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+The Project Gutenberg EBook of High Finance, by Otto H. Kahn
+
+This eBook is for the use of anyone anywhere at no cost and with
+almost no restrictions whatsoever.  You may copy it, give it away or
+re-use it under the terms of the Project Gutenberg License included
+with this eBook or online at www.gutenberg.org
+
+
+Title: High Finance
+
+Author: Otto H. Kahn
+
+Release Date: June 27, 2009 [EBook #29256]
+
+Language: English
+
+Character set encoding: ASCII
+
+*** START OF THIS PROJECT GUTENBERG EBOOK HIGH FINANCE ***
+
+
+
+
+Produced by The Online Distributed Proofreading Team at
+https://www.pgdp.net (This file was produced from images
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+
+
+
+HIGH FINANCE
+
+
+
+OTTO H. KAHN
+
+
+
+ADDRESS DELIVERED AT ANNUAL DINNER
+AMERICAN NEWSPAPER PUBLISHERS ASSOCIATION
+APRIL 27, 1916, WALDORF-ASTORIA, NEW YORK
+
+
+
+
+HIGH FINANCE
+
+
+
+
+I
+
+
+The term "high finance" derives its origin from the French "haute
+finance," which in France as elsewhere in Europe designates the most
+eminently respectable, the most unqualifiedly trustworthy amongst
+financial houses.
+
+Why has that term, in becoming acclimated in this country, gradually
+come to suggest a rather different meaning?
+
+Why does there exist in the United States, alone amongst the great
+nations, a widespread attitude of suspicion, indeed in many quarters, of
+virtual hostility, toward the financial community and especially toward
+the financial activities which focus in New York, the country's
+financial capital?
+
+There are a number of causes and for some of them finance cannot be
+absolved from responsibility. But the primary underlying and continuing
+cause is lack of clear appreciation of what finance means and stands for
+and is needed for. And from this there has sprung a veritable host of
+misconceptions, prejudices, superstitions and catch-phrases.
+
+Never was it of more importance than in the present emergency that the
+people should have a clear and correct understanding of the meaning and
+significance of finance, indeed of "high finance," and that they should
+approach the subject calmly and dispassionately and with untroubled
+vision, for when the European war is over and the period of
+reconstruction sets in, one of the most vital questions of the day will
+be that of finance and financing.
+
+The handling and adjustment of that question, although it primarily
+concerns Europe, cannot fail to affect America favorably or unfavorably,
+according to the wisdom or lack of wisdom of our own attitude and
+actions.
+
+A great many things are being and have been charged in the popular view
+against finance, with which finance, properly understood, has nothing to
+do.
+
+The possession of wealth does not make a man a financier--just as little
+as the possession of a chest of tools makes a man a carpenter.
+
+Finance does not mean speculation--although speculation when it does not
+degenerate into mere gambling has a proper and legitimate place in the
+scheme of things economic. Finance most emphatically does not mean
+fleecing the public, nor fattening parasitically off the industry and
+commerce of the country.
+
+Finance cannot properly be held responsible for the exploits, good, bad
+or indifferent, of the man who, having made money at manufacturing, or
+mining, or in other commercial pursuits, blows into town, either
+physically or by telephone or telegraph, and goes on a financial spree,
+more or less prolonged.
+
+Finance means constructive work. It means mobilizing and organizing the
+wealth of the country so that the scattered monetary resources of the
+individuals may be united and guided into a mighty current of fruitful
+co-operation--a hundredfold, nay ten-thousandfold as potent as they
+would or could be in individual hands.
+
+Finance means promoting and facilitating the country's trade at home and
+abroad, creating new wealth, making new jobs for workmen.
+
+It means continuous study of the conditions prevailing throughout the
+world. It means daring and imagination combined with care and foresight
+and integrity, and hard, wearing work--much of it not compensated,
+because of every ten propositions submitted to the scrutiny or evolved
+by the brain of the financier who is duly careful of his reputation and
+conscious of his responsibility to the public, it is safe to say that
+not more than three materialize.
+
+For the financial offspring of which he acknowledges parentage, or
+merely godfathership, he is held responsible by the public for better or
+for worse, and will continue to be held responsible notwithstanding
+certain ill-advised provisions of the recently enacted Clayton
+Anti-Trust Act which are bound to make it more difficult for him to
+discharge that responsibility.
+
+Amongst other functions and duties, it is "up to him" to look ahead, so
+that such offspring may always be provided with nouriture, _i.e._, with
+funds to conduct their business. If for one reason or another they find
+themselves short of means in difficult times, it is his task and care to
+find ways and means to obtain what is needed, sometimes at great
+financial risk to himself.
+
+It is perhaps significant that almost all the railroad companies now in
+receivers' hands were among those for whose financial policy no one
+amongst the leading banking houses had a continuous and recognized
+responsibility, though I must not be understood as meaning to suggest
+that there were not other contributory causes for such receivership,
+involving responsibility and blame, amongst others, also on members of
+the banking fraternity.
+
+
+
+
+II
+
+
+Without going into shades of encyclopedic meaning, I would define, for
+the purpose of this discussion, a financier as a man who has some
+recognized relation and responsibility toward the larger monetary
+affairs of the public, either by administering deposits and loaning
+funds or by being a wholesale or retail distributor of securities.
+
+To all such the confidence of the financial community, which naturally
+knows them best, and of the investing public is absolutely vital.
+Without it, they simply cannot live.
+
+To provide for the thousands of millions of dollars annually needed by
+our railroads and other industries, would vastly overtax the resources
+of all the greatest financial houses and groups taken together, and
+therefore the financier or group of financiers undertaking such
+transactions _must_ depend in the first instance upon the co-operation
+of the financial community at large. For this purpose such houses or
+groups associate with themselves for every transaction of considerable
+size, a large number of other houses, thus forming so-called syndicates.
+
+But even the resources thus combined of the entire financial community
+would fall far short of being sufficient to supply the needed funds for
+more than a very limited time, and appeal must therefore be made to
+the absorbing power of the country as a whole represented by the
+ultimate investor.
+
+Now, let a financial house, either through lack of a high standard of
+integrity in dealing with the public, or through lack of thoroughness
+and care, or through bad judgment, forfeit the confidence of its
+neighbors or of the investing public, and the very roots of its being
+are cut.
+
+I do not mean to claim that high finance has not in some instances
+strayed from the highest standard, that it has not made mistakes, that
+it has not at times yielded to temptation--and the temptations which
+beset its path are indeed many--that there have not been some
+occurrences which every right thinking man must deplore and condemn.
+
+But I do say and claim that practically all such instances have occurred
+during what may be termed the country's industrial and economic pioneer
+period, a period of vast and unparalleled concentration of national
+energy and effort upon material achievement, of tremendous and turbulent
+surging towards tangible accomplishment, of sheer individualism, a
+period of lax enforcement of the laws by those in authority, of
+uncertainty regarding the meaning of the statutes relating to business
+and, consequently, of impatience at restraint and a weakened sense of
+the fear, respect and obedience due to the law.
+
+In the mighty and blinding rush of that whirlwind of enterprise and
+achievement things were done--generally without any attempt at
+concealment, in the open light of day for everyone to behold--which
+would not accord with our present ethical and legal standards, and
+public opinion permitted them to be done.
+
+To quote one instance out of many: Campaign contributions by
+corporations were a recognized and almost universal practice. The
+acceptance of such contributions did not shock the most tender political
+conscience. Now they are rightly forbidden, and what up to a few short
+years ago was not only not prohibited but sanctioned by the custom of a
+generation and more, is now made and considered a crime.
+
+Then suddenly a mirror was held up by influences sufficiently powerful
+to cause the mad race to halt for a moment and to compel the
+concentrated attention of all the people. And that mirror clearly
+showed, perhaps it even magnified, the blemishes on that which it
+reflected.
+
+With their recognition came stern insistence upon change, and very
+quickly the realization of that demand. That is the normal process of
+civilization in its march forward and upward.
+
+And I claim that Finance has been as quick and willing as any other
+element in the community to discern the moral obligations of the new era
+brought about within the last ten years and to align itself on their
+side.
+
+As soon as the meaning of the laws under which business was to be
+conducted had come to be reasonably defined, as soon as it became
+apparent that the latitude tacitly permitted during the pioneer period
+must end, finance fell into line with the new spirit and has kept in
+line.
+
+I say this notwithstanding the various investigations that have since
+taken place, nearly all of which have dealt with incidents that occurred
+several years ago.
+
+And in this connection I would add that it is difficult to imagine
+anything more unfair than the theory and method of these investigations
+as all too frequently conducted.
+
+The appeal all too often is to the gallery, hungry for sensation; the
+method--to wash as much soiled linen as possible in public (even, if
+necessary, to make clean linen appear soiled), and to use a profusion of
+soap and water quite out of proportion to the actual cleaning to be
+done.
+
+To innocent transactions it is sought to give a sinister meaning; what
+lapses, faults or wrongs may be discovered are given exaggerated portent
+and significance.
+
+The Chairman is out to make a record, or to fortify a preconceived
+notion or accomplish a preconceived purpose.
+
+Counsel is out to make a record. The principal witnesses are placed in
+the position of defendants at the bar without being protected by any of
+the safeguards which are thrown around defendants in a court of law.
+
+To complete the picture, I must--saving your presence--add this other
+patch of black: The reporting is very frequently, if not generally, done
+by young men not very familiar with matters of finance and in search of
+incident and of high light rather than of the neutral tints of a sober
+and even record; and the job of headlining seems somehow to be entrusted
+always to a mortal enemy of the particular witnesses of each session,
+selected with great care for his ingenuity in compressing the maximum of
+poison gases into a few explosive words.
+
+It may all be legitimate, according to political standards, but it is
+not justice, and what of benefit is accomplished could equally well be
+obtained, whatever of guilt is to be revealed could equally well and
+probably better be disclosed, without resorting to inflammatory appeal
+and without, by assault or innuendo, recklessly and often
+indiscriminately besmirching reputations and hurting before the whole
+world the good name of American business.
+
+I do not know of any similar method and practice and spirit of
+conducting investigations in any other country.
+
+By all means let us delve deep wherever we have reason to suspect that
+guilt lies buried. Let us take short cuts to arrive at the truth, but
+let us be sure that it is the truth that we shall meet at the end of our
+road, and not a mongrel thing wearing some of the garments of truth, but
+some others, too, belonging to that trinity of unlovely sisters,
+passion, prejudice and self-seeking.
+
+
+
+
+III
+
+
+In many ways, in many instances, wrong impressions about finance have
+been given to the public, sometimes from ignorance, sometimes with
+malice aforethought, sometimes for political purposes.
+
+The fact is that the men in charge of our financial affairs are, and to
+be successful, must be every whit as honorable, as patriotic, as right
+thinking, as anxious for the good opinions of their fellowmen as those
+in other walks of life.
+
+In every time of crisis or difficulty in the nation's history, from the
+War of Independence to the present European War, financiers have given
+striking proof of their devotion of the public weal, and they may be
+depended upon to do so whenever and howsoever called upon.
+
+American finance has rendered immense services to the country, and its
+record--considering especially the gross faultiness of the laws under
+which it had to work before the passage of the Federal Reserve Act, and
+in some respects still has to work--compares by no means unfavorably
+with that of finance in Europe.
+
+There has been no gambling frenzy in the financial markets of America
+within the memory of this generation equalling the recklessness and
+magnitude of England's South African mining craze with its record of
+questionable episodes, some of them involving great names; no scandal
+comparable to the Panama scandal, the copper collapse, the Cronier
+failure, and similar events in France; no bank failure as disgraceful
+and ruinous as that of the Leipziger Bank and two or three others within
+the last dozen years in Germany. No combination exists in this country
+remotely approaching the monopolistic control exercised by several of
+the so-called cartels and syndicates of Europe.
+
+One of the reasons why finance so frequently has been the target for
+popular attack is that it deals with the tangible expression of wealth,
+and in the popular mind pre-eminently personifies wealth, and is widely
+looked upon as an easy way to acquire wealth without adequate service.
+
+Yet it is a fact that there are very few financial houses of great
+wealth. All of the very greatest fortunes of the country, and in fact
+most of the great fortunes, have been made, not in finance, but in
+trade, industries and inventions.
+
+A similar exaggerated view prevails as to the power of finance.
+
+It is true there have been men in finance from time to time, though very
+rarely indeed, who did exercise exceedingly great power, such as, in our
+generation, the late J. P. Morgan and E. H. Harriman.
+
+But the power of those men rested not in their being financiers, but in
+the compelling force of their unique personalities. They were born
+leaders of men and they would have been acknowledged leaders and
+exercised the power of such leadership in whatever walk of life they
+might have selected as theirs.
+
+As I have said before, the capacity of the financier is dependent upon
+the confidence of the financial community and the investing public, just
+as the capacity of the banks is dependent upon the confidence of the
+depositing public. Take away confidence and what remains is only that
+limited degree of power or influence which mere wealth may give.
+
+Confidence cannot be compelled; it cannot be bequeathed--or, at most,
+only to a very limited extent. It is and always is bound to be voluntary
+and personal.
+
+I know of no other centre where the label counts for less, where the
+shine and potency of a great name is more quickly rubbed off if the
+bearer does not prove his worth, than in the great mart of finance.
+
+Mere wealth indeed can be bequeathed, but the power of mere wealth--to
+paraphrase a famous dictum--has decreased, is decreasing and ought to
+be, and will be, further diminished.
+
+
+
+
+IV
+
+
+What, then, can and should finance do on its own part in order to
+gain and preserve for itself that repute and status with the public to
+which it is entitled, and which in the interest of the country, as well
+as itself, it ought to have?
+
+1. Conform to Public Opinion
+
+It must not only _do_ right, but it must also be particularly careful
+concerning the _appearance_ of its actions.
+
+Finance should "omit no word or deed" to place itself in the right light
+before the people.
+
+It must carefully study and in good faith conform to public opinion.
+
+
+2. Publicity
+
+One of the characteristics of finance heretofore has been the cult of
+silence, some of its rites have been almost those of an occult science.
+
+To meet attacks with dignified silence, to maintain an austere demeanor,
+to cultivate an etiquette of reticence, has been one of its traditions.
+
+Nothing could have been more calculated to irritate democracy, which
+dislikes and suspects secrecy and resents aloofness.
+
+And the instinct of democracy is right.
+
+Men occupying conspicuous and leading places in finance as in every
+other calling touching the people's interests, are legitimate objects
+for public scrutiny in the exercise of their functions.
+
+If opportunity for such scrutiny is denied, if the people's legitimate
+desire for information is met with silence, secrecy, impatience and
+resentment, the public mind very naturally becomes infected with
+suspicion and lends a willing ear to all sorts of gossip and rumors.
+
+The people properly and justly insist that the same "fierce light that
+beats upon a throne" should also beat upon the high places of finance
+and commerce.
+
+It is for those occupying such places to show cause why they should be
+considered fit persons to be entrusted with them, the test being not
+merely ability, but just as much, if not more, character,
+self-restraint, fair-mindedness and due sense of duty towards the
+public.
+
+Finance, instead of avoiding publicity in all of its aspects, should
+welcome it and seek it. Publicity won't hurt its dignity. A dignity
+which can be preserved only by seclusion, which cannot hold its own in
+the market place, is neither merited nor worth having.
+
+We must more and more get out of the seclusion of our offices, out into
+the rough and tumble of democracy, out--to get to know the people and
+get known by them.
+
+Not to know one another means but too frequently to misunderstand one
+another, and there is no more fruitful source of trouble than to
+misunderstand one another's kind and ways and motives.
+
+
+3. Service
+
+Every man who by eminent success in commerce or finance raises himself
+beyond his peers is in the nature of things more or less of an
+"irritant" (I use the word in its technical meaning) to the community.
+
+It behooves him, therefore, to make his position as little jarring as
+possible upon that immense majority whose existence is spent in the
+lowlands of life so far as material circumstances are concerned.
+
+It behooves him to exercise self-restraint and to make ample allowance
+for the point of view and the feelings of others, to be patient,
+helpful, conciliatory.
+
+It behooves him to remember that many other men are working, and have
+worked all their lives, with probably as much effort and assiduous
+application, as much self-abnegation as he, but have not succeeded in
+raising themselves above mediocre stations in life, because to them has
+not been granted the possession of those peculiar gifts which beget
+conspicuous success, and to which, because they are very rare and
+because they are needed for the world's work, is given the incentive of
+liberal reward.
+
+He should beware of that insidious tendency of wealth to chill and
+isolate; he should be careful not to let his feelings, aspirations and
+sympathies become hardened or narrowed; lest he become estranged from
+his fellow men; and with this in view he should not only be approachable
+but should seek and welcome contact with the work-a-day world so as to
+remain part and parcel of it, to maintain and prove his homogeneity with
+his fellow men.
+
+And he should never forget that the advantages and powers which he
+enjoys are his on suffrance, so to speak, during good behavior, the
+basis of their conferment being the consideration that the community
+wants his talents and his work, and grants him generous
+compensation--including the privilege of passing it on to his
+children--in order to stimulate him to the effort of using his
+capacities, since it is in the public interest that they should be used
+to their fullest extent.
+
+He should never forget that the social edifice in which he occupies so
+desirable quarters, has been erected by human hands, the result of
+infinite effort, of sacrifice and compromise, the aim being the greatest
+good of society; and that if that aim is clearly shown to be no longer
+served by the present structure, if the successful man arrogates to
+himself too large or too choice a part, if, selfishly, he crowds out
+others, then, what human hands have built up by the patient work of many
+centuries, human hands can pull down in one hour of passion.
+
+The undisturbed possession of the material rewards now given to success,
+because success presupposes service, can be perpetuated only if its
+beneficiaries exercise moderation, self-restraint, and consideration for
+others in the use of their opportunities, and if their ability is
+exerted, not merely for their own advantage, but also for the public
+good and the weal of their fellow men.
+
+
+4. Stand up for Convictions and Organize
+
+In the political field, the ways not only of finance but of business in
+general have been often unfortunate and still more often ineffective.
+
+It is in conformity with the nature of things that the average man of
+business, responsible not only for his own affairs, but often trustee
+for the welfare of others, should lean towards that which has withstood
+the acid test of experience and should be somewhat diffident towards
+experiment and novel theory.
+
+But, making full allowance for this natural and proper disposition, it
+must, I believe, be admitted that business, and especially the
+representatives of large business, including high finance, have too
+often failed to recognize in time the need and to heed the call for
+changes from methods and conceptions which had become unsuitable to the
+time and out of keeping with rationally, progressive development; that
+they have too often permitted themselves to be guided by a tendency
+toward unyielding or at any rate apparently unyielding Bourbonism
+instead of giving timely aid in a constructive way toward realizing just
+and wise modifications of the existing order of things.
+
+Apart from these considerations and leaving aside practices formerly not
+uncommon, but which modern laws and modern standards of morality have
+made impossible, it may be said generally that business is doing too
+much kicking and not enough fighting.
+
+In fact, almost the only instance which I can remember of business
+asserting itself effectively on a large scale and by a genuine effort
+for its rights, its legitimate interests and its convictions was during
+the McKinley-Bryan campaign, in saying which I do not mean to endorse
+some of the methods used in that campaign.
+
+And yet, the latent political power of business is enormous. Wisely
+organized for proper and right purposes it would be irresistible. No
+political party could succeed against it.
+
+If this country is to take full advantage of the unparalleled
+opportunities which the developments of the last two years have opened
+up to it, if, in the severe competition which sooner or later after the
+close of the war is bound to set in for the world's trade, it is to hold
+its own, it must not only not be hampered by unwise and antiquated laws,
+as it now is, in certain respects, but it must be intelligently aided
+and fostered by the legislative and administrative powers.
+
+Business in the leading European countries has been backed up by the
+respective governments in the past and will be backed up, more than
+ever, in the post-bellum period.
+
+Everywhere else through the civilized world in matters of national
+policies as they affect business, the representatives of business are
+consulted and listened to with the respect which is due to expert
+knowledge.
+
+It is only in America that the views of business men in general (as
+distinct from the agitation of particular business men or organizations
+having a special object to serve, such as on the occasion of tariff
+making in former days) are ignored, their advice brushed aside or even
+resented, their representatives treated as interlopers.
+
+It is only in America that the exigencies of politics not infrequently,
+I might almost say habitually, are given precedence over the exigencies
+of business.
+
+Objectionable methods and practices sometimes resorted to in the past by
+corporate interests in endeavoring to influence legislation and public
+opinion have been abandoned beyond resurrection.
+
+It is only fair that with them should be abandoned the habit of
+politicians, sometimes politicians in very high places, to denounce as
+"lobbying" every organized effort of large business to oppose tendencies
+and propositions of legislation deemed by it inimical to the best
+interests of business and of the country.
+
+It is only fair that there should be abandoned the habit of sneering at
+and suspecting organized efforts by business men to educate public
+opinion on questions affecting business and finance as improper attempts
+to "manufacture" or "accelerate" public opinion.
+
+
+
+
+V
+
+
+The people are fair-minded and when fully informed, almost invariably
+wise and right in their judgment, which cannot always be said of their
+representatives.
+
+When scolded, browbeaten, maligned and harassed, finance may well turn
+upon its professional fault-finders and challenge comparison.
+
+Finance and financiers have had no mean share in creating organizations
+and institutions in this country which are models of efficiency and
+which men from all quarters of the globe come here to study and to
+admire.
+
+It is the critics of finance and business who--to mention but a few
+instances--have given to the army aeroplanes that are grossly defective,
+to the navy submarines that are in constant trouble, who have passed
+laws which have driven our ships off the seas in the world's trade, and
+other laws which have mainly brought it about that in the year 1915 less
+railroad mileage has been constructed in the United States than within
+any one year since the Civil War.
+
+Just as Congress, by a series of laws, has imposed burdens and costs
+upon ships operating under the American flag which made it impossible
+for capital to invest in American ships for use in the world's trade and
+earn a fair return in normal times, so the Federal and State
+Legislatures, during the past ten years, have imposed upon the railroads
+all kinds of exactions, restrictions and increasing costs which have had
+the result of arresting progress, and which threaten, after the
+cessation of the present period of abnormal earnings, to seriously lame
+that vastly important industry.
+
+Congress has done little to indicate that it recognizes the urgency and
+bigness and significance of the momentous situation which confronts the
+country.
+
+Nor does it seem inclined to pay serious heed to the views of
+business--and by that I do not mean the views of business "magnates,"
+but the consensus of opinion of business men in general.
+
+Nor does past experience encourage us to believe that it will pay such
+heed unless impelled by the instinct of self-preservation.
+
+Amongst the powers for which our friends of both political parties have
+a wholesome respect, one of the most potent is organization.
+
+Let business then become militant, not to secure special privileges--it
+does not want any and does not need any--but to secure due regard for
+its views and its rights and its conceptions as to what measures will
+serve the best interests of the country, and what measures will harm and
+jeopardize such interests.
+
+Without wishing to hold up the labor unions as offering a model for the
+spirit which should actuate us or the methods we should follow--because
+their class-consciousness and the resulting conduct are sometimes
+extreme and often shortsighted, I would urge upon business men to
+cultivate and demonstrate but a little of that cohesion and discipline
+and subordination of self in the furtherance of the common cause, that
+readiness to back up their spokesmen, that loyalty to their calling and
+to one another which working men practice and demonstrate daily, and
+which have secured for their representatives the respect and fear of
+political parties.
+
+Let business men range themselves behind their spokesmen, such as the
+United States Chamber of Commerce in Washington and the Chambers of
+Commerce and kindred associations in states and cities.
+
+Let them get together now and in the future through a properly
+constituted permanent organization, and guided by practical knowledge,
+broad vision and patriotism, agree upon the essentials of legislation
+affecting affairs, which the situation calls for from time to time.
+
+Let them pledge themselves to use their legitimate influence and their
+votes to realize such legislation and to oppose actively what they
+believe to be harmful lawmaking.
+
+Let them strive, patiently and persistently, to gain the confidence of
+the people for their methods and their aims.
+
+Let them meet false or irresponsible or ignorant assertion with plain
+and truthful explanation. Let them take their case directly to the
+people--as the railroads have been doing of late with very encouraging
+results--and inaugurate a campaign of education in sound economics,
+sound finance and sound national business principles.
+
+Let business men do these things, not sporadically, under the spur of
+some imminent menace, but systematically and persistently.
+
+Let them be mindful that just as the price of liberty is eternal
+vigilance, so eternal effort in resisting fallacies and in disseminating
+true and tested doctrine is the price of right lawmaking in a democracy.
+
+
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