‘Our financial oligarchy’: Louis Brandeis slams too big to fail – in 1913

July 17, 2012

Chris Reese contributed to this post

In an article entitled “Our financial oligarchy,” published in Harper’s magazine in December 1913, Louis Brandeis, who three years later would be appointed to the Supreme Court, delivered a scathing critique of the banking sector that bears an uncanny resemblance to the charges against Wall Street today.

As the Libor scandal continues to widen, confidence in an already tarnished financial sector has been eroding further, having already taken a beating in the wake of the 2008-2009 financial crisis and the massive Wall Street bailouts that followed. Five years later, banks are still seen as risky as their post-crisis actions not only fail to restore their reputations but actually push them deeper into disrepair.

Against that backdrop, Brandeis’ description of the rapid growth of investment banks and the expansion of their power in ways that make them behave like economically inefficient oligopolies sounds downright prophetic.

Here are some particularly relevant excerpts:

The growth of the nation, therefore, and all our activities are in the hands of a few men, who, even if their actions be honest and intended for the public interest, are necessarily concentrated upon the great undertakings in which their own money is involved and who, necessarily, by every reason of their own limitations, chill and check and destroy genuine economic freedom. […]

The dominant element in our financial oligarchy is the investment banker. Associated banks, trust companies and life insurance companies are his tools. Controlled railroads, public service and industrial corporations are his subjects. Though properly but middlemen, these bankers bestride as masters of America’s business world, so that practically no large enterprise can be undertaken successfully without their participation or approval. […]

The development of our financial oligarchy followed, in this respect, lines with which the history of political despotism has familiarized us: usurpation, proceeding by gradual encroachment rather than by violent acts; subtle and often long-concealed concentration of distinct functions, which are beneficent when separately administered, and dangerous only when combined in the same persons. It was by processes such as these that Caesar Augustus became master of Rome. The makers of our own Constitution had in mind like dangers to our political liberty when they provided so carefully for the separation of governmental powers.

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