13 Bankers: The Wall Street Takeover and the Next Financial Meltdown (42 page)

35.
Quoted in Schlesinger,
Age of Jackson, supra
note 26, at 84 (emphasis in original). Webster received a retainer as one of the Bank’s lawyers. Still, in Schlesinger’s assessment, “Webster fought for [the Bank] in great part because it was a dependable source of private revenue.” Schlesinger also points out that both opponents and supporters of the Bank were in its debt. Ibid. at 86, n. 22.

36.
Meacham,
American Lion, supra
note 31; Robert V. Remini,
Andrew Jackson and the Bank War
(New York: W. W. Norton, 1967).

37.
Carnell et al.,
Law of Banking, supra
note 8, at 4–5.

38.
Nelson W. Aldrich, “The Work of the National Monetary Commission” (lecture, Economic Club of New York, November 29, 1909), available at
http://books.google.com/books?id=vDcuAAAAYAAJ
. For Aldrich’s assessment, see Nathaniel Wright Stephenson,
Nelson W. Aldrich: A Leader in American Politics
(New York: Charles Scribner’s Sons, 1930).

39.
Stephen Haber, “Financial Markets and Industrial Development: A Comparative Study of Governmental Regulation, Financial Innovation, and Industrial Structure in Brazil and Mexico, 1840–1930,” in Stephen Haber, ed.,
How Latin America Fell Behind: Essays on the Economic Histories of Brazil and Mexico, 1800–1914
(Palo Alto: Stanford University Press, 1997); Stephen Haber, “Politics, Banking, and Economic Development: Evidence from New World Economies,” in Jared Diamond and James Robinson, eds.,
Natural Experiments of History
(Cambridge: Harvard University Press, 2009): 88–119. On emerging markets, see chapter 2 of this book. On the general problem of elites blocking economic development, see Daron Acemoglu, James Robinson, and Simon Johnson, “Institutions as the Fundamental Cause of Long-Run Growth,” in Philippe Aghion and Steve Durlauf, eds.,
Handbook of Economic Growth
(Amsterdam: North-Holland, 2005).

40.
The United States had strong institutions—tending to control the power of elites—due to its colonial experience, in contrast to those of Latin America. Acemoglu et al., “Institutions as the Fundamental Cause of Long-Run Growth,”
supra
note 39. Jefferson’s ideas and Jackson’s success at opposing concentrated power in part reflected those strong institutions.

41.
The latest historical work suggests that the United States moved away from agriculture and adopted industrial technologies and new forms of commercial organization earlier than previously believed. See Charles Sellers,
The Market Revolution: Jacksonian America, 1815–1846
(Oxford: Oxford University Press, 1991); David Reynolds,
America, Empire of Liberty
(New York: Basic Books, 2009); and Daniel Walker Howe,
What Hath God Wrought: The Transformation of America, 1815–1848
(Oxford: Oxford University Press, 2007).

42.
Lamoreaux,
Insider Lending, supra
note 19; Robert E. Wright,
The Wealth of Nations Rediscovered: Integration and Expansion in American Financial Markets, 1780–1850
(Cambridge: Cambridge University Press, 2002). This point has been emphasized by IMF first deputy managing director John Lipsky. John Lipsky, “Finance and Economic Growth” (lecture, Bank of Mexico Conference, “Challenges and Strategies for Promoting Economic Growth,” Mexico City, Mexico, October 19, 2009), available at
http://www.imf.org/external/np/speeches/2009/101909.htm
.

43.
Rousseau and Sylla, “Emerging Financial Markets,”
supra
note 9.

44.
Hofstadter,
American Political Tradition, supra
note 20, at chapter 7; Matthew Josephson,
The Robber Barons
(San Diego: Harcourt Brace, 1934).

45.
Kevin Phillips,
Wealth and Democracy: A Political History of the American Rich
(New York: Broadway Books, 2003), 239–40; Hofstadter,
American Political Tradition, supra
note 20, at chapter 7; Nathaniel Wright Stephenson,
Nelson W. Aldrich, supra
note 38; Edmund Morris,
Theodore Rex
(New York: Random House, 2001).

46.
Daron Acemoglu and James A. Robinson, “Economic Backwardness in Political Perspective,”
American Political Science Review
100 (2006): 115–31.

47.
On income levels, see Daron Acemoglu, Simon Johnson, and James A. Robinson, “The Colonial Origins of Comparative Development: An Empirical Investigation,”
American Economic Review
91 (2001): 1369–1401; and Daron Acemoglu, Simon Johnson, and James A. Robinson, “Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution,”
Quarterly Journal of Economics
118 (2002): 1231–94. On Mexican finance, see Haber, “Political Institutions and Financial Development,”
supra
note 10; Stephen Haber and Noel Maurer, “Related Lending and Economic Performance: Evidence from Mexico,”
The Journal of Economic History
67 (2007): 551–81; and Noel Maurer,
The Power and the Profits: The Mexican Financial System, 1876–1932
(Palo Alto: Stanford University Press, 2002). The Haber and Maurer paper argues that, in the Mexican case, concentration in the banking sector was compatible with effective corporate governance, but did lead to concentration in nonfinancial industries. On financial development and growth in other countries, see Peter L. Rousseau and Richard Sylla, “Financial Revolutions and Economic Growth: Introducing This EEH Symposium,”
Explorations in Economic History
43 (2006): 1–12; and Michael D. Bordo and Peter L. Rousseau, “Legal-Political Factors and the Historical Evolution of the Finance-Growth Link,”
European Review of Economic History
10 (2006): 421–44.

48.
Hofstadter,
American Political Tradition, supra
note 20, at chapter 7.

49.
Alfred Chandler,
The Visible Hand: The Managerial Revolution in American Business
(Cambridge, MA: Belknap Press, 1976).

50.
Thomas K. McCraw,
Prophets of Regulation
(Cambridge, MA: Belknap Press, 1984), 98.

51.
Charles R. Morris,
The Tycoons: How Andrew Carnegie, John D. Rockefeller, Jay Gould, and J. P. Morgan Invented the American Supereconomy
(New York: Henry Holt, 2005), chapter 8.

52.
Ibid. at 235; this estimate is for the “liquid industrial, commercial, and financial capital of the United States” that was guided by Morgan directly or indirectly. Brad DeLong finds that “in 1911–12 the presence on one’s board of directors of a partner in J.P. Morgan and Co. added about 30 percent to common stock equity value, and about 15 percent to the total market value of the firm.” J. Bradford DeLong, “Did J. P. Morgan’s Men Add Value? An Economist’s Perspective on Financial Capitalism,” in Peter Temin, ed.,
Inside the Business Enterprise: Historical Perspectives on the Use of Information
(Chicago: University of Chicago Press, 1991): 205–36. See also Ron Chernow,
The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance
(New York: Grove, 2001); Jean Strouse,
Morgan: American Financier
(New York: Random House, 1999); and David M. Kotz,
Bank Control of Large Corporations in the United States
(Berkeley and Los Angeles: University of California Press, 1978).

53.
Roosevelt, “State of the Union Message,”
supra
note 1.

54.
The origins of the Sherman Antitrust Act remain somewhat shrouded in mystery. It appears to have been part of a broader political deal that allowed the Republicans to increase the tariff. There is no indication that it was intended to be used against big business; nor was it used in that manner for the first decade after it passed. See Thomas W. Hazlett, “The Legislative History of the Sherman Act Re-examined,”
Economic Inquiry
30 (1992): 263–76.

55.
Northern Securities Co. v. United States,
193 U.S. 197 (1904). For the development of Roosevelt’s antitrust approach, see Morris,
Theodore Rex, supra
note 45.

56.
Morris,
Theodore Rex, supra
note 45, at 91. The conversation took place on the morning of February 22, 1902.

57.
On Roosevelt’s intellectual antecedents, how he saw his place in the American tradition, and his political objections to concentrated commercial power, see Hofstadter,
American Political Tradition, supra
note 20, at chapter 9. Roosevelt’s earlier thinking and interaction with the Republican Party machine and industrial interests are covered in Edmund Morris,
The Rise of Theodore Roosevelt
(New York: Modern Library, 2001).

58.
George J. Stigler, “The Economists and the Problem of Monopoly,”
American Economic Review
72 (1982): 1–12.

59.
The mergers were a way to remove “excess capacity” in some industries, but did not create more efficient operations. There was no systematic antitrust policy in the face of this merger wave; see Naomi R. Lamoreaux,
The Great Merger Movement in American Business, 1895–1904
(Cambridge: Cambridge University Press, 2008).

60.
On the crisis of 1907, see Morris,
Theodore Rex, supra
note 45; Chernow,
House of Morgan, supra
note 52; Robert F. Bruner and Sean D. Carr,
The Panic of 1907: Lessons Learned from the Market’s Perfect Storm
(Hoboken, NJ: John Wiley & Sons, 2007).

61.
On financial crises in general, see Charles P. Kindleberger,
Manias, Panics, and Crashes: A History of Financial Crises,
fourth edition (Hoboken, NJ: Wiley, 2000). On the role of credit in booms and busts, see also Wesley C. Mitchell,
Business Cycles
(Berkeley: University of California Press, 1913). On the banking panics between the National Bank Act of 1863 and the creation of the Fed, see Elmus Wicker,
Banking Panics of the Gilded Age
(Cambridge: Cambridge University Press, 2000).

62.
On the “financial accelerator,” see Ben S. Bernanke, “The Financial Accelerator and the Credit Channel” (lecture, The Credit Channel of Monetary Policy in the Twenty-first Century Conference, Federal Reserve Bank of Atlanta, Atlanta, Georgia, June 15, 2007), available at
http://www.federalreserve.gov/newsevents/speech/Bernanke20070615a
.htm
; Ben S. Bernanke, “Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression,”
American Economic Review
73 (1983): 257–76; and Ben S. Bernanke and Mark Gertler, “Agency Costs, Net Worth, and Business Fluctuations,”
American Economic Review
79 (1989): 14–31.

63.
Chernow,
House of Morgan, supra
note 52, at 123–24.

64.
For a detailed history of the formation of the Fed and a discussion of the roles of Aldrich and others, see Elmus Wicker,
The Great Debate on Banking Reform: Nelson Aldrich and the Origins of the Fed
(Columbus: Ohio State University Press, 2005). Wicker traces the origins of the Fed back to the banking panic of 1893–1894.

65.
Aldrich, “The Work of the National Monetary Commission,”
supra
note 38.

66.
Chernow,
House of Morgan, supra
note 52; Stephenson,
Nelson W. Aldrich, supra
note 38; and Melvin Urofsky,
Louis Brandeis: A Life
(New York: Pantheon, 2009).

67.
Quoted in “The ‘Money Trust,’ ”
The New York Times,
July 24, 1911, available at
http://query.nytimes.com/gst/abstract.html?res=9F05E4DD1131 E233A25757C2A9619C946096D6CF
.

68.
For the reports of the Pujo Committee, see Federal Reserve Archival System for Economic Research,
Money Trust Investigation. Investigation of Financial and Monetary Conditions in the United States Under House Resolutions Nos. 429 and 504,
available at
http://fraser.stlouisfed.org/publications/montru/
.

69.
Louis Brandeis, “Our Financial Oligarchy,”
Harper’s Weekly,
November 1913.

70.
Louis Brandeis,
Other People’s Money, and How the Bankers Use It
(New York: F. A. Stokes, 1914), 4.
Other People’s Money
republished a series of articles that originally appeared in
Harper’s Weekly.
See also Alexander D. Noyes, “The Money Trust,”
The Atlantic Monthly,
May 1913, 653–67.