Mr. Schwab became a member of our board, and I had never before met any one who equalled him in that extraordinary capacity of intelligently reading and conclusively analyzing a financial statement at a single glance that seemed hasty and superficial.
The foregoing incidents are samples of the minor tactics on the field of battle in the vast struggle which was waging for the financial control of America. I shall now outline the major strategy of that struggle as it impressed me from my slight contact with it.
The decade from 1896 to 1906 was the period of the most gigantic expansion of business in all American history, and, indeed, in all the history of the world. In that decade the slowly fertilized economic resources of the United States suddenly yielded a bewildering crop of industries. Vast railroad systems were projected and built into being with magic speed. The steel industry sprang with mushroom-like rapidity into a business employing half a million men, and yielding the profits of a Golconda. The Standard Oil Company spread its production and sales to the ends of the earth. In every field of manufacture, expanding companies were brought together into great trusts to unify their finances and to stimulate their production.
All these swift growths demanded money: money for new plants--money for expansion--money for working capital. The cry everywhere was for money--more money--and yet more money. Wall Street was besieged with a continual supplication for capital--that priceless fluid to water the bursting fields of pulsing prosperities. It is an old law that he who has what all men seek may make his own terms, and in that decade Wall Street controlled the money of America. No wonder, then, that the financiers of Wall Street leaped to a power greater for a time than the power of presidents and kings. No wonder that heads were turned, that power was abused, that tyranny developed, and that finally the nation, sensing a life-and-death struggle between capitalism and organized government itself, arose in fear and anger, and put shackles on the money power that made it again the servant, and no longer the master, of the people.
Let me trace briefly how this magic power was concentrated. Under the old banking system, before the passage of the Federal Reserve Act, the need for a common banking centre through which to “clear” inter-community and inter-state debits and credits, following upon the exchange of goods and the sale of crops, led the “country” banks all over the United States to maintain in some New York bank a considerable deposit of their funds, so that interbank transactions could be settled expeditiously and without cost by the simple device of drawing a draft against the New York account. The sum total of these country bank deposits in the metropolitan banks placed in the control of the New York bankers a vast reservoir of liquid capital. What should have been done with this money was to use it as the basis for financing the movement of crops in the fall and the exchange of commodities during the rest of the year. What frequently was done with it was to lend it to New York financiers for speculation in the price of crops and commodities, preventing the farmers and country merchants and small industrials from securing money at the times they needed it. Another use to which this reservoir of capital was put, was to lend it to the great industrial groups battling for supremacy in the fields of sugar, steel, textiles, railroads, and the like.