The more we find out about Judge Grosscup, the more there is
to admire. For example, Grosscup had a
temporary rift with Theodore Roosevelt over some obscure points of law in the
Standard Oil rebate case in 1907/1908.
Grosscup found on appeal that the enormous fine ($29 million plus),
intended to bring Standard Oil to its knees, had been illegally levied.
Yes, Grosscup believed that Standard Oil should be broken up
— but that it must be done legally, not by distorting, reinterpreting, or
rewriting the law to do it. Roosevelt
wanted Standard Oil brought down at any cost, and didn’t speak to Grosscup for
four years. They made up in 1912 and Grosscup
endorsed Roosevelt for president as the Progressive Party candidate in the
four-way race between William Howard Taft (Republican), Woodrow Wilson
(Democrat), Theodore Roosevelt (Progressive), and Eugene C. Debs (Socialist). Need we remind our readers that “progressive”
had a completely different meaning in 1912 than it does now?
This “long lost” speech we discovered was given shortly
before Grosscup and Roosevelt had their falling out — and it puts Grosscup
solidly against monopolies and trusts.
He was no friend of Rockefeller, as some accused — but he was not going
to violate his principles to achieve an end.
This speech reveals that Grosscup was worried about the
survival of the ordinary American, every child, woman, and man, and thus the
family as a whole, which — stripped of its economic security by lack of
ownership — was in deadly peril, as was the country as a whole. That’s why we’ve linked this speech (as well
as Grosscup’s articles) to the “Five
for the Family” campaign. The key is
capital ownership, not more government or private sector control of ordinary
people. That is why Grosscup believed
that —
Our Legislation Wrong In Principle
But though what I am saying means, perhaps, that the aim of
the American public thus far, in its treatment of incorporated industry, is not
directed toward the right mark, it does not mean, that in the great new
industrial life that this generation of men is living, so largely an
incorporated life, there is nothing that is wrong. Somewhere in that life,
something is wrong; for though in the midst of material prosperity, the country
is without contentment; and there must be something wrong in a prosperity that
does not bring contentment — something that, in the nature of things, in some
way pinches and wounds some deep-seated human instincts. Nor does it mean that
the administration of President Roosevelt has been a failure. As a preparation
of the public mind for the great practical thing yet to be accomplished, that
administration has been a great success.
Corporations Represent Concentrated Control
What, then, is the wrong that lies at the bottom of the
popular disquiet, and what is the work yet to be done? I can best answer that
question, perhaps, in the statement of three facts. The first of these is: that
not only is the corporation to modern industry organized, what government is to
mankind politically organized, but, that as it is through effective free
government alone that political power is diffused among the people, it is
through the corporation alone that the ownership of the industries of the
country can ever be widely diffused among the people; for outside the field of
agricultural properties, property is not now held, each individual piece by some
individual man; between the man who seeks to own, and the thing to be owned,
there is, throughout the industrial field, the State-created intermediary
called the corporation.
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.
 |
| Wealth of the People stored in banks, borrowed by others. |
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 redeposits 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, uninvested 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.
 |
| J.P. Morgan, founder of U.S. Steel and World's Richest Man |
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.
* * * *
From the Just Third Way point of view, Grosscup’s analysis
embodied a flaw. It relied on “past
savings,” that is, on past reductions in consumption held in the form of
money. As Dr. Harold Glenn Moulton
pointed out in his 1935 classic, The
Formation of Capital, however, past savings are actually the least
efficient to finance new capital formation.
Why? Because reducing
consumption cuts demand for consumer goods (obviously), and the demand for new
capital goods relies on there being an increase, not a decrease, in the demand
for consumer goods, or no rational person would finance new capital — if it’s
not going to pay for itself out of future profits (which won’t materialize if
people aren’t consuming the increased goods and services), you’d just be
throwing your money away.
What’s the solution?
Finance using “future savings”: not past reductions in consumption
turned into money, but future increases in production turned into money. Our “Five
for the Family” campaign wants world leaders to know that, given the right
tax and monetary reforms, every family, and every child, woman, and man can
become an owner of capital without taking anything from anybody else — and
everybody can be better off.