American Railroad Labor and the Genesis of the New Deal, 1919-1935

9. Railroad Unions and Labor Banks

• 9 • Railroad Unions and Labor Banks By 1919, the term industrial democracy was firmly established in labor’s lexicon, and it animated its political activity.1 As explained in the previous chapters, railroad labor vigorously pursued industrial democracy through the ballot box in the interwar years. Railroad unions, particularly the Brotherhood of Locomotive Engineers through its banking ventures in the 1920s, pursued a second course to achieve industrial democracy or, perhaps more accurately, financial democracy. In 1920, the BLE founded its first bank, and until 1927 it was at the forefront of a small but vigorous effort to establish labor banks. Proponents argued that banks should cater to the needs of working Americans, help them to obtain credit more readily and enable them to purchase stock. The BLE argued that labor banks would move unions’ battles from the picket line to the board room.2 This chapter of labor history has been largely ignored by recent historians. Examining trade unionists’ banking venture is essential to understanding their effort to define their place as citizens in an industrial democracy. The railroaders valued political action, but looked upon labor banks as a second, critical component in their campaign to establish industrial democracy . They believed that financial equality was a necessary step on the path to full citizenship in an industrial democracy. Union leaders had long recognized the paradox of putting unions’ money and the savings of workers into traditional banks, where it could be loaned to businesses and possibly used against labor. The goal of labor banks was to help union members obtain loans and credit more readily, which would permit workers to advance individually and as a group. Leaders hoped that a new class of industrialists would emerge with the help of sympathetic banks. Railroad Unions and Labor Banks 107 The railroad leaders were not the first American workers to turn to labor banks. In 1810, members of New York City’s General Society of Mechanics and Tradesmen founded the Mechanics Bank. Like the BLE a century later, the Mechanics hoped to help members obtain credit more readily. This was not a smooth process. After a brisk start, within two years “ . . . plagued by mismanagement of its investments . . .” the directors were forced to declare temporary insolvency.3 The bank nonetheless survived and helped to ensure that the city’s “ . . . credible mechanics . . .” had fair access to financial accommodations.4 Although the rhetoric of the railroad leaders was different in the twentieth century, the desire to break away from the grip of financiers was unchanged. BLE President Warren S. Stone was a dedicated banking proponent. He divided labor history into three epochs: the beginning of class-consciousness and organization, the general struggle for collective bargaining, and the era of cooperation with employers rather than war. Stone believed that labor banks would help to create the last era. Labor banking enthusiasts argued that credit was one of workers’ principal needs and asserted that because most banks were reluctant to extend either credit or loans to working people, workers were denied a fair chance to advance. One of the chief architects of the labor banks was Stone, who argued that one of the principal tasks of labor banks was to be responsive to the needs of working Americans. Stone believed that labor banks would help to end conflicts between employer and employee. BLE Assistant Grand Chief William B. Prenter summed up the union’s position: In America there is no such thing as a working class as distinguished from a capitalist class. Men pass too readily from one group into the other to be tagged with class labels. It is the Brotherhood’s aim in its financial enterprises to show its members and workers generally how they can become capitalists as well as workers.5 Antecedents of Labor Banks Prior to the twentieth century, some labor organizations dabbled with the notion of labor banks, but with little success. The AFL discussed the possibility of creating banks at their 1904 convention, but decided against 108 Chapter 9 further action. In 1912, the BLE rejected a banking resolution. At its next triennial convention in 1915, however, the brotherhood instructed Stone and the Advisory Board “ . . . to consider the advisability of forming a bank at an opportune time.”6 World War I foiled any immediate plans the brotherhood may have had, but the Advisory Board continued to gather information and in October 1919, it authorized Stone and Prenter...