The first step toward the intelligent study of American education is to consider the country in which this education grows. We are told upon good authority that men do not gather figs from thistles; we are also told that we 19cannot understand the cultural institutions of any country unless we know its economic and social conditions.
If you want to learn about America, the plutocratic empire, come with me and meet the emperor and his princes and lords; come to the Customs House in New York City, early in the year 1913. The memory of our busy age is short, so perhaps it will mean nothing to you if I say that the Pujo Committee of the House of Representatives is in session. They sit in a solemn row, eleven solemn legislators; and into the witness chair step one after another the masters of this plutocratic empire: J. P. Morgan senior, a bulbous-nosed and surly-tempered old man whom everyone in the room knows to be the emperor; George F. Baker, president of the First National Bank of New York, the second richest man in the world; William Rockefeller, brother of the richest man in the world; George M. Reynolds, president of the Continental National Bank of Chicago, the second largest bank in America; Henry P. Davison, Jacob Schiff—so on through a long list.
They are being questioned by a small, frail-looking Jewish lawyer named Samuel Untermyer. All his life he has been one of them, he has been in the game with them and made his millions; he knows every trick and turn of their minds, every corner where their money is hidden—and now he turns against them and exposes them to the world. They hate him, but he has them at his mercy, and step by step he shows us the machinery of our industrial and financial life, the thing which he calls the Money Trust, and which I call the plutocratic empire.
There is one phrase which makes the whole argument of the Pujo Report, and that phrase is “interlocking directorates.” Interlocking directorates are the device whereby three great banks in New York, with two trust companies under their control, manage the financial affairs and direct the policies of a hundred and twelve key corporations of America. The three banks are J. P. Morgan and Company, the First National Bank, and the National City Bank; and the two trust companies are the Guaranty and the Equitable. Please fix these five concerns in your mind, for we shall come back to them in almost every chapter of this book. Their directors sit upon the boards of the corporations, sometimes several 20on each board, and their orders are obeyed because they control credit, which is the life-blood of our business world. Said George M. Reynolds, in his testimony, speaking of the control of American finance: “I believe it lies in the hands of a dozen men; and I plead guilty to being one, in the last analysis, of these men.”
Such was the situation in 1913; and now, America has fought and won a war, and become the financial master of the world. The wealth of America was estimated in 1912 at a hundred and twenty-seven billions; in 1920 it was estimated at five hundred billions, greater than the combined wealth of the British Empire, France, Italy, Russia, Germany, and Japan. At the same time that wealth has increased, so has the concentration of its control. If the Pujo Committee were to conduct another inquiry in the year 1922, it would find exactly the same interlocking directorates, only more of them; and it would find that the financial empire controlled by three great banks and two trust companies has grown from twenty-two billions to not less than seventy-five, and probably close to a hundred billions of dollars.
Just how do these interlocking directorates work? A picture of their method was drawn in Harper’s Weekly by Louis D. Brandeis, at that time an anti-corporation lawyer of Boston, and now a Justice of the United States Supreme Court. Said Mr. Brandeis:
Mr. J. P. Morgan (or a partner), a director of the New York, New Haven and Hartford Railroad, causes that company to sell to J. P. Morgan and Company an issue of bonds. J. P. Morgan and Company borrow the money with which to pay for those bonds from the Guaranty Trust Company, of which Mr. Morgan (or a partner) is a director. J. P. Morgan and Company sell the bonds to the Penn Mutual Life Insurance Company, of which Mr. Morgan (or a partner) is a director. The New Haven spends the proceeds of the bonds in purchasing steel from the United States Steel Corporation, of which Mr. Morgan (or a partner) is a director. The United States Steel Corporation spends the proceeds of the rails in purchasing electrical supplies from the General Electric Company, of which Mr. Morgan (or a partner) is a director. The General Electric Company sells the supplies to the Western Union Telegraph Company, a subsidiary of the American Telephone and Telegraph Company, and in both Mr. Morgan (or a partner) is director. The Telegraph Company has a special wire contract with the Reading, in which Mr. Morgan (or a partner) is a director—
So on to the Pullman Company and the Baldwin Locomotive Works. Mr. Brandeis points out how “all these concerns patronize one another; they all market their securities through J. P. Morgan and Company, they deposit their funds with J. P. Morgan and Company, and J. P. Morgan and Company use the funds of each in further transactions.”
But Mr. Brandeis stops his story too soon; he ought to show us some of the wider ramifications of these directorates. He ought to picture Mr. Morgan (or a partner) falling ill, and being treated in St. Luke’s Hospital, in which Mr. Morgan (or a partner) is a trustee, and by a physician who is also a trustee, and who was educated in the College of Physicians and Surgeons, of which Mr. Morgan (or a partner) is a trustee. He ought to picture Mr. Morgan dying, and being buried from Trinity Church, in which several of his partners are vestrymen, and having his funeral oration preached by a bishop who is a stockholder in his bank, and reported in newspapers whose bonds repose in his vaults. Mr. Brandeis might say about all these persons and institutions just what he says about the Steel Corporation and the General Electric Company and the Western Union Telegraph Company and the Baldwin Locomotive Works—they all patronize one another and they all deposit their funds with J. P. Morgan and Company.
Men die, but the plutocracy is immortal; and it is necessary that fresh generations should be trained to its service. Therefore the interlocking directorate has need of an educational system, and has provided it complete. There is a great university, of which Mr. Morgan was all his active life a trustee, also his son-in-law and one or two of his attorneys and several of his bankers. The president of this university is a director in one of Mr. Morgan’s life insurance companies, and is interlocked with Mr. Morgan’s bishop, and Mr. Morgan’s physician, and Mr. Morgan’s newspaper. If the president of the university writes a book, telling the American people to be good and humble servants of the plutocracy, this book may be published by a concern in which Mr. Morgan (or a partner) is a director, and the paper may be bought from the International Paper Company, in which Mr. Morgan has a director through the Guaranty Trust Company. If 22you visit the town where the paper is made, you will find that the president of the school board is a director in the local bank, which deposits its funds with the Guaranty Trust Company at a low rate of interest, to be reloaned by Mr. Morgan at a high rate of interest. The superintendent of the schools will be a graduate of Mr. Morgan’s university, and will have been recommended to the school board president by Mr. Morgan’s dean of education. Both the board and president and the school superintendent will insure their lives in the company of which Mr. Morgan’s university president is a director; and the school books selected in that town will be published by a concern in which Mr. Morgan (or a partner) is a director, and they will be written by Mr. Morgan’s university’s dean of education, and they will be praised in the journal of education founded by Mr. Morgan’s university president; also they will be praised by Mr. Morgan’s newspaper and magazine editors. The superintendent of schools will give promotion to teachers who take the university’s summer courses, and will cause the high school pupils to aspire to that university. Once a year he will attend the convention of the National Educational Association, and will elect as president a man who is a graduate of Mr. Morgan’s university, and also a member of Mr. Morgan’s church, and a reader of Mr. Morgan’s newspaper, and of Mr. Morgan’s university’s president’s educational journal, and a patron of Mr. Morgan’s university presidents’ life insurance company, and a depositor in a bank which pays him no interest, but sends his money to the Guaranty Trust Company for Mr. Morgan to loan at a high rate of interest. And when the Republican party, of which Mr. Morgan (or a partner) is a director, nominates the president of Mr. Morgan’s university for vice-president of the United States, Mr. Morgan’s bishop will bless the proceedings, and Mr. Morgan’s newspapers will report them, and Mr. Morgan’s school superintendent will invite the children to a picnic to hear Mr. Morgan’s candidates’ campaign speeches on a phonograph, and to drink lemonade paid for by Mr. Morgan’s campaign committee, out of the funds of the life insurance company of which Mr. Morgan’s university president is director.
Such is the system of the interlocking directorates; 23such is, in skeleton form, that department of the plutocratic empire which calls itself American Education. And if you don’t believe me, just come along and let me show you—not merely the skeleton of this beast, but the nerves and the brains, the blood and the meat, the hair and the hide, the teeth and the claws of it.
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