sell the securities, decides the price at which it shall sell them, and decides that it shall sell the securities to himself. The fact that there are other directors besides the banker on the Board12 does not, in practice, prevent this being the result. The banker, who holds the purse-strings, becomes usually the dominant spirit. Through voting-trusteeships, exclusive financial agencies, membership on executive or finance committees, or by mere directorships, J. P. Morgan & Co., and their associates, held such financial power in at least thirty-two transportation systems, public utility corporations and industrial companies—companies with an aggregate capitalization of $17,273,000,000. Mainly for corporations so controlled, J. P. Morgan & Co. procured the public marketing in ten years of security issues aggregating $1,950,000,000. This huge sum does not include any issues marketed privately, nor any issues, however marketed, of intra-state corporations. Kuhn, Loeb & Co. and a few other investment bankers exercise similar control over many other corporations.


Such control of railroads, public service and industrial corporations assures to the investment bankers an ample supply of securities at attractive prices; and merchandise well bought is half sold. But these bond and stock merchants are not disposed to take even a slight risk as to their13 ability to market their goods. They saw that if they could control the security-buyers, as well as the security-makers, investment banking would, indeed, be “a happy hunting ground”; and they have made it so.

The numerous small investors cannot, in the strict sense, be controlled; but their dependence upon the banker insures their being duly influenced. A large part, however, of all bonds issued and of many stocks are bought by the prominent corporate investors; and most prominent among these are the life insurance companies, the trust companies, and the banks. The purchase of a security by these institutions not only relieves the banker of the merchandise, but recommends it strongly to the small investor, who believes that these institutions are wisely managed. These controlled corporate investors are not only large customers, but may be particularly accommodating ones. Individual investors are moody. They buy only when they want to do so. They are sometimes inconveniently reluctant. Corporate investors, if controlled, may be made to buy when the bankers need a market. It was natural that the investment bankers proceeded to get control of the great life insurance companies, as well as of the trust companies and the banks.

14 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 must15 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 A