Financial Innovations

Mass production, mass marketing and advertising all work together to foster the growth of giant corporations, dwarfing anything except the big railroads. Most of the biggest firms grow through the acquisition of rivals.

This is also true of banks. The largest bank in the world is now based in New York, having merged with a string of rival banks during the 1920s. As it grows larger, it gradually transforms itself into an investment bank.

Unlike commercial banks, which take in deposits and issue banknotes backed by these deposits, investment banks act as brokers, putting together deals between corporations and deep-pocketed investors, and charging advisory fees.
J.P. Morgan and credit ratings, 1920s

  New York's Specialty
While business leaders like Henry Ford are busy building larger and more efficient factories, financiers like J.P. Morgan are exploring new ways to put together complicated deals. Loans from commercial banks are still soaring (top right), but the biggest investment banks in New York are now managing stock and bond offerings for many of the new corporate giants.

Standard Oil and tobacco breakups, 1910s

  Pushing the Limits
Inevitably, some industrialists take the game too far. John D. Rockefeller, who formed Standard Oil to refine petroleum into kerosene, hates competition. Any competition. He resorts to extreme tactics to absorb or ruin all his smaller rivals, achieving a near-total monopoly of the refining industry. The Supreme Court steps in, declaring that Standard Oil has restrained trade, and must be broken up. American Tobacco, another near-monopoly, is also broken into pieces by the Court, in a separate case.


Corporate giants, 1920

  Unstoppable Giants
Despite the break-up of two early monopolies, the continuing trend is towards the concentration of wealth in fewer and fewer hands. This trend persists to the present day. New manufacturing giants, led by Ford, are built on funding that is 200 times greater than that of the average manufacturer (barely visible, in chart at top left). The railroads are even bigger financial monsters. At the same time, business is being re-directed from regional banks into the hands of the biggest New York firms (right).