Plutocracy

Freeland's Plutocrats

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Another of the books I'm reading in parallel right now is Chrystia Freeland's 2012 bestseller, Plutocrats. Freeland is an insider in the global elite, so the book is part expose and part Lifestyles of the Rich and Famous. But there's a lot of good info in it, which I'll be reviewing carefully soon. In the meantime, I thought I'd comment on something that jumped out at me today, while I was listening and hauling firewood from the shed to the house.

As I said, Freeland is critical of the Plutocrats, but at the same time she portrays them as a bunch of really smart, driven guys. Many of them started in the middle class, she says, and got where they are now partly because of their extreme smarts and high levels of education. Many of the guys she describes went to Harvard or its overseas equivalents like Oxford (Freeland herself attended both). And the success of the financial elite is attributed as much to their intelligence and appetite for "revolution" as to being in the right place at the right time.

Many of the free-market advocates I've debated with over the years focus their criticism on the excesses of government bureaucrats , and they sometimes assume that anyone who challenges their position supports state intervention in the economy and our daily lives. But as I was listening to Freeland's story today, I was struck by how that argument is so 70s. In today's revolving-door world of finance and regulation, there's no real difference between government and business (Jerry Davis makes this point from a slightly different direction in
Managed By Markets, which is why reading all these things simultaneously is so interesting). And the way Freeland lays out the events of the 2007-8 financial crisis, it's hard to see how these guys can be taken for smart:

On January 22, 2007, Mike Bloomberg, the mayor of New York, and Chuck Schumer, the senior senator for the state, released a study they had commissioned from McKinsey, the world’s leading management consultants . The report, titled “Sustaining New York’s and the US’ Global Financial Services Leadership,” warned of impending financial crisis and offered detailed guidance on how to avert it…the risk that London, or perhaps Hong Kong or Dubai, might soon eclipse New York as the world’s financial capital. Were that to happen, Schumer and Bloomberg warned in an op-ed published in the Wall Street Journal on November 1, 2006, foreshadowing the full report, “this would be devastating for both our city and nation.”

A specific risk posed by America’s overly strict financial regulators, McKinsey warned, was that their approach was driving the highly desirable derivatives business abroad…Read with the benefit of hindsight, the Bloomberg/ Schumer/ McKinsey report is a parody of hubris .

Among the geniuses who pushed for even more deregulation were "Glenn Hubbard, the dean of Columbia Business School…John Thornton, the active Democratic donor and former president of Goldman Sachs," and "Hank Paulson, the Republican Treasury secretary and former chairman and CEO of Goldman Sachs," who praised the Bloomberg/ Schumer op-ed as being 'right on target.' ”

And as Freeland acknowledges, the push for less controls on derivatives markets was bipartisan. She notes that "Paulson approvingly quoted a Democratic predecessor as secretary of the Treasury, Bob Rubin…" Yeah, a Democrat -- but also a "fellow former Goldman Sachs chairman." Another of the so-called elite experts who fought hard to get the government out of the way of the efficient operation of the free markets was "John Thain , then the CEO of the New York Stock Exchange. Two years later, Thain, by then CEO of Merrill Lynch, was forced to sell the nearly hundred-year-old firm to Bank of America at a fire sale price because of a financial crisis caused in great measure by inadequate regulation."

Source: Freeland, Chrystia.
Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else (p. 211-214). Penguin Group US. Kindle Edition.

Plutocrats & Cognitive State Capture (& Cluelessness)

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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?

The Pitchforks

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I've heard about the Nick Hanauer TED Talk for a while now. Last night I took 20 minutes and watched it. The Talk is called "Beware, fellow plutocrats, the pitchforks are coming." Although a plutocrat himself, Hanauer claims that wealth inequality is reaching pre-Depression or even pre-French Revolution levels, and that the outcome for his class can't be good. But even more interesting, he makes the case that strengthening the middle class would be good for everybody.

Hanauer is proud of his accomplishments, but he seems to understand that they were enabled by the society he lives in. He says many plutocrats know, even if they don't want to admit it, that "
if we had been born somewhere else, not here in the United States, we might very well be just some dude standing barefoot by the side of a dirt road selling fruit. It's not that they don't have good entrepreneurs in other places, even very, very poor places. It's just that that's all that those entrepreneurs' customers can afford.

Hanauer's identification of the middle class as the necessary market for the goods and services that he and his friends produce is a point frequently overlooked by proponents of trickle-down economics. I think it's especially true in the high-tech sector where Hanauer made his money. A
free-market blogger posted a piece from a Tea Party site today, about the capture of "American" jobs by foreigners using Microsoft's new Skype translation software. Although I think it will take some time for the software to get good enough to actually replace people, it's just another step in a globalization of labor that's clearly already happened.

Business apologists say globalization reduces labor costs to businesses. Others argue that although it's painful for American workers, in the long run a global labor market is more just. Why should auto assembly workers in Indiana make more than their counterparts in China? Isn't that just first-world privilege? Well, yeah, it is a bit. But also, as we've seen in the
Guardian reports that have so offended Apple this week, it's much easier to treat workers poorly at a board-stuffing plant in China poorly than it would be in, say, Cupertino. And also, the cost of living in China is roughly half what it is in America. That means, to put it simply, you can pay a Chinese worker half as much to create the same standard of living.

Now we can all wait the painful generation it will take for the cost of living in America to shrink low enough to make our workers competitive. But let's be clear, that will mean house prices will fall in half, food prices, cars. Is the American economy ready for this? Even high tech companies will feel this pain. How many iPhone 6s with $100 per month family data plans do you think the Chinese are buying?

Hanauer reminds us that when Henry Ford instituted $5 per hour wages (twice the average wage at the time), he was doing it not only to pacify his workforce, but to make it possible for the people working on his assembly lines to
buy the product that rolled off it. Hanauer says, "Let's invest enough in the middle class to make our economy fairer and more inclusive, and by fairer, more truly competitive, and by more truly competitive, more able to generate the solutions to human problems that are the true drivers of growth and prosperity. Capitalism is the greatest social technology ever invented for creating prosperity in human societies, if it is well managed, but capitalism, because of the fundamental multiplicative dynamics of complex systems, tends towards, inexorably, inequality, concentration and collapse. The work of democracies is to maximize the inclusion of the many in order to create prosperity, not to enable the few to accumulate money. Government does create prosperity and growth, by creating the conditions that allow both entrepreneurs and their customers to thrive."

This last bit might be a difficult pill for free market proponents to swallow. There's a pile of literature on their shelves claiming not only that capitalism is a better solution than socialism, but that it's actually, structurally infallible (interestingly, it's usually not the first-generation thinkers such as Böhm-Bawerk and Mises who say this type of thing, but the second generation like Rothbard). Capitalism could still be the best possible option, even if we acknowledge and try to correct for its flaws. I'll have more to say about this when I review
Thomas Piketty's book, since his thesis revolves around what a capitalist economy does in different growth scenarios.

Which brings us back around to economics. What it is and who it's for? Hanauer has a different perspective from mine -- a view from the top. But even he says, "
Many economists would have you believe that their field is an objective science. I disagree, and I think that it is equally a tool that humans use to enforce and encode our social and moral preferences and prejudices about status and power, which is why plutocrats like me have always needed to find persuasive stories to tell everyone else about why our relative positions are morally righteous and good for everyone: like, we are indispensable, the job creators, and you are not; like, tax cuts for us create growth, but investments in you will balloon our debt and bankrupt our great country; that we matter; that you don't. For thousands of years, these stories were called divine right. Today, we have trickle-down economics. How obviously, transparently self-serving all of this is. We plutocrats need to see that the United States of America made us, not the other way around; that a thriving middle class is the source of prosperity in capitalist economies, not a consequence of it."

Who Owns America? Part 3

One of the things that that really strikes me as strange is the way free-market enthusiasts always distinguish between business and government. I sort-of get it: if you read the old classics by Henry Hazlitt or Ludwig von Mises or if you read Atlas Shrugged, you get the impression that free enterprise and government bureaucracy are worlds apart. But let's remember, these economists were talking about a world they grew up in, a hundred years ago. And Atlas Shrugged, despite being the book many libertarians (don't want to admit they) got most of their ideas about the ideal economy from, is fiction!

For me it comes down to size. Big corporations are as distant from control by regular people (as workers, as consumers, as neighbors with rights) as big governments. In
Managed By the Markets, Gerald Davis begins his chapter on the golden age of corporations with the observations that:

Exxon Mobil's 2007 revenues of $373 billion matched the GDP of Saudi Arabia, the world's twenty-fourth largest economy. Wal-Mart has more employees than Slovenia has citizens. Blackwater Corporation has a larger reserve army than Australia. The individuals that run such corporations wield more influence over people's lives than many heads of state. In some respects, corporations transcend or even replace the governments that chartered them: states are stuck with more-or-less agreed land borders, but corporations are mobile, able to choose among physical and legal jurisdictions…Moreover, corporations can fulfill many of the functions of states: they can have extensive social welfare benefit programs for employees…Indeed, some American multinationals look more like European welfare states than does the US government.

A couple of observations here. First, as Davis has mentioned repeatedly, it was precisely because the giant corporations that once employed the American middle class offered "social welfare" bundles like lifetime employment, career ladders, job training, old-age pensions, and health insurance, that government didn't have to. America has a much smaller public commitment to social welfare not only because we have a greater commitment to "freedom," but because
we didn't need the state to step in. The problem now is that the giant corporations that provided these benefits have disappeared, and many of the people thinking about this issue are stuck in a "Happy Days" mindset. We're making policy as if the corporations are still there. Many of the names are there. There's still an AT&T, a GE, and a General Motors -- but if you look at them, they're more like brand names than companies. AT&T once employed over a million people in the US. That's down to a quarter million. GE's own website asks, "Did you know that manufacturing jobs were the largest sector of employment in 1960, yet today the category has fallen to 6th place?" Even General Motors has shrunk from employing over 600,000 people in 1960 to fewer than 200,000 today.

But there are new companies like Google and Apple to pick up the slack, right? Not according to Davis:

The combined global workforces of Google (32,467), Apple (63,300), Facebook (4,000), Microsoft (90,000), Cisco (71,825), and Amazon.com (56,200)—317,792 as of the end of 2011—are smaller than the US workforce of Kroger (339,000). Notably, a recent survey of college graduates under 40 found than one in five listed Google as their most preferred employer, followed by Apple and Facebook. They might as well have chosen the NBA as Facebook, given the firm’s miniscule employment, and Apple’s recent surge in net jobs is almost entirely attributable to the roll-out of its retail stores, where most of its current employees work.

So it really is down to Wal-Mart. Davis quotes David Bell, who said the "paradigmatic corporation" of the first third of the 20th century was US Steel, followed by General Motors in the second third and IBM in the final third. Today it's Wal-Mart, a flat organization with thousands of small units, minimal benefits and no career ladder -- but employing 1.4 million people, "more than the dozen largest manufacturers combined." But what about small business? The government, chambers of commerce, political candidates -- everyone seems to always be saying this is where the real story is. Where the American dream still operates. According to
Forbes, there are 28 million small businesses and another 22 million self-employed entrepreneurs. Half the working population they say.

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But the definition they use of small business is anything with fewer than 500 employees. A Wal-Mart store with 300 employees (which is average) thus qualifies. Yeah, the guy who runs the Taco stand in the photo Forbes used definitely counts. But so does the McDonalds franchisee down the street from him. According to the Bureau of Labor Statistics, the percentage of the workforce employed at firms with fewer than 50 employees holds pretty steady at about 28% to 29%. So the question is, do the cheery infographics hide more than they reveal?

Davis concludes his most recent article ("After the Corporation") with a call for localism. He says, "Local solutions for producing, distributing, and sharing can provide functional alternatives to corporations for both production and employment...the technology for locavore production is already here; what is needed is the social organization to match the tools that we have in hand, or will have shortly." I think he's probably right. "The stunning productivity," he says elsewhere, "of the agriculture and manufacturing sectors—the roots of post-industrialism—should be a cause for celebration." This is true -- at least as long as it's sustainable. A lot of that farm productivity and industrial globalization is based heavily on cheap energy. But even if energy remains cheap, important questions remain to be answered. The first is, what do people do to earn a living? People are much less mobile than corporations -- and I suppose that immobility is the key difference between today's global corporations and government. Corporations can leave -- governments by definition stay home with their citizens and pick up the pieces.

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)

How Does History Get Forgotten?

One of the things that struck me when I began reading Ferdinand Lundberg's 1937 book, America's 60 Families, was "why haven't I heard about this before?" Not only the facts and perspective Lundberg was offering, but the book and the author. I did a PhD field in 19th Century American History. Okay, sure, Lundberg wrote in the 20th century. But his writing covers the late 19th. So how is it I was unaware of him?

I read an article the other day called "
What New Left History Gave Us," in the online journal Democracy. The author takes Gabriel Kolko to task, remarking at one point that not only was Kolko's work "arid and mono-causal," but that it was wrong on the facts of J.P. Morgan's involvement in the Panic of 1907. I did a search inside The Triumph of Conservatism (thanks, Amazon!) on the word Lundberg. Zero instances. I also searched The Age of Reform and The Search for Order, because Amazon "suggested" these books on the Kolko page. No dice. But Alan Brinkley mentions that FDR borrowed the phrase "Sixty Families" for his December 30, 1937 radio address, in The End of Reform. Sigh of relief.

How is it that a historian writing about J.P. Morgan in the 1970s would not be aware of Lundberg's work? Especially a historian claiming to represent the Left? This made me wonder (as I often do), am I being led astray? Was Lundberg a crackpot? Is his perspective so marginal that it was ignored by serious scholars? So I searched the journals for reviews of Lundberg's book.

I expected the left would have some good things to say, and I wasn't disappointed. The radical journalist and author, Harvey O'Connor, reviewed
America's 60 Families in the Marxist journal Science and Society, announcing that "Lundberg states a thesis certainly not novel in essence but never more thoroughly illustrated than in this book, crammed as it is with the factual results of a study of finance and government of this generation." But the Marxists were not the only people impressed by Lundberg's book. The Annals of the American Academy of Political and Social Science (an organization whose membership included not only academics, but Herbert Hoover and Frances Perkins) ran a review by Michael B. Scheler a year after the book's publication. Scheler said:

"Mr. Lundberg, supporting the radicals' contention, has offered in his book not merely theory and generalizations but a mass of facts, figures, statistics taken from authoritative sources. Since its publication America's 60 Families has served as a challenge to American plutocracy, but to date, despite several lame attempts which were easily shattered by the author, none of its facts and figures has been disproved. Mr. Lundberg names names and lists intimate details in the lives of the families involved, but so far, to the reviewer's knowledge, no libel suits are pending against either the author or the publishers."

A 1938 review in
Social Science (published by Pi Gamma Mu, the International Honor Society of the Social Sciences) by philosophy professor Herman Hausheer, calls the book "An eminent and incontrovertible performance of classic magnitude." Paul H. Douglas (University of  Chicago, later US Senator from Illinois) wrote  a long review for the Oct. 1938 Public Opinion Quarterly. While he disputed a few of Lundberg's facts and inferences, Douglas acknowledged "the general picture of concentrated control which this work paints if probably substantially correct, and many reviewers have erred in not being able or willing to see the forest for the trees. There is no doubt that the situation which this book reveals more clearly than any other of which I know does present a serious challenge to true democracy."

So it seems that although Lundberg's book was controversial when it came out, it was recognized as a legitimate contribution to the field. That means something happened between then and now, to take
America's 60 Families off the table and hide it on a back shelf where no one ever looks. While I think "historiography" is of much more interest to academics than to regular people, changes in the way we think about wealth and inequality are important enough that it might be worth looking at this more closely.

Approaching WWI with Thomas Lamont

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Continuing my notes on America's 60 Families, with a digression to a little-known speech:

Lundberg says "total wartime expenditures of the United States government from April 6, 1917, to October 31, 1919, when the last contingent of troops returned from Europe, was $35,413,000,000. Net corporation profits for the period January 1, 1916, to July, 1921, when wartime industrial activity was finally liquidated, were $38,000,000,000…" (134)

By the end of the American involvement, US national debt had reached $30 billion, "or more than thirty times the prewar national debt. The only way the people could recover some of this money was by taxing the corporations" that had made some extreme windfall profits during the war. But the Republican administrations that followed Wilson's "saw that taxes on the rich were sharply reduced rather than increased." (135)

JP Morgan and Company acted as purchasing agent in the US for the European allies. Wilson's Secretary of State, the Populist William Jennings Bryan, warned the President in August 1914 that Morgan was seeking credit for Britain and France. Bryan told Wilson "money is the worst of all contrabands," and that if the loan was permitted, "the interests of the powerful persons making it would be enlisted on the side of the borrower, making neutrality difficult, if not impossible."
Wilson concurred, and Bryan wrote to JP Morgan in his official capacity as Secretary, outlining the administration's position that "Loans made by American bankers to any foreign nation which is at war are inconsistent with the true spirit of neutrality."  So on October 23, 1914, "with Bryan out of town," the bankers tried an end run. Samuel McRoberts, vice president of National City Bank, approached a State Department advisor named Robert Lansing, who called on Wilson. "Between them they drew a Jesuitical distinction between credits and loans: credits were held to be permissible…the Allied governments…began buying supplies in large quantities on bank credits…it was only a little more than six months before Wilson secretly gave permission for the flotation of the huge Anglo-French loan." (Wilson's good friend and trusted advisor Cleveland Dodge was a director of National City. 136-7)

Lundberg then moves on to JP Morgan and Company and especially to Thomas Lamont, who was to play an important role in financing the war and negotiating the peace at Versailles. Lamont gave an important but little-known speech in April, 1915, Lundberg says, which laid out the bankers' agenda for the war. Lamont spoke to the American Academy of Political and Social Science. Although Lundberg observes the speech, titled "The Effect of the War on America's Financial Position," was "neither reported in the newspapers nor was it brought to light by the Nye Committee." (139) Luckily, a transcript was published in the
Annals of the Academy. Here are some highlights:

Lamont begins by recounting that at "the outbreak of the general war…We saw our high-grade securities fall with great violence; we saw the entire fabric of our foreign exchange, built up over many generations, knocked completely awry; we found ourselves unable to buy sterling exchange wherewith to pay our debts in London. Our gold was exported in great volume…Domestic rates for money advanced to a high figure, and even at that money was scarce and hard to obtain." This alarming chain of events, Lamont recalls, was met with swift and decisive action. "Our securities were being dumpoed upon us in large volume by foreign holders. Therefore, we closed our exchanges…Gold was being exported and there was danger of a money panic. Therefore…under the Aldrich-Vreeland Act $400,000 of additional currency was almost immediately issued." To forestall the calling of foreign loans, the financiers of New York "sold $100,000,000 of its 6 per cent notes," raising $80 million in gold. When the South was panicking over the breakdown of the cotton market, the financiers "organized a banking pool to lend up to $150,000,000 on cotton." In these ways, Lamont says, "a comparatively few active and patriotic men acting as leaders, but with the loyal and united support of the whole financial community," saved the American economy.

Since the initial crisis, Lamont continues, the situation has turned to America's advantage. "Money is easy, we are importing gold on a good scale, having already brought back over $50,000,000 of what we sent out last year…we are turning from a debtor into a creditor…We are piling up a prodigious export trade balance [with] war orders, running into the hundreds of millions of dollars." Lamont lists a half dozen countries the financiers have loaned money to since Wilson allowed "credits," concluding "these foreign loans that we have made since war broke out [are] well above two hundred million dollars." But that's just the tip of the iceberg. "Many people seem to believe," Lamont says, "that New York is to supercede London as the money center of the world. In order to become the money center we must of course become the trade center of the world." So instead of a dangerous crisis, the European war might just be a tremendous opportunity for America.

But it's not a sure thing. In order to take advantage of this opportunity, the financiers will need to be both smart and bold. And a lot rests, Lamont admits, on "the duration of the war." If it's over quickly and Germany is able to regain its competitive position in international trade, "we should find that the building up of our foreign trade would be a much slower matter than if the war were to continue indefinitely…If we should continue to buy such securities [of US companies] back on a large scale -- and the chances are that if the war continues long we shall do that -- then we should no longer be in the position of remitting abroad vast sums every year in the way of interest…If the war continues long enough…then inevitably we shall become a creditor instead of a debtor nation, and such a development, sooner or later, would certainly tend to bring about the dollar, instead of the pound sterling, as the international basis of exchange."

So what's it going to take to bring about this historic reversal of America's financial fortunes? First, of course, American financiers need to be allowed to loan (and American manufacturers to sell) as much as possible to the warring Europeans. But in order to do this, Lamont says the US government needs to turn control over to the patriots who saved the economy at the war's start. "We are witnessing extraordinary developments on the other side of the water," he says; "we are seeing government control of industry being undertaken on a gigantic scale. Will such control continue in part or in whole after the war? Will the value of the cooperative effort which is now being demonstrated, be so great as to demand continuance after the war is over?" This passage may be confusing to people reading today, since we now expect businessmen to be against government involvement. Lamont is
calling for government cooperation with business -- but with himself and his fellow financiers calling the shots.

"Here in America," Lamont asks, "shall our manufacturers and merchants be able to take effective steps, with the active cooperation of the government for the development of foreign business? Will American producers be able to arrange for cooperation among their organizations?" To make America the world leader in trade and finance, Lamont says, things will have to change because "Today our laws do not allow them." In order to take advantage of the opportunity before them, "this year to one billion dollars," Lamont says the government needs to start looking the other way on antitrust and let business "cooperate."

"Some fail to realize," Lamont concludes, "that finance and general business are so interwoven that the success of manufacture and trade depends entirely on the cooperation of finance." Trusts and the holding companies that followed them, by the logic of the day, allow financiers to rationalize industries and make them more efficient and profitable. Bigger is better -- this is an idea we still recognize as part of the philosophy of big business. Lamont is calling for unlimited size, and also for cooperation by government to turn control over American foreign financial policy over to the people who took "those great remedial and protective steps that I have briefly alluded to…taken by a few gentlemen quietly and without legislative action."

Money & Metropolis

The Monied Metropolis: New York and the Consolidation of the American Bourgeoisie, 1850-1896
Sven Beckert, 2000

I probably should have read this a long time ago. I've met Beckert and I was aware his world-view and mine are a bit different, so I held off. After reading Part One, I think my suspicions about where our world-views differ were true. But there's a lot of interesting material in the book. Unlike some of the other recent histories I've been reading, The
Monied Metropolis has a thesis and argues its points using actual primary evidence.

I was going to respond to the whole first part of the book, but as I review my notes and highlights, I think there's a bit more to say about the book's Introduction than I'd expected. Beckert begins by reminding us that the story he's going to tell is about change. He isn't going all the way back to the Colonial era like Charles Beard, and he definitely isn't embracing Beard's "economic interpretation." Beckert is saying that whatever it was beforehand, the New York elite became something different in the second half of the 19th century. "Alexis de Tocqueville," he says, "observed that 'in the United States the more opulent citizens take great care not to stand aloof from the people; on the contrary, they constantly keep on easy terms with the lower classes: they listen to them, they speak to them every day.' "

I get his point, I think. But it's also worth noting that Tocqueville recognized classes when he saw them. He knew who the "more opulent citizens" were, and if a foreign observer was able to see that the elites were "taking care" not to distance themselves too much from the masses, then it's a fair bet the elites were self-conscious and acting deliberately. And what does he mean by class, anyway? Tocqueville was comparing American elites with European nobility (this was before the rise of a Euro-British middle-class "gentry" which was a result of the industrial revolution). Beckert says America had "the first elite not to derive its status from the accidents of birth and heritage," which sounds to me more like an ideological/interpretive "position" than like an empirical observation. Certainly the
slaves derived their status (the antithesis of the elites) from exactly those accidents. And even in white society the advantages of birth enjoyed by a Thomas Jefferson and even a John Adams (fifth generation New Englander, son of a deacon and selectman of Quincy) had to count for something. And further (one last thing), when Beckert says "In the absence of an aristocracy or a feudal state, both bourgeois society and the bourgeoisie burst more powerfully onto the scene than anywhere else," I'm willing to grant that America was a little more open to this expansion than Europe. But It's also possible that in the absence of a hereditary elite, the merchants and manufacturers of New York immediately filled the vacuum and quickly became a hereditary elite -- maybe even in the course of a single generation. So although Beckert accepts the idea of "sharpening social inequality" in the period, he sticks to the conclusion that "it is the distinguishing feature of United States history that no true aristocracy emerged."

Beckert spends a lot of the Introduction arguing for the term bourgeoisie and against alternatives like aristocracy, plutocracy, and ruling class. He draws a distinction between skills and capital that will apparently be important throughout the book as the merchant elite clashes with the rising manufacturers. Beckert says the elite was "unstable because bourgeois New Yorkers were committed to social mobility." Again, I'd question whether these folks remained committed to mobility after they had completed their own moves. The aristocratic costumes the elite partiers wear to the 1897 costume ball Beckert begins the Introduction with suggest that the rich at least aspired to aristocracy. But he poses an important question about "when, how, and why the coherence between these different groups" that formed the New York elite "became dominant over their differences."
Stay tuned for Part One, tomorrow.

They Told Barron

I got a pile of old used books in the mail today, mostly titles I had found in the notes and bibliography of Lundberg's America's 60 Families. One that looks particularly interesting is They Told Barron, which is a collection of the notes taken by newspaperman and owner of Dow Jones, Clarence W. Barron. Barron, who began the weekly financial magazine that bears his name, talked to everybody. And apparently, everybody talked to Barron. The book's Foreword says "People talked to Barron not only because he was a power in journalism, able to push or retard their interests and plans, but also because his personality invited the confidences of overburdened souls. In physical appearance he was jolly Kris Kringle in the flesh. Short of stature, but impressive of breadth and girth, his sparkling blue eyes, ruddy cheeks, and whitening beard completed a Santa Claus picture which did not belie its owner, for his heart was as benevolent as his appearance."

Barron was born in the North End of Boston in 1855. He worked as a newspaperman in Boston before founding the Boston News Bureau in 1887. Specializing in financial news, Barron became not only a dispenser of news to the public, but an insider who frequently passed information personally between other insiders. This makes his collected notes especially interesting.

Since they're written in diary form, I thought I'd post a note from Barron's book on the day he wrote it. The first book (there's a sequel called
More They Told Barron) covers the decade of the 1920s (Barron died in 1928), and rather than taking ten years to post the interesting bits, I thought I'd ignore the chronological order and stick with the date format. I'll try to point out where a particular note connects strongly with something else before or after that I've already mentioned.

Rather than wait to do the first half of January, I'm going to just catch up as quickly as possible. The first example, dated January 2, 1927, describes Barron's lunch at the White House with President Calvin Coolidge and his family. It runs a couple of pages (many of the notes are shorter), so I've read it into the file below. Some highlights:

I reviewed the motor and Ford situation with him, told him that the Chrysler people estimated there would not be a fluctuation of more than five per cent in the motor business in the coming year, what [John J.] Raskob had said to me about the solidity of the motor business, on so solid a basis that replacements now took care of the motor output except for 500,000 new cars annually to be sold…Explained how fashion regulated things, and that the Ford car was behind the times. Ford's obstinacy to meet the public demand for luxury in transportation has put out of the running the old Ford car, which, as Raskob said, needs to be redesigned to meet new conditions. [Raskob was a Du Pont and General Motors executive, who was chairman of the Democratic National Committee -- but opposed FDR's New Deal -- and built the Empire State Building.]

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.

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James W. Gerard

Clichés About Rich & Poor

FEE posted another in their series debunking "Clichés of Progressivism." This installment is called "The Rich Are Getting Richer and the Poor Are Getting Poorer." The author of this particular essay is Max Borders, editor of FEE's magazine, The Freeman. Borders begins with a little thought experiment. He asks what would you do, if you could go back fifty years and rig the economic game in favor of the rich?

Borders answers his question with the five policies FEE has been complaining about since I visited them in the summer of 1982: the minimum wage, crony favors, over-regulation, welfare, and inflation. Borders says "you have probably noticed that every one of the policies above has been implemented to varying degrees since the Great Society. And yet
the poor have still not gotten poorer." [his emphasis] So the thesis of his argument is 1.) these factors are the important ones when we discuss economic change over the last 50 years, and 2.) let's ignore whether the rich have gotten disproportionately richer, and talk about the poor.

First, the debate is far from over among economists and historians that Borders's five factors are the most important. To give just a single example, in the past fifty years we've seen a dramatic shift from a "managerialist" approach to corporate governance to a "shareholder value" approach at the same time we’ve seen an ownership shift (to where mutual funds like BlackRock, Fidelity, and Vanguard own the majority of all publicly traded companies) and increasing globalization (where jobs and capital cross borders much more easily than people). This is a complicated change (see the books and articles of
Gerald F. Davis for details), and it's not one that it's easy to apply the "blame game" to. Borders's five factors all have the advantage of allowing him to point the finger of blame at someone. Reality is more complex, and while we can cheer some of the results of change, we might want to think about their costs -- and what we want to do about them.

Second, Borders claims that the pie has gotten bigger and as a result the poor are better off than they were. His source for this claim is
Michael Shermer, a professional skeptic with an academic background in psychology and the history of science. There are plenty of actual economists like those working at the Bureau of Economic Analysis whose work suggests that economic growth has largely left middle-income Americans behind, but even if we take Shermer's skeptical counter-claim seriously we ought to examine it closely. His numbers compare conditions in 1979 with 2010. Anybody remember the economy in 1979? Furthermore, are we talking about nominal dollars here, or real dollars after inflation? And, in a period when taxes were becoming increasingly light on the rich and onerous on the middle class, are we looking at pre- or post-tax dollars?

 
growth

In his discussion after the data, Borders makes a series of points that have themselves become clichés. First, he asks if you'd rather have "50 percent of a million or 20 percent of a billion?" His implication is that the poor are just envious. But there are other implications of extreme inequality he ignores. Access to political power, the level of overall consumption, even the composition of the goods and services produced change as the ownership of the "pie" shifts. Henry Ford famously observed that in order for the Model T to be a success, his workers needed to be able to afford the product they were building.

Borders then draws an oversimplified picture of his opponents' point of view. He suggests the "distribution" argument assumes the pie is static -- assuming that as long as it's growing, no problem! But this is silly: an economy growing by building a lot more F35 fighter jets is a lot different from an economy growing by producing goods and services to meet the needs of regular people. Further, he claims that the "distribution" choice is between "meritocracy" and "social justice." It's really not. No intelligent critic of the system is saying what Borders claims we're saying. What we ARE saying is that these simplistic straw-man arguments are a diversion -- what we really ought to be doing is understanding that in complex dynamic systems we can't anticipate all the consequences. We can no longer hang onto the static, Newtonian determinism that informed the thinking of the classical economists (including the Austrians).

Borders goes on to revisit the claim that "egalitarians" just don't appreciate the fact that the rich are "smarter investors, cleverer innovators, or better organizers." Again, no one ever denied this -- but the rich
continually fail to acknowledge the social infrastructure, access to capital (inheritance), and the uneven educational playing field that not only allows them to stand on the shoulders of others while they pretend to be self-made men, but also actually reduces the amount of innovation and competition we might otherwise enjoy.

There's an aside about "fair shares," where the editor says "
I often ask this question of a redistributionist in the presence of another person and ask the former to specifically tell me how much is his ‘fair share’ of what the other person in our presence has earned. I’m still waiting for a satisfactory answer." This is out of place, I think. It's just a little too dickish and bullying for this article.

Borders widens his view to the global and rightly observes that "In only 20 years, extreme global poverty has been cut in half." He attributes this to freer global markets, which in this oversimplified context means his side gets to take credit. But again, globalization isn't that simple and isn't simply the result of laissez faire. There have been winners and losers. As a middle class has risen in China on globalized technology jobs, an earlier middle class in America has fallen. To the extent that these people are much less mobile than the capital that's redistributing these jobs (even if the economic outcome is increased global efficiency), and to the extent that especially in America, corporations used to provide the social safety net (a career ladder, long-term employment, old age pensions, health insurance -- again, see Gerald F. Davis's
recent work), it's legitimate to ask what governments (which could be viewed as voluntary associations of people, and should at least be recognized as sharing the geographic limitations faced by most people, relative to capital) can do to respond to these uneven changes.

Borders concludes by suggesting "Progressives should be honest." I agree, but I think in this case FEE is in as much danger of cliché as their opponents. His final point, that "redistributing wealth is just slicing the pie differently, at the risk of shrinking the pie," might be compelling if it were the issue at hand. Actually, the issue is trying to get beyond nineteenth-century economic dogma, honestly assessing the effects of changes as the economy becomes more global, and deciding what combination of private and public actions we can take to increase the benefits and decrease the penalties for as many people as possible.

The Rockefeller Syndrome, or Why the Standard Oil Fortune Still Matters

Ferdinand Lundberg (1902-1995) was an American journalist who wrote eleven books. The best known of these are America's 60 Families and The Rich and the Super-Rich, published in 1937 and 1968. Although now often written off as a muckraker or a sort of early conspiracy theorist, in his own day Lundberg was not only widely read by regular people, the data he uncovered was respected by academics. So it's unfortunate that at a time when we face many of the same issues, Lundberg isn't better known.

And it's not all about the Gilded Age or the Depression Era. Although Lundberg began his career as a reporter in 1924 and
did see the Crash and the Depression first hand, he continued working -- and the topics that interested him continued providing new material -- into the 1990s. An example of this continued relevance was the 1974 appointment of Nelson A. Rockefeller as Vice President under Gerald Ford. Rockefeller was a grandson of Standard Oil co-founder John D. Rockefeller, and although he had run for President several times, his appointment by the Senate opened the door for a debate over his suitability that included a review of the Rockefeller family fortune and an investigation into their role in the economy of the 1970s. This debate and the information it uncovered were recorded by Lundberg in The Rockefeller Syndrome, published in 1975.

There's a lot of information in this volume, so I'll cover it in a series of posts. Lundberg begins his introductory chapter with a statement that is interesting in its own right. The full extent of the Rockefeller fortune, he says, is unknown. Like other wealthy families, the Rockefellers had managed to insure "there are on the public record positively no authentic, fully certified, standardly audited figures and inventory on the dimensions of the fortune." This might seem insignificant, or even a triumph of the right of privacy against government spying. But the Rockefellers weren't just some middle class family minding their own business and asking others to mind theirs. Their wealth (even the investments they donated to foundations but retained voting rights on) was all hard at work earning them more wealth. Seems logical the government would want an inventory of those assets, if only to keep track of the tax bill.

The chapter devotes a lot of time to the many attempts that have been made to assess the Rockefeller family's net worth. The figure Lundberg arrives at is $4.741 billion. This is a lot of money in 1975 dollars, but Lundberg says the real number "had to be higher owing to items not included" in the count. The extent of the Rockefellers' wealth is important, not out of envy or an objection to the way it was obtained (as
many are still claiming or implying even today) but because it suggests how much influence even third, fourth, and fifth generation Rockefellers have on the American economy.

 
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Nelson Rockefeller famously argued during the Senate hearings that his family was much less wealthy and powerful than it had been. The Rockefeller family, he said, owned less than 2% of the companies that had been Standard Oil. And anyway, this was an era of "managerial" corporate control, as shown by Berle and Means in their 1932 book,
The Modern Corporation and Private Property. Lundberg disagrees with both Nelson and the "professors." He claims "Corporations are controlled, in fact, by owners or owning trustees of big blocks of stock." These blocks may be held in foundation portfolios, bank trust departments, company pension funds, university endowments, or insurance companies -- but they're still controlled, says Lundberg, by a small group. He quotes government investigator James C. Knowles, who concluded the wealthy families he investigated "do not function as individual centers of power in competition with one another. Instead, they have formed alliances with other wealthy families." Corporate control, Lundberg concludes, "is a very quiet affair--until it is challenged."

To illustrate his point, Lundberg tells the story of Robert W. Stewart, the Chairman of Standard Oil Company of Indiana who tried to take the company away from the Rockefellers in what we'd now call a raid on the stock. Lundberg was a financial reporter, and he asked his Wall Street contacts whether Stewart would be able to gain a majority and oust the Rockefellers.

It was explained to me that there was no chance at all because on the Rockefeller side would be (1) whatever stock they owned, (2) the stock in Standard of Indiana owned by Standard of New Jersey, (3) all the stock of Indiana owned by various Rockefeller foundations, (4) endowment stock in Indiana owned by the University of Chicago, (5) stock in "Street" names, (6) stock in [Rockefeller controlled] Chase National Bank trust funds, (7) stock in other bank trust funds, (8) stock still owned by members of all the old-line Standard Oil families, etc.

Lundberg went to the special company meeting. "The Rockefellers won with close to 65 percent of the stock, a walkaway. Small pro-Stewart stockholders were flattened…The true bosses were showing their hand--all aces."

Lundberg then traces the members and assets of the "Rockefeller Syndicate" of companies, which included banks like Chase and National City (now Citigroup) and industrial companies like DuPont, W.R. Grace, Corning Glass, Cummings Engine, and Hewlett Packard. Other companies under what Lundberg calls "coalition" or "joint" syndicate control included Consolidated Edison, AT&T, US Steel, Monsanto, General Foods, Chrysler, Colgate-Palmolive, and Anaconda Copper. He concludes that "the Rockefeller Syndicate…controls or influences possibly $500 billion (or more) of income-producing assets." Again, that's $500 billion 1975 dollars.

There's an awful lot of other good material here, including a bit about the CIA and the Allende coup in Chile. In a prescient moment, Lundberg predicts that "the principal international threat stems from the continued position of the oil industry as the Group's industrial mainstay." But I'll end here for now, with another passage Lundberg quotes from Knowles:

The structure and exercise of vast economic and political power on the part of the Rockefeller Financial Group stems ultimately from the enormous repositories of inherited wealth represented by the Group's leading families. No set of reforms or controls short of breaking down the immense concentration of so much personal wealth would have any lasting effect in altering the present distribution of power in this country.

1928 Kingmakers

From They Told Barron:

New York, January 25, 1928
Mr. Schwab  [Charles M. Schwab, steel magnate, 1862-1939] feels very kindly toward Hoover, knows him very well, and has crossed the country with him, and thinks he would make an admirable president, but he doubts if he can be elected against Al Smith.
"I think," said Schwab, "that [Pittsburgh banker and Secretary of the Treasury Andrew W.] Mellon may be the next President. I don't think he is too old. The people have been educated to see he has reduced expenses, handled the national finances, and what a success he has made."

According to Lundberg, "Mellon was outmaneuvered at the Kansas City Republican convention by the Philadelphia machine of William S. Vare, under control of E.T. Stotesbury and Morgan, Drexel and Company…the Republican convention contest was strictly one between Morgan finance capital and Mellon finance capital." (
America's 60 Families, p. 177) Hoover succeeded in getting the nomination, and his supporters spent $9.4 million getting him elected. Mellon stayed on as Hoover's Secretary of the Treasury. In the 1932 election, neither party spent over $3 million. But by then, there was a Great Depression on.

Compare Clarence Barron's and Ferdinand Lundberg's descriptions with the three sentences given the Hoover nomination in the popular college textbook,
Nation of Nations:

Hoover was not a politician but an administrator who had never once campaigned for public office. It did not matter. Republican prosperity made it difficult for any Democrat to win. Hoover, perhaps the most admired public official in America, made it impossible.

Call me a cynic, but combining the accounts of Barron and Lundberg, two journalists from opposite sides of the political issue, seems to get us much closer to a plausible story than the professional historians.