HIGH FINANCE OTTO H. KAHN ADDRESS DELIVERED AT ANNUAL DINNERAMERICAN NEWSPAPER PUBLISHERS ASSOCIATIONAPRIL 27, 1916, WALDORF-ASTORIA, NEW YORK HIGH FINANCE I The term "high finance" derives its origin from the French "hautefinance, " which in France as elsewhere in Europe designates the mosteminently respectable, the most unqualifiedly trustworthy amongstfinancial houses. Why has that term, in becoming acclimated in this country, graduallycome to suggest a rather different meaning? Why does there exist in the United States, alone amongst the greatnations, a widespread attitude of suspicion, indeed in many quarters, ofvirtual hostility, toward the financial community and especially towardthe financial activities which focus in New York, the country'sfinancial capital? There are a number of causes and for some of them finance cannot beabsolved from responsibility. But the primary underlying and continuingcause is lack of clear appreciation of what finance means and stands forand is needed for. And from this there has sprung a veritable host ofmisconceptions, prejudices, superstitions and catch-phrases. Never was it of more importance than in the present emergency that thepeople should have a clear and correct understanding of the meaning andsignificance of finance, indeed of "high finance, " and that they shouldapproach the subject calmly and dispassionately and with untroubledvision, for when the European war is over and the period ofreconstruction sets in, one of the most vital questions of the day willbe that of finance and financing. The handling and adjustment of that question, although it primarilyconcerns Europe, cannot fail to affect America favorably or unfavorably, according to the wisdom or lack of wisdom of our own attitude andactions. A great many things are being and have been charged in the popular viewagainst finance, with which finance, properly understood, has nothing todo. The possession of wealth does not make a man a financier--just as littleas the possession of a chest of tools makes a man a carpenter. Finance does not mean speculation--although speculation when it does notdegenerate into mere gambling has a proper and legitimate place in thescheme of things economic. Finance most emphatically does not meanfleecing the public, nor fattening parasitically off the industry andcommerce of the country. Finance cannot properly be held responsible for the exploits, good, bador indifferent, of the man who, having made money at manufacturing, ormining, or in other commercial pursuits, blows into town, eitherphysically or by telephone or telegraph, and goes on a financial spree, more or less prolonged. Finance means constructive work. It means mobilizing and organizing thewealth of the country so that the scattered monetary resources of theindividuals may be united and guided into a mighty current of fruitfulco-operation--a hundredfold, nay ten-thousandfold as potent as theywould or could be in individual hands. Finance means promoting and facilitating the country's trade at home andabroad, creating new wealth, making new jobs for workmen. It means continuous study of the conditions prevailing throughout theworld. It means daring and imagination combined with care and foresightand integrity, and hard, wearing work--much of it not compensated, because of every ten propositions submitted to the scrutiny or evolvedby the brain of the financier who is duly careful of his reputation andconscious of his responsibility to the public, it is safe to say thatnot more than three materialize. For the financial offspring of which he acknowledges parentage, ormerely godfathership, he is held responsible by the public for better orfor worse, and will continue to be held responsible notwithstandingcertain ill-advised provisions of the recently enacted ClaytonAnti-Trust Act which are bound to make it more difficult for him todischarge that responsibility. Amongst other functions and duties, it is "up to him" to look ahead, sothat such offspring may always be provided with nouriture, _i. E. _, withfunds to conduct their business. If for one reason or another they findthemselves short of means in difficult times, it is his task and care tofind ways and means to obtain what is needed, sometimes at greatfinancial risk to himself. It is perhaps significant that almost all the railroad companies now inreceivers' hands were among those for whose financial policy no oneamongst the leading banking houses had a continuous and recognizedresponsibility, though I must not be understood as meaning to suggestthat there were not other contributory causes for such receivership, involving responsibility and blame, amongst others, also on members ofthe banking fraternity. II Without going into shades of encyclopedic meaning, I would define, forthe purpose of this discussion, a financier as a man who has somerecognized relation and responsibility toward the larger monetaryaffairs of the public, either by administering deposits and loaningfunds or by being a wholesale or retail distributor of securities. To all such the confidence of the financial community, which naturallyknows 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 byour railroads and other industries, would vastly overtax the resourcesof all the greatest financial houses and groups taken together, andtherefore the financier or group of financiers undertaking suchtransactions _must_ depend in the first instance upon the co-operationof the financial community at large. For this purpose such houses orgroups associate with themselves for every transaction of considerablesize, a large number of other houses, thus forming so-called syndicates. But even the resources thus combined of the entire financial communitywould fall far short of being sufficient to supply the needed funds formore than a very limited time, and appeal must therefore be made tothe absorbing power of the country as a whole represented by theultimate investor. Now, let a financial house, either through lack of a high standard ofintegrity in dealing with the public, or through lack of thoroughnessand care, or through bad judgment, forfeit the confidence of itsneighbors or of the investing public, and the very roots of its beingare cut. I do not mean to claim that high finance has not in some instancesstrayed from the highest standard, that it has not made mistakes, thatit has not at times yielded to temptation--and the temptations whichbeset its path are indeed many--that there have not been someoccurrences which every right thinking man must deplore and condemn. But I do say and claim that practically all such instances have occurredduring what may be termed the country's industrial and economic pioneerperiod, a period of vast and unparalleled concentration of nationalenergy and effort upon material achievement, of tremendous and turbulentsurging towards tangible accomplishment, of sheer individualism, aperiod of lax enforcement of the laws by those in authority, ofuncertainty regarding the meaning of the statutes relating to businessand, consequently, of impatience at restraint and a weakened sense ofthe fear, respect and obedience due to the law. In the mighty and blinding rush of that whirlwind of enterprise andachievement things were done--generally without any attempt atconcealment, in the open light of day for everyone to behold--whichwould not accord with our present ethical and legal standards, andpublic opinion permitted them to be done. To quote one instance out of many: Campaign contributions bycorporations were a recognized and almost universal practice. Theacceptance of such contributions did not shock the most tender politicalconscience. Now they are rightly forbidden, and what up to a few shortyears ago was not only not prohibited but sanctioned by the custom of ageneration and more, is now made and considered a crime. Then suddenly a mirror was held up by influences sufficiently powerfulto cause the mad race to halt for a moment and to compel theconcentrated attention of all the people. And that mirror clearlyshowed, perhaps it even magnified, the blemishes on that which itreflected. With their recognition came stern insistence upon change, and veryquickly the realization of that demand. That is the normal process ofcivilization in its march forward and upward. And I claim that Finance has been as quick and willing as any otherelement in the community to discern the moral obligations of the new erabrought about within the last ten years and to align itself on theirside. As soon as the meaning of the laws under which business was to beconducted had come to be reasonably defined, as soon as it becameapparent that the latitude tacitly permitted during the pioneer periodmust end, finance fell into line with the new spirit and has kept inline. I say this notwithstanding the various investigations that have sincetaken place, nearly all of which have dealt with incidents that occurredseveral years ago. And in this connection I would add that it is difficult to imagineanything more unfair than the theory and method of these investigationsas all too frequently conducted. The appeal all too often is to the gallery, hungry for sensation; themethod--to wash as much soiled linen as possible in public (even, ifnecessary, to make clean linen appear soiled), and to use a profusion ofsoap and water quite out of proportion to the actual cleaning to bedone. To innocent transactions it is sought to give a sinister meaning; whatlapses, faults or wrongs may be discovered are given exaggerated portentand significance. The Chairman is out to make a record, or to fortify a preconceivednotion or accomplish a preconceived purpose. Counsel is out to make a record. The principal witnesses are placed inthe position of defendants at the bar without being protected by any ofthe safeguards which are thrown around defendants in a court of law. To complete the picture, I must--saving your presence--add this otherpatch of black: The reporting is very frequently, if not generally, doneby young men not very familiar with matters of finance and in search ofincident and of high light rather than of the neutral tints of a soberand even record; and the job of headlining seems somehow to be entrustedalways to a mortal enemy of the particular witnesses of each session, selected with great care for his ingenuity in compressing the maximum ofpoison gases into a few explosive words. It may all be legitimate, according to political standards, but it isnot justice, and what of benefit is accomplished could equally well beobtained, whatever of guilt is to be revealed could equally well andprobably better be disclosed, without resorting to inflammatory appealand without, by assault or innuendo, recklessly and oftenindiscriminately besmirching reputations and hurting before the wholeworld the good name of American business. I do not know of any similar method and practice and spirit ofconducting investigations in any other country. By all means let us delve deep wherever we have reason to suspect thatguilt lies buried. Let us take short cuts to arrive at the truth, butlet us be sure that it is the truth that we shall meet at the end of ourroad, and not a mongrel thing wearing some of the garments of truth, butsome 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 havebeen given to the public, sometimes from ignorance, sometimes withmalice aforethought, sometimes for political purposes. The fact is that the men in charge of our financial affairs are, and tobe successful, must be every whit as honorable, as patriotic, as rightthinking, as anxious for the good opinions of their fellowmen as thosein other walks of life. In every time of crisis or difficulty in the nation's history, from theWar of Independence to the present European War, financiers have givenstriking proof of their devotion of the public weal, and they may bedepended upon to do so whenever and howsoever called upon. American finance has rendered immense services to the country, and itsrecord--considering especially the gross faultiness of the laws underwhich it had to work before the passage of the Federal Reserve Act, andin some respects still has to work--compares by no means unfavorablywith that of finance in Europe. There has been no gambling frenzy in the financial markets of Americawithin the memory of this generation equalling the recklessness andmagnitude of England's South African mining craze with its record ofquestionable episodes, some of them involving great names; no scandalcomparable to the Panama scandal, the copper collapse, the Cronierfailure, and similar events in France; no bank failure as disgracefuland ruinous as that of the Leipziger Bank and two or three others withinthe last dozen years in Germany. No combination exists in this countryremotely approaching the monopolistic control exercised by several ofthe so-called cartels and syndicates of Europe. One of the reasons why finance so frequently has been the target forpopular attack is that it deals with the tangible expression of wealth, and in the popular mind pre-eminently personifies wealth, and is widelylooked upon as an easy way to acquire wealth without adequate service. Yet it is a fact that there are very few financial houses of greatwealth. All of the very greatest fortunes of the country, and in factmost of the great fortunes, have been made, not in finance, but intrade, 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 veryrarely indeed, who did exercise exceedingly great power, such as, in ourgeneration, the late J. P. Morgan and E. H. Harriman. But the power of those men rested not in their being financiers, but inthe compelling force of their unique personalities. They were bornleaders of men and they would have been acknowledged leaders andexercised the power of such leadership in whatever walk of life theymight have selected as theirs. As I have said before, the capacity of the financier is dependent uponthe confidence of the financial community and the investing public, justas the capacity of the banks is dependent upon the confidence of thedepositing public. Take away confidence and what remains is only thatlimited 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 voluntaryand personal. I know of no other centre where the label counts for less, where theshine and potency of a great name is more quickly rubbed off if thebearer does not prove his worth, than in the great mart of finance. Mere wealth indeed can be bequeathed, but the power of mere wealth--toparaphrase a famous dictum--has decreased, is decreasing and ought tobe, and will be, further diminished. IV What, then, can and should finance do on its own part in order togain and preserve for itself that repute and status with the public towhich it is entitled, and which in the interest of the country, as wellas itself, it ought to have? 1. Conform to Public Opinion It must not only _do_ right, but it must also be particularly carefulconcerning the _appearance_ of its actions. Finance should "omit no word or deed" to place itself in the right lightbefore 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 ofsilence, 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, whichdislikes and suspects secrecy and resents aloofness. And the instinct of democracy is right. Men occupying conspicuous and leading places in finance as in everyother calling touching the people's interests, are legitimate objectsfor public scrutiny in the exercise of their functions. If opportunity for such scrutiny is denied, if the people's legitimatedesire for information is met with silence, secrecy, impatience andresentment, the public mind very naturally becomes infected withsuspicion and lends a willing ear to all sorts of gossip and rumors. The people properly and justly insist that the same "fierce light thatbeats upon a throne" should also beat upon the high places of financeand commerce. It is for those occupying such places to show cause why they should beconsidered fit persons to be entrusted with them, the test being notmerely ability, but just as much, if not more, character, self-restraint, fair-mindedness and due sense of duty towards thepublic. Finance, instead of avoiding publicity in all of its aspects, shouldwelcome it and seek it. Publicity won't hurt its dignity. A dignitywhich can be preserved only by seclusion, which cannot hold its own inthe market place, is neither merited nor worth having. We must more and more get out of the seclusion of our offices, out intothe rough and tumble of democracy, out--to get to know the people andget known by them. Not to know one another means but too frequently to misunderstand oneanother, and there is no more fruitful source of trouble than tomisunderstand one another's kind and ways and motives. 3. Service Every man who by eminent success in commerce or finance raises himselfbeyond 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 aspossible upon that immense majority whose existence is spent in thelowlands of life so far as material circumstances are concerned. It behooves him to exercise self-restraint and to make ample allowancefor 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 haveworked all their lives, with probably as much effort and assiduousapplication, as much self-abnegation as he, but have not succeeded inraising themselves above mediocre stations in life, because to them hasnot been granted the possession of those peculiar gifts which begetconspicuous success, and to which, because they are very rare andbecause they are needed for the world's work, is given the incentive ofliberal reward. He should beware of that insidious tendency of wealth to chill andisolate; he should be careful not to let his feelings, aspirations andsympathies become hardened or narrowed; lest he become estranged fromhis fellow men; and with this in view he should not only be approachablebut should seek and welcome contact with the work-a-day world so as toremain part and parcel of it, to maintain and prove his homogeneity withhis fellow men. And he should never forget that the advantages and powers which heenjoys are his on suffrance, so to speak, during good behavior, thebasis of their conferment being the consideration that the communitywants his talents and his work, and grants him generouscompensation--including the privilege of passing it on to hischildren--in order to stimulate him to the effort of using hiscapacities, since it is in the public interest that they should be usedto their fullest extent. He should never forget that the social edifice in which he occupies sodesirable quarters, has been erected by human hands, the result ofinfinite effort, of sacrifice and compromise, the aim being the greatestgood of society; and that if that aim is clearly shown to be no longerserved by the present structure, if the successful man arrogates tohimself too large or too choice a part, if, selfishly, he crowds outothers, then, what human hands have built up by the patient work of manycenturies, 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 itsbeneficiaries exercise moderation, self-restraint, and consideration forothers in the use of their opportunities, and if their ability isexerted, not merely for their own advantage, but also for the publicgood 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 ingeneral have been often unfortunate and still more often ineffective. It is in conformity with the nature of things that the average man ofbusiness, responsible not only for his own affairs, but often trusteefor the welfare of others, should lean towards that which has withstoodthe acid test of experience and should be somewhat diffident towardsexperiment and novel theory. But, making full allowance for this natural and proper disposition, itmust, I believe, be admitted that business, and especially therepresentatives of large business, including high finance, have toooften failed to recognize in time the need and to heed the call forchanges from methods and conceptions which had become unsuitable to thetime and out of keeping with rationally, progressive development; thatthey have too often permitted themselves to be guided by a tendencytoward unyielding or at any rate apparently unyielding Bourbonisminstead of giving timely aid in a constructive way toward realizing justand wise modifications of the existing order of things. Apart from these considerations and leaving aside practices formerly notuncommon, but which modern laws and modern standards of morality havemade impossible, it may be said generally that business is doing toomuch kicking and not enough fighting. In fact, almost the only instance which I can remember of businessasserting itself effectively on a large scale and by a genuine effortfor its rights, its legitimate interests and its convictions was duringthe McKinley-Bryan campaign, in saying which I do not mean to endorsesome of the methods used in that campaign. And yet, the latent political power of business is enormous. Wiselyorganized for proper and right purposes it would be irresistible. Nopolitical party could succeed against it. If this country is to take full advantage of the unparalleledopportunities which the developments of the last two years have openedup to it, if, in the severe competition which sooner or later after theclose of the war is bound to set in for the world's trade, it is to holdits 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 aidedand fostered by the legislative and administrative powers. Business in the leading European countries has been backed up by therespective governments in the past and will be backed up, more thanever, in the post-bellum period. Everywhere else through the civilized world in matters of nationalpolicies as they affect business, the representatives of business areconsulted and listened to with the respect which is due to expertknowledge. It is only in America that the views of business men in general (asdistinct from the agitation of particular business men or organizationshaving a special object to serve, such as on the occasion of tariffmaking in former days) are ignored, their advice brushed aside or evenresented, 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 exigenciesof business. Objectionable methods and practices sometimes resorted to in the past bycorporate interests in endeavoring to influence legislation and publicopinion have been abandoned beyond resurrection. It is only fair that with them should be abandoned the habit ofpoliticians, sometimes politicians in very high places, to denounce as"lobbying" every organized effort of large business to oppose tendenciesand propositions of legislation deemed by it inimical to the bestinterests of business and of the country. It is only fair that there should be abandoned the habit of sneering atand suspecting organized efforts by business men to educate publicopinion on questions affecting business and finance as improper attemptsto "manufacture" or "accelerate" public opinion. V The people are fair-minded and when fully informed, almost invariablywise and right in their judgment, which cannot always be said of theirrepresentatives. When scolded, browbeaten, maligned and harassed, finance may well turnupon its professional fault-finders and challenge comparison. Finance and financiers have had no mean share in creating organizationsand institutions in this country which are models of efficiency andwhich men from all quarters of the globe come here to study and toadmire. It is the critics of finance and business who--to mention but a fewinstances--have given to the army aeroplanes that are grossly defective, to the navy submarines that are in constant trouble, who have passedlaws which have driven our ships off the seas in the world's trade, andother laws which have mainly brought it about that in the year 1915 lessrailroad mileage has been constructed in the United States than withinany one year since the Civil War. Just as Congress, by a series of laws, has imposed burdens and costsupon ships operating under the American flag which made it impossiblefor capital to invest in American ships for use in the world's trade andearn a fair return in normal times, so the Federal and StateLegislatures, during the past ten years, have imposed upon the railroadsall kinds of exactions, restrictions and increasing costs which have hadthe result of arresting progress, and which threaten, after thecessation of the present period of abnormal earnings, to seriously lamethat vastly important industry. Congress has done little to indicate that it recognizes the urgency andbigness and significance of the momentous situation which confronts thecountry. Nor does it seem inclined to pay serious heed to the views ofbusiness--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 suchheed unless impelled by the instinct of self-preservation. Amongst the powers for which our friends of both political parties havea wholesome respect, one of the most potent is organization. Let business then become militant, not to secure special privileges--itdoes not want any and does not need any--but to secure due regard forits views and its rights and its conceptions as to what measures willserve the best interests of the country, and what measures will harm andjeopardize such interests. Without wishing to hold up the labor unions as offering a model for thespirit which should actuate us or the methods we should follow--becausetheir class-consciousness and the resulting conduct are sometimesextreme and often shortsighted, I would urge upon business men tocultivate and demonstrate but a little of that cohesion and disciplineand subordination of self in the furtherance of the common cause, thatreadiness to back up their spokesmen, that loyalty to their calling andto one another which working men practice and demonstrate daily, andwhich have secured for their representatives the respect and fear ofpolitical parties. Let business men range themselves behind their spokesmen, such as theUnited States Chamber of Commerce in Washington and the Chambers ofCommerce and kindred associations in states and cities. Let them get together now and in the future through a properlyconstituted permanent organization, and guided by practical knowledge, broad vision and patriotism, agree upon the essentials of legislationaffecting affairs, which the situation calls for from time to time. Let them pledge themselves to use their legitimate influence and theirvotes to realize such legislation and to oppose actively what theybelieve to be harmful lawmaking. Let them strive, patiently and persistently, to gain the confidence ofthe people for their methods and their aims. Let them meet false or irresponsible or ignorant assertion with plainand truthful explanation. Let them take their case directly to thepeople--as the railroads have been doing of late with very encouragingresults--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 ofsome imminent menace, but systematically and persistently. Let them be mindful that just as the price of liberty is eternalvigilance, so eternal effort in resisting fallacies and in disseminatingtrue and tested doctrine is the price of right lawmaking in a democracy.