84 ChaPter 2
that in transaction accounts might have to hold 12-14 percent in reserve.
Though the numbers were less for smaller banks, it was usually more difficult
for them to hold such reserves because they did not have enough capital in
their vaults to cover even a small percentage; 3 percent of $25 million, for
instance, amounted to $750,000, a not insignificant sum. But at the same time
J.P Morgan’s holdings exceeded $22 billion, so a 12 or 14 percent reserve was
much easier to meet given such immense wealth.
For a Wall Street bank, however, having adequate reserves was much eas-
ier because it had such vast deposits. As a result, smaller state and local banks
often could not compete and went out of business, and were often bought out
by the larger banks. Reform in this case was a means to eliminate competitors
and buy them out at low cost. The Fed was also given the task of regulating
the money supply and interest rates. It could print money to create inflation,
higher prices and wages, or take money out of circulation to help corporate
and financial leaders pay lower wages and, along with that, make interest rates
rise so that bankers could charge higher rates on the loans they gave out. It
also regulated the rates at which Federal Reserve banks would loan money to
commercial banks, and in that way it could help bigger banks with better
lending practices and withhold funds from banks that were taking too many
risks with their loans. The Fed still exists today and its actions in 2008, when
it bailed out huge Wall Street banks and then printed money for them to
cover their losses, were consistent with the purpose of creating it in 1914—to
benefit the ruling class. The insurance industry had a similar problem. The
period from the end of the Civil War to 1900 saw cutthroat competition;
between 1890 and 1905, the number of insurance companies doubled. To
attract customers many insurers charged too little for premiums and offered
more coverage than they could afford, so many of them failed. The bigger
insurance companies, like the big banks, demanded government regulation to
force smaller insurers to meet reserve and interest requirements that were
unreachable, and so they too failed and were swallowed up by bigger insur-
ance carriers in another example of “rationalizing” the industry.
Perhaps the best example came in an area already discussed, meatpacking.
The story of The Jungle is so well known and credited for the progressive laws
to inspect meat and make sure it was safe to be consumed. But there is
another part to that story that is virtually unknown. Long before Upton
Sinclair went to Chicago, there was a crisis in the meatpacking industry. The