Inequality

Plutocrats & Cognitive State Capture (& Cluelessness)

9781594204098_custom-4347d732791dd814982ef542e10066a91715d22e-s1200-c15

Okay, a few more thoughts on Chrystia Freeland's book, Plutocrats. The book's subtitle, The Rise of the New Global Super Rich and the Fall of Everyone Else, led me to expect a more critical approach to the topic. Instead, I found that Freeland more often than not praises the plutocrats as self-made geniuses and portrays the "fall of everyone else" as an unavoidable aspect of globalization. There's an imbalance of agency inherent in this approach, but the book is still a valuable glimpse inside the plutocrats' world.

Freeland, of course, is herself a member of the elite she describes. Daughter of two politically active lawyers, she attended Harvard and won a Rhodes scholarship to Oxford. Freeland worked as the Moscow bureau chief for the Financial Times, and currently represents Toronto Centre in the Canadian Parliament. Freeland has an incredible degree of access to politicians, global plutocrats, and even the Russian oligarchs, and Plutocrats is filled with anecdotes of her conversations with these interesting characters. This is really valuable material: many of these people opened up to Freeland in a way they certainly wouldn't have to, let's say, Matt Taibbi (who shares Freeland's background as a reporter of Russia).

Freeland obliquely mentions Taibbi in the concluding pages of
Plutocrats. "The vampire squid theory of the super-elite," she says, "is entertaining and emotionally satisfying. It can be fun to imagine the super-elites who went to Wall Street and their Harvard classmates who became economics professors and those who became U.S. senators participating in a grand conspiracy (hatched ideally, at the Porcellian Club) to rip off the middle class. But the impact of these networks is much less cynical, and much more subtle, though not necessarily of less consequence" (p. 270). The interesting thing about this statement is that although it allows Freeland to continue her kid-gloves treatment of the plutocrats, she's actually agreeing with Matt.

Freeland's argument is that the super elite live in a bubble. The world, she says, has lost its borders for them and become simply a series of "rich places" they can visit, surrounded by poor places they can fly over. They can jet around the world to take a 90-minute meeting, and stay in a five-star hotel room that offers the same amenities on any continent. In a sense, the super-rich have turned the planet into McDonalds. Just like middle-class Americans cruising Route 1 from Maine to Florida or Route 66 across the heartland, the plutocracy is safe in a consistent uniformity that promises no surprises wherever they are. And it's a small community. The elite and their hangers-on see each other regularly at think-fests like Davos, Aspen, and TED, where the organizers very rarely screw up and invite someone like
Sarah Silverman.

The result, Freeland says, is a narrowing of perspective. " 'When Treasury Secretary Henry Paulson went to Congress last fall arguing that the world as we knew it would end if Congress did not approve the $ 700 billion bailout, he was serious and speaking in good faith. And to an extent he was right: His world— the world he lived and worked in— would have ended had there not been a bailout,' ” [University of Chicago professor Luigi] Zingales argues. 'But Henry Paulson’s world is not the world most Americans live in— or even the world in which our economy as a whole exists' ” (p. 272). Freeland calls this cool-aid-drinking phenomenon "cognitive state capture," quoting British economist Willem Buiter. Government regulators and Wall Street executives are often the same people. "Four of the last six secretaries of Treasury…were directly or indirectly connected to one firm: Goldman Sachs." How could they
not share a particular perspective and a particular set of priorities. And, in the absence of any credible countervailing opinions, how surprising is it they are taken (by themselves and society) as geniuses and as the only game in town?

"We wear spectacles shaded not only by our self-interest, but also by that of our friends," Freeland says (p. 274). And if this is just human nature, then the plutocrats aren't an evil cabal scheming to screw the rest of us. But they are also not infallible, and society needs to be built around a dialog that represents differing perspectives. Freeland concludes her book with a historical example of what happens when a society shuts out those other voices. When Venice codified its elite in the "Book of Gold" the society effectively stopped evolving, Freeland says. This was the beginning of the end.

The question is, where are the other perspectives going to come from? Freeland hopes to find them among the plutocrats, in people who although they went to Harvard, started life in a remote public school. Among her examples of this are Mark Zuckerberg "(New York State public school, Harvard), Blackstone cofounder Steve Schwarzman (Pennsylvania public school, Yale undergraduate, Harvard MBA), and Goldman Sachs CEO Lloyd Blankfein (Brooklyn public school, Harvard)" (p. 147). Personally, I think we need to throw the net a bit wider.

But I'll admit, Freeland makes a case for trying to distinguish between plutocrats who were entrepreneurs and others who were simply rent-seekers. She quotes Franklin Roosevelt's observation that "The financiers who pushed the railroads to the Pacific were always ruthless, often wasteful, and frequently corrupt; but they did build railroads, and we have them today. It has been estimated that the American investor paid for the American railway system more than three times over in the process; but despite this fact the net advantage was to the United States" (p. 178). However, I think she underestimates the value of being at the right place at the right time. I think this is best shown in the remarks of billionaire Aditya Mittal, of Mittal Steel, who told her “Change is fantastic. That’s how you create value because you participate in the change that you see. Now, it can be wrong, or it can be right—that is your own judgment call. But change is how you create value. If there is no change, how else do you create value?” (p. 162).

You create value by actually creating value. Not by scooping up Central and Eastern European steel mills at pennies on the dollar. That's just arbitrage, and at some point those opportunities will come to an end. Yes, a class of plutocrats and oligarchs will be formed along the way. And yes, they'll inevitably believe they are self-made geniuses. The question is, will there be anybody left at the table to speak for the rest of us?

Different Laws for Rich & Poor

the_divide

I like Matt Taibbi a lot. I love his Rolling Stone articles and I used to love his weekly blog there. I'm glad he's back at RS and publishing articles. I think he was one of the best reporters of the financial crisis, and I especially love his ability to make the details of these issues understandable. I also love the freedom RS gives him to drop the f-bomb on some of these "vampire squid" executives.

That said, I liked
The Divide rather than loving it. I think there's a ton of great information in it, and I agree with Taibbi's thesis: that there's something broken about a society that fails to pursue any of the Wall Street criminals who egregiously broke laws and ruined lives in search of bigger year-end bonuses, especially when that society is simultaneously cracking down on -- and cracking heads of -- poor folks in "bad neighborhoods." My only objection to the book was that I thought the anecdotes went on a bit too long, and I thought they were too exclusively focused on the problems of the urban poor, especially in greater New York City.

The book begins well, with a stark comparison. "At its peak in 1991," Taibbi says, "according to FBI data, there were 758 violent crimes per 100,000 people. By 2010 that number had plunged to 425 crimes per 100,000, a drop of more than 44 percent" (p. 1). The contrast: "In 1991 there were about one million Americans behind bars. By 2012 the number was over 2.2 million, a more than 100 percent increase." Taibbi believes "
We’re creating a dystopia, where the mania of the state isn’t secrecy or censorship but unfairness" (p. 12). The process begins, in Taibbi's story, with a 1999 memo written by an obscure Clinton staffer named Eric Holder. "Bringing Criminal Charges Against Corporations" is an interesting memo, and it had an interesting role in the reinterpretation of the Justice Department's role. For me, it was a little too much of an insider story, though. I was more interested in the connections between Holder (and his associate Lanny Breuer) and the law firm of Covington and Burling (one of whose founders wrote extensively in opposition of the New Deal back in the 1930s). When Holder and Breuer were running Justice, twenty-two other lawyers from that single firm held key positions in the Department. I'd like to hear more about that.

Taibbi has collected a lot of these bizarre, unjust contrasts. "
For instance , in 2011, the state of Ohio —the same state that lost tens of millions in the early 2000s when its pension fund bought severely overpriced mortgage-backed securities from a Lehman Brothers banker named John Kasich, who would later become governor —tried to recoup some of its losses by sending out 22,000 notices to Ohioans seeking 'overpayments' in either welfare or food stamps"(p. 341). In a passage that reminds me of Chrystia Freeland's discussion of cognitive capture, Taibbi describes President Obama's remarks on 60 Minutes in December, 2011, suggesting that a lot of the "least ethical behavior" on Wall street wasn't strictly illegal. "The thing that’s interesting about this claim," Taibbi says, "isn’t that it’s factually wrong, which incidentally it almost always is, often to a humorously enormous degree. What’s interesting is that the people who make this claim usually believe it to be true. Even Barack Obama , despite the fact that he’s almost universally understood to be an outstanding lawyer and should know better, probably believes it to be true. This weird psychological kink is where the Divide lives. Increasingly, the people who make decisions about justice and punishment in this country see a meaningful difference between crime and merely breaking the law" (pp. 397-398). Crime, it turns out, is what poor people are increasingly assumed to be doing, even when they're just standing outside their apartment building having a smoke at 1 AM. Breaking the law is just being "aggressive" with the rules of the game, and it's perceived as victimless -- even when taxpayers have to ante up billions of dollars in bailouts.

And let's not forget to follow the money. While the Financial Crisis Inquiry Committee got $10 million in funding, "
the federal drug enforcement budget leaped from $ 13.275 billion to $ 15.278 billion. That meant that just the increase in the national drug enforcement budget for the year of the biggest financial crisis since the Depression was roughly two hundred times the size of the budget for the sole executive branch effort at formally investigating the causes of financial corruption" (p. 407). Policing and incarceration are big business in America. It's the one thing, after all, we can't outsource overseas.

Who Owns America? Part 1

think-different

Gerald F. Davis contributes three game-changing ideas in his 2009 book Managed By the Markets and a pair of articles that followed it. They are:

  1. The structure of corporate ownership has changed. Today, mutual funds hold the majority of corporate shares. Fidelity, Vanguard, and BlackRock are the largest owners of all the biggest companies. But unlike the trusts of old, these mutual funds exercise loose control.
  2. In America, the social safety net (health insurance, old age pensions, workers comp, etc.) was for decades provided by corporations. This meant that unlike many other industrial economies, the government didn't need to do it. But it also means that when corporations stopped, there was no safety net.
  3. Globalization, the OEM model, and the shareholder value movement have caused the collapse of the traditional American corporation, leaving a vacuum that needs to be filled if the US economy is going to recover.

There's a lot of detail in the book and two articles (they are "A new finance capitalism? Mutual funds and ownership re-concentration in the United States," European Management Review, 2008 and "After the Corporation," Politics and Society, 2013). I'm going to take my time ruminating over them. Beginning, I think, with the most recent.

"After the Corporation," as the name implies, argues that "our current problems of higher inequality, lower mobility, and greater economic insecurity are in large part due to the
collapse of the traditional American corporation." This claim might at first seem counterintuitive. After all, many critics of the present scene are accustomed to blaming American corporations for all our ills. Especially those big paternalistic corporations of the "Wonder Years." Davis says this is not accurate.

"Public corporations as we know them are a distinctly twentieth-century phenomenon in the United States," Davis reminds us. He says "there were fewer than a dozen manufacturers listed on major US stock markets in 1890. Most public corporations were railroads, whereas even the largest manufacturers (such as Carnegie Steel) were organized as private partnerships." This is in keeping with the 19th-century understanding of the corporation as an organization chartered by the state to provide a needed public service (railroads, hospitals, universities), not a for-profit business. The change from that 19th-century notion to our present understanding of the corporation as a legal, immortal
person is an important change -- but not one Davis concentrates on. What he does focus on is the fact that "During the subsequent fifteen years [1890-1905], bankers on Wall Street--most prominently J. P. Morgan and his firm--organized mergers of dozens of dispersed regional companies into a relative handful of oligopolistic corporations able to serve markets on a national scale, with their shares traded on stock markets. US Steel, organized in 1901, was the first billion-dollar corporation in the United States, combining nearly every major steel producer (including Carnegie) into a single public corporation."

It's not necessary to suppose that this consolidation into national corporations encompassing entire industries was the only possible outcome. It was the outcome  J. P. Morgan chose, for his own reasons. And if it wasn't inevitable, it's also fair to ask if it was optimal. But that's not where Davis is going, so I'll leave it for another day.

The biggest effect of this corporatization, Davis says, was the concentration of employment. "At the turn of the twentieth century, 42 percent of the US labor force was dispersed among six million farms. By the time of World War II, almost half of the private labor force worked in manufacturing--overwhelmingly in public corporations such as General Motors and General Electric--and by 1970 nearly one in ten workers were employed by the twenty-five largest corporations." Today the percentage of Americans working in manufacturing has shrunk to less than 9%. Millions of jobs have been lost as productivity increases have made it possible to make more with fewer workers and globalization has made it possible to outsource manufacturing to lower-wage regions of the world. The problem is, this has left  manufacturing workers (once the biggest segment of the broad middle class) with nothing to do.

The prevalence of big corporations was less pronounced in Europe. Even today, Davis notes, Germany has fewer than 600 publicly traded companies -- fewer than Pakistan. But because US employment was so concentrated in corporations, they became the providers of health insurance and retirement income for most American families -- services that elsewhere were provided by governments. In other words, it wasn't that Americans had no welfare state. It's just that the benefits weren't provided by the state. They were provided by corporations (although often with the support of the state through tax incentives). "US households," Davis concludes, "and the US economy were uniquely dependent on the public corporations."

And of course, everything changed when we transitioned from a manufacturing economy to an information economy. Even the computer industry itself was not immune, Davis observes. Computer and electronics companies have "shed 750,000 jobs in the United States since 2000, even as Apple's products have become ubiquitous and its stock market value has surpassed one-half trillion dollars. Meanwhile Foxconn, which assembles most of Apple's products, employs more than one million workers in China."

Apple's value-add is perceived to be primarily intellectual property and branding, which is the model of the new economy. In Apple's case, there's truth to this claim. Its products are cooler than others. And it does maintain a proprietary operating system on all its products which claims to offer a superior user interface and experience. Is this equally true for all the other companies such as Nike who have moved to this model? Or is a big part of the new American economy just based on inflated values resulting from advertising?

More on this, and on Davis's arguments, soon…

Who Owns America? Part 2: Funds & Markets

There are several books I'm reading or planning to read, that have tracked the American economy and focused on ownership and control of major corporations. Among them are C. Wright Mills's The Power Elite, Ferdinand Lundberg's The Rich and the Super-Rich, and the Temporary National Economic Committee's Investigation of Concentration of Economic Power. After reading Davis's Managed By the Markets, I'm adding Brandeis's Other People's Money and  Berle and Means's The Modern Corporation and Private Property.

I ran across an interesting passage yesterday in Lundberg's book, in a chapter called "Oligarchy By Default." In a discussion of corporate control, Lundberg says "Big stockholders could, it is true, meddle into the affairs of corporate management and, theoretically, could insist upon strict social-minded policies. They do not do this, usually, not because they are of the despicable temperaments pictured by C. Wright Mills and others but because they are indifferent, diffident or are afraid to disturb a smoothly running profitable operation."

This reminded me a bit of Davis's description of the changes in corporate ownership over recent decades. Davis says that after the phase of early-twentieth century finance capitalism, when bankers like J.P. Morgan "exerted their dominance of industry through networks of directors" on the boards of subject companies, we moved into a more dispersed ownership model. Davis says according to Berle and Means, by the early 1930s "44% of the largest 200 corporations were under effective management control." This was the period of "managerialism" we associate with the golden age of big American industrial corporations.

Even more recently, Davis says, the pendulum has swung back in the other direction and ownership has been concentrated in the hands of about a half-dozen giant mutual fund companies. Although the company shares are technically owned by investors in the funds, in practice buying, selling, and voting these company shares is done not by individual investors but by fund managers. And it's a lot of shares. By 2010, Davis says, "75 percent of the largest 1,000 corporations' shares were held by institutions, not individuals." A single company, BlackRock, "owned at least 5 percent of the shares of more than 1,800 US corporations…with more than $3.5 trillion in assets under management, BlackRock was the
single largest shareholder of one in five corporations in the United States."

analytics-in-financial-services-behavioral-finance-event-data-visualization-visualizing-the-world-of-mutual-funds-4-638

To show how much has changed in recent years, when I was in the mutual fund business we were mainly selling an "Income Fund" based on corporate bonds. We were thrilled when our sales efforts pushed the fund's assets over the $1 billion mark, because at the time only a few funds like Fidelity's Magellan were that big. BlackRock was started in 1988, the year after I got out of the investment industry (and into computers). It now manages $3.5 trillion -- which just for comparison is more than the GDP of any country other than the US, China, Japan, and Germany.

So, partly because millions of guys like me were successful moving people out of savings accounts and CDs and annuities, into funds, and later at building 401k plans and Variable Life policies around funds, there are now five companies (BlackRock, Fidelity, Vanguard, Dimensional Fund Advisors, T. Rowe Price) that own 5% or more of over 3,700 US-listed corporations. This is a concentration of ownership not seen since the days of J.P. Morgan. But according to Davis, it's ownership without control.

Although the fund companies could choose to use their big blocks of voting shares to pack boards of directors and influence company policies, Davis says they don't do this for two important reasons. First, because many of these big corporations are not only investments for the fund companies, but clients. 401k plans and pensions make up a huge percentage of the fund companies' revenues, so they avoid alienating their customers, which they would do it they  supported shareholder activists against management. Second, Davis says that unlike the bankers a century ago, the funds don't generally invest for the long term. Turnover of these shares is very rapid -- which is somewhat ironic, since the funds themselves are sold to their customers as long-term investments.

In any case, mutual fund managers generally vote with corporate management. So they're basically a huge, unbeatable rubber stamp on whatever management wants to do. According to Davis, "Nearly all shareholder proposals [which are usually activist calls to divest from a particular country or industry, to change corporate rules, to support other "stakeholders" or even to appoint independent directors] failed to achieve a majority of votes; and those that did were generally merely advisory." This separation of ownership from control begs the question, who is really running the show? Who is setting the corporations' agendas and making key decisions? Davis answers that at least in the case of many newer companies, founders, venture capitalists, and early investors often hang onto control even when the company launches a public IPO.

"Many companies that have gone public in recent years," Davis says, "violate the most basic ground rules of corporate governance under shareholder capitalism by giving the founders super-voting rights." For example, Google founders Page and Brin enjoy ten votes for every Google share they hold, ensuring that along with their ally Eric Schmidt they control 59% of the votes. Mark Zuckerberg owns about 28% of Facebook, but he also owns a majority of the votes. And Groupon's three founders retained 150 votes per share. The clear message here is that the fortunes of the companies are tied directly to the visions of just a few key people; the rest of the shareholders are only along for the ride.

And actually, Davis says, most of these new corporations didn't go public to raise funds anyway. They had more than enough money to operate. The IPO was about "cashing out" the founders, early investors, and VCs. So basically, the equity markets aren't really a source of corporate finance anymore at all. They're a combination of casino and compensation tool for insiders.

Campaign Spending has RULED since 1860

Occasionally (really, pretty frequently) I'm struck by all the interesting stuff you can find in books written by people marginalized by the history profession. For example, Ferdinand Lundberg's 1937 book, America's 60 Families, includes a chart of presidential campaign spending beginning in 1860. I've never seen anything like this in a mainstream history book. But it should probably be there, because it turns out that the guys who won the highest office were almost always the guys who spent the most, from Abe Lincoln on.

National Party Funds in Presidential Years

Year
 
Republican
 
Democrat
 
Winner
1860
 
$100,000
 
$50,000
 
Lincoln -R-
1864
 
$150,000
 
$50,000
 
Lincoln -R-
1868
 
$150,000
 
$75,000
 
Grant -R-
1872
 
$250,000
 
$50,000
 
Grant -R-
1876
 
$950,000
 
$900,000
 
Hayes -R- (lost popular vote)
1880
 
$1,100,000
 
$355,000
 
Garfield -R-
1884
 
$1,300,000
 
$1,400,000
 
Cleveland -D-
1888
 
$1,350,000
 
$855,000
 
Harrison -R-
1892
 
$1,850,000
 
$2,350,000
 
Cleveland -D-
1896
 
$16,000,000
 
$425,000
 
McKinley -R-
1900
 
$9,500,000
 
$425,000
 
McKinley -R-
1904
 
$3,500,000
 
$1,250,000
 
Roosevelt -R-
1908
 
$1,700,000
 
$750,000
 
Taft -R-
1912
 
$1,071,548
 
$1,131,848
 
Wilson -D-
1916
 
$2,500,000
 
$2,000,000
 
Wilson -D-
1920
 
$9,700,738
 
$2,537,750
 
Harding -R-
1924
 
$4,370,409
 
$903,908
 
Coolidge -R-
1928
 
$9,433,604
 
$7,152,511
 
Hoover -R-
1932
 
$2,900,052
 
$2,245,975
 
Roosevelt -D-

So in every election except two, the party that spent the most money won. The two exceptions were Woodrow Wilson's 1916 re-election (when Wilson promised to keep the US out of a European War), and Franklin Roosevelt's 1932 landslide victory over Hoover (who was blamed for exacerbating the Great Depression). In both those cases, though, the winning party spent three quarters of the money the money spent by the loser.

What I found interesting was that the historic break in the Republican Party's half-century in the White House were the two non-consecutive terms of Grover Cleveland. In 1884, Cleveland outspent his Republican rival, Maine Senator James Blaine, by raising a million dollars more than the Democrats had spent four years earlier. The general consensus of Political Historians is that "popular outrage at the influence of money in politics helped put Grover Cleveland into the White House." (Heather Cox Richardson,
To Make Men Free, 2014, p. 122) A standard undergraduate textbook remarks that "the election of 1884 was one of the dirtiest ever recorded." But it fails to mention that the mudslinging in the media was fueled by a doubling of the money spent by the campaigns four years previous. The textbook paints Cleveland as a reformer of sorts, although it mentions without explanation that Cleveland "vetoed two out of every three bills brought to him [by a Democrat-controlled Congress], more than twice the number of all his predecessors." (Davidson et. al, Nation of Nations, 2005, 676-7)

In 1888 the Republicans outspent the Democrats by nearly a half million dollars, and Cleveland lost to Benjamin Harrison. Harrison's victory is portrayed as the accomplishment of "a rising kingmaker named Mark Hanna." (
To Make Men Free,123) Cleveland "decried the takeover of government by the wealthy," which some historians take as a suggestion the Democrat believed himself to be a people's candidate. The Republicans tried to insure their control over the presidency by bringing western territories into statehood, buying newspapers like Frank Leslie's Illustrated, and stuffing the Civil Service with their cronies. But in 1892, Cleveland's campaign outspent the Republicans by a half million dollars, and the Democrat became the only President to be elected to non-consecutive terms.
Cleveland is often considered a political outsider and champion of the common man because he was from Ohio. But by the end of the 19th century, Ohio was not the wild frontier it had once been. Five other presidents including Cleveland's rival Benjamin Harrison claimed a close connection (birth or public service) with the state, which during the last decades of the 19th century was the home of Standard Oil. While John D. Rockefeller "habitually contributed large funds to the Republicans in return for lucrative concessions; Colonel Oliver H. Payne, his partner, gave liberally to the Democrats." (
America's 60 Families, 54) Payne's son-in-law, William C. Whitney, became Cleveland's Secretary of the Navy.

While it is too simplistic to claim that the results of all these elections simply followed the money, the standard approach of political historians and the authors of history textbooks seems to go too far in the other direction. They say nothing -- leaving "fringe" historians like Ferdinand Lundberg the task of pointing out the fact that kingmaker Mark Hanna was considered by many the "statesman of Standard Oil." Luckily, the writings of these fringe historians, although left out of the history books, are not that hard to find online.

FEE Quotes Weber, Misses Point

Yesterday FEE posted an excerpt from Max Weber, under the title "Politics is Violence." While I think I get their point, and I even agree that the ways contemporary governments -- including our own -- use their powers is a big problem, I think the article oversimplifies the issue in a way that supports a core libertarian narrative about the difference between government and business.

In a 1918 article titled "Politics as a Vocation," Weber says:

"Today, however, we have to say that a state is a human community that (successfully) claims the monopoly of the legitimate use of physical force within a given territory.

"Note that 'territory' is one of the characteristics of the state. Specifically, at the present time, the right to use physical force is ascribed to other institutions or to individuals only to the extent to which the state permits it. The state is considered the sole source of the 'right' to use violence."

The problem is, there's a disconnect between the first and second statements. The "human community" and the agency of the humans in that community of the first paragraph disappears from the second, and the state is reified. That is, the state becomes a monolithic agent -- a "person" with one particular outlook and agenda. I don't think this reflects reality, where "the state" can be better understood as an ongoing, never-ending negotiation between its members. Name me a state that speaks with a single voice, where there is no dissent, no disagreement on ends or means. And since this is so, the question of violent means is much more complicated than FEE is trying to suggest.

Also, in the real world, although "the state" may
claim a monopoly on violence, it is clearly not the only agent of violence. So really, what's the point of retreating into a hundred-year old theoretical argument about abstractions that didn't reflect reality then or now?

Notes: America's 60 famiies

I'm starting to digest the items I marked and highlighted in Ferdinand Lundberg's 1937 book, America's 60 Families. I haven't decided exactly what I think about each of these items yet, so this isn't a review. It's more of a peek into my own process. These are the things that jumped out at me as I was reading. For the most part, they show Lundberg's radical interpretation of events and people the mainstream historians treat quite differently. I'll need to read more to decide how to react to this material. If nothing else, it's an interesting challenge to the way we view the past. (First 90 pages here. More to come)
Lundberg's basic argument is that 60 families "are the living center of the modern industrial oligarchy which dominates the United States." (3)
"Concentration…by means of majority ownership, legal device, and diffusion of fractional and disfranchised ownership…" (8) This could be right out of Jerry Davis's recent book,
Managed By the Markets.

In spite of the overwhelming use of the limited liability corporation to organize business, "The control points of private wealth in industrial capitalistic society, as in feudal society, remain the partnership, the family, and the family alliance."

Franklin Roosevelt Jr. married Ethel du Pont (daughter of Eugene) in 1937

"few of the present owners of big fortunes are the architects of these fortunes…class differentiation is becoming more and more hereditary in the United States." (20-2)

Find out about the Atlas Corporation (early fund?) 1924 Floyd B. Odlum (32)

"J.P. Morgan was purchasing agent for the Allies [in WWI] at a commission of one per cent." (36)

"National City's leading stockholder is A.P. Giannini" who also owned BofA and TransAmerica Insurance. (40)

"J.P. Morgan and Company would, of course, deny that it controls A.T. & T., whose advertising stresses that no individual owns so much as one per cent of its stock…Briefly, the greater the fractional distribution of share ownership…the more secure is the control of the managing directorship." (referring to Berle and Means, 42-3)

"Although incomes above  $50,000 accounted for thirty per cent of individual savings in 1929, Bureau of Internal Revenue figures show that only 38,889 persons, or .05 of one percent of the adult population received such incomes." (46)

In other words, Lundberg says, "the big fortunes tend to reproduce themselves on an enlarging scale." In contrast, "about ninety-nine per cent of all citizens had gross incomes of $5,000 or less, and eighty-three per cent of all liquid wealth was possessed by the one per cent that received $5,000 or more annually."
According to an IRS official testifying before the Senate Finance Committee in 1935, "It is often asserted that large wealth is dissipated in three generations…[but] large estates…we find, not only perpetuate themselves but are larger as they pass from generation to generation." (48-9)

"The first fortunes on the virgin continent," Lundberg reminds us, "were out-and-out political creations--huge tracts of land and lucrative trading privileges arbitrarily bestowed by the British and Dutch crowns upon favorite individuals and companies." (50)

Lundberg continues, observing that "in 1860 more than half the land area of the nation was held in trust for the people by the government, but by 1900…natural resources owned today by the Unites States Steel Corporation, the Aluminum Corporation, the Standard Oil  Company, the railroads, and, in fact, nearly all private corporations, were in 1860 communally owned under political auspices." (53)

"That there was universal popular approval for the dismemberment of the public domain does not alter the fact that it was the common people, ever slow to comprehend their true economic interest, who were despoiled." (53-4)

Campaign spending chart on p. 55

Cleveland, McKinley, Taft, Harding all from Ohio -- Standard Oil. Mark "Hanna's Rockefeller affiliation. In 1891, was intimate and of long standing." (57)
McKinley: "In 1893, while Governor of Ohio, he went bankrupt, but was secretly salvaged by a syndicate comprising Mark Hanna, Myron T. Herrick, Samuel Mather, Charles Taft, Henry C. Frick, Andrew Carnegie, and others…After his elevation to the White House, McKinley, to make room for Hanna in the Senate, designated as his Secretary of State the octogenarian Senator John Sherman." (58)

"Seven Presidents served under [Nelson W.] Aldrich, Republican Senate whip. Destined to become young Rockefeller's father-in-law…When Aldrich gave up his wholesale grocery business in 1881 to enter the Senate [from Rhode Island]he was worth $50,000; when he died, after thirty years in politics, he was worth $12,000,000." (61)

"The Morgan syndicate that floated the United States Steel Corporation in 1901 exacted a fee of $62,500,000…whereas the tangible value of the entire property was only $682,000,000; the new securities had a face value, however, of $1,400,000,000." (63)

McKinley's Cabinet: "Elihu Root, who took the portfolio of war in 1899, was [Thomas Fortune] Ryan's attorney and became Morgan's; he had been Tammany Boss Tweed's lawyer…Philander C. Know was a Frick-Mellon man, a director in several Mellon banks that had long financed Frick's coke business, and the reorganizer of the Carnegie Steel Corporation as a holding company…Root and Know sat in the cabinets of three Presidents, faithful janizaries of the economic royalists." (64-5)

Roosevelt's "purely verbal radicalism was to hold in check the rising tide of social discontent…a virtuoso at deception, [Roosevelt] is even today looked back on as a great liberal reformer…nominated for the mayoralty of New York in 1886 by Chauncey Depew, president of Vanderbilt's New York Central Railroad…Roosevelt was placed in nomination at Saratoga [for Governor in 1898] by Depew, and was seconded by Elihu Root…Frick himself became one of Roosevelt's private advisers…as Vice-President Elect [Roosevelt] had given a private dinner in December, 1900, in honor of no lesser personage than J.P. Morgan." (66-8) In 1903, Roosevelt invited Morgan to the White House "to talk over certain financial matters." (69)

"Elihu Root stepped out of the Cabinet to act as the Morgan-Hill defense counsel for Northern Securities, and succeeded in obtaining a purely technical dissolution decree from the Supreme Court." Then Root rejoined the Cabinet. (70)

Panama Canal p. 74

Aldrich-Vreeland currency bill -- LaFollette filibustered eighteen hours in vain (89)

"It was freely charged later, and President Roosevelt himself hinted it, that the panic [of 1907] was aggravated, if not started, solely to permit the United States Steel Corporation to gobble up the Tennessee Coal and Iron Corporation in contravention of the Sherman Act." (90)

1930 List of the "Men Who Rule"

In the summer of 1930, James W. Gerard published a list of 59 names he called "Men Who Rule." The list hit the Associated Press wire on August 20th and caused a furor that lasted several weeks. Gerard was Ambassador to Germany during World War I (until the US declared war, when he was asked to leave) and had written a book about his experiences that had been made into a Hollywood movie.

Gerard produced his list as part of an endorsement of the "Beaverbrook Plan" for protected British trade. Gerard commented that England was still weak following the Great War, but claimed "give the forty men who rule the United States ten years for the development of this industrial empire and no country on this earth could approach it in per capita wealth." His point was that without the protectionist Beaverbrook Plan, even these men would not be able to save Britain (he was arguing against a European common market). When asked the names of the forty men, Gerard responded with his list of 59. The list quickly became bigger news than its original context, and Gerard was immediately criticized for his choices. Herbert Hoover wasn't included, complained one commentator. The list was about the powers behind the throne, Gerard explained. There were no inventors or intellectuals, said another critic. Gerard responded "I would hate to have to compile a list of intellectual leaders and continue to live here."

New York Representative Fiorello La Guardia commented, "Mr. Gerard, I am sure, does not at this moment realize what he has started. I predict now that Mr. Gerard's list will be referred to more times in the next Congress in connection with revenue legislation than any other source of information. Mr. Gerard has furnished a bill of particulars of what has generally been known since the war…Mr. Gerard's statement is a particularization of what I said in Congress during the discussion of the 1924 tax bill."

Gerard's list:

John D. Rockefeller, Andrew W. Mellon, J. P. Morgan, George F. Baker, John D. Ryan, Walter C. Teagle, Henry Ford, Frederick K. Weyerhauser, Myron G. Taylor, James A. Farrell, Charles M. Schwab, Eugene G. Grace, H. M. Warner, Adolph Zukor, William H. Crocker, O.P. Van Sweringen, M.J. Van Sweringen, W. W. Atterbury, Arthur Curtis James, Charles Hayden, Daniel C. Jackling, Arthur V. Davis, P. G. Gossler, R. C. Holmes, John J. Raskob, the Dupont family, Edward J. Berwind, Daniel Willard, Sosthenes Behn, Walter S. Gifford, Owen D. Young, Gerard Swope, Thomas W. Lamont, Albert Chase Wiggin, Charles E. Mitchell, Samuel Insull, the Fisher Brothers, Daniel Guggenheim, William Loeb, G. W. Hill, Adolph S. Ochs, William Randolph Hearst, Robert R. McCormick, Joseph Medill Patterson, Julius Rosenwald, Cyprus H. K. Curtis, Roy W. Howard. A few days later, Gerard added five more names: Sidney Z Mitchell, Walter Edwin Frew, Amadeo P. Giannini, William Green, Matthew Woll.

03673r
James W. Gerard

Jacoby's Crimes Against Nature

Recently, Not Even Past posted Henry Wiencek’s review of this book, and it has just come out in a new edition, so I thought I'd start throw my two cents in. I first read Crimes Against Nature in a grad EnvHist seminar at UMass. I liked it so much that I use the chapter on the Adirondacks in my undergrad class. My students are usually surprised to discover the Progressive impulse toward conservation had a dark side. They're somewhat less surprised to learn that the elite men who championed conservation had personal interests in the wilderness as a sort of private reserve for members of their own class. One of the things I liked about the book was that it led me to ask a lot of questions about how places like the Adirondacks are managed (and owned) today.

In addition to the upstate New York forest, Jacoby covers Yellowstone and the Grand Canyon. Perhaps because I was born on the border of the park, the first section on the Adirondack State Park was most interesting to me. Jacoby highlights what he calls the “hidden history of American Conservation," by which he means the consolidation of state power, the systematic denigration of the ways rural people used the land (Jacoby calls this “degradation discourse”), and the elimination of local customs regarding commons; replacing them with top-down state and national laws designating “wilderness” areas. Jacoby suggests the Progressive idea of wilderness was “not some primeval character of nature but rather an artifact of modernity.” (198) Jacoby echoes William Cronon’s suggestion (in “The Trouble with Wilderness,” 1996) that the idea of wilderness conservation “tends to privilege some parts of nature at the expense of others,” and betrays “the long affiliation between wilderness and wealth.” (Cronon, 20-22) In other words, not only are some parts of nature privileged, but some people’s relationship with that nature is more important than other people’s.

Jacoby introduces his subject with a reference to E.P. Thompson. He says he wants to provide a “moral ecology...a vision of nature ‘from the bottom up.’ ” (3) So, this is what a Social History of the environment looks like. Jacoby agrees rural commoners had a different response to their environments than the “appreciation of wilderness” Roderick Nash found in the “minds of sophisticated Americans living in the more civilized East.” (quoting Nash, “The Value of Wilderness,” 1977, 2) But rural people's response to nature was not primitive or rapacious, as portrayed by George Perkins Marsh at the beginning of the conservation movement and by historians following Marsh ever after. In many cases, Jacoby says, the local resistance faced by conservationists was due to the fact that “for many rural communities, the most notable feature of conservation was the transformation of previously acceptable practices into illegal acts.” (2) Reading this introduction, I was reminded of the “hares and rabbits” controversy in England. Jacoby gets to this comparison later -- I suppose I should put E.P. Thompson's book on the game laws on my reading list.

The Adirondacks are the source of the Hudson River, but the rocky highlands are nearly worthless as farmland. These are both important points, as is the forest’s location close to Albany. Marsh’s
Man and Nature attracted attention in New York, and I should take a closer look at this and the other contemporary writing Jacoby mentions. For me, the most interesting feature of the story is the proliferation of “private parks,” which seem very much like the enclosed, aristocratic hunting lands of Britain. “By 1893,” Jacoby says, “there were some sixty parks in the Adirondacks, containing more than 940,000 acres of private lands, including many of the region’s best hunting and fishing grounds, at a time when the state-owned Forest Preserve contained only 730,000 acres.” Jacoby quotes Forest and Stream, which observed in 1894 that “‘Private parks in the Adirondacks today occupy a considerably larger area than the State of Rhode Island.’ ” (39) By 1899, the New York legislature was proposing the monopolization of land and the exclusion of poor local people from hunting in a place they had lived for generations. References were made in the debate to British aristocratic land enclosure, and to the prosecution of “poachers.” In 1903, aggrieved locals took matters into their own hands and murdered Orrando Dexter, a preserve owner who had prosecuted several trespassers.

Jacoby uncovers the dark side of conservation, and tends to portray these conflicts as large-scale, national arguments between conservationists and their opponents. I wonder if the story could also be seen as a conflict between locals and outsiders. The Albany conservationists had more in common with robber-baron (and politician) park owners than they ever did with the locals. It’s no coincidence, I think, that conservationists tended to overlook tree theft by the timber industry and illegal (or obscenely excessive but legal) hunting by the park owners, while at the same time aggressively prosecuting locals for “squatting” on ancestral lands, taking deer or fish out of season to feed their families, and cutting non-commercial hardwood species for firewood. Jacoby tends to report these “crimes” from the authorities’ point of view to tell his story of the exclusivity at the heart of the conservationist impulse. While I agree, I think the locals’ point of view could be covered more completely. I’m really curious, for example, about the locations of those sixty parks. How much of the very best land did the well-heeled conservationists take? How many towns did they hem in, or restrict rights of way to? How much of that land is still privately owned? Because according to Wiki, in 1900 the park’s area was 2.8 million acres, of which 1.2 million was state owned. In 2000, the park had grown to 6 million acres, of which only 2.4 million is state owned. After deducting for the area of towns, lakes, and small lots, that leaves about 3 million acres in private ownership. That's about the size of Connecticut. Hmm... Has anybody ever really looked at the history of land distribution in America? How it was distributed initially? Who owns it now?

Before the Quabbin

When I arrived at UMass/Amherst for the first time, as an eighteen-year old undergrad, I was shocked and fascinated by the story of the Quabbin Reservoir. The Quabbin, which is now celebrated as an "accidental wilderness," was a water project of the Great Depression. It made a lot of work and guaranteed Boston a supply of water which the city still relies on. But the project also inundated several towns and even more farms and little roadside villages. Some of the full-time staff at the work-study job I had on campus were from families that had lost their land a generation earlier. The memories were pretty fresh for them. I'm going to review James Scott's books today -- so this seemed appropriate. Also, if you look closely, Petersham, where John Sanderson lived, is on these maps.
Here are a couple of USGS topographic maps from before the construction, and one from after that covers the same area. To orient yourself, look for the prominent "Mount L." It's in the center of the first old map and the new map, and on the left about two-thirds of the way up the second old map. I always thought I'd write a story with a character whose home is beneath that blue sheet in the middle. Maybe I still will...
old-home-1   old-home-2   old-home-3

Hornborg's Power of the Machine

51-mrkgrpvl-_sl250_

The Power of the Machine: Global Inequalities of Economy, Technology, and Environment
Alf Hornborg, 2001

“Like all power structures,” Hornborg begins, “the machine will continue to reign only as long as it is not unmasked as a species of power.”  If only it was so easy.  We may realize that the emperor is naked, and he may be embarrassed. But that doesn’t stop him from being the emperor.

This isn't Environmental History, despite the title. It's more a cross between economics and philosophy. And the argument is not backed up by any historical claims or evidence, it's completely theoretical. But Hornborg went on to write and collaborate on books that do call themselves EnvHist, so I thought I'd look at his argument. Turns out, Hornborg’s analysis is built on two big ideas. The first is his definition of power as “a social relation built on an asymmetrical distribution of resources and risks” (1). When I read this, the image that came to my mind was Beowulf. Risks can either be taken or imposed. When you take a risk, you accumulate honor and become a hero. When you impose a risk on someone else, you accumulate power.

The second is the idea that beyond the cultural construction or idea of “the machine,” there are
actual machines. And Hornborg says “the actual machine contradicts our everyday image of it.” Hornborg believes “the foundation of machine technology is not primarily know-how but unequal exchange in the world system, which generates an increasing, global polarization of wealth and impoverishment” (2). We believe machines embody progress and an escape from Malthusian disaster. But they don't feed themselves: “We do not recognize that what ultimately keep our machines running are global terms of trade. The power of the machine is not of the machine, but of the asymmetric structures of exchange of which it is an expression” (3).

The way machines concentrate resources from the periphery into the center while seeming to be making something out of nothing, is by keeping our attention firmly focused on the spinning gears and flashing lights in that center. To prove his point, Hornborg cites the Second Law of Thermodynamics and Ilya Prigogine’s elaboration of it in his theory of Dissipative Structures. Increases in order, which Hornborg calls negative entropy or negentropy, are only possible locally, and are fueled by energy  taken out of the wider environment. “Any local accretion of order,” Hornborg says, “can occur only at the expense of the total sum of order in the universe” (123). In the case of biomass, the energy to create this order is taken from sunlight by photosynthesis. This isn’t a completely efficient process, but it hardly matters on a human scale (so far). Where the entropy law becomes really important, though, is in the creation of what Hornborg calls “technomass” out of non-renewable resources. This is not only a zero-sum game, Hornborg says, but it has distributional implications that are “systematically concealed from view by the hegemonic, economic vocabulary” (3).

“Industrial technology,” Hornborg says, “depends for its existence on not being accessible to everyone.” Industry presupposes cheap energy and “raw material” inputs and high-value outputs. Entropy insures that there isn’t enough to go around. “The idea of distributing [technology] evenly among all the peoples of the world would be as contradictory as trying to keep a beef cow alive while restoring its molecules to all the tufts of grass from which it has sprung” (125).

What are the historical implications of this bleak argument? Well for one thing, once machines and the exchange relationships they represent “assumed the appearance of natural law…the delegation of work from human bodies to machines introduced historically new possibilities for maintaining a discrepancy between exchange value and productive potential, which in other words means encouraging new strategies for underpayment and accumulation” (13). Why? Because while it is relatively easy to recognize the basic justice that an individual owns his own work, it’s harder to say who should own the work of the machines built with (cheap) resources and (cheap) labor bought far from the high-priced central markets.

This was the thing that Marx missed, either because it was harder to see in his time, or because (as Hornborg suggests) he “fetishized” machines and expected them to solve the historic problem of the proletariat (there’s a whole chapter redefining Marx’s theory of fetishism and applying it, but I'll save that for another time). At some point, Hornborg says (I'd say pretty early on), global growth became primarily based on “
underpayment for resources, including raw materials and other forms of energy than labor.” Hornborg replaces Marx’s labor exploitation with resource exploitation as the central factor in capitalist accumulation. This change is a great bridge from a traditional Marxist critique of capitalism, to a “green” critique. Money values may increase and the illusion of global economic growth may temporarily hide the zero-sum nature of the game, but in the long run “what locally appears as an expansion of resources” turns out to be “an asymmetric social transfer implying a [hidden] loss of resources elsewhere” (59).

Another implication is that, historically and “still today, industrial capitalism is very far from the universal condition of humankind, but rather a privileged activity, the existence of which would be unthinkable without various other modes of transferring…resources from peripheral sectors to centers” (60). This should impact discussions of the “market transition” in history just as it affects our understanding of contemporary economic development.

The other major implication, for me, is that locality is key. In nature, systems tend to regulate themselves. “As long as a unit of biomass is directly dependent on its local niche for survival, there will tend to be constraints on overexploitation and a long-term (if oscillating) balance. Industrial growth, however, entails a
supra-local appropriation of negentropy” (123). The concept of mobile, impersonal capital breaks this local ecology, and creates what Hornborg calls “a recursive (positive feedback) relationship between some kind of technological infrastructure and some kind of symbolic capacity to make claims on other people’s resources” (61). When capital can begin to be accumulated far from its source, we’re on our way to a world where “the 225 richest individuals in the world own assets equal to the purchasing power of the 47 poorest percent of the planet’s population.”

But one could also respond to this by saying Hornborg takes the thermodynamic argument too far. It's a compelling metaphor, but it needs some measurement attached to it. Sure, all order is temporary and a battle against entropy. But we have a more benign name for that than the ones Hornborg uses. We call that life.