Other People's Money
OTHER PEOPLE'S MONEY
Other People's Money and How the Bankers Use It (1914) by Louis Dembitz Brandeis (1856–1941) is a key document of the Progressive Era and that particular genre of literature that Theodore Roosevelt characterized as muckraking. Few other works depict the sense of moral outrage and political anger at what the industrialization of America, and the concentration of great wealth in a few hands, had done to traditional social and political values. Brandeis, however, was not a Don Quixote tilting at imaginary windmills. The Industrial Revolution following the Civil War had indeed transformed the United States. Whatever one might argue about the material benefits that factories and mills had brought to the nation, one could not deny that this "progress" had come at a high cost. The price that the country paid for this progress, and what it meant to the United States, is central both to Other People's Money and to the Progressive movement itself.
EARLY REFORM EFFORTS
Louis Brandeis had been a successful attorney in Boston when, like many other Progressives, he became interested in reform. In a pattern similar to that of other activists at the turn of the twentieth century, he first engaged in local reforms in Boston, in particular the fight against traction interests that attempted to bilk the city and its citizens through high commuter transportation costs. He then moved to the state and regional level, fighting John Pierpont (J. P.) Morgan's efforts to monopolize New England transportation. He also got involved in the great insurance scandals of 1906 and helped focus criticism on industrial insurance plans that allowed large companies to charge outrageous prices to workers for minimal coverage. Brandeis always considered his greatest accomplishment to be the creation of savings bank life insurance that gave workers decent coverage at a fair price.
Brandeis burst onto the national scene in 1908, when he defended a state maximum-hours law before the Supreme Court in Muller v. Oregon. His creative use of data to instruct the Court on the facts of industrial life won praise from fellow Progressives, and the "Brandeis brief" became a major tool in the arsenal of reformers defending protective labor legislation before courts that were often hostile to business reform.
In 1912 Brandeis met Woodrow Wilson and after Wilson's election as president in November 1912 played a key role in fashioning the New Freedom reforms, especially the Federal Reserve Act, the Federal Trade Commission Act, and the Clayton Antitrust Act. In crafting this last law, Wilson relied heavily on a series of articles Brandeis had written.
BANKING IN THE SPOTLIGHT
Representative Arsène Paulin Pujo, a Democratic congressperson from Louisiana and head of the House Banking and Currency Committee, had held hearings in 1912 to discover whether a money trust actually existed as many reformers claimed and, if it did, the extent of its powers. The committee had called leading bankers such as J. P. Morgan to the stand and uncovered a tangled web of connections among the banks, the major industries on whose boards banker representatives sat, and the stock exchange, where the banks placed and sold the securities of these companies. At the end of the hearings, the Philadelphia North American echoed the sentiments of many reformers when it editorialized that "the Money Trust is the Wall Street system. But it is clearer to say that the Stock Exchange is the machinery through which the Money Trust operates—in unloading upon the public its manufactured securities and in maintaining its control of prices, of cash, and of credit" (Literary Digest, p. 388).
Although Brandeis did not himself participate in the hearings, he followed them closely. As soon as the committee released its report in March 1913, he wrote to Samuel Untermyer, the committee's counsel, praising its work and noting that while he "heartily approved" of most of the recommendations for reform, "in some respects it seems to me that the recommendations do not go far enough" (Mason, p. 412). He began to gather additional information, writing to people all over the country to garner further examples of banker influence in the economy. In the midst of his research, Wilson called him to Washington, where Brandeis played a key role in convincing the president and his advisers that the nation's central bank, to be called the Federal Reserve System, should be controlled by the government and not placed in private hands. With the president now determined to wrest control away from private bankers, he mobilized his followers in Congress and secured passage of the Federal Reserve Act in December 1913.
THE BOOK AND ITS RECEPTION
Even as Wilson oversaw the final stages of that fight, Harper's Weekly, edited by Brandeis's close friend Norman Hapgood, in November 1913 published "Breaking the Money Trust, Part I: Our Financial Oligarchy," the first of nine articles that Brandeis would assemble (along with one additional article) as Other People's Money and How the Bankers Use It. In the book Brandeis built on the Pujo Committee findings and added his own research to show how a small group of bankers, through their control of money and credit, dominated the American industrial world. He described, for example, how J. P. Morgan's representatives manipulated all the different companies involved in an industry, with one Morgan-controlled company selling raw materials to another that then manufactured a product, a third distributing the product, and a fourth handling the financial arrangements—all working not to promote efficiency and competition but to enhance the power and profits of the Morgan firm.
The response to the articles and to the book was predictable, with reformers hailing Brandeis's exposé and members of the business and banking communities condemning it. One enthusiastic reader told Brandeis that "no man ever did so much to enlighten the people." Senator Robert Marion La Follette, a Republican from Wisconsin, called the book "epoch-making," while the Washington Star termed it "concrete and amazingly circumstantial, clear and forceful." B. H. Meyer of the Interstate Commerce Commission told Brandeis, "I had never before seen these matters focused so intensively and brought within the range of understanding of the average intelligent citizen" (Mason, pp. 418–419).
Bankers, understandably, viewed the work far less charitably. Frank Arthur Vanderlip, president of the National City Bank of New York, called the whole notion of a money trust "moonshine" and denounced the findings of both the Pujo Committee and the Brandeis articles as a "bureau of misinformation" (Mason, pp. 418–419). Other business leaders had similar comments.
In the articles and ensuing book Brandeis engaged in serious muckraking, exposing the evils of finance capitalism in a responsible manner, using sensational facts not for the sake of sensationalism but to make important points. Muckraking was central to Progressive reform, since it served an important tenet of the reformers. Brandeis and others believed that for a democracy to work, the citizens had to take an active, engaged, and above all, informed part in government. People could not be expected to solve difficult social problems if they did not understand the issues involved; they could not be expected to act against evils if they did not know that the evils existed. "Publicity is justly recommended as a remedy for social and industrial diseases," Brandeis wrote. "Sunlight is said to be the best of disinfectants; electric light the most efficient policeman" (p. 92).
In addition to exposing what he considered betrayal of the people's trust, Brandeis informed Other People's Money with an important underlying philosophy, namely that excellence and achievement derive from the struggle of life or, in the economic sphere, from competition. Brandeis never questioned the rightness of the free enterprise system; that it had its defects he freely admitted, and he did a great deal to formulate proposals on how these should be corrected. But he believed that the struggle made people better. He objected to monopoly and to what he termed the "curse of bigness" because they foreclosed competition and therefore denied people the opportunity to test themselves and, if they had the necessary talents and determination, to succeed.
At least one of the many people who read the articles took them quite seriously. Woodrow Wilson not only read them carefully and made notes in the margin, he also utilized Brandeis's suggestions in a special message to Congress in January 1914 calling for reform of the antitrust law. Congress responded with the Clayton Antitrust Act of 1914, a statute that Brandeis played a major role in crafting.
The first book version of Other People's Money and How the Bankers Use It came out in 1914, with an introduction by Norman Hapgood. Its argument lost favor during the heyday of business triumphalism in the 1920s, but all of Brandeis's prophecies about the curse of bigness appeared to come true in the 1929 stock market crash and the Great Depression that followed. "The present depression," he wrote, "the debunking of the great financial kings . . . have made men realize that Other People's Money should have been heeded" (Urofsky and Levy 5:494). Brandeis personally arranged for an inexpensive edition of the book to be republished in 1933, and he noted with great satisfaction that a Washington department store had sold over eleven hundred copies in one week.
Although many economists have dismissed the theory that underlay Brandeis's economic ideas, his warnings against the dangers of great concentrations of economic power have time and again been proven true. As the historian Richard M. Abrams wrote in his introduction to a 1967 edition to Other People's Money, "Only a willful reluctance to test fundamentals can obscure its refreshing pertinence" (p. xliii).
Brandeis, Louis D. Other People's Money and How the Bankers Use It. 1914. Edited by Melvin I. Urofsky. Boston: Bedford Books of St. Martin's Press, 1995.
Literary Digest, 4 January 1913, p. 388.
Mason, Alpheus Thomas. Brandeis: A Free Man's Life. New York: Viking, 1946.
Strum, Philippa. Louis D. Brandeis: Justice for the People. Cambridge, Mass.: Harvard University Press, 1984.
Urofsky, Melvin I. Louis D. Brandeis and the Progressive Tradition. Boston: Little, Brown, 1981.
Urofsky, Melvin I., and David W. Levy. Letters of Louis D. Brandeis. 5 vols. Albany: State University of New York Press, 1971–1978. See Brandeis to Louis B. Wehle, 19 January 1932.
West, Robert Craig. Banking Reform and the Federal Reserve, 1863–1923. Ithaca, N.Y.: Cornell University Press, 1977.
Wiebe, Robert H. The Search for Order, 1877–1920. New York: Hill and Wang, 1967.
Melvin I. Urofsky