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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.