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Published online by Cambridge University Press: 11 June 2012
Professor Abrahams edits a record of a 1913 conversation between reformer Louis Brandeis and Thomas W. Lamont of J. P. Morgan & Co. In the wake of the Pujo investigation of the “money trust,” the two discussed the nature and extent of economic power wielded by investment bankers as well as some specific issues such as interlocking directorates, competitive bidding for security issues, and greater publicity about securities transactions. This document reflects the long-run, fundamental conflict between social critics fearful of the concentration of economic power in America and businessmen who disclaim power because they believe their behavior is controlled by objective business considerations which operate for the good of society as a whole.
1 The Brandeis Talk, [n.d.] File 84–16, Papers of Thomas W. Lamont, Baker Library, Harvard University, Graduate School of Business Administration, Boston, Mass.
2 Mason, Alpheus T., Brandeis: A Free Man's Life (New York, 1946)Google Scholar is the best Brandeis biography.
3 Ibid., 380.
4 United States House of Representatives, Money Trust Investigation Before The Subcommittee of The Committee on Banking and Currency (Washington, 1913).Google Scholar
5 Lamont, Thomas W., Across World Frontiers (New York, 1951)Google Scholar gives the best account of Lamont's business career.
6 Thomas W. Lamont to Norman Hapgood, April 5, 1932. File 97–8, Thomas W. Lamont Papers.
7 Brandeis, Louis D., Other People's Money, edited with an Introduction by Abrams, Richard D. (New York, 1967).Google Scholar
8 Schlesinger, Arthur Jr., The Politics of Upheaval (Boston, 1960), 387.Google Scholar Schlesinger goes on to observe that, in contrast to Brandeis, the “neo-Brandeisians” Benjamin Cohen and Thomas Corcoran were trying to make competition work in an economy which would be technologically advanced as well as socially humane. Ibid., 388.
9 Abrams, xliv.
10 Pinchot had been a prominent supporter of the Progressive Party candidate in 1912, Theodore Roosevelt. House was President Woodrow Wilson's close advisor.
11 The actual title of the article was “Cutthroat Prices.” It appeared in Harper's Weekly on November 15, 1913. Brandeis criticized U.S. Supreme Court decisions denying manufacturers the right to hold retailers to an established price. Brandeis' argument was that price-fixing at the retail level enabled manufacturers to compete with one another on the national level.
12 Bauer vs. O'Donnell, 229 U.S. 1. See also Bobbs-Merrill Co. vs. Straus, 210 U.S. 339 and Dr. Miles Medical Co. vs. Park & Sons Co., 220 U.S. 409.
13 “Our Financial Oligarchy” and “How the Combiners Combine,” Parts I and II of “Breaking the Money Trust,” Harper's Weekly, November 22 and 29, 1913. Both were reprinted in Brandeis' Other People's Money, (New York, 1914).Google Scholar
14 U.S. House of Representatives, 62nd Cong., 1st sess., Report of the Committee to Investigate Concentration of Money and Credit (Washington, 1913).Google Scholar Released to public February 13, 1913. Samuel Untermyer was chief counsel to the investigation popularly called the Pujo Committee Investigation after the subcommittee chairman, Arsène Pujo.
15 Charles Sanger Mellen, President of the New York, New Haven, and Hartford Railroad (1903–1913), who sought monopoly control over New England rail transportation. The scandal over the New Haven aroused the public to indignation over management by interlocking directorates and helped produce the Clayton Anti-Trust Act (October 15, 1914).
16 J. P. Morgan & Company, a private investment bank, had been instrumental in American railroad reorganization since the late 1880's. Through control of other financial institutions or through their willing cooperation, the firm was very influential in industrial finance and organization.
17 “Banker-Management: Why It Has Failed — A Lesson From the New Haven,” Harper's Weekly, August 10, 1913. In 1907, Brandeis had predicted the difficulties for the New Haven because of financial mismanagement. Mason, Brandeis, 184–85. In “Banker-Management,” Brandeis blamed the board of directors, especially Morgan, as the dominant member. The New Haven passed its dividend on December 10, 1913. The Boston & Maine (a branch line) passed its dividend in the second quarter of 1913. Brandeis, “Banker-Management,” 14.
18 U.S. Senate, 63rd Cong., 2nd sess., Doc. No. 543, Evidence taken before the United States Interstate Commerce Commission Relative to the Financial Transactions of the New York, New Haven, and Hartford Railroad Company, together with the Report thereon, 2 vols. (Washington, 1914).Google Scholar The commission reported that “the result of our research … has been to disclose one of the most glaring instances of maladministration revealed in all the history of American railroading.” of an increase in capitalization of $324,000,000 from 1903 to 1913, $204,000,000 was expended for operations outside of its railroad sphere. Ibid., I, 2. While Mellen believed that interlocking directorates between railroad systems was bad, unity of the lines of a region into one system through stock ownership was a good thing. Ibid., I, 869–870.
19 It seems clear that when Brandeis spoke of the freedom of the individual he meant the freedom of independent management.
20 Lamont believed that the Pujo Committee hearings caused the death of J. P. Morgan. He wrote that the tone of the hearings amazed Morgan and caused him great indignation. “Within three or four months, out of a seemingly clear sky his health failed and after two weeks' illness, from no particular malady, he died.” Morgan was seventy-six at the time of his death. Thomas W. Lamont to Henry Steele Commager, March 17, 1939, Lamont Papers, file 20–5.
21 This point and the three following appeared subsequent to the meeting with Lamont in an article entitled, “Serve One Master Only,” Harper's Weekly, December 13, 1913, 10–12. The points are amplified in his testimony before the Hearings before the Committee on the Judiciary, House of Representatives, 63rd Congress, 2d Session in Trust Legislation (Washington, 1914), 637–695.Google Scholar The subject at these hearings was the Clayton bill.
22 Berle, A. A. and Means, Gardiner C. agreed with and amplified Lamont's point in The Modern Corporation and Private Property (New York, 1935), 230–31.Google Scholar
23 For Union Pacific's investment policy, see Claggett, Stuart, Railroad Reorganization, reprinted by Augustus Kelley, M. (New York, 1967), 260.Google Scholar
24 U.S. Statutes at Large, 59th Cong., 1905–1907 Chap. 3591, 585; “From and after May first, 1908, it shall be unlawful for any railroad company to transport from any State, Territory, or the District of Columbia, to any other State, Territory or the District of Columbia, or to any foreign country, any article or commodity, other than timber and the manufactured products thereof, manufactured, mined, or produced by it, or under its authority, or which it may own in whole, or in part, or in which it may have any interest direct or indirect except such articles or commodities as may be necessary and intended for its use in the conduct of its business as a common carrier.”
25 Daniel Willard was president of the Baltimore and Ohio Railroad. Walker Hines was chairman of the executive committee of the Atchison, Topeka, and the Santa Fe Railroad.
26 Charles Steele, lawyer, partner in J. P. Morgan & Company and on the board of directors of several leading industrial and transportation corporations.
27 Francis Lynde Stetson, counsel for J. P. Morgan, J. P. Morgan & Company, and for several dominant transportation and industrial corporations.
28 Henry P. Davison, a member of J. P. Morgan & Company.
29 Probably U.S. Bureau of Corporations, Report of the Commissioner of Corporations on the Steel Industry, Part I. (Washington, 1911).Google Scholar
30 The corporation's stock was overcapitalized and acted as a wet blanket on the stock market at all times until the bond conversion of 1902–1903. Ibid., I, 14–39, 355.
31 House of Representatives, 62nd Cong., 2nd sess., Report of the Committee to Investigate Concentration of Money and Credit (Washington, 1913), II, 1315.Google Scholar J. P. Morgan & Company held 51% of the shares of the Equitable Life Assurance Society.
32 George F. Baker, director, trustee, officer, or manager of fifty-seven corporations including some of the most powerful in the nation.
33 Probably Letter from Messrs. J. P. Morgan & Company in response to the Invitation of the sub-committee (Hon. A. P. Pujo, Chairman) of the Committee on Banking and Currency of the House of Representatives (New York, 1913).Google Scholar Pamphlet copy at the Library of Congress. In it Lamont pointed to an outworn banking system rather than the schemes of men as the cause of the nation's financial ills.
34 See note 22 above.
35 In January 1914, J. P. Morgan and other members of the Morgan firm announced their resignations from the boards of directors of thirty powerful corporations including more than a dozen railroads. The act was generally construed as a capitulation to the money trust investigations and the New Haven failure. At the same time the firm retained one directorship on each of the corporations with which it had been affiliated. See The Independent, January 12, 1914, 74 and Literary Digest, January 17, 1914, 89–92. As a result of the Clayton Anti-Trust Act (October 15, 1914) which aimed at interlocking directorates in financial institutions, many more changes were made in bank boards of directors in 1916 (as specified by the Act). See The Independent, January 24, 1916, 136. Interlocking directorates continued to have considerable influence in industry and finance, however, because it proved difficult to determine that certain directors were placed in a corporation for the deliberate purpose of restraining trade; Blair, John M., Seeds of Destruction (New York, 1938), 128, 236–267.Google Scholar
