Fifty years in Wall Street
Owing to the inflamed state of the public mind, some of the laws enacted
to remedy the evils complained of may have been too drastic for the
purpose. But excesses of this kind correct themselves. Such laws are
either not enforced, or repealed after being enforced. As General Grant
once said to me,-“The surest way to repeal a bad law is to enforce it.”
We have fortunately always a safety valve in public opinion, which never
errs in the long run, and the public opinion of a nation is reflected in
its laws.
The immensity of corporate interests in the United States is suggested
by the fact that, including prominent city banks and Trust companies,
there are more than 20,000 corporations reported in the manuals devoted
to them. Of these 1,512 are active, operating railway companies, 1,129
electric traction companies, 1,158 gas, electric light and electric
power companies, 267 water companies, 259 telephone, telegraph and cable
companies, 1,510 active, operating and producing industrial and
miscellaneous companies, 880 active or operating mining companies, and
13,500 banking, insurance and other financial companies.
The railway companies cover 222,013 miles, and they had a capitalization
and bonded debt, on the 1st of January, 1908, of $13,908,456,846, at
par.
The industrial and miscellaneous companies had at the same date a
capitalization of $9,849,833,000, and the stocks of all the corporations
in the United States aggregated more than $33,600,000,000 at par,
exclusive of banks, Trust companies and other financial institutions.
In connection with the present enormous railway mileage of the country,
it is interesting to note that as recently as 1865 there were only 3,085
miles in operation; and in 1879—the year of specie resumption, after the
long civil war suspension from 1861—this total had only increased to
86,556 miles.
These figures remind us of the great rapidity with which new railway
corporations were subsequently organized, and laid their tracks, while
old ones extended their lines from Maine to California, and the St.
Lawrence to the Gulf of Mexico.
We can also remember the nation’s phenomenal progress simultaneously in
all other directions, and that, before 1880, Trust companies and
industrial corporations were few and far between in comparison with the
great multitude of those with which we have now to deal. The modern era
of these striking features of our business life, and the development of
the industrial Trusts which now cover the country, East, West, North and
South, had then hardly commenced.
Yet our great corporations, and our great railway systems are still
growing and multiplying, and will continue to grow and multiply to meet
the wants of our rapidly increasing population for generations to come,
till every part of our vast territory is thickly settled. Railways and
manufactories represent our largest corporations, and are next in
importance to our unlimited agricultural resources and mining interests.
They remind us too, that while these and all other corporations need
regulation by law, this regulation should never hamper, or interfere
with, their legitimate activities and expansion, however strict and
severe it may be in prohibiting and punishing wilful violations of law
and other abuses of power.
It is significant of the power and extent of our railway systems that
these—fifty-seven of them in all—operate, or control, six hundred and
eighty-eight subsidiaries, or jointly controlled railway companies,
embracing 196,425 miles of road, with an aggregate of outstanding stock
of $4,750,325,000, and $8,180,780,000 of bonds, a total for both, at
par, of $12,931,154,000. These figures are exclusive of stocks and bonds
held in the treasuries of the companies.
Thus nearly ninety per cent of the steam railway mileage of the United
States is operated, or controlled, by the fifty-seven systems. The
remaining ten per cent of the country’s railway mileage is composed
mainly of short, independent and disconnected lines, some of which are
run at a loss, and many without reporting any considerable profit.
Railway corporations in this country are therefore, except as to this
unimportant ten per cent, a great consolidated force, for the
fifty-seven systems that control ninety per cent of the mileage, are
equivalent to so many Trusts, and these can join hands in a solid
phalanx at any time for any lawful purpose, and practically form one
great railway Trust spanning the continent, a gigantic power that but
for law would be a monopoly.
So the National corporation problem is largely one of the railways, and
it involves the best way for the Federal Government to regulate these,
and all the corporations, in the interest of trade, commerce and the
people, and to do this without imposing unnecessary restrictions upon
their legitimate operations and development.
The corporation problem in this country is still new and unsolved, but
it has assumed immense national importance through the growth of the
large industrial Trusts during the last twenty years. Before that they
were unknown, and they have to a large extent revolutionized business
and business methods in the United States.
They resulted from the enormous and rapid increase of our population,
industrial activity, industrial development and wealth, and the
consequent increase of competition in all branches of trade.
Corporations, good, bad and indifferent, sprang up like mushrooms, and
then combinations of corporations into larger ones took place, and we
had Trusts.
These were organized ostensibly to secure economies in management which,
in conjunction with their large capital, would enable them to compete
advantageously with smaller concerns in the same lines of business, and
give them more or less control of their markets.
But in doing this they of course threw many out of employment, and
forced many of their smaller competitors out of business. Consequently
the popular sentiment against them at first was very strong and the cry
of “Monopoly” was often heard.
It was found however that the rise in prices that had been generally
apprehended as a result of the formation of Trusts did not occur, at
least not to any disturbing extent. So public hostility to them quieted
down, although their struggling and ruined competitors still felt sore
over their rivals’ success, all the more so when it was discovered that
most of them were making far larger profits than had ever before been
made in the same industries. If this had always been done honestly there
would have been no reason to complain.
The great industries dominated by Trusts included, besides petroleum and
sugar refining, iron and steel working, copper and other metal and
mineral mining, India rubber and tobacco manufacturing, distilling, and
also many miscellaneous manufactures, in addition to those in other
lines than manufacturing. The traders who had occupied these fields of
industry before them looked small indeed beside these new corporation
giants.
Discrimination in favor of one and against another by railway
corporations was an iniquity that built up large fortunes for a few and
starved and ruined many. But that, let us hope, has been effectually
stopped forever by its exposure and denunciation by President Roosevelt
and the Federal legislation which it provoked; and any revival of it
should be punished with the utmost rigor of the law, not by fines but by
imprisonment of both the giver and receiver of rebates.
Fines can be easily paid by large corporations, however much their
stockholders may suffer, but being placed behind iron bars is always
distasteful, if not terrible, to their officers; and it leaves a stigma
that they are anxious to avoid.
Their aversion to being disgraced in the eyes of their families and
friends by imprisonment as criminals will always tend to make them
extremely cautious not to incur this risk, however willing through lack
of moral scruples, some of them might be to violate the anti-rebate laws
if they could do so with impunity, and however much they might be aware
that lawlessness, apart from the question of dishonesty, is anarchy, and
therefore unpatriotic.
Corporation looting in its various forms, and political contributions of
corporation money, are, like rebating, equally wrong in principle, and
should be punished with equal severity and involve compulsory
restitution. That is really the only way to prevent the recurrence of
such wrongs by the unprincipled.
Judge Anderson, in charging the jury at the trial of John R. Walsh in
Chicago for bank frauds, said: “The law presumes that every man
understands and foresees the natural, legitimate and inevitable
consequences of his acts. The color of the act determines the complexion
of the intent. The intent to injure or defraud may be presumed when the
unlawful act which results in loss or injury is proved to have been
knowingly committed.”
Many of the irregularities, abuses and questionable methods of large
corporations resulted no doubt from the haphazard speculative manner in
which they were organized. Their promoters and organizers had always, or
nearly always, speculative objects in view in forming the combinations
we call Trusts. They looked for their first profit in the stock deals
involved in them, and were generally willing to give extravagant prices,
payable in stock, for properties that they wished to control and bring
into these new Trusts.
This, of course, caused overcapitalization, and in many cases this
overcapitalization was equivalent to several times the actual value of
the properties embraced in the Trusts created, and in some instances to
many times their value. Then too extravagantly high salaries were given
to the men in control of such organizations for their services as
officers. They were generally “on the make,” working for Number One—that
is for themselves—as well as the Trusts.
It often followed that, in their efforts to float their stock and pay
dividends, loose and none too scrupulous practices were resorted to, and
more or less false and exaggerated representations were made as to
actual values and conditions. So greed and graft dominated not a few of
them more than the interests of their outside stockholders.
They were in a position where they could help themselves to the cream,
and leave the skim milk for the investors, and not many of them
neglected their opportunity to skim the cream, and to feather their
nests more or less, in the last few years, before stricter laws were
passed by Congress and the States for the management of corporations.
The laxity of both the State and Federal laws with regard to
corporations, till recently, permitted much to be done in the dark,
which is now rendered impossible by the light of publicity that is
required by the new enactments, as well as by various prohibitions of
dishonest practices, besides that crowning evil, railway rebating, that
were before prevalent.
Campaign contributions by corporations were wrong, morally and legally,
not because political contributions are wrong, but because they were a
wrongful and illegal use of corporate money. But the controlling
officers of many large corporations, particularly the New York City
Railways and large life insurance companies, were woefully blind to
this, so accustomed had they been to handling corporate funds in their
charge as if they owned them, and could do as they pleased.
These transactions were almost on a par with some of those connected
with the purchase at a fictitious price of a certain Street Railway—a
practically non-existent line—in which large capitalists were concerned.
Here was a flagrant instance—involving a diversion of half a million
dollars—of the doings of men controlling a great street railway system,