prosperous; some for a long time, at the expense of the public; some for a shorter time, because of the impetus attained before they were banker-managed. It is not difficult to have a large net income, where one has the field to oneself, has all the advantages privilege can give, and may “charge all the traffic will bear.” And even in competitive business the success of a long-established, well-organized business with a widely extended good-will, must continue for a considerable time; especially if buttressed by intertwined relations constantly giving it the preference over competitors. The real test of efficiency comes when success has to be struggled for; when natural or legal conditions limit the charges which may be made for the goods sold or service rendered. Our banker-managed railroads have recently been subjected to such a test, and they have failed to pass it. “It is only,” says Goethe, “when working within limitations, that the master is disclosed.”
WHY OLIGARCHY FAILS
Banker-management fails, partly because the private interest destroys soundness of judgment and undermines loyalty. It fails partly, also, because banker directors are led by their occupation (and often even by the mere fact of their location remote from the operated properties) to apply a false test in making their decisions. Prominent in the banker-director mind is always this thought: “What will be the probable effect of our action upon the market value of the company’s stock and bonds, or, indeed, generally upon stock exchange values?” The stock market is so much a part of the investment-banker’s life, that he cannot help being affected by this consideration, however disinterested he may be. The stock market is sensitive. Facts are often misinterpreted “by the street” or by investors. And with the best of intentions, directors susceptible to such influences are led to unwise decisions in the effort to prevent misinterpretations. Thus, expenditures necessary for maintenance, or for the ultimate good of a property are often deferred by banker-directors,