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THE INHERITORS: II
Approximately 200,000 households of the upper layer of Americanwealthholding assets of $500,000 or more own 22 per cent of the private wealth ofthe country and 32 per cent of the investment assets, while another 500,000 households(worth $200-$500,000) own another 13 per cent of wealth and 22 per cent of investmentassets--54 per cent in all of investment assets for 700,000 households out of 57.9million households. Add another 700,000 households--those worth from $100,000 to$200,000--and one has accounted for 43 per cent of all private wealth and 65 percent of all investment assets.* (*Board of Governors of the Federal Reserve System,Survey of Financial Characteristics of Consumers, Washington, D.C., August,1966; pp. 151,136.)
It is these huge percentages of ownership that give these relativelysmall groups their enormous leverage in the American political economy and justifyour referring to the ownership as "leverage wealth."
It should, therefore, be evident that the super-wealthy andbig-wealthy are settled within a somewhat larger contingent of contemporaries whodiffer financially only in that their holdings are less extensive in the pyramidalhierarchy of property. Relating to this property there is an all-pervading cult,forming a large part of what some refer to as the American ideology. The part ofthis ideology that relates to property is, basically, Standard Doctrine, heavilysugar-coated.
For preliminary guidelines to the big holdings, we can do nobetter than to turn to the compendious TNEC report, based as it was on official questionnairesfilled out by the companies. 1 The data in them are as "hard"as government surveillance can make them.
Summarizing this valuable governmental study in a report to,Senator Joseph C. O'Mahoney, chairman of the TNEC, Sumner T. Pike, chairman of theSecurities and Exchange Commission, under date of September 24, 1940, wrote:
Thirteen family groups-including these three (Du Ponts, Mellons and Rockefellers)--with holdings worth $2,700,000,000, own over 8 per cent of the stock of the 200 [largest nonfinancial] corporations.
Only one-half of the large shareholdings of individuals in the 200 corporations are in the direct form of outright ownership, the other half being represented by trust funds, estates, and family holding companies. The study clearly shows the importance of these instrumentalities for perpetuating the unit of control over a block of stock held by an individual or the members of a family.
Each large interest group has shown a strong tendency to keep its holdings concentrated in the enterprise in which the family fortune originated. . . The branching out of the Mellon family into a dominating position in half a dozen important corporations in as many industries is rather unusual and not duplicated among the other interest groups controlling any of the 200 corporations. Many large family interest groups, however, have greatly expanded their industrial sphere of influence by indirect means, viz., the acquisition of control over additional enterprises by the corporations which they control, such acquisitions being financed mainly out of undistributed profits.
In the case of about 40 percent of these 200 largest corporations, one family, or a small number of families, exercise either absolute control, by virtue of ownership of a majority of voting securities, or working control through ownership of a substantial minority of the voting stock. About 60 of the corporations, or an additional 30 per cent, are controlled by one or more other corporations. Thus, a small group of dominant security holders is not in evidence in only 30 percent of the 200 large corporations. [Emphasis added.]
[Note: Although the TNEC confined itself to nonfinancial corporations, approximately the same pattern of ownership is shown by informal inquiry into purely financial enterprises such as banks and insurance companies. The same people own these that own the industrial corporations: Rockefeller, Du Pont, Ford, Mellon and others.]
The financial stake of officers and directors in their own corporations is relatively small. [Note: This is because they, like workers lower down, are merely employees, subject to dismissal. The largest holdings of officers, said the report, are in the hands of those who represent dominant or controlling family groups.]
The 20 largest shareholdings in each of the 200 corporations account, on the average, for nearly one-third of the total value of all outstanding stock. In the average corporation the majority of the voting power is concentrated in the hands of not much over 1 percent of the stockholders. [Emphasis added.]
As the study showed, the value of the twenty largest recordholdings in 208 common stock issues as a percentage of total value was:
Per CentManufacturing companies 26.7 Railroads 24.9 Electric, gas and water utilities 45.3Others 17.3
The relatively small percentage in the fourth category is accountedfor by the fact that it included AT&T with its widely dispersed comparativelysmall shareholders.
But for the twenty largest stockholders to own such large percentages,on the average, of the leading companies testifies to the extremes of concentratedownership in the American economy.
Most of the millions of individual stockholdings in the handsof a variety of run-of-the-mill people made up only 6 per cent of the ownership andvoting power. The general anonymous stockholders, although up to twenty million bycount in 1965, all together own very little and have as much to say as the Russianshave over their rulers in the Kremlin.
"The great bulk of the 8 to 9 million domestic stockholdersown only small amounts of stock and the dividends they receive represent but a minorproportion of their total income. About half of all stock-holders have an annualdividend income of less than $100 and holdings worth less than $2,000. The groupwhich depends economically to a large extent on the dividends from corporate stocksor the market value of these stocks is very small and probably numbers not much morethan 500,000 people.
"The ownership of the stock of all American corporationsis highly concentrated. For example, 10,000 persons (0.008 percent of the population)own one-fourth, and 75,000 persons (0.06 percent of the population) own fully one-half,of all corporate stock held by individuals in this country." 2
Foreign investors, it was pointed out, own more than 6 per centof the common and nearly 4 per cent of the preferred stock of these companies, and"Foreign ownership exceeds 10 per cent of total stock outstanding in about one-tenthof the 200 corporations." [Note: These foreign holdings are held by comparableindividual large European interests.]
These patterns persist down to the present, as shown conclusivelyby the Lampman, University of Michigan, Federal Reserve and many other studies, andalso in what I shall refer to as The Dartmouth Study: Corporate Concentrationand Public Policy, by Professors Martin L. Lindahl and William A. Carter of DartmouthCollege.
Noting that the patterns persist does not mean that the positionof the owners has remained stationary. Although the percentage of ownership in theeconomy may conceivably be no greater than the concentration of control, owing tothe steadily increasing concentration of assets, it is unquestionably greater nowthan it ever was before. The only dropouts from the upper strata of ownership havebeen produced by the ending of a family line. None of the big fortunes pinpointedin the TNEC study has gone bankrupt. Under the impetus of economic and technicalchange, of course, some of the minor big fortunes have lost ground relative to theleaders; but as other elements have thrust their way forward, the essentials of thepanorama have scarcely changed.
While it might be of some interest to pinpoint changes for thebetter or the worse within some fortunes, it is not within the scope of this expositionto make such an attractive digression. We may, therefore, be spared the details ofwho is worth $100 million more or less. The Ford Motor Company is reported to havetaken a $250 million loss on its unsuccessful Edsel model, but the Ford family remainsin the leading quartet of wealth. These big fortunes can afford to take big losses,and they do have their ups and downs. What they lose one day in one place they makeup another day in another place. What permits them to do this is: heavy reserves,affording maneuverability.
The TNEC study broke itself down into types of control, eitherby family or corporation, as follows:
a. By majority ownership
b. By predominant majority
c. By substantial minority
d. By small minority
But in most cases control of one corporation by another sawthe controlling corporation itself under single or multiple-family control.
The Thirteen Largest TNEC Family Interest Groups
As measured by market or calculated value at the end of 1937,the thirteen wealthiest family interest groups, led by the Du Ponts, Mellons, Rockefellersand Fords, also included the following: 3
Family Main CorporationsMcCormick (Chicago) International HarvesterHartford (New York) Great Atlantic & Pacific TeaHarkness (New York) Standard Oil (New Jersey) Standard Oil (Indiana) Standard Oil of California and Socony Vacuum OilDuke (North Carolina) Duke Power, Aluminum Co.of America Liggett and Myers TobaccoPew (Philadelphia) Sun OilPitcairn (Pittsburgh) Pittsburgh Plate GlassClark Singer (sewing machines)Reynolds (North Carolina) R. J. Reynolds TobaccoKress (New York) S. H. Kress (variety stores)
To be sure, as the study warned, "Many members of thesegroups undoubtedly had stock investments in one or more of the 200 corporations whichdid not appear among the 20 largest record shareholdings. . . . Many also had investmentsin other corporations, particularly in large financial corporations which are notcovered by the study, and investments in other forms such as corporate bonds, tax-exemptsecurities, real estate, and bank deposits. It is quite possible that for some groupsthese outside investments had a larger aggregate value than their identified holdingsin the 200 largest corporations." 4
A point never made by the TNEC study is that this same patternof concentrated ownership and control extends below the 200 largest companies tothe 500 largest, the 1,000 largest, the 10,000 largest, etc. What is remarkable aboutthe TNEC showing is not that there were shown ownership and control by such tinygroups but that there were such concentrated ownership and control over such mammothcorporate entities, which standard propaganda insists are widely owned by the rank-and-filecitizenry as stockholders. As enterprises get smaller and smaller there is even lesspublic participation in their ownership than in the biggest companies until one soonruns into the 100 per cent family-owned or individually owned closed corporation.It is no exaggeration to say that all money-making enterprises of whatever size,including the widely owned AT&T, are owned by a very small class of proprietors,Whatever property is scattered among nearly 90 per cent of the populace is mostlynonrevenue-producing: much-used cars, TV and radio sets, furniture-in brief, chattels.
The Standard Oil branch of the Harkness family, now with fewsurviving members and its once vast funds largely distributed, mainly to leadingeducational institutions, was found to be among the twenty largest stockholders inno fewer than 24 of the 200 largest companies, apparently a record.5 While this particularownership is no longer concentrated, the fact that it recently existed shows whatis possible within the system.
Family Control by Majority Ownership 6
Single Main Percentage of Family Corporation Ownership1. Dorrance Campbell Soup 1002. Duke Duke Power 823. Ford Ford Motor 1004. Hartford Great Atlantic & Pacific 1005. James Western Pacific RR 61.186. Kress S. H. Kress 797. Mellon Gulf Oil 69.58. Mellon Koppers 529. Mellon Pittsburgh Coal 50.910. Pew Sun Oil 69 Multiple Family1. Anderson-Clayton Anderson, Clayton 94-plus (Houston)2. Clarke-Bourne-Singer Singer 50-plus3. Pbillips-Olmsted- Long Island Lighting 47-plus Childs4. Bell-Darby-Cooper American Cyanamid 88.77 Biddle-Duke etal.
A peculiarity about this last holding was that while most ofthe Class A voting stock was owned by eight senior officers-almost 29 per cent byW. B. Bell, president-most of the equity was represented by the Class B nonvotingstock. The twenty-two leading stockholders, with three tied for twentieth place,held 88.77 per cent of the voting stock. 7
The holdings of the Hartford family in the Great Atlantic &Pacific Tea Company, which does more than 6 per cent of all retail grocery businessin the United States, are not precisely ascertainable now on the basis of the TNECreport. The Hartfords owned at least 61 per cent of the old preferred stock, exchangedfor three shares of common in the recapitalization of 1958, and all of the votingcommon, exchanged for one share of new common. In the old arrangement there were935,812 shares of nonvoting common, also exchanged share-for-share for new common,but because the TNEC did not inquire into the Hartford ownership, if any, of thisstock, its possible present ownership position (assuming no sales or purchases) cannotbe completely deduced.
But, assuming the Hartfords owned none of the nonvoting stockand retained all their other stock in the exchange, they would now own very closeto 70 per cent control of the company. At the end of 1964 all its outstanding commonhad a market value of $936,850,025, leaving the Hartford share at about $650 million.At the end of 1959, 33.98 of this outstanding stock was held by the John A. HartfordFoundation. I conclude, then, that the Hartford family through nominees still retainsmajority controlling ownership of this huge company by a wide margin.
Predominant Minority Control 8
A predominant minority was defined in the TNEC study as consistingof the ownership of 30 to 50 per cent of the stock. 9
Single Family Corporation Percentage of(approximate number of Ownershipincome recipients)1. Du Pont E. 1. du Pont de Nemours 44 (about 250) (controlling General Motors by 23 per cent.)2. Mellon Aluminum Co. of 34.4 (about 10) America Mellon Pittsburgh (Consoli- 50.9 dation) Coal3. Cudahy Cudahy 48.71 10 (about 32)4. Deere Deere 34.12 11 (4)5. Pitcairn Pittsburgh Plate Glass 35.34 12 (4 or more)6. Straus R. H. Macy 38.67 13 (14)7. Kresge S. S. Kresge 44.24 14 (6)Multiple Family 151. Field-Simpson-Shedd Marshall Field2. Rosenstiel-Jacobi-Wiehe- Schenley Distillers Schwarzhaupt-Gergross3. Weyerhaeuser-Clapp-Bell- Weyerhaeuser McKnight
The largest number of family interest groups was found to usethe device of control by means of a substantial minority ownership of stock, whichpermits controlling positions to be taken in some cases in a wide spectrum of bigcompanies. These were as follows:
Control by Substantial Minority 16 Single Family Corporation1. E. I. du Pont de Nemours & General Motors Co. (family controlled)2. Crane Crane3. Colgate Colgate-Palmolive-Peet4. Firestone Firestone Tire & Rubber5. Gimbel Gimbel Brothers6. McCormick International Harvester7. Hanna National Steel8. Palmer New Jersey Zinc9. Rockefeller Ohio Oil (now 10 Marathon Oil) to Socony Vacuum Oil Co. 30 (now Socony Mobil Oil) per cent Standard Oil of Calif. in Standard Oil (Indiana) each Standard Oil (New Jersey) case10. Levis Owens-Illinois11. Mellon Pullman12. Rosenwald Sears, Roebuck13. Avery U.S. Gypsum14. Du Pont U.S. Rubber15. Williams North American Co. (since dissolved into constituent public utility operating companies) Multiple Family1. Walters-Jenkins-Newcomer Atlantic Coast Line RR2. Stone-Webster Engineers Public Service Co. (since dissolved into constituent operating units)3. Davies-Woodward-Igleheart General Foods4. Block-Ryerson-Jones Inland Steel5. Rand-Watkins-Johnson- International Shoe Peters6. Widener-Elkins-Dula- Liggett & Myers Tobacco 10 Ryan to7. Hillman-Shouvlin-Chalfant National Supply (oil 30 well supplies) per centS. Miller-Volkman-Schilling Pacific Lighting in9. James-Dodge-Hanna Phelps Dodge each (copper) case10. Procter-Gamble- Procter and Gamble Cunningham (soap)11. Lynch-Merrill Safeway Stores (groceries)12. Kirby-Woolworth- F. W. Woolworth Donahue-McCann13. Hochschild-Loeb- Climax Molybdenum Sussman Hochschild-Loeb- American Metal SussmanSmall Minority Control 17 Family Corporation1. Moore American Can2. Zellerbach Crown Zellerbach3. Crawford Lone Star Gas Less4. Moore National Biscuit than5. Cornish National Lead 106. Du Pont-Phillips Phillips Petroleum per cent7. Swift SwiftS. Warner Warner Bros. Pictures
We have named fifty-seven single families and combined, cooperatingmultiple-family groups that exercise control of the largest corporations by majority,predominant minority, substantial minority and small minority ownership. There werethirty-seven single-family-control entities, although some of these, such as theMellons, Du Ponts and Rockefellers, each controlled several big companies. Therewere sixty-four single families in the multiple-family groups named, although insome cases the names are not given in this text. Perhaps as many as 400 familiescomposed the various multiple-control groups in the 200 largest corporations.
Some of these companies, as noted, have changed their modusoperandi, notably the public utility companies. Some have changed their names,like the Ohio Oil Company. Others have gone out of existence by the merger route.It is neither necessary nor expedient to trace here each company through varioussubsequent permutations and combinations, for equities are what concern us.
Have the percentage positions of these families remained thesame in all these companies? Probably not. In some cases they have undoubtedly increasedtheir holdings, in others they are known to have decreased. Some may even have closedout their holdings. But, as pointed out earlier, if anyone has sold out in one placehe has reinvested elsewhere, and possibly to better advantage. He is, therefore,still rich.
Knowing the value of the property from the inside, all thesegroups know when the stock is overpriced and when to sell. As the income-tax returnssince the war show, the higher income groups have been steadily taking capital gains,which are taxed at a maximum of 25 per cent, a bargain in relation to the upper incometaxes. Wealthy holders usually show a strong tendency to sell some holdings in risingmarkets and to buy again in declines, thus increasing their percentile position (StandardDoctrine). So their percentages of ownership change from time to time. Sales wouldnot necessarily show on the books of a company. For a man can always sell the stockshort.
With the exception only of two as far as I have been able toascertain, all these families are still extant and still highly solvent. The exceptionsare the Harknesses and Arthur Curtiss James (1867-1941), who died leaving no heirs.James left his money to a foundation with the fairly unusual stipulation that theprincipal was to be distributed in twenty-five years, which was done. 18Like James himself, the foundation is now defunct.
There remains the case of one big company holding control ofanother big company. (Control of scores to hundreds of smaller companies by manyof the big companies is the common pattern now in the American economy.) Nearly allof the 200 largest nonfinancial companies of the TNEC study, like most of the 500industrials regularly featured by Fortune, are in fact holding companies,not operating companies at all. just about all the big companies that are familiarhousehold words in the United States are holding companies, contrary to the generalpublic belief. AT&T, for example, is a holding company.
Corporate Control by Majority Ownership 19Holding Company Operating Company Per CentArmour (Illinois) Armour (Delaware) 100Cities Service Empire Gas and Fuel 100Royal Dutch Petroleum Shell Union Oil 64AT&T Pacific Telephone 78.17 & TelegraphAT&T New England Telephone 65.31 & TelegraphChesapeake & Ohio Ry New York, Chicago & 57 St. Louis RRReading Company Central RailRoad of N.J. 55Atlantic Coast Line RR Louisville & Nashville 51 (under multiple Walters- RR Jenkins-Newcomer control)Many public utility holding Many public utility 100 Companies operating companies now cut loose
In many cases, particularly in railroads and public utilities,two corporations shared control.
A predominant minority as well as substantial and small minoritycontrol was exercised by many corporations, particularly in the railroad and electricutility fields. In this latter field, long subject to gross manipulative abuses,the companies holding widely scattered properties were finally dissolved by congressionaldecree and the equities in operating companies were distributed to individual stockholders.
Until very recently the most salient instance of a predominantminority control of one mammoth corporation by another was that of E. I. du Pontde Nemours and Company of the General Motors Corporation (discussed in Chapter IV).
While there were some cases where the big owners were under-representedin the management by reason of "youth, old age, sex, preoccupation with otherfinancial or nonfinancial interests or other considerations" heavy representationor even overrepresentation was "much more common." 20 Thus,although members of the Swift family owned only 5 per cent of the voting stock, theremainder of the stock being distributed mainly in slices of 100 to 500 shares each,the Swift family held six of the nine directorships. In the Crown Zellerbach Corporationthe Zellerbach family, owning 8-1/2 per cent of the stock, provided the president,a vice president and three directors out of a board of thirteen. It is not necessary,then, for a family to own a majority or near-majority of stock to control a companyand the disposition of its total weight. A small family block of stock and many smallgeneral stockholders are enough to secure control of the board of directors and officers.
Nor did the revelations to the TNEC in all cases show the truecenter of control, owing to a complicated network of company ownerships. An exampleis the Tidewater Associated Oil Company which as of December 15, 1939, the date ofthe TNEC questionnaire, was already well in the pocket of J. Paul Getty, althoughunknown to the world. The TNEC report shows that 3.07 per cent of the common wasowned by George F. Getty, Inc., which in turn was 43 per cent owned by J. Paul Gettyin person and 57 per cent as trustee for his children. But Pacific Western Oil Corporationowned 3.93 per cent, and was in turn owned 67.9 per cent by George F. Getty, Inc.,and 2.62 by the Mission Corporation. Again, the Mission Corporation owned 16.52 percent, and was in turn owned 46.53 by Getty's Pacific Western Oil Corporation and,observe, 7.39 per cent by the Tidewater Associated Oil Company!
Directly and indirectly J. Paul Getty at the time, undetectedby the TNEC analysts, already owned 23.52 per cent of the mammoth Tidewater enterprise.Actually, his percentage of control was somewhat higher than this because the SouthPenn Oil Company, of which Tidewater owned 17.27 per cent, reciprocally owned 2.77of Tidewater. Mission Corporation was originally established to hold the interestof Standard Oil (New Jersey) in Tidewater but Getty, as he reports in his memoirs,talked John D. Rockefeller, Jr., into selling him his Mission stock and then in aquiet campaign prevailed on other stockholders to follow the Rockefeller lead. Atthe time of the TNEC study Standard Oil (Indiana) owned 1.05 per cent of Tidewaterthrough the 98-per cent-owned Pan American Southern Corporation. 21
The TNEC made a supplemental study of 10 interesting large companiesthat were not included on the list of the 200 largest. Some of them were as follows:22
Family Corporation Percentage OwnedDorrance family Campbell Soup 100 (by trust indenture)Woodruff-Nunnally-Stetson- Coca-Cola International Candler-Illges (controlling Coca nearly Cola Co.) 50Twenty individuals Crucible Steel 45.55Mainly members of the Bell General Mills 20.14 family among twenty stockholdersHaverneyer family, H.O. Great Western Sugar 43.34 Havemeyer estate, and the Ossorio, Thatcher and Boettcher familiesHeinz family H. J. Heinz 82.10Twenty individual stock- International Utilities 26.71 holders, mainly invest ment companiesAjax Pipe Line Standard Oil (Ohio) 24.77Rockefeller Foundation Standard Oil (Ohio) 17.63Harkness-Flagler-Prentiss Standard Oil (Ohio) 10.92 (Rockefeller)-four other individuals and 11 trust companies and brokerage houses for othersSt. Regis Paper United Corporation 8.332 (utility holding company)American Superpower United Corporation 6.640J. P. Morgan & Co., Brown United Corporation 9.846 Brothers Harriman & Co., and 16 brokerage houses and investment firms
The tenth company on this supplemental list was the ElectricBond and Share Company, then a utility holding company and now an investment trust.Its twenty-one largest stockholders were banks, brokerage houses and investment companies,and the names of the beneficial owners of the stock were not elicited.
Leading family names not yet mentioned that were strewn throughthe twenty largest stockholders in the 200 largest nonfinancial companies--in manycases appearing in more than one company-were as follows:
Adler, Astor, Cabot, Clapp, Doris Duke Cromwell, Cunningham,Doherty, Drexel, Fleischmann, Forstmann, Goelet, Goldman, Guggenheim, Hanna, Hearst,Hillman, Hutton, Jones, Laughlin (Jones and Laughlin Steel), Lynch, McClintic, Miller,Milbank, Palmer, Payson, Penney, Pillsbury, Rosenwald, Schott, Skaggs, Vanderbilt,Watkins, Whitney, Widener and Winthrop.
Names of wealthy families that did not appear because theirstockholdings were not among the twenty largest and were probably widely distributedin smaller blocks, rentier-style, through many companies or were in real estate orbonds, were the following:
Baker, Bedford, Berwind, Curtis-Bok, Fisher, Frick, Gould, Green,Hill, Kahn, Lehman, Metcalf, Patterson, Pratt, Phipps, Taft, Timken, Warburg andothers.
These omissions, not at all to be deplored, came about becausethe TNEC study was not directed to ascertaining the names of all wealthy families--whatit gleaned here was a byproduct--but merely of determining who controlled the 200largest nonfinancial companies. Anyone who was concentrated mainly in real estate,banking, insurance or in widely diversified, nonconcentrated investments the studynecessarily missed. All the new Texas oil men were missing. Joseph P. Kennedy's namedid not appear.
Even if one had before one an up-to-date list of all the largestincome-taxpayers, names of some extremely wealthy people could readily elude us,such as anyone who, like Mrs. Horace B. Dodge, had converted all her holdings intotax-exempt state and municipal securities. One could, theoretically, own a billiondollars worth of these, drawing a tax-free income of $25-$30 million a year, andnever show up on the income-tax list at all.
What the TNEC analysis made incontrovertibly clear was thatthe family, not the individual, is now the significant wealth-holding and wealth-controllingentity in the United States, a thesis I had antecedently asserted, for the firsttime as far as I know. 23 While the proposition may seem firmly establishedto some it is, curiously, often denied or blandly ignored even though the SEC continuesto supplement the TNEC findings in detail. One man may amass the fortune, as in thecase of John D. Rockefeller, but if the fortune is to remain intact it must haveheirs. Where the fortune-builder is a bachelor or fails to establish a family, thefortune simply disappears in a foundation or institutional grants. Heirs, then, areas important to a fortune as to a title of nobility. Most American fortunes, easilyby a majority of 70 per cent, are in the hands today of heirs.
And, in saying that the family holds the fortune, one cannotsuppose this to suggest that its members fend individually for themselves to allpoints of the compass. They must hold together, for their predecessors have in almostall cases entangled them in a network of trusts and family holding companies thatassure unified action at all times.
No less than half of all these controlling corporate holdingswere in "trust funds, estates, and family holding companies." 24Even if an heir wished to go away on his own, all be could take with him would beincome; the holding itself would remain in a center, massed with other individualholdings and directed by some individual or small family committee. This circumstanceputs all the holdings into a tight fist, generating power that is played out in thepolitical and cultural arena. Anyhow, who would want to walk away from the goosethat lays the golden eggs?
Family Holding Companies
There are thousands of personal and family holding companies,large and small, in the United States. In most cases their names have never beenseen or uttered by 99.9 per cent of the citizenry because these entities are private,are under no obligation to make any report to anyone except the tax authorities.No public compilation of them exists.
Their names usually only come to public attention through courtproceedings or as the byproduct to certain government investigations, such as theTNEC inquiry. That particular inquiry did provide information about the existenceof some extremely large family holding companies.
A family holding company may have a score or more participantsof beneficial interest in it--infants, teen-agers, the superannuated, the mentallyretarded, absent big game hunters, scholars and normal persons in the prime of life.But the slices of beneficial interest, apart from the income pay-out, are all managedas one entity by a single person or a family committee, which in turn is either adeptin the management of large properties or has the benefit of expensive professionaladvice. An heir may seem deficient in business acumen to all who know him, but hemay be the constant beneficiary of the best legal and investment advice available,perhaps even against his own wishes. He might prefer to take his stake and investit in various attractive schemes, or spend it, but he is firmly deterred from thiscourse by the family holding company. And it functions, up and down the line, accordingto Standard Doctrine.
We have already noticed, in connection with the Du Ponts, thatthe TNEC found a large role being played by the Christiana Securities Company andAlmour Securities, Inc., both family holding companies. But other huge family companieswere also uncovered in the report.
There was, first, the Bessemer Investment Company, instrumentof the Phipps (Carnegie Steel) family that included, among many persons named Phipps,such names acquired by distaff marriages as Douglas, Janey, Sevastopoulo, Martin,and Winston and Raymond Guest. In all, twenty or more Phippses were beneficiaries.All appeared to have the financial status of rentiers and were well known socialregisterites and polo players. Bessemer Investment Company was found to be a principalstockholder in New England Power Association, International Hydro-Electric Systemand International Paper Company, whatever else it held of lesser dimensions.
Oldwood, Inc., was 66.58 per cent owned by the Bessemer InvestmentCompany and a group including the Chace, Gammack, Majes, Cox Brady and Phipps families.It was a leading stockholder, too, in the New England Power Association.
More than twenty Du Ponts had a participation large enough tolist for Christiana Securities Company, which had among its stockholders other DuPont family holding companies such as Delaware Realty and Investment Company, Archmere,Inc., and Du Pont trust funds.
The Cliffs Corporation, the personal instrument of the Matherfamily, owned all the common stock of the Cleveland Cliffs Iron Company, which wasamong the principal stockholders of the Wheeling Steel Corporation and the RepublicSteel Corporation.
The Coalesced Company was owned 50-50 by Paul Mellon and AilsaMellon Bruce, and in turn was among the top stockholders in Koppers United Co., TheVirginian Railway Co., Pittsburgh Coal Company and General American TransportationCompany.
The Mellon Securities Company, owned by Richard K. Mellon, SarahMellon Scaife and various Mellon trusts, was a leading stockholder in Aluminum Companyof America and the Gulf Oil Corporation.
The Curtiss Southwestern Company belonged to Arthur CurtissJames and Harriet P. James and in turn was a principal owner of the Phelps DodgeCorporation, the Western Pacific Railroad Corporation and the Missouri-Kansas-TexasRailroad Company.
The Empire Power Corporation was the instrument of the LaurimoreCorporation (owned by Ellis and Kathryn Phillips), the Delaware Olmsted Company (ownedby the Olmsted family), the Eastern Seaboard Securities Corporation (a joint Olmsted-Phillipsventure) and individual Olmsteds and Phillipses. Empire Power was a principal stockholderof the Long Island Lighting Company.
The Falls Company was a holding company for the very numerousRosengarten family and was a principal stockholder of the United Gas ImprovementCompany, the Duquesne Light Company and the Philadelphia Electric Company.
The M. A. Hanna Company, monument to Mark Hanna of McKinleyera fame, belonged to the Hanna family and its numerous inter-related genetic lines.It was a principal stockholder in Phelps Dodge, Lehigh Coal and Navigation and theNational Steel Corporation.
The Illges Securities Company belonged to the numerous Illges-Chenoweth-Woodruffand other families and was a principal stockholder in the Coca-Cola Company.
The Illinois Glass Company was the holding company of the numerousLevis family and was a principal stockholder in Owens-Illinois Glass Company andNational Distillers Products Corporation.
Light and Power Securities Corporation belonged to the StarlingW. Childs family and was a principal stockholder in four large public utility companies.
The Miami Corporation, a holding company for the Deering estate,was a chief stockholder in International Harvester Company and the Chesapeake andOhio Railway Company.
The New Castle Corporation, owned by Mr. and Mrs. Alfred P.Sloan, held the Sloan stock in the General Motors Corporation and the Phillips PetroleumCompany, both among the big holdings.
The North Negros Sugar Company belonged to the Ossorio familyand was a principal stockholder of the Great Western Sugar Company and the AmericanSugar Refining Company.
The Phillips family, quite numerous, owned the T. W. PhillipsGas and Oil Company, which in turn was the dominant stockholder of the Federal WaterService Corporation.
The Pitcairn Company, a leading stockholder in the PittsburghPlate Glass Company, the Consolidated Oil Corporation and the Columbia Gas and ElectricCorporation, was owned by the Pitcairn family of Pittsburgh.
The Provident Securities Company was owned by William W. Crocker,Helen Crocker Russell, Charles Crocker and Ethel Mary de Limur and in turn was aleading stockholder of the Tidewater Associated Oil Company, General Mills, Inc.,Pacific Telephone and Telegraph Company, Pacific Gas and Electric Company and theSouthern California Edison Company.
The Rieck Investment Company belonged to the Rieck-Woodworthfamilies and was a principal stockholder in the National Dairy Products Corporationand the Firestone Tire and Rubber Company.
The Taykair Corporation, which held a large number of seriallynumbered trusts, belonged to the Benjamin family and was a big stockholder in TheVirginian Railway Company, Gimbel Brothers, Inc., and the Brooklyn Union Gas Company.
Serial and paralleling family holding companies are not uncommon.For example, the Colgate family, of the Colgate-Palmolive-Peet Company, reporteda tangle of holding companies that with a few other relatively small interests madeup 31.85 per cent of the twenty largest Colgate-Palmolive stockholdings. There wasthe Beechwood Securities Company; the Oakbrook Company; the Bertco Company; the HollySecurity Company, which was 100 per cent owned by the Filston Security Company, itselfa holding company for family members; and the Orange Security Company, owned 100per cent by the Beechwood Securities Company; and then there were individual holdingsby individual Colgates and distaff descendants.
One could go on at great length exhuming the names of hundredsof additional family holding companies but nothing would be added except repetitivedetail to the essentials of this report.
It is not usually the case, then, that a big fortune is subjectto the ownership and direction of some single individual, some dominating Croesus.It is usually directed by a small family committee with access to expert professionaladvice, each member of this committee owning only a small percentage of the big pie.But the decisions respecting the big pie are the same as far as the world outsideis concerned as if one man owning hundreds of millions made his will effective.
Under American law the entailment of estates is prohibited,but the prohibition has in effect been nullified through what may be termed serialentailment. For property owners of the third generation make provisions for placingproperty once again in untouchable trusts extending to three more generations, andso on ad infinitum. Boston is a particular center of such long-range serializedtrusts. 25
As in England under legal entailment, in the United States hugeproperties are thus secured for generations unborn. The future beneficiaries cannever have made any compensatory social contribution and may never make any afterthey are born. They are simply privileged by prescription as under the longstandingAmerican-despised European system.
Whereas private family holding companies are a favorite wayof keeping big holdings intact and under central direction (even though the beneficialinterest in income may be spread among scores or hundreds of cousins, aunts and in-laws),there are also individual trust funds, usually under the direction of a bank. Theconcentration of many trust funds in large banks, of course, concentrates just thismuch industrial voting power under the boards of directors of the banks. It makesthem powers in the land.
Some of these trusts are relatively small. But, altogether,they add up to an enormously big financial punch. And, as the banks largely maneuveraccording to the same point of view, they in effect act in concert in voting thesesecurities in various corporations. Indeed the size of the holdings they representoften enables them to name members of corporate boards of directors, which is oneof the reasons so many bank officials are found strewn among the corporate boards.The large amount of stock that places them in position is not their own. But it givesthem a great deal of veiled authority.
In some cases, various apparently unconnected members of theboards of directors of the corporations are like so many horses running out of thesame stables, carrying the same ownership colors. The family that is the biggeststockholder in Corporation X, holding 20 per cent, is also the biggest stockholderin the bank with many trust fund holdings in relatively small amounts of stock ofCorporation X, also perhaps adding up to 20 per cent. Another bank, also holdinga great deal of trust stock, perhaps 12 per cent in hundreds of trust funds, maynot be controlled by any of the first parties but is merely a friendly back-scratchingally. Together the two groups absolutely control the corporation, name its officers,determine its policies, apply its influence.
To what extent are funds now under trusteeship?
"At the end of 1964, trust departments of commercial banksbad investment responsibility for assets of approximately $150 billion, of whichabout $50 billion represented employee benefit accounts. In addition, bank trustdepartments provided investnment management for agency accounts with assets of atleast $35 billion." 26 In these last the banks acted as agents forother trustees. We see, then, that nonemployee or individual trust funds amount toat least $135 billion, although the true figure is actually larger than this, forthere are nonbank trustees who do not make use of banks even as agents.
Of the trust holdings of national banks, "More than 59percent of these assets were invested in common stocks; about 52 percent of the employeebenefit accounts, and approximately 62 percent of the other accounts." 27
Most of these trust funds were concentrated in a few large banks."Twenty-one banks with investment responsibility for trust assets of more than$500 million held approximately 56 percent of the total, and the 100 largest trustdepartments held more than 80 percent of the trust assets of national banks. Assetconcentration was greatest among employee benefit accounts for which the 21 largestnational bank trust departments held almost 80 percent of the assets where nationalbanks acted as trustee. Large trust departments, for the most part, are concentratedin the largest commercial banks, although there are many exceptions where moderate-sizedbanks have very large trust operations and vice versa." 28
"National banks with trust assets in excess of $5 millionreported having approximately 580,000 trust accounts, including 68,500 corporateaccounts, and 340,000 accounts where they exercised investment responsibility."29 These figures indicate, excluding the corporate employee accounts,that there are at least 920,000 individual or private trust accounts in nationalbanks alone. Some persons, of course, are the beneficiaries of many trust funds.Not all trust funds are large, may indeed be as small as $5,000 or $10,000, but thelarger banks will not accept these. The larger New York banks do not like to be namedas trustee for anything under $100,000 even for inclusion in their collective trustfunds, in which there is a mingling of many smallish trust funds with proportionateparticipations, as in an investment trust.
The average size of trust accounts where the bank exercisedinvestment responsibility, excluding employee benefit accounts, was $173,000; butin the larger banks the average size was $300,000. Smaller banks carried trust accountsat an average size of $53,000. 30
But "Investment management accounts tend to be larger thanthe average for other trust accounts, since many banks set a relatively high minimumsize or minimum fee on such accounts." 31 Thus the average size ofsuch accounts was $582,000, and in the bigger banks it was $735,000.
In addition to national banks there are the state-charteredbanks to be considered.
"We estimate that state-chartered banks have investmentresponsibility for trust assets, apart from those of employee benefit accounts, ofapproximately $51 billion, bringing the total of such assets for all banks to approximately$105.5 billion." 32 Employee-benefit accounts in such state-charteredbanks were estimated at $29.5 billion, with the New York State Banking Departmentalone accounting for $23.6 billion as a definite nonestimated figure. For all state-charteredbanks, investment management accounts were estimated at $20 billion. 33
Total trust accounts for which banks have investment responsibility,then, amounted to $155.8 billion at the end of 1964, of which $105.5 billion representednonemployee benefit or individual accounts . 34 There was another $35billion for which the banks acted as investment advisory agencies and an unknownamount in the bands of individuals or corporations that did not make use of banksas advisory agencies.
There are two significant aspects of these trust-fund figures.
First, they represent an entirely new set of statistics, thegathering of which was begun by the comptroller of the currency only in 1963.
Of greater significance, however, is that the figures show thedeep foundations of vested inherited wealth in the United States. Trust funds arepopularly thought of as solely for the benefit of widows and minor orphans, and suchare no doubt included among the beneficiaries. But, by and large, most of the beneficiariesare able-bodied adults, unwidowed, unorphaned and, as often as not, pleasantly idle.In many cases the first generation in receipt of trust-fund benefits never collectsthe principal at all, which is left to the next generation. When principal is paidout, it is often in dribbling installments throughout the recipients' lifetimes.In the case of the original Marshall Field, trusts were established that did notallow the grandchildren to collect the last part of principal until they were fiftyyears of age.
Such provisos keep the fortune from being dissipated throughthe exercise of immature judgment. The first generation cannot disturb the principaland the next generation does not get all of it or, sometimes, any of it until itsmembers are quite advanced in age. At that point many of them lock the principal,Boston-style, back in new trusts for the benefit of the next two generations. Again,too, inheritance taxes are bypassed except at those points where principal is paidover.
From a property-ownership point of view all this undoubtedlyhas great merit. But what it signifies for the unpropertied is that they will neverlay hands on any of this property no matter how they perform, short of overturningthe legal system and the military forces behind it. The beneficiaries cannot evenbe swindled out of their benefices. Obviously, economic opportunities, legal andillegal, are considerably narrowed for the multitude when so much property is closelysequestered for the benefit of unborn generations.
The trust funds, like the family holding companies, point upthe fact that the United States, like the Europe it proposed to surpass in equalityof opportunity, has developed a permanent hereditary propertied class. Indeed, owingto the far greater proportion of public ownership now in western Europe, the UnitedStates actually has more of a hereditary property system than does Europe.
And if this seems paradoxical, one may notice this even greaterparadox: There are kings now in Europe who are far more democratic in their attitudesthan the average American citizen.
What stocks are trust funds concentrated in? This is not difficultto ascertain. Although individual trust funds may, by stipulation, be concentratedin one or a few stocks, when there is no such stipulation the principle of diversificationis resorted to by competent trust officers. This amounts to invoking the principleof the investment trusts that limits their holding of any issue to no more than 2per cent of the entire capital. The big New York banks issue to interested partiesthe portfolio list of their collective trust funds--that is, those where many smallertrusts are mingled together, with each trust participating proportionately to itssize. A small trust is defined in different ways by different banks and may be asmuch as $500,000. "Small" here means too small to be managed profitablyby itself.
As these lists of collective trust funds show, the stock investmentis mainly in the list of the 200 largest companies and the 500 largest industrialcompanies and the 50 largest merchandising, public utilities and railroads, respectively,on the annual Fortune lists. Trust funds are not invested in the biggest companiesper se but in the relatively well-performing stable companies that are relativelycheapest at each time of purchase. Public utility and insurance company stocks havefor some time especially attracted trust accounts.
While questionable practices were uncovered in some trust accountsin the 1930's, such as stuffing them with dubious issues for which the bank was inan underwriting syndicate (now no longer possible with the separation of underwritingfrom banking under the law), in an advanced jurisdiction like New York the trustcompanies are under strict state supervision. The trust company has come to the foreas an institution because of the many cases in the past where individual trusteeshave exercised bad judgment or turned out to have sticky fingers with respect tothe trusteed property. The very life of a trust company depends upon its proper operationwithin average limits.
Before leaving this topic of trust funds one may ask: What istheir major utility? The trust funds are designed to keep principal intact and imperviousto error of inexperienced heirs, and to hold inheritance taxes to a minimum.
Family Holding Companies Revisited
The personal and family holding companies also perform thisfunction, and more. A personal holding company is defined in the Revenue Code asa company owned 50 per cent or more by no more than five stockholders with incomederived primarily from certain types of investments. The two Mellon entities alreadynamed are examples. The family holding companies are the equivalent of close investmenttrusts and operate under tax laws appropriate to such entities.
Says Standard Doctrine: "A personal holding company isa close corporation, organized to hold corporate stocks and bonds and other investmentassets, including personal service contracts, and employed to retain income for distributionat such time as is most advantageous to the individual stockholders from a tax pointof view." 35
As of 1958, the latest date available, there were 6,285 personalholding companies. Another type of closely held corporation, similar in many casesin its functions, is the legally defined Small Business Corporation. There were,as of 1962, more than 120,000 of these. They are taxed through their stockholders,of which there may not be more than ten.
The personal holding companies are purely investment companies.The total assets for all of them were $5,236,429,000, but $4,304,158,000 of the assetswere concentrated in only 652 with assets of $1 million or more; 25 had assets exceeding$50 million, 12 exceeding $25 million and 48 exceeding $10 million. Total incomeof these entities was $361,916,000, of which $216,822,000 came from dividends. Whatevertheir size, these were instrumentalities of larger property holders. 36
A remaining advantage in both corporate forms is that they concentratecorporate voting power for the special benefit of all the beneficiaries. Let us,for the sake of simplicity, suppose that there is a family group of 200 individuals,each owning precisely $1 million stock in the mythical SuperCosmos Corporation whoseoutstanding stock is valued at $1 billion. Each one of these persons would on thebasis of his personal equity have little to say about the company, it is clear, butwould be part of the rabble of minor stockholders. Combined, however, possibly ina group of personal holding companies, they own 20 per cent of the stock and thusname members of the board and are always well advised in advance of inner-companydevelopments. Their representatives, too, can trade such inner-company informationwith similar groups in other companies for investment orientation. They are, also,politically powerful as a group.
Again, under existing tax laws it is the general strategy ofthe very rich to keep dividend pay-outs low in relation to earnings. The family investmentcompany can hold back some of its income as corporate reserve, thus reducing thetax liability of its members. This corporate reserve, in turn, is reinvested.
In the sphere of operating corporations as a whole, producinggoods or services for the public, the average dividend pay-out is ordinarily about50 per cent of earnings. Some of the earnings are retained to replace wornout equipment,to expand and to keep dividends stabilized in less profitable years. But corporationsdiffer in their pay-out rates, even among good earners, ranging from zero to 80 percent. Small stockholders tend to favor those with high pay-out rates. But many bigstockholders have come to prefer those with small pay-out rates, for then personalincome taxes are lower.
Control of companies, however exercised, enables one to havesomething to say on this important subject of pay-out rates.
But in recent years many of the large corporations have retainedearnings greatly in excess of replacement and future dividend needs. Such earningshave been used in the acquisition of companies in unrelated fields, as part of apolicy of investment diversification, and in buying control of foreign companies,which might be classed as economic imperialism. The advantage to the big stockholdersis that the money is not paid out in taxable income but is continually ploughed backto increase the underlying value of equities. However, if any big stockholder wantsmore income he can take it in the form of low-taxed capital gains by selling someof his stock. The large yearly aggregates of capital-gain income reported to theInternal Revenue Bureau since 1950 reveal what is happening.
A fairly recent concept that has emerged in the corporate worldis that of the "growth company." A growth company, manifestly, is a companythat grows. The name is attached rather indiscriminately by brokers to new companiesin technologically novel fields: electronics, space-age, atomic power, etc. Not allof these are growth companies for, as experience shows, not all of them grow. Butany company that ploughs back a large proportion of its earnings steadily is obviouslya growth company. With taxes in mind such companies are advantageous.
The very wealthy, in brief, are less interested in increasingtheir taxable incomes than in increasing their nontaxable ownership stake. This,when necessary, can always be cashed.
Observations En Passant
There remain some observations to be made about the Americanhereditary owners, contradicting common beliefs.
It is generally supposed that the heirs of the big fortune-buildersare comparatively incompetent playboys or at best poor copies of the original OldMan. While wastrels have been seen among some of the very wealthy, most of them womenor some man intent upon impressing some woman (Astor, Vanderbilt, Hearst and others),in all the big surviving fortunes the heirs seem to show greater and greater finessein applying Standard Doctrine under more and more complex conditions. The originalfortune-builder might not understand everything they were doing but he would haveto admit they are getting results as good as or better than he ever got. One reasonfor this is that the heirs now have available to them much more highly developedprofessional experts, deeply versed in the intricacies of each situation: economists,statisticians, analysts, engineers, psychologists, lawyers and the like.
Two original Du Ponts did very well in launching E. I. du Pontde Nemours and Company and deserve a reverent salute from all deeply committed moneyfans. But they seem to have been outdone by every succeeding generation of Du Ponts,each of which appears to have missed no opportunity to enlarge that part of the fortuneit inherited.
The same with the Fords. After his first great success HenryFord, set in his ways, dogmatic, began to lose his touch. He refused to defer tohis son Edsel, who close observers believe would have put the company on a sounderfooting than it found itself in the 1940's. But Henry Ford II, a grandson in histwenties, later aided by two younger brothers, brought the Ford Motor Company upto new heights of wealth, public esteem and prestige. In a little more than ten yearsthe grandsons more than sextupled the value of the company, outperforming the economyas a whole, and have no doubt engaged in unknown side coups of more than modestproportions.
Judge Thomas Mellon's sons outdid his financial feats, and hisgrandchildren do not appear, under more difficult circumstances, to have lost thegolden touch. The Mellons are still going strong, surrounded by family holding companies,trust funds and banks.
As to the Rockefellers, it might appear that none of them willever be able to outdistance the wily old monopolist who put the family on the financialand political maps. But many authorities would argue that John D. Rockefeller, Jr.,performed a far more difficult feat in holding the fortune together under strongpolitical attack. Judge Mellon's opinion that it is harder to hold on to money thanto make it has been explicitly made part of Standard Doctrine. 37
If this is so then Rockefeller, Jr., who inherited a difficultsituation, must be considered to have surpassed his father. The grandchildren aredoing even better, for in addition to advancing the family fortunes they have performedthe difficult feat of making themselves the idols of a considerable public.
As to it being more difficult to retain money than to make it,probably few would readily agree with this proposition. But slight reflection willshow that it is true. Most adults have jobs and are paid. But how long does the weeklypay check last? Could one resolve not to spend it? Most people could not make sucha resolution unless they wished to starve. Actually, most persons are unable to saveas much as an average 5 per cent of their earnings. This state of affairs illustratesthe point.
The average man in the street might contend that if his paywere only higher he would retain some of it; and in some few cases, let us agree,he would. But from time to time there are big sweepstakes and lottery winners, suddenlypossessed of goodly sums. How old judge Mellon would smile if he could hear themexcitedly telling newspaper reporters what they are going to do with their windfalls:a new house, a new wheelchair for grandma, crutches for Tiny Tim, a new car, a tripto Florida and then some government bonds of declining purchasing power! A year orso later, as it turns out, they are all where they were financially to begin with,looking back wistfully to the time they were suddenly rich. What happened to themoney? they ask. Where did it go?
What defeats most people in holding onto money, reinforcingthe judgment of Judge Mellon, is that they are basically childish spenders. And thereinlies part of the opportunity of acquisitive moneymakers. One task of the marketplaceis to separate people from their money, often giving them something meretriciousin return.
Present Status of 200 TNEC Corporations
What has happened to the two hundred corporations of the TNECin the twenty-five years that have elapsed? Have any fallen by the wayside, carryingtheir owners to disaster? Have any slipped from the top of the heap?
"Analysis of the 1937 group of 200 non-financial corporations,"according to The Dartmouth Study 38 "reveals on the surface a numberof things. In terms of current dollar values there has been great growth forthe group as a whole. In terms of constant dollars (values adjusted for depreciationof money), the total growth is probably not much greater than the rate of growthof our economy. This point cannot be pressed further, however, in the absence ofdetailed information about the accounting adjustments which the various firms havemade as the value of the dollar has declined and as new assets have been added."
The TNEC list is set forth parallel with the 1964 list of biggestnonfinancial corporations in Appendix B.
There have been changes of detail in the list (although notsignificant) with respect to who owns and controls the wealth. With the exceptionof a few newcomers, the same groups own the companies as owned them in 1937.
Certain companies have moved off the master list of the leading200, not because they have lost out entirely but because they have been squeezedoff by mergers or by the emergence of new industries such as aviation and naturalgas pipelines.
Except for the Mellon (Pittsburgh) Consolidation Coal Company,all coal companies have been pushed off the list, replaced by gas pipelines. Railroadshave moved down on the list and some have moved off; but a merger kept Erie-Lackawannaon the list. Pullman, Inc., a Mellon enterprise, has declined, partly because ofan adverse antitrust decision. It is evident that the loss of a monopoly positionin the face of new means of transport is what has taken the bloom off the railroads.In meat packing, the "big four" have been supplanted by the "big two"--Swiftand Armour.
The electric utilities on the two lists are not strictly comparable.On the later list are many new regional companies that are the outcome of the dissolutionof the old holding companies. But in essentials the same electric power propertiesare on both lists, though often under different names.
Film companies have been pushed off the list, owing to the competitiveadvent of television and adverse antitrust decisions. Their owners were never seriouslyclassified among the big-wealthy.
In all, close to fifty companies appear to have been pushedoff the list. In addition to three coal companies, two packers and fifteen old-lineutility holding companies, they are: Texas Gulf Sulphur, American Sugar Refining,American Woolen (Textron), Hearst Consolidated, International Shoe, New Jersey Zinc,U.S. Smelting, National Supply, United Shoe Machinery, Gimbel's, Marshall Field,R. H. Macy, Hudson and Manhattan Rail Road, six interstate railroads and two filmcompanies. No really big interests experienced a decline.
Some newcomers are the product of split-offs. Western Electriccame out of AT&T and now ranks twenty-fifth in size. The only other newcomerin the first twenty-five is Tennessee Gas Transmission, representing new capitalmobilization. The only newcomer in the second twenty-five is El Paso Natural Gas,owing to similar circumstances.
The second fifty have among them as new faces only Sperry Randand Olin Mathieson, outcomes of mergers.
The most recent list, in brief, represents the same old crowdwith a few additions produced mainly by mergers and subtractions by squeezing.
At the very top there is DO change except that the companieshave grown much larger. AT&T, largest company in the world, leader of both listsand the stock of which is widely held, had total 1964 assets of $30.306 billion comparedwith $3.859 billion in 1937. Standard Oil (New Jersey), largest purely industrialcompany in the world in point of assets, had assets of $12.49 billion compared with$2.06 billion in 1937, and was in second place both times.
The smallest company on the TNEC list was Texas Gulf Sulphur,with assets of $62.9 million. The smallest company on the later Fortune listwas Scott Paper, closely shadowed by Allied Stores, with assets of $413.8 million.
The TNEC list was compiled during a depression, the Fortunelist after a war and twenty years of boom, heightened concentration and inflation.
As to the owners and controllers, there has been no significantchange except that they are more firmly established in the ascendancy than before,Four Rockefeller companies appear among the first twenty-five compared with 3 in1937, and there are 6 of them on the TNEC list and 7 on the Fortune list.The two big Du Pont companies have moved up among the first twenty-five, improvingrelatively. One of the chief Mellon properties, Gulf Oil, has moved into the firsttwenty-five, in eighth place, where it was not to be found in 1937. The Ford MotorCompany has moved up from twenty-third to fourth place.
One of the most spectacular improvements in the approximatelythirty or so years separating the two lists was Sears, Roebuck and Company, whichmoved from sixty-ninth place, with assets of $284 million, to ninth place, with assetsof $4.271 billion, making it the world's leading retail merchandiser. The positionof the dominant Rosenwald family has been correspondingly improved, making it easilyworth more than $500 million and on the threshold of super-wealth. An even more spectaculargrowth company was International Business Machines, leader of the computer-automationfield, which moved from one hundred eighty-fifth to twelfth place in size of assets.Most of the newcomers to the list, however, are the result of mergers, spin-offsor the rise of new industries such as aviation and gas pipelines on the basis ofnew capital. But, although there are newcomers, few of the newcomers are new properties.Mergers either brought companies onto the list, moved companies up on the list orkept them on the list: General Telephone, American Metal Climax, International Telephoneand Telegraph, Olin Mathieson, Burlington Industries, Erie-Lackawanna, Georgia-Pacific,General Dynamics, United Merchants and others.
While the lists in both cases represent only a small sampleof American companies, these companies represent almost 70 per cent of U.S. output.Basic economic activity outside these lists represents the lesser portion of thepie.
Aluminum Company of America moved from seventy-ninth to thirty-eighthplace even though its monopoly position was broken by the sale of wartime governmentaluminum plants to competitors. The Kaiser interests--one of these competitors, andnurtured by government patronage--have put no less than three new companies on themaster list: Kaiser Aluminum, Kaiser Industries and Kaiser Steel.
The Pew family's Sun Oil Company moved up from one hundred thirty-eighthplace to seventy-fifth. Although J. Paul Getty's Tidewater Oil is only sixty-ninthon the list, up from ninety-second place, it should be remembered that Getty ownsmost of it and has many other oil interests whose lesser dimensions fail to qualifythem for this list.
Viewed again purely from the perspective of this most recentlist of the biggest American proprietors, the financial grand dukes of the UnitedStates appear still to be, individually and collectively, the Rockefellers, Du Ponts,Fords, Mellons, Rosenwalds, Pews, Gettys, Phiippses, Mathers, Hartfords, McCormicksand individuals like Allen Kirby, who in addition to his New York Central and Woolworthholdings is a leading stockholder of the big Manufacturers Hanover Trust Co. of NewYork.
The old question pops up: Have positions in these companiesbeen maintained at the same level throughout the years? In some cases, as in thatof the Du Ponts, we know they have. There have been some shifts in Rockefeller holdings,and the Ford holdings are about what they were when Henry Ford I died. At the timeof the TNEC study the Rosenwalds held 12.5 per cent of Sears, Roebuck. In view ofthe steady strong growth of this company one would not suppose they would have soldout. If anything, guided by Standard Doctrine, they would have increased their holdings.
As groups like railroads and coal companies declined in theeconomy, no doubt leading holders tended to sell them out. But they may also havereestablished positions at lower prices, and in recent years the railroads have showngreat improvement, both in earnings and in market action of securities.
No big interests such as Hartfords, Zellerbachs, Weyerhaeusers,Dukes, Pitcairns, Mathews, Swifts and others are reported to have cleared out. Amongsmaller interests there have undoubtedly been inter-company shifts of holdings, asinto oils, aviation, natural gas and gas pipelines.
Old money, though, has found its way into successful new enterprises,as in the Harriman-Warburg-Straus ground-floor investment in Polaroid.
We have seen that concentrated ownership is a more prominentfeature of small companies. This circumstance and the fact that there is such concentratedownership of very large companies show that concentration of ownership and controlin few hands is a built-in feature of the American economy. While twenty millionor more stockholders have an equity (usually trifling) in these and hundreds of othercompanies, it is a fact, as the TNEC study showed, that from two to three up to twentyof the largest stockholders own very large to total percentages of the companies.Total ownership by small inter-related groups was shown for Great Atlantic &Pacific Tea Company, Ford Motor Company and Campbell Soup Company. The small stockholdersare therefore no more than insects crawling on the backs of rhinoceri.