By ANNA ROCHESTER

INTERNATIONAL PUBLISHERS
NEW YORK

PRINTED IN THE U.S.A.

This book is composed and printed by union labor

.......................................

CONTENTS

Contents

FOREWORD

James W. Gerard, lawyer and former ambassador to Germany, stated in August, 1930, that this country was ruled by 59 financiers and corporation officials. His list was both too long and too short. For he made no distinction between the much smaller number of actual rulers and their chief lieutenants. And, of course, he omitted scores of secondary men who are responsible and important executives within the chief financial empires. But Gerard's list spread forth as front page news the fact that financial control had continued, unshaken by Standard Oil exposures, the Pujo Report, Supreme Court decisions, post-war regulating commissions, and the first year of the great economic crisis which began in 1929.

Since then various Senate investigations have piled up fresh evidence of the power and the methods of the inner Wall Street rulers. As this book is completed, Morgan partners are appearing before the Nye Committee investigating the munitions industry. The chief news of the day includes facts on the part played by the Morgan firm in 1914-15 in promoting the war boom and the war loans which tied American business interests to the cause of the Allies and led to irresistible pressure for America's entering the World War.

Financial rulers are important, not as picturesque figures, strong in their lust for wealth and power, but as the heads of the economic empires in which American capitalism reached its peak of development. To sketch their empires is part of our task, but that is not enough. We must raise certain basic questions. What is the essential pattern of control in the United States? What are the underlying trends from which it developed? What is the effect of this control in the life of the people? Will power pass from the financial rulers through their inner collapse?

In working toward an answer to such questions we are concerned primarily with economic facts. And since material on wealth and income and the general condition of the working class is relatively abundant, we have focused attention in this book on the structure and pattern of finance-capitalist control. Its relation to poverty and to the workers' movement is indicated.

Our material falls naturally into three main sections.

AR

January, 1936.

Part One

CHAPTER I

FINANCIAL RULERS EMERGE

Small units of production employing a few wage-earners and requiring relatively small capital more and more yield place to large highly mechanized establishments employing many hundreds of workers and representing great sums of capital investment; corporations more and more displace individual employers and partnerships. With the growth of corporations the manipulation of capital plays an increasingly important part in the economic process, and great banking and industrial monopolies develop which draw off an increasing share of the profits extracted from the working class. Bankers acquire industrial interests. Industrial corporations acquire banking interests. A new type of financier emerges who functions in both fields and represents the "finance capital" (as distinct from banking capital) which is characteristic of monopoly capitalism and the imperialist era.

The Civil War (1861-65) marked the victory of capitalism over chattel slavery. The conflict between North and South had several aspects, but all were related to the historic struggle between two mutually exclusive orders of society.

Climate and resources had prevented the profitable large-scale exploitation of slave labor in the North. Agriculture, both in the older states of the North and in the pioneer settlements pushing ever further westward, was developed on a capitalist basis, with relatively small holdings on which the farmer and his sons or one or two hired "hands" wrestled

with the problem of raising food and cattle and a money crop for the increasing city market. At the same time factory industry, based on wage labor, had been growing up and displacing the home spinner and the independent craftsman. Capitalist economy had taken deep root in New England and, in fact, throughout the North and West, before the middle of the nineteenth century. Textile machinery, sewing machines, agricultural machinery and machine tools made in Yankee factories were recognized in the 1850's as perhaps the best in the world. Europe was even buying a few American locomotives. Great Britain sent a special commission to study machinery in the United States.

In 1860 the total volume of manufacturing was still small, and mills processing raw materials were much more important than factories turning out finished goods, but the broad foundations of manufacturing had been laid. Railroads were penetrating even a short distance beyond the Mississippi and the innumerable unconnected eastern lines were beginning to provide through routes from the Atlantic coast to the Middle West.

Both North and West were dependent upon the South. Southern slave-grown cotton was needed for New England textile mills. Farms in the Middle West were sending their crops and cattle down the Mississippi to feed the cotton country. Northern merchant-bankers were making high profits from a three-cornered trade: they financed exports of slave-grown raw cotton and imports of manufactured goods from Europe. They drew off a profit also from shipping supplies to the southern plantations: European luxuries for the thousand wealthy planters at the top, and for a broader market the "fifteen yards Lowell" and "ten yards linsey" which every planter allowed yearly to each Negro slave. On the side, they were selling in Europe American bonds issued by states and counties to raise subsidies for new railroad lines. Sometimes also stocks and bonds of the railroad companies themselves.

Footloose wage-earners available for hire from day to day were necessary to industry. The employer wanted capital for building, equipment and materials. He could not profitably tie it up in the bodies of slaves. Also, a wage-earner, paid in money and free to drift from one job to another, could be made to believe that he was a free and independent citizen who received from the employer a "fair" return for his labor. He would give better work than a slave whose bondage was clear beyond any possibility of deception. The wage-worker produced more than a slave. His employer could allow the wage-worker a better standard of living than the slaves endured and still retain for himself a considerable slice of the value produced by the worker. And in the ups and downs of industry the burden of depressions when factories closed down could be thrown back upon the "free" workers, leaving the employers without responsibility for supporting them.

This need for wage-workers was basic throughout the North and the Middle West. It came to open conflict with the slave system in the frontier

farm country of the West. The slave plantation economy faced destruction if it could not expand and carry slave labor into new territory. Equally, the independent farm pioneers and the scattering small industries growing up in the middle western towns knew that their economic life depended on excluding the slave system from their states. While this fight against the extension of slave territory was smoldering in the West, new canals and railroads had been gradually destroying the complete dependence of the West on the southern market down the river and were creating strong economic ties between the Mississippi Valley and the northern coast states.

manufactured goods. They were bitterly opposed to the tariff.

The Republican Party, which carried on the war against the South, had its roots in the fight to maintain the Union and to prevent the spread of slave territory, measures which would inevitably bring the breakdown of the slave system. It drew into a political alliance the free-soil West and the high-tariff manufacturing East. The new industrial capitalists became solidly Republican, but many of the merchant-bankers, whose trading and banking interests were still quite distinct from manufacturing, were pro-slavery free-trade Democrats. Some of them remained among the "copperheads," southern sympathizers throughout the war. Others turned eagerly to the sale at home and abroad of northern war bonds. Commanding the channels of foreign exchange and the gathering in of capital they made pretty profits from the sale of bonds. Their activities made Wall Street a national center for investment and speculation in government debt.

Industry in the Civil War and After

in the cotton states, the West threw all its heavy traffic into the Great Lakes and railway channels to eastern ports. This was the culmination of a tendency that had been growing ever since the beginning of the canal period, forty years before; and it increased the demand for rolling stock and fresh-water cargo boats. High prices for farm produce at home and abroad encouraged the settlement of western lands, adding new territory to the domestic market with each season, while the scarcity of labor everywhere multiplied the call for farm machinery. Still further toward the setting sun prospectors and frontiersmen were developing a new empire, even in this period of national stress; and the recently discovered mines of the Rocky Mountains and the Pacific Coast were equipped by eastern foundries and machine shops. Simultaneously in the East the discovery of petroleum opened at a single stroke a new source of national and individual wealth and a new market for well supplies and containers.²

After the war, mining and manufacturing continued to expand rapidly. The iron ranges of Lake Superior were developed, copper mines were opened in Michigan, silver mining in the Far West was increased, the commercial production of Bessemer steel was begun. In ten years after the Civil War the output of pig iron was tripled. Between 1869 and 1889, in spite of the crisis of 1873 and the long depression years that followed, the number of wage-earners employed in manufacturing was more than doubled and the "value added by manufacture" to the materials used was multiplied more than threefold.

Along with the growth of manufacturing and mining went rapid increase in railroad mileage. A transcontinental line had come to be regarded as a military necessity during the Civil War, and the Union Pacific line was opened in 1869.

Speculation has been characteristic of capitalism at every stage. In the United States, until the end of the 1880's, the immense tracts of unsettled land played the leading speculative rôle. But besides serving as a source of wealth for land-grabbing speculators, the vast unsettled West was in other ways also an important factor in shaping American capitalism after the Civil War.

Abundance of good western land led to a development of food crops and

The temporarily exceptional opportunity for expansion on new territory within the United States prolonged the vitality of the middle class. Petty bourgeois political forces played a considerable rôle. They attempted to choke the growth of monopoly and at the same time tended to blur the political conflict between workers and capitalists.

Working class development was affected. Industrial wages in the North and West were above European standards because the abundance of new land and the very rapid expansion of industry and agriculture provided opportunity for a relatively large number of white workers to rise as individuals out of the working class into the capitalist class, either as industrial employers and executives, or promoters and speculators, or farmers. Many difficulties stood in their way. Land speculators clogged the road to the land, in spite of the free homestead policy of the federal government. As the unsettled frontier was pushed to the coast, it offered less and less an immediate opportunity of escape for the eastern wage-earner. But throughout the nineteenth century there was at least a narrowing outlet into business or farming which remained much more accessible to the eastern cities than it was to the industrial centers of Europe.

*Lenin in Development of Capitalism in Russia (published in 1899) analyzes the rôle of remote sparsely settled provinces within the territory of European Russia. He concludes: "It is sufficient for us to observe here that Russia is in a particularly favorable position compared with other capitalist countries owing to the abundance of free and accessible land for colonization in its outlying regions.... The deeper development of capitalism in old, long inhabited territories is retarded by the colonization of the outlying regions. The solution of the contradictions, which are a feature of capitalism and which capitalism gives rise to, is temporarily postponed by the fact that capitalism can very easily develop in breadth.... It goes without saying that such a retardation of the growth of capitalism is tantamount to preparing for an even greater and more extensive growth in the near future." Selected Works of V. I. Lenin (International Publishers), vol. I, pp. 379-380, including footnote.

allowed. White workers, as a whole, did have a somewhat higher material standard of living than wage-earners in capitalist Europe ever achieved.

But this American standard was merely a relative matter. Sharp contrasts between the workers and the capitalists have been present from the earliest colonial days and grew steadily sharper with the development of capitalism after the Civil War. And the American standard of living never even pretended to be adequate for the masses of unskilled workers. It did not touch the workers in the South. After slavery, Negroes remained on the land as wage-earners or as share-cropping tenants, or they drifted to southern cities where they were employed only for the heaviest or most casual jobs. The door to skilled trades was barely ajar for the Negro worker, and even more difficult was it for him to become a land-owning farmer or a petty capitalist employer. At the same time, the South came out of the Civil War with masses of poor whites whom the plantation system had barred from the fertile lands and who scratched a meager subsistence from the poorest soil. They constituted an immense reservoir of labor when capitalist industry came in to exploit them. Both Negroes and whites in the South have been held down at wage scales far below those prevailing in the North and the West.

But even in the industrial centers and the sparsely settled West, the American wages and a relatively wide opportunity to rise went along with raw and brutal exploitation. Hours were long. Many jobs were dangerous and employers took no responsibility for accidents, illness, or unemployment. Housing conditions were chronically bad, whether in cities where the "old families" extracted heavy rents for dark and filthy tenements, or in company towns of industrial plants, or in the mining "camps" that scarred the western mountains. The periodic crises of capitalism brought terrible destitution for the workers and at the same time reduced their possibilities of escape.

Every attempt of the workers to organize for their own protection was fought by the employers—with the aid of courts and, often, of armed forces. Employers made full use of differences in language, race and color to foster prejudice and keep the workers' forces divided. The workers' understanding of their situation was blurred also by the persistent dream of individual escape from the working class. Labor leaders who could be firm and militant in concrete struggles were influenced by petty capitalist ideas and by the utopian dreams of the agrarian movements. The workers carried on political fights for the right to strike and to organize labor unions, for universal manhood suffrage, for free public schools and for shorter working hours.

The unsettled West and the resulting conditions of labor scarcity and relatively high wages in the West and the North gave a sharp stimulus to the search for labor-saving machinery. This involved relatively large investment in so-called fixed capital and hastened the growth of large establishments and large corporations.

Increase in Large Establishments

Technical progress in capitalist society has resulted from various factors, including the competitive fight. As each industrialist drove to widen his market, he would seek to underbid his competitors without loss of profits. Success in this has usually depended on his achieving some technical advance. In the long run technical progress has involved in most industries a steady trend toward mass production and an increase in large establishments. It has also involved a tremendous increase in constant capital and a relative decrease in variable capital.

This trend is important because it has furnished the material basis for the passing of the individual employer, the growth of corporations and the development of monopoly capitalism.

To illustrate the increasing size of manufacturing plants, the census of 1900 gave special data on sixteen industries of which the following four were most important in total numbers employed.

in these establishments had jumped from 1,013,274 or 15% of the 1909

After 1919 the displacement of workers by machines was pushed to such a degree that total manufacturing production was increased while the average number of wage-earners employed in manufacturing dropped from 9,000,059 in 1919 to 8,838,743 in 1929. This decline was especially marked in the largest plants and pulled the 1929 figures for plants employing over 1,000 workers each slightly below the peak of 1919.

during the war boom itself.*

^*Dollar figures on which these percentages are based have been corrected for changing price levels. See Appendix A, p. 309.

Factories and mills producing \$1,000,000 or more

While manufacturing establishments have been increasing in size, they have also been brought more and more into combinations in which a central management operates two or more plants. From 21,464 or 7.4% of all establishments in 1919, the number in these so-called "central office" groups rose to 26,286 or 12.5% of all establishments in 1929. A census study estimated that they employed "more than a third" of all manufacturing wage-earners in 1919. Ten years later the census reported that 48.4% of the manufacturing wage-earners were in such plants. Other important facts about the "central office" groups in 1919 were brought out in a special census study on The Integration of Industrial Operation. For example, while the great majority of these combinations were small, operating less than 10 establishments, a few towered above the others, 247 of them each operated from 11 to 50 establishments and 18 of them each operated over 50. About two-thirds of the combines were turning out the same general line of products in their different establishments, but 1,784 (out of 4,813 central office groups analyzed) were classified as "complex" because the products of their different establishments represented two or more subdivisions of industry. These included 534 combines which were engaged in mining along with at least one kind of manufacturing. More than half (903) of these complex groups were turning out "successive products" representing different stages from raw materials to some definite type of finished goods.

Corporations

Corporations were developed as a device for drawing into an enterprise capital owned by outsiders who took no continuous active part in management. A few corporations for banking, insurance, or manufacturing had been created before 1800. The first million-dollar manufacturing corporations were set up in New England textiles about 1830.6 Then railroads, requiring large capital, were commonly incorporated.

Three factors have combined to push the development of corporations.

of the corporate form for small concerns is far less important than the (3) tremendous growth of big corporations, which is directly related to the growth of monopoly power and the decay of the independent petty capitalist.

In mining, the percentage of total volume handled by corporations was 96% in 1930; in wholesale trade, 74%; in retail trade, 48%. In the construction industry, 36% of the establishments were owned by corporations, which means of course that corporations handled considerably more than 36% of the total volume of business. Agriculture has had the slowest development with less than 1% of the farms owned by corporations, but on truck farms, stock ranches, and fruit farms, "manager" farms (including both corporations and wealthy absentee owners) were from 2% to 7% of the total in 1930.

Many of these largest 200 non-banking corporations are direct suc-

cessors of the industrial "trusts" organized in the days when absolute monopoly was openly and frankly sought as the source of super-profits. The earliest industrial trusts—the Standard Oil Company and perhaps a dozen others—were set up before 1890. They roused the hostility of small business men and farmers who attempted to check their growth with the Sherman anti-trust act of 1890. But this law against "monopolies" and "restraint of trade" had little effect until President Theodore Roosevelt more than ten years later found it politically expedient to play up to the small capitalists with a few vigorous prosecutions under the act. John Moody, in The Truth about the Trusts, pointed out in 1904 that the era of great industrial trusts really began in 1898, eight years after the Sherman anti-trust act was passed. He listed (as of 1904) 318 industrial trusts (exclusive of railroads and utilities) which represented consolidations involving 5,288 separate plants. Three-fourths of these trusts had been incorporated after 1897. Of the more important 92 companies which Moody describes in some detail, 78 controlled 50% or more of the industry in which they chiefly operated, and 26 of these 78 controlled at least 80% of their own industry.

Two of the leading trusts—Standard Oil Co. and American Tobacco Co.—were broken up by the Supreme Court in 1911 into groups of smaller corporations, each group starting its new career with identical stockholders. Then gradually a new wave of mergers set in. From 1919 to 1928 inclusive, at least 4,135 concerns were merged and 3,114 concerns were acquired by others, according to a tabulation relating only to manufacturing and mining.¹⁰ These included, of course, mergers among the very large non-banking corporations. During the years 1920 to 1929 inclusive, 49 of the companies included on the list of the largest 200 in 1919 (or some later year) were merged with or acquired by another corporation on the list.¹¹ Since 1929, additional mergers in the 200-group have substituted the Consolidated Oil Corp. for four large companies, and the Socony-Vacuum Oil Co., Inc., for two companies.*

Since 1904 of course the total volume of business has greatly increased, and although the big corporations are much larger than they were, many of them control a smaller percentage of the products in their own special industry than the leading trusts had controlled thirty years

ago. But the intercorporate connections have been strengthened.

Monopoly power has persisted and increased.

Railroads, which represent on the whole larger aggregations of capital than manufacturing or mining companies, passed also through a special period of reorganization during the crisis and depression of the 1890's. The systems of the present time have a much larger capital but are not essentially different from those described by Moody in 1904. Such giant public utility groups as appear in the list of the largest 200 corporations are, in the main, a post-war development. Moody, writing in 1904, recognized utility companies as franchise monopolies, but at that time the electric light and power companies and the gas companies were mostly separate corporations operating in their home cities or in closely united areas. The post-war pyramids of utility holding companies, combining into so-called "systems" innumerable operating units scattered and interwoven in all parts of the country, have enormously increased the invested capital and the corporate consolidation in the utility monopolies.

page 309.)

^*Some manufacturing and mining are carried on by large corporations in other classifications.

Industries vary in the extent to which large corporations have been developed. No textile company, for example, appears in this list. Only

one lumber company is included, because the dominant Weyerhaeuser lumber interests are operated through a group of relatively small and apparently unrelated companies. The lumber interests of the International Paper Co. are included in the "paper" group. In several other industries a few corporations may be dominant which are too small to come within a list of the largest 200 in the country.

But the corporations listed have practically exclusive control in railroads, communications, electric utilities. They are dominant in automobiles and rubber tires, heavy electrical equipment, metals, petroleum refining, and tobacco. They are supplemented by less than a dozen smaller but important concerns in basic chemicals, anthracite coal, meat-packing and

sugar, leather, paper and motion-pictures.

Of special interest are the billion-dollar giants among the non-banking corporations. The first billion-dollar combine was the U. S. Steel Corp., organized in 1901. On January 1, 1932, there were 18 non-banking corporations in the United States which had each more than a billion dollars of gross assets. The American Telephone and Telegraph Co. which heads the list is the largest privately owned industrial corporation in the world.

BILLION-DOLLAR NON-BANKING CORPORATIONS

In bankruptcy.

Growth of Banking

Banking, the business of manipulating money capital, first developed among the merchant bankers of the earliest stages of capitalism. Beside them in the United States, and sometimes overlapping with them, were the early financiers of land and railroad speculation who systematically and corruptly drained the public treasury and the public lands for their own enrichment. Much of the private capital that went into the founding of western banks after the Civil War was accumulated in this fashion and a few of these early railroad buccaneers helped to develop Wall Street as the financial center of the country. But the central core of Wall Street power was shaped by the successors of the old merchant-banking houses which were advanced to a new stage of development by their share in the financing of the United States government during the Civil War and the period of reconstruction that followed.

Much of the two billions of interest-bearing debt incurred by the federal government during the Civil War was underwritten by private bankers and sold through their correspondents in all parts of the Union and on the continent of Europe.

The sale of the Civil War debt was not only the one great piece of business in securities in the '60's—it was the first in America. It really created the trade of wholesale merchandising of securities in this country....

Selling a security with a constantly rising market, their profits were many millions. At their start the credit of the United States was on a six and one half per cent basis; when they closed it was at four per cent and better. They had established a new financial oligarchy in the United States. August Belmont as the representative of the Rothschilds, was much the largest taker of bonds. But no element was so active and aggressive as the Drexel-Morgans.¹²

Through these operations Wall Street became "a national center... for the investment and speculation in government debt," but "The day of a general national market for corporate securities was still a great way off." ¹⁸ The banking oligarchy ruled in their own field, but in the 70's they were still quite distinct from the industrial capitalists.

Building up and manipulation of government debt played directly into

the hands of the bankers as traders in capital and was praised by the rising capitalist class as a great service to society (meaning, of course, to themselves). Government bonds, municipal bonds, county bonds, etc.—the whole top-heavy structure of public debt—offered profitable opportunities to the bankers, who underwrite public bond issues, and the most solid investment for capital. They also placed the bankers in a strategic position for controlling government policies, although of course the financiers' control of government has a much broader base than this.

The development of finance capital came later, largely through the banker's function as an ally of corporations, but the mechanism of investment banking was perfected during the government bond operations

of the 60's and early 70's.

Foundations for commercial banking were also laid in connection with the Civil War debt. Commercial banking is the broad term for trading in short-term credit as distinct from the trade in long-term capital, but commercial banks not only carry government bonds among their assets but have always done a considerable business in selling them. The National Bank Act of 1863 was passed largely as an emergency measure to provide through a new commercial banking system another outlet for government bonds. Actually, it created for the first time in the United States a standardized credit apparatus with a standardized bank note currency.

Marx in the third volume of Capital, written long before the 1890's, had analyzed the basis of the monopoly power of the bankers:

Increasing complexity of processes combining into a finished product materials assembled from every corner of the world and increased dependence on distant markets for final payment called forth the fullest use of the credit apparatus. The commercial banker became the close ally of the industrial capitalist, with a full knowledge of the industrialist's affairs and the power to assist or to destroy a business concern.

At the same time the growth of corporations developed the other phase of banking: investment banking, or the trade in long-term capital. Large privately owned corporations represent an aggregation of capital owned by a considerable number of persons. They could not be organized

and expanded without the assistance of the investment banker who would underwrite stock or an issue of bonds while he and his associates found among the scattered owners of capital a market for the new securities.*

"The control of so many billions of dollars in railroad property by so few men... came about by a simple and almost invariable formula: The progressive bankruptcy of American railroads, under fierge competition, threw them into the hands of security merchants in New York; these men wiped out competition between them, tied them up into monopolies, and, with their allies and dependents, held those monopolies under their own control." ¹⁵

Bankers—traders in capital—were active in the development of the industrial trusts. Mergers and the prospects of monopoly profits gave opportunity for large new issues, and every new issue meant a sure immediate profit to the investment banker. Morgan entered this field when he promoted the General Electric Co. in 1892. Then in the boom that brought the full blossoming period of the trusts after the Spanish War, Morgan organized the U. S. Steel Corp. in 1901, and the following year the International Harvester Co. and the International Mercantile Marine Co.

Meantime the Standard Oil Co. capitalists (especially William G. Rockefeller, brother of the first John D., and their crony and associate H. H. Rogers) had become heavily interested in the National City Bank (about 1891) and with their Wall Street allies went in also for the profits from promoting mergers in copper and other industries unrelated to petroleum.

Bankers who promoted mergers arranged as a matter of course to keep

Trade in capital and credit more and more took precedence over pro-

duction and distribution of goods as the most profitable and "honorable" activity. An increasing share of the total surplus value produced by the workers was drawn off as profit for the various kinds of bankers. In capitalist thinking, the "market" came to mean simply the trend of prices and sales for stocks and bonds. By 1929, over 40% of all corporation assets were reported by the "finance" group including "banking, insurance, real estate and holding companies, stock and bond brokers, etc." 16

How these banking interests are concentrated and control over them is centralized in a relatively small group will be discussed in later chapters

The Foundations of Imperialism

The turn of the century marked the opening of a new period in American capitalism, with the aggressive entrance of the United States in world affairs and the beginning of its imperialist power. This new political phase was so essentially and inescapably bound up with the new stage of development within the United States that in approaching it we must have clearly in mind the chief landmarks in the American economic scene at that time.

Public lands had been exhausted. The unsettled West passed into history about 1890. This meant that the working class in the United States had lost its peculiarly American opportunity for individual advancement.

Industry had been so far developed that in 1894 manufactured products permanently displaced raw materials and raw foodstuffs as the chief exports from the United States, and beginning with 1898 more "finished manufactures" were exported than imported. The United States was no longer primarily a source of food supplies and raw materials for the capitalist countries of Europe but an increasingly active competitor with them in the world market for industrial products.

Large factories and large corporations were dominating many branches of industry. Industrial mergers were actively promoted by bankers and financiers, not for the sake of greater technical efficiency but for the immediate profits from issuing securities and the coming profits of monopoly. Most of the basic railroad mileage had been completed. Railroad corporations, the telegraph, utilities in the principal cities, and much of manufacturing in heavy industry were held in the monopoly grip of a small number of financiers.

The capitalist class had accumulated an abundance of loan capital seeking investment and profit. This capital passed through the hands of the bankers,—directly through their control of bank deposits, trust funds and insurance company assets, and indirectly through control of the mechanism for floating new security issues. The fusion of banking and industrial capital was thus a material fact and gave the basis for the new fusion of interest and the criss-cross of directorships, with bankers of all kinds on the boards of industrial corporations and industrialists on the boards of banks and insurance companies.

Earlier dependence on foreign capital for the expansion of American railroads and industrial enterprises had been broken down by the accumulation of large capital reserves in the United States. When the frontier was passing into history, capital owned in the United States began to seek investment abroad. In the 90's, a few American corporations already had factories in other countries. American capital was developing sugar in the Hawaiian Islands and the West Indies. American corporations were seeking foreign mineral resources. At the end of the 90's foreign government bonds were sold in the United States by the House of Morgan in connection with the refunding of the Mexican debt (1899) and the financing of Great Britain's South African War (1900 and 1901). Of course until the World War shifted the balance of economic power, American capitalists were still owing abroad more than they were lending and investing abroad, but the turn of the century was marked by a definite increase in Wall Street's concern for foreign investment outlets.

As in the United States, capitalism in these countries also had been passing from the stage of industrial capital and free competition to the stage of finance capital and monopoly. They lacked at home such vast expanses of unsettled territory as had given the United States an exceptional domestic outlet for capital investment and production. Various minerals and tropical products had been of increasing industrial importance; heavy industry could produce more steel rails and machinery than capitalism at home could absorb; and capitalists had long since learned that in "backward" territory they could extract higher profits than in the more developed industry at home. But they were not content with high profits from direct exploitation of "backward" peoples with a low standard of living; they wanted the extra super-profits of special inside favors from a submissive colonial government. And as each capitalist nation developed toward the fusion of banking and industrial capital and the concentration of control by a handful of financiers, it was also feeling more sharply the competition with other developing capitalist nations and the need for extending over the largest possible territory its area of special privilege and monopoly power.

When the United States found its expanding domestic outlet closed by the passing of the frontier, monopoly capitalism in the United States naturally followed the same policy of expansion, the same quest for special privileges abroad. But most of Southern Asia and much of Africa had been divided among the European empires. Important parts of "independent" China had been appropriated as "spheres of influence." The Near East was the subject of constant diplomatic and economic wrangling, with Great Britain determined to prevent Germany, France or Russia from gaining a footbold

the imperialist stage of world capitalism was well under way.

Five essential features of modern capitalist imperialism are defined by Lenin in his Imperialism, the Highest Stage of Capitalism (written in 1916). These five features did not develop evenly and simultaneously throughout the capitalist world, but they are all organically interrelated.

• 1. The concentration of production and capital, developed to such a high stage that it has created monopolies which play a decisive role in economic life.
• 2. The merging of bank capital with industrial capital and the creation, on the basis of this "finance capital," of a financial oligarchy.
• The export of capital, as distinguished from the export of commodities, becomes of particularly great importance.
• International monopoly combines of capitalists are formed which divide up the world.
• 5. The territorial division of the world by the greatest capitalist powers is completed.¹⁷

But the rapid advance of the American empire was essentially unstable. Sharp inner contradictions within American capitalism; the maturing of contradictions within world capitalist economy; conflicts between the expanding Wall Street interests and European and Japanese imperialisms; and the economic and political effects of the successful workers' revolution in the Soviet Union were among the factors leading American postawar "prosperity" toward economic crisis

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CHAPTER II

THE HOUSE OF MORGAN

The present J. P. Morgan is son of the first J. P. Morgan and grandson of Junius Spencer Morgan, the first banker in the family. This J. S. Morgan was a well-to-do youth of Hartford, Connecticut, who after several years of trading in New York and Boston went to London in 1853 to become a partner in Peabody & Company. This was an American merchant-banking firm which had developed in successful competition with the Rothschilds and Barings for the business of exchanging pounds and dollars and selling American bonds to British capitalists. When George Peabody retired at the end of 1863, the firm became J. S. Morgan & Co. For three generations, the Morgan family has headed this important London house, which now operates as Morgan, Grenfell & Co., Ltd.

J. P. Morgan the first was helped by his millionaire father in London to get a start in the banking world in New York just before the Civil War. Thanks to his connection with the London house, the young J. P. made rapid progress and in 1871 he was able to make an alliance with Drexel & Co., one of the leading private banking houses in the United States. From the merger with Drexel, until 1935, the House of Morgan consisted of four firms: three private partnerships which are to-day known as J. P. Morgan & Co., New York; Drexel & Co., Philadelphia; and Morgan et Cie., Paris; and a fourth division, Morgan, Grenfell & Co., Ltd., London, which is a private limited company. A fifth firm, created in September, 1935, is a private corporation, Morgan, Stanley & Co., Inc., of New York.

Long before the death of J. S. Morgan in 1890, control of the House had passed to his son, the first J. P. Morgan, and the New York office at 23 Wall Street had become the central headquarters. After the setting up of Morgan, Stanley & Co., the old New York firm included J. P. Morgan and 16 other partners. This firm or its partners participate in the Philadelphia, London and Paris firms, but each of the auxiliary firms has also a few members of its own who have no share in the New York firm. Individual partners in J. P. Morgan & Co. own preferred stock (non-voting) in the new Morgan, Stanley & Co., Inc. Its common stock is held by seven executives, including Henry S. Morgan, son of the present J. P. Morgan, who have all been partners or division managers in J. P. Morgan & Co. or in Drexel & Co. (For list of Morgan partners and executives of new company, see Appendix C, p. 316.)

Like other bankers, the Morgan firm has grown rich and powerful by the manipulating of other men's capital. From the great reservoir of surplus value created by the workers, bankers draw profits not only on capital they own themselves, but also on great sums owned by other capitalists. The Morgan business has several phases, of which four have been the most important.

• (1) It gathers in deposits from corporations and wealthy individuals and acts as paying agent for corporations when dividends and bond interest are due or bond principal is to be liquidated. Deposits place at the constant disposal of the firm several hundred millions of dollars: \$562,407,000 on December 31, 1927, and \$340,048,000 on December 31, 1932, according to statements given at the Senate hearings in Washington, in May, 1933. Only a small part of these deposits is kept in cash. Part of the total is invested in bonds and stocks; much of it is loaned. All of it serves to provide profits for the firm.
• (2) Even twenty years ago, the Morgan firm was known as "a large lender of money on the New York Stock Exchange." During the boom before the crash of 1929, the Morgan call loans (i.e. to brokers and speculators) rose to more than \$100,000,000.
• (3) As international bankers, the Morgan firm also handles considerable amounts of foreign exchange. Such dealings may be especially profitable when currencies are unsettled and rates are changing from day to day.

The Morgan firms have constituted without question the leading investment banking house in the entire capitalist world. Their actual volume of business has been enormous. They reported to the Pujo Committee in 1913 that during the 11 years from 1902 to 1912, inclusive, they had publicly offered about \$1,914,226,000 of securities, exclusive of municipal bonds and companies not engaged in interstate commerce. Twenty years later, a Senate investigation brought out the fact that over six billion dollars of bonds and stocks had been publicly "offered" by J. P. Morgan & Co., from January 1, 1919, to May, 1933. These figures do not include the business of Drexel & Co. or that of the London and Paris houses.

\$6,024,444,000

SOURCE: Hearings on Stock Exchange Practices before the Committee on Banking and Currency, U. S. Senate 73:1, on S. Res. 84 (72nd Congress) and S. Res. 56 (73rd Congress).

Also, we know from figures compiled by the Wall Street Journal that the Morgan and Drexel firms were syndicate heads for selling about \$2,200,000,000 of new bond issues from 1927 to 1932. This was just under 10% of all new bond issues publicly offered in the United States during those six years. Of course, the Morgan power in investment banking is greatly extended beyond the dealings of the Morgan and Drexel firms themselves.

Morgan, a Pillar of Imperialist Capitalism

Before 1871 Morgan had sold in the United States a Peruvian government bond issue of \$2,000,000,4 but throughout the nineteenth century such ventures were few and incidental. Even in 1899, when Morgan undertook a \$110,000,000 Mexican loan for the readjustment of the Mexican government debt, he did not try to sell all the bonds in the United States, but placed large blocks of them in Germany and Great Britain. The next year, however, when England needed money for the Boer War Morgan headed a banking syndicate for the sale of British bonds in the

United States. Within less than fifteen months something over \$140,-000,000 of British bonds—from three successive loans—were sold to American investors.⁵

As Morgan's selling of American securities abroad (that is, the importing of foreign capital) was increasingly supplemented by the selling of foreign securities in the United States (that is, the exporting of American capital) his political interests seem to have changed. At the time of the Venezuela boundary dispute with British Guiana in 1895 (see below, page 267), smooth relations with Great Britain and the money markets of Europe seemed of paramount importance. In Cleveland's militant gesture, Morgan is said to have seen "a threatened disaster that will put an end to our borrowing." The Monroe Doctrine to which Cleveland appealed against any increase of British territory in South America apparently seemed far less important than the business of selling American securities to British investors.

Less than fifteen years later the tide had begun to turn. Wall Street was looking toward a future of expanding foreign investment of American capital. Morgan took up the demand for the Open Door in China (see below, page 274), although this China policy was directly opposed to the interests of the British capitalists. Not that Morgan broke with his British interests; that same year (1909) he drew into his British firm a member of the Grenfell family which had for years been guiding British capital into Argentina and Brazil. And Morgan's British interests are still important. But with the ripening of American capitalism to the imperialist stage, Morgan's American interests took precedence over British interests when the two clashed in China.

Already in 1898, Morgan had been for political expansion of the United States provided British interests were not threatened. He backed the Spanish-American War although he apparently had at that time no direct interest in the Philippines and only an indirect interest in Cuba through a small minority holding in the National City Bank. In the long canal fight he had backed the French Panama Canal Co. and received \$400,000 for lending his name to a propaganda committee. When the French company went bankrupt, Morgan cooked up a scheme to organize a private \$200,000,000 American syndicate and build the canal, but this was not approved by McKinley. The next year, 1902, the United States government bought the "rights" of the old Panama Canal Co. of France. When the "independence" of Panama cleared the way for the United States to build a canal, Morgan's firm immediately became fiscal agent in the United States for the new little republic. 10

The House Grows in Crisis and War

For the first J. P. Morgan the panic year, 1907, was the high point of power. After the panic of 1873 bankrupted Jay Cooke, the Morgan firms won recognition as the leading bankers in the United States. Since the 1880's Morgan had been increasing his holdings and his power in American railroads. In 1892 he had taken his first big step into other industries by participating in the organization of General Electric Co. Before 1900 he had gone into steel, and in 1901 he had set up the U. S. Steel Corporation, the first billion-dollar company in the world. Shortly afterwards he put through two other important mergers, the International Mercantile Marine Co., which attempted to dominate Atlantic shipping, and the International Harvester Co., which has made a brilliant record of profits and growth.

But Rockefeller had refused to bend to the Morgan will and E. H. Harriman had for years put up a clever and aggressive fight for railroad power. Other upstarts were worrying the "Master Mind of Wall Street." The crisis of 1907 put them in their places. Several rivals were crushed in the panic, some said deliberately crushed by Morgan who could have saved them but refused to extend financial aid. During the crisis Rockefeller and E. H. Harriman joined with Morgan's faithful cohorts in accepting Morgan leadership. When the storm blew over, the struggle for power was renewed, but Morgan's position had been permanently strengthened.

In 1912, the Morgan firm was "investigated" by the Pujo Committee (of the House of Representatives). Very little was uncovered that was not already a matter of public record for those who might choose to assemble the facts, but the committee summary gave rather startling evidence of the extent of Morgan connections within American banking and industry. In the United States the Morgan firm was at that time directly represented in 12 banks and three insurance companies. At least 11 major railroad systems and the Pullman Co., and telephone, telegraph, Adams Express Co., and the International Mercantile Marine were directly linked to the Morgan firm. Besides U. S. Steel Corp. and the Pullman Co., at least five other major manufacturing companies and several smaller companies included a Morgan partner among their directors. In other public utilities Morgan had scattering interests, including Philadelphia Rapid Transit, Public Service Corp. of New Jersey, Niagara Falls Power Co., J. G. White & Co., Inc., and two companies in Latin America

By comparison with the Morgan power to-day these interests of 1912 seem limited and their \$10,313,000,000 of total assets seem small.* But Morgan was already the dominant power not only in American banking, but in railroads, in telephone, and in steel and electrical manufacturing. He had taken the first steps toward a utility empire in Central America.

In January, 1915, the British government—at the suggestion of a Morgan partner—made the firm its purchasing agent in the United States and the French government followed suit in May of the same year. Their purchases of food and war supplies through the Morgan agency ultimately totaled three billion dollars. The war-time profits of corporations controlled by Morgan or clearly under Morgan influence show that the firm made the most of this opportunity to help themselves and their friends. The liberal writer, Amos Pinchot, says of the U. S. Steel Corp.:

The charge that the Morgan House helped bring the United States into the war is most annoying to the Morgan partners. How Thomas W. Lamont's attempt to picture the firm as calmly aloof in Olympian retirement while the United States was being swung into line for war is contradicted by some of his own statements and by other evidence we shall discuss in a later chapter.

The Morgan Domain To-day

Since the World War the House of Morgan has continued to expand its interests and increase its power. The \$2,233,000,000 of foreign bonds sold in this country by the Morgan firm from January 1, 1919, to May, 1933, represented about one-sixth of the total foreign issues bought by American capitalists during that period. This Morgan share was of great strategic importance. It included loans to the chief European governments. Financially the Morgan bond issues were the best of the post-war issues: up to May, 1933, none of these bonds had yet been defaulted. Among the countries for which the Morgan firm has been banker in the United States are France, Belgium, Germany, Italy, Great Britain, Switzerland, Spain and Austria; Argentina, Cuba, Mexico, Australia and China.

Another and very important phase of Morgan's growing world power is the great increase in foreign holdings of American corporations. For example, Morgan dominated companies operate copper mines in Canada

Morgan is represented in India by Sir Thomas Catto, a member of the British firm, with headquarters in Calcutta. Besides Catto, three other London partners are active in Yule, Catto & Co., which operates in Calcutta as Andrew Yule & Co., Ltd. This company has large interests in the jute industry and is also tied up with tea, Indian coastwise shipping, Bengal coal mines, flour, oil, construction, rubber, sugar, paper and printing, electric power, and insurance. Except possibly in jute, the firm is not dominant in these various Indian industries. Catto is, however, a director and deputy chairman of the Mercantile Bank of India, Ltd., a British concern with branches not only throughout India but also in China, Dutch East Indies. Siam and Mauritius.

The total extent of Morgan power in American industry and finance defies statistical measurement. We can, however, list 35 banks, insurance companies, etc., and 60 non-financial corporations on which Morgan partners were directors on January 1st, 1932, and whose assets on that date are known. Here we find a total of \$30,000,000,000 of corporate assets having this immediate link to the Morgan firm.* If we include

Railroads: Atchison, Topeka, & Santa Fe; Baltimore & Ohio; New York Central: Southern Pacific.

Other Utilities: American Telephone & Telegraph; Consolidated Gas Co. of New York; Electric Bond & Share; Commonwealth and Southern.

Miscellaneous Industrials: General Motors: U. S. Steel.

If we include those having Morgan as banker but having no representative from the Morgan inner group on the board of directors, we add three more billion-dollar companies to the list: the group of railroads controlled by the Alleghany Corp., which is clearly within the Morgan domain, and the two great Rockefeller dominated corporations, Standard Oil Co. (New Jersey) and Socony-Vacuum Corp. (now Socony-Vacuum Oil Co., Inc.). Only five of the 18 billion-dollar corporations have no clear connection with the Morgan inner group: Pennsylvania Railroad, Union Pacific Railroad, Cities Service Co. (partly utilities, partly oil), Middle West Utilities Co., and United States Electric Power Corp.

Morgan's inner group held directorships in 14 of these 42 railroads and related companies; in 13 of these 52 other public utility companies, and in 14 of these 106 miscellaneous industrial companies. These were only one-fifth of the largest 200 corporations but they had nearly two-fifths (38%) of the total assets of the group. If we include companies having no director from the Morgan inner group, but using Morgan or Bonbright or First National Bank of New York as bankers, or having at least one director who is a leading official in a Morgan-controlled company, the number of large non-banking companies under Morgan influence

42 railroads, etc., with assets of . . \$25,267,000,000

52 other utilities, with assets of .. 27,819,000,000

o6 miscellaneous industrials, assets 28,351,000,000

Total: 200 corporations, assets . . \$81,437,000,000

Linked to Morgan inner group by directorships are

14 railroads, etc., with assets of .. \$11,596,600,000 or 46% of this group

14 miscellaneous industrials, assets 6,138,000,000 or 22% of this group

Having as director Morgan man outside of inner group or having Morgan or Bonbright or First National as bankers are

14 railroads, with assets of.....\$ 5,738,900,000 or 23% of this group 5 other utilities, with assets of... 2,430,200,000 or 0% of this group

27 miscellaneous industrials, assets 9,080,500,000 or 32% of this group

Total: 46 corporations, assets . . \$17,249,600,000 or 21% of the 200 total

But Morgan and his partners do not despise connections with smaller companies. Partners in the Morgan firms sit on the boards of at least 50 companies of all kinds, including banks, whose assets are less than \$75,-000,000 apiece. Some of these "small" companies are of great strategic importance. They include, for example, Morgan's Ætna Insurance Co., J. I. Case Co. (agricultural machinery), Crowell Publishing Co. (a procapitalist propaganda factory), General Asphalt Co., International Agricultural Corp., Johns-Manville Corp. (asbestos and building products), Standard Brands, Inc., and Texas Gulf Sulphur Co. (For fuller list of companies whose connections with the Morgan group have been traced, see Appendix D, page 317 ff.)

Morgan Wealth

From the beginning the Morgan banking group has functioned for the purpose of increasing the wealth of the head of the house and his partners. The earliest ventures of the first J. P. showed no squeamish nicety of method in "making money."

During the Civil War, his father's firm in London was adding to its millions by helping panicky British capitalists to sell their American bonds in the United States. At the same time the young J. P. was making the most of speculative opportunities in New York. Guns condemned by the United States Army as unsafe for soldiers who might carry them were purchased from the government arsenal with funds borrowed from J. P. Morgan and sold again to the army to be placed in the hands of northern soldiers. A House of Representatives committee, investigating the graft in Civil War purchases, characterized this deal as fraudulent—"an effort... to obtain from the government some \$49,000 over and above the value of the property sold" and "a crime against the public safety." Also, J. P. and another smart young man turned a pretty profit of \$160,000 by speculating in gold and manipulating the foreign exchange rate.

gan firm has unblushingly backed "write-ups" of utility properties and such a maze of holding companies as the Van Sweringen brothers have set up for the control of railroads.

A few years later Morgan methods were again shown up in the looting of the New York, New Haven, and Hartford Railroad. The elder J. P. Morgan aimed at a complete monopoly of all public transportation in New England, and stopped at nothing to achieve his purpose. "Not merely were recklessly extravagant acquisitions made in mad pursuit of monopoly; but the financial judgment, the financiering itself, was conspicuously bad." This was the sober opinion of Louis D. Brandeis, now a Justice of the U. S. Supreme Court. Thousands of small stockholders lost their savings in the crash that followed. The whole affair was one of the most conspicuous blots on the Morgan record. Even from the capitalist viewpoint it revealed a complete lack of the "statesmanship" with which he is commonly credited by his admirers.

When the elder J. P. Morgan died in 1913, he left an estate valued at \$77,465,975, including \$32,346,099 represented by his share in the four banking firms. Nearly half of the balance was tied up in art treasures, and the present J. P. Morgan is said to have inherited little active capital beyond the investment in the banking firms. But he helped himself by selling much of the Morgan collection which had been loaned to the Metropolitan Museum. Twenty years later he sold additional pictures and miniatures. Shortly after his father's death the present J. P., grudging the \$3,000,000 of inheritance taxes which the estate had had to pay on his father's property, took out the largest individual life insurance policy that had been written up to that time, \$2,500,000 payable to state or federal treasuries as an offset against inheritance taxes that will be due when it comes his turn to die.

Combined balance sheets of the New York and Philadelphia firms published at the Senate hearings in May, 1933, showed that their "net worth" (that is, capital that would be available for distribution among the members of the firms after settling all the firms' liabilities) had been above \$100,000,000 during the boom and was just over \$53,000,000 on December 31, 1932. But how this would be pro-rated among Morgan and his partners

^*For details see Report of the Joint Committee of the Senate and Assembly... appointed to investigate the affairs of life insurance companies, transmitted to the New York Legislature Feb. 22, 1906, and published by the State of New York as Assembly Document No. 41.

we do not know. And, of course, it does not include their privately invested personal wealth.

From They Told Barron (page 2) we learn that the first J. P. Morgan took each year 51% of the profits of his banking firms. But whether the present J. P. follows this example and what these profits have amounted to are among the points on which information is neatly withheld in the statements made public at the Senate hearings in May, 1933. From the \$11,000,000 of federal income tax paid for 1929 by Morgan and his 23 partners in New York and Philadelphia, it was estimated that their combined net incomes from the firm profits plus their own personal investments must have aggregated at least \$44,000,000 and may have topped \$60,000,000. During the boom years, it was commonly stated that a Morgan partnership was worth a million dollars a year, and the older partners and the present J. P. Morgan have certainly built up large personal fortunes. Thomas W. Lamont, for example, paid \$847,820 of federal income tax for the year 1923. 20

Morgan Workers

The sheer extent of Morgan wealth is, however, of less importance to the working class than the fact that the Morgan firm has been for more than thirty years dictating to important sections of the working class the terms under which they are exploited. Time and again Morgan workers have revolted but as yet the Morgan power has been maintained.

It was Morgan's U. S. Steel Corp. which took the lead in refusing to shorten the 12-hour day, seven-day week until after the great steel strike of 1919. Also in 1919 U. S. Steel took the lead in summoning state cossacks and importing gunmen to ride into workers' dwellings and break up strikers' meetings. The Morgan policy was squarely responsible for the death of Fannie Sellins, heroic woman organizer killed near an Allegheny Steel Co. mine where she was arousing the miners to active solidarity with the steel workers

Morgan railroads did their full share in breaking the strike of 1922.

Morgan, in the midst of luxury, approves the crisis policies which have thrown out hundreds of thousands of workers from his railroad and telephone systems since 1929 while cutting wages for those still employed.

In the midst of mass unemployment when workers are suffering and starving, Morgan has thrown his power against even the most meager beginnings of compulsory unemployment insurance, personally pleading with the little capitalists and the workers who still have jobs to share with the hungry jobless.

Yes, behind a thin veil of "welfare" work and "safety" campaigns, the Morgan interests pursue a cold-blooded, ruthless policy, robbing the working class in the typical capitalist fashion and holding down the workers with brute force when they dare to revolt.

.......................................

CHAPTER III

ROCKEFELLER, A FAMILY POWER

Rockefeller's background was also quite different from that of the wealthy Morgan whose father was an international banker before him. John D. Rockefeller, senior, was a country boy, son of an obscure exploiter of pioneer settlers, who roamed the country from New York to Iowa peddling a cancer "cure." To a neighbor at home he boasted of lending money to western farmers at 12 per cent and preferring those who could not pay so that he might foreclose and take their farms.(^1)

John D. was a real chip off the old block and paid a grateful tribute to his father. In his Random Reminiscences of Men and Events, written when he was seventy years old, Rockefeller says:

To my father I owe a great debt in that he himself trained me to practical ways. He was engaged in different enterprises; he used to tell me about these things, explaining their significance; and he taught me the principles and methods of business.²

But Rockefeller was by no means the traditional poor boy of American mythology. His first job, it is true, paid him only fifty dollars for three months' work as book-keeper for a commission merchant firm in Cleveland. But when he and another youth set up a partnership as commission merchants in 1858, the cancer quack was ready and able to advance one thousand dollars of capital.

Building an Oil Monopoly

The first oil well in the United States was dug in northwestern Pennsylvania the following year and Rockefeller watched the oil rush with interest. He decided that production of crude oil was too speculative and

risky but that oil refining could be made a steadily profitable business. So in 1862 he put his savings—already amounting to several thousand dollars—into a new firm with a youth named Andrews who had original ideas on how to refine oil. Rockefeller himself continued in the commission business until 1865 when he began to give all his time and attention to building a fortune in oil. Five years later, in 1870, Rockefeller, Andrews and a small group of associates incorporated the Standard Oil Co. of Ohio with capital of \$1,000,000.

These external facts gave him a good running start in a new industry. But, in addition, Rockefeller was extraordinarily persistent and shrewd and ruthless in applying the normal tactics of capitalist competition. He and the associates whom he gathered about him were ingenious and law-less in creating difficulties for Standard Oil's competitors.

As the largest shipper of oil Rockefeller demanded, and received, freight rates lower than those paid by any other refiner. Then he worked out a secret alliance with the largest refiners in Pittsburgh, Philadelphia and New York and together they persuaded the three railroads that tapped the oil regions to give them not only a slashing reduction (rebate) on their own shipments but a cash payment called a "drawback" on every carload of oil shipped by their competitors. Before this extraordinary trick was discovered and stopped, Rockefeller had swallowed all his chief Cleveland competitors. Railroad rebates on Standard shipments—without the added "drawback"—continued for forty years to place a burden on Standard competitors.

Of course, many competitors were simply squeezed out and destroyed. Some others, whose plants might be useful, were openly bought up at a value fixed by Rockefeller, who would pay what his experts figured that the plant would be worth to Standard Oil. Even at this valuation, those who received Standard Oil stock and were able to hold it grew rich. Those who took cash or who sold their stock before its value had risen were the victims of a cold appraisal which allowed nothing for the intangible "good will" that Rockefeller had deliberately destroyed.

Occasionally, agents of the Standard companies were responsible for destroying the physical property of competitors. At least one such case was proved in Buffalo, in 1881. The directors of Vacuum Oil were indicted but the only men convicted were two local managers. Rockefeller blandly maintained that he and Standard had nothing whatever to do with Vacuum Oil and heartily disapproved of such methods. As a matter of fact, a three-quarters interest in Vacuum had been acquired by Standard Oil two years before, and the local managers—punished only by paying small fines—continued in their positions undisturbed.⁸

When Rockefeller met strong opposition—as in the 1877 battle with the Pennsylvania Railroad which was backing independent refiners—he mobilized all his resources of brains and trickery and political influence and poured out thousands of dollars to accomplish his purpose. He knew that monopoly power was a source of super-profits, and he drove for it with single-minded intensity of purpose.

Many years later, John D. Rockefeller, Jr., in an address on trusts, justified the tactics of monopoly by the following analogy: "The American Beauty Rose can be produced in its splendor and fragrance only by sacrificing the early buds which grow up around it."

Second, but of equal importance, was Rockefeller's determination to cut the cost of producing and distributing kerosene. From the beginning he applied himself to thinking out methods of saving expense. His firm made its own barrels and did its own hauling. Although for years he stayed out of crude oil production, he bought directly from the producers and cut out the jobbers through whom other refiners were buying their crude. He built up a marketing apparatus and made deliveries directly to retailers and large consumers. In 1885, when competition of Russian oil was seriously threatening his exports to Europe and the Far East, Rockefeller launched tankers to carry oil across the ocean and built refineries and distributing systems in foreign countries. Shortly afterwards, when the Pennsylvania producers attempted to combine and raise the price of crude, Rockefeller decided the time had come to control enough crude to break down their combination.

Systematic cutting of the cost of production was important for two reasons. It gave Rockefeller a steady supply of super-profits, when his prices were high enough to cover the costs of his competitors. It also allowed him to carry on price wars, first in one region and then in another, which destroyed upstart competitors while fierce underbidding brought

only negligible losses to the Rockefeller companies.

Fourth, from the beginning Rockefeller was a cold and extremely competent realist in building up a group of associates who could serve his companies. Already in 1870 he had begun to develop a system of useful connections. John T. Flynn describes this in God's Gold.

He saw to it that he had friends planted wherever they might be needed. When his credit was discussed in one bank there was Harkness, a stockholder, to vouch for him. If it was brought up in another bank, another stockholder, Stillman Witt, was there to aid him. When he wanted railroad favors, there was [sic] Amasa Stone and Watson, also stockholders, to stand by him. By this time he had tied to his enterprise, one way or another, most of the men of wealth and power in Cleveland.

Last, but not least, Rockefeller knew the importance of having friends

within the political machine. Schoolmate at Owego of Tom Platt, who became Republican boss of New York State, and schoolmate in Cleveland of Mark Hanna, the first leader of the "Ohio gang," Rockefeller retained their friendship and never hesitated to manipulate political appointments in the interest of Standard Oil. Meanwhile Payne and others functioned for Standard Oil in the Democratic Party. John D. Archbold, one of his chosen intimates, became perhaps the boldest dispenser of bribes in the history of American capitalism.

Before the organization of Standard Oil Co. of Ohio in 1870, Rockefeller had begun his little game of dividing his operations and using different names. For some years his different companies or firms were held together simply by the fact that all were owned by Rockefeller and his close associates. Rockefeller himself was the largest stockholder, but when the Standard Oil Co. of Ohio was organized he owned less than one third of the shares. After the Standard Oil Stock was made available to outsiders, Rockefeller, with his large minority holdings, and his intimate associates with their smaller holdings, held among them a clear majority that gave them unquestioned control.

As the business of the several Rockefeller companies developed, Rockefeller wanted some closer organic connection among the companies without having to admit to hostile competitors the extent of his oil interests. The "trust" form, worked out in 1879 and then in greater legal perfection in 1882, meant that Rockefeller and his inner ring became a board of trustees to which they themselves as individuals assigned "in trust" their controlling stock interest in the many apparently unrelated companies. This "trust" arrangement aroused a fury of opposition when some years later it became known to their competitors and the rest of the capitalist world. Nominally it was dissolved in the early 90's by order of the Ohio courts but actually it continued to function. It was saved from further prosecution in Ohio by a political shift in the state Attorney General's office, but Rockefeller saw that he needed some better form of combination. A law passed in New Jersey in 1889 had permitted a corporation to own stock in another corporation. So in 1899 Standard Oil Co. of New Jersey took over the stock of all the vast network of Rockefeller oil companies while the holdings of the individual capitalists were concentrated in the one parent corporation.

In 1911—the year when the American Tobacco Company was also "dissolved" and a "Money Trust" investigation was in the offing—the United States Supreme Court ordered Standard Oil Co. of New Jersey to break up its holdings into 34 parts, and to distribute the stock of the 33 groups of separated subsidiaries among the stockholders of Standard Oil Co. of New Jersey. These separate companies all started of course with identical groups of stockholders and in each of them the Rockefeller inner

ring received a majority of the stock. John D. Rockefeller himself had about one-fourth of the shares in each of the 34 companies.

The Rockefeller oil companies still have certain characteristic features. They are governed by small boards of directors, made up chiefly of active executives. No outside banking interest is represented, except as Standard Oil executives themselves are directors of outside banks and insurance companies. One exception to this was the presence on Standard of Indiana of Melvin A. Traylor, president of the First National Bank of Chicago, until his death in 1934. The chief companies still operate in the main without serious competition among themselves. They are no longer the only large oil companies in the United States, but together they still dominate the American oil industry.

Standard Oil had built foreign refineries and set up its world-wide marketing apparatus long before it began to seek foreign concessions for the production of crude oil. In Mexico, E. L. Doheny and British interests had pioneered in oil before one of the Standard subsidiaries went in also. During the World War and later, the leading Standard Oil companies drove to make up for lost time in acquiring foreign oil resources. To-day subsidiaries of the Standard of New Jersey have oil properties in Venezuela, Colombia, Peru, Bolivia and Argentina, Mexico, Trinidad, Canada, Roumania, Poland, and the Dutch East Indies. Standard Oil of California has acquired oil lands in Mexico, Colombia, Venezuela, Arabia, and the Bahrein Islands in the Persian Gulf, but its actual foreign production is still unimportant.

With the help of the State Department, Rockefeller also secured a toehold in the Mosul oil fields (British-controlled Iraq). There two Standard companies and the Mellon-owned Gulf Oil Corp. have together a less than

On the relation of Standard Oil companies to each other, to "independent" American companies and to foreign oil interests, see Chapter X, page 157 ff.

Rockefeller Outside of Oil

His brother William, on the other hand, who also became active in Standard Oil, was a tricky and dashing speculator in stocks. With Henry H. Rogers of Standard Oil and James Stillman of National City Bank, William Rockefeller, after the panic of 1893, put through wild deals in copper and other stock speculation in the most approved manner of the recent post-war boom. They were known as the "Standard Oil Gang," but Thomas W. Lawson, a fellow capitalist who exposed Amalgamated Copper in 1904, and John T. Flynn¹⁰, the liberal biographer of Rockefeller, believe that John D. took no part in most of these manipulations. Not that he disapproved their methods—the history of Standard Oil shows that such an idea would be absurd—but his whole temper of mind was more cautiously calculating than his brother's.

John D. did join his brother William in respecting the ability of James Stillman, and after Stillman became president of National City Bank in 1891 the Standard Oil backing which he received was an important factor in pushing National City up to the top among New York banks. Even

here, John D.'s interest was less active than his brother's and it is now believed to have been entirely withdrawn.

In spite of his widely scattered and very large investments, very few corporations outside of the Standard Oil group have been brought under direct control by the John D. Rockefeller branch of the family. The earliest outside project was built up in Minnesota iron ore. Here Rockefeller acquired at distress prices valuable resources which he later sold to Morgan's U. S. Steel Corporation at a profit variously reported as \$30,000,000 to \$70,000,000. U. S. Steel paid for the properties partly in stock, which gave John D. Rockefeller and his son seats on the board of directors. Ten thousand shares of U. S. Steel are held by Rockefeller's General Education Board, but neither John D. nor his son now appears among the largest stockholders in U. S. Steel and for many years Rockefeller interests have had no visible representation on its board.

In 1902, Rockefeller bought control of Colorado Fuel & Iron Co., the largest steel and coal producer in the West. This company has achieved nation-wide notoriety through its tight grip on Colorado politics and through the brutality of its tactics against strikers. In the investigations that followed the Ludlow massacre (1914) when the strikers' tent colony was burned and women and children were killed, the treasurer of the company admitted that C.F.&I. had been spending "from \$500 to \$1000 a day" to fight the workers. The same year, according to Flynn, the old John D. was winning a fight for a two-thirds reduction in his personal tax bill in Cleveland.

Shortly after the World War, Rockefeller went heavily into Consolidation Coal Co., operating in Maryland, West Virginia, eastern Kentucky, and Somerset county, Pennsylvania. The family still openly dominates Consolidation Coal, which is—like Colorado Fuel & Iron—a notorious enemy of working class organization. Apparently Rockefeller also controls Davis Coal & Coke Co., another company operating in Maryland and West Virginia, although this connection is not so openly admitted. For many years, Rockefeller was master of Western Maryland Railway, a small line important and profitable because of its coal interests. Although this control is supposed to have been given up (under its affiliation with the Baltimore & Ohio), the board of the Western Maryland Railway Co. still includes Henry E. Cooper, a former "personal representative" of John D. Rockefeller. It may also be significant that Cooper is a director of the Clinchfield Coal Corp., operating in Virginia.

feller influence. Since 1933, Rockefeller has been represented in Westinghouse Electric & Manufacturing Co.

In the early days, when Standard Oil was dependent on railroad transportation of oil, Rockefeller played in with the railroad lords and strengthened his position by buying railroad securities. Later, Harriman was a friend of the "Standard Oil Gang" and had the backing of John D. in his efforts to build a railroad empire. Also, as John D. increased his capital looking for outside investment he naturally salted away many millions in railroad bonds and preferred stocks—the usual "safe" investment after the period of wild railroad speculation had led to the Morgan reorganizations of the 80's and 90's. To-day, the holdings of the Rockefeller institutions are widely scattered and include large amounts invested in practically all the major roads, but Rockefeller interests are openly and directly represented only in the New York Central. Here the position of Morgan, Vanderbilt and their allies is stronger than that of Rockefeller. But a few roads outside of the Morgan railroad empire have at least one director not identified as a Rockefeller henchman and yet obviously closer to Rockefeller than to Morgan. These include Delaware & Hudson; Chicago, Milwaukee, St. Paul & Pacific; and Virginian Railway.

Much Rockefeller money is invested in New York traction—especially Brooklyn-Manhattan-Transit and Manhattan Railway, operated by the Interborough Rapid Transit—and probably also in Consolidated Gas Co. of New York. In Consolidated Gas, John D.'s nephew Percy (who died in 1934) has been the only open representative of the family, and Percy Rockefeller, even more markedly than his late father, William Rockefeller, had many independent interests that are quite distinct from the

main John D. Rockefeller line.

And the John D. Rockefeller family has become heavily interested in real estate. They have financed several housing projects—always on a business basis—but their largest single real estate venture is Rockefeller Center (or Radio City) which includes two large blocks in mid-town New York. When the Rockefeller Center work was started, the real estate company obtained a \$62,500,000 mortgage from the Metropolitan Life Insurance Co., but the total capital invested in the project has not been revealed.

The Rockefeller Empire

To measure the extent of Rockefeller power is, of course, impossible, but again as in the discussion of Morgan certain broad estimates can be made. From these we conclude that the Rockefeller interests are the strongest influence in banks and corporations with assets totaling about \$21.5 billion. These figures do not include the chief real estate holdings. Rockefeller interests are also present along with Morgan interests in additional concerns with at least \$23.4 billion of total assets.

Second in importance is the small group of companies—mostly large concerns—in which the John D. Rockefeller interests are directly represented by one or more of the Rockefeller "cabinet." This is a group of individuals who are employed as a personal staff or who serve on the boards of at least two of three Rockefeller institutions: the Rockefeller Foundation, the General Education Board, and the Rockefeller Institute of Medical Research. Through this Rockefeller "cabinet" the John D. family is linked to 11 companies with published assets totaling about \$3,750,000,000, in which the Rockefeller power is in control, and to three other large corporations with over \$7 billions of assets in which the Morgan power is in control. The "cabinet" also administers large real estate interests on which figures are not available.

Third in importance are the companies on which Rockefeller influence is indirectly represented outside of the oil industry by officials of Standard Oil companies. Here we find Standard Oil probably the controlling force in some 25 companies with about \$1,300,000,000 of assets while Standard Oil influence is present along with Morgan influence or clearly secondary to Morgan dominance in another 11 companies with assets totaling around \$5,000,000,000.

Fourth, we must include the indirect Rockefeller interests linked to the Chase National Bank. Some of the more important have already been covered in the companies linked to Rockefeller through his "cabinet." Three of the "cabinet" are directors of Chase: W. W. Aldrich, brother-in-law of John D., junior, is chairman of the bank; Bertram Cutler and Barton P. Turnbull are also among its directors. Our record of the Chase connections is necessarily incomplete. We cannot trace, for example, all the companies in which Chase holds a dominating banking position without a cross-directorship. But we can list the companies, not already included in a previous Rockefeller group, on which the bank is represented by one of its officials or by a Chase director who is clearly a "Rockefeller" man. Here we find a group of 116 companies. In 83 companies, with assets totaling about \$10,300,000,000 this Chase-Rockefeller influence seems to be the strongest financial force. In 28 others, with assets of more than \$6,800,000,000, the Morgan inner group is also represented and in about one-third of these the Morgan influence is clearly dominant.

Apparently distinct from these areas of John D. Rockefeller dominance and John D. Rockefeller influence (with or without Morgan participation) have been the connections of Percy A. Rockefeller and his family. The foundations of the Percy Rockefeller wealth were laid by his father, John D.'s brother William, who was with John D. in Standard Oil. As we have seen, the two brothers followed rather separate paths in their outside interests, and this separation seems to have been sharpened in the second generation. Percy Rockefeller (who died in 1934) may sometimes have represented his uncle, John D., or his cousin, John D., junior, but nowhere was he a director of a company generally identified as within the John D. Rockefeller domain. It is worth noting, however, that Percy Rockefeller and his associates seem to have been the controlling force in corporations having about \$1,500,000,000,000 of total assets. They were also present, together with a strong Morgan influence, in other companies with assets totaling more than \$4,200,000,000. (See lists in Appendix E, page 328.)

How important, then, is the Rockefeller share in the largest 200 nonbanking corporations?

Companies among Largest 200 Non-Banking Corporations Linked to Rockefeller Interests as of January 1, 1932

At least 36 large non-banking corporations with assets totaling about \$22 billion have some direct connection with the John D. Rockefeller interests. In the "Inner Group" we find five Standard Oil companies and three corporations whose directors include a member of the Rockefeller cabinet. In the "Outer Group" 28 companies are linked to Rockefeller through a Standard Oil official or a "Rockefeller" director of Chase National Bank. These 36 companies had about 27% of the assets of the "largest 200" group. The Percy A. Rockefeller family were active in seven other corporations, with 4% of the "largest 200" total assets.

But these "Rockefeller" companies include at least 13 in which the Morgan influence is stronger than the Rockefeller influence and six others in which the balance of power between the two groups is not clear. And it is apparent that except for the dominating Rockefeller position in the oil industry, the Rockefeller industrial empire remains secondary to the Morgan empire. No exact statistical measure of this is possible, but a rough comparison of their relative strength within the largest 200 non-banking corporations may be attempted. For this comparison we must eliminate from the Morgan totals given in the previous chapter all companies controlled by Rockefeller but indirectly linked with Morgan. And we must deduct from the Rockefeller totals any companies clearly controlled by Morgan. Those linked to both groups without clear indication of the dominant power are also deducted and shown separately.

Percentage of Assets of Largest 200 Non-Banking Corporations (as of January 1, 1932)

These percentages are important only as rough indication of the relative industrial power of the two groups. They do not represent the total connections of either group. (For further data on Morgan-Rockefeller relationship, see Chapter V, page 73, and Appendix F, page 334.)

Rolling Up a Billion and a Half

Although the power of Rockefeller is almost certainly less than the power of the House of Morgan, Rockefeller wealth is clearly greater than the wealth of Morgan. In all such comparisons we are, of course, dealing with estimates, but estimates are possible because certain facts are public property and all available facts justify these broad basic comparisons.

The old Standard Oil Company, before the "dissolution" of the trust in 1911, was called the most perfect money-making machine in the world. In the first forty years of its existence (roughly) or up to 1908, the Standard Oil Company made more than \$1,200,000,000 of net profits. Approximately \$525,000,000 of this was plowed back into the corporation, according to John Moody and George K. Turner, writing in 1911.

The other fifty-five or sixty per cent of the profits have massed themselves...largely in the same half dozen hands that managed the great property.... From 1870...in all, a distribution of \$718,000,000 cash in forty years. Of this, John D. Rockefeller had approximately a quarter—practically \$180,000,000.

More important than this fortune which John D. had drawn from Standard Oil in dividends, giving him every year new tens of millions to invest in other enterprises, was the value of the Standard Oil stock which he held. In March, 1911, before the U. S. Supreme Court ordered the "dissolution" of the trust, Standard Oil stock was selling at over \$850 a share, and Rockefeller's personal holdings in Standard Oil were worth approximately \$225,000,000.12

The "dissolution" of the trust broke up the absolutely unified policy of the Standard Oil group, but it did not check the money-making progress of the principal companies. In fact, the twenty years after "dissolution" (1912 to 1931) their profits piled up almost in geometric progression. The leading 25 companies (including those few from which Rockefeller interest has been withdrawn) paid in that period cash dividends totaling \$2,727,500,000 (not counting some \$183,000,000 paid by subsidiary companies to their parent companies). Their combined capitalization was pushed up from \$244,127,000 (Dec. 31, 1911) to \$2,666,930,000 (Dec. 31, 1931) and over \$1,439,147,000, or 59 per cent of this increase was accomplished by stock dividends which capitalized part of the enormous accumulation of undistributed profits.

What this means may be illustrated by the history of 249,995 shares in Standard Oil Co. of New Jersey,—the number held by John D. Rockefeller in 1911 when the trust was "dissolved." This block of shares—entirely apart from shares in the 33 smaller companies set up separately at that time—has grown by a stock split-up in 1920 and a stock dividend in 1922 to 4,999,900 shares. They had a market value in December, 1911, of \$89,998,200. At the peak of the market in 1929 they were worth \$414,991,700 and on December 11, 1933, they were worth \$232,495,350. In twenty years (1912 to 1931) they paid dividends totaling \$129,997,399, that is, an average of \$17,800 a day. And even in 1933 they paid dividends of one dollar a share, or \$4,999,900 on this block, equal to \$13,700 a day. It is commonly believed that this block of shares has been kept intact by the Rockefeller interests—part of them still in the hands of the family and part in the treasuries of the Rockefeller institutions. 18

Although John D. Rockefeller has had only a minority interest in Standard Oil companies, there is no doubt that Standard Oil has been the major source of the wealth which placed him, and his son after him, at the head of the list in the United States and among the richest two or three men in the world

Before 1923, John D., senior, had transferred most of his fortune to his son (to avoid the inheritance taxes and the publicity involved in leaving a mammoth estate behind him). One flash of figures was permitted by the opening of federal income tax records in 1924 and 1925. These showed tax payments by John D. Rockefeller, Jr., amounting to \$7,435,169 in 1924 and \$6,277,669 in 1925. His father paid only \$124,266 and \$128,420.14

For an estimate of Rockefeller wealth, we turn to John D. Rockefeller's liberal biographer, John T. Flynn. Mr. Flynn states that when the elder John D. "retired" in 1806 (although he retained the presidency of Stand-

John D. Rockefeller, Jr., is still lord of the company union offensive which has been renewed for the undermining of workers' resistance in the present crisis-depression. He and his cohorts dominate the broad policies of Industrial Relations Counsellors, the chief agency giving advice on the technique of company unions and related schemes.

CHAPTER IV

THE MELLONS OF PITTSBURGH*

The Mellon group represents not only a well-developed fusion of banking and industry but the most obvious tie-up of finance capital with the capitalist state. Morgan and Rockefeller interests have had a controlling voice in political life but in the main they have left the holding of office and the managing of political machines to lieutenants who may not be immediately recognized as 'their servants. Andrew W. Mellon, on the other hand, having contributed liberally to the Harding campaign "accepted" a seat in Harding's notorious cabinet. As Secretary of the Treasury for ten years, Mellon openly manipulated tax policies for the benefit of the upper ranks of capitalists. Andrew's nephew, William L. Mellon, was for several years chairman of the State Republican Committee in Pennsylvania. The "Mellon machine" became about as notorious in corrupt Pennsylvania politics as the previous Penrose and Quay machines.

Beginnings of Mellon Wealth

Mellon wealth had its earliest roots in Pittsburgh real estate

^* For the Mellon history the writer is greatly indebted to Harvey O'Connor and his book Mellon's Millions.

The panic of 1873 almost overwhelmed the bank and for a few months it suspended payments, but after the worst of the storm had passed the bank once more opened its doors. Meanwhile Thomas Mellon and his smart young sons were picking over the financial wreckage in Pittsburgh and by a ruthless foreclosure policy they gathered from the crisis many additions to their already considerable real estate holdings. About 1885 the elderly T. Mellon retired and Andrew became the head of the family and its most astute financier.

Andrew Mellon went through the motions of resigning from his banks and corporations when he entered the Treasury in 1920 but Harvey O'Connor in Mellon's Millions has assembled abundant evidence that while Andrew Mellon was in Washington he was consulted when important decisions were pending in the affairs of his aluminum trust. O'Connor tells, also, how the Mellon banks had arranged in 1931 to take over their tottering rival, the Bank of Pittsburgh, but before the deal could be put through Andrew must be consulted. Andrew, head of the U. S. Treasury, vetoed the proposition: Why take on such a responsibility? The depositors would shift to a Mellon bank, anyway!

But Andrew had built up a corps of smart administrators. The family affairs, closely guarded wherever possible from outsiders' prying eyes, were chiefly in the hands of his younger brother Richard (who died in 1933) and William L. Mellon, the son of his oldest brother. Associated with them are perhaps a dozen Mellon men, executives of their banks and most closely held corporations.

Their real estate in Pittsburgh includes much of the most valuable downtown property and before the crisis it was estimated as worth \$40,000,000.¹ Besides this, at least three large Pittsburgh hotels are under their financial control. Another important offshoot from their large real estate holdings has been the Mellon-Stuart Co., the leading firm of building engineers and contractors in Pittsburgh. And to keep in the family

Aluminum smelters have sought the cheapest possible source of power and to secure this, Aluminum Co. of America has had a strong minority interest in the development of Niagara Falls Power Co., which is now part of the great Morgan utility combine, Niagara Hudson Power Corp. The aluminum trust also owns more than half the stock of the Duke-Price Power Co., with its hydroelectric plant on the Saguenay River in Canada. Aluminum subsidiaries have developed a hydroelectric plant at Calderwood, Tennessee.

Mellon aluminum companies have reached far beyond the United States and Canada, acquiring valuable bauxite reserves in Dutch Guiana and British Guiana, in France and Yugoslavia, and plants in Norway, Switzerland, England, Germany and India. They have marketing agreements with and part ownership in all the important foreign aluminum companies, and their monopoly in the United States has been further buttressed by a tariff on imports of the refined metal. Aluminum Co. of America and the German chemical trust (I. G. Farbenindustrie, A.G.) jointly control Magnesium Development Co., which has exclusive American rights to the German trust's patents and processes for the use of magnesium.

About the same time that Andrew Mellon was beginning to develop his aluminum monopoly, his nephew William L. Mellon was starting a career in oil. With the family's backing, he went into producing in western Pennsylvania and West Virginia and built a network of more or less local pipe lines. Then in 1893 he built a \$2,500,000 pipe line across Pennsylvania to a refinery at Marcus Hook on the Delaware River. This pipe line challenged the Standard Oil's pipe line monopoly and was of such strategic importance in the Rockefeller scheme that the Mellon company was able to exact a profitably high price when two years later it sold the pipe line to Standard Oil.

Getting in on the ground floor in the rich new Texas fields and having Mellon wealth to provide tankers and build refineries, pipe lines, and a distributing and retailing system, this company from which developed the Gulf Oil Corp. was able to hold its own against the Rockefeller monopoly.

After the war, Standard Oil Co. of Indiana wanted to absorb Gulf Oil, but the Mellons stood out for \$800 a share and rejected the \$550 a share (to be paid in Standard of Indiana stock) which the Rockefeller company was willing to give.

Gulf Oil Corp. is to-day the second largest oil company in the United States outside of the Standard Oil group. It operates valuable properties in Venezuela and has a small share—with the Standard companies and

Quite early in the company's career, Guffey was crowded out in a way that roused his undying hatred of the Mellon family. Gulf Oil Corp., with its total resources valued at half a billion dollars (after depreciation is deducted) is believed to be nearly 90% owned by the Mellon family.

Other Industrial Interests

In addition to their dominant position in western Pennsylvania banking, traction and real estate, the Mellon family has had a considerable interest in steel. In December, 1899, about a year and a half before Morgan organized the U. S. Steel Corp., Andrew Mellon's intimate friend and ally Henry C. Frick had a bitter quarrel with Andrew Carnegie and withdrew from the Carnegie Steel Co. of which Frick had been chairman. Frick and Mellon together set up Union Steel Company as a rival to Carnegie's company and within a few years this was developed into a small but well rounded corporation, seriously annoying to the new steel trust. By threatening to build a rail mill, Mellon and Frick were able to sell Union Steel to the U. S. Steel Corp. on their own terms. The company had been capitalized at \$1,000,000 and had no bonded debt outstanding. After negotiations were begun, Union Steel increased its capital stock to \$20,000,000 and issued bonds for \$45,000,000. The merger gave the Mellon family no direct representation in U. S. Steel, except through their friend and ally Frick, who went into U. S. Steel and continued a director until his death in 1919. The Mellon interests are, however, supposed to hold a considerable minority block of U. S. Steel shares.

More important than this flyer in steel were Mellon ventures in heavy steel products. Their Forged Steel Wheel Co. was bought by American Rolling Mill Co. in 1927, and paid for in bonds and preferred stock in that company. Their Standard Steel Car Co. was absorbed in 1929 by Pullman, Inc. Their McClintic-Marshall Construction Company, which manufactures structural steel and erects bridges and steel work for buildings, was merged in 1931 with Bethlehem Steel Corp.

The family has also had for many years a minority interest in Crucible Steel Co., important in the growing field of alloyed steels, and in Pittsburgh Steel Co. Both of these minor steel companies are closely tied up with the Mellon banks. Related to steel is their interest in Harbison-Walker Refractories Co., largest manufacturer of fire brick.

Heinrich Koppers, a German technician who had come to the United States. When the United States entered the World War, the Mellons through the Alien Property Custodian secured the shares owned by Heinrich Koppers at a figure far below their market value. To-day, the original company that built by-product coke ovens is only one small subsidiary in a large group of companies which include coal mining (chiefly in West Virginia), manufacture of coke, distribution of the gas manufactured as a by-product of the coke plants, and manufacture of tar and its products. Koppers subsidiaries' coal mines, plus the coal mines owned by Massachusetts gas companies under Mellon control, plus Pittsburgh Coal Company, plus the coal mining subsidiaries of Mellon manufacturing companies, combine to make the Mellon bituminous coal interests second only to the bituminous interests of the U. S. Steel Corporation subsidiaries which among them have the largest coal producing capacity in the United States.

In municipal gas, besides this tangle of Koppers interests, the Mellon family controls Eastern Gas & Fuel Associates (New England); and Brooklyn Borough Gas Co. and Brooklyn Union Gas Co. Mellon is probably the strongest single group in the giant United States Electric Power Corp. which through a chain of subsidiaries has attached to itself the electric light and traction system of Pittsburgh.

Closely tied in with utilities are the electrical manufacturing companies. The Westinghouse companies were developed in Pittsburgh with Wall Street backing but for several years the Mellon family has been represented in both Westinghouse companies. With their increasing interest in electric utilities, the Mellons have also increased their holdings of Westinghouse Electric & Manufacturing Co. and since 1931 W. L. Mellon has been a member of its executive committee while at least two other Mellon men sit on the board of directors.

Other Mellon companies touch on the chemical industry. Their Pittsburgh Plate Glass Co. has various chemical products. Through a subsidiary, Southern Alkali Corp., it is tied in with the American Cyanamid Co., a chemical company engaged in fixation of atmospheric nitrogen,—and in notorious lobbying for private operation of the government power plant at Muscle Shoals. George G. Allen who represents the dominant Duke interest in American Cyanamid is also a director of Aluminum Co. of America. H. C. McEldowney represented the Mellon group in American Enka Corp.,—a \$15,000,000 rayon company—until his death in 1935.

glue,

Mellon Power

In reviewing this impressive array of Mellon interests, we must guard against picturing them as the most powerful financial group in the United States. In 1925, Andrew W. Mellon and his brother Richard B. Mellon between them paid over \$3,000,000 of federal income tax, but this was less than half the taxes paid by John D. Rockefeller, Jr., and also considerably less than the total paid by Henry and Edsel Ford. Whether Mellon family wealth has since then pushed ahead of Rockefeller wealth, as some writers are inclined to believe, is certainly debatable. The basis for estimating Mellon wealth is even scantier than the basis for estimating Rockefeller wealth. At least, it is clear that the Mellon family belongs among the topmost three or four, so far as actual holdings and income are concerned.

So also in the field of banking. Mellon interests were represented until 1933 on the Morgan dominated Guaranty Trust Co. and Bankers Trust Company in New York City which ranked third and sixth respectively among commercial banks in the United States.* But the Mellon-controlled banks are not among the largest twenty. Even lumping together the deposits of Union Trust Company and its subsidiary, the Mellon National Bank, we find that these dominant Pittsburgh banks are out-distanced not only by 12 banks in New York City but by at least one bank in each of the four cities, Chicago, Boston, Los Angeles and San Francisco.

Attempting a statistical estimate of Mellon financial and industrial power we find the Mellon group dominant in about 35 banks and insurance companies and in about 40 non-financial corporations having combined total assets of \$4,250,000,000. This does not include the Mellon real estate holdings. The Mellon group is directly or indirectly represented—usually with a strong Wall Street group—in other banks and

^* Bankers Trust had moved up to fifth in rank before Jan. 1, 1935.

Mellon Workers

Mellon companies have a hard and brutal policy with little pretense of philanthropy. The Mellon-dominated Pittsburgh Coal Co. was the first in Pennsylvania to break away in 1925 from their agreement with the United Mine Workers of America and to start the systematic drive of cutting coal mine wages. When a little group of Senators went to Pittsburgh for its official tour of Pennsylvania mine fields during the 1927-28 strike, Pittsburgh Coal sent its mine superintendents the following letter:

The company has mailed a spirited letter to each individual employee. If you know of any unsatisfactory condition in the company camps or bar-

racks, see that it is eliminated at once."

many Koppers coal mine interests.

O'Connor in Mellon's Millions' tells of Governor Pinchot's plan in the winter of 1931-32 for a state bond issue to raise funds for relief of the desperately needy unemployed workers in Pennsylvania. Pinchot was unable to persuade the wealthy Secretary of the Treasury to lend a million dollars at 4%, and as a matter of fact the proposition fell through. But while Pinchot was waiting to see Mellon about this matter, Mellon's secretary had shown the Governor some rare old paintings recently purchased for \$1,700,000.

Under the Democratic Roosevelt regime, the Bureau of Internal Revenue prepared a case against Andrew Mellon, Republican ex-Secretary of the Treasury, and offered public proof that he had defrauded the federal government of \$1,411,948.49 by manipulation of his properties—to create fake "losses"—and by concealment of \$5,000,000 of taxable income in connection with his income tax for the year 1931. Incidentally they revealed that Mellon had admitted income and capital profits amounting to \$10,890,485.40. The outcome of the case is still unsettled.

Of course, the Mellon family, far and away the wealthiest in Pittsburgh, has to come across with contributions in six figures for the community chest, but they notoriously do not meet the quotas assigned to them. Their companies expect workers with jobs to contribute for the relief of workers without jobs. And if funds fall short, well, after all, what can workers expect?

As yet Mellon sees no need of philanthropy or social insurance as a safeguard against revolution. Meantime, he is well satisfied with his career. The New York Times (January 20, 1929) quoted him as saying: "I would not exchange the period in which I have lived for any other in the world's history."

......

CHAPTER V

THE OLIGARCHY

Morgan and Rockefeller

Morgan and Rockefeller work together, as we have seen, in some of the largest corporations in the United States—notably in the Morgan-controlled American Telephone & Telegraph Co. and New York Central Railroad Co. and in Columbia Gas & Electric Corp. in which Morgan influence seems to dominate. Morgan has floated debentures (bonds) for Rockefeller's Standard Oil Co. (New Jersey), and Morgan's Bankers Trust Co. has long been represented by one of its vice-presidents on the Rockefeller Consolidation Coal Co. The Rockefeller Radio City real estate project in mid-town New York brought a new alliance, with Rockefeller's leading corporation representative, Bertram Cutler, joining the board of the Morgan-created Radio Corp.

that road. And when Harriman's fight for control of Northern Pacific became really hot, Schiff and his firm withdrew their support of Harriman, thereby helping to throw the victory to Morgan. "... They might make a foray against the House of Morgan, but war might mean their annihilation." Also Morgan had then, already, a definite interest in the Rockefeller-dominated National City Bank.

The latest open move against Morgan was taken in 1933 by W. W. Aldrich, brother-in-law of John D. Rockefeller, junior, who displaced a Morgan man, Wiggin, as head of the Chase National Bank soon after the Rockefeller family secured control of Chase in 1930. Aldrich demanded legislation which was passed by Roosevelt's special 1933 session of Congress. It forbade investment bankers to hold any directorship on a bank belonging to the Federal Reserve System except by special approval of the Federal Reserve Board; it forbade any man to be director of more than one commercial bank at a time; and it made it illegal for private bankers unsupervised by any banking authority to carry deposits. Boards of directors of banks were reduced to a legal maximum of twenty-five persons and, in the process of reorganizing the large board of the Chase National Bank, most of the Morgan lieutenants were dropped and voting control by Rockefeller directors was strengthened.

In this continuous tug-of-war the balance of power has not yet been shifted. Morgan's domain in which Rockefeller has no visible part represents at least \$48.4 billion of corporation assets (as of January 1, 1932), while the Rockefeller domain in which Morgan has no visible part represents at least \$15.3 billion of corporation assets. In their large overlapping territory we find \$29.6 billion of assets, about two-thirds of them under Morgan dominance.

Corporate Connections Traced (as of January 1, 1932)

These figures do not include real estate, but it is doubtful whether even the large Rockefeller real estate ventures would shift the balance toward the Rockefeller group. (For the companies linked to both groups, see Appendix F, p. 334.)

Coöperation seems to be as yet definitely stronger than rivalry in the relations between the Morgan and Mellon groups. They work together in several different fields. Some of their interests are in open competition, but in others (like Pullman, Inc., and Niagara Hudson Power Corp.) the conflict is not so apparent.

Mellon was in on the ground floor with Morgan in the great utility combine known as Niagara Hudson Power Corp. Mellon is represented on the United Gas Improvement Co., now Morgan-controlled, and on the Columbia Gas & Electric Corp., in which Morgan and Standard Oil are both interested. In recent years important Mellon companies have merged with the Morgan-dominated Pullman, Inc., and Bethlehem Steel Corp. These mergers have carried Mellon representation into the management, and have meant an actual share in control of Pullman. Mellon and Morgan are jointly interested in the so-called Barco oil concession in Colombia. In electrical manufacturing, the Mellon interests were represented on Morgan's General Electric Co. until the death of H. C. Mc-Eldowney in 1935. They are strong in Westinghouse Electric and Manufacturing Co., which has in recent years been identified with Kuhn, Loeb & Co., and Rockefeller, and not with Morgan.

Mellon men have never been on the topmost board of the New York Central Railroad Co., but they are an important factor on the boards of New York Central subsidiaries running into Pittsburgh.

And, most important, the Mellon family has a minority representative on the Pennsylvania Railroad. Andrew Mellon's son-in-law, D. K. E. Bruce, was recently added to the board of Union Pacific Railroad. These are the largest two railroad systems which function without benefit of Morgan

How competition continues or new competition develops between financial groups along with close coöperation in certain fields is sharply emphasized by the relations of Morgan and Mellon to the new rivalry between steel and aluminum. Morgan and, to a much smaller degree, Mellon are heavily committed in steel and in certain manufacturing industries which have been the chief consumers of steel. Morgan especially stands to lose if aluminum comes into general use for railway cars, automobile bodies, and bridge and building construction. But Mellon's aluminum trust, in which Morgan has no visible direct participation, will grow enormously and will pour still greater profits into Mellon's hands, compensating Mellon but not Morgan, insofar as aluminum displaces steel.

Rockefeller and Mellon

Outside of companies in which Morgan is the dominant power, the joint interests of Mellon and the John D. Rockefeller group are limited to three companies.

Mellon's Gulf Oil Corp. as an "independent" competitor of Standard Oil functions with a certain measure of friendly agreement with Standard Oil companies in the United States and a small joint interest in the Near East Development Corp. in Iraq.

United Light & Power Co., in which the Mellon group has a considerable minority interest, passed in 1933 under Rockefeller control, when the Chase National Bank acquired the dominant block of shares (42% of the voting stock).

And we have noted the entrance of Rockefeller interests in Westinghouse Electric & Manufacturing Co. in which Mellon holds a strong position.

Otherwise there appears to be no Mellon interest in any company, financial or industrial, dominated by the John D. Rockefeller group.

But Percy A. Rockefeller and Mellon have been jointly interested in the relatively small American Enka Corp.

Principal Secondary Groups

All other financial groups in the United States are distinctly secondary to these outstanding three. A few, like the Mellon group but on smaller scale, have at the same time an independent interest in some field or fields of activity, and a considerable measure of coöperation with the inner Wall Street powers. We shall review briefly the most important of these secondary groups which represent the fusion of banking and industrial capital.

Kuhn, Loeb & Co. is an investment banking house started in 1867, which grew rich in the earlier years through the importing of German capital for the railroads of the southwest. Through the Warburg family, it has been for many years loosely connected with a much older private

banking house in Hamburg. But Kuhn, Loeb & Co. was exceedingly patriotic in its Americanism during the World War, and afterwards the firm took on Sir William Wiseman, who had been during the war a special agent of the British government in the United States.*

Although Jacob H. Schiff, leading partner in the pre-war years, backed E. H. Harriman and William Rockefeller, Morgan and the Kuhn, Loeb firm have long had a sort of gentlemen's agreement to respect each other's territory in the railroad world. (See above, p. 72.) Railroad securities are still the firm's chief material and several roads have continued to be known as Kuhn, Loeb roads. Practically all of them except Union Pacific, and Chicago, Milwaukee, St. Paul & Pacific have now some link also to the Morgan interests.

In 1929, Kuhn, Loeb took a step that was not only independent of Morgan but directly opposed to Morgan when the firm helped to organize Pennroad Corp. This holding company was set up by Pennsylvania Railroad interests to evade the restrictions of the Interstate Commerce Commission and block the expansion plans of the Morgan-Van Sweringen combination. But a tid-bit was given to the Morgan group in the form of 6,000 shares of Pennroad at an inside price.

Kuhn, Loeb partners hold few directorships and exercise their influence in non-financial corporations chiefly through giving technical financial advice. But by a long-established relationship they are a definite power not only in several railroads but in a few other companies, including Western Union Telegraph Co., Westinghouse Electric & Manufacturing Co. (with Mellon, and now with Rockefeller also), U. S. Rubber Co. (now with duPont), and Hudson & Manhattan R.R. Co., which operates rapid transit from New York to Newark.

The firm has been represented on Chemical Bank & Trust Co. (New York) and on Bank of the Manhattan Co. Paul M. Warburg, brilliant brother of Felix M. Warburg and father of James M. Warburg, resigned from his Kuhn, Loeb partnership in 1914 to be one of the chief executives in organizing the new Federal Reserve System. After leaving the Federal Reserve he created the International Acceptance Bank which has since been merged with the Bank of the Manhattan Co.

Kuhn, Loeb & Co. early entered the game of exporting American capital. In 1904 they floated bonds for the Japanese government to support the war against Tsarist Russia. Since the World War, Kuhn, Loeb & Co. have had a considerable part in the floating of foreign bonds in the United States, but the total foreign issues which they originated amounted to less than one-third of the total foreign issues originated by the House of Morgan.⁴

^* Employed by Kuhn, Loeb & Co. since 1921; partner since 1929. (Time, July 3, 1933.)

sale of new bond issues totaling \$1,316,275,000; during the same period J. P. Morgan & Co. and Drexel & Co. were syndicate heads in new bond

issues totaling \$2,197,074,000.5

Otto H. Kahn, the partner who testified for this banking house before the Senate committee investigating stock exchange practices in June, 1933, stated that

...it has long been our policy and our effort to get our clients...by an attempt to establish a reputation which would make clients feel that if they have a problem of a financial nature, Dr. Kuhn, Loeb & Co. is a pretty good doctor to go to.6

This reputation had been considerably shaken by the early default of a 90-million dollar Chilean bond issue (sponsored in the United States by Kuhn, Loeb & Co. and Morgan's Guaranty Trust Co., jointly), and by the collapse of Pennroad Corp., which had bought its railroad stock at the peak of the market in 1929. Of course there is no real difference in standards among the several leading capitalists. It happens, however, that Kuhn, Loeb & Co. had also taken the lead in the reorganization of Chicago, Milwaukee, St. Paul & Pacific Railway, which was exposed in The Investor Pays, by Max Lowenthal. This book is an excellent liberal analysis of the way in which big capitalists utilize a receivership or a bankruptcy to make profits for themselves at the expense of the small capitalist.

Old Boston Houses. The Pujo Report on the Money Trust (in 1913) said of Lee, Higginson & Co. and Kidder, Peabody & Co.:

Closely allied, and indeed related to this inner group, (i.e. Morgan) practically as partners in many of their larger financial enterprises, are the powerful international banking houses of Lee, Higginson & Co. and Kidder, Peabody & Co., with three affiliated banks in Boston—the National Shawmut Bank, the First National Bank and the Old Colony Trust Co.—having at least more than half of the total resources of all the Boston banks; also with interests and representation in other important New England financial institutions.

Since before the Civil War Lee, Higginson & Co. have been closely tied up with the development of New England industry and banking. Later they were associated with Morgan in U. S. Steel Corp. and American Telephone & Telegraph Co., but since the World War Lee, Higginson & Co. have drifted further from the Morgan firm. They have developed several independent industrial ties involving active competition with Morgan companies and including E. G. Budd Manufacturing Co. (with Brown Bros.) and Nash Motors, Wheeling Steel, Lima Locomotive, and Otis Elevator. They played in with Percy Rockefeller in three of his companies: American Enka Corp. (also Mellon), Air Reduction Co., and Remington Arms (until it merged with duPont in 1933).

It is characteristic of capitalist confusion that while Lee, Higginson played the Rockefeller game they were also the chief American bankers for the great Rockefeller enemy, Deterding, and subsidiaries of his Royal Dutch-Shell.

During the six years, 1927 to 1932 inclusive, the Lee, Higginson firm was syndicate head for floating \$759,818,000 of new bond issues and participated to an unstated amount in other bond issues totaling \$3,231,832,000.8

The collapse of Kreuger and the exposure of his exceptional crookedness was a severe blow to Lee, Higginson & Co. The chances are against their extending their independent power. But even before the Kreuger revelations, Lee, Higginson & Co. had been losing their importance, with the relative decline of New England industry. They had dropped into a distinctly secondary place, active chiefly as allies in certain Morgan and Rockefeller affairs.

ruptcy and was saved only by a drastic reorganization.

operating elsewhere but built up by New England capital—United Fruit, U. S. Smelting & Refining, Calumet & Hecla (the bonanza copper company of an earlier day), and New England Fuel & Transportation (recently brought under Mellon's Eastern Gas & Fuel Associates). The bank has had also strong cross ties with General Electric Co. and American Telephone & Telegraph Co., both directly dominated by Morgan. Of course, New England railroads and utilities and many of the industrial corporations have also their own direct links with Wall Street. The position of the First National Bank of Boston resembles that of a trusted and powerful provincial council operating within the great Morgan empire.

Brown Bros., Harriman & Co. was created on January 1, 1931, by a merger of Brown Bros. & Co., the oldest banking group in the United States, with two firms set up since the World War by the sons of E. H. Harriman.* The merger created an important new unit in the fusion of banking and industrial capital. Both the Browns and the Harrimans brought to the new firm a strong tradition of imperial finance along with

a large measure of independence.

Alexander Brown & Sons is notable to-day chiefly as the banking house which has headed a syndicate for floating over a billion dollars worth of Federal Farm Loan bonds since these were first issued in 1017.

The American houses played a large part in the early development of American capitalism, backing the first railroad (Baltimore & Ohio) in the late 1820's and the first American-owned line of transatlantic steamships in 1847. They participated with Morgan and Kidder, Peabody in the reorganization of the Reading Railroad in 1887.

^*These Harriman interests were distinct from the now defunct Harriman National Bank & Trust Co. Under the Banking Act of 1933, the Brown-Harriman group set up two separate firms: Brown Bros. Harriman & Co. became a private commercial bank; Brown Harriman & Co., Inc., became investment bankers.

definite imperialist control over that country. With others, including Morgan's Guaranty Trust Co., Brown Bros. set up in 1915 a special group of banks (later absorbed by the Royal Trust Co. of Canada) to finance Latin-American trade. They participated, with Morgan, in several important war loans, but since the war the house has played a relatively minor role in the exporting of American capital, initiating only a quarter of a billion dollars of foreign bond issues. They are linked to commercial banks in New York and Philadelphia which have only indirect connections with Morgan interests. Their strongest post-war financial connection seems to have been the direct links of the American house with some of the largest British insurance companies.

E. H. Harriman, in his day the most powerful rival of J. P. Morgan in the field of railroad control, dreamed of building a transportation system that would circle the globe. When he died in 1909 he had steamships on the Pacific but his intrigues with the Japanese for joint exploitation of Manchuria and the building of Manchurian railways had failed to bring results. His sons, whose firms have now merged with Brown Bros., still have large holdings in Union Pacific Railroad, Illinois Central Railroad, Delaware & Hudson Co., and Western Union Telegraph Co., in all of which they are closely associated with Kuhn, Loeb & Co. They are said to be "heavily interested" in the Morgan-dominated Southern Railway and in the Texas & Pacific Railway, now controlled by the Missouri Pacific Railroad of the Van Sweringen (Morgan) system. Their interests were dominant in Aviation Corp. They have shipbuilding interests through the American Ship & Commerce Corp. The new firm, Brown Bros. Harriman & Co., secured in 1933 a foothold in Columbia Broadcasting System, nation-wide rival of the Morgan-Rockefeller National Broadcasting Co.

W. A. Harriman was one of the first American capitalists to seek new industrial opportunities in the disorganized countries of Europe in the early post-war years. He also negotiated for mineral concessions in Soviet Russia, but these did not materialize. The most important Harriman interest in Europe is held jointly with the Anaconda Copper Mining Co. and Morgan's Guaranty Trust Co. They control the Silesian Holding Co., whose subsidiaries have metal mines, chemical works, and coal reserves in Polish Silesia.

Potter, chief executive of the Guaranty Trust, is active in the Harriman-Anaconda Silesian Holding Co.

Hayden, Stone & Co. appears with Morgan in a few important companies, including Kennecott Copper Corp.; International Nickel Co. of Canada, Ltd.; Intercontinental Rubber Co., holding rubber lands in Mexico and Sumatra; Carib Syndicate, holding a minority interest in the Barco oil concession in Colombia; American Locomotive Co.; Electric Power & Light Co. (of the Electric Bond & Share group); and Interborough Rapid Transit Co., New York. He is also an important director of Brooklyn-Manhattan Transit Corp., in which Rockefeller interest is probably stronger than Morgan interest.

Through their holdings in Cuban sugar, in Pan-American Airways and Curtiss-Wright Corp., in the Agwi group of steamship lines, in rubber, cement and oil, this banking firm has a strong interest in Latin America.

Lehman Brothers and Goldman, Sachs & Co. Unlike the groups already mentioned, these two banking houses (which frequently work together) have relatively minor interests in heavy industry and raw materials. But they combine the underwriting and selling of industrial stocks and bonds with active participation in the management of a great number of companies in retail trade and in several branches of light industry. They have also held important directorships in New York commercial banking.

Like the Mellon family, the Lehman family have been personally active in government. Herbert H. Lehman was a partner in the banking house until he became lieutenant governor in New York State under Franklin D. Roosevelt. When Roosevelt moved up to the White House, Lehman became governor of New York. Another brother, remaining out-

side of the banking house, has been a judge for many years and is now in the highest court of New York State. A third brother, a partner in the banking firm, did his bit for the capitalist class by serving as "umpire" in the New York City garment trades.

Lehman Brothers and Goldman, Sachs have developed their financial power in fields formerly neglected by the big inner financial groups, but in a few companies we find one or both of them involved along with Hayden, Stone, or Chase National Bank, or National City Bank. Overlapping of interest with the inner Morgan group is very slight, though this does occur in three New York banks (Manufacturers Trust, Corn Exchange, and Marine Midland) and in R.K.O., National Union Radio Corp., and Associated Dry Goods Co. Also, less directly with Morgan interests, in American Metal Co., Ltd., and a few smaller companies. Two or three of their concerns are sharply competing with Morgan interests. For example, their Sears, Roebuck & Co. with Morgan's Montgomery Ward & Co., and their Continental Can Co. with Morgan's American Can Co.

Lehman Brothers, without Goldman, Sachs & Co., have two important interests in Latin America. Jointly with National Lead Co., which is close to Rockefeller, they control Patino Mines & Enterprises Consolidated, the big tin company in Bolivia. And along with several other groups they are active in Pan American Airways,* which has the monopoly of air transport between the United States and Latin America.

Lehman seems to be the strongest group in the Kimberly Clark Corp., a paper company controlling jointly with the New York Times the Spruce Falls Power & Paper Co., Ltd., which supplies the paper used by the Times

Both Lehman Brothers and Goldman, Sachs & Co. have been hit by the crisis. Goldman, Sachs had built up during the boom a string of investment trusts which were among the first financial organizations to crash after the collapse of the stock market in 1929. The survivors were acquired by Atlas Utilities Corp. (now Atlas Corp.), a growing investment trust indirectly but clearly within the Morgan sphere of influence. The firm has also been pushed out from its one important steel connection, Sloss-Sheffield Steel & Iron Co., operating in the Birmingham area, and—along with Hayden, Stone & Co.—withdrew from Warner Brothers Pictures. But it was able to build up a few new banking connections by absorbing in 1932 A. A. Hathaway & Co., an old established house important in the field of discounting commercial paper. Goldman, Sachs & Co. is the only New York group represented on the Minneapolis-Moline Power Implement Co., with which the NRA General Johnson had formerly been identified.

Lehman Brothers had better luck with its investment trust whose assets are within 19% of their original total in 1929. But one of their most important connections in the garment industry, Fashion Park Associates, Inc. (which included Weber & Heilbronner, Brokaw Brothers, and Stein

^*Lehman Brothers are also interested in Transcontinental & Western Air., Inc.

Either one alone or both together they are active in the following

Shoes and leather, through Brown Shoe Co., Inc., Endicott Johnson Corp., Florsheim Shoe Co., and Amalgamated Leather Companies, Inc.

Shirts and underwear, through Cluett, Peabody & Co., Inc., Manhattan Shirt Co., Phoenix Hosiery Co., Robert Reis & Co., Munsingwear, Inc., A. Stein & Co.

Drugs and cosmetics, through Merck & Co.; Inc., McKesson & Robbins (largest drug wholesaler in the country), Coty, Inc., Lehn & Fink Products Co., and Lambert Co. (of listerine-halitosis fake advertising fame).

Food, through General Foods Corp., United Biscuit Co. of America and Pillsbury Flour Mills, Inc.

Glass, through Libbey-Owens-Ford

Publishing, through Conde Nast Publications, Inc., and Cuneo Press, Inc. Auto accessories, through Kelsey-Hayes Wheel Corp.

The Lehman family is linked by marriage with the banking house of Lazard Frères; Frank Altschul, head of Lazard, is the brother of Mrs. Herbert H. Lehman. Arthur Lehman's son-in-law, Benjamin J. Buttenwieser, is one of the younger partners in Kuhn, Loeb & Co.

Other Big Capitalists

viduals carry on a large volume of business which represents the fusion of banking and industry, but they are limited in scope, operating only in some one field (notably utilities) or in some one section of the country. Practically, also, most of them have had to tie in with one or another of the big dominant powers. Outstanding names in this category include Halsey Stuart & Co. in Chicago who backed Insull; Stone & Webster and Blodgett whose utilities chain has been linked also with Lee, Higginson & Co., Chase National Bank, and, indirectly, with Morgan; W. C. Langley & Co., coöperating in some projects with the Bonbright & Co. utility front of the Morgan group; H. M. Byllesby & Co., who control jointly with the Mellon group the United States Electric Power Corp.; and the Fleishhacker and Crocker groups in San Francisco who have diversified interests on the Pacific coast. The Fleishhacker interests now work apparently in alliance with the Standard Oil Co. of California, and they are believed to carry a large share of responsibility for the frame-up of Tom Mooney, who organized workers of their traction companies.

(2) A few large banking groups seem to have remained outside of industry, content to make money by floating government bonds and industrial securities but seldom becoming the dominant force in a non-banking corporation. Kuhn, Loeb & Co., as we have seen, claim to operate in this way, and the difference between Kuhn, Loeb & Co. and such houses as Speyer & Co., J. & W. Seligman & Co., and Lazard Frères, may be partly a difference in volume of business. But the long-established relationship maintained by Kuhn, Loeb & Co. with a few of the major corporations in the country seems to put the Kuhn, Loeb house in a different category, among those representing the fusion of banking and industrial capital.

Henry Ford, head of the largest family-owned corporation in the United

The Guggenheim family, controlling American Smelting & Refining, jointly with Morgan controlling Kennecott Copper Corp., and alone the strongest group in the international Chilean nitrate trust which was smashed by the crisis.

The Vanderbilt family, who function on several railroad boards but who operate quietly within the Morgan domain.

The Weyerhaeuser family in the northwest, who have their private empire in lumber but work with the Morgan group on the two Northern railroads.

John D. Ryan (until his death in 1933) and Cornelius F. Kelley, heads of the giant Anaconda Copper Mining Co., tied in with the Percy Rockefeller interests, the National City Bank and Morgan's Guaranty: Trust Co.

& Co

The Duke Estate, which was built up from the old American Tobacco Co. before the "dissolution" of the tobacco trust in 1911 and is now a power in British-American Tobacco Co. and in utilities and has struck up an alliance with the Mellon interests.

E. J.: Berwind and his associates who have large bituminous coal properties and a considerable share in the export of coal to Central America and who jointly with Hayden, Stone & Co. control the Atlantic, Gulf & West Indies Lines, jointly with the old National City Bank crowd had holdings in Cuban railroads, and jointly with Morgan are interested in the International Telephone & Telegraph Co. and the Atchison, Topeka and Santa Fe Railway.

Active power, controlling banks, industry and government, is centered

Rulers of America

in a narrow inner oligarchy made up of the leaders in the strongest financial groups and their close associates. The inner oligarchy exercises its power through other groups—some of them close allies without independent interests, some of them frankly responsible lieutenants, but more of them semi-independent capitalists operating in their various fields with a measure of flexibility and free initiative, subject always to interference and deliberate destruction if their "independence" threatens the interests of the overlords.

Just as among the three innermost groups, so in the broader reaches of industry and banking where Morgan-Rockefeller-Mellon control is indirect and potential rather than immediate and active, there is constant interplay of competition and agreement, a reaching after special privilege and monopoly, while every man and every group seek to win for themselves the largest possible share of the market, the highest possible profits, and the weakening of all their competitors.

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CHAPTER VI

GUIDING THE STREAMS OF CAPITAL

A "MONEY TRUST" "able to dictate the credits that shall be extended or withheld from the more important and conspicuous business enterprises" was pictured in 1913 in the so-called Pujo Report issued by a congressional committee. Smaller bankers and business men who were being crushed under the "money trust" steam roller were unable to check its progress and concentration of banking power has increased since 1913. One index of this increase appears in the fact that the largest ten commercial banks in New York City had in 1913 about 6% of the total deposits in the United States while by the end of 1934 they had more than 20% of the total. But this by no means tells the whole story of concentration in commercial banking, and commercial banking is only one part of the financial picture.

Big Commercial Banks

Commercial banks are privately owned profit-making institutions for providing short-term credit and receiving deposits. In 1921, after the expansion of the war boom years, 29,236 commercial banks were operating in the United States and its outlying possessions.* The number began to shrink during the economic crisis of 1921-22. Then throughout the prosperity boom small rural banks were failing and strong city banks were merging. These trends pulled down the total number of banks. The economic crisis which began in 1929 cut them even more sharply. In 1934 about 49 out of every 100 commercial banks operating in 1921 had disappeared, but 15,000 were still in operation. This offers a sharp contrast to the Big Five banks in Great Britain, the Big Three of Canada, and the handful of "great banks" in France and Germany. But behind this apparently scattered and highly competitive banking situation in the United States there exist several elements of centralized monopoly control.

First we note the important fact that the largest ten banks (six in New York City, two in Chicago, one in California, and one in Boston) hold nearly one-fourth (24%) of the total deposits in the country. At

the top of the list stand three New York banks (Chase National, National City, and Guaranty Trust) each carrying over one billion dollars of deposits and together holding over 10% of the total deposits in the United States.

Next after the leading ten banks, with their 24% of the total deposits, come 41 other banks in the more than \$100,000,000 deposit class. Aggregate deposits of these 51 banks account for 46% of the total deposits. (These figures do not include savings banks.)

New York City banks have an important strategic advantage in the fact that for all stocks listed on the New York Stock Exchange the corporations must have a transfer agent and a registrar in New York City. These functions are usually performed by banks. Also in relation to foreign trade and the business of American corporations producing goods in foreign countries, a position of special privilege has been held by the few banks at the top of the list in New York and Boston which maintain foreign branches and do not have to transact all foreign business through correspondent banks.

Large city banks have considerable power over smaller banks. A few have one or two smaller banking affiliates as, for example, National City Bank of New York controls the City Bank Farmers Trust Company. Several are the dominant units in groups of banks held together as subsidiaries of a holding company.* Besides groups which include a large bank there are many other groups of small and medium-sized banks tied together as subsidiaries of a holding company or all controlled by some enterprising capitalist. But most of the groups are small.

Most important as a factor in concentration of control in commercial banking is the community of interest among banks that operate as sepa-

*Bank of America National Trust and Savings Association, San Francisco (4th on the list of commercial banks) is the chief banking unit in the Giannini group controlled by Transamerica Corp. which includes also the much smaller Bank of America, a California state bank, and the First National Bank of Portland, Oregon.

Marine Trust Co., Buffalo (35th on the list), is a subsidiary of the Marine Midland Corp. which controls 21 smaller banks in New York State, including Marine Midland Trust Co. of New York City.

Wisconsin Bankshares Corp. controlling 39 banks in Wisconsin is represented on the \$100,000,000 bank list by the First Wisconsin National Bank, Milwaukee.

First Bank Stock Corp. controlling 96 banks in Minnesota and four other states has two subsidiaries in the \$100,000,000 group: First National Bank & Trust Co., Minneapolis, and First National Bank, St. Paul.

Northwest Bancorporation's 119 commercial bank subsidiaries include Northwestern National Bank and Trust Co., Minneapolis.

New York. The Morgan firm is directly represented by Morgan partners on the boards of three incorporated commercial banks in New York City. Two partners are on Guaranty Trust Co. (3rd largest bank in the United States); three are on Bankers Trust Co. (5th largest); and two are on New York Trust Co. No Morgan partner is now on the First National Bank of the City of New York, but the fact of a large Morgan interest is common knowledge. The chairman, George F. Baker, is son of the first George F. Baker who as president and chairman of this bank was for 50 years a recognized ally of the Morgan firm. All the directors are either officials of the bank itself or of corporations controlled by the Morgan group.* Morgan influence is dominant in these four banks, although Standard Oil is also represented on the New York Trust Co.

Rockefeller interests have since 1930 controlled Chase National Bank, the largest in the United States. They are represented on the Title Guarantee & Trust Co. The Pratt family (of Standard Oil) seems to be the strongest factor in Brooklyn Trust Co. Indirectly both Rockefeller and Morgan are represented on Manufacturers Trust Co. and Bank of New York & Trust Co.

Other New York commercial banks on which Morgan is indirectly represented include Central Hanover Bank & Trust Co., Irving Trust Co., Chemical Bank and Trust Co., Marine Midland Trust Co. of New York

^* J. P. Morgan and Thomas W. Lamont were directors of the First National Bank's twin company, First Security Co. of the City of New York, until this was liquidated under the Banking Act of 1933.

^** Charles D. Dickey, who became a Morgan partner January 1, 1932, was until 1934 a director of National City's affiliate, City Bank Farmers Trust Co.

. Bank of the Manhattan Co. (6th largest commercial bank in New York) is closely tied with Kuhn, Loeb & Co.

Philadelphia. Until the changes of 1933-34, Morgan partners were on three of the largest four Philadelphia banks: Pennsylvania Co. (1), Girard Trust Co. (2), and Fidelity-Philadelphia Trust Co. (1); also on three smaller commercial banks in Philadelphia. This direct influence was supplemented by indirect influence through Morgan interests in anthracite coal, railroads, telephones, and utilities, and through personal connections (for example, bank officials on the Morgan favored lists). Such indirect connections persist. It cannot be assumed that the withdrawal of Morgan partners removes these banks from Morgan influence.

Boston. Through the telephone trust and General Electric Co., Morgan interests are tied in with the First National Bank of Boston, dominating unit of New England capitalism and the ninth largest bank in the United States. Mellon interests are also represented.

Pacific Coast. In actual size, the largest banks on the Pacific Coast are the Bank of America National Trust and Savings Association (Giannini) and the Security-First National Bank of Los Angeles, which seem to operate outside of the Morgan and Rockefeller spheres of influence. Giannini is said to be close to Hearst. More closely tied in with railroads, shipping, and utilities are the Fleishhacker and Crocker banks in San Francisco. The Anglo-California National Bank (Fleishhacker) is very strong through its connection with Standard Oil of California and with the biggest shipping interests in San Francisco, which in their turn are interlocked with the Morgan shipping trust on the Atlantic. A large interest in American Trust Co. of San Francisco (which is linked to Hearst) passed during the crisis from Goldman, Sachs to the Atlas Corp., an investment trust operating within the Morgan sphere of influence.

٠

own board of directors (selected by the management of the top company which controls the subsidiary) and including leading bankers and industrialists of the region. Railroads and utilities also expect to have local banking representation. The various Standard Oil companies and their subsidiaries cover the country. All such corporations serve as tentacles of the great Wall Street Octopus pulling together into a genuine—though invisible—centralization all the principal units in the banking structure.

Personal favors also play a considerable role. Bank officials might be accommodated by loans if the Morgan firm regarded them as "good, sound, straight fellows." So Charles E. Mitchell, whose "good, sound, straight" dealings as chairman of the National City Bank caused a major scandal, was revealed at the Senate hearings in 1933 as personally owing the Morgan firm and individual partners a total running well above a hundred thousand dollars. And "favored lists" of those to whom the Morgan and Drexel firms offered blocks of stock at inside prices, giving opportunity for large profits on the stock market, included not only officials of all the banks on which a Morgan partner was a director but officials of more than 40 other banks scattered from the Atlantic coast to Denver, Colorado.

Underwriting and selling of bonds and stocks is a business distinct from the trade in short-term credit with which commercial banks are primarily concerned. But there has always been a certain overlapping of interest, and for several years before the crisis all the larger commercial banks either directly or through investment affiliates were active in investment banking for the large profits it provided. Eight commercial banks (including the largest three in the United States) were included in the list of syndicate heads each of which floated more than \$100,000,000 of new bond issues during the six years 1927-1932. These syndicates headed by commercial banks or their subsidiaries floated about 42% of the total new bond issues, but the larger share—58% was floated under the leadership of private investment firms.

The purpose of the following table is to show the principal groups active in investment banking during the height of the "prosperity" boom, before the crisis had seriously checked the expansion of capital investment. The Wall Street Journal table on which it is based includes the three years after 1929, but actually the total investment of those years was negligible in comparison with the billions poured into industry during the boom.

LEADING BANKS AND BANKERS HEADING SYNDICATES FOR THE SALE OF NEW BOND ISSUES DURING SIX YEARS, 1927-1932

Together these leading groups dominated the floating of more than 60% of the new bond issues of this six-year period. The Morgan group were syndicate heads for about one-fifth of the total volume (19%); Chase National Bank group, about 13%; National City Bank about 8%. But as we have noted (Chapter V) there is always much interplay of interest, and these figures understate the part played by these three groups. The list shows their activities as "syndicate heads"; it does not attempt to show the way in which leading banking houses bring each other into these temporary syndicates, or their relation to the scores of smaller banks and the hundreds of security dealers throughout the country.

Each group in the pyramid passes on the bonds or the stock to the group below it at a price higher than it had to pay. The wide "spread" between the price actually allowed to the corporation or the government by the original banker and the price at which the outside capitalist buys the securities is distributed in these successive discounts among all the intermediate firms. The nearer they are to the top of the pyramid the cheaper the bankers themselves can take for their own investment—and offer to an inside circle of their friends and lieutenants—the choicest offerings in the capital market.

Investment bankers urge that competitive bidding deprives the corporation of valuable financial advice and continuity of service on the part of the investment banking firm most familiar with the background of the corporation. In this connection it is well to observe that competitive bidding has a tendency to reduce the bankers' "spread." 4 (My emphasis.—A.R.)

Tied in with investment banking is the stock exchange for trading in stocks and bonds. Exchanges exist in several cities but the New York Stock Exchange is the most important stock trading center in the United States. In the capitalist picture of Wall Street, the stock exchange is described as a public market place necessary for the buying and selling of securities. Actually, it is a private, closely owned concern, to which the public has access only through employing a member firm, and memberships were bought for more than half a million dollars during the great post-war boom. Even in 1933 memberships were bought at prices ranging from \$00,000 to \$250,000.

Most of the trading is carried on with borrowed money. J. P. Morgan & Co., Morgan commercial banks, other commercial banks and individuals and industrial corporations with large cash reserves made large profits from their loans to brokers which totaled over \$8 billion at the height of the boom. And much of the trading reflects a manipulation of prices by insiders and professional speculators. They deliberately rig the market against small capitalists who venture into the Wall Street game.

Controlling the Outlets for Security Issues

Having undertaken to float a bond issue—at considerable profit to themselves—investment bankers and commercial banks active in this field were not entirely dependent on their syndicate associates and the pyramids of smaller banking houses and retail security dealers as an outlet for the bonds they had underwritten. They exercised some measure of direct control over several important sections of the security market.

And it is not unselfish concern for the widows and children of de-

ceased exploiters which leads banks and trust companies to build up the business of serving as trustees for estates, for child-capitalists, and for grown-ups who prefer to play polo or bask on a Florida beach rather than to manage their own investments. Published reports of individual banks are usually silent about this important activity, but the City Bank Farmers Trust Co. told its stockholders in January, 1933, that it was managing \$3,657,000,000 of capital for individuals and estates. National banks operating trust departments reported to the Comptroller of the Currency an aggregate of \$6,311,700,000 of individual trust assets under their control June 30, 1933.

Mutual savings banks offer another important outlet for the so-called "higher" grade of bonds. About one-fourth of the total \$9.7 billion deposits in mutual savings banks are in the largest ten banks, all of them located in New York, Brooklyn, or Philadelphia. The Morgan firm is directly represented on two of these (Philadelphia Savings Fund and Bank for Savings, New York) and indirectly on another two (Bowery and Dry Dock). National City Bank is represented on three (Emigrant Industrial, Williamsburgh and East River). Central Savings Bank includes Peter Grimm, who is believed to work closely with Rockefeller real estate interests.

Also beyond these first ten savings banks we find Morgan partners on the Western Saving Fund Society, Philadelphia, and definite but indirect Morgan representation on Franklin Savings, New York, and Howard Savings, Newark. Seamen's, New York, includes a representative of the National City Bank. Union Dime Savings, New York, is linked with Chase National and Metropolitan Life, both representing Rockefeller interests.

Insurance companies provide the most important large-scale market for bonds and here the centralization of resources and the interlocking with big capital are most marked. Total assets of life insurance companies were estimated at \$20.7 billion at the end of 1932. Another \$2.7 billion were held by other types of insurance companies (fire, marine, casualty, indemnity, etc.) *

^*Insurance companies held about 22% of railroad bonds, 35% of public utility bonds, 35% of industrial corporation bonds, and 22% of farm mortgages in the United States according to an article in Fortune, May, 1931.

Of these ten life insurance companies, nine with aggregate resources estimated at about \$14 billion are indirectly but definitely linked with the leading Wall Street groups. None of these largest companies includes a Morgan partner among its trustees, and only the Equitable Life Assurance Society includes one of the Rockefeller "cabinet." But Morgan has clear indirect representation on every one of the ten companies except the John Hancock Mutual Life. And Rockefeller interests are also indirectly represented on three: Metropolitan, Prudential and Northwestern. Metropolitan is commonly regarded as a Rockefeller company, but the president, F. H. Ecker, has been close enough to the Morgan firm to receive personal Inside favors. Like Metropolitan, Prudential is closely tied in with the Chase National Bank but the president of Prudential is on Morgan's Guaranty Trust Co. and the company is interlocked with the Morgan-dominated Public Service Corp. of New Jersey and the New Jersey branch of the telephone trust.

Morgan and Rockefeller have their hands also in a few of the smaller companies. Morgan himself is a director of the Ætna Insurance Co. and is supposed to have an interest also in Ætna Life Insurance which is technically separate from Ætna Insurance and its subsidiaries. Morgan partners are on the American section of North British & Mercantile Insurance Co., Ltd., which has three American subsidiaries. One of the London partners is on Royal Exchange Assurance Corp., which also has three American subsidiaries. Morgan interests are indirectly represented on Home Life Insurance Co.; on Continental Insurance Co. of America, one of the America-Fore group of companies; on Great American Insurance Co.

Through life insurance companies and savings banks, Wall Street gathers in and manipulates several billion of capital funds belonging to the middle class and to the topmost groups of wage-earners. The capitalist class, and especially the big insiders, gain both power and profit from having savings of the petty bourgeoisie and the better-paid workers placed at their disposal.

lection but also a deliberately over-weighted table of risks. If the worker is unable to keep up his premiums for four weeks in succession his policy lapses and can be revived only by paying all the overdue premiums. Until three years of premiums have been paid the "lapsed" policy is a total loss to the worker. He cannot get back from the company any of the money he has paid to its agent. About \$250,000,000 of actual cash was thus forfeited by the workers to the industrial insurance companies during the five years 1928 to 1932 inclusive, according to a conservative estimate.

The number and value of lapsed industrial policies increased tremendously during the crisis until in 1932 and again in 1933 about one policy in five of those in effect on January 1 had been completely forfeited before the end of the year and another 7% had been cashed in. But even in the long run, including years of "prosperity" and relatively steady work, the workers get back less than half of the amount they pay to insurance companies.

... for every dollar paid to the insurance companies only 45 cents has been paid back as death claims, matured endowments, dividends, disability benefits, and cash surrender values. Ordinary policy-holders received, on the same basis, an average of 68 cents on the dollar.¹⁰

Group insurance is another racket through which insurance companies prey upon the workers.* This has become increasingly popular with corporations and by the end of 1933 about five million workers including office employees were "covered" by some 27,000 group policies. A group policy is arranged by the employer and covers the workers only so long as they are actually employed. Premiums are usually paid in part by the insured workers as a deduction from their wages. Some employers extract more than half the entire premium from the workers. When the worker is dropped from his job, he is supposed to be entitled to a refund from the amounts he has paid in premiums. He is no longer covered by insurance and can take out an individual policy only at the premium rate set for his age. He carries over no advantage from his former group insurance except an exemption from medical examination provided he arranges immediately for a new policy, and few wage-workers can do this when they have just lost a job.**

The Metropolitan Life Insurance Co. has "suggested" that "you be notified that your privilege of converting your Group Life Insurance Certificate into

^* Chief companies writing group insurance are Metropolitan, Ætna Life, Equitable. Travelers, and Prudential.

^** On group insurance, see also R. W. Dunn, The Americanization of Labor, pp. 169-177.

an individual policy without a medical examination expires thirty-one days after leaving your employment. Your Group Insurance participation ceased when you terminated your employment on January 8." 12

The leading insurance company officials have been paid large salaries during the crisis. And total assets and total income of the big companies writing either industrial or group insurance or both have been above the boom level of 1929. As mutual companies, they pay dividends not to stockholders but to policyholders and for several companies these also have remained above the 1929 total. But workers holding industrial policies are gently guided to apply their dividends toward increased insurance and seldom see a rebate on the weekly premium. Dividends on group policies are paid to the company and may or may not find their way back to individual workers who have contributed to the premiums.

Another apparatus for securing control of small investors' money was developed in the United States during the post-war boom. Investment trusts had flourished in Great Britain for many years, chiefly as a means of placing small investors' capital in colonial and foreign securities. The device is simplicity itself: A group including some big names—and usually tied in with one of the leading investment banking houses—would set itself up as a corporation for the purpose of buying and holding bonds and stocks. Salaried workers and small capitalists would buy the non-voting stock of the investment trust—control remaining with a small block of voting stock held by the promoters. Some three billion dollars of stock and bonds in investment trusts were sold to the petty capitalist world during the boom and added that much more to the controlled market for new securities.

Many of these investment trusts collapsed with the crisis. Some of the others that survived the crash have been able enormously to increase their holdings. Most striking has been the growth of the Atlas Corp., managed by men closely associated with the Morgan interests.

Atlas is "a company which in the three years of the depression has increased the net assets under its control from \$14,200,000 to more than \$100,000,000, even after eliminating inter-company items.... In all, Atlas, under the direction of Floyd B. Odlum, has acquired control of some twenty-five management investment trusts in three years.... Mr. Odlum is a trained 'acquirer.' It was he who did a great part of the work of assembling the properties of the American and Foreign Power Corp." 18

Profits and Salaries

Financial manipulations yielded before the crisis a rich harvest of profits. The picture is incomplete, but a few important facts are available.

(Derived from Statistics of Income, 1929, published by U. S. Bureau of Internal Revenue.)

Some Banks and Insurance Companies Paying \$100,000 or More to Chief Executive During 1933 or 1932

Chase National Bank, New York.

W. W. Aldrich received in 1933 salary of \$151,744 and bonus of \$1,760. At the end of the year he was being paid at the rate of \$175,000 a year. Union Trust Co., Pittsburgh.

H. C. McEldowney received \$165,000 in 1933. At end of year salary had been cut to only \$120,000. This is a bank which pays dividends of 200% yearly on par value of its capital stock

Chemical Bank & Trust Co., New York.

Percy H. Johnston received salary of \$125,000 in 1933.

National City Bank.

Manufacturers Trust Co.

Harvey D. Gibson received salary of \$125,000 in 1933.

Corn Exchange Bank Trust Co.

Walter E. Frew received salary of \$100,000 plus bonus of \$2,882 in 1933.

Charles H. Sabin received salary of \$95,333 plus bonus of \$5,586 in 1932.

William C. Potter received salary of \$95,333 plus bonus of \$5,735 in

Central Hanover Bank & Trust Co.

George W. Davison received salary of \$100,000 in 1933.

Metropolitan Life Insurance Co.

Frederick H. Ecker received salary of \$200,000 in 1932, increased in 1930 from \$175,000.

Prudential Insurance Co. of America.

Edward D. Duffield received salary of \$125,000 in 1032.

New York Life Insurance Co.

Thomas A. Buckner received salary of \$125,399.92 in 1932.

Mutual Life Insurance Co.

David F. Houston received salary of \$125,000 in 1932, increased in 1930 from \$100,000.

Equitable Life Assurance Society.

Besides the profits and high salaries accruing to bankers from their manipulation of capital in dealings with other capitalists, we should note the special field of banking formerly reserved for pawnbrokers and loan sharks which the past generation of bankers found it worth their while to enter. In their philanthropic eagerness to "help" the workers, highly respected capitalists have set up various kinds of agencies for making small personal loans on a business basis, charging from 2% to 3½% a month for their "services" and drawing in a tidy profit on their capital. The Morris Plan banks (for loans against wages and "character") are headed up in the Industrial Finance Corp., indirectly under Morgan influence through its general counsel, Satterlee & Canfield, a law firm in which the leading partner is brother-in-law of J. P. Morgan.

Effect of the Crisis

Centralization in banking and finance has been increased during the crisis.

In commercial banking, the largest units hold a much higher percentage of the total deposits than they have ever held before. None of the major banks in New York, Boston, Philadelphia, San Francisco, Los Angeles has collapsed. In Detroit and Cleveland banks tied in with Morgan-dominated corporations had to go out of business, but in Detroit new banks with new officials but the same connections were set up to take their places.* When the Dawes bank (Central Republic Bank & Trust Co.) which was fourth largest in Chicago could not be saved, even with a \$90,000,000 loan from the Reconstruction Finance Corp., a new Dawes bank (City National Bank & Trust Co.) rose miraculously out of the ruins of the Central Republic.

Several of the largest banks in the country were persistently rumored as shaky, but except in Detroit none of those closest to Morgan or Rockefeller interests has been allowed to fail. Government credit has been poured out to salvage the banking system and in addition private resources have been mobilized to help the big banks strategically located in a dominant position.

Banking aid from the Reconstruction Finance Corp. has been extended in two ways. Straight loans to commercial banks have totaled over \$1,900,000,000 since the R. F. C. was set up in February, 1932. Something over two-thirds of this total has been repaid, but about \$500,000,000 of loans to banks were outstanding on June 30, 1935. Much of this went to banks which were afterwards closed and liquidated. Part of it went to banks after they were closed, as an advance for settlement with depositors, the R. F. C. taking over as collateral "frozen assets" which may or may not thaw out into liquid value as time goes on.

Then during the banking holiday of March, 1933, the R. F. C. was authorized to purchase preferred stock or capital notes issued by banks. This form of government aid had several practical advantages over an out and out loan. It looks better on a bank's published balance sheet. It gives the R. F. C. a regular voice in the management of the bank's affairs. Also, it made possible a bally-hoo campaign urging all banks to sell stock to the R. F. C., with reports of progress suggesting that a tremendous advance had been accomplished by the widespread response. The R. F. C. had advanced about one billion of capital to more than 6,000 banks before June 30, 1935. The outstanding big banks which desperately

*"... General Motors joined with the Reconstruction Finance Corp. in supplying \$25,000,000 as capital for the formation of the new National Bank of Detroit. To-day, the capital supplied by General Motors has appreciated in market value approximately 140%. In the meantime, the National Bank of Detroit has become one of the nation's largest banking institutions, has been profitable almost from its inception and is on a dividend basis..." From a story published under the heading "Samaritan Role in Detroit Bank Crisis Returns Big Profit to General Motors" in Wall Street Journal, August 23, 1935.

shakiness was not publicly revealed.

see Chapter XVI.)

In relation to all other industry, government banking activities are strictly limited. No one industrial borrower may receive more than \$500,000 from the R. F. C.—which excludes the large corporations and leaves them to be "served" by privately owned banks without government competition. And the total of such industrial loans outstanding at any one time is limited to \$300,000,000. The Federal Reserve banks may also lend directly to industry, but only "in exceptional circumstances" and up to a variable but clearly defined total. Their announced intention is to apply the same standards of security that are set by commercial banks but to meet the need for longer term loans, running up to three and even five years, which are supposed to be outside the field of private commercial banking.

Assistance for foreign trade in which settlement is expected to be slow and long-term credits are necessary is also the stated purpose of the government's Import-Export banks.

*The R. F. C. insisted that Walter J. Cummings should be installed as chairman of the Continental Illinois Bank & Trust Co., the largest bank in Chicago. And Cummings has been an official in Morgan companies: Chairman of the executive committee of the American Car and Foundry Co., and president and chairman of Electric Railway Equipment Securities Corp., jointly owned by J. G. Brill Co. (subsidiary of American Car & Foundry) and by General Electric and Westinghouse Electric. Cummings was also president of the Gary Railways Co., in the town completely controlled by U. S. Steel Corp.

Bulers of America

In spite of the large numbers of banks, investment bankers and insurance companies which operate in the United States without any formal, technical corporate links among themselves, the control of banking is concentrated in a few large institutions and these are tied together in an informal "community of interest." This high degree of centralization has been strengthened and not weakened by the crisis.

CHAPTER VII

HOW FINANCE CAPITAL RULES INDUSTRY

Control of capitalist industry rests upon the control of capital. As a business grows and requires more capital beyond that which is owned by a small group it must gather in outside capital. This is the basic and universal fact in the development of capitalism from which has resulted increase of large corporations and large banks, the fusion of banking and industry, and the concentration of control.

But these developments do not follow the same pace in different countries or in different industries within any one country. Material conditions which lead to variations in the rate of development lead also to differences in the form through which the financial rulers operate. Lenin, in Imperialism, the Highest State of Capitalism, summarized important facts about the structural connections in pre-war Germany and France between the "great banks" and the industrial corporations. In the United States, the fusion of banking and industrial interests which is the essence of finance capital has been developing ever since the nineties. But apart from interlocking directorates few structural connections have been set up between the industrial corporations and the banks. Both these sectors of monopoly capitalism are, however, dominated by the financial rulers.

Widespread Ownership of Capital

Here the wide expanse of unsettled territory and the resultant opportunities for extensive development of capitalism have affected the form of financial control. Peculiar to the United States has been a relatively large capitalist class which until the crisis of 1929 enjoyed a high degree of prosperity. Even while small enterprises were being absorbed or ruined by the growth of large corporations, some opportunity persisted for new ventures. And more important than the persistence of small enterprises alongside of the dominant trusts were the expanding groups of well-paid salaried executives and of hangers-on who had inherited small property or whose professional or salaried work gave them a moderate living and tied them to the capitalist class. Among the American workers, also, a relatively large top layer fared well enough under "prosperity" to acquire some small savings and a petty-capitalist viewpoint.

From this there developed two parallel trends within the capitalist structure which helped to shape the form under which control by finance capital functions in the United States.

Liberals and some socialists during the post-war boom were hailing this widely scattered ownership of leading corporations as the "new democracy" of industry. But obviously its real effect was exactly the reverse. Even 10,000 stockholders—and still more emphatically 100,000 stockholders—are powerless to organize for control of "their" corporation. They merely place a great bulk of capital at the disposal of the financial rulers.

Second, and at the same time, numerous petty capitalists have tried to build up security. Owners of "loan capital" seeking investment without participation in management constitute the so-called "rentier class" which appears in every developed capitalist country and is really a section of the capitalist class. In the United States it is peculiarly numerous and has included even a few of the most highly paid workers. Peculiar to this country also is the extent to which the investment of loan capital has been confided to great life insurance companies controlled in Wall Street.

Ownership versus Control

The economic power of the financial rulers is supported by the structural mechanisms through which they control other men's capital. This mechanism functions in two distinct fields: banking and industry. But it is so constructed that banking operations set up lines of control over industry while, at the same time, the large industrial corporations set up lines of control over banking. The leading financial groups function in both fields and represent through their activities the fusion of interest which constitutes finance capital.

second stage, control is held through a considerable minority stock ownership. In the third stage, control has been separated from stock ownership.

and industrial capital, but they also illustrate these three stages of control.

Industrial companies which are distinctively and completely "Mellon" companies are mostly of the first type. Mellon wealth and power were founded originally in real estate and banking and continue to function in this field. But much of their industrial interest is centered in companies in which they have bought majority stock control and whose expansion has not yet outgrown the large resources of the Mellon family. Their banks are dominant in the banking of the Pittsburgh area and exercise a strong indirect influence in other companies. And Mellon banking strength helps to keep their closely held industrial companies clear of interference from any other financial group.

Rockefeller control of Standard Oil companies and coal companies is of the second type: minority stock control. At the same time Rockefeller interests are strong in banking through their stock control of Chase National, the largest single commercial bank in the United States. They exercise indirect banking power over industry through Chase National (and formerly through National City Bank) and indirect industrial power over other banks through the connections of the Standard Oil companies.

Morgan industrial control is chiefly of the third type. The Morgan power represents the most advanced stage of capitalist development and concentration. It is largely separated from stock ownership. Industrial companies drawn in originally through Morgan investment banking are held in line through Morgan dominance in the banking world, but at the same time the Morgan banking power is now supported by the great Morgan industrial corporations.

This third type of control without ownership developed from bankers' penetration of industry. To-day, while the biggest industrial corporations are powerful units of finance capital, quite independent of mere banking control in the limited sense, the influence of bankers and a type of control exercised through the functions of banking is still an important factor in many industrial corporations. The details of this mechanism have much more than a historic interest.

Take, for example, the difference between bonds and stock which seems unimportant in relation to the basic conflict between the capitalists and the workers whom they exploit, but which has played an important role in the building up of finance capital in the United States. Stockholders are technically the owners of a corporation. Bondholders are not owners but creditors. Stockholders elect the directors while bondholders have no vote in company affairs. But practically in most of the large corporations and many smaller ones, stockholders' votes have become mere rubber stamps on the nominees and the policies of the management. Directors and officers may be among the chief lieutenants and rulers in the world of finance capital. If not, they have merely been shifted from control by the stockholders to control by the bankers who keep the corporation sup-

plied with loan capital by selling its bond issues or supplying it with shortterm credit.

Bankers may know the banking business.... But it is beyond question that they will fall flat as operators of the mills. Among recent developments are banking orders to reduce stocks, cut wages, and institute operating reductions that are decidedly industry killing, yet they are in the saddle and there is no money forthcoming unless orders are obeyed. (My emphasis.—A. R.)

Mr. Pierce explained that at stockholders' meetings of the Washington Gas Light Company he had been threatened with prosecution for criminal libel by Alden L. Doan, who, he said, represented the Chase at the meeting of the Washington company.

Since commercial banks and investment banking have been in the main dominated by identical financial groups, control of short-term credit and control of the long-term capital market have been merely two phases of one identical process. The company which desires to expand beyond the resources of a small group of owners must turn to an investment

power came through such aggressive activities.

ceivership or bankruptcy.

When a merger has been arranged, or a large bond issue floated, the investment banker slides into power behind the scenes. Even when everything is prospering he has an inside advantage over the stockholders unless there is one powerful group which retains stock control. The investment firm or some commercial bank in which it is interested usually becomes bond trustee, a permanent intermediary between the bond owners and the corporation. This may be only a routine position. But the bond trustee has a right to full information about the company's affairs, and he is expected to interfere if he considers that the bondholders' security requires a change in policy. If the corporation defaults on bond interest, the investment banker takes the lead in organizing a "protective committee" to represent aggressively the interests of the bondholders. Throughout receivership and bankruptcy proceedings, the claims of the bondholders, as owners.

Receiverships and Control

ruptcies of the 1893 crisis gave this kind of opportunity to step in with authority. This method became an old, old story during the next forty years.

But here again, the relative strength of the various groups involved is an important matter. Receivership or bankruptcy proceedings may not lead to a change in control if the already dominant interests are strong financially. This important point is worth illustrating with a few recent examples.

In 1925, in the largest railroad bankruptcy in the history of the United States, Kuhn, Loeb & Co., which had been the dominant financial power in the bankrupt Chicago, Milwaukee & St. Paul Railroad, manipulated the various "protective" committees and drafted the plan of reorganization which was finally adopted. Although Kuhn, Loeb & Co. had had a large part in the policies which wrecked the company, they retained financial control of its successor.

Insull had developed a sharp conflict with the Morgan interests. Morgan-Edison-General Electric had given him his start and had recognized Chicago and Illinois utilities as his field for exploitation. But Insull made two serious mistakes which brought the wrath of Wall Street down upon his head. He allowed himself to be "caught with the goods" in graft revelations of 1926, and he attempted to expand his system in areas outside of his province. Insull's own interests were tied up completely with his utilities and with speculative real estate projects in and around Chicago. When his greatly inflated pyramid was pricked by the crisis, it was promptly squeezed flat by the leading banks in New York and Chicago. Insull's power was destroyed.

How the banks manipulated the Insull receivership for their own immediate advantage at the expense of smaller creditors is an interesting story.³ But from the viewpoint of control the most important fact is the neat and immediate increase in Morgan influence within three big Insull units—Commonwealth Edison, People's Gas Light & Coke and Public Service Co. of Northern Illinois—which are still operating at a profit.*

The Morgan firm, as head of a banking syndicate, had outstanding a loan of \$48,000,000 to Alleghany Corp., top company in the Van Sweringen pyramid. When the loan was defaulted, the controlling stock in Alleghany Corp., deposited with Morgan as collateral, passed into the possession of the banking syndicate. But the bankers did not choose to hold it for control, so they auctioned the shares at a fraction of their former value and received about 10% on the defaulted debt. The shares were bought in by a new holding company, Midamerica Corp., conveniently set up with the help of middle western capitalists as "agent" for the bankrupt Van Sweeingen brothers who could not legally act for themselves in such a transaction. The press hailed the return to Van Sweringen "control" of the railroad companies which they had assembled. But what are the facts?

While the new Midamerica Corp. regained stock control of Alleghany Corp., the stock held by Alleghany in other companies is now voted by Guaranty Trust Co., a Morgan bank! For this stock in Alleghany subsidiaries had been deposited as collateral for certain Alleghany Corp. debentures (that is, bond issues) and the bank as trustee was given power to vote the stock "until such time as the market value of these securities shall exceed 150% of the principal amount of Alleghany debentures." 4