Lords of Creation

_Lords of Creation_ by Frederick Lewis Allen

NY:  Harper and Brothers Publishers, 1935

(2)  The amiable William McKinley sat in the White House;  Senator Mark Hanna, to whom the welfare of big business and the welfare of the country were almost indistinguishable, stood behind McKinley, ready with encouragement and advice;  business men felt sure that the affairs of the United States would be managed with a conservative regard for the rights and privileges of property.

(8)  [NJ Governor James B.] Dill suggested passing a law which would permit companies incorporated in New Jersey to hold the stock of other corporations.  Such a law was duly passed, to the immense benefit of the state treasury, which fattened - as other state treasuries were later to fatten - on the fees resulting from an extension of the privileges of property.

NB:  The birth of the holding company

(65)  The one sure victor in the battle [over railroads between Harriman and Morgan] - a battle which from any broad social point of view, considering the railroads as public carriers rather than as pawns in a game of grab, appeared almost completely senseless - was the principle of consolidation and concentration of capital.   

(84)  After all, there are few things as dull as greed.

(95-96)  The earliest Americans had fled from Europe to escape governmental pressure;  the pioneer had been perforce a rugged individualist;  the belief had almost inevitably grown up that govenrment interference with private business was the beginning of tyranny, and that to resist the intrusions of government into economic operations was to play the part of a conserver of American liberties.  The law of supply and demand offered all the regulation which an American would tolerate.  One's business was one's private affair, like one's diet or one's underclothes.  A strange idea, it may seem, in view of the fact that great concentrations of capital could take into their own hands the administration of the law of supply and demand, and that what these men considered their private business intimately affected the lives of millions of men and women.  Yet emotionally it was a potent idea.  (To some, it still is.)

(117)  Presently he [Charles W. Morse] went into banking, for he too had discovered that it is convenient for a speculator and promoter to have access to depositors' funds.  He borrowed large sums through "dummies" to finance his private operations;  at one time, for example, his bank lent him a hundred thousand dollars in his stenographer's name.  And he had made the further discovery that it was possible through a succession of borrowings to gain control of bank after bank.  The Morse technic was simple:  borrow money and buy the controlling shares in a bank;  then put up these shares as collateral against another loan of money, with which you buy another bank, and so on.  As soon as you control the bank it becomes quite simple to have such loans to yourself approved - and other loans, too, with which you may promote other coampanies and play the market.

(168)  ...all drastic reform is deflationary.

(174)  The way in which an affiliate was organized was a beautiful example of the legerdemain fo the corporation lawyer.  Suppose the national bank which found the legal limitations of national banking cumbersome was fortunate enough to have built up a huge surplus, as were Baker's First National and Stillman's National City Bank.  Out of this surplus it now declared a huge dividence to its stockholders, proposing that the money (which now technically belonged to the stockholders) be straightway invested in a new company, the affiliate.  This new company would have the same directors as the bank;  it would have the same officers;  it would occupy the same quarters;  its stock would not be salable except along with the stock of the bank - and yet it would not be a national bank, but a corporation empowered by state charter to embark in almost any business it chose!  It might hold the stock of other banks, it might speculate, and the Comptroller of the Treasury could not object.  It was outside his jurisdiction.

(195)  [July 1914 on the beginning of WWI] The New York Stock Exchange was closed at once, to remain closed for months;  if it had not been, the rush of European investors to convert their American securities into money against the unpredictable emergencies of war financing would have knocked prices down to the bottom, undermined bank loans, and imperiled the whole financial structure.

(196)  ...not until the first of April, 1915, a full eight months after the invasions of Belgium by the Germans, was it considered to open the New York Stock Exchange to unrestricted trading.

(213)  There is no surer engine of inflation than war.

(237)  If we accept the careful estimates in _Recent Economics Changes_, we may say that during the 1922-27 period, while the output of each factory worker was increasing by 3.5 per cent a year, his earnings were increasing by 2.4 per cent a year.  A considerable increase;  but not quite enough - if these estimates are accurate - to give him the ful benefit of the improvements in technique, especially as the cost of living rose slightly in the interval.  And it is interesting to note that during the 1923-27 period the profits of industrial corporations increased by as much as 9 per cent a year, which suggests that part of the benefit of these improvements was being drawn off at the top in ellarged dividends.  Apparently, too, the drawing-off process was accentuated in 1928-29.

(244)  Holding companies were legion now;  indeed, to a large extent the economic history of the nineteen-twenties is the history of the holding company....

The most extraordinary device of all for achieving concentration was an extension of the holding-company device:  what became known as "pyramiding" - namely, the organizing of holding comapnies to control holding compnaies which in turn controlled other holding compnaies - and so on almost ad infinitum.

(266)  NB:  Samuel Insull as a scapegoat the way Bernie Madoff is a scapegoat for much wider and wilder machinations.

(306)  And so the process [of credit inflation] continues;  not to the bitter end, of course, for each time you or I draw a check we thereby reduce the total amount of money which the bank can lend;  but far enough to make the amount of check money in the country from five to ten times as great as the amount of currency.

(306-307)  To hear some people discuss inflation, one might suppose that the only possible kind of inflation were that which can be brought about by the government through the use of the printing press, printing greenbacks;  but banking or credit inflation of the sort described above has been a normal financial process for a very long time and has come about as the joint result of innumerable acts of judgment on the part of thousands of individual bankers as they received deposits and made loans.

(328)  ....the speculative spirit of the nineteen-twenties saw its most dazzling future in raising the standard of living, not of the poor, but of the rich, by providing for them loftier and more luxurious offices and more lordly dwellings.

NB:  Them that got shall get....

(354)  John T Flynn's Security Speculation

(366)  ...a banker's name does not become a household word in America until he is investigated.

(395)  America was beginning to pay the inevitable price for a long chain of events:  the general acceptance of the theory that the way to prosperity was through having as many people as possible buy securities which could be converted into cash at short notice;  the acceptance of the theory that the way to make such instant conversion possible was through encouraging margin speculation;  the widespread craze for common stocks as the cream of investments - and of vehicles for margin speculation;  and the consequent conversion of the market for common stocks into a great gambling casino.

NB:  ESOTs and 2008 housing collapse

(399)  In order to scatter prosperity about once more, Hoover asked Congress to cut the income tax.  He also advocated a public-works campaign to take up any possible slack in employment, thus taking a leaf out of a different book of economics.

(405)  Even in the terrific year of 1932, when the corporations of the country were collectively more than five and a half billion dollars in the red, they were still paying dividends to the extent of more than four billion dollars;  and of these four billions, over a billion and a half was paid by companies which were actually losing money.

(408)  According to the estimates of Berle and Pederson, the total of liquid claims in the United States had never amounted to more than 20 per cent of the national wealth until 1912;  between 1912 and 1922 it had gone up to about 25 per cent;  by 1930 it had shot up to 40 per cent.  A liquid investment had its advantages for the individual:  he felt safer if at any moment he could turn his holdings into money.  But the existence of a large proportion of liquid investments enornously increased the chances of panic.

(414)  The situation [in 1931] which thus arose contained, perhaps, a certain element of ironic humor.  Now financial magnates who still cried out for "less government in business" and inveighed against "the dole" could go, hat in hand, to Washington and get the government to put itself into business by giving a dole of credit to their banks or their railroads.  The apostle of rugged individualism had taken the longest step in American history toward state socialism - though it was state socialism of a very special sort.

NB:  Socialism for the rich, laissez-faire for the poor

(439)  If the people at Washington wanted men to do business, why pester and frighten them with investigations, regulations, and prohibitions?  The principal reason, of course, was that the people at Washington knew that reform was long overdue (indeed, it is interesting to note that some of the changes brought about in 1933 and 1934 had been recommended by the Pujo committee twenty years earlier!)...

(443)  In the second place, the Roosevelt program involved a deliberate recogntion of the end of laissez-faire.  For the first time in American history, the government definitely assumed responsibility for the functioning of the American economy.  The measures which Roosevelt put into effect were not by any means revolutionary;  this assumption was.