Financial Capitalists Focus Entirely on Wealth
As we have said, the stage of financial capitalism did not place emphasis on the exchange of
goods or the production of goods as the earlier stages of commercial capitalism and industrial
capitalism had done. In fact, financial capitalism had little interest in goods at all, but was
concerned entirely with claims on wealth—stocks, bonds, mortgages, insurance, deposits, proxies, interest rates, and such.
Financial Capitalists Discover New Ways to Make Money Out of Nothing
It invested capital not because it desired to increase the output of goods or services but because it desired to float issues (frequently excess issues) of securities on this productive basis. It built railroads in order to sell securities, not in order to transport goods; it constructed great steel corporations to sell securities, not in order to make steel, and so on. But, incidentally, it greatly increased the transport of goods, the output of steel, and the production of other goods. By the middle of the stage of financial capitalism, however, the organization of financial capitalism had evolved to a highly sophisticated level of security promotion and speculation which did not require any productive investment as a basis. Corporations were built upon corporations in the form of holding companies, so that securities were issued in huge quantities, bringing profitable fees and commissions to financial capitalists without any increase in economic production whatever. Indeed, these financial capitalists discovered that they could not only make killings out of the issuing of such securities, they could also make killings out of the bankruptcy of such corporations, through the fees and commissions of reorganization. A very pleasant cycle of flotation, bankruptcy, flotation, bankruptcy began to be practiced by these financial capitalists. The more excessive the flotation, the greater the profits, and the more imminent the bankruptcy. The more frequent the bankruptcy, the greater the profits of reorganization and the sooner the opportunity of another excessive flotation with its accompanying profits. This excessive stage reached its highest peak only in the United States. In Europe it was achieved only in isolated cases.
Finance Capitalism Opened the Way for Centralization of World Economic Control in the Hands of the International Banking Fraternity
The growth of financial capitalism made possible a centralization of world economic control and a use of this power for the direct benefit of financiers and the indirect injury of all other economic groups. This concentration of power, however, could be achieved only by using methods which planted the seeds which grew into monopoly capitalism. Financial control could be exercised only imperfectly through credit control and interlocking directorates. In order to strengthen such control, some measure of stock ownership was necessary. But stock ownership was dangerous to banks because their funds consisted more of deposits (that is, short-term obligations) than of capital (or long-term obligations). This meant that banks which sought economic control through stock ownership were putting short-term obligations into long-term holdings. This was safe only so long as these latter could be liquidated rapidly at a price high enough to pay short-term obligations as they presented themselves. But these holdings of securities were bound to become frozen because both the economic and the financial systems were deflationary. The economic system was deflationary because power production and modern technology gave a great increase in the supply of real wealth. This meant that in the long run the control by banks was doomed by the progress of technology. The financial system was also deflationary because of the bankers' insistence on the gold standard, with all that this implies.
The Money Power Creates an Ingenious Plan to Create and Control Giant Monopolies
To escape from this dilemma, the financial capitalists acted upon two fronts. On the business
side, they sought to sever control from ownership of securities, believing they could hold the former and relinquish the latter. On the industrial side, they sought to advance monopoly and restrict production, thus keeping prices up and their security holdings liquid.
The efforts of financiers to separate ownership from control were aided by the great capital
demands of modern industry. Such demands for capital made necessary the corporation form of
business organization. This inevitably brings together the capital owned by a large number of persons to create an enterprise controlled by a small number of persons. The financiers did all they could to make the former number as large as possible and the latter number as small as possible. The former was achieved by stock splitting, issuing securities of low par value, and by highpressure security salesmanship. The latter was achieved by plural-voting stock, nonvoting stock, pyramiding of holding companies, election of directors by cooptation, and similar techniques. The result of this was that larger and larger aggregates of wealth fell into the control of smaller and smaller groups of men.
Showing posts with label Tragedy and Hope. Show all posts
Showing posts with label Tragedy and Hope. Show all posts
Monday, May 10, 2010
Wednesday, May 5, 2010
Tragedy and Hope
The Currency Dictator of Europe
This power of the Bank of England and of its governor was admitted by most qualified
observers. In January, 1924, Reginald McKenna, who had been chancellor of the Exchequer in 1915-1916, as chairman of the board of the Midland Bank told its stockholders: "I am afraid the ordinary citizen will not like to be told that the banks can, and do, create money.... And they who control the credit of the nation direct the policy of Governments and hold in the hollow of their hands the destiny of the people." In that same year, Sir Drummond Fraser, vicepresident of the Institute of Bankers, stated, "The Governor of the Bank of England must be the
autocrat who dictates the terms upon which alone the Government can obtain borrowed money." On September 26, 1921, The Financial Times wrote, "Half a dozen men at the top of the Big Five Banks could upset the whole fabric of government finance by refraining from renewing Treasury Bills." Vincent Vickers, who had been a director of the bank for nine years, said, "Since 1919 the monetary policy of the Government has been the policy of the Bank of England and the policy of the Bank of England has been the policy of Mr. Montagu Norman." On November 1l, 1927, the Wall Street Journal called Mr. Norman "the currency dictator of Europe." This fact was admitted by Mr. Norman himself before the court of the bank on March 21, 1930, and before the Macmillan Committee five days later.
Montagu Norman's position may be gathered from the fact that his predecessors in the
governorship, almost a hundred of them, had served two-year terms, increased rarely, in time of crisis, to three or even four years. But Norman held the position for twenty-four years (1920-1944), during which he became the chief architect of the liquidation of Britain's global preeminence.
Norman Viewed Governments and Democracy As Threats to the Money Power
Norman was a strange man whose mental outlook was one of successfully suppressed hysteria or even paranoia. He had no use for governments and feared democracy. Both of these seemed to him to be threats to private banking, and thus to all that was proper and precious in human life. Strongwilled, tireless, and ruthless, he viewed his life as a kind of cloak-and-dagger struggle with the forces of ... [sound] money .... When he rebuilt the Bank of England, he constructed it as a fortress prepared to defend itself against any popular revolt, with the sacred gold reserves hidden in deep vaults below the level of underground waters which could be released to cover them by pressing a button on the governor's desk. For much of his life Norman rushed about the world by fast steamship, covering tens of thousands of miles each year, often traveling incognito, concealed by a black slouch hat and a long black cloak, under the assumed name of "Professor Skinner." His embarkations and debarkations onto and off the fastest ocean liners of the day, sometimes through the freight hatch, were about as unobserved as the somewhat similar passages of Greta Garbo in the same years, and were carried out in a similarly "sincere" effort at self-effacement.
Montagu Norman's Devoted Colleague in New York City
Norman had a devoted colleague in Benjamin Strong, the first governor of the Federal
Reserve Bank of New York. Strong owed his career to the favor of the Morgan Bank, especially of Henry P. Davison, who made him secretary of the Bankers Trust Company of New York (in succession to Thomas W. Lamont) in 1904, used him as Morgan's agent in the banking rearrangements following the crash of 1907, and made him vice-president of the Bankers Trust (still in succession to Lamont) in 1909. He became governor of the Federal Reserve Bank of New York met Norman for the first time, and they at once made an agreement to work in cooperation for the financial practices they both revered.
These financial practices were explicitly stated many times in the voluminous correspondence between these two men and in many conversations they had, both in their work and at their leisure (they often spent their vacations together for weeks, usually in the south of France).
Norman and Strong Seek to Operate Central Banks Free from Any Political Control
In the 1920's, they were determined to use the financial power of Britain and of the United States to force all the major countries of the world to go on the gold standard and to operate it through central banks free from all political control, with all questions of international finance to be settled by agreements by such central banks without interference from governments.
Norman and Strong Were Mere Agents of the Powerful Bankers Who Remained Behind the Scenes and Operated in Secret
It must not be felt that these heads of the world's chief central banks were themselves substantive powers in world finance. They were not. Rather, they were the technicians and agents of the dominant investment bankers of their own countries, who had raised them up and were perfectly capable of throwing them down. The substantive financial powers of the world were in the hands of these investment bankers (also called "international" or "merchant" bankers) who remained largely behind the scenes in their own unincorporated private banks. These formed a system of international cooperation and national dominance which was more private, more powerful, and more secret than that of their agents in the central banks. This dominance of investment bankers was based on their control over the flows of credit and investment funds in their own countries and throughout the world. They could dominate the financial and industrial systems of their own countries by their influence over the flow of current funds through bank loans, the discount rate, and the re-discounting of commercial debts; they could dominate governments by their control over current government loans and the play of the international exchanges. Almost all of this power was exercised by the personal influence and prestige of men who had demonstrated their ability in the past to bring off successful financial coupe, to keep their word, to remain cool in a crisis, and to share their winning opportunities with their associates. In this system the Rothschilds had been preeminent during much of the nineteenth century, but, at the end of that century, they were being replaced by J. P. Morgan whose central office was in New York, although it was always operated as if it were in London (where it had, indeed, originated as George Peabody and Company in 1838). Old J. P. Morgan died in 1913, but was succeeded by his son of the same name (who had been trained in the London branch until 1901), while the chief decisions in the firm were increasingly made by Thomas W. Lamont after 1924. But these relationships can be described better on a national basis later. At the present stage we must follow the efforts of the
central bankers to compel the world to return to the gold standard of 1914 in the postwar conditions following 1918.
This power of the Bank of England and of its governor was admitted by most qualified
observers. In January, 1924, Reginald McKenna, who had been chancellor of the Exchequer in 1915-1916, as chairman of the board of the Midland Bank told its stockholders: "I am afraid the ordinary citizen will not like to be told that the banks can, and do, create money.... And they who control the credit of the nation direct the policy of Governments and hold in the hollow of their hands the destiny of the people." In that same year, Sir Drummond Fraser, vicepresident of the Institute of Bankers, stated, "The Governor of the Bank of England must be the
autocrat who dictates the terms upon which alone the Government can obtain borrowed money." On September 26, 1921, The Financial Times wrote, "Half a dozen men at the top of the Big Five Banks could upset the whole fabric of government finance by refraining from renewing Treasury Bills." Vincent Vickers, who had been a director of the bank for nine years, said, "Since 1919 the monetary policy of the Government has been the policy of the Bank of England and the policy of the Bank of England has been the policy of Mr. Montagu Norman." On November 1l, 1927, the Wall Street Journal called Mr. Norman "the currency dictator of Europe." This fact was admitted by Mr. Norman himself before the court of the bank on March 21, 1930, and before the Macmillan Committee five days later.
Montagu Norman's position may be gathered from the fact that his predecessors in the
governorship, almost a hundred of them, had served two-year terms, increased rarely, in time of crisis, to three or even four years. But Norman held the position for twenty-four years (1920-1944), during which he became the chief architect of the liquidation of Britain's global preeminence.
Norman Viewed Governments and Democracy As Threats to the Money Power
Norman was a strange man whose mental outlook was one of successfully suppressed hysteria or even paranoia. He had no use for governments and feared democracy. Both of these seemed to him to be threats to private banking, and thus to all that was proper and precious in human life. Strongwilled, tireless, and ruthless, he viewed his life as a kind of cloak-and-dagger struggle with the forces of ... [sound] money .... When he rebuilt the Bank of England, he constructed it as a fortress prepared to defend itself against any popular revolt, with the sacred gold reserves hidden in deep vaults below the level of underground waters which could be released to cover them by pressing a button on the governor's desk. For much of his life Norman rushed about the world by fast steamship, covering tens of thousands of miles each year, often traveling incognito, concealed by a black slouch hat and a long black cloak, under the assumed name of "Professor Skinner." His embarkations and debarkations onto and off the fastest ocean liners of the day, sometimes through the freight hatch, were about as unobserved as the somewhat similar passages of Greta Garbo in the same years, and were carried out in a similarly "sincere" effort at self-effacement.
Montagu Norman's Devoted Colleague in New York City
Norman had a devoted colleague in Benjamin Strong, the first governor of the Federal
Reserve Bank of New York. Strong owed his career to the favor of the Morgan Bank, especially of Henry P. Davison, who made him secretary of the Bankers Trust Company of New York (in succession to Thomas W. Lamont) in 1904, used him as Morgan's agent in the banking rearrangements following the crash of 1907, and made him vice-president of the Bankers Trust (still in succession to Lamont) in 1909. He became governor of the Federal Reserve Bank of New York met Norman for the first time, and they at once made an agreement to work in cooperation for the financial practices they both revered.
These financial practices were explicitly stated many times in the voluminous correspondence between these two men and in many conversations they had, both in their work and at their leisure (they often spent their vacations together for weeks, usually in the south of France).
Norman and Strong Seek to Operate Central Banks Free from Any Political Control
In the 1920's, they were determined to use the financial power of Britain and of the United States to force all the major countries of the world to go on the gold standard and to operate it through central banks free from all political control, with all questions of international finance to be settled by agreements by such central banks without interference from governments.
Norman and Strong Were Mere Agents of the Powerful Bankers Who Remained Behind the Scenes and Operated in Secret
It must not be felt that these heads of the world's chief central banks were themselves substantive powers in world finance. They were not. Rather, they were the technicians and agents of the dominant investment bankers of their own countries, who had raised them up and were perfectly capable of throwing them down. The substantive financial powers of the world were in the hands of these investment bankers (also called "international" or "merchant" bankers) who remained largely behind the scenes in their own unincorporated private banks. These formed a system of international cooperation and national dominance which was more private, more powerful, and more secret than that of their agents in the central banks. This dominance of investment bankers was based on their control over the flows of credit and investment funds in their own countries and throughout the world. They could dominate the financial and industrial systems of their own countries by their influence over the flow of current funds through bank loans, the discount rate, and the re-discounting of commercial debts; they could dominate governments by their control over current government loans and the play of the international exchanges. Almost all of this power was exercised by the personal influence and prestige of men who had demonstrated their ability in the past to bring off successful financial coupe, to keep their word, to remain cool in a crisis, and to share their winning opportunities with their associates. In this system the Rothschilds had been preeminent during much of the nineteenth century, but, at the end of that century, they were being replaced by J. P. Morgan whose central office was in New York, although it was always operated as if it were in London (where it had, indeed, originated as George Peabody and Company in 1838). Old J. P. Morgan died in 1913, but was succeeded by his son of the same name (who had been trained in the London branch until 1901), while the chief decisions in the firm were increasingly made by Thomas W. Lamont after 1924. But these relationships can be described better on a national basis later. At the present stage we must follow the efforts of the
central bankers to compel the world to return to the gold standard of 1914 in the postwar conditions following 1918.
Carroll Quigley, Tragedy and Hope: Reflation and Inflation 1897-1925
The Money Power Seeks to Create a World System of Financial Control in Private Hands Able to Dominate Every Nation on Earth
In addition to these pragmatic goals, the powers of financial capitalism had another far reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basle, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank, in the hands of men like Montagu Norman of the Bank of England, Benjamin Strong of the New York Federal Reserve Bank, Charles Rist of the Bank of France, and Hjalmar Schacht of the Reichsbank, sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world.
International Bankers Seek and Make Agreements on All the Major Financial Problems of the World
In each country the power of the central bank rested largely on its control of credit and money supply. In the world as a whole the power of the central bankers rested very largely on their control of loans and of gold flows. In the ... system, these central bankers were able to mobilize resources to assist each other through the B.I.S., where payments between central banks could be made by bookkeeping adjustments between the accounts which the central banks of the world kept there.
The B.I.S. as a private institution was owned by the seven chief central banks and was operated by the heads of these, who together formed its governing board. Each of these kept a substantial deposit at the B.I.S., and periodically settled payments among themselves(and thus between the major countries of the world) by bookkeeping in order to avoid shipments of gold. They made agreements on all the major financial problems of the world, as well as on many of the economic and political problems, especially in reference to loans, payments, and the economic future of the chief areas of the globe.
The Bank for International Settlements Becomes the Mechanism for Allowing the Three Financial Centers of the World to Act As One
The B.I.S. is generally regarded as the apex of the structure of financial capitalism whose remote origins go back to the creation of the Bank of England in 1694 and the Bank of France in 1803. As a matter of fact its establishment in 1929 was rather an indication that the centralized world financial system of 1914 was in decline. It was set up rather to remedy the decline of London as the world's financial center by providing a mechanism by which a world with three chief financial centers in London, New York, and Paris could still operate as one.
The B.I.S. was a ... effort to cope with the problems arising from the growth of a number of centers. It was intended to be the world cartel of ever-growing national financial powers by assembling the nominal heads of these national financial centers.
Montagu Norman Was the Commander-in-Chief of the World System of Banking Control
The commander in chief of the world system of banking control was Montagu Norman,
Governor of the Bank of England, who was built up by the private bankers to a position where he was regarded as an oracle in all matters of government and business. In government the power of the Bank of England was a considerable restriction on political action as early as 1819 but an effort to break this power by a modification of the bank's charter in 1844 failed. In 1852,Gladstone, then chancellor of the Exchequer and later prime minister, declared, "The hinge of the whole situation was this: the government itself was not to be a substantive power in
matters of Finance, but was to leave the Money Power supreme and unquestioned."
In addition to these pragmatic goals, the powers of financial capitalism had another far reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basle, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank, in the hands of men like Montagu Norman of the Bank of England, Benjamin Strong of the New York Federal Reserve Bank, Charles Rist of the Bank of France, and Hjalmar Schacht of the Reichsbank, sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world.
International Bankers Seek and Make Agreements on All the Major Financial Problems of the World
In each country the power of the central bank rested largely on its control of credit and money supply. In the world as a whole the power of the central bankers rested very largely on their control of loans and of gold flows. In the ... system, these central bankers were able to mobilize resources to assist each other through the B.I.S., where payments between central banks could be made by bookkeeping adjustments between the accounts which the central banks of the world kept there.
The B.I.S. as a private institution was owned by the seven chief central banks and was operated by the heads of these, who together formed its governing board. Each of these kept a substantial deposit at the B.I.S., and periodically settled payments among themselves(and thus between the major countries of the world) by bookkeeping in order to avoid shipments of gold. They made agreements on all the major financial problems of the world, as well as on many of the economic and political problems, especially in reference to loans, payments, and the economic future of the chief areas of the globe.
The Bank for International Settlements Becomes the Mechanism for Allowing the Three Financial Centers of the World to Act As One
The B.I.S. is generally regarded as the apex of the structure of financial capitalism whose remote origins go back to the creation of the Bank of England in 1694 and the Bank of France in 1803. As a matter of fact its establishment in 1929 was rather an indication that the centralized world financial system of 1914 was in decline. It was set up rather to remedy the decline of London as the world's financial center by providing a mechanism by which a world with three chief financial centers in London, New York, and Paris could still operate as one.
The B.I.S. was a ... effort to cope with the problems arising from the growth of a number of centers. It was intended to be the world cartel of ever-growing national financial powers by assembling the nominal heads of these national financial centers.
Montagu Norman Was the Commander-in-Chief of the World System of Banking Control
The commander in chief of the world system of banking control was Montagu Norman,
Governor of the Bank of England, who was built up by the private bankers to a position where he was regarded as an oracle in all matters of government and business. In government the power of the Bank of England was a considerable restriction on political action as early as 1819 but an effort to break this power by a modification of the bank's charter in 1844 failed. In 1852,Gladstone, then chancellor of the Exchequer and later prime minister, declared, "The hinge of the whole situation was this: the government itself was not to be a substantive power in
matters of Finance, but was to leave the Money Power supreme and unquestioned."
Saturday, April 24, 2010
Tragedy and Hope Excerpt (p. 138)
The traditional culture of China, as elsewhere in Asia, consisted of a military and bureaucratic hierarchy superimposed on a great mass of hardworking peasantry. It is customary, in studying this subject, to divide this hierarchy into three levels. Politically, these three levels consisted of the imperial authority at the top, an enormous hierarchy of imperial and provincial officials in the middle, and the myriad of semi-patriarchal, semi-democratic local villages at the bottom.
Socially, this hierarchy was similarly divided into the ruling class, the gentry, and the peasants. And, economically, there was a parallel division, the uppermost group deriving its incomes as tribute and taxes from its possession of military and political power, while the middle group derived its incomes from economic sources, as interest on loans, rents from lands, and the profits of commercial enterprise, as well as from the salaries, graft, and other emoluments arising from his middle group's control of the bureaucracy. At the bottom the peasantry, which was the only really productive group in the society, derived its incomes from the sweat of its collective brows, and had to survive on what was left to it after a substantial fraction of its product had gone to the two higher groups in the form of rents, taxes, interest, customary bribes (called "squeeze"), and excessive profits on such purchased "necessities" of life as salt, iron, or opium.
Socially, this hierarchy was similarly divided into the ruling class, the gentry, and the peasants. And, economically, there was a parallel division, the uppermost group deriving its incomes as tribute and taxes from its possession of military and political power, while the middle group derived its incomes from economic sources, as interest on loans, rents from lands, and the profits of commercial enterprise, as well as from the salaries, graft, and other emoluments arising from his middle group's control of the bureaucracy. At the bottom the peasantry, which was the only really productive group in the society, derived its incomes from the sweat of its collective brows, and had to survive on what was left to it after a substantial fraction of its product had gone to the two higher groups in the form of rents, taxes, interest, customary bribes (called "squeeze"), and excessive profits on such purchased "necessities" of life as salt, iron, or opium.
Wednesday, April 14, 2010
Control of Political Parties in America (Tragedy and Hope)
When the business interests, led by William C. Whitney, pushed through the first installment of civil service reform in 1883, they expected that they would be able to control both political parties equally. Indeed, some of them intended to contribute to both and to allow an alternation of the two parties in public office in order to conceal their own influence, inhibit any exhibition of independence by politicians, and allow the electorate to believe that they were exercising their own
free choice. Such an alternation of the parties on the Federal scene occurred in the period 1880-1896, with business influence (or at least Morgan's influence) as great in Democratic as in Republican administrations. But in 1896 came a shocking experience. The business interests discovered that they could control the Republican Party to a large degree but could not be nearly so confident of controlling the Democratic Party. The reason for this difference lay in the existence of the Solid South as a Democratic section with almost no Republican voters. This section sent
delegates to the Republican National Convention as did the rest of the country, but, since these delegates did not represent voters, they came to represent those who were prepared to pay their expenses to the Republican National Convention. In this way these delegates came to represent the business interests of the North, whose money they accepted. Mark Hanna has told us in detail how he spent much of the winter of 1895-1896 in Georgia buying over two hundred delegates for McKinley to the Republican National Convention of 1896. As a result of this system, about a quarter of the votes in a Republican Convention were "controlled" votes from the Solid South, not representing the electorate. After the split in the Republican Party in 1912, this portion of the delegates was reduced to about 17 percent.
Tragedy and Hope, A History of the World in Our Time
free choice. Such an alternation of the parties on the Federal scene occurred in the period 1880-1896, with business influence (or at least Morgan's influence) as great in Democratic as in Republican administrations. But in 1896 came a shocking experience. The business interests discovered that they could control the Republican Party to a large degree but could not be nearly so confident of controlling the Democratic Party. The reason for this difference lay in the existence of the Solid South as a Democratic section with almost no Republican voters. This section sent
delegates to the Republican National Convention as did the rest of the country, but, since these delegates did not represent voters, they came to represent those who were prepared to pay their expenses to the Republican National Convention. In this way these delegates came to represent the business interests of the North, whose money they accepted. Mark Hanna has told us in detail how he spent much of the winter of 1895-1896 in Georgia buying over two hundred delegates for McKinley to the Republican National Convention of 1896. As a result of this system, about a quarter of the votes in a Republican Convention were "controlled" votes from the Solid South, not representing the electorate. After the split in the Republican Party in 1912, this portion of the delegates was reduced to about 17 percent.
Tragedy and Hope, A History of the World in Our Time
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