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THE INHERITORS: I
Large sums and wealthy individuals have been scrutinized fortwo chapters, but the concentrated core of private American wealth is yet to be examined.This chapter reports the findings of such an examination.
Private wealth acquired by new entrepreneurs, new in the senseof first showing themselves since World War II or even World War I, does not amountto much relatively, as we have observed. The conclusion is evident: Although thereare indeed new fortunes large and small, either post-1918 or post-1945, they areneither numerous, of unusual amplitude nor especially potent in politico-economicaffairs. With the exception of the Kennedy fortune, none of the later fortunes hasplayed a prominent role in public affairs, and the political activities of the Kennedyshave not been a consequence of their financial interests. The Kennedys were politicallong before they had money, though money has proved to be a fortuitous aid to theirpolitical inclinations. Except for Joseph P., the Kennedys--grandfathers and grandsons--haveall been political rather than pecuniary men.
Nearly all the current large incomes, those exceeding $1 million,$500,000 or even $100,000 or $50,000 a year, are derived in fact from oldproperty accumulations, by inheritors--that is, by people who never did whateverone is required to do, approved or disapproved, creative or noncreative, in orderto assemble a fortune. And, it would appear, no amount of dedicated entrepreneurialeffort by newcomers can place them in the financial class of the inheritors.
Some 2,000 to 3,000 incomes, more or less, in the range of $50,000to $500,000 (a very few higher) accrue to salaried corporation executives, the stewardsand overseers of vast industrial domains for the very rich. These men came into theserevenues rather late in life, in their late forties and fifties mostly, and faceearly retirement from the scene. Few are heavily propertied. Independent small businessmen--asmall enterprise being generally accepted now by connoisseurs as one with assetsbelow $50 million--account for perhaps the same number of such incomes.
A considerably smaller number accrue to a scattering of popularentertainers and athletes, whose earning power usually diminishes steeply with thefading of their youth. Very few large incomes, contrary to popular supposition, accrueto inventors. None whatever, as the record clearly shows, accrue to scientists, scholarsand trained professionals of various kinds; only a handful to highly specializedmedical doctors working mainly for the propertied class, and to an occasional executiveengineer. Top-rank military officers are paid meagerly, although some manage to findtheir way to the tag-end of the corporate gravy train for their few years remainingafter official retirement. In brief, few members of the most highly trained professionalclasses even late in life receive incomes approaching the level of $50,000--or even$30,000. They are, income-wise, strictly menials, necessary technicians on the economicplantation. In the world's most opulent economy they, together with the less skilledbulk of the populace, must count their pennies in an economy of widespread personalscarcity.
Increases in the number of large incomes paralleling cyclicalincreases in prices and quickened economic activity therefore do not indicate, asnaive financial observers conclude, that new fortunes are being made right and left.They signify only that established accumulations are profiting by the cyclical trend.Whether the income is high or low the property always remains, ready to show itstruly magnificent earning power in upward cyclical phases, showing its brute stayingpower in downward slides.
In the combined Fortune, Saturday Evening Post and NewYork Times roundups of the new and established big-wealthy it turned out thatabout half of the seventy-five-plus given close scrutiny are new-wealthy and theother half old-wealthy. The situation, on the face of it, seems to be about half-and-half,evenly balanced as between the old and the new. This implication tacitly conveyedby the manner in which Fortune in particular presented its list in 1957 willbe flatly challenged here, where it will be shown that even granting the new-wealthyall that Fortune claimed for them, they represent little more than a shadowon the surface of a deep, silent and generally unsuspected pool. This pool consistssimply of the estates, including trust funds, shown to view by Professor Lampman,cited in Chapter I.
These estates, the owners comprising 1.6 per cent of the adultpopulation as of 1953 (the percentage is the same or smaller now owing to the disproportionateincrease in the nonpropertied through the higher postwar birth rate) that held $60,000or more of revenue-producing assets, constitute the nearly absolute bulk of the holdingsof the propertied class. But more than half of this class own no more than $125,000each of assets, as Lampman points out, bringing down to 0.8 per cent those in thegroup holding more than $125,000 of assets. And most of this 0.8 per cent can beconsidered only moderately wealthy, what is usually meant by the sayings "wellfixed" or comfortably off."
The Fortune rainbow of individual inheritors holding$75 million or more of assets will now be presented but there will, first, be somefurther demurrer leveled against its categorization of new-wealthy and old-wealthy.It will be recalled that, according to the Lampman findings, there were 27,000 ownersof at least $1 million as of 1953, so the Fortune list represents only a verysmall sample off the top. There were about 90,000 such as of 1967 owing largely tothe rise in market values.
INHERITED WEALTH-HOLDERS, 1957
Stated Net Worth in Financial Age in Living millions Activity 1957 Schooling Children1. J. Paul Getty $700-$1,000 Executive 65 Oxford (B.A.) 5 London Getty Oil Co.2. Mrs. Mellon Bruce $400-$700 Rentier (Ailsa Mellon) New York3. Paul Mellon $400-$700 Director 50 Yale (A.B.) 2 Upperville, Virginia Mellon National Bank, Cambridge (A.B.) etc.4. Richard K. Mellon $400-$700 Executive 58 Attended 4 Pittsburgh Alcoa, Princeton Gulf Oil, etc.5. Mrs. Alan M. Scaife* $400-$700 Rentier 54 2 (Sarah Mellon) (Died, 1965)6. John D. Rockefeller, Jr. $400-$700 Standard Oil Group Brown (A.B.) 6 (Died, 1960) Stockholder 837. Irénée du Pont $200-$400 Executive 81 M.I.T. (M.S) 8 (Died, 1963) E. I. du Pont, General Motors8. William du Pont $200-$400 President 61 5 Wilmington Delaware Trust Co.9. Mrs. Frederick Guest* $200-$400 Rentier (Amy Phipps) Palm Beach10. Howard Hughes $200-$400 Executive 52 Attended None Houston Hughes Tool Co. Caltech11. Vincent Astor $100-$200 Real estate 66 Attended None New York owner Harvard (Died, 1960)12. Lammont du Pont Copeland $100-$200 Executive 52 Harvard (B.S.) 3 Wilmington E. I. du Pont General Motors13. Mrs. Alfred I. du Pont $100-$200 Company Director Attended None Longwood College 14. Mrs. Edsel Ford* $100-$200 Rentier 4 Detroit15. Doris Duke* $100-$200 Rentier New York16. Amory Houghton $100-$200 Corning Glass 58 Harvard (A.B.) 5 Ex-Ambassador to France17. Arthur A. Houghton, Jr. $100-$200 Corning Glass Attended 4 New York Harvard18. Boy Arthur Hunt $100-$200 Executive 76 Yale (A.B.) 4 Alcoa19. Mrs. Jean Mauze* $100-$200 Rentier (Abby Rockefeller)20. Mrs. Chauncey McCormick* $100-$200 Rentier (Marion Deering) Chicago21. Mrs. Charles Payson $100-$200 Rentier 54 Attended 4 (Joan Whitney) Barnard22. John Hay Whitney $100-$200 Publisher 53 Attended 2 Ex-Ambassador to Britain Investor Oxford New York Yale23. David Rockefeller $100-$200 Executive 42 Harvard (B.S.) 6 Chase Bank Chicago (Ph.D.) Standard Oil24. John D. Rockefeller III $100-$200 Chairman 51 Princeton (B.S.) 4 New York Rockefeller Bros. Fund25. Laurance Rockefeller $100-$200 Executive 47 Princeton (A.B.) 4 New York Rockefeller interests 26. Winthrop Rockefeller $100-$200 Rockefeller interests Attended Yale 1 Governor, Arkansas Land dev. 4527. Nelson A. Rockefeller $100-$200 Government 49 Dartmouth (A.B.) 6 Governor, New York 28. John Nicholas Brown $75-$100 Real estate 57 Harvard (A.B.) Newport operator29. Godfrey L. Cabot $75-$100 Chairman 96 Harvard (A.B.) 5 (Died, 1962) Godfrey L. Cabot, Inc. Chemicals30. Mrs. Horace Dodge, Sr.* $75-$100 Rentier Palm Beach31. John T. Dorrance, Jr. $75-$100 Beneficiary 38 Princeton (A.B.) 3 Philadelphia Campbell Soup Trust 32. Benson Ford $75-$100 Ford Motors 38 Attended 2 Detroit Vice President Princeton33. Henry Ford II $75-$100 Ford Motors 40 Attended Yale 2 Detroit Chairman 34. William C. Ford $75-$100 Ford Motors 27 Yale (B.S.) 2 Detroit Vice President35. W. Averell Harriman $75-$100 Government, 66 Yale (A.B.) 2 New York Investments36. Robert Kleberg, Jr $75-$100 Cattle, oil 61 Attended 1 King Ranch, Texas Univ. Wisc.37. John M. Olin $75-$100 Executive 65 Cornell (B.S.) 3 Alton, Illinois Olin Mathieson Chemicals38. Spencer T. Olin $75-$100 Executive 57 Cornell (M.E.) 4 Alton, Illinois Olin Mathieson Chemicals39. J. Howard Pew $75-$100 Executive 75 Attended None Philadelphia Sun Oil Co. M.I.T. listed40. Joseph N. Pew, Jr. $75-$100 Executive 71 Cornell (M.E.) 4 Sun Oil Co.41. Mrs. M. Merriweather Post $75-$100 Director 70 Finishing 3 Washington, D.C. General Foods School42. Robert Woodruff $75-$100 Executive 68 Attended Emory Atlanta Coca-Cola, etc. *Not listed in Who's Who, 1956-57, 1964-65.
As a beginning, the name of J. Paul Getty will be placed nowon the list of inheritors, where it properly belongs; he was placed on the list inChapter II only to appease, temporarily, those who suppose on the basis of publicreports that he made the grade strictly on his own. One other name will be includedamong the inheritors that Fortune classified as new-wealthy; reasons for thereclassification will be given and the reader may judge for himself as between Fortuneand this writer.
The name added to the list, termed one of the new-wealthy byFortune, is that of Godfrey L. Cabot of Boston, who died in 1962 at 101. Hewas a member of the famous Cabot family of Boston (who proverbially speak only toGod) that was founded by Jean Cabot or Chabot who came to America in 1700 from theAnglo-French island of Jersey. Cabot soon became one of the large landowners of thenew colonies, and the family ever since has been distinguished by propertied businessand professional men, diplomats and political figures. It and the allied Lowell andvarious other Boston families have been "in the money" all along, somefrom earlier than Paul Revere's ride.
Godfrey Cabot, after his graduation from Harvard in 1882 andsome study abroad, went to western Pennsylvania where he engaged in the new oil andgas business and soon, responding to his chemist's training, became interested incarbon black, a byproduct of natural gas that to others was plain soot. He investedmoney, of which he had more than a little, in carbon black plants (he soon ownedten), and in natural gas pipelines. He could well be called "Cabot the CarbonBlack King." Carbon black has many uses in the chemical industry, in which Cabotand a brother were long leading figures. Cabot, in short, was a moneyed investor-entrepreneur,as good as they come, and ran his original stake up to a level recently worthy ofnotice from Fortune. He clearly classifies as an inheritor, albeit personallymore creative than most. All the extant Cabots are inheritors. 1
An Incomplete List
There is no way to guarantee that this list of forty-two exhaustsall individuals with inherited holdings, improved or unimproved, of $75 million ormore. The list is probably incomplete even within the terms laid down by Fortune.Thus, not included on it was William Rand Kenan, who died July 28, 1965, aged ninety-three,leaving an estate for probate tentatively estimated at $100 million. He was a founderof the Union Carbide Company. 2 That the Kenans were no financial midgetsis attested by the fact that William Rand Kenan, Jr., is at present chairman of theboard of the Niagara County National Bank and Trust Company; president of the Peninsularand Occidental Steamship Company, the Florida East Coast Railway Company, the FloridaEast Coast Hotel Company, the Florida East Coast Car Ferry Company, the Model LandCompany, Perrine Grant Land Company, West Palm Beach Water Company, Carolina ApartmentCompany and Western Block Company; and a director of various other companies includingthe Florida Power and Light Company. So many presidencies suggest large personalholdings.
Just how many similar big fish may have escaped our dragnetone cannot be sure. The big-wealthy Rosenwalds of Sears, Roebuck were omitted. Wehave already seen how J. Paul Getty moved along in shadowy anonymity most of hislife. The Mellon family, already astronomically rich, was nationally unknown untilAndrew Mellon, his name never before printed by the New York Times, was madesecretary of the treasury by President Warren G. Harding. (This was much like makingCasanova headmaster of a school for young ladies, as the sequel showed. For Mellondished out with a lavish hand huge unexpected tax rebates to the surprised rich and,as a distiller himself, did not prevent distillers' stocks from inundating the VolsteadAct, which was under his official jurisdiction.)
Although the list, then, is not exhaustive, it may be takenas tentatively indicative of those who in 1957 individually possessed inherited wealthin excess of $75 million. But the prime value of the list is that it points the wayto far larger concentrations of wealth that Fortune chose to ignore.
Family Holdings: The Key
It is noticeable that most of these individuals belong to afinancially prominent family, their fortunes a slice from a single source. As theholdings are now vested in individual names they each, from one defensible pointof view, hold a single fortune. Generically, however, their family-derived holdingstogether constitute a single fortune. And without the family holdings they wouldamount to little financially.
On a generic basis, indeed, many clusters of individually inheritedfortunes, no single one as large as $75 million, do in fact exceed some of the strictlyindividual large ones such as that of Howard Hughes. For five related and cooperatingpersons holding a mere $50 million each from a single source--and there are manyin this pattern--would represent a generic fortune of $250 million.
What I term super-wealth is prominently, although not completely,represented on this list. Super-wealth simply consists of a very large generic fortunethat may or may not be split into several parts. It has other characteristics: First,it generally controls and revolves around one or more important banks. It absolutelycontrols or has a controlling ownership stake in from one to three or more of thelargest industrial corporations. It has established and controls through the familyone to three or four or more super foundations designed to achieve a variety of statedworthy purposes as well as confer vast industrial control through stock ownershipand extend patronage-influence over wide areas. It has established or principallysupports one or several major universities or leading polytechnic institutes. Itis a constant heavy political contributor, invariably to the Republican Party, thepolitical projection of super-wealth, It has extremely heavy property holdings abroadso that national, foreign and military policy is of particular interest to it. Andit has vast indirect popular cultural influence because of the huge amount of advertisingits corporations place in the mass media.
Critics mistakenly blame a shadowy entity called "MadisonAvenue" for the culturally stultifying quality as well as intrusiveness of mostadvertising. But here it should be noticed that Madison Avenue can produce only whatis approved by its clients, the big corporations. If these latter ordered Elizabethanverse, Greek drama and great pictorial art, Madison Avenue would supply them withalacrity.
Beyond this, the dependence upon corporate advertising of themass media--newspapers, magazines, radio and television--makes them editorially subservient,without in any way being prompted, to points of view known or thought to be favoredby the big property owners. Sometimes, of course, as the record abundantly shows,they have been prompted and even coerced to alter attitudes. But the willing subservienceshows itself most generally, apart from specific acts of omission or commission,in an easy blandness on the part of the mass media toward serious social problems.These are all treated, when treated at all, as part of a diverting kaleidoscopicspectacle, the modern Roman circus of tele-communication. As Professor J. KennethGalbraith aptly remarked, in the United States it is a case of the bland leadingthe bland. No doubt it would be bad for trade if there was serious stress on theproblematic side of affairs. It would disturb "confidence."
On this Fortune list, valuable in its way, we find amongthe super-wealthy, among others less prominent, the Du Ponts, Mellons, Rockefellersand Fords as well as the Pews. The primary but not exclusive sources of their wealthhave been E. I. du Pont de Nemours and Company, the Aluminum Corporation of America,the Standard Oil group of companies and the Ford Motor Company. Each of these companieshas many times been formally adjudicated in violation of the laws, the first threerepeatedly named in crucial successful prosecutions charging vast monopolies. Aluminum,Standard Oil and Du Pont achieved their positions precisely through monopoly, asformally determined by the courts.
The Du Pont Dynasty
The combined wealth of four Du Ponts, as given by Fortune,was minimally $600 million and at a maximum stood at $1.2 billion. But here, it becomesclearly evident, it is possible to understate greatly the size of a generic fortuneby singling out for notice only a few of its most prominent representatives.
For there are many additional wealthy, soigné DuPonts. Perhaps they do not individually hold as much as $75 million, but many ofthem out of a total group (exceeding 1,600 persons descended from Pierre-Samuel duPont [1739-1817] ) hold somewhat lesser fortunes that stem directly or indirectlyfrom the central Du Pont financial complex. Not included on the Fortune list wereAlexis Felix du Pont, Jr., born 1905; Alfred Rhett du Pont, born 1907; Alfred Victordu Pont, born 1900; Edmond du Pont, born 1906; Henry B. du Pont, born 1898; HenryFrancis du Pont, born 1880; Pierre S. du Pont III, born 1911; and a variety of activehighly pecunious Du Ponts bearing the Du Pont name or alien names brought into thegolden dynastic circle through exogamous marriages of Du Pont women. Endogamous marriagesamong the Du Ponts, however, have been frequent.
The financially elite among the Du Ponts number about 250 "andmost of the family's riches are in their hands." 3 There are, then,250 Big Du Ponts and many Little Du Ponts.
The generic Du Pont fortune appears to be the largest, now,of the four here under scrutiny. Not only is the Du Pont company the oldest of them,but as a prolific clan the Du Ponts have included many individual entrepreneurs,none perhaps individually as outstanding as Rockefeller or Ford but collectivelymore persistent. Again, as an ordnance enterprise in an era of big wars Du Pont grewastronomically, attaining its biggest growth in World War I, and thus provided thesinews for branching out into at least four of the biggest modern industries: chemicals,automobiles, oil and rubber. It is the American Krupp.
But, the question should be raised, is any violence being donethe facts in examining a generic fortune rather than its individual slivers? Thepicture would indeed be distorted if the individual heirs had gone their separateways and an analyst nevertheless insisted upon treating them collectively. But theDu Ponts, as well as others, have not gone their separate ways with their inheritances;they have, despite intra-family feuds, acted as a collectivity. In Note 2, ChapterII, I mentioned a C. Wright Mills reference to an earlier work of mine in which hesays chidingly that I once generalized "cousinbood only" into politicaland economic power. In the Du Ponts, however, we have a literal, closely coheringfinancial and political cousinhood, as in the case of the Mellons. In the case ofthe Fords and Rockefellers we have, staving within these terms, brotherhoods.
The Du Pont cousinhood coheres, tightly, through a network offamily holding companies and trust funds which, under a unified concentrated familymanagement, gives a single, unified thrust to the family enterprises. There is dangerof distortion in treating any single one of this cousinhood, financially, as an individual.It is misleading because it shows only a few facets on top of the huge iceberg, neglectsthe concealed major portion below the surface.
The precise size of the generic Du Pont fortune would be difficultto determine. But the Christiana Securities Company alone, largest of the familyholding companies, at the end of 1964 held investments valued by itself at $3.271billion in E. 1. du Pont de Nemours, the Wilmington Trust Company, the WilmingtonNews-Journal and the Hercules Powder Company. 4 This, be it noted,was after E. 1. du Pont had divested itself of sixty-three million shares of GeneralMotors common, in which others than the Du Ponts, of course, had some equity.
The Christiana portion of this GM distribution was 18,247,283shares, 5 worth $1.788 billion at a closing price of $98 a share for 1964.At that time the whole original E. I. du Pont GM block had a market value of $6.174billion.
E. I. du Pont paid an average price of $2.09 a share for thisstock, according to Senator Harrison A. Williams, Jr., of New Jersey, or $131,670,000in all. 6
With 10,026 formally registered separate common stockholdersat the end of 1964, Christiana has stockholders other than Du Ponts and their in-laws;these other stockholders are mainly company officers and employees. But the extentof Du Pont family participation in Christiana before World War II, according to agovernment investigation of dominant owners of the 200 largest nonfinancial corporations,was 74 per cent. 7
Assuming that the financial core of the Du Pont family stillheld 44 per cent of E. 1. du Pont de Nemours stock (as per the TNEC study), the recentrecord stands approximately as follows:
Market Value Market Value Dec. 31, 1961 Dec. 31, 196444 per cent family interest in45,994,520 E. 1. du Pont sharesat 247-1/2 for end 1961, 241-3/4for end 1964 $5,001,257,472 $4,892,433,79244 per cent family interest in63 million General Motorsshares divested by E. I. DuPont at 1964 closing price of98. (Individual Du Ponts hold-ing GM not included) $2,716,560,000Christiana Securities directholding in GM (added since TNEC study) at 57-7/8 for end1961, 98 a share for end 1964 30,962,102 52,430,000 ______________ ______________ Totals for above $5,032,219,574 $7,661,423,792Less: Sales of 1,050,000 sharesGM by Christiana Securitiesfor taxes and cost of distribu-tion at average price of about 62 62,193,750 ______________ ______________ Corrected totals $5,032,219,574 $7,599,230,042Less: Further planned sale of457,312 GM shares by Christiana at beginning of 1965 atestimated minimal price of 100 45,731,200 ______________ ______________ Revised totals $5,032,219,574 $7,553,498,842Add: 10.5 per cent Du Pontinterest in U.S. Rubber Co., asshown by TNEC study held byindividuals and the Du Pontowned Rubber Securities Company $34,316,836 $38,232,179Add: Holdings of ChristianaSecurities other than E. 1. duPont and General Motors $37,749,136Add: Various assorted individ-ual investments by Du Poutsand ownership in extensivelanded estates ? ? ______________ ______________ Total $7,629,480,000 plus
The figure of $7.629 billion for 1964, as indicated above, isan approximation, but one close to the figures available. In view of the many individualDu Pont investments not included-for various of the Du Ponts have long branched intoother fields-it is beyond doubt an understatement.
On what grounds can one assume that the family investment inE. I. du Pont de Nemours remained at 44 per cent? First, the investment of this companyin General Motors itself was not diminished. Second, since the TNEC study, a newinvestment was made in General Motors by Christiana; whether this represented anincrease in over-all General Motors holdings or a transfer from some other part ofthe Du Pont exchequer is not shown, but presumably it represented an enlarged investment.If anything, the family investment, through individuals, was increased since 1937,the date of the TNEC data. For the Du Ponts in the intervening years were in receiptof vast cash dividends. In the meantime, many of them had reduced their once-opulentand ultra-expensive scale of living. Unless they had, off the record, somehow disposedof large sums it would seem inevitable that their investment position was enlarged.Their foundations did not, in the meantime, show any large new accretion of funds.
It is true that the family participation in General Motors cannotbe computed accurately at the figure given for the end of 1964 even after allowingfor the sales of GM by Christiana because the Du Pont trust funds were also requiredto sell whatever GM they received in the distribution. But the equivalent value inmoney, depending upon what point in the rising market GM was sold, would remain inDu Pont hands.
Taking into consideration various factors such as these, andothers, the entire family holding should be at least $7.629 billion, rather thanthe vague recent estimate of $3 billion by a family historian. 8
I conclude, therefore, that the financially cohesive Du Pontfamily is capable of throwing something around a $7.5-billion "punch" atany time in the American political-economy on the present price level. Its membersshould not, despite their partial setback in General Motors, be looked upon as amiscellaneous collection of financial tabby cats. The individual Du Ponts, it, shouldbe noticed, retain their GM holdings, constituting the largest identifiable blockin General Motors stock.
The Du Pouts have additionally established a string of at leasteighteen foundations, 9 the most recent assets of which are reported bythe Foundation Directory, 1964, at an aggregate of $148,046,401. These foundationsare Bredin, Carpenter, Chichester du Pont, Copeland Andelot, Crestlea, Good Samaritan,Irénée du Pont, Jr., Eleutherian Mills-Hagley, Kraemer, Lalor, Lesesne,Longwood, Nemours, Rencourt, Sharp, Theano, Welfare and Winterthur.
The largest of these, Longwood and Winterthur, with combinedassets of $122,559,001, are largely devoted to maintaining in all their splendorformer Du Pont estates as public museums and botanical gardens. 10 Theestates, thus dedicated to public uses, were not required to pay ad valorem inheritancetaxes.
But the invested voting power of these assets, funneled throughbanks and trustees, provides some additional Du Pont strength in politico-economicdecision-making.
Even if one were able to pinpoint the value of the family holdingsat $7.629 billion this would not be especially significant. The big fortunes riseand fall in value with the economy so that in one decade their values are up andin another down. But the significant fact is that throughout economic changes thebig fortunes, and the companies underlying them, outperform expansions of the economy.Put another way, more and more of the economy is constantly being preempted by fewerand fewer generic interests even though through inheritance the generic propertyincome is distributed among a greater number of individuals. There are, in brief,more Du Ponts, Rockefellers, Mellons and their like today than there were in 1900.But they each share in much enlarged central stakes.
The divestiture of General Motors stock took place after theUnited States Supreme Court ordered it upon finding E. I. du Pont de Nemours andCompany guilty of violating Section 7 of the Clayton Act, which forbids any stockacquisition whose effect "may be substantially to lessen competition or tendto create a monopoly." This case of closing the barn door after it had beenwide open for more than thirty years began in 1949 under President Harry Truman.The Supreme Court, overruling a lower court, found that Du Pont's ownership of 23per cent of GM, which it controlled, placed it in a favored market position in thesale of automobile finishes and fabrics, to the detriment of competitors. GM, infact, was a captive customer. As the New York Times incidentally reported,"Few if any large companies have been the subject of so many anti-trust suitsas du Pont." 11 Since 1939 nineteen have been counted.
But Du Pont holdings, as indicated, are by no means all channeledthrough Christiana Securities. During the GM proceedings it was reported to the court,for example, that William du Pont, Jr., personally owned 1,269,788 shares of E. I.du Point de Nemours. And, unless the family investment pattern has changed greatlysince the TNEC study, other Du Ponts are heavy individual holders in E. I. du Pontde Nemours and other companies.
The TNEC study showed the following individual Du Ponts directlyholding stock in E. I. du Pont de Nemours: Pierre S.; Eugene; Archibald; M. L.; H.F.; Eugene E.; Ernest; trustees for Philip F.; trustees for Elizabeth B.; trusteeson behalf of William du Pont, Jr., and Mrs. Marion du Pont Scott; and Charles Copeland.This group held 5.75 per cent. 12
One member of the family and the Broseco Corporation, anotherfamily holding company, held stock directly in General Motors, substantial even byDu Pont standards. 13 A family trust held much more.
But twenty-two other Du Points, none named above, held stockin the Delaware Realty and Investment Company (since absorbed by Christiana Securities),which in turn held 2.75 per cent of E. I. du Pont de Nemours stock.
Thirty-nine other Du Ponts, none named above or included inthe Delaware Realty group, held stock in Almours Securities, Inc. (since dissolved),which held 5.24 per cent of E. I. du Pont de Nemours stock as well as an interestin the Mid-Continent Petroleum Corporation. 14
The TNEC study uncovered eight Du Pont family securities holdingcomparties 15 and seven separate trust funds. 16This variety of financial instruments was in part at least the residue of earlierfeuds and financial squabbles in the family with charges of individual overreachingand tricky dealing aired in public. In recent decades most of these quarrels appearto have been composed in favor of consolidating family interests.
The government in its General Motors case held that the Du Pontswere a "cohesive group of at least 75 persons." But it named 184 membersof the Du Pont family in its complaint.
Spokesman for the Du Ponts, after the GM decision was given,said that GM stockholders closely affiliated with the Du Pont management would sellan additional three million shares of General Motors. 17
The TNEC study showed that individual Du Ponts, their familyholding companies and/or their trust funds held stock in many other companies. Thelargest of these additional stockholdings was in the giant United States Rubber Company,which the Du Ponts in effect controlled. Here the Rubber Securities Company, a DuPont family company, and seven individual Du Ponts owned 10.5 per cent and constitutedthe largest cohesive stockholding group. The continued presence of the Du Pont interestin the United States Rubber Company as of 1965 is signaled by the presence on theboard of directors of J. S. Dean, president and director of the Nemours Corporationand a director and member of the executive committee of the Wilmington Trust Company,and of George P. Edwards, chairman of the Wilmington Trust Company. Other companiesin which various of the Du Pouts, their family companies and/or trust funds heldsmaller ownership positions were the American Sugar Refining Company, the Mid-ContinentPetroleum Corporation, Phillips Petroleum Company and the United Fruit Company. Atvarious times they have been interested in still other companies. 18
Du Ponts are also found in other pecuniary pastures. Thus Edmondand A. Rhett du Pont, sons of Francis I. du Pont, a member of the reorganized maincorporation in 1903, have independently developed (using family-derived money) FrancisI. du Pont and Company into the second largest brokerage house in the United States,with branches at home and abroad. Du Pont in-laws are the chief partners of the highlyrated brokerage house of Laird, Bissell and Meeds. Still other Du Ponts, outsidethe main financial line, have established themselves in a variety of varyingly lucrativeenterprises large and small. 19
E. I. du Pont de Nemours and Company, since its beginning in1803 with an initial capital of some $36,000, is now one of the world's industrialgiants. Because, despite some recent adverse publicity, its history is not nearlyas well known as that of the Standard Oil Company or the Ford Motor Company, highlightsof its rise may provide insight here into some ways large fortunes are made.
After early difficulties the company became successful becauseits French-trained owners made a better gunpowder. Helped along by the War of 1812,the company was made prosperous by the Civil War.
In 1872, with the market glutted by postwar surplus powder,the Du Ponts organized other leading powdermakers and themselves into the GunpowderTrade Association, which dictated prices and ruled the market for hunting and blastingpowder with an iron hand. Hostile competitors were undersold until they capitulatedor went out of business, when prices would again be raised. This enterprise, laterknown as "The Powder Trust," continued without challenge into the firstdecade of the twentieth century. 20
Under one-man rule for many years and with wars scarce, by 1902the company seemed to be losing ground and its weary chief owners thought of sellingit to outsiders. But one, Alfred I., the "Savior of the Du Ponts," objectedand, bringing to the fore younger cousins T. Coleman of the Kentucky branch of thefamily, and Pierre S., made a purchase offer that was accepted. The price was $15,360,000,more than $3,000,000 above what it had been hoped to get from outsiders. The newowners soon found, moreover, that the property was worth more than $24 million. Bestof all, the new owners put up no cash but gave $12 million of 4 per cent notes plus$3,360,000 in stock of a new company just founded, a company purely on paper. Thiscompany, without assets, took over the old company. Only incorporation expenses of$2,100 were paid out by the three up-and-coming cousins.
As part of a feud that in time developed, Alfred I. was laterforced out of the management by T. Coleman and Pierre S. Meanwhile, Pierre had broughtin his brothers Lammot and Irénée and, after the withdrawal of Coleman,these three ran the show. In a deal from which Alfred I. was excluded, Pierre, Lammotand Irénée purchased the shares of T. Coleman in 1915 with money borrowedfrom J. P. Morgan and Company. Furiously Alfred I. charged that Pierre had used thestanding of the company to borrow for the purchase and freeze him out. He broughtsuit against Pierre but lost. He was never reconciled.
Although the power play by Pierre and his brothers was not illegalit seemed--and with this Alfred I. would agree--very much like self-centered overreaching,not against the outside hoi palloi, always fair game, but against an originalsponsor and benefactor--an all-too-familiar story on the power levels of world history.
The company in the meantime had blossomed unbelievably underT. Coleman's merger policy and it stood on the threshold of its present eminence.The diverse members of the "The Powder Trust" had now, one by one, beenbought up or otherwise absorbed by Du Pont.
"With breathtaking speed, companies were merged into theparent Du Pont corporation. By 1906, sixty-four corporations had been dissolved.A year later, Du Pont was producing from sixty-four to seventy-four per cent of thetotal national output of each of five types of explosives, and one hundred per centof the privately produced smokeless military powder. Only the Standard Oil trustwas as well organized." 21
In 1907 complaints finally led the government to file languidsuit against the company for violation of the Sherman Act, and after five years itwas absent-mindedly convicted. Since 1903, when its investment was valued at a maximumof $36 million, it had earned nearly $45 million. 22
But because the companies absorbed by Du Pont had been dissolved,the court was in a mild quandary about how to separate the blend. It asked the governmentand the company, as partners in the minuet, to work out a plan of reorganization.Alfred I. went to see President William Howard Taft.
"At the White House, Alfred insisted that it would be tothe advantage of the government and of the nation as a whole for du Pont to retainits one hundred percent monopoly of smokeless military power: du Ponts were awarethat war might break out soon in Europe. When it was pointed out that du Pont hadbeen found guilty of violating the law, Alfred turned to Taft's Attorney General,George W. Wickersham, who was present, and reminded him that he had been du Pont'slawyer at the time the violations had taken place. If du Pont had broken the law,it was because the company had received bad legal counsel." 23
At special court hearings a long procession of generals andadmirals appeared to testify for the Du Ponts, contending that it was absolutelyvital to national security that Du Pont retain its monopoly of smokeless militarypowder.
"Unbelievably," says the not unsympathetic but frankand independent family historian, "the court accepted these arguments. To splitup the military powder business among several competing companies would do damageto the close co-operation between du Pont and the government and thus jeopardizethe security of the nation without any corresponding benefit to the public. Or sothe court held in its final ruling in June, 1912. Thus du Pont was permitted to keepits one hundred percent monopoly of military powder." 24
The less strategic powder divisions were placed in two new companies:the Atlas Powder Company and the Hercules Powder Company, the stocks and bonds ofwhich were turned over to E. I. du Pont stockholders. The effect of the court orderwas merely to replace control of the new companies by the Du Pont company with controlby the collective Du Pont family. 25
But in 1942 E. I. du Pont de Nemours and five other companies,including Atlas and Hercules, were indicted in an antitrust suit and pleaded nolocontendere, automatically bringing a judgment of guilty. "Since the casewas a criminal cause, no injunction was in order. Thus the only deterrent effectwas the penalty." 26
Substantially, however, "It is quite clear that the governmentlost the case," said Harvard economist Edward W. Proctor. "No permanentor even temporary restraint was placed on any of the practices of which the governmentcomplained. In fact, the companies calmly continued doing business the same way theyhad been doing it before the government brought suit. The case solved nothing--itreally did not punish the law offenders nor did it alleviate the restraints on competition."27
As William H. A. Carr, the already-cited family historian, remarks,"This may not be as bad as it sounds. Proctor and other economists believe thewartime prosecution was politically motivated. Supporting this suspicion is the factthat the Department of Justice first tried to obtain an indictment in Norfolk, Virginia,but the grand jury there refused to return a true bill. Then the government tookits evidence to Philadelphia, where another grand jury went along with Washington'sdemand for action." 28
Actually, every proper prosecution or official act of any governmentofficial is politically motivated as an act in the management of the State (polis).The pejorative connotation that has become attached to the word "political"in popular American usage has developed owing to the frequent charge, usually madeby anti-regulation business spokesmen, that questioned political acts are improperacts for personal advantage, which they may or may not be.
But whatever the motivation of the prosecutors, the companiesdid not deny the charges and the court made its decision on the basis of them. Ifthe companies were indeed blameless, then the court itself became the partner inan improper action. And we are always faced with this alternative whenever it isargued that companies brought before the bar are being persecuted: If the companiesare innocent, even when they plead guilty or no contest, then there is a grave faultin the American constitutional system. But the schools and leading privately ownedagencies of public information all say the American constitutional system is excellent,the best in the world. The intelligent citizen, therefore, must feel not a littleconfused when he hears charges made of improper political motivation. If that isthe kind of system we have, some will reasonably conclude, it ought to be changedin the interests of simple justice.
World War I saw the swift rise of E. I. du Pont to industrialstardom. "Forty percent of the shells fired by the Allies were hurled from thecannon by du Pont explosives. At the same time, the company met fully one-half ofAmerica's domestic requirements for dynamite and black blasting powder."
At the same time the company's capital flooded upward from $83million to $308 million on the basis of a wartime gross business of $1 billion. Netprofits for four war years reached $237 million, of which $141 million were paidout in dividends. "Those dividends could be reckoned at four hundred and fifty-eightpercent of the stock's par value." 30
With $49 million of wartime profits not paid out in dividends,E. I. du Pont de Nemours bought its initial interest in General Motors Corporation,then the product of the merger of twenty-one independent automobile companies.
German interests having been driven from the postwar domesticchemical field, where they had been entrenched, E. I. du Pont de Nemours branchedinto the general chemical field, in which it previously had only a small foothold.it did this not through some inherent scientific capability, as is sometimes suggested,but by buying up with wartime profits one independent chemical company after theother: Viscoloid Company, National Ammonia, Grasselli Chemicals, Krebs Pigment andChemical, Capes-Viscose, Roessler and Hasslacher Chemical, Commercial Pigments, NewportChemical, Remington Arms Company and others. Individual Du Pouts, now well suppliedwith funds, bought into North American Aviation, Bendix Aviation and United StatesSteel. 32 Provided with enough money, anyone could have done this.
Offered during World War II a cost-plus-fixed-fee contract tobuild atomic bomb plants for the Atomic Energy Commission, E. I. du Pont de Nemours,which alone had gathered to its capacious bosom the engineering facilities and personnelfor such a gigantic task, set the fee at $1.
What led the company to make this resoundingly modest chargeis said in the official history of the Atomic Energy Commission to have been thefollowing considerations:
"The tremendous military potential of the atomic weaponposed a possible threat to the company's future public relations. The du Pont leadershiphad not forgotten the 'merchants of death' label slapped on the company during theNye Committee investigations in the 1930's. Certainly it was clear that the companyhad not sought the assignment; but to keep the record straight, du Pont refused toaccept any profit. The fixed fee was limited to one dollar. Any profits accruingfrom allowances for administrative overhead would be returned to the government.Walter S. Carpenter, Jr., the du Pont president, disavowed not only profits but alsoany intention of staying in the atomic bomb business after the war. In his opinion,the production of such weapons should be controlled exclusively by the government.The contract provided that any patent rights arising from the project would lie solelywith the United States." 33
And so we come to the present when the labyrinthine Du Pontenterprise, no longer specializing exclusively in the merchandisable means of death,is devoted to making thousands of peacetime products, what it calls "betterthings for better living through chemistry."
Four leading Mellons on the Fortune list are given aminimal combined worth of $1.6 billion and a maximum of $2.8 billion. As market valuesup to this writing have risen sharply, these figures now embody considerable understatement.
The Mellons are another close family group, with holdings concentratedas shown in the TNEC study in a broad group of leading companies: Aluminum Corporationof America, Gulf Oil Company, the Allis-Chalmers Manufacturing Company, the BethlehemSteel Corporation, the General American Transportation Corporation, Jones and LaughlinSteel Corporation, Koppers United Company, Lone Star Gas Corporation, Niagara HudsonPower Corporation, Pittsburgh Coal Company, Pittsburgh Plate Glass Company, The VirginianRailway Company, Westinghouse Electric and Manufacturing Company and various others.Of this group the Mellons controlled Aluminum Corporation, Koppers United and GulfOil. Five Mellons held these interests directly and through two family holding companies,three closely held insurance and securities companies, six trust funds, one estateand one foundation. 34
In Aluminum Corporation common stock the Mellons held 33.85per cent; in the contingent voting preferred stock the family and its foundationheld 24.98 per cent. In Gulf Oil Company the Mellon family and its personal companiesowned 70.24 per cent of the common stock, an unusually large single family stakein so large an enterprise. The Mellons held 52.42 per cent of the common stock ofKoppers United and 1.52 per cent of the contingent voting preferred. 35
Applying the TNEC percentages of ownership at closing 1964 marketprices the value of the Mellon holdings in the three leading companies alone wouldbe:
7,127,725 shares of Aluminum Company common(33 per cent of outstanding 21,413,177 shares)at 61-1/2 $438,970,087
164,477 shares Aluminum Companypreferred (25 per cent of outstanding659,909 shares) at median priceof 85-1/2 (1964 price range 83-88) $9,128,468
72,579,487 shares Gulf Oil Corporation(70 per cent of outstanding 103,684,981shares) at 58-5/8 $4,254,972,426
1,166,567 common shares Koppers (52-1/2 per centof 2,222,032 outstanding shares) at 55-3/8 $64,599,968
Other companies ? _______________ Total $4,767,669,949
This computation is made without considering the Mellon holdingin the Mellon National Bank of Pittsburgh, not included in the TNEC study, and invarious other banks and in many companies with Mellon participation as reported inthe TNEC study. But although the preceding table shows the pattern of thefamily holdings in general, there have been shifts in Mellon holdings since the TNECstudy, notably through the establishment of a series of foundations in the 1940's.
These foundations, whose holdings should not be necessarilyconsidered as additions to those already indicated, are as follows:
Date Founded 1962 AssetsThe A. W. Mellon Educational and 1930 $24,197,042 Charitable Trust (included in TNEC study)Avalon Foundation, N.Y. 1940 $99,182,784 (Mrs. Ailsa Mellon Bruce)Sarah Mellon Scaife Foundation 1941 $20,098,157Old Dominion Foundation, N.Y. 1941 $65,082,139 (Paul Mellon)Bollingen Foundation, N.Y. 1945 $6,013,881 (Paul Mellon)The (Richard K.) Mellon Foundation 1947 $82,028,250The (Matthew T.) Mellon Foundation 1946 $160,775 (as of 1960) ____________ Foundation Total $296,763,028
Although the income and any capital distribution from thesefoundations must be used for legally prescribed public purposes, the capital investments,as long as they remain undistributed, represent Mellon voting power in industry.But the foundations established since 1940 do not, as comparison with the first tabulationshows, diminish by much the personal Mellon holdings of today when computed accordingto the TNEC pattern. The family, all lovers of the old-time capitalism will be cheeredto note, does not appear to be dissipating its fortune in riotous charity.
Andrew Mellon (1855-1937) was himself an inheritor, the sonof Thomas Mellon, a rich Pittsburgh private banker and the pre-Civil War HoratioAlger source of the family fortune. From his father's bank Andrew and his brother,Richard B., began branching out and initially acquired a commercial bank and an insurancecompany. It was a small beginning, with far greater deeds of financial derring-doto come.
The first really big Mellon opportunity came, however, whentwo metallurgists told Andrew in 1989 of a successful new process for smelting aluminumdiscovered by Charles M. Hall. In return for $250,000 credit with T. Mellon &Sons, the Pittsburgh Reduction Company, owner of the process, gave Mellon controlof the company. it was common at the time for banks to demand a "piece of theaction" in any promising enterprise that applied for loans, which is how Mellonand other bankers turned up with toothsome participations in so many burgeoning enterprises.36 For these participations in many if not most cases, they paid nothingwhatever but sat in their money-nets like intent spiders and let the flies walk inone by one.
The Mellon participation in Gulf Oil came about similarly. AnthonyF. Luchich, a Yugoslav prospector, brought in the great Spindletop gusher in Texasin 1901, which quickly led to more oil than all the Pennsylvania fields had since1859. Money was now needed to handle the flow and build pipelines, and Pittsburghinterests were appealed to. Among these were William Larimer Mellon, nephew of Andrewand himself an heir of Thomas Mellon. In the upshot there was formed the J. M. GulleyPetroleum Company, capitalized at $15 million. Andrew W. Mellon bought the prospector'sinterest for $400,000 and altogether put $4.5 million into the new company, of whichColonel J. M. Guffey, who had an interest in the Spindletop lease, was given thepresidency, $1 million and a promise of $500,000 from future dividends. Andrew W.Mellon and his brother, Richard B., took 40 per cent of the stock and sold 60 percent to six Pittsburgh capitalists. 37 Guffey Petroleum soon was renamedGulf Oil. Guffey himself was dropped.
Mellon utilized the same technique again and again with otherentrepreneurs who came to him for the means necessary to launch or tide over theirenterprises.
The Aluminum Company was eventually judicially designated amonopoly but not until it had enjoyed a long charmed life. It repulsed a number ofprivate suits under the Sherman Act early in the century and on a few occasions outmaneuveredthe Federal Trade Commission, which could not prove its bone-deep belief that thecompany was engaging in unfair competition. In 1912, however, the Aluminum Companyconsented to a practically meaningless decree in an action brought by an unenthusiasticDepartment of Justice charging unfair trade practices.
Again in 1937 the Department of justice brought suit, holdingthat the company held a 90 per cent monopoly. In 1945 the United States Court ofAppeals, Second Circuit, concluded that the company indeed held prewar monopoly controlof ingot production. But the court did not force the company to dispose of any plantspending disposition of government aluminummaking facilities built in wartime 1942-45.
During the war, with aluminum in short supply, Reynolds MetalsCompany with government encouragement began primary production, the first competitorin the field since 1893. After the war the government, bypassing Aluminum Company,offered its plants to 224 different companies--some of them large--and strangelyfound no buyers. Surplus Property Administrator W. Stuart Symington then accusedAluminum Company of blocking the surplus plant sale by its patent control. Afterdenying this, Alcoa relinquished to the government its many patents, gobbled up duringthe years, thus throwing them open to free licensing.
Reynolds Metals now bought or leased various of the governmentplants created around these patents. Kaiser Aluminum, formed for the purpose, tookover other government-built plants. Since then the Anaconda Copper Company and RevereCopper and Brass, Inc., have entered the lucrative field, with still others likelyto come. The long Mellon monopoly in aluminum was finally broken, but not beforethe Mellons made millions from it. And the country is now for the first time wellsupplied with aluminum.
Who are the Mellons today? There are Paul Mellon, son of AndrewMellon, director of the Mellon National Bank and various Mellon funds; his children,Timothy and Catherine Conover (Mrs. John W. Warner); Richard King Mellon, Jr., sonof Richard Beatty Mellon, nephew of Andrew, director and officer of various leadingMellon enterprises; his children, Richard, Cassandra, Constance and Seward; AilsaMellon (Mrs. Mellon Bruce), daughter of Andrew and mother of Audrey Mellon Bruce;Sarah Mellon (Mrs. Alan M. Scaife, died 1965), daughter of Richard Beatty Mellonand mother of Richard Mellon Scaife, who is a director of the Mellon National Bankand of various Mellon funds and trusts; William Larimer Mellon, M.D., and others.By no means as numerous as the Du Ponts, the Mellons nevertheless constitute morethan the glittering quartet named by Fortune.
The Rockefeller Monolith
Fortune, without mentioning Rockefeller guidance overhuge foundation endowments, credited seven Rockefellers with a minimum combined holdingin 1957 of $1 billion and a maximum of $1.9 billion. Although the Rockefeller nameis now synonymous with extreme wealth it is probable (owing to its earlier head-onconflicts with the law and consequent attempts to propitiate an aroused public opinionby contributions to publicly approved activities) that the combined Rockefeller fortunetoday is below that of the Du Ponts, who apparently have not as yet felt it necessaryto indulge in baroque endowment operations to appease public opinion. The concentratedRockefeller financial punch, however, both because of controlled foundations andmany personal trust funds, is demonstrably more than double the maximum weight indicatedby Fortune; beyond this the Rockefellers have acquired considerable moralinfluence. To some small extent the larger figure I produce is attributable to therise in market value between 1957 and 1964; but Fortune left a great dealout of its calculations.
The death of John D. Rockefeller, Jr., in 1960 provides us witha concrete case for checking on Fortune's estimate of inherited wealth. Theprobate of the Rockefeller will showed that Fortune was again astray (in thiscase very far astray) in estimating JDR, Jr., as pe rsonally worth $400-$700 millionin 1957; the probate showed his holdings added up to no more than approximately $150million. 38 For he had over the years, as it was announced, establishedtrust funds for six children and twenty-two grandchildren. 39 From thesetrust funds the children receive only income, with the principal sums presumablyaccruing to the grandchildren. There is thus assured a steady future supply of well-propertiedRockefellers.
If it was not evident before this, it should be clearly evidentnow that Fortune had no confidential information and no special expertisein computing the value of the large fortunes, individual or collective. Sometimesits procedure produced acceptably accurate results; at other times it was far offthe target. Its listing, however, provides a convenient springboard for getting moredeeply into the basic data.
The JDR, Jr., estate paid virtually no inheritance taxes becauseit was left half to the widow and half to the Rockefeller Brothers Fund, a foundation.Under the inheritance-tax law as revised in 1948, over a presidential veto, halfof any estate going to a spouse is nontaxable under what is pleasantly called themarital deduction. Who could be so disagreeable, except one hostile to marriage andpossibly home, children and dogs as well, as to object to such a deduction? But theeffect of this deduction was to more than halve inheritance taxes for married propertyholders, a vast majority. The greatest money benefit, obviously, accrued to the verylargest property holders, and it was undoubtedly they who deviously pressed for themeasure through their many staunch friends in Congress.
As the half of the Rockefeller estate left to the fraternalfoundation was also nontaxable, the whole was nontaxable.
However, when, as and if the widow disposed of her trust fund,which she was empowered to do, it became estate-taxable (in lower brackets, to besure, than if it were still part of the original whole estate). If left to charityit would be nontaxable. But if the widow made no disposition of the capital, it wasall to accrue to JDR, Jr's., children, when it would be taxable as in the case ofany noncharitable disposition.
For many years Rockefeller, Jr., son of the original self-madetycoon, had been prudently reducing his taxable estate by (1) establishing trustfunds for members of his family and (2) allocating money to foundations controlledby the family. Thus, early in the 1930's he had begun transferring large holdingsinto trust funds for the children, according to the federal record. 40As of December 18, 1934, when stock prices were abnormally low, two trusts for AbbyRockefeller were launched giving 2.13 per cent ownership of Standard Oil Companyof California; one for John D. III giving .99 per cent ownership; and one for NelsonA. Rockefeller giving .92 per cent ownership--4.04 per cent in all. Similar trustswere set up at the same time for the same children in Standard Oil Company of NewJersey. 41 Later, as the will disclosed, trusts had been established forall six children and the twenty-two grandchildren. The family was now resting quietlyin trust.
As a general pattern, the TNEC study disclosed that 30 per centof the Rockefeller holdings were in foundations, 30 per cent in family trust fundsand 40 per cent in the hands of individuals, a judiciously balanced diversification.42 Trust fund holdings are now apparently higher, individual holdingslower.
There are reputed to be a large number of Rockefeller trustfunds. According to the Washington Daily News, June 8, 1967, page 69, theremay be as many as seventy-five family trust accounts "set up by John D. 'Junior,'for his six children and by those children for their 23 offspring. The latter generation--knownas the 'cousins'--have begun setting up trust accounts for their 44 children."
In pointing out the low taxability of the JDR, Jr., estate Ido not intend to imply that some sort of impropriety was practiced. Rockefeller,Jr., acted according to the prescribed laws and like any prudentially motivated parentin making the best possible material provision for his children. My reason for stressingthe tax-free status of his estate is only to counter the notion, widely spread bynewspapers and right-wing demagogues, that the tax laws in general are breaking down,dispersing or seriously trimming property holdings of all kinds. The dominant effectof the tax laws actually (and not surprisingly in a society dominated by propertyholders with abundant money and patronage to dispense) is to preserve and solidifyprivate property in general, especially big private property. The latter type, naturally,derives the most substantial benefits from the equal protection of the law which,as Anatole France remarked, majestically allows rich as well as poor to sleep underbridges.
There was the same sort of low-taxable estate left when Rockefeller,Sr., died in 1937. The probate disclosed that he had left a pitiful $25 million,of which state and federal taxes took about half; nearly all of the remainder wasleft to a granddaughter, Mrs. Margaret Strong de Cuevas, and her children and tothe Rockefeller Institute for Medical Research. 43 The bulk of the fortunehe had amassed through the original Standard Oil Trust had already been transferredto his son and to foundations. Whatever may have been transferred before 1914 wastax free; whatever may have been transferred between 1924 and 1930 bore the low taxrates of the Mellon era in government finance; whatever was transferred in the 1930'swas at depression-low values.
In brief, the amount of inheritance taxes collected from JohnD. Rockefeller Sr. and Jr. has been virtually nil. And despite the continual referencesin the public prints to how taxes are breaking up big fortunes, the Rockefeller fortune,like the Du Pont, Mellon and many others assembled in the nineteenth century, isstill intact, fully fleshed and going strong.
As Fortune was very much in error on the JDR, Jr., holding,there is no reason to suppose it was any more accurate in placing each of the sixchildren in the broad $100-$200 million bracket. The surer procedure, it seems tome, is to ascertain as I have done before what the TNEC, under power of subpoena,found to be the pattern and percentage of total family holdings by individuals, trustfunds, family holding companies and foundations, and to assume at least tentativelythat this pattern and percentage still persist. When anyone argues (as some are boundto) that holdings in a company may have been altered, it should be pointed that suchalteration would not seriously call this method into question. Whatever was soldin one place would be invested somewhere else--probably to better effect, as theselarge holdings are all under skillful professional supervision and tend to take maximumadvantage of circumstances and to minimize disadvantages. New investments outperformold, as in the case of W. Averell Harriman's investment in Polaroid. As for the modestsums paid out in gift taxes it is standard trust doctrine that these can be recoveredgradually out of the income of the trust. On top of all this, the big fortunes havean unending stream of dividends, the spending of which would wear anyone out andhas indeed worn out some flamboyant spenders. Much of these dividends (after taxes)are reinvested, thus tending to increase the fortune.
The Rockefellers, like the Du Ponts and Mellons, could be relativelypoorer today than they were at the end of 1937 (the date of the TNEC data for thisphase of the inquiry) only if they had (1) sold substantial interests and hoardedthe proceeds in uninvested cash or placed them in fixed-interest securities; (2)if they had burned or flung away the cash proceeds of investment sales; (3) if theyhad sold good investments and made bad investments; or (4) if they had given hugeproperties into the absolute ownership of others. As there is no evidence availablethat they did any of these things, we may dismiss the idea that their total vestedinterest is smaller, either absolutely or relatively, than it was at the end of 1937.It must, in fact, be larger owing to the steady receipt of big revenues and the normaluse of skilled professional advisers. The TNEC percentages, carried up to the present,must be, if anything, understatements in the case of the Rockefellers as in the casesof the Du Ponts and Mellons.
It should be stressed that the TNEC study did not embrace allthe holdings of these groups. It did not include holdings in strictly financial enterprises,such as banks and insurance companies, any real estate or any stockholdings thataggregated less than the twenty largest in any single company. As to the Rockefellers,there was not included their dominant interest in the Chase National Bank, one ofthe international "Big Three" among commercial banks, colossal RockefellerCenter in New York City and a variety of extensive real estate and landholdings.Indeed, a substantial fortune for each of these big families was deliberately leftout of consideration in the TNEC study. If a man were to own whatever the Rockefellers,Du Ponts or Mellons held that was not even counted in the TNEC study, he would beconsidered one of the nation's nabobs.
The following table applies the percentage of ownership of theRockefeller interests, including foundations, as they appeared among the twenty largeststockholders as ascertained by the TNEC, and shows the value of these same percentagesand at closing 1964 prices. 4
Largest 1937 1964 Stockholdings Prices Prices (percentage) Atlantic Refining Co. (S.O.) 1.16 $6,821,025Bethlehem Steel Corp. .41 $10,379,268Consolidated Edison (N. Y.) .28 $10,170,255Consolidated Oil Corp. (S.O.) 5.71 $7,000,000 $49,058,436Continental Oil Co. (S.O.) .84 $14,055,174Illinois Central R. R. (now Illinois Central Ind.) .32 $536,364Int'l Harvester Co. 2.31 $24,604,360Middle West Corporation(now constituent companies) 2.11 $8,272,495Missouri-Kansas-Texas R. R. 1.14 $115,679Norfolk and Western Ry. .32 $782,073Ohio Oil Co.(now Marathon Oil Co. [S.O]) 19.52 $16,000,000 $190,165,807Pere Marquette Ry.(exchanged for Chesapeake &Ohio R. R. stock) 1.45 $23,927Phelps Dodge Corp. .74 $5,381,811Radio Corporation .22 $4,362,775Santa Fe Railway .38 $1,576,563Socony Vacuum Oil Co.(now Socony Mobil Oil Co. [S.O] 16.34 $76,000,000 $771,303,099Standard Oil Co. of Calif. 12.32 $47,250,000 $664,330,693Standard Oil Co. (Indiana) 11.36 $58,000,000 $334,335,677Standard Oil Co. (New Jersey) 13.51* $163,000,000 $2,628,070,253U.S. Steel Corp. .12 $3,361,473Western Pacific R. R. 4.79 $3,916,487 ______________ Total $4,741,515,014 * The Rockefellers actually had voting power over 20.20 per centof the vast New Jersey Company, in assets the largest industrial enterpriseof the world, enough to assure control, by reason of New Jersey stock ownedby the minority-controlled Standard Oil Company (Indiana).
Considering only the largest holdings, it will be seen how magnificentlythese properties have risen from depression-level valuations--from seven to nearlyseventeen times in less than thirty years (the latter in the case of the giant StandardOil Company of New Jersey). How many persons in the same period have seen their salariesor propertied status improve by as much? If a school teacher, starting out at a salaryof $3,000 a year in 1937, had experienced the same ratio of gain in remunerationhe would now be paid in the range of $21,000-$51,000. Actually, the school teachernow receives in the range of $6,000-10,000, if that, and is facing early retirementat half pay. There never comes a time when property, large or small, is put on halfpay because of age.
In the case of the Rockefellers, as of the Mellons, it has beenpublicly announced that they have sold some of these holdings: JDR, Jr., in SoconyMobil Oil and the Mellons in Gulf Oil. What the proceeds were used for--new investmentsor trust funds for others--is not indicated. At any rate, the foregoing table shouldnot be taken as a recent breakdown of major Rockefeller investments, which in somecases may be larger or smaller, in others may include different properties. But,I argue, whatever the present holdings are, their relative value is almost certainlynot smaller than the total for the tabulation and is, for a variety of sound reasons,very probably larger.
What the TNEC study singled out as the personal largest industrialholdings of the Rockefeller family, individuals and trust funds, is shown in thefollowing table computed at closing 1964 prices:
Largest 1964 Closing Personal Market Value Stockholdings (percentage)Atlantic Refining Co. 1.16 $6,812,085Bethlehem Steel Corp. .41 $10,379,268Consolidated Oil Corp. 5.71 $49,058,436Ohio Oil Co. 9.83 $190,165,807Socony Vacuum Oil Co. 16.34 $771,303.099Standard Oil Co. of Calif. 11.86 $639,326,406Standard Oil Co. (Indiana) 7.83 $236,721,770Standard Oil Co, (New Jersey) 8.69* $1,691,696,720 ______________ Total $3,595,463,591 *By reason of the Standard Oil (Indiana) interest in the New Jersey company,the personal Rockefeller voting power in the latter company was 15.38 per cent,enough to give practical control or "dominance," in the language of the TNEC study.
If we subtract from this $100 million for the widow (assumingher holdings had appreciated to, this level since 1960) there is left for each ofthe six third-generation Rockefeller children personally $570,077,232 (includingwhatever is laid up in trust for the grandchildren, which has lightened the financialburden of the parents). In view of the many ancillary Rockefeller holdings that arenot here considered, this figure is far nearer what one should have for each morerecently rather than the Fortune figure of $100-$200 million. Market valuesrose between 1957 and 1964, it is true, but broadly allowing for the rise and excludinggrandchildren's trusts, it would seem that each of six Rockefellers must be worthat least in the range of $425-$475 million, including trust funds, and possibly morethan $570 million. The apportionment ratio of trusts as between children and grandchildrenis not publicly known but, as the grandchildren take from the parents, it is probablethat direct trust provision for the grandchildren was made, if at all, on a muchsmaller scale than for their parents. To venture further into the labyrinth of familytrusts without possessing the accountants' figures could only be unwarrantably speculative.
As the foundations make public reports of their holdings, therewould be a way of partially checking the correctness of these computations if thesame foundations were now in existence as figured in the TNEC study. Unfortunately,the structure and number of Rockefeller foundations have greatly changed since 1937and only the sketchiest sort of check is possible. just as the Rockefellers haveprobably shuffled their personal investments, so have they publicly shuffled theirfoundations consonant with the introduction of a third generation into the managementof affairs.
The foundation holdings, reckoning by the TNEC percentages,should have stood at $1,146,051,423 at the end of 1964. At the end of 1962 (the onlyfigures yet available) the actual foundation holdings, when market values were somewhatlower than at the end of 1964, were $823,485,972, according to the FoundationDirectory, 1964. My computations, it is clear, produce a figure that is $322,565,451higher than seems to be the case.
Before we consider this not inconsiderable discrepancy and whatmay account for it, the recent foundation holdings should be examined. The FoundationDirectory shows them and their stated assets to have been as follows:
Date Assets at Founded End of 1962General Education Board 1902 $342,834Rockefeller Foundation 1913 $632,282,137Sealantic Fund (Community fund for Seal Harbor, Me., and Pocantico Hills, N.Y., where Rockefellers reside) 1938 $11,639,033Jackson Preserve, Inc. 1940 $21,939,398 (1961)Rockefeller Brothers Fund 1940 $152,386,637American Int'l Ass'n for Economic and Social Development (part Rockefeller) 1946 $752,585 (1961)Council on Economic and Cultural Development 1953 $3,360,950Chase National Bank Foundation (part Rockefeller) 1958 $782,398 ____________ Total $823,485,972
At the time of the TNEC study there were only the RockefellerFoundation, the General Education Board and the Spelman Fund of New York in the field.The latter has gone out of business and six others have been added since 1938.
Applying the TNEC pattern, which found that 30 per cent of Rockefellerholdings were in foundations and 30 per cent in personal trusts, with 40 per centindividually held, and using the 1962 foundation holdings as the base of computation,one would have the following as the figure of dominated and owned holdings in 1962:
Foundations--30 per cent $823,485,972Individual trust funds--30 per cent $823,485,972Individual holdings--40 per cent $1,077,981,296 ______________ Total $2,724,953,240
Using recent foundation holdings as the base to which the TNECpercentage is applied appears to me to result in a downward distortion, first becausethe individual holdings were concentrated in the upward-spiraling oil industry whilemuch of the foundation investment is in fixed-interest securities, and secondly becausethe foundation pattern has been altered. My conclusion is that proportional to individualholdings and trust funds the foundation holdings are now either less than 30 percent of the whole or that their assets by 1964 had moved up in value closer to theprojected figure of $1,146,051,423 obtained by my computation.
As the foundation reports are issued at a more leisurely pacethan company reports and are not available for 1964 at this writing, direct comparisoncannot be made. But critical readers can make the comparison at any time, when thereports become available, provided they always apply market values rather than bookvalues of holdings.
If one wishes to examine still another possibility, one canput together the figure of $3,595,463,591 for the 1964 value of the personal holdingsobtained by my computation with the 1962 figure of $823,485,972 for foundation holdings.This gives a total of $4,418,949,563 for the combined holdings. I still believe,however, that my original figure of $4,741,515,014 is an understatement of the combinedfamily holding, because the TNEC did not survey all the family properties (only thelargest) and notwithstanding the fact that Rockefeller, Jr., had to pay gift taxesin the establishment of his chain of trust funds for children and grandchildren.
When one throws the Chase Bank, Rockefeller Center and variousreal estate properties into the pot and considers that Laurance Rockefeller has blossomedin his own right as a venture capitalist in luxury hotels and advanced-technologyenterprises, the combined Rockefeller financial "punch" should be above$5 billion. Although apparently outpaced by the Du Ponts in the super-wealth sweepstakes,the Rockefellers seem to me to be running at least neck and neck with the Mellons.
The TNEC study, it must again be stressed, did not pretend toproduce the totals of wealth held, for it confined itself only to the twenty largeststockholdings in the 200 largest nonfinancial companies and ignored ownership ofbanks, insurance companies, bonds, real estate and smaller stockholdings. Relyingon the TNEC method alone there might have been missed even larger concentration ofwealth, for example if the twenty-first largest stockholder in all 200 companieshad been the same person or family; but on other evidential grounds it is known thatsuch a logical possibility did not hold in fact.
The Fords of Dearborn
Mrs. Edsel Ford and her three sons--Henry II, Benson and William-wereassigned a combined minimal wealth of $325 million and a maximum of $500 millionby Fortune in 1957. Her daughter Josephine (Mrs. Walter Buhl Ford II) wasnot noticed by Fortune.
It is always fairly easy to compute the collective personalwealth of the Fords because they own 10 per cent of the outstanding stock (but 40per cent of the voting power) of the Ford Motor Company (always assuming there havebeen no secret sales or purchases and that there are no side interests). On the faceof it (although not really) 10 per cent of the entire stock issue of the companyappears to be the sole personal financial strength of the family.
What slightly impedes any computation of Ford wealth is therather complicated capital structure of the company as created under the wills ofHenry and his son Edsel.
At the end of 1964 this capital structure, after split-ups ineach class, stood as follows:
SharesCommon stock (owned by investors) 52,338,152Class A stock (owned by the Ford Foundation) 46,283,756Class B stock (owned by the Ford family) 12,267,794 ___________ Total 110,889,702
The Class A stock is nonvoting until it is either sold by thefoundation or given by it to some approved nonprofit organization, when it acquiresone vote per share; but never at any time can all the common stock cast more than60 per cent of the vote at a stockholders' meeting. For, as noted, 40 per cent ofvoting power is concentrated by charter in all the Class B stock, giving the Fordfamily very nearly absolute control of the company at all times. All classes of stockparticipate equally, share for share, in dividends. Control is what counts.
At the closing 1964 quotation of 54-1/2 per share this capitalizationhad a gross market value of $6,043,488,759. This left the Fords 10-plus per centapparently valued at $604,348,876. But, considering the factor of control, the Fordfamily stock has as much voting power as two-thirds of the common, which was valuedin the market at $1,901,619,450. Anyone who owns two-thirds of the common stock wouldhave as much voting power as the Fords but would get more dividends--on 34,892,100shares as against 12,267,794 shares--and to that extent would have more value inhand. But the Class B stock, owing to the heavy weight of voting privileges embodiedin it, is worth more, share for share, than the market value of the common stock(although nobody would seek to get that value unless he sought control of the company).If, however, a buyer of control were to show himself, the Ford-held stock at closing1964 prices would have, in relation to the common, the value of close to $2 billionI have assigned it by this computation. While the Ford stock gets dividends of onlyabout a third of the equivalent amount of voting-power common, this isn't too muchof a hardship as the Fords are in an income-tax bracket that hits such soaring dividendshard. Besides, the men all drew high salaries as officers of the company. They haveplenty of pocket money.
So, at a price of around 54 for the present outstanding stockof the company, I would rate the value of the family holding at a minimal 82 billion,although any syndicate interested in buying the company would probably have to paymore for it (assuming current or higher levels of profitability).
Compared, then, with the Du Ponts, Mellons and Rockefellers,the Fords are in comparatively modest circumstances although individually the membersof the three latter families are on the average richer owing to the participationof a greater number of Du Ponts in the heady Du Pont mixture.
Since 1964, however, there has been a slight alteration in thefoundation holdings, which does not affect my computation nor the conclusions drawnfrom it. In June, 1965, the foundation marketed more shares. Originally it receivedprecisely 88 per cent of all stock in the form of Class A nonvoting shares. Adjustingfor stock splits after the 1965 sale it had disposed of very nearly half or 46.9million present shares. The 45.7 million shares it retained composed 35.8 per centof the entire capital stock of Ford Motor.
In terms of its own book values of the various securities itheld, Ford Motor plus others, the foundation at the end of 1964 was worth $2.4 billion.
The great care taken by the two elder Fords to see that controlremained in the family is shown by the voting provisions for the stocks. If the outstandingClass B stock falls below 5.4 million shares (which it can do only if it is calledin by the family) the total voting power of the common rises to 70 per cent; andif the B stock outstanding falls below 3 million shares it votes equally with thecommon.
Until the family, then, quixotically decides to call in theB stock (thus cutting its own throat as far as control is concerned) it holds 40per cent of voting power in the company, tantamount to absolute control. Should somesyndicate attempt to buy control in the market the Fords need purchase only 16-2/3per cent of outstanding common to give it 50 per cent voting power, whereas a syndicatewould have to purchase 83-1/3 per cent of all common to reach the same dead-heatpoint. In such an unequal race the Fords would necessarily win.
But even if a syndicate turned up with all the common,giving it absolute control, the Fords have an ace in reserve. And this ace showsone of the many ways foundation control can be synchronized with industrial control,The Fords control the foundation. And the A stock held by the foundation acquiresvoting power as it is sold or given to a nonprofit institution. Faced with an opponentwho owned all the common, giving him a 60 per cent vote and control, the Fords needmerely activate the voting power of the foundation stock by selling it or givingit to friendly hands, thus diluting the voting power of the outstanding common. Byconverting all its remaining Class A stock into voting stock the foundation coulddilute the voting power of the presently outstanding common to 30 per cent of thepresent capital structure. With the 30 per cent of the voting power in the newlyconverted common plus the 40 per cent of voting power in the Class B stock the Fordswould actually have, as they now potentially have, 70 per cent of the voting power.The foundation, indeed, could sell somewhat more than half of its remaining Fordstock and leave the Fords able to muster 55 per cent of the voting power in any criticalshowdown.
The ins and outs of this situation may have puzzled some readers.The point to be made is only to show the great care taken to guard control, revealingwhat the wealthy intend. In acting as they do they are only being reasonable; forthe humanly normal thing to do is to guard one's possessions. But we have many propagandistsaround, led by such errant professors as A. A. Berle, Jr., who apparently are notafraid of being judged certifiably silly by contending that control as well as ownershipof the large companies is being widely spread around, that the big fortunes are beingbroken up to right and left. The Berle thesis, refuted on every hand by the facts,is that as ownership is dispersed (which it is not in fact), free-lance company managementsinstall themselves in the drivers' seats as something of a new corporate breed. Thesenew managers--the "managerial revolution"--proceed in this fairy tale toelbow aside the Du Ponts, Mellons, Rockefellers, Fords, Pews, Gettys and variousothers--and thus introduce a new set of actors on the stage of history, a set ofactors that conquer by sheer bureaucratic techniques.
Such being the case, reason many readers, we can all just sitback and watch the fun as bright young men rise to conjure the corporations awayfrom the big owners. Like all fantasies, this one has quite a coterie of bemuseddevotees.
The surviving Fords would have been a great deal richer todaythan they are if Henry Ford, founder and original master mind of the automotive behemoth,who died in 1947 at eighty-three years of age, had been personally less graspingand if the deaths of central figures in the family had not occurred before the veryrich could get a tractable Congress around to trimming the New Deal inheritance taxes.This trimming process was no doubt hastened by the example of the tax-speared disasterthat engulfed the massive Ford fortune.
Ford's only son, Edsel, a far more likeable, intelligent andinformed man than his flinty father but kept unhappily subordinate all his life,died prematurely at age forty-nine in 1943. The oldest grandson, Henry Ford II, atthe age of twenty-five, inexperienced in business and up to 1940 a sociology majorat Yale, was hastily spirited out of the wartime Navy where he was an ensign andinstalled as a director and executive vice president of the vast company, a miraculouscorporate success story. His brothers Benson and William, twenty-five and eighteenyears old at the time, trailed him into the company later, where they also showedtheir mettle by quickly rising to the top. Their mother, whom I have perhaps ill-advisedlylisted as a rentier, played a strong and constructive role (from a family and propertypoint of view) on the board of directors with Henry II. She backed him particularly,if she did not indeed take the lead, in getting rid of much accumulated deadwoodin the cracker-barrel executive suite of Henry I.
Holding tightly ( and tax-expensively) to 58-1/2 per cent ofthe company's voting stock, Henry Ford at his death was publicly assigned a net worthof $500-$700 million. 45 The value at the time of the Ford Motor Company,since reorganized and vastly improved internally by the grandsons, was in the vicinityof $1 billion. Ford's death came none too soon for the family fortunes, as the companyunder his old-style heavy-handed administration had for more than fifteen years beenlosing ground to free-swinging General Motors and stepped-up Chrysler and had longsince tumbled from the top of the motor heap. Definitely on the skids, the companywas thought in the automobile industry to be headed for the junkyard that had alreadyengulfed scores of automobile companies.
But the deaths of Edsel and Henry, with the company slippingmainly because the views of Edsel were continually overruled by the feudal ownerand his sycophantic cronies in the management, also came at an inopportune time withrespect to the tax laws. For the marital deduction and the option of estate splittinghad not yet been enacted. Both Edsel's and his father's holdings were faced by aflat 91 per cent inheritance tax, designed under the New Deal expressly to breakdown big fortunes topheavy with political power. Had the later law been in effect,the two Fords could have assigned half their holdings to their wives, tax free, andthe wives could have worked their funds with the help of lawyers into much lowertax brackets. This splitting, it should be noticed, also often puts the testatorinto a lower tax bracket as well, although it could not have had that effect withthe two Fords unless they had made free use of trust funds for the grandchildren.Henry Ford was apparently too tightfisted to do that, which would have cost him onlybargain-counter gift taxes.
A partial way out of this tax disaster was engineered in TheFord Foundation for Human Advancement established by Edsel in 1936. (Henry Ford himselfwas hostile to public benefactions and spoke out freely against them.) 46But even with the help of the Ford Foundation, the personal Ford fortune, which understandard tax management would have been much larger today, was literally decimatednine times over.
Edsel left the greater part of his holdings to the Ford Foundation,thus escaping the big tax, and his father eventually had to do the same or see hismoney go largely to Washington and its hated New Dealers.
In this flukey way the Ford Foundation received nearly 90 percent of the stock in the Ford Motor Company, all of it nonvoting as long as the foundationheld it but participating equally in dividends. 47 As far as Henry Fordhimself was concerned, the foundation was an unwilling benefaction, the lesser oftwo ghastly evils.
"On the Foundation's books, this [Ford money] was giventhe value, for tax purposes, of $416,000,000, but its real value, as measured bythe earnings of Ford Motors, was at least $2,500,000,000. This is considerably morethan half as much money as all the other foundations in the country have among them."48
Still salvaging what they could in a bad situation, the Fordsstipulated that the stock made over to the foundation should be nonvoting, leavingthe 10 per cent in the hands of the family with an initial 100 per cent voting power.
Asked whether he would rather have all the Ford Motor dividendsor company control, the average man would probably choose the dividends. He wouldbe mistaken, for those in control determine whether there shall be any dividendsat all. One in control could decide to invest earnings elsewhere until the designateddividend-receiver came to some sort of terms, not disadvantageous to a controller.Control is always the prime objective of the true leaders in all large organizations--political,financial, economic, philanthropic, educational or otherwise. For control determineseverything that is subject to the will.
And, finally, the family, now controlling the company, was alsoplaced by the elder Fords' testaments in control of the foundation. Although it couldnot receive foundation income or any part of it, the family could manage the foundation(as it has since done) to the advantage of the Ford Motor Company, the goose thatlays the golden eggs.
The Ford Foundation, which when Henry Ford was alive was devotedpurely to community projects in and around Detroit that were beneficial to the FordMotor Company, began its national operations only in 1950, when it started spewingforth huge grants for educational and other purposes in unprecedented fashion. Ordinarilyhard-to-get money began to float around the country in huge gobs. In 1954 the foundationbestowed $68 million, four times the annual Rockefeller contribution to the charitablekitty and ten times that of the third largest foundation, The Carnegie Corporation.This figure, a mere taste of what was yet to come, was as much as all American foundationscombined spent in any single year up to 1948 and was about a quarter of the spendingof all foundations in 1954. 49 If the Ford Foundation is a good thing,as many maintain, then it must be attributed to New Deal tax laws.
In connection with trust funds earlier, the reader may recallthere was a somewhat cryptic reference to "standard doctrine." The twoFords relied on standard doctrine in creating the Ford Foundation. just what is standarddoctrine? Most broadly and informally, and applicable in all social and politicalcontexts, standard doctrine was perhaps most pungently expressed by the late W. C.Fields when he voiced the deathless maxim: "Never give a sucker an even break."But, more specifically, it relates in our social system to known legal ways of maximizingadvantages and minimizing disadvantages for property, especially under existing taxlaws. Moreover, it shows one in detail how to accomplish these ends. With referenceto the tax laws in all their ramifications the doctrine is now well codified, notablyin a series of multiple-volume loose-leaf publications titled the Standard FederalTax Reporter published by the Commerce Clearing House in New York. Supplementingthe income-tax series there are the sub-series titled Federal Excise Tax Reporterand Federal Estate and Gift Tax Reporter.
With respect to a structure like the Ford Foundation, standarddoctrine holds:
"Charitable giving through the channels of charitable,tax-exempt foundations has achieved a position of importance in estate planning.Apart from the humanitarian aspects involved, the family foundation can be an effectivemeans of reducing income and estate taxes and of continuing control of a closelyheld corporation in the family of the donor." 5O These are preciselythe ends that were achieved by the testamentary dispositions of the Ford estates.
Foundations, in other words, are a way of reducing taxes, andthis is part of standard doctrine. Newspapers and other propaganda media, however,have long referred to them in their whimsical way as benefactions (which in certaincases they may also be) and their creators as philanthropists rather than as tax-sensitiveacquisitors (which they may or may not be), and invariably refer to the transferredmoney as donations and gifts (which they are not necessarily). The donations, so-called,are the consequence of big tax write-downs offered by the government precisely forsuch a possibly benign placement of funds.
But a large section of the public has been instilled with theunwarranted belief that something is being given away for nothing. And, anomalously,as I have had occasion before to point out 51 these huge so-called giftssprang from the hoards of men who in their active lifetimes left no stone unturnedto amass for themselves great wealth. The most acquisitive, it would seem in thisfantastic newspaper scenario, turn out to be the most benevolently inclined.
More broadly, standard doctrine holds that one should alwayspay the lowest possible wages and taxes, charge the highest possible prices and rents,and never give anything away unless the gift confers some hidden possibly overcompensatorypersonal benefit. The big propertied usually do their level best to adhere to it.
This may sound cynical to some, but only because they have witlesslyallowed themselves to be deluded by unrealistic propaganda lullabies. It is not onlystandard but sound doctrine in any social system that pits its citizens competitivelyagainst each other and makes property ownership a cornerstone of well being. Wouldany property owner be considered sensible if he elected to pay maximum wages andtaxes, charge minimal prices and then, if he had anything left, gave it away to Tom,Dick and Harry? Even to steer a middle course between the two extremes would notbe considered very astute.
Although Henry Ford died worth $500-$700 million at 1947 values,he met his final tax problem well, even though until then he had steered a less thancanny course. His federal tax was only $21,108,160.91 on a taxable estate of $70million which consisted of $31,451,909.36 plus some Ford stock. 52
Edsel paid about $12 million, or 6 per cent, on an estate thenestimated to be worth $200 million. 53 But in 1935 he had establishedtrusts for his four children. In addition to Ford stock, he owned most of the stockof the Manufacturers National Bank of Detroit, which he left to his widow. As itwas disclosed, Henry Ford owned 55 per cent of the stock of Ford Motor, Edsel 41-1/2per cent and Mrs. Henry Ford 3-1/2 per cent. 54 Together Henry and Edselpaid inheritance taxes of a little more than $30 million. The elder Ford would havedone better, as the elder Rockefeller did, by giving his son, wife and grandchildrenstock over a period of years.
But if Edsel and Henry had not had recourse to the foundation--atthe last moment almost--the estate would have been forced to pay a 91 per cent tax.This would have left a mere 9 per cent of outstanding ordinary stock in Ford familyhands, hardly enough to control the corporation. Instead, they were left with 10per cent of the stock (clothed by charter with 40 per cent voting power) and 100per cent control over the asset-logged foundation, which as it engages in good workscannot help but generate friendly feelings for the Ford Motor Company in many worthybosoms. 55
A further advantage in the plan adopted (for which some unsunglawyer deserves a summa cum laude) is that its provision for selling foundationstock created a horde of stockholding allies for the Ford family, which was dangerouslyisolated when it was the sole owner. Now when anyone wishes to make a face at theFord Motor Company, the Ford Foundation or, indeed, at any of the Fords, he mustreckon not only with all the grateful beneficiaries of foundation grants but withthousands of dividend-hungry small stockholders. Big owners have many small partners.
The Realm of Super-Wealth
The Du Ponts, Mellons, Rockefellers and Fords, in any event,are the four cardinal points of the compass in the realm of super-wealth. The Fordsmust be included by reason of the sheer magnitude of their controlled holdings eventhough they do not yet have as varied an organizational task force as their peers.
On the basis of sheer magnitude, again, J. Paul Getty shouldprobably be thought of in the same class, although we do not yet know what will bethe post mortem status of his holdings.
The other major clear-cut claimants to super-wealth status--andtheirs would be minor super-wealth--are the Pews of the Sun Oil Company.
Neither the Houghtons of Corning Glass nor the Olins of OlinMathieson Chemical appear to quite make it. But the Hartfords and Rosenwalds shouldbe considered. The Houghtons, incidentally, were missed by the TNEC dragnet.
Fortune mentioned only two Pews, but the TNEC study showedthem to be a numerous clan: J. Howard Pew, Marv Ethel Pew, J. N. Pew, Jr., MabelPew Myrin, Walter C. Pew, Albert H. Pew, Mrs. Mary C. Pew, Arthur E. Pew, Jr., JohnG. Pew, Helen T. Pew, Alberta C. Pew and others. The Pews collectively--individuallyand through estates and trust funds--owned 70.6 per cent of Sun Oil Company commonstock as of February 15, 1938. 56
Assuming that this same percentage of ownership was maintained,they would be collectively worth $708,458,121 at closing prices for Sun Oil in 1964.
But the Pews since TNEC days have also set up foundations. Asof March 2, 1965, the Pew Memorial Trust (through The Glenmede Trust Company) owned21.7 per cent of Sun Oil stock and held as fiduciary for other Pew trusts and estates20.9 per cent. 57 The Foundation Directory, 1964, states the 1960assets of the Memorial Trust alone, leaving out its fiduciary holdings, at $135,309,481.
Before we pass to lesser but interesting wealth-holders (theextremely wealthy as distinguished from the super-wealthy), we may scan those wehave examined in this chapter for common characteristics apart from their holdingsof wealth.
Characteristics of the Super-Wealthy
All were born American citizens; their families have been inthe United States for generations. All are inheritors in greater or less degree and,except for the Du Ponts who sprang from a revolutionary savant, all are far bettereducated than their family founders. Such being the case, they have a broader awarenessof the world and its vagaries. None of these groups has its younger members placedin less than the third generation of wealth; the Du Ponts stand at least seven generationsin the stream of gold. Such being the case they all together contradict the Americanfolk-belief that a family passes from shirtsleeves to shirtsleeves in three generations.None of these gilt-edged people, obviously, are having any of that.
Offhand it would be said that they are all white, Anglo-SaxonProtestants; but such a statement would be somewhat misleading. The Du Ponts areof French Huguenot origin, and there is a Jewish crossing (Belin) in one of theirlines of descent. Nor can it be said categorically that they are all Protestants.For Henry Ford II became a convert to Catholicism on the occasion of his first marriageand, through the foundation, funnels large sums to Catholic schools and colleges.As a consequence of his divorce and remarriage outside the Church, he is now automaticallyexcommunicated but remains a Catholic. His children are Catholic.
Despite the fuss made by outsiders about being white, Anglo-Saxonand Protestant (or Catholic-Jewish) it is doubtful that any of these people attachmuch importance to the point. Most of them, from all indications, are pretty worldlywise and wear their ethincity and religiosity debonairly. Money, they know, is whatcounts in the established scheme.
Sinews of Republicanism
A far more significant common characteristic of all these super-wealthyfamilies is that they have long been the main supporters nationally of the RepublicanParty, the party of plutocratic oligarchy. They have been its big sinews. Exceptfor some minor Democratic deviants among the Du Ponts (and the Du Ponts can showmany kinds of deviants from the basic family pattern) all leading members are Republicanand their forebears were Republican.
With the exception of the Fords each has at various times playedstrong forward roles in the Republican party--the Rockefellers particularly underthe McKinley Administration; the Mellons under the Harding-Coolidge-Hoover Administrations;the Du Ponts with the Liberty League in fighting a strong rearguard action duringthe 1930's against the resurgent Democratic Party; and the Pews ever since in beingthe wealthiest supporters (among many) of unreconstructed right-wing Republicanismdown to the present. If not kings themselves, they are king-makers.
The RockefelIers have in recent years come again to play a forwardrole through the person of Nelson A. Rockefeller. Thrice elected governor of NewYork, until his divorce and remarriage to a divorced woman he was considered a chiefRepublican presidential prospect. Every professional politician in the country agreesthat if the personable and outgoing Nelson had pressed for the Republican presidentialnomination in 1960 he would have obtained it and beaten John F. Kennedy. While hisdivorce might not under other circumstances have kept him from the presidency itsinflation to a major issue by ultra-rightist Republicans tended to have that effectin the 1960's.
But the Rockefellers still play a very strong role in Republicanpolitics and Winthrop has become the Republican governor of Arkansas. Ultra-rightistRepublicans, however, give them credit for too much by blaming them chiefly for theelectoral disaster that overtook their implausible darling, Barry Goldwater, in 1964.
As important wheels in the political process these familieshave always had quick and direct access to the White House, no matter what the partyof the president. Not only in times of war (when gossamer party lines tend to blur)but in times of peace, representatives of these families have always been able toobtain an audience even with a Democratic president, and sometimes have been summonedfor counsel, comfort and advice by dazed Republican presidents. But the name of Rockefellerwas once under such a public cloud that on a visit to the White House the youngerRockefeller was spirited in by a back entrance to talk to President William HowardTaft. 58
Yet these and other magnates of extreme wealth have been farfrom Strangers to the Democratic Party. Both the political parties have been supported--theRepublican mainly by weightily propertied elements. The parties are opposite sidesof the same coin. Instead of saying that the United States has a two-party system,it would be more nearly correct to say it has a dual-party system.
After the Civil War, with the plantation owners self-destroyed,the Democratic Party always attracted large propertied elements whenever it madestrong bids to win national elections. The Cleveland Administrations were as closeto Wall Street, manned by Wall Streeters, as any Republican Administration. WilliamJennings Bryan, although anathema to the Wall Street Establishment, was supportedby western mining interests, for whom "free silver" was so much extra gravy.The Wilson Administration was as completely under the thumb of Wall Street as thesubsequent Harding, Coolidge and Hoover Administrations. 59 John W. Davis,the Democratic candidate for president in 1924 was a Wall Street corporation lawyer.
In 1928 Al Smith had his chief backing, financial and emotional,from fellow-Catholic John J. Raskob, prime minister of the Du Ponts. If Smith hadwon he would have been far less a Catholic than a Du Pont president, although thereligious question was what was pushed to the fore by a politically obtuse electorate.Hoover, the Republican, was a J. P. Morgan puppet; Smith, his democratic opponent,was in the pocket of the Du Ponts, for whom J. P. Morgan and Company was the banker.By 1936 Smith was a roaring Liberty Leaguer. The victory of either man put J. P.Morgan and the Du Pouts into the presidential driver's seat. W. Averell Harrimanwas one of the leading wealthy Republicans who crossed the line to the Democratsin 1928 and has been a Democrat, and a high government official, in all subsequentDemocratic Administrations.
Under Franklin Delano Roosevelt, owing chiefly to troubled circumstances,for the first time it appeared that some of the magnates might be unwelcome at theWhite House. The wealthiest, especially the Du Ponts, opposed him bitterly, whichmeant that he was opposed by the banks and heavy industry. Those numerous wealthypersons who became staunch Rooseveltians were mainly of the second or third tierof wealth and nearly all in merchandising and light industry, immediately dependentupon the stagnating mass-consumption market. They were down-the-line New Dealersbut not, as misconceived Republican propaganda had it, Socialists, Populists or evenWelfare-Staters.
But owing to the disastrous Republican-fostered and Wall Streetnurtured economic depression, which interrupted seventy-two years of unbroken ruleby the magnates through either Republican or Democratic puppets, the Democratic Partybecame the inheritor of vast social problems informally created largely by Republicanneglect. The big special problems in the United States always develop through neglect,in part because so many active and intelligent elements are permanently siphonedoff into the chicaneries of the money-making process. If profitability cannot beshown for an activity, such as raising the cultural level and tending to the lame,the halt, the blind and the stricken, such activity is left to quixotic and somewhatsuspect elements--quixotic at least by prevailing standards.
Not that the Democratic Party moved very far to the Left incoping with domestic disaster, as hostile propaganda has it; for the magnates hadready to their call almost the entire southern congressional delegation, which hadbeen their ready tool ever since Reconstruction days in a deal that left the Negroesto the mercies of their former masters in return for giving southern Support to theRepublican magnates in Congress. The southern wing of the Democratic Party, rootedin grass-roots ineptitude, was as much a political tool of big wealth as was theRepublican Party.
Under the impact of the depression the Democratic Party becamethe national spokesman for the suddenly risen industrial city with all its problems.its mass base was urban. The mass base of the Republican Party had always been inthe small towns and rural areas, close to the fly-blown cracker barrel, althoughits telltale inaction in the 1920's lost it the overexploited western farmers. Butbehind these disparate mass bases--city dwellers for the Democrats and country dwellersfor the Republicans, with southern Democrat politicos spiritually in harmony withthe Republicans, and western Republicans veering into the Democratic fold--therewas at all times, in both parties, big wealth pulling the strings and arranging thescenes in its own succulent interests, a grotesque spectacle.
It simply so happened that the biggest wealth, shaped by policiessince the Civil War, was Republican, and included the Rockefellers, Du Ponts, Mellonsand Fords. The Democrats had with them, however, plenty of heavy money, committedto different handling of the domestic mess created by the Republicans.
Although Roosevelt and his New Deal became the hated devil ofbig wealth, which brought 85 per cent of the newspapers to bear against him throughits control of corporate advertising, with the advent of war and the adoption ofa bipartisan foreign policy it was Roosevelt who made the first overtures towardbringing the less fanatical Republicans into the government. He brought into hisCabinet, for example, Colonel Frank Knox, Republican vice presidential candidateof 1940; Henry L. Stimson, Hoover's secretary of state; E. R. Stettinius, Jr., ofJ. P. Morgan and Company; and James V. Forrestal of the investment banking houseof Dillon Read and Company. He gave Nelson A. Rockefeller his first leg up in politicaloffice by making him Coordinator of Latin-American Affairs. With these and similarappointments Roosevelt made his third administration seem a Bar Harbor, Newport andPark Avenue affair. As FDR himself said, "the New Deal is out the window."
After two Republican Administrations from 1952 to 1960, gainedby using a clearly apolitical war hero as a stalking horse, the country again wentDemocratic under John F. Kennedy, himself a wealthy heir although basically a politicalman from a political family. Kennedy, even with no war providing an excuse for acoalition, awarded his chief Cabinet posts to Republicans from the camp of big wealth.Douglas Dillon, Republican and very wealthy heir of the founder of Dillon Read andCompany, Forrestal's old firm, was made Secretary of the Treasury. Robert S. McNamara,Republican president of the Ford Motor Company, was made Secretary of Defense. McGeorgeBundy, Republican, was made liaison man to the CIA. Dean Rusk, a Democrat, but presidentof the Rockefeller Foundation from 1952 to 1960, was made Secretary of State.
The basic government posts, in other words, went to men deepin the camp of big wealth. But those posts that required dealings with the hoipolloi in social contexts went to party men versed in the rhetoric of inspirationalambiguity.
Dillon resigned under Johnson and was replaced by Henry H. Fowler,a career Democrat; but most of the rest of the Kennedy team continued, with the distantgoal a mirage: the Great Society. The laudable stated ends of this Great Societyare the end of want and of inequalities of opportunity.
As Princeton University political sociologist Richard F. Hamiltonremarks,
In an affluent society, a liberal, welfare-oriented party can go a long way toward satisfying the wishes of its followers. Rather than preside over a drawn-out struggle between the people and the interests, as if it were an either/or game, the new style is to give both what they want and pay for it out of the returns from a stable and rapidly growing economy. In essence this is the Galbraithian solution--not to struggle over the "take" but to increase its size. Thus, the typical new figure on the political scene is the liberal demagogue--one who can cater to the masses because he is willing to pay them off and can do so without depriving the interests of what they want. He can be for civil rights, for improved housing, for urban renewal, for a poverty program, and at the same time can vote against a reduction of the depletion allowance. The Great Society synthesis overcomes that age-old problem of liberal politics: how to reward the clientele. Before affluence, the result was a long, hard and usually indecisive fight with the interests or it was capitulation. The new liberal, however, does not have to fight or switch. 60
The attraction of the Great Society for the wealthy, however,is the new opportunities it creates for making money on huge government contracts.In the area of defense there is a huge tax-supported military establishment makingconstant highly profitable demands--up to 40 and 50 per cent profit--on industryfor complex new weapons. In urban renewal there is the vast profitable enterprise,replete with windfalls, of rehabilitating the commercial heart of the big cities.In slum clearance and school buildings there are vast slushy construction projectsof low quality in the offing. And in the antipoverty program itself there is vastroadbuilding, as in Appalachia (which needs few roads), as well as opportunitiesfor the local political machines.
As Dr. Hamilton remarks, "Large numbers of entrepreneurialtypes have recently discovered that 'there's money in poverty.'"
We have, then, as he notes, now developed "liberals ofconvenience" as contrasted with "liberals of conviction," and staunchRepublicanism is no longer to be taken for granted among the big wealthy, whatevertheir past history. For big wealth cannot afford to back political losers.
Everything about the Great Society as blueprinted spells lucrativecontracts for someone. Hence the party of the Great Society now has special attractionsfor the wealthy that the Republican Party, fallen into the hands of dervishes ofthe cracker barrel, no longer has. The defections of the professional elite and leadingmass media from the Republican cause in 1964, when a "true" Republicanran, clearly show the way the wind is blowing.
In point of fact, the Johnsonian Democratic Party is the newpolitical rallying ground of big wealth, which is forced by circumstance suddenlyto see some validity in the Democratic approach ("Me-Tooism"). The socialprograms of marginal rehabilitation and repair will go forward, but at a snug profit,provided the military can spare the money. And big wealth will continue to get itsdepletion allowances, tax cuts and big deduction writeoffs.
Lest we be carried away by the prospect of an early marriageof old-line Republicans with the Democratic Party we are reminded of difficultiesby no less a personage than David Rockefeller, president of the mammoth Chase NationalBank (1964 assets: $13 billion). Explaining in a television interview that he had"great admiration for the president [Johnson]," Mr. Rockefeller said hewas nevertheless "disturbed by the Government's move in the aluminum price increase"that was rescinded after the government moved to sell stockpiled aluminum. In wordsthat his grandfather would have unhesitatingly endorsed, the Chase bank chief said"the aluminum industry was the best judge of whether prices should go up"and added that he was "in disagreement with the attitude of Government thatprices should be controlled."
The problem of inflation should be dealt with through "naturaleconomic forces within the capitalist system," the Times said he observed,without specifying just what these natural forces were and to what extent they includedgreed, which is certainly a sturdy, old reliable natural force. An assumption inhis position, as in that of the early classical economists, is that if somethingis natural it is acceptable, which tenet would make tuberculosis or cancer acceptable.A further assumption was that if someone intervenes in any process, as in regulatingindustry or practicing surgery, there is something "unnatural" and to becondemned about it. Actually, whatever any human being does--spit on the sidewalk,paint monstrosities on the walls, set fire to buildings, fornicate with lower animals,or regulate the actions of other people--is entirely natural. For if it weren't naturalthey couldn't do it. Mr. Rockefeller, like many others, reserves natural as a descriptionof that of which he approves.
Said the Times report: "Mr. Rockefeller said themanner in which President Johnson handled the aluminum increase, even though he remainedlargely behind the scenes, was not appreciated by business [read. persons of wealth]anymore than President Kennedy's halting of a proposed steel increase."
But the reason Democratic presidents must be sympathetic towardthe big wealthy at all times, short of allowing them to upset the new synthesis,is simple: All these people, even if Republican, carry great weight in American affairsbecause of their intimate hereditary involvement through professional subordinatesin complex enterprises penetrating into every comer of society. They may no longerbe self-made they may have been sired by trust, testament or codicil out of holdingcompany, foundation and monopoly-but they are independent power wielders. They aren'taverage citizens. And this is a political fact, not likely to be overlookedby any serious politician.
Any criticism of Presidents Kennedy and Johnson for the natureof their top appointments should face up to this question: Where should they lookfor Cabinet officers? Kennedy and Johnson looked for them where Eisenhower lookedfor them, and where Roosevelt looked: in the large financial and industrial organizations.These organizations belong to the wealthy. They are part of their plantation, whichin its broadest sweep is the market place itself.
Experts of greater if not complete independence of judgmentare to be had, to be sure, from the leading universities, and Franklin D. Rooseveltand John F. Kennedy both drew heavily upon them for certain tasks. But scholars haveneither the habit of command nor is their authority apt to be recognized by men practicedin the arts of expedient manipulation--Plato's men of the appetites. Any presidenthas to look to the big enterprises, selecting competent men who are least compromisedby egocentric self-service.
To be sure, it is not the quintet of Du Ponts, Rockefellers,Mellons, Fords and Pews that alone has supported the Republican Party in its strugglesto protect and nourish big wealth and is now playing around the edges at least ofthe Democratic Party. They have had many collaborators among groups of lesser wealth,most of them strong Republicans in the past as now, even though some of them seeminclined to take fright as latter-day woozy fanatics come to the fore in the RepublicanParty.
When, as and if they become Democratic the Democratic Partywill have to become more tractable along the lines David Rockefeller suggests; itwill have to become more Republican. This not too difficult process may take placegradually and stealthily. But the power of money is such that it can easily comeabout.