Wall Street to Main Street: Charles Merrill and Middle Class Investors

Published by EH.Net (February 2000)

Edwin J. Perkins, Wall Street to Main Street: Charles Merrill and Middle

Class Investors. New York: Cambridge University Press, 1999. xiv + 283 pp.

8p. of plates. $29.95 (cloth), ISBN: 0-5216-3029-0.

Reviewed for H-Business and EH.NET

by David L. Mason, Department of History, The Ohio State University.

mason.160@osu.edu

In this book, Professor Perkins provides an illuminating business biography of

one of the most influential figures in modern investment finance. A founder of

the nation’s largest investment banking firm, Charlie Merrill transformed the

major financial markets with his belief that people of limited resources should

have access to the same professional investment advice as the wealthy. By

pioneering the idea that middle-class Americans should become active investors

in stocks and bonds, Merrill

helped to demystify Wall Street, but more importantly offered a way for

millions to achieve a secure financial future. Significantly, his vision of a

nationwide chain of brokerage firms serving Main Street America–his most

memorable accomplishment–evolved from a lifetime of achievements.

As Perkins capably details, the business life of Charlie Merrill consisted of

three separate, but interrelated careers. Merrill was born outside

Jacksonville Florida in 1885 and educated in the North, where he graduated from

Amherst. Merrill entered the world of Wall Street by way of an old school

friend who told him about an opening in a small brokerage firm. This contact

was but the first of

a string of career-advancing personal relationships Merrill cultivated in his

professional life. After learning the brokerage business, Merrill went out on

his own and by the early 1920s had teamed up with Eduard Lynch to form Merrill,

Lynch & Co.

The new firm was stunningly profitable in the legendary Bull Market of the

1920s, providing business and institutional clients with a variety of merchant

banking services including those relating to bond issues and mergers and

acquisitions. In the process, Mer rill, Lynch achieved a positive reputation

working with new industries like motion pictures and chain stores. Merrill’s

interest in “the chains” stemmed in part from his childhood job working in his

father’s pharmacy, and he acquired interests in several

of the major firms including Safeway grocery stores. By 1928,

Merrill warned his partners and his clients that the stock market was

overvalued, and pushed for a more conservative investment strategy that by

October 1929 helped the company and its customers preserve much of their

wealth. With the stock market mired in a prolonged slump, Merrill and Lynch

sold their brokerage business to E.A. Pierce & Co., and the smaller firm became

essentially dormant as the two partners opted for semi-retirement.

By 1932, the first career of Charlie Merrill as an investment banker came to an

end.

While Eddie Lynch enjoyed a retirement of pleasure and travel, Charlie Merrill

spent the depression years managing Safeway Stores, in which he was the

majority stockholder. Although he was not a director and did not hold an

official position in the company, Merrill was a key force in helping to make

Safeway the leading chain of grocery stores in the West. The experience gave

the former investment banker crucial insights into the operation of a consumer

business, especially one that relied on economies of scale for success. In

1940, these lessons proved valuable when Merrill’s long time business associate

and fellow Amherst alumnus Win Smith encouraged him to return to his old firm

in an effort to revive its waning fortunes. Smith had joined E.A. Pierce when

it acquired Merrill Lynch’s brokerage business, and although his new employer

was the largest chain of brokers in the country, by the end of the 1930s it was

on the verge of

bankruptcy. Even as the national economy emerged from the decade long

depression, the brokerage business remained in the doldrums, and Smith hoped

Merrill would rejoin as managing director and contribute some much needed

capital. Merrill, who was tiring

of retirement, accepted the challenge, thus ending his second career and

beginning his most important part of his long business life.

The older Merrill Lynch & Co. merged with E.A. Pierce, and Merrill began

charting a future for the new firm. Although he

returned to Wall Street,

Merrill did not intend to be a merchant banker, but rather wanted to develop

investment-banking services such as retail brokerage. His work with Safeway had

shown Merrill how a broad distribution base could increase sales and revenues,

and he wanted to replicate this in the brokerage business in order to tap the

growing wealth of the nation’s middle class.

To do this, however, Merrill had to change the negative public image of

stockbrokers. Because brokers worked on a commission,

a prevailing attitude was that the main goal of brokers was to “churn and

earn” by encouraging customers to make needless trades so the brokers could

earn fees on the transactions. Merrill instituted straight salaries for all

employees as a way to dispel

these perceptions, and while this move did have the potential of reducing

broker earnings, a new company-sponsored retirement profit-sharing plan helped

minimize the loss. The firm also began to refer to brokers as account

executives, a practice still used throughout the industry, and it also

assigned customers to brokers based on clients’

investment objectives.

Merrill, whose lifelong credo was “first investigate then invest,” also sought

to improve the education of both the firm’s employees and the public. To build

the image of brokers as professionals, Merrill pioneered an in-house training

program that included courses on all aspects of merchant and investment

banking. He also increased the size and scope of the research department so

brokers could

provide their clients with current and accurate investment advise. To bring

down the veil of mystery surrounding the stock and bond markets, Merrill was

among the first to use mass-market advertisements explaining how and why people

should save for special goals like education or retirement. Although these

efforts took time to bear fruit, they ultimately helped millions gain a better

understanding of financial markets and the need for systematic savings. By the

time of Charlie Merrill’s death in 1956 his

firm was the dominant force in retail brokerage with the formal name Merrill,

Lynch, Pierce, Fenner &

Beane, known informally as “We the People”–today known as Merrill, Lynch,

Pierce, Fenner, & Smith.

Perkins’ book is an important scholarly portrait of

a leading Wall Street personality, and presents his story in a clear and

concise fashion. Perkins had a wealth of primary source material at his

disposal, and this constitutes one of the main strengths of the work. Perkins

conducted numerous interviews with Merrill’s children and business associates,

and obtained access to documents in the Merrill, Lynch archives previously

unavailable to those outside the company. Most of the source citations refer to

direct quotations; and, while this is certainly adequate for the lay reader,

historians might wish for a fuller annotation. Perkins’ deftly employs

Chandlerian business theory to place the story of Charles Merrill in a broader

perspective. Realizing that some of these concepts may be confusing to

nonacademic readers, the author provides clearly understandable explanations

for both theoretical and financial terms.

Perkins avoids the tendency of a biographer to glorify his subject. He

describes Merrill’s inability to see the potential for many financial

innovations, such as mutual funds, which he believed would never be popular

with the

investing public. Still, Perkins may be giving too much weight to Merrill’s

prescience in making early, confident predictions about the stock market crash.

The weaknesses of

this book they are minor, and do not detract from its value to scholars and the

general public. Wall Street to Main Street:

Charles Merrill and Middle Class Investors is highly recommended to those

interested in the history of finance, investment banking, or the service

industry. Perkins presents a complex story in an accessible manner,

combining rigorous historical analysis that is refreshingly free of the

intricacies of financial jargon.