prosperity, they forget the law of business cycles, forget that a little later on will come the return swing of the pendulum, with depression, low earnings or actual losses, hard times, tight money, and general liquidation. When the turn does come, the financial overseers of the corporation try often to keep up appearances by paying dividends whether they have been earned or not, and this effort is the paramount immediate cause of the bulk of industrial bankruptcies.27 The financial interests unfailingly endeavor to keep the price of securities on the investment market at desired levels, and of course face the problem of maintaining ample value in the stocks and bonds serving as collateral security for much of the corporation's commercial credit. Even at best, with all financial interests unselfish, and devoting intelligent attention to the welfare of the consolidation, the financial status of the corporation must be painstakingly safeguarded. Under less favorable motives, with occasional recklessness or selfishness on the part of dominant financial interests, or with excessive greed for immediate power or profit, the financial status of the business combination has in numerous instances been deplorable. In certain cases, large scale fraud in the manipulation of securities, and speculation where conservatism was sorely needed have ruined corporations, and brought untold loss to innocent and helpless investors. New England people will not soon forget the manipulations, which the Interstate Commerce Commission so vigorously condemned, in the affairs of the New York, New Haven and Hartford Railroad.28 All of these financial complications continually present grave problems for the large combinations to solve. Their relations with the financial institutions must in the very nature of the case be fairly intimate. The large consolidations in almost every line of industry are constantly drawn into close contact with the investment and commercial bankers. The influence of the financiers upon the directorates of modern large corporations is a natural outcome of the structure of corporate institutions.29 From all the foregoing facts and considerations, it is obvious that many of the large consolidations have by no means had easy sledding. Disappointments from unrealized efficiencies and economies have been. frequent, and illusions about rich earnings have been repeatedly exploded. The consolidation movement had its greatest innings at a period when the American people were swept off their feet by a temporary awe of and credulous trust in bigness. The grandeur of size caught the imagination of bankers, of business men, and of the people. It was accepted without proof that if a business could but become big enough, its economies would be almost unlimited and its earnings would be wellnigh fabulous. The psychological bubble was pricked by the hardships of costly experience and the disappointments of corporation history. 27 A. Dewing, Corporate Promotions and Reorganizations, pp. 546-557. Through all the period of consolidation and concentration, those trusts which had to rely for their success mainly upon the economies and efficiencies of large scale operation have either met with indifferent success or have failed outright. The trusts with glowing records of high dividends and huge profits are usually those which attained a substantial power of monopoly over prices, and which held a position from which they could take unfair advantage of the surviving small competitors. Either this, or they had for a time the leadership of an executive of the rarest ability, one of the towering captains of industry of the last generation in America who had the genius to make a go during their lifetimes of an otherwise scarcely profitable consolidation.30 The part which management plays in the whole economic organization is obviously a leading one. Management is today divorced from ownership. Owners are holders of corporate securities, and need have no direct interest in the properties nor give any personal attention to their care and government. Managers work for a salary primarily, although in places they also are interested as part owners in the business. Directors of banks and corporations concern themselves mainly with financial matters, leaving questions of labor, production and technique to the presidents, vice-presidents and engineers of the plants. Profits go, not to the men who manage the business, but mainly to those who own the business. The psychology of management shows that bankers and corporation executives are men usually of great intellectual equipment, but that a large proportion of them, or all of them, will be found subject to the sway of customs, traditions, and habits. Optimism gets the better of them during periods of prosperity, and miscalculation leads their businesses into precarious positions repeatedly. Inertia and prejudice keep thousands of them from taking up with the latest improvements in machinery and technology of production, and their frequent inability or unwillingness to master the technique of the modern science of management causes appalling wastes throughout the economic system. On the other hand, modern corporate management has increased the productivity of the individual worker by making possible the large scale use of machinery. Modern management directs the economic energies of society with a degree of efficiency which surpasses any other form of economic government that men have yet contrived. The shortcomings of management indicate primarily the lines of evolution for the future. The recent determination of management to organize human relations in industry is an admirable example of the ability of management to adapt itself to the challenging difficulties of a particular period. The extremes and excesses of managerial policy appear to be coming under control. The tests of business success are now more than ever before seen in the growing attitude that exploitation of labor as a means of reaping profits must be a thing of the past; that abuse of investors' money deserves criminal prosecution; and that mod 30 See A. Dewing's Corporate Promotions and Reorganizations, pp. 563-568. Also W. S. Stevens's Industrial Combinations and Trusts, pp. 574-580. eration in the use of monopoly advantages, and stability rather than exorbitance of prices, is desirable. In days gone by, capital was a term which covered both management and ownership. Recent economic evolution has differentiated managerial functions as a distinct and separate factor. The prime requisite of successful management is a threefold responsibility: to the public, courteous service, standard quality of goods, reasonable prices; to the owners, safekeeping of investments and moderate profits; to the laborers, living wages, democratic treatment, healthful working conditions, a creative interest in work. The day when the responsibility of business was selfishly looked upon as almost an exclusive responsibility to owners,— a responsibility to harvest the maximum profits, without fear or favor,is beginning to pass. The modern manager of the best type recognizes a threefold responsibility for the positive benefit of laborers, owners, and consumers. The test of successful management is the discharge of this balanced threefold responsibility. The characteristics of the present economic period reflect again and again the problem of the size of the business organization. The question of big business or little business is one calling for incessant attention. It may safely be declared that the question has not yet been fully decided. And yet, out of the tendencies and developments of the last decade, certain fundamental lessons stand out very clearly. The large business unit has come to stay. A return to the old days of laissez-faire competition between little business establishments is unthinkable. A new competition has come into activity, a competition between bigger units. In the branches of industry where consolidation has gone far, the biggest combinations operate in the same field with a dozen, or a score, or a hundred independents. But the independents themselves are larger, and the competition which now exists is none the less competition because it prevails between larger business units. For a time, the public and the courts seemed inclined to destroy big business merely because of its size. That inclination is on the wane, and in its place has come the more matured inclination to define the new rules of the game in such a fashion as to give businesses both large and small a chance for a trial of strength on issues of efficiency and economy. The Supreme Court has declared emphatically that under the Sherman Anti-Trust Law of 1890, it will not condemn business merely because it has grown large. If it is not guilty of unfair and destructive competition, if it is not holding its position because of unreasonable restraint of trade or undue monopoly power, if it can remain large or grow larger while still playing the game under the new rules; if it can carry on its large scale enterprise with efficiency under those rules, it may continue in existence, no matter what its size. The size of maximum efficiency will vary with each branch of economic activity, and trial and experiment alone will decide in each case where the point will lie. Where modern business management is recalcitrant, and dodges persistently the rules of fair dealing with competitors, with labor, with owners, with the public, the instruments of public control are not wanting. Regulating commissions, price fixing commissions, public service commissions, publicity and investigating commissions, are available already, and others can be easily created by a public acquainted with the means of control set up to meet the needs of the country during the period of the World War. The blind fear of monopoly and the blind trust in competition are both giving way to a discovery that there is something useful to the economic community in that degree of monopoly which accompanies large scale business or which takes the form of open coöperation between concerns in a given line of trade; and that there is something dangerous in the form of unbridled competition which is ruinous and deadly for the competitors. More and more, the modern type of business government makes room for coöperation in economic activity. Business can still compete, yet in many matters serve the community and itself better by taking counsel and by coöperation which will bear the light of publicity. Destructive competition gives way to constructive competition; and monopoly in restraint of trade gives way to coöperation in the aid of trade. The new standards of competition and the new standards of coöperation are still in the process of development and evolution, but their features are now distinct enough to make clear that a change in the units and types. of business management has been taking place in recent years. The reconstruction of business management along the lines of responsibility to consumers, owners and workers is a cardinal feature of the economic developments of the last generation. BIBLIOGRAPHY CENSUS MONOGRAPH, III, 1920, Integration of Industrial Operation. Corporate Promotions and Reorganizations. FEDERAL COMMISSION ON INDUSTRIAL RELATIONS, 1915, Volume VIII. HOBSON, J. A., The Evolution of Modern Capitalism. HOLT, W. S., The Federal Trade Commission. JENKS, J. W., The Trust Problem. JONES, ELIOT, The Trust Problem in the United States. LOUGH, W. H., Business Finance. MARSHALL, ALFRED, Industry and Trade. MEADE, E. S., Corporation Finance. RIPLEY, W. Z., Trusts, Pools and Corporations. SEAGER, H. R., Principles of Economics, Ch. X, XXV. TAYLOR, F. M., Principles of Scientific Management. VAN HISE, C. R., Concentration and Control. VEBLEN, T. B., Absentee Ownership and Business Enterprise in Recent Times. PART V MONEY, CREDIT, AND BANKING CHAPTER XXV MONEY AND CREDIT Money is anything which is generally acceptable in a community in exchange for all other goods and services. The one distinguishing characteristic of money is its universal exchangeability. Whatever has this characteristic is money, no matter whether it is made out of pure gold or merely out of a strip of yellow and green paper. If an article passes freely from hand to hand as a medium of exchange, if it is accepted readily and as a matter of course in payment of all debts and obligations, then that article is money, no matter what its color, shape, size, or composition. So long as the article is a means of payment that customarily is transferable without question, and between complete strangers as well as between intimate friends has the power to buy goods under any and all circumstances of ordinary occurrence, the article has the money characteristic. A paper mark or ruble worth the merest fraction of a cent is money, and a gold dollar or a silver rupee is money. It may be good money, it may be bad money, it may be disastrous money, but it is money none the less. Four main forms of modern money may be noted. (1) The precious metals commonly used as modern money are silver and gold. Such metallic money is often referred to as specie. Some of it is in the form of coin, but most of it is not. It is chiefly bullion, and serves its money purpose by acting as a reserve for the various forms of paper money or bank credit. A relatively small proportion of our total gold money reserves is coined, and a still smaller proportion is in actual circulation. (2) Government paper money is issued in most countries, and is a promise by the Government to pay specie on demand. In the United States, such money is illustrated by United States Notes or the so-called "Greenbacks," Treasury Notes of 1890, or silver certificates. Since these forms of paper money are Government promises to pay specie money on demand, it is of the utmost importance that this promise be adhered to. If redemption or convertibility is not maintained, the paper certificates may still circulate as money, but usually will do so at a depreciated purchasing power. Depreciated paper money is none the less money, no matter how much the depreciation may be. (3) Banks issue paper |