Thursday, May 15, 2014

Grosscup on Anti-Trust Laws, IV: Diffusion of Wealth in the United States

With all the discussion, acrimonious and otherwise, stirred up by Pope Francis’s tweet about inequality being the root of all social evil, it’s interesting to see that Judge Grosscup was saying pretty much the same thing more than a century ago.  As His Honor continued,

Diffusion of Wealth in the United States

The second fact is, that though the industrial property of the country is not widely diffused among the people, the people have the financial means to bring about such diffusion — that it is on their individual wealth, poured through the financial streams into Wall Street, that all the great corporations now chiefly rest.

Small savings/Working capital
In the last annual report of the Comptroller of the Currency it is stated that there are in operation in the United States twenty-one thousand three hundred and ninety-six banks and banking institutions, with total deposits of twelve billion six hundred and twenty-eight millions seven hundred and twenty-seven thousand six hundred and sixty-five dollars. This does not include re-deposits by one banking institution in another; nor does it include the large sums held by life insurance companies in trust for their policy holders. What this huge total of nearly thirteen billion dollars does represent is the individual wealth of the American public, that, un-invested in the property of the country by the depositors directly, is put in the financial institutions of the country, from which it is, of course, eventually taken out for investment, chiefly by those who borrow it for that purpose.

To some extent these deposits represent what we call the working capital of the country — the particular amounts that the merchant, the manufacturer, the railway company, and other individual depositors always keep on hand in bank, to meet their current needs; and to some extent these deposits are kept in the bank vaults as reserve. But compared with the whole, neither this reserve nor this working capital is considerable. Inquiry of one of the greatest of the railroads, whose securities at present market values are between three and four hundred million dollars, disclosed that that road carries an average bank balance of about one million, or less than one dollar for every three hundred of its market value. Inquiry of a leading merchant shows that his average bank balance is proportionately larger than this, but considerably less than one dollar in one hundred of the value of his establishment. The largest average bank balance carried, as working capital, that I have discovered, is that of the largest manufacturing corporation of the United States — the United States Steel Company — a corporation that, beginning with the raw material, turns it over again and again until the finished product is delivered to the purchaser — in that way plainly calling for the largest kind of cash capital. But even here the ratio of bank balance to the total value of the properties is only one in eighteen; so that assuming that the enterprises of the country that require distinctive working capital are of the value of fifty billion dollars — nearly one-half of the country’s entire wealth — the bank deposits representing such working capital cannot much exceed one billion of the nearly thirteen billion dollars that constitute the total of the deposits — an estimate unaffected, too, by the fact whether such working capital is first borrowed from the bank and then re-deposited, as is often the case, or is in the first instance deposited out of the depositor’s own ready means. The truth is, that the great bulk of the thirteen billion dollars — a deposit without example anywhere else in the world, is either utilized by the banks themselves, in their business of buying bonds in large quantities and selling them out at retail, or is loaned by the banks to those who are doing the actual business of the country, and carrying the corporate securities of the country. Or, stated in another way, the American people have today in bank a sum of money unemployed for investment directly by themselves, but employed by a comparatively small borrowing class, that nearly equals, at their present market prices, the value of all the railroads of the country put together — stocks, bonds and all; and that increase by what the people of the country individually hold, in the way of bonds, stocks and other corporate securities, constitutes almost the entire wealth on which the corporate business of the country actually rests. So much then for this great fact — the fact that were all the banks and saving societies to liquidate at once, paying back to the depositors at their present market prices, the corporate securities into which, through the small borrowing class, a great part of these deposits have gone, there would immediately turn up throughout every quarter of the country, and in direct possession and ownership of those of our people who have saved anything at all, in addition to the corporate bonds and stocks already held by them, so large a part of the remaining corporate securities, that it could be truthfully said that the owners of the property of America were the people of America — the property that is incorporated as well as the property that is unincorporated.

(Next week: “Securing an Interest in Combinations”)


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