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Ten
PHILANTHROPIC VISTAS:
THE TAX-EXEMPT
FOUNDATIONS
Wealthy men and women today are almost all freely labeled by the public prints as philanthropists. In such mindless parroting the word has acquired the operationally extended meaning of "wealthy person"; and "wealthy person" means, reciprocally, "philanthropist." As hardly anybody in society is more welcome than a philanthropist, it follows that nobody is more welcome in all his beneficence than a wealthy man. By American propagandic decree the wealthy man thus has strangely been transmogrified into the quintessential cream of humanity. Simple people, the majority, accept him without reservation in this guise.
It is, furthermore, extremely rare to find the public prints, particularly the corporate press, labeling anyone other than a wealthy person as a philanthropist. Journalists now appear to make a subtle distinction between philanthropists as merely rich persons and humanitarians as functional benefactors without money: Jane Addams, Lillian Wald, Jacob Riis, Clara Barton, Florence Nightingale.
Oddly at variance with the common perspective of the wealthy person as an overreacher of others in competition for worldly goods and power, the prevalent one is quite in harmony with the Alice-in-Wonderland treatment of contemporary affairs in public prints. As it is practiced on the American scene it is a variant of Orwellian "New-Speak," in which war means peace, peace means war, and liberation means enslavement. For the United States as much as Soviet Russia has its own "New-Speak" in which "defense against Communism" means "invasion of Vietnam" (or the Dominican Republic), Defense means attack. Patriotism means doing physical injury to someone. Inflation means prosperity. Bigness means greatness. And wealth means philanthropy. According to the public prints all is not as one might simple-mindedly suppose in the realm of wealth; contrary to reasonable supposition and statistical fact the wealthy are not endeavoring to increase their wealth but are feverishly endeavoring to give it away for good works.
The basic misinformation sedulously conveyed is this: Whatever the people's government is not taking away from the wealthy in huge tax bites is being given away to the lame, the halt, the blind, the needy, and the worthy with a lavish hand. Therefore, it seems, one should forget about the wealthy; they are not a serious factor of power in the social situation.
Instead of the wealthy, who are measurable and palpable, we are assured by approved savants that what is really involved in the social situation is something elusively unmeasurable and impalpable, discernible only to rarely subtle minds, masters of arcane and delicate methodology. These minds, more and more of late eschewing the troublesome concrete in favor of the pleasantly abstract, limn for us The Power Structure, The Establishment, The Power Brokers, and The Power Elite who face, not the poor, the exploited or the unpropertied, but The Disadvantaged, The Culturally Deprived, The Under-Privileged, The Unfortunate and The Lower Socio-Economic Strata. (All these Disadvantaged may escape their plight by climbing the golden staircase of Upward Mobility.) Taboo entirely in the cleansed new social metaphysics are such coarse and unmannerly terms, worthy only of unwashed boors and churls, as Class and Caste, with their connotations of past and present turbulence. Very much favored is Strata, a cool and cleanly word. People are people, it seems--all pretty much the same according to democratic dogma but found in different Strata, some merely flying by choice or temperament at lower altitudes than others. And in the emerging new social metaphysics or rhetorical whitewash there are few Unemployed. In their place we have the Disemployed, even the Involuntary Leisured. There are, too, Senior Citizens in place of Old People. Persons unable to detect the difference are obviously deficient in understanding--cannot tell the difference between a war and a massive overseas police action.
"Class" is a particularly troublesome word; for one can, unless one is very careful, slip and slide on into "class warfare." But in the elegant variance of the aseptic new terminology one can hardly make the mistake of saying "power-structure warfare," "power-elite warfare" or "lower socio-economic strata warfare." The fashionable new terminology protects against such deplorable gaucheries. Yet the basic phenomena remain in all their harshness.
Puzzles of Philanthropy
As we are not engaged here in an embroidery upon journalistic fantasies we are confronted by a number of puzzles. To what extent are the wealthy giving their money away for good works if they are giving it away at all? This is somewhat similar to the question faced in the last chapter: To what extent are the wealthy being taxed out of existence? And, if they are not giving wealth away, what is it that they are really doing with their numerous foundations?
As many persons are involved in all this so-called philanthropy one must not, heeding the caveats of methodological vigilantes of the Establishment, impute motivations without warrant, although the very term philanthropy (to which the Establishment methodologists oddly do not object) does already unwarrantably impute motivations. What the individual motivations are of those thousands who now transfer money to foundations one cannot say one really knows. 1 But one can trace certain indubitable nonphilanthropic effects of such activities.
The first of these is the public relations effect. The founder may have been publicly disliked, like John D. Rockefeller I, or not very well liked, like Andrew Carnegie. But the forming of foundations had the effect of altering opinion in an unsophisticated population, turning the supposed bad guy into a supposed good guy.
Just how far down in public esteem a wealthy man may sink can be seen from the following acerb vignette of John D. Rockefeller I by Ida Tarbell, writing in the widely circulated McClure's Magazine in 1905:
No candid study of his career can lead to other conclusion than that he is a victim of perhaps the ugliest . . . of all passions, that for money, money as an end. . . .
It is not a pleasant picture . . . this money-maniac secretly, patiently, eternally plotting how he may add to his wealth. Nor is the man himself pleasanter to look upon . . . portraits show . . . craftiness, cruelty, something indefinably repulsive.
Hypocrite, intriguer, freak of nature, it is not for us to say. The great public does not deal in nice psychological distinctions. . . . it says this man has for forty years lent all the power of his great ability to perpetuating and elaborating a system of illegal and unjust discrimination by common carriers. He has done this in the face of moral sentiment, in the face of loudly expressed public opinion, in the face of the law, in the face of the havoc his operations caused. . . . He has fought to prevent every attempt to regulate the wrong the system wrought, and . . . turned his craft and skill to finding secret and devious ways of securing the privileges he desired. . . .
He has turned commerce from a peaceful pursuit to war, and honeycombed it with cruel and corrupt practise; turned competition from honorable emulation to cut-throat struggle. And the man who deliberately and presently does these things calls his great organization a benefaction, and points to his church-going and charities as proof of his righteousness. To the man of straight-forward nature the two will not tally. This, he says, is supreme wrong-doing cloaked by religion. There is but one name for it--hypocrisy.
To have blotted out of popular consciousness largely by foundational activity this once prevalent estimate has been a notable achievement in public relations engineering.
Another effect is the tax-saving benefit. Nearly all of the American foundations have come into view since the enactment of the income tax and estate tax laws: The foundations are completely exempt not only with respect to income taxes but also capital gains taxes. One does not know in each case that the founder sought to escape taxes, but common reason would indicate it. Many standard tax-advisory services explicitly point to these factors as attractive features of foundations. 2
A third effect is the corporate-control effect. Corporate control, which would otherwise be undermined by the tax laws, is preserved to perpetuity by many foundations, permitting the hereditary transmission, tax free, of vast corporate power.
A fourth effect is that the foundations extend the power of their founders very prominently into the cultural areas of education (and propaganda), science, the arts and social relations. While much that is done in these areas under foundation auspices meets judicious critical approval, it is a fact that these dispensations inevitably take the form of patronage, bestowed on approved projects, withheld from disapproved projects. Recipients of the money must be ideologically acceptable to the donors.
There is a positive record showing that by these means purely corporate elements are able to influence research and many university policies, particularly in selection of personnel. While the foundations are staunch supporters of the physical sciences, the findings of which have many profit-making applications in the corporate sphere, among the social disciplines their influence is to foster a prevailing scholastic formalism. By reason of the institutional controls that have been established, the social disciplines are largely empty or self-servingly propagandistic, as careful analyses have disclosed. 3
Whether or not these various effects were sought by the foundation creators, they are present, and the realistic observer must suppose they were what the realistic founders had in mind. (We must be particularly impressed by the frank analyses of their tax advisers.) Via the foundations they get more mileage out of their dollars--and retain more dollars.
The Foundation Panorama
There are now so many tax-exempt foundations in the country that the number cannot be precisely ascertained.
The Foundation Directory, 1964, published by the Russell Sage Foundation, lists 15,000 foundations but says the number is increasing heavily year by year. 4 In this figure it challenges the total of 45,124 given by Representative Wright Patman, chairman of the Select Committee on Small Business of the House of Representatives. Patman's figure, the Directory holds, included civic, educational, welfare and religious organizations as well as pure foundations. 5 But the Patman investigation of the foundations in the early
1960's is the most complete available and will be cited throughout this chapter. It was focused, moreover, on the 534 largest foundations (within the Russell Sage meaning of the term) with total book-value assets exceeding $10 billion at the end of 1960.
As of early 1967, a total of 6,803 foundations in the United States had total assets of $20.3 billion by market values (as distinct from book values), an increase of almost $6 billion in three years, according to the foundation-supported Foundation Library Center of New York, as reported in the New York Times, April 4, 1967 (32:3-4). These were record high figures, a measure of lush prosperity in Foundationland.
Total foundation assets in the period 1960-63, according to the Foundation Directory, were $14,510,765,000; so it is evident that Patman's inquiry covered most of the field. 6 Of these, $8.161 billion were concentrated in New York; Pennsylvania came next with $853 million; then Michigan with $752.9 million; and Texas with $744 million. New York is far in the lead here as in all other aspects of finance.
Prior to 1910 there were only eighteen American foundations, with just one exceeding $10 million. (Until 1913 there were no income taxes, until 1916 no estate taxes.) In the next decade 76 were launched, in the 1920's 173, in the 1930's 288, in the 1940's 1,638 and in the 1950's 2,839. Of 5,050 leading foundations, 32 per cent were launched in the 1940's and 56 per cent in the 1950's. 7 In their magnitude and pervasiveness, then, the foundations are something recent, a new thing. They are plainly a reflex to the tax laws which give them exemption.
The Foundation. Directory sets forth thirteen foundations with $100 million or more in assets.' But this listing, although impressive, is misleading because some interests have established many foundations, and small foundations in their various ways are themselves significant. Patman more revealingly shows them by groups.
The thirteen leaders according to the Foundation Directory are:
Source Assets
(millions)
Ford Foundation Ford Motor $3,320
Rockefeller Foundation Standard Oil 632
Duke Endowment Duke Power 478
John A. Hartford Foundation Great Atlantic &
Pacific Tea 360
W. K. Kellogg Foundation Kellogg cereals 310
Carnegie Corporation Carnegie Steel 268
Alfred P. Sloan Foundation General Motors 223
Moody Foundation W.L. Moody, Texas oil,
realty, newspapers and
banks 188
Rockefeller Brothers Fund Standard Oil 152
Lilly Endowment, Inc. Eli Lilly pharmaceuticals 151
Pew Memorial Trust Sun Oil Company 135
Danforth Foundation Purina cereals 126
Commonwealth Fund Harkness family;
Standard Oil 125
The inadequacy of the above listing on the side of understatement is readily shown. Patman detailed eleven out of fourteen Rockefeller-controlled foundations with aggregate assets of $1,016,440,732. These represented about one-seventh of all foundation assets. Among six in all there were four Mellon-controlled foundations, none with assets of $100 million but with aggregate assets of $160,651,388. Nine Mellon foundations, according to the Foundation Directory, held $372 million of assets. There were eight Ford-controlled foundations. Seven of these were infinitesimal in size compared with the monster Ford Foundation, which holds nearly a quarter of all foundation assets. Five Carnegie foundations had aggregate assets of $413,465,429. Out of nine Du Pont foundations six were stated to have aggregate assets of $18.9 million, but the Alfred I. du Pont estate, set up in the form of a trust destined for The Nemours Foundation, had aggregate assets of $292 million at the end of 1962 compared with its originating valuation of slightly less than $40 million in 1935. 9
Patman in his text seriously understated the value of the Du Pont foundations as compared with the showing in his detailed table of foundation assets, which shows the Longwood Foundation, Wilmington, Delaware, alone with total assets of $122,712,483, and the Winterthur Corporation, a foundation, with assets of $32,271,151. Putting these together with the Nemours Foundation and other Do Pont foundations mentioned in earlier chapters, one finds Du Pont foundations totaling nearly $500 million. 10
Protean Uses of Foundations
While the largest foundations and flotillas of foundations have been mentioned, size is not alone important. Smaller foundations act as conduits and control points, useful in all sorts of secret business affairs and especially in tax evasions. Nearly every large corporation and many of the large banks now have their own foundations. And small foundations often suddenly flower into huge growths.
-Among other things, as Patman found, foundations can become tax-free receptacles for capital gains. An individual or corporation may have an investment it wishes to liquidate but which stands to incur a huge capital gain on large long-term appreciation. Payment of a capital gains tax may be avoided by turning the investment over to a foundation (no gift tax) and then having the foundation sell the investment (no capital gains tax). The foundation may now lend the entire liquid sum back to the donor at a nominal interest rate (no law requires that the foundations seek maximum earnings), or it may with the untaxed money obtain a controlling block of stock in some company the original donor wishes to control. With this control he can raise or lower the company's dividend rate, obtain power over its possibly large cash funds and management and perhaps even obtain for himself some further low-interest loans.
With low-interest loans received, a donor can make lucrative investments. He could, for example, with a loan on which he paid 1 per cent, itself tax deductible, go out and buy tax-free local government bonds paying him a tax-exempt 3 per cent.
Let its suppose that an original investment of $10 million was now valued at $100 million. If it were sold it would incur a capital gains tax of approximately $22.5 million. But if it were all given to a foundation the foundation could sell it and pay no gains tax. Now if the foundation lends the whole sum back to the donor at 1 per cent he pays it $1 million a year. And if he makes $3 million on a tax-free investment in government bonds he keeps $2 million annually, tax free. But if he had sold the original amount he would have had only $77.5 million after-tax capital which, invested at 5 per cent, would have brought him $3,875,000. After payment of about $2,712,500 (or 70 per cent) income tax, he would have remaining $1,162,500 annually or almost a half less than by the first procedure. It was clearly financially advantageous to filter the money through the "charitable" foundation.
If he so desires he can in fifty years build the original sum in his personal name back, all tax free. After fifty years he or his family can possess, in fee simple, $100 million in free new assets and also control the disposition of the original $100 million in the foundation, which may satisfy legal requirements by using its small income to assist crippled newsboys or homeless dogs.
But this is only a minimal sort of deal that can be arranged either once or preferably in a confusing series through the handy medium of a foundation. Patman showed that foundations can do anything that is financially possible, without any sort of public supervision or regulation. In the sphere of finance, name it and they can do it, tax free.
It is mainly because of the Protean utility of the foundation, particularly in the evasion of taxes, that nearly everyone in the community of wealth has come now to share the original insight of only a few such as the pioneering Carnegie and Rockefeller. Actually, the Rockefeller foundations appear to be the most efficiently run of the foundations, although their major function is definitely not the simple allocation of money to various ,vortby causes.
Whether they were so intended or not, the Rockefeller foundations are instrumental in keeping in being and under family control the Standard Oil empire that the Supreme Court ordered dissolved in 1911.
At the close of 1960, 7 Rockefeller-controlled foundations owned 7,891,567 shares of common stock of Standard Oil of New Jersey with a market value of $324,946,110. The same 7 foundations owned 602,126 shares of the common stock of Socony Mobil Oil Co. with a market value of $23,610,770. Two Rockefeller foundations owned 306,013 shares of Continental Oil capital stock with a market value of $17,060,224 (the Rockefeller Foundation itself held 300,000 of these shares with a market value of $16,725,000); 4 Rockefeller foundations owned 468,135 shares of Ohio Oil common stock with a market value of $17,998,495; 5 Rockefeller foundations owned 1,256,305 shares of the common stock of Standard Oil Co. of Indiana with a market value of $59,736,991; and the Rockefeller Foundation, itself, owned 100,000 shares of the capital stock of Union Tank Car Co. with a market value of $3,100,000.
If Standard Oil Co. (New Jersey) were to attain substantial ownership in its competitors, it would certainly tend to eliminate competition and again tend toward monopoly, and engage the Department of justice in inquiry.
The use of a subterfuge--in the form of Rockefeller-controlled foundations--in effect produces the same result as if Standard Oil Co. (New Jersey) owned substantial stock interest in Continental Oil, Ohio Oil, Standard Oil Co. (Indiana), et al. 11
The Rockefellers also have stock holdings in these companies through personal trust funds, as shown by TNEC, Monograph #29, and perhaps directly.
One is impeded from ascertaining precisely what the Rockefeller interest now is in each of the Standard Oil companies through the spreading around of stock ownership in foundations, personal trusts and personal accounts. Under the law establishing the Securities and Exchange Commission, as we have noted, any holding of a publicly offered stock by any individual or enterprise in excess of 10 per cent of the issue must be reported. But, as I pointed out earlier, a man could secretly hold most of the stock in a company by having 9 per cent in his name and 9 per cent in each of various trusts. If he never changed his holdings the fact would never be reported. He could hold more by adding foundations to the scheme, although the foundation holdings would be on the public record. just what the percentage of Rockefeller ownership/control now is in any of the Standard Oil companies cannot be ascertained from the record because apparently no individual or trust owns as much as 10 per cent of any issue.
"It is a well-known fact that the Rockefeller family controls Standard Oil Co. (New Jersey), and the Rockefeller-controlled foundations own a substantial part of the corporation," Patman remarks in the same place.
Only once has Rockefeller dominance ever been challenged. That was in 1929 when strong-willed Colonel Robert W. Stewart, chairman of the Standard Oil Company of Indiana, appealed to general stockholders over the heads of the Rockefellers for control of the company. In the show-down vote all the Rockefeller foundations, funds, trusts, personal holdings and holdings of old Standard Oil families were massively counted against Stewart. Ile was ignominiously snowed under.
Rockefeller family control of the giant Standard Oil flotilla is unchallenged and unchallengeable. Foundation-held stock helps insure it to perpetuity. No possible combination of financial interests under existing law could dislodge that control.
I am not suggesting that this control should be altered. I am simply stating a fact of financial-political life. One may be entirely satisfied to see the Rockefellers rather than some other group in control. But control is what is at stake. One deduces this because this is the way it is. This, one must suppose, is the way it was planned by the wily master architect of Standard Oil.
True, one could suppose that the major intent was philanthropic. It is not logically impossible that the outcome of control was unplanned. But John D. Rockefeller I, whatever else he was, was a planner. I conclude, possibly erroneously and uncharitably, the situation is the consequence of a plan that visualized the retention of control as a goal.
The Rockefeller foundations, as Patman found, are by no means unique as mechanisms for corporate control.
Two Du Pont foundations owned 6,931 shares of Christiana Securities Company worth $83.8 million, and 358,105 shares of E. I. du Pont de Nemours worth $20.4 million.
Six Mellon foundations held 120,294 shares of Aluminum Company worth $8.2 million, 3,729,933 shares of Gulf Oil Corporation worth $124.5 million and 48,750 shares of First Boston Corporation worth $3.2 million.
The Herbert H. and Grace A. Dow Foundation owned 645,238 shares of Dow Chemical Company worth $48.1 million. The Howard Heinz Endowment owned 314,104 shares of H. J. Heinz Company worth $42.5 million. The Timken Foundation owned 427,760 shares of Timken Roller Bearing Company worth $20.5 million. The Charles A. Dana Foundation held 500,000 shares of Dana Corporation worth $16 million. The Gulf Oil Foundation held all the stock of Pontiac Refining Corporation, worth $32 million.
Foundations as Untaxed Holding Companies
Foundations often serve as tax-free holding companies that maintain working control by means of 10 to 100 per cent ownership of many large corporations, the Patman inquiry made certain. But 73 foundations out of 534, including some large ones, did not report such ownership positions to the Treasury as required by law. 12
Some of the leading corporations in addition to the Standard Oil group entirely or supplementarily controlled by foundations are as follows: 13
(Asterisks mark those not reporting ownership as required by law.)
Controlled Untaxed Percentage
Corporation Foundation of Ownership
Kaiser Industries Henry J. Kaiser Family
Foundation 15.4
Callaway Mills *Callaway Community
Foundation 100.0
Coca-Cola Emily and Ernest Woodruff
Foundation 15.21
George D. Roper Sears, Roebuck Foundation 11.77
Midwest Oil *Standard Oil Foundation,
Inc. 18.34
Eli Lilly Lilly Endowment, Inc. 46.24 common
10.40 class B
Kellogg W. K. Kellogg Foundation 58. preferred
W. K. Kellogg Foundation
Trust 51. common
S. S. Kresge Kresge Foundation 34.
United States Sugar Chas. Stewart Mott Founda-
tion (General Motors) 48.2
B. Altman (N.Y.) Altman Foundation 84.59
Connecticut Railway Charles Ulrick and Josephine
and Lighting Bay Foundation 99.25 preferred
51.07 common
Duke Power *Duke Endowment 57.24 common
82.02 preferred
Ford Motor Ford Foundation 100. class A
W. T. Grant Grant Foundation 10.7
Great Atlantic & Pacific
Tea *John A. Hartford Foundation 33.98 common
S. H. Kress Samuel H. Kress Foundation 41.9
American Chain & Cable William T. Morris Foundation 17.8
Federal Cartridge *Olin Foundation 100. preferred
Reinsurance Corp. of
N.Y. Richardson Foundation 14.
Faberge *Samuel Rubin Foundation 100. common
100. 1st pref.
70. 2nd pref.
Electrolux Wenner-Gren Foundation for
Anthropological Research 24.2
Enna Jettick Fred L. Emerson Foundation 100.
Pittsburgh Steel Donner Foundation 10. A preferred
Sun Oil Pew Memorial Trust 21.29
National Bank of
Commerce, Houston Houston Endowment 23.4
Allen Bradley *Allen-Bradley Foundation 64.62 preferred
Miller Brewing De Rance, Inc., Milwaukee 29.
National Lead Co. of
South America *National Lead Foundation 100. preferred
James S. Kemper *James S. Kemper Foundation 34.2 preferred
Wieboldt Stores *Wieboldt Foundation 90.6 preferred
Sahara Coal *Woods Charitable Fund 20.7 preferred
Tecumseh Products Herrick Foundation 23.
Hormel *Hormel Foundation 11.69
Ralston Purina *Danforth Foundation 23.4
American National
Insurance *Moody Foundation 34.55
Beaunit *Rogosin Foundation 24.5
Jonathan Logan *David Schwartz Foundation 15.
Cudahy *Patrick & Anna Cudahy Fund 86.66 B common
Springmaid of the West Springs Foundation 100.
Some additional significant enterprises under foundation control were the
following: 14
Edgewater Beach Hotel
Chicago *The Boston Foundation 100.
First National Bank , *Avalon Foundation
Ligonier, Pa. (Mellon) 21.5
North American Accident
Insurance *Field Foundation 30.
Field Enterprises *Field Foundation 100. preferred
Reinsurance Corporation
of N.Y. *The Richardson Foundation 14.
Cannon Mills *Cannon Foundation 11.69
First Boston *Sarah Mellon Scaife
Foundation 43.33
In all, no fewer than 111 foundations were found to own more than 10 per cent of one class of stock, usually the voting stock, in one or more of 263 different important corporations as of December 31, 1960. 15 This was a considerable number of corporations in which to exercise tax-free control even though not all of them were of the commanding size of Great Atlantic & Pacific Tea, Kresge, Ford Motor or Sun Oil. The Ford Foundation does not directly control Ford Motor, but its holding of nonvoting stock enables the Ford family, which also controls the foundation, to control the company absolutely with its own block of stock of weighted voting power.
But at the end of 1960 all 534 foundations in the study held investments in the stock of more than 2,000 corporations, assuring considerable dispersion of voting influence. 16
The point about foundation control, full or partial, is that it is tax free all the way, giving the foundational enterprise a big competitive edge over nonfoundational businesses, a facet Representative Patman was especially interested in. He cited reports from various businessmen on how they were being undercut in the market by foundation-owned enterprises.
The 534 foundations "had aggregate untaxed receipts of almost $7 billion during the period of 1951 through 1960. During the one year 1960, their total receipts were $1.34 billion as against $554 million in 1951. I find it difficult to reconcile the withdrawal of $1 billion annually from the reach of the Treasury with the federal government's pressing need for revenue.
"During the period of 1951 through 1960, the contributions, gifts, grants, scholarships, etc., paid out by the 534 foundations totalled $3,448,867,894 (see Schedule 3A for details)--roughly 50 per cent of their aggregate receipts of $6,981,180,819. They claimed expenses, including administrative and operating costs, of $721,199,586--almost 10 per cent of the total receipts." 17
The foundations in the aggregate, it is readily seen, are as prudent as the corporations in what they pay out. They pay out only about half of income, plus 10 per cent for administration, while the corporations pay out only 44 per cent. The remainder, in both cases, is used for reinvestment and growth. The capital position of the foundations over the years is thus enlarged on the basis of their tax savings. What they don't pay in taxes, it must always be remembered, must be paid in other ways--mainly by the rank-and-file, flag-waving patriots.
To show the magnitude of income for only 534 foundations, Patman points out that 7,213,000 families in 1960 had incomes of less than $2,000 each before taxes, aggregating $8.04 billion. Foundation income the same year was 13 per cent of this total.
But the foundation income of $1.034 billion for 1960 was more than 20 per cent greater than the $864,435,000 net operating earnings after taxes of the fifty largest banks in the United States! 18
At the end of 1960, indeed, the net worth of the 534 foundations studied was 23 per cent greater than the capital, surplus and undivided profits of the nation's fifty largest commercial banks. 19
As to accumulation of income, the Patman findings, apart from showing payouts in pro forma beneficences of only 50 per cent of earnings on the average, placed into view some startling findings. Retained earnings of only some of the largest foundations, which are supposed to be doing the most public good, were as follows through 1960: 20
Retained Earnings
through 1960
Ford Foundation $432,916,492
Carnegie Corporation 65,854,287
William Volker Fund, California 17,204,824
Carnegie Institution of Washington 30,334,316
Callaway Community Foundation, Georgia 7,173,911
William H. Miner Foundation, Chicago 13,963,496
The Cranbrook Foundation, Michigan 8,187,872
W. K. Kellogg Foundation 7,524,832
T. B. Walker Foundation, Minneapolis 8,436,379
Danforth Foundation 15,799,676
Charles Hayden Foundation 16,064,615
John and Mary R. Markle Foundation 9,589,958
Milbank Memorial Fund 9,412,828
William T. Morris Foundation 8,831,544
Olin Foundation 15,239,780
Research Corporation 10,070,661
Rockefeller Foundation 51,019,677
Alfred P. Sloan Foundation 33,152,735
Fred L. Emerson Foundation 9,394,815
Thomas J. Emery Memorial 6,847,411
Samuel Roberts Noble Foundation 8,154,763
Sarah Mellon Scaife Foundation 6,198,566
Houston Endowment 27,110,937
While such saving is excellent investment procedure, it does not represent giving away either income or principal. Yet the law (only since 1950) in allowing tax exemption to such enterprises stipulates that there shall be no unreasonable accumulations of income. Prior to 1950 foundation income could be retained without even nominal restriction.
Untaxed, Unfair Competition
Representative Patman's main concern was that the foundations steadily shrink the tax base, thereby increasing the tax burden for others. At the same time they gain a competitive advantage by escaping corporation taxes of 48 to 52 per cent which other business entities must load onto costs. This tax saving they use to build their capital position higher. They in fact literally, almost to the penny, capitalize their tax savings and grow. The wealthy churches do this, too.
The general panorama revealed by Patman was that through the foundation device this privileged part of the American capitalist structure had been able to move itself back into the earlier position of unregulated, uncontrolled, untaxed capitalism. Through the foundations, unless they are restrained by law or public criticism, the old unregulated capitalism may well be restored behind the screen of fitful and halfhearted pubpolic corporate regulation in the foreground.
The Internal Revenue Service of the Treasury Department, Patman showed, paid only the most cursory attention to the foundations, apparently taking them at their face value as beneficences. It rarely conducted field audits, kept very haphazard statistics, did not require proper reports, accepted any and all schemes of accounting, did not hold the foundations to existing regulations, did not hold them to the requirement in law forbidding "unreasonable" accumulations of income, gave tax exemptions for straightout big-profit big-business deals, allowed the tax base to be eroded and, in general, after a few feeble token gestures, allowed anything called a foundation to do whatever it wanted to do. 21
As a first step in correcting this situation Representative Patman called, futilely thus far, for a moratorium on the granting of further tax exemptions.
He showed, further, no less than twenty-eight accounting defects in the law-required reporting procedures of foundations.
Among other questioned practices he showed that big New York banks turned over to their own foundations appreciated assets, which the foundations then sold, thus evading a capital gains tax. 22
In the matter of holding controlling blocks of stock he showed them to be agents of more intensive corporate concentration. 23
He showed foundations operating wholly owned enterprises in competition with taxpaying enterprises, with the foundation-owned enterprise paying no taxes because it was ostensibly operated for charity. 24
Funds were given by certain foundations to certain universities which used them in applied, profit-making research for enterprises with which the foundations were connected rather than in basic research available to everybody. Such activities were carried on in competition with taxpaying firms of engineering consultants which should, it was suggested, more properly have been hired. But as the whole ride was tax free on gifts to university and institute research departments, there was more mileage to be had from the money. Had the services been purchased, the purchaser would have had packed into the price be paid (as the ordinary consumer has) profits and the business income taxes. 25
Certain large enterprises are established, indeed, to carry on applied research, without any shadow of charitable intent, and yet are given sweeping tax exemption. 26
Foundations, as the Patman inquiry showed, carry on, tax free, the following kinds of operations:
1. They buy up properties from large companies and lease them back, thus providing the companies with ready cash so that they need not enter the competitive capital market.
2. They lend money at cut rates to very large corporations, thus enabling the latter to bypass banks and the capital market.
3. Some of their donors are given convenient cut-rate loans.
4. The foundation stockholdings are used in struggles for corporate control. "In 1960 [the Patman report said], during the battle for control of the Endicott Johnson Corp. the Albert A. List Foundation, of Byram, Conn., received 54,000 shares of Endicott Johnson from the J. M. Kaplan Fund, of New York City. These shares were used by Mr. Albert A. List in his unsuccessful attempt to acquire control of the corporation. According to press reports, during the struggle over the Alleghany Corp. between Allan P. Kirby and the Murchison brothers, the Fred M. Kirby Foundation purchased Alleghany shares, which had not previously paid a dividend."
5. They return capital to donors when, as and if the latter need it.
6. They render research, market study and other services to related businesses on a preferential basis; staffs of large foundations serve as a minor governmental advisory staff for the donors. Parenthetically one should observe that foundation staffs regularly interchange high- and middle-level personnel with formal government. The Barons at times serve the Crown, and officers of the Crown at times serve the Baronage. For a good many years secretaries of state have mainly been foundation officers, corporation lawyers or both. Among the former has been Dean Rusk. Among combinations of the two have been John Foster Dulles, E. R. Stettinius, Jr., Henry L. Stimson, Frank B. Kellogg and Charles Evans Hughes. Corporation lawyers in the post have been Elihu Root, Philander C. Knox and Robert Lansing, to go no further. Secretaries of the Treasury have long been drawn for the most part from banks or investment funds. John W. Gardner, recent Secretary of Health, Education and Welfare, was drawn from the presidency of the Carnegie Corporation. Government reciprocally supplies, from time to time, high foundation personnel; McGeorge Bundy skipped from the position of presidential adviser on foreign affairs to the presidency of the Ford Foundation. Rusk originally went from the State Department to the presidency of the Rockefeller Foundation. The reciprocal interchange of personnel is heavier on the middle levels between government on the one hand and foundations, investment houses and corporate law firms. Only here and there on both middle and top levels does one find professional politicians, disparagingly referred to in the newspapers as "political" appointees. This means, between the lines, that the man is more or less incompetent for the job but useful in snaring votes. Foundations, law firms and investment houses form in relation to government part of what is known in football as The Platoon System; they have entire specially trained teams ready to be sent into the highest strata of government as conditions require. As all of these are Organization Men of the finest tooling, they fit as though pre-engineered into whatever slot they are assigned. And the reason for this is that the world of finpolity is itself a world of government.
7. They pay excessively for certain assets.
8. They sell certain assets to certain parties for unaccountably low prices.
9. They accept contributions (kickbacks?) from persons or organizations that supply goods and services to companies interlocked with the foundation. 27
10. They also often grossly understate their assets, either in whole or in part. This includes the biggest among them such as the Ford Foundation, Samuel H. Kress Foundation, John A. Hartford Foundation, the Carnegie Corporation of New York and the Howard Hughes Medical Institute. Extraordinarily valuable properties are often carried on the books at $1. 28 Patman concluded all foundations understate asset values.
It cannot be said surely that any of this is done with intent to deceive; one simply does not know what the intent is and must infer from results.
Additionally, the foundations are big operators in the stock market, acquiring huge tax-free capital gains. 29 They do, in fact, whatever banks and investment trusts do except issue securities. They are like closely held private family banks and trusts, with virtually no limitation on their operations.
Despite substantial payouts over the years from time of inception to the present, the retained assets of the leading foundations, thanks to their tax exemption and average half payout rate, have piled up astronomically.
Much of the research and other contributions of the foundations pertain to areas of special high pecuniary interest to the donors.
Some of the foundations, such as the Howard Hughes Medical Institute, are used in concert with large corporations such as the Hughes Tool Company and the Hughes Aircraft Company in achieving very large tax savings on assets shuffled back and forth. The Hughes Medical Institute started out by buying $75 million of commercial business assets and assuming liabilities of $56 million, at the same time becoming additionally and directly liable for $18 million on its own note. Said Representative Patman: "This sounds more like high finance to me than charity." 30
So increasingly scandalous did the Patman findings become in the course of the investigation that the staid New York Times took to distinguishing in its reports between "reputable" and "disreputable" foundations, without listing either or laying down criteria for the distinction.
By "reputable" it presumably referred to the largest foundations. And the Ford Foundation is presumably as reputable as any.
But Patman in his very first report teed off on the Ford Foundation as well as other big ones and showed it to be as free-wheeling as any.
First, the Ford Foundation is engaged in large-scale money-lending activity in competition with taxpaying banks. It lends money to a large variety of leading corporations, the interest to them tax-deductible, such as Chris-Craft, the New Haven Railroad, the Chesapeake & Ohio Railway, Continental Air Lines, Standard Oil of California, Shell Caribbean Petroleum Company, El Paso Natural Gas Company and many others. Stockholders in taxpaying lending enterprises such as banks are 'certainly undercut by such tax-free activity.
Moreover, whenever it wishes it can lower its interest rate to preferential levels. "Why, for example," Representative Patman asked, "was the Duke Power Co. of Charlotte, N. C., charged only 2.65 percent interest on a $3 million, 20-year loan, while other borrowers paid 6-1/2 percent? Duke Power, incidentally, is owned 57 percent by the Duke Endowment, another tax-exempt foundation." 31 Here is one foundation washing the hands of another.
Even more fundamental questions were raised about Ford operations by Patman.
I have already referred to the $33 million the foundation loaned overseas during the 1961 balance-of-payments crisis. This, in effect, amounted to a Government subsidy being used, without Government control, in operations in conflict with government policy. Treasury Secretary Dillon on May 17, 1962, warned that the mounting flood of European bond issues sold in the U.S. capital market is undermining our Government's efforts to defend the dollar. Precisely such an outflow of dollars--to industrial nations like France, Belgium, and Canada--was involved in the Ford Foundation's loans, as shown on Schedule 4, pp. 83-84.
The Ford Foundation loans to foreign corporations and governments create a somewhat bewildering paradox. Our Government brought home soldiers' families so as to save dollars overseas. Yet the Ford Foundation exported $33 million in the year 1961. Also, in 1960 the Ford Motor Co. arranged to export $358 million to purchase minority stockholdings in British Ford which they already controlled.
The result was that a substantial part of the dollars we saved by separating our soldiers from their families was sent back overseas by the Ford Foundation and the Ford Motor Co. And the irony is that the Ford Foundation operates on a subsidy from the taxpayers--in the form of tax exemption.
Moreover, we do not know the purpose of the Ford Foundation loans to the foreign corporations and governments. For example, if the loans are used by foreign businesses--which are not bound by our antitrust statutes-to help them gain entry to our market, those foreign firms have a great competitive advantage. Trade practices in the United States and the Common Market are quite different. In Europe, an industry cartel can cut up the U.S. Market, assigning to certain members exclusive territorial rights in certain sections of the country. Our firms cannot do this without facing a violation of our antitrust laws. Hence, the Ford Foundation's loans could conceivably be helping our competitors who are not bound by the Sherman Act, the Robinson-Patman Act, etc. 32
But Mr. Patman appeared to be overzealous when he took the Ford Foundation and others to task for contributions to nonprofit educational television stations, which appear to be entirely defensible activities. Only if Mr. Patman's unstated premise is valid, that all activities must be profit-making, can his argument here hold. 33 If this is so, then contributions to nonprofit hospitals and schools are questionable.
The Patman inquiry, one must conclude, fits well the thesis of sporadic friction between the Crown and the Baronage, between pubpols and finpols. Patman's, it is evident, is not the prevalent view of the foundations among pubpols. But the pubpols in their various calls for regulation, supervision, revision or reform of one or another aspect of the realm of finpolity--sometimes corporations, sometimes foundations--do appear to be playing some part of the role of the medieval Crown vis-à-vis the restless Baronage. This will no doubt continue until the day arrives, if it ever does, when they effect a transition either into the corporate state or into the collective corporation: One corporation under God, indivisible, with liberty and justice for all directors and major stockholders. . . .
Seven Wildcat Foundations
Thus far Patman dealt with the foundations in their generality. In the second and third parts of his report, which ran to 872 large pages, he concentrated on seven foundations with a view to showing just how freely foundations could operate under existing laws and regulations.
In the second part he dealt with the David, Josephine and Winfield Baird Foundation ($10.2 million), the Winfield Baird Foundation ($17.4 million) and the Lansing Foundation ($779,546), all established by David G. Baird of Baird and Company, member of the New York Stock Exchange; the Jessie Smith Noyes Foundation, established by Charles F. Noyes, a New York real estate broker; the Lawrence A. Wien Foundation and the Harry B. Helmsley Foundation.
The third part was devoted entirely to The Nemours Foundation and the originating Alfred I. du Pont Estate of Jacksonville, Florida.
As commentaries around the country showed, Mr. Patman at this stage had made a deep if fleeting impression.
The report revealed that the Baird foundations engaged in just about everything conceivable in the way of loose practice. They had trustees and directors who were employees of Baird and Company or relatives and friends of Mr. Baird, "mere figureheads." All were "subservient" to him. "The abuse of public privileges" by the Baird foundations recalled findings in 1948 about three trusts established by Textron, Inc., under Royal Little, which were held by the Senate Commerce Committee to exist "for purposes of tax avoidance and providing risk capital to Textron, thereby giving Textron an unfair advantage over the orthodox manufacturer." One of the Baird foundations was involved, as it happened, with Textron.
Patman detailed a number of exact similarities between the Textron operation and the Baird foundations. From very small beginnings in the 1930's and 1940's both groups grew to large size.
The Textron foundations consisted of the M.I.T. Trust, the Rhode Island Charities Trust and the Rayon Trust.
Said the Patman report: 34
The M.I.T. Trust, created in 1937 with assets of $500, had earned almost $1 million net by October 1948. Its beneficiary, the Massachusetts Institute of Technology, had not received any contributions.
The Rhode Island Charities Trust, created in 1937 with assets of $500, earned $4.5 million by September 1948. The Providence Rhode Island Community Chest, the sole beneficiary, had received only $85,000 contributions. The bank handling the investments and the trustees, however, had received over $140,000 during the same period.
The Rayon Foundation, created in 1944 with assets of $100, earned $750,000 by October 1948. The Rhode Island School for Design, the sole beneficiary, received only $75,000 in contributions.
All of this was tax exempt.
Benefits accruing to Mr. Baird and associates were set forth as follows:
1. Substantial commissions for Baird and Company were generated by large and continuous securities transactions of the Baird foundations.
2. The foundations received contributions from others which should have been treated, and taxed, as income to Mr. Baird for services he rendered to the "donors," or at least as income of the foundations rather than as tax-free increments to their capital funds.
3. Loans were made to business associates of Mr. Baird "for purposes of swinging deals."
4. The foundation funds were freely used to "prop up" a series of Baird-dominated companies, companies controlled by the Baird foundations and companies in which Mr. Baird was a director or stockholder. 35
All of this had gone on for at least twelve years without any intervention from the Treasury Department. There is little "interference" by government with business conducted by foundations, as Patman showed conclusively.
The records of the Baird foundation "prove beyond doubt that these organizations have operated as multi-million-dollar, tax-free securities dealers-dispensing millions of dollars of credit to prominent businessmen-customers." 36
". . . no less than 70 persons and companies used the Baird Foundations as securities dealers and/or uncontrolled lenders for securities purchases." 37
Inter-dealings of the Baird foundations with similar foundations were frequent.
The significance of such sources of unregulated credit is that fiscal authorities have no way of preventing the credit, under existing law, from entering into wild speculative sprees that terminate in crises like the stock-market collapse of 1962. While nominally facets of capitalism, such operations in fact undermine formal capitalism at its very wellspring. These operators, despite protestations, have no more piety toward capitalism than a Lenin or Trotsky. They appear as no more than pecuniary anarchists.
The Patman report, in many pages and exhibits, details many of these deals.
"The records of the Baird Foundations have been kept in a state of total disarray, indicating a shocking disregard of the most elementary accounting principles. The Foundations' books have never been audited by independent accountants, and numerous discrepancies are evident in the accounts. . . ." 38
These foundations accumulated income at a great rate, failing to live up to charitable pretensions and, over a period of ten years, carried on "log-rolling" of assets among each other and with foundations established by business associates. According to the tax returns of the Baird foundations, they paid out $28,476,567 in contributions, gifts, grants, scholarships and the like for the decade through 1960. But about half of this sum represented solely "wash" transfers to each other and to nine other foundations owned by business associated! 39 Not a vestige of public charity was involved in such transfers.
According to the Patman findings, the foundations made unsecured loans to friends, failed to report stock ownerships as required by law, engaged in purchases and lease-back transactions that should have been taxable, made loans at "usurious" rates, collected fees in the form of "contributions," accepted gifts from business associates of Mr. Baird, engaged in unlicensed private banking, etc.
On the basis of an avalanche of these and other alleged abuses it is difficult to characterize the operations of the Baird foundations. They appear to have been carried on without imaginative limitation as though no government or laws existed, as though they were infinitely privileged.
While the Baird foundations, like many others, are not individually of great size in the foundation world, the Patman analysis of their operations showed what any foundation can do if it likes under the existing law and regulations. The sky is literally the limit on foundation operations.
Broadly similar states of affairs were shown to exist with respect to the Jessie Smith Noyes Foundation, the Lawrence A. Wien Foundation and the Harry B. Helmsley Foundation. 40 The last two, with participations in the Empire State Building, were in many deals with the Baird foundations.
With respect to The Nemours Foundation, the Patman inquiry traced the building up of a huge foundation fund over the years on the basis of property left by Alfred I. du Pont, who died in 1935.
"Laid bare here for the first time," said the report somewhat melodramatically, "is the detailed anatomy of one of America's great fortunes--a fortune that will one day slip away forever from the payment of any income taxes." 41
This Du Pont estate, only one among many, and The Nemours Foundation were not included in the prior reports.
[The Du Pont estate] has been used to build up an extraordinary economic empire controlling wide banking, industrial, railroad and real estate interests. These interests center in the State of Florida, but they also spread into many other states.
The fortune represented by the Du Pont Estate was worth no less than $292,720,413 at the end of 1962, according to reports received from The Nemours Foundation. By way of comparison, the Estate was valued at $39,374,845.38 on April 29, 1935, based on an appraiser's valuations.
According to the Du Pont Estate's Federal income tax returns, it had total income of $74,392,126.47 in the 12 years 1951 through 1962, including dividend income of $72,885,402.93. In the year 1962 alone, the Estate received total income of $8,196,244.50, including dividend income of $8,038,636.14.
Most of the Du Pont Estate's income down through the years has been paid out as annuities of certain beneficiaries. These annuities are taxable income to the taxpaying beneficiaries, subject to Federal and State income tax. After the death of the annuitants, their portion of the Estate's disbursements will go to the tax exempt Nemours Foundation. Thus all income from the Du Pont Estate's vast fortune will in time escape Federal and State income taxes entirely. 42
Nor will the fortune pay any estate tax.
Taxable distributions to beneficiaries in twelve years exceeded $67 million, with $7,597,675.25 distributed in 1962 alone. Of this last, $6,633,482.22 went to Jessie Ball du Pont, widow of Alfred I., $877,293.03 (nontaxable) to The Nemours Foundation and the balance, all taxable, to eighteen members of the Du Pont clan. 43
At the time of the inquiry Mrs. Alfred I. du Pont was eighty years old, living in comfortable hothouse retirement on the social security funds provided by her husband after a life constructively spent in the harvesting of vast hereditary revenues.
Upon the death of the beneficiaries the estate will pass, tax free, to The Nemours Foundation. "Once again," according to the Patman report, "the 'cream' of one of our Nation's great fortunes will go completely tax free. Once again, the 'skim milk' incomes of the hardworking majority of the American people will be forced to bear a still heavier share of the total tax burden." 44
The major assets of the estate were found to be as follows:
1. Direct ownership of 44 per cent to 87.5 per cent of thirty banks in the "Florida National" group of banks, indirect ownership in the thirty-first and control in all cases. These banks held 11 per cent of all bank deposits in Florida. The trust department of the Jacksonville bank alone had assets of well over a billion dollars, thus exercising far-reaching corporate influence.
2. Direct ownership of 75.01 per cent of the common stock of the St. Joe Paper Company of Jacksonville worth $35,515,148. This company in turn owned a million acres of woodlands, the Apalachicola Northern Railroad, the St. Joseph Telephone and Telegraph Company and 52 per cent of the common stock of the $90-million Florida East Coast Railway as well as other securities of this enterprise.
3. Direct ownership of 764,280 shares of E. I. du Pont de Nemours and Company worth $198 million on February 25, 1964.
4. Direct ownership of 444,618 shares of General Motors common with a value on the same date of more than $35 million.
5. Direct ownership of numerous parcels of real estate including the estate of "Nemours" in New Castle County, Delaware. A standard guidebook to Delaware in the American Guide Series, 1955, Hastings House, N.Y., publishers, describes it as follows: 45
"On the 300-acre property there are the chateau of Nemours itself, a carillon tower, and the several hospital buildings of Nemours Foundation. . . . The residence of Nemours, built in 1908, is of formal French chateau style throughout, the exterior finished in Indiana limestone. . . . The colonnade, grand basin, fountains and statuary, pool and water courses, urns and lawns, all suggest the Garden of Versailles. . . . The front terrace is flanked by two white marble sphinxes formerly at the Chateau de Sceaux (in France). . . . Behind the sunken gardens, on an eminence, stands a classic 'temple of love.'"
The three trustees are self-perpetuating. When one dies the surviving trustees select a new one. The corporate trustee may be changed at any time by the individual trustees.
What, now, is all this wealth destined to accomplish by way of beneficence?
Quoting the will, the Patman report relates that it is first to maintain the out-of-the-way mansion at Nemours "mainly for the purpose of providing a library and exhibiting to the public interesting and valuable literature, works of art and any articles of historic and artistic interest for the advancement of education" and to maintain the mansion, grounds and gardens of Nemours "for the pleasure and benefit of the public." Next, on the grounds at a "proper distance from the Mansion House" a charitable institution is to be maintained "for the care and treatment of crippled children, but not of incurables, or the care of old men or old women, and particularly old couples," with first consideration to residents of Delaware. Finally, any surplus income "may from time to time" be given to "other worthy charitable institutions" for the care of crippled children, old men, old women, old couples, with Delawarians preferred.
The other two big Du Pont foundations, Longwood and Winterthur, are similarly established primarily in order to enable the public to visit foundation-maintained former Du Pont mansions and grounds, there to contemplate the splendor in which past Du Ponts lived in the heyday of the munitions trust. The Du Ponts themselves, as Fortune has observed, prefer to look upon themselves as "Armorers to the Republic," suppliers of the weapons, one concludes, with which the sturdy, God-fearing American yeomanry goes abroad and faces the myriad black-hearted rascals of the world to establish freedom, super-markets, hamburger stands, filling stations and, presumably, 100 per cent American slums.
Wells of Patronage
Two main areas of interest to observers and critics of the foundations are evident. In addition to their corporate holdings and investment operations, neglected by most inquirers, the second area of interest is the disposition of the funds they disburse in grants: their patronage. Not all funds disbursed by all foundations, as we have seen, go into what would be called beneficence by any standard. Some are simply paid over to other foundations for the profit of donors.
Let us attend now to what is claimed to be constructive outlay--at least by the formally reputable foundations. Here we find a somewhat larger literature, featured most recently by a briskly readable study of the Ford Foundation by Dwight Macdonald. 46
Although he presented a most perceptive guide to the fund-dispensing activities and public-relations tribulations of the Ford Foundation, Mr. Macdonald showed little or no interest in it as a financial control-center. But for information about how it conducts itself in the matter of payouts, his book is indispensable (although now in need of supplementation on later history).
On one of his generalizations about foundations, the weight of available evidence is strongly against the conclusion he sets forth. Commenting somewhat cavalierly on the late Dr. Eduard C. Lindeman's Wealth and Culture, Harcourt Brace and Company, N.Y., 1936, Macdonald characterizes it as "a muck-raking survey, from a conventional-liberal point of view, that is now outdated as to many of its specific complaints (as, that philanthropists are arrogant and secretive) but which is still to the point in more general criticisms (as, that business types are over-represented on foundations boards and intellectuals represented hardly at all )." 47
On this disputed point Lindeman was clearly right and Macdonald wrong, as Patman's findings subsequently showed in monumental detail. As to arrogance, perhaps it was as Macdonald said about the philanthropoids, a term for the fund-dispensing executives coined by one of them as distinct from my term of philanthropols for the financiers who establish and supervise the investment portfolios. Philanthropols are merely an ultra-sophisticated version of finpols. But Macdonald studied only one foundation in detail and he was obviously, as alert public relations would dictate, accorded the red-carpet treatment suitable under such circumstances to a sharp and frank critic with a commission from a widely read magazine. Any display of arrogance under the circumstances would have been self-defeating.
Concerning arrogance and secrecy on the part of foundations in general, Patman reports that he had difficulty getting information on almost every hand. Records provided by many foundations, when they were provided at all, were illegible, incomplete, lacking in required identifications of securities, personalities and other details, did not distinguish between income and principal, meandered from one accounting system to another and were generally obscure and misleading. 48 In many instances, repeated letters and subpoenas had to be issued to get required information. 49 The net effect of much foundation activity purporting to comply with requests for clarifying information was concealment.
Obtaining the information from the foundations has been a struggle [said the Patman report]. In many cases, it has taken four or five letters and a reminder of the committee's subpena power to obtain the information needed for this study. Many foundations have taken from 30 to 60 days to reply to a letter. We have been compelled to issue subpenas to 17 of them who failed to furnish information requested. These 17 foundations had been given ample opportunity to furnish the information voluntarily-in many instances, several months. In the case of the five members of the Ford family of Detroit, the Pew Memorial Trust of Philadelphia, and the Allen-Bradley Foundation of Milwaukee, the committee first asked for the information in October 1961. When followup letters did not produce the documents and data, we issued subpenas in February and March of 1962.
The attitudes of far too many of the foundations under study suggest an unmatched arrogance and contempt for the Congress and the people whom we represent. They appear to have adopted the attitude that tax exemption is their birthright--rather than a privilege granted to them by the people, through the Congress, for a public purpose.
The reluctance to cooperate takes many forms. Some only furnished information under subpena, demonstrating something less than a charitable attitude toward public knowledge and democratic processes. Others have sent us incomplete, or partially or wholly illegible, documents. Frequently, principal officers seemed to be in Europe when our letters arrived, leaving no one in the office with access to the records. 50
Perhaps what looks like it to the observer is not really arrogance but a genuine misunderstanding by adverse parties of the nature of political reality. Mr. Patman, like many others, appears to believe that the United States government is a supreme entity. But many persons of wealth, on the basis of their entire life experience, have developed the notion that it is they who are supreme; they believe this because of the many instances in their own experience when they have seen their will become either law or public policy. The Ford fortune and others like it will outlast Patman and other pubpols --reason enough to foster some feeling of greater durability in the possessors. Patmans come and go; Rockefellers, Fords, Du Ponts, Mellons and others roll on seemingly forever under the laws of inheritance and congressionally dispensed tax loopholes. Which is permanent and which transitory, which is substance and which shadow?
When challenged by a man like Patman the objects no doubt feel no more than the amused contempt of a French grand duke of the time of Louis XIV when accosted by a peasant or a minor official: "Is the man mad?" The challenge is something to be brushed aside, treated lightly, courteously ignored.
But although the Baronage is powerful, individually and collectively, it cannot win every encounter with the officers of the Crown. And on rare fulldress showdowns, which the Barons usually try to avoid, the Crown will always win. This will be true whether the Barons secretly control or influence the mercurial Crown or not.
The Fords, as relative latecomers to the realms of higher finpolity, apparently still need to learn the lesson long ago absorbed by the Rockefellers, Du Ponts, Mellons and a few others: No flexing of muscles in public, thus provoking invidious attention. Henry Ford II is much given to doing just this, issuing peremptory statements on public policy (usually opposing reforms) as though he were an elected official or an obscure citizen in a saloon. Although thus far he has aroused only desultory interest, he may some day find himself in hot water by touching some hidden public nerve.
Not only did many foundations, including some of those belonging to the Fords, seem arrogant by seeming to attempt evasion of the Patman inquiries but some, after field audits by the Treasury had disclosed irregularities, returned at once to the irregular practices. 51 In doing this they certainly showed overweening arrogance and contempt of government. And, in general, I believe they are justified in feeling contempt for the pubpols, a sorry crew.
The unwilling objects of Patman's scrutiny in the upshot had this edge on him: The newspapers, even the New York Times, did not give him the opulent coverage his findings seemed to merit sociologically. A news editor could with good conscience play down and bury these reports as overly complicated for a culturally benighted readership. Again, the Patman reports were confusing to many simple-minded readers because, owing to the public-relations image developed by the foundations over the years as whited sepulchres, the Patman reports no doubt seemed to many worthy souls like aspersions upon motherhood. For many readers the Patman conclusions about such entities as the Ford and Rockefeller foundations no doubt, somehow, connoted headlines like: Motherhood Scored. Congressman Recommends Its Abolition. Indeed, Patman later was written about (as in the Luce publications) as a kooky, highly intelligent and informed, well-intentioned maverick in a china shop, perhaps not to be taken too seriously.
One need not rely on Patman and Lindeman alone, with Macdonald dissenting, for a glimpse of secrecy in foundation operations. The Foundation Directory reports difficulty in gathering data over the years from foundations, many of which in past years have failed to disclose their existence even to Russell Sage, their friend and associate. Thus the latest directory notes that the 1939 directory was able to list only 243 noteworthy foundations, whereas the 1960 directory, using data made available by the Treasury since 1950, shows that 600 noteworthy foundations had been in existence through 1939. As the Foundation Directory bleakly observes, "the records before 1950 are grossly inadequate." 52
Foundations, although ostensibly not involved in politics or money-making, are curiously anxious about their public image. We know this because some big ones have used their tax-exempt revenues (in which the government--that is, the general populace--paid 91 per cent of the bill) to hire public relations counselors. From 1952 through 1961 the Ford Foundation had the public relations firms of Newmyer Associates, Inc., and Carl Byoir and Associates, Inc., on the payroll for $172,583.80 in all. From 1955 through 1960 the Howard Hughes Medical Institute paid Carl Byoir and Associates $46,417.55; and the Hughes Aircraft Company, reciprocally associated with the Medical Institute, paid Byoir from 1956 through 1962 a fee of $166,666.66 and expense money of $545,773.69. 53 As foundations professedly have nothing to sell, this is strange.
Let us say a foundation is doing 100 per cent good but the public misunderstands, believes it is really doing harm. If an investigation would show it is really doing only good by catering to the lame, the halt, the blind and the diseased, what difference does it make what the ill-informed public thinks?
Influencing public opinion with tax-free money in favor of a foundation can only have the purpose of warding off investigation. It can only have the effect of suggesting: Don't investigate that perfectly good institution. But if it is as good as it claims to be, what objection can there be to investigation?
The objection can stem only from a desire to conceal the functioning of a link in the finpolitan chain of politico-economic control. Or so I conclude. Nobody in possession of his senses can possibly object to anything the foundations do if it is truly philanthropic and charitable. Nobody can object to the disinterested scattering around of blessed money.
As to the large number of corporation-controlled foundations that have sprung up in recent years, the Foundation Directory says the following about their purposes:
"A wave of foundations of a new type has crested in the past decade. The 'company-sponsored' foundations are tax exempt, nonprofit legal entities . . . with trustee boards consisting wholly or principally of corporation officers and directors . . . their programs are likely to be confined to communities in which they have offices, and to center upon philanthropic agencies that benefit the corporation, its employees, its stockholders or its business relationships." 54 They are, otherwise put, like other foundations.
Constituting 28 per cent of 5,050 leading foundations, the straight-out corporate foundations had total assets of $1.177 billion in 1962. Their annual receipts were $201,444,000 and their grants $142,694,000. The flow-through of heavy annual receipts made them, in the characterization of the Directory, conduits." 55
Foundations in their Protean potentiality have also been found to provide good "cover" for the activities of the Central Intelligence Agency, whose sensitive fingers are in many pies, long ears at many doors. Useful to the finpols in their operations, they have been found useful, too, to the pubpols in international espionage and possibly, too, in domestic surveillance of non-communist heretics and offbeat thinkers. Secret dossiers abound in the land of the free.
According to an intensive review of CIA activities by the New York Times in 1966, "The CIA is said to be behind the efforts of several foundations that sponsor the travel of social scientists in the Communist world. . . . Congressional investigation of the tax-exempt foundations in 1964 showed that the J. M. Kaplan Fund, Inc., among others, had disbursed at least $400,000 for the CIA in a single year to a research institute. This institute, in turn, financed research centers in Latin America that drew other support from the Agency for International Development (the United States foreign aid agency), the Ford Foundation and such universities as Harvard and Brandeis.
"Among the Kaplan Fund's other previous contributors there had been eight funds or foundations unknown to experts on tax-exempt charitable organizations. Five of them were not even listed on the Internal Revenue Service's list of foundations entitled to tax exemption." 56
Publishers of the Foundation Directory informed the Times they had no knowledge of the eight associated foundations: the Gotham Foundation, the Michigan Fund of Detroit, the Andrew Hamilton Fund of Philadelphia, the Borden Trust, the Price Fund, the Edsel Fund, the Beacon Fund and the Kentfield Fund. 57 These were presumably pure cloak-and dagger outfits. Later there were more disclosures of cloak-and-dagger CIA operations by "reputable" and fraudulent foundations with respect to student and laborunion activities abroad.
Foundation Channels
To what channels do foundations allocate grants?
According to the Foundation Directory, grants of $10,000 each or more were given in 1961 and 1962 to the following broad fields: 58
1961 1962
Fields Grants Amount Per Grants Amount Per
(millions) Cent (millions) Cent
Education 614 $107 31 563 $145 46
International
Activities 448 62 17 418 52 17
Sciences 210 37 11 320 45 14
Health 313 68 19 238 32 10
Welfare 417 43 12 268 20 6
Humanities 120 25 7 123 16 5
Religion 98 9 3 53 5 2
Totals 2,220 $351 100 1,983 $315 100
Total annual grants by 6,007 foundations in 1961-62 came to $779,475,000, so that the above total represents only about half the "flow of funds." 59 It is evident, therefore, that not all disbursements are statistically accounted for in the murky world of foundation activity. More recently total annual disbursements have exceeded $1 billion.
As to breakdowns, most of these grants are to existing institutions, few to individuals. In "religion," for example, 84 per cent of the grants went for theological seminaries, church and temple support, buildings and equipment and religious welfare agencies. Buddha, Jesus or Mohammed might be hard put to find the specific religious element in the recipients of the grants. 60 In the humanities 37 per cent went to museums. 61 Grants for education and science went, as was to be expected, largely to institutions.
It has been theorized by philanthropoids that the private foundations have a special role to play in financing constructive activities to ease the travail of a society in the course of change and to provide necessary special improvements. But as Dwight Macdonald notes, they only serve at best to lubricate existing machinery. 62 He here concurs with many earlier observers.
What happens when a foundation attempts to stray from the straight and narrow path of middle-road conformity was shown when the Ford Foundation in the early 1950's emerged on the national scene under the presidency of Paul Hoffman, former president of the Studebaker Corporation and original Marshall Plan administrator. Hoffman, coaxed into the job by Henry Ford II, selected a nonstodgy team of assistants, including the sharp-witted, outspoken Robert M. Hutchins; and the foundation was charted on a course not only more extensive but somewhat more imaginative than those of the established foundations.
Almost from the beginning there was trouble, to the dismay of Henry Ford II, who merely wanted to flood the roads with millions of cars, thus contributing to the world traffic jam, and to put the foundation money to the seemingly most constructive moderate use.
The opening gun in the trouble was fired in 1951 by the anti-Ford Chicago Tribune with a pseudo-news story under the headline: LEFTIST SLANT BEGINS TO SHOW IN FORD TRUST. This bias, the Tribune argued, showed in the presence of Hoffman, who as head of the governmental Marshall Plan had "given away ten billion dollars to foreign countries"; of Dr. Reinhold Niebubr, distinguished professor of Applied Christianity at Union Theological Seminary, who had "pinko tieups"; of Supreme Court justice Owen J. Roberts, "a world government advocate"; and of Frank Altschul, "a Roosevelt Republican and retired international banker." In the Tribune lexicon anything international borders on high treason; and "inter-national banker" has the same connotation, for those who read below the belt, as the Nazi use of the term.
Although this newspaper is hard for some people to understand, the Tribune model of patriotic uprightness is really very simple. It is Mark Hanna, who not only was William McKinley's political mentor but was related by marriage to the Tribune's McCormick family. Anything in American history that deviates in the slightest from the brass-tacks, no-nonsense, cash-on-the-barrelhead Mark Hanna model is suspect to this paper's publishers, accounting for the fact that long before Hanna appeared it waged its own McCarthyite campaign of vilification against Abraham Lincoln. It has never hesitated to replay this campaign against any morally aspiring person or movement. The bare implication, whether from the left, right or center, that there is anything about American life that can stand elevation or modification is enough to send the Tribune and its sister New York Daily News into tantrums of ecstatic editorial rage.
It was at once apparent that the Tribune by its enterprise had touched a rich vein. For instantly a coven of Hearst columnists, abetted by radio commentator Fulton Lewis, Jr., and others, moved into the arena, which they filled with their lurid phrasomania for several years. Lewis opined that because "Many books and various studies have been financed by tax-free grants from these foundations. . . . In effect, the American people are paying more taxes to finance so-called scholars who work diligently to beat out our brains and change our traditional way of life into something more Socialistic." George Sokolsky mused: "Henry Ford . . . made nearly all his money in this country, but Paul Hoffman, who is spending that money, seems to prefer to pour it into remote bottomless pits and to expend it for meaningless purposes, such as an investigation as to why the world is full of refugees, when, as a matter of fact, it always has been. . . . Why cannot some of the money the Ford Foundation is piddling away on trivia be used constructively for the saving of opera?"
Westbrook Pegler fulminated fantastically, calling Hoffman "a hoax without rival in the history of mankind." He took a hard bloodshot look at the eight other trustees of the period. Four, including two Fords and the dean of the Harvard Business School, seemed "sound enough," he said, but "the best that can be said of the political wisdom of the others is that they are flighty." These others included a former chairman of Standard Oil of New Jersey and a former president of General Electric.
The Ford funds, Pegler held, "are in reckless hands. . . . That is the way queer international things get going." Later, under the headline FORD FOUNDATION IS FRONT FOR DANGEROUS COMMUNISTS, he misinformed that Associate Director Milton Katz, professor at the Harvard Law School, was "a Frankfurter man of the same group that insinuated dangerous Communists into our government" and noted a "connection" between the Foundation and President Eisenhower, Henry (China Boy) Luce and "the Marshall Plan squanderbund." "I find it beyond my ability at the moment to establish the master plan of these strange associations and activities," Pegler madly wrote. "I will continue, however, to offer you verified facts and my best efforts at interpretations."
Later, traitors all around, he enlarged: "There is a very important and sinister political mystery concealed in the mixed activities of the Ford Foundation under Paul Hoffman and Robert Hutchins, the Time-Life propaganda empire of Henry Luce, and the political works of William Benton, the Social-Democratic Senator from Connecticut."
No facts were offered to sustain these gaseous charges, which eventually led to a dazed Henry Ford II being shrilly accused by a distraught woman at a social gathering of being a Communist. 63 This was much like charging Andrei Gromyko with being a secret director of Standard Oil.
Nevertheless, the uproar--sustained by advertising-hungry publishers--has provided the background noise for three congressional investigations of the foundations since World War II. The first two, as Macdonald observes, were inspired by intra-party political animus. There was, too, obvious nonparty economic animus in the Patman inquiry of the 1960's. But the fact that the investigations sprang out of political animosity provides no reason to ignore whatever they produced in the way of fact and insight.
As Macdonald sees the first two investigations, correctly I believe, both were merely episodes in Republican factional politics. 64 It was disappointed Taft Republicans, disgruntled at the Eisenhower capture of the Republican nomination, who were active behind the scenes in both early investigations in their own variation and fugue on the Joe McCarthy smear tactics.
The first investigation was directed by a House committee under the chairmanship of the late Eugene Cox, Georgia Democrat who was responsive to the general McCarthyite view of extreme Taftists. However, "the strategy misfired, because the Democratic leaders, who were still in control of the House, boxed in the impeccably Americanistic chairman with less dedicated colleagues." 65
Because the committee members went about the investigation in a matter-of-fact way, the final report cleared the foundations of being infiltrated by Communists, of recommending socialism, of weakening, undermining or discrediting the entirely laudable system of American free enterprise. It cleared them too of the suspicions that moneys they spent abroad were devoted to purposes less than praiseworthy. The hearings even led rockribbed Chairman Cox to say he had undergone "some change of heart."
One member of the committee, however, remained discontented. This was the late Representative Brazilla Carroll Reece, of Tennessee, former chairman of the Republican National Committee, who at once demanded a new investigation. Reece has been one of Taft's campaign managers "and so was especially disappointed by the Cox Committee's failure to 'get' the Fords' and the Rockefellers' foundations." 66 The Fords and Rockefellers, along with other leading elements of wealth, had in 1952 supported the bewildered Eisenhower, the only sure winner owing to his public standing as a war hero, the mighty conqueror no less (by grace of public relations techniques) of the baleful and infinitely resourceful German General Staff.
Reece got his investigation in 1953 and 1954, conducting it along murky McCarthyite lines. The premise, as stated by Reece, was that "there is evidence to show there is a diabolical conspiracy back of all this. Its aim is the furtherance of Socialism in the United States." The Ford Foundation, he held, was the main offender in undermining a free market, working in concert with such subversive organizations as the Advertising Council, Republic Steel, General Motors and Standard Oil of California.
The hearings and the final report, all expertly reported by Macdonald, were a confetti of nonsense. And they were assailed as such by the corporate newspapers, ten to one. 67
Prior to the Reece investigation, a Gallup poll showed 63 per cent of sturdy grass-roots Americans had never heard of the Ford Foundation, 13 per cent were indifferent to it, 23 per cent favored it and 1 per cent were hostile. After the frenzied bearings another Gallup poll showed 60 per cent had never heard of it (the power of the press!), 11 per cent had no opinion, 27 per cent were favorable and 2 per cent were hostile. Of Republicans queried, 46 per cent had heard of the foundation; only 35 per cent of the less literate Democrats had ever heard of it!
When Patman began his inquiry in 1961-62 he was seemingly entering a thoroughly ploughed field. The attention of his committee, however, was turned in a different direction. The Cox investigation, which ran to great length and heard from officials of most leading foundations, was largely limited to the question of ideological purity and the nature of fund grants. The Patman inquiry concentrated on the investment maneuvers and policies of the foundations, turning up some of the strange monsters of the financial deep we have scrutinized.
Patman's inquiry was also obviously fueled by animus. As Macdonald points out, all public investigations of the foundations have been unfriendly, critical in various degrees, from different points of view. The Walsh investigation of 1915 was directed from a Populist or native-leftist, quasi-socialist point of view, and socialists, communists and leftist liberals have always been more or less critical of the foundations as instruments of an ascendant, vulpine capitalism. But the more recent investigations, Patman's included, have been oriented from a rightist, small-business point of view, a fact that brings into focus a revelatory perspective on contemporary American politics.
That Congressman Patman did not develop the whole foundation story is vouched for by The Nation of December 4, 1967. Patman, although very close politically to their sponsors, did not delve into a variety of Texas foundations, the owners of which feel rivalrous toward the "Eastern Establishment" and their foundations.
According to The Nation, the Brown Foundation, Inc., of Houston, established by the late Herman Brown and brother George R. Brown of the big government contractors, Brown and Root, channeled money into at least one Central Intelligence Agency conduit foundation and into at least one organization partly supported by the CIA. Brown and Root, incidentally, is politically close to President Johnson.
In 1963 the Brown Foundation gave $150,000 to the Vernon Fund and in 1964 it gave $100,000, these being the latest available figures. It gave $50,000 in 1963 to the American Friends of the Middle East and $150,000 in 1964. By no kind of elastic interpretation can these donations be regarded as in the cause of sweet charity.
There are now at least seven CIA-conduit foundations known to be operating in oil-lush Texas; the others are the San Jacinto Foundation, the Marshall Foundation, the Anderson Foundation, the Hoblitzelle Foundation, the Jones-O'Donnell Foundation and the Hobby Foundation. The latter was set up by Oveta Culp Hobby, former Secretary of Health, Education and Welfare under Eisenhower, and by her son William Hobby, Jr., executive editor of the Houston Post. Both Hobbys are close to President Johnson.
"In the eight months that have elapsed since the CIA was discovered to have polluted the world of the foundations," said The Nation, "neither the IRS nor Patman has shown any interest in discovering just how deeply the spies have penetrated the supposedly charitable organizations. Patman's investigations into charity, like charity itself, should begin at home. He might even tell us what good works have been supported lately by the Lyndon Johnson Foundation, established a few years ago by the President."
Political Perspectives
It is customary in the public prints, as part of the lofty centrist stance, to portray rightists and leftists as crackpots of various degrees. For how could anything possibly be wrong with the ineffably beautiful status quo? McCarthy and Reece were, it is true, both crackpots in that they had a fantastic, paranoid vision of reality. Leftists succumb to the same malady when they see capitalism as the quintessence and autonomously unique source of personal and institutionalized evil. Was Stalin a capitalist?
Crackpottism is most clearly revealed in methods pursued, which in the case of both sides at the extremes boil down to inciting to riot and civil disorder. Whatever within ideological limits will bring about this eventual result is pressed into service. For neither political extreme has the least chance of success without a breakdown of order--spontaneous or induced. Political extremism in all cases--in Russia and China, in Germany and Italy--gained the ascendancy during genuine, war-induced breakdowns. In Spain in 1936 the breakdown was induced by a contrived military uprising.
But this freehanded, irascible labeling of leftists and rightists as crackpots obscures the incontestable fact that both groups are respectively irked by something. In some way a shoe is pinching their adherents. While crackpottism often stems from or is reinforced by purely subjective disorders, objective factors must be present to make it plausible to large numbers of people. Crazy though Hitler undoubtedly was, something was patently askew in Germany and Europe when he rose to power. There may, too, behind a bland exterior (a fact often overlooked), be crackpottism at the center--a moderate, reassuring, tranquilizing crackpottism that bids man accept everything as he finds it, as though heaven-sent. A strong argument could be developed that there is at least as much crackpottism at the center as on either the right or the left--the crackpottism of paralyzed navel-gazing inertia.
i
Patman, like his investigational predecessors left and right, was obviously deeply disturbed by something, and he plainly stated it. He was irked, on behalf of his major constituents, by the incontestable fact that Big Business with its various instrumentalities, including the foundations, was crowding small business to the wall. In standing up for historically doomed "small business," Patman was not speaking generally for what the ordinary person would consider especially small. For Patman's political underpinnings are found among Texas entrepreneurs of corporations with assets ranging up to $50 million. These latter-day economic individualists feel pressed by the bigger enterprises, in part because of the ducal tax exemptions and other political boons enjoyed by the giants. Furthermore, although the total assets of some of the so-called small corporations may seem large to the onlooker, the equity of the nominal owner is often darkly overshadowed by heavy issues of senior securities and bank loans. The nominal owner often clings to a slender stake in his enterprise.
Patman, in other words, approached the situation as a business analyst. He was a realistic even though unconscious participant in a late phase of what Karl Marx called "the class struggle," what our own James Madison termed "faction." He didn't make charges to hear himself talk, nor did he strive to stir an uproar for political revenge or to engender turbulence. He was after facts upon which to recommend concrete limiting legislation.
Patman was entirely successful, as we have seen, in his attempt to show one aspect of how big interests squeeze smaller interests. His effort fit snugly into the Marxist concept of class struggle which, contrary to vulgar supposition, does not alone pose big capitalists against workers or the poor. In the class struggle under capitalism, Marx pointed out, the capitalists themselves contrive each other's destruction. Some become bigger as others are crushed. In the impersonal process (and Marx went astray on this prediction) everybody is proletarianized except the big capitalists. Marx's error of anticipation stemmed from the fact that he failed to see the emergence with proliferating technology of a white-collar horde of corporate technicians and administrators, many of whom were to identify themselves psychologically, purely through physical association, with the upper owning classes. Nor did he see the emergence of new interstitial enterprises, late reverberations as it were of an earlier upthrusting industrialism.
Even though accelerated by two gigantic wars, developments under capitalism proceeded at a slower pace than Marx predicted. But, in a Marxian view, the phenomenon of small capitalists being squeezed by big capitalists in their adroit manipulation of the state apparatus (which is Patman's basic thesis) is an important readily verifiable facet of class struggle.
Is it morally justifiable to feel politically irked? This is obviously a foolish question. If one is irked one is irked, a psycho-physical fact. How one now behaves, rationally or otherwise, is determined by one's intellectual analysis and program for eliminating or avoiding felt difficulties. Marx in his recommended political program, visualizing the forcible overthrow of capitalism by factory workers, was far more of a visionary than in his theoretical analysis, which was an attempt to find broad intellectual sanction for remedial political action of a fundamental nature. And even in his political program calling for revolution, Marx was far less of a visionary than many subsequent self-styled Marxists, notably Lenin.
For the Marxist revolution, Marx very practically held, could take place only in a very advanced capitalist country, such as England, the United States or Germany. And when it took place, just about all of the people--now all proletarians--would favor it. The actual revolution would be a small affair, easily throwing the few surviving big owners out. All very simple. Remaining would be a smoothly running technical system with the profit motive removed, everybody happy.
What confuses many who are superficially informed is that what is represented as Marxist revolution has taken place only in backward agricultural countries such as Russia and China, in the wake of debilitating wars. Although these were indeed revolutions, and might well have recommended themselves as such to Marx, who was by temperament as well as conviction a bone-deep revolutionary, they were far from Marxist revolutions.
No Marxist revolution, violent or peaceful, has ever taken place anywhere. But certain processes within capitalism, some of which Marx first discerned, some of which he foresaw and some of which he neither discerned nor foresaw (such as the effectiveness of piecemeal reform in modifying many conditions), continued to hold sway, transforming capitalism into its many different national guises. On the basis of his premature observations Marx considered all reform a misleading hoax.
But in the concept of class struggle, even though all history is surely not (as he asserted) the history of class struggle, Marx achieved an intellectually fruitful insight. And what are seen as leftist and rightist deviations from centrism (which upholds the status quo) are clearly instances, however ineffective, of class struggle or at least class protest.
Whereas the earlier leftist movements in the United States from Populism through Socialism and on into Communism of the 1930's were ventures in class struggle or protest carried out at least nominally on behalf of lower elements of society, the more recent rightist movements are ventures in the same sort of struggle waged by and supposedly for persons who futilely (in the long run) resist being squeezed out of existence or into less lucrative positions. As Marx pointed out, when men feel cornered they often elect to fight.
While earlier Populists and other leftists waged their struggles, which produced a certain amount of mild increasingly diluted reform (though it did not arrest a large and spreading impoverishment among the unskilled), persons situated in society at the levels where contemporary rightists now find themselves did not feel stirred. This was no doubt because they still identified themselves with the Rockefellers, Carnegies, Du Ponts, Fords, Mellons et al. Soon, too, they would be ascending those blessed golden peaks! Soon, too, their address would be 1 Wall Street, their summer address Newport or Bar Harbor.
Under the impact of recent pressures, however, it has begun to dawn on many of them that their address is far more likely to be the bankruptcy court. Many have already been displaced from the middle class, sons of former corporation executives who cannot "make it," inheritors of deflated estates and others of the nouveau dispossessed.
Looking about, they have concluded that one of the causes of their difficulties is the variety of social legislation called into being in three decades under the pressure of concrete phenomena such as unemployment. This legislation has had the effect, among other things, of depriving small operators of much cheap, profitable labor. This, they conclude, is tantamount to socialism and the sponsors are in effect socialists or communists.
And the big corporations, instead of continuing to fight this rise of "socialism," have finally compromised with it. Wealthy persons such as Henry Ford II and the Rockefellers now accept the mild, often diluted New Deal reforms. The only very wealthy hereditary group that still appears to support openly rightist causes is the Pew family of Philadelphia. Many medium corporations, however, join the Pews.
The big corporations, with their greater productivity and reserves, have indeed more or less acquiesced in the process after the failure of their political struggle in the 1930's against it, when the big Du Ponts led heavy industry, the banks and the newspapers against the New Deal. The big corporations are easily able to meet the major demands of organized labor, thus avoiding trouble and a poor public image, by passing increased costs on to consumers in administered prices. Most of the state right-to-work laws, forbidding the union shop, are noticeably located in the less industrialized regions. Attempts to supersede these low-wage laws by a federal law that would facilitate unionization are desperately fought by small high-cost producers as the encroachment of soul-destroying socialism.
It isn't the big companies, by and large, or the foundations, that lead this latter-day fight against the unions. For the big entities have found it profitable to fall into step with the welfare-warfare state. It is the small, often rightist businessman who favors the anti-union laws. Many of the regulations that small-business elements find distasteful were in fact devised over the years and made into public policy by representatives of the wealthiest and most Republican interests. 68 They wanted to squelch the small, market-upsetting wildcat operators. Only big, stabilizing centrally controlled units were wanted.
Not only are the small operators annoyed that the big corporations pay better wages and no longer fight the unions but they are annoyed at the ease with which the big operators, with the many fringe benefits they offer, are able to hire the cream of available personnel. Left to the small employer are the misfits, the restless, the inefficient.
As the rightists generally put their case, the small businessman is being squeezed between Big Unions and Big Government (the latter imposing more and more New Dealish "socialist" rules and thereby strangling freedom to deal properly with employees and customers). All this regulation smacks of what rightists understand as regimented socialist society. In most of its versions the analysis is unrealistic because canons of middle-class respectability lead most rightists to overlook the fact that Big Corporations are implicated in the squeeze. But to say this would make them sound like old-time long-haired socialists, thus defacing their self-image of respectability.
Political realists like Patman, however, do not overlook this factor in the equation. Nor were the ill-behaved Republican rightists at the famous convention of 1964, when they hissed and booed Nelson A. Rockefeller, unaware that he represented a genuine, blandly powerful adverse interest. Rockefeller, as a "liberal" Republican--that is, one willing to accept the New Deal approach--had become anathema to Republican rightists, many of whom more recently denounced him as a socialist.
The small businessman, if he were to read the signs in a Marxist way, would see that he is being slowly expropriated. He should, according to Marxist prescription, join the Marxist ideologues in seeking the day of mass deliverance. As he is biased by his middle-class point of view, envisioning himself as a potential original Rockefeller, Du Pont, Mellon or Ford--like them finding salvation in an unregulated market and society--he will have nothing to do with the doctrinaire Marxists. He therefore, wishfully, analyzes the situation not as one of big enterprise versus small enterprise but as "New Deal socialism" versus free enterprise. He lives within an economic as well as political myth, fails to see that free enterprise itself has long since been superseded by corporate monopoly, leaving him uncomfortably in one of the remaining dead ends. He does not see that in the impersonal, at times slow, process of economic development he is marked for eventual destruction. He is expendable.
There is, alas, no place for him at 1 Wall Street--unless, perchance, he can inflame the masses with the demonic idea that Eisenhower, Henry Ford II and Nelson Rockefeller are secret card-carrying Communists. If he could get enough people to believe this, and to exert themselves appropriately, then perhaps the strait jacket of New Deal regulations and labor union contracts could be broken. With plenty of cheap labor again available, perhaps he could make a big low-tax profit, build up cash reserves and finally rent a palatial suite of offices at 1 Wall Street. Then all the people who laughed at him when he said he was going to be rich would change their tune. Then they would all see that he was, all along, really a superior fellow, sure to be a success, as good as Rockefeller or Carnegie and maybe even better. Then his wife or mistress would be particularly impressed as he circled his yacht and private island in his own jet plane after he took off for large conferences in Washington or Hong Kong.
But this crude fantasy, although firm in its lineaments, tends to vanish under the weight of heavy unequal taxes, rising labor costs, tightening New Dealish regulations, monopoly, high prices of materials and corporate automation. The outlook becomes darker as he looks across the way and sees one of the hundreds of plants of the Super-Cosmos Corporation churning out trainloads of goods in a profitable torrent. The Super-Cosmos parking lot is filled with the cars of union workers, who denounce him as a fink, a rascal, a Goldwater crackpot and his employees as incompetent, low-paid scabs. If not incipient socialism all this is surely something just as wicked.
Because the rightists have no program upon which to base a convincing mass appeal they are reduced to bringing forward whatever emotional irrelevancy they believe will gain them mass support. Thus they represent themselves as bone-crushing super-patriots, anti-internationalists, anti-foreigners, anti-Communists, anti-Socialists, anti-Semites, anti-atheists, anti-Negroes. They are anti-fluoridation of water, anti-vaccination and, indeed, against whatever is offensive to low-level mass pockets of folklore, superstition and misinformation.
It is in consequence of this kind of electorally necessary appeal that one finds in the rightist entourage such a variegated assortment of screwballs. But all movements when they promise the excitement of combat--left, right or center--have a similar appeal for the demented and half-demented. In time of war the center, for example, draws unfastidiously to its bosom every latent or overt votary of violence--sadists, xenophobes, paranoids, the suicidal. I put all this down because I don't want to be put into the position, generally taken by the left and the center, that there is something inherently deranged about the rightist position. Rightists, like other politicians, take people as they find them and try to bend them to their purposes. And all political positions--left, right and center--leave much out of account in their neat formulas.
If they were fully logical in their prescriptions for the Good Society, the rightists would call forthwith for the dissolution into their constituent parts of United States Steel, General Motors, Standard Oil of New Jersey, AT&T and the other big holding companies. They do not make such a demand because in fact they deeply venerate these enterprises, would themselves like to possess them, only wish that their own Calabash Oil and Swampwater Steel were similarly flourishing. As it is, when Standard Oil of New Jersey breathes a little more deeply than usual, Calabash Oil is suffocated.
Barring some extremely unusual set of developments, the center, the Establishment, seems likely to continue in its triumphant balancing act despite the noisome antics of the rightists. Little more than clamor seems likely to come from the political right, less even in the way of enforced minor adjustments than came from the reformist demands of the more numerous working masses. The center, the Establishment, with its corporations, foundations, trust funds and family holding companies, clearly rules the roost, whether under Truman, Eisenhower, Kennedy or Johnson. And there is a deep reason for this, which is that by the Law of Inertia the center is bound up in golden links with the Good, the Beautiful and the True. Truth, or at least the routine profession of truth, is solidly on the side of the status quo. All else is error. . . .
Critics and the Foundations
In their patterns of granting funds the foundations display their power in ways that appear most fascinating to casual observers. While most citizens appear to accept dutifully the verdict of the corporate press that foundations exist in an unalloyed good cause, there are many critics of foundation patronage--insiders and outsiders, friendly, unfriendly and temperately judicious. These worthies bring into view a little noticed but wryly instructive aspect of the foundation phenomenon.
The individual critic in Foundationland, whoever he is, is much like a tourist in the Soviet Union. Upon his return home he tells what he liked, what he disliked. Here was a modern laboratory, there an advanced clinic, in another place a special school for backward children and there was, of course, the resplendent Moscow subway system--all of this the tourist liked very much. On the other hand, what he saw of collective farms, country roads, new apartment houses, most stores and the Kremlin itself--these he disapproved. Still other things he had mixed feelings about, like the schools: too traditional and authoritarian but, on the other hand, very high standards and well equipped, teachers excellent.
And the judicious critic in Foundationland is like the tourist in the Soviet Union also in that whether or not he approves what he sees this is the way it is and this is the way it is going to be. In both cases his judgments, no matter how finely spun, count for naught. He is a cipher in a society of ciphers.
Naturally the managers of the foundations, like the managers of the Soviet Union, prefer that the observer like everything he sees. If not, it is nice that he finds something to endorse. But whether he likes everything or nothing, it is--general public-relations blarney apart--fundamentally of no concern to the managers because this just happens to be part of their plantation. And merely because one finds something on the tour that one likes does not imply, any more in Foundationland than in the Soviet Union, that the tourist and the higher-ups are enrolled in a common cause.
Visitors to big houses of the rich that have been thrown open to the public as museums show the same irrelevantly and futilely judicious attitude. They like the drawing rooms and the library--"Really magnificent, you know." But, unfortunately, "They certainly showed poor taste in the decór of the bedrooms. And the solid gold bath tubs are ridiculous." But whether the masters showed a lapse of taste in this or that matter or not, this is the way it was and no word of the visitors will change a bit of it.
Foundation Organization
Let us, in order to understand foundations better, leave off attempts to evaluate their distributive worth on a scale of zero to 100. Let us instead concede that they are perfect in their expenditures, thus bypassing an argument apparently as fruitless as the one about the Soviet Union. And let us now look to their organization.
At the top we find a board of trustees, all concededly doing only good. Among the Ford Foundation trustees we find Benson Ford and Henry Ford II and thirteen others of whom at least nine are surely from the world of finpolity and pubpolity. All of these are very able men; about this we need not dispute. But, except for the two Fords, all were selected . . . by the Fords. The Fords, though, were neither selected, elected, co-opted or chosen by public examination. Nobody at all asked them to assume these arduous philanthropic duties, for which it might seem they chose themselves.
But neither they (nor the Rockefellers, Du Ponts, Mellons and others) did even this, although this is what the Soviet managers did. For the Soviet managers, out of the kindness of their hearts, themselves chose to lead a disbelieving world to the Promised Land of Communism, where the lion shall lie down with the lamb, the unicorn shall shed his horn, the meek shall inherit the earth and the State shall wither away.
The Fords, like their peers, were chosen before birth for their roles, which are (oddly in a democratic, republican or merely parliamentary context) purely hereditary. They are hereditary oligarchic philanthropists!
It is, then, by hereditary right that all these concededly beneficent expenditures are made. If it is not all done in the pure spirit of sacrifice it is, we are repeatedly assured by the corporate press, very close to it. It amounts, simply, to noblesse oblige.
As there are far too many foundations, even large ones, to scrutinize here in any detail, our attention will be largely confined to a few, including the Ford Foundation.
Orientation of Patronage Grants
Those foundations that regularly make substantial payouts--and as we have noticed they altogether paid out only 50 per cent of income through the 1950s--are in philanthropoid jargon said to be "discipline-oriented" or problem-oriented" or a little of both. They are also "friend-oriented," company-oriented," "profit-oriented" and "market-oriented."
The discipline-oriented, like the Rockefeller group, mainly allocate money to institutions harnessed by intellectual disciplines--physical and social sciences, medicine and (much less so) the humanities. Except for the last, in the opinion of a leading philanthropoid (a very mentor of philanthropoids) these have been overstressed. 69 But heavily financed science (and perhaps this is pure coincidence) has thousands of profitable industrial applications of which the corporations have freely availed themselves. And medical advances are immediately available to the rich, much later if at all to the non-rich. There is little if any monetary profit in the humanities, however (perhaps only another coincidence).
The stress on science in American society has at least been reinforced if not originally invoked by the foundations, an obvious exhibition of power, and a scientist cited by Abraham Flexner believes it has been overstressed. The foundations, thus seen, are centers of self-serving hereditary power.
The Ford Foundation is problem-oriented. It is out to solve or at least make more manageable public problems of various kinds.
After the death of Henry Ford, the foundation, originally organized in 1936, began its larger operations on the basis of a Study Report. 70
The report laid out five Program Areas, as follows:
I. The Establishment of Peace. (Involving international programs; "peace" here, as Macdonald remarks, "means trying to make other nations more friendly to us and less to the Communists.")
II. The Strengthening of Democracy (domestic civil liberties and politics),
III. The Strengthening of the Economy.
IV. Education in a Democratic Society. (As Macdonald remarks, the democratic society "is apparently ours.")
V. Individual Behavior and Human Relations. (Macdonald believes this section could more accurately have been titled "Mass Behavior and Social Relations." The Ford Foundation, however, does not formally concede there are "masses" in "our democratic society.")
It was in the attempted implementation of this report that Paul Hoffman ran into the trouble with the rightists that led to his resignation two years later.
More recently the Ford Foundation has broken its problem areas down as follows: Education in the United States, Economic Development and Administration in the United States, Public Affairs, Humanities and the Arts, International Training and Research, Science and Engineering, International Affairs, Population and Overseas Development. These subdivisions in the voluminous annual reports are further subdivided into an astonishing array of grants for projects and individual scholarships and fellowships. The sun never sets on the works of the Ford Foundation.
So massive was the task of transferring its vast revenues found to be that the foundation early established and separately financed a number of independent sub-foundations, all under the guidance of philanthropoids: The Fund for the Advancement of Education, the Fund for Adult Education, The Fund for the Republic, Resources for the Future, various television entertainment-educational programs and its own special programs. 71
While the entire original program of the foundation came indiscriminately under attack from rightists, The Fund for the Republic, presided over by the far from diplomatic Robert M. Hutchins, provoked their especial ire because it was established for the entirely laudable purpose of bringing about "the elimination of restrictions on freedom of thought, inquiry and expression in the United States, and the development of policies and procedure best adapted to protect these rights in the face of persistent international tension."
It aimed, quite simply, to defend civil liberties. As Hutchins took his commitment seriously, the rightists were doubly incensed; for, concerned only with their petty material affairs, they are opposed to civil liberties--for others--at all times.
As Chief Justice Earl Warren remarked in the middle 1950's, it is doubtful that Congress would pass the Bill of Rights if it were introduced today. By the same token, it is doubtful that more than a small minority of Americans favor it. For Americans, of all western peoples, are most committed in the grass-roots mass to the general denial of civil liberties to dissenters, outsiders and deviators. No doubt owing to the general insecurity of their social position, most Americans are rigidly and narrowly conformist, quick to smell out heresies (thus proving their loyalty) and to call for summary punishment of deviators in such a spontaneous way as to make them the envy of any Gestapo, GPU, MKVD or KGB functionary. Under appropriate circumstances, one is melancholically led to believe, rightists in the United States would have more of a field day than they ever had in Germany or Italy. Whereas in other countries the secret police are invariably unpopular, in the United States the FBI and the CIA have generally had the standing of folk heroes-mute testimony to the superior effectiveness of American propaganda methods and to the trend of popular feelings.
The foreign program under Hoffman, set to achieve an era of greater world friendliness for the United States, was attacked as communistic. It was, plainly, "internationalist," itself evil. (Whatever isn't American, inter alia, is wicked.) And the educational programs, supporting progressive and adult education, were obviously communistic in that they deviated from traditional paths, trod by no others than our sainted pluperfect forebears.
The broad rightist attack, which according to Macdonald frightened Henry Ford II, although surveys showed that wild calls for boycotts had not hurt Ford Motor sales, was finally subdued in an ingenious way. Hoffman and his aides were ushered out and the attack was simply smothered in money. Unselectively, heavy grants in the hundreds of millions were ladled out year after year to all accredited colleges and universities, all hospitals and, later, all museums, all symphony orchestras; all of everything in the status quo. In the grants to colleges and universities, Catholic institutions were included (to their gratified consternation) in the greatest deluge of money they ever experienced. Nobody was spared.
This silenced the rightists, possibly because all the dry emotional tinder out in the grass roots had been thoroughly saturated in floods of money. It was difficult to maintain the idea before the public that the Ford Foundation was evil when it was spewing forth lifegiving money to all points of the compass like lava from a volcano. As no standards were observed it was all obviously democratic.
If the continual widespread distribution of money in large amounts is a good thing, then the Ford Foundation must be one of the best things that ever happened. Cui bono? The status quo is clearly made more bearable as its various cracks and fissures are plastered over, while thousands cheer. And the Ford Motor Company, the goose that laid this golden egg, is surely not hurt. The public-relations value of the Ford Foundation to the automobile company was not lost upon the more than 8,000 Ford dealers in the United States, who earlier in the 1950's were among those protesting that too much foundation money was being spent abroad on benighted aliens. 72 But, apparently unknown to them, Ford Motor is a big operation abroad as well.
Public Relations and Influence over Attitudes
Apart from their roles in corporate control, the big foundations, at home and abroad, have a public-relations "splash value." What they give to approved medical, scientific and educational institutions tends to bathe in reflected radiance corporate enterprises that some critics quixotically consider ominous. It appears, on closer analysis, that this is a mistaken and possibly deranged judgment, and that all effort is really being expended for the benefit of humanity, naturally without forgetting the stockholders. If not socialism, the panorama seems to have overtones about it at least of quasi-socialism or, we may say paradoxically, capitalist socialism or social capitalism.
The foundations, it is clear, represent to some degree a line of public-relations defense of the large corporations. General Motors, too, is not without its surrounding foundations--the Alfred P. Sloan Foundation, the Mott Foundation and a number of others. The big foundation, indeed, is the hallmark of corporate super-wealth.
As to giving money away, it is evident that these endowments could have been transferred in one original move to extremely capable hands. In education they could have been turned over to the Association of American Universities and similar bodies, in science to the American Association for the Advancement of Science, in medicine to the American Medical Association, and so on. But this would be the end of it all. The donor and his heirs would have no more participation in it.
By making serial gifts each year out of income from a perpetual principal fund the donor can keep prospective worthy recipients sitting around forever like a circle of hungry dogs, awaiting the next handout. In such an arrangement prospective institutional recipients are not likely to voice unwelcome socio-economic or politico-economic ideas. They are more likely to be careful to give utterance only to impeccably sound ideas, the kind one might hear in the top clubs. The general foundations, then, with their serial gifts, function pretty much as a carrot, rewarding those who are cooperative and constructive, passing over the unworthy, the carping, the critical, the nonadmiring, the unsound.
Institutional administrators consequently find that it pays to stay clear of public controversies and to voice at best only tried-and-true platitudes: to show themselves at all times as sound men. While this reticence to some extent dims their true brilliance, in the long run it seems most rewarding. Robert Maynard Hutchins is one of the few on this circuit who for a long time seemed able to have his cake and eat it too, to function as a big institutional wheel and still enjoy the luxury of delivering himself of tart remarks at the expense of the many sorry spectacles around him. But after he rose to great foundation heights the forces of conformity at last caught up with him, in a latter-day version of a preordained cut-rate Greek tragedy. For the Fund for the Republic was cut loose from the Ford Foundation and left to face the hostile hordes with a dwindling mere $15 million.
The critic is often challenged to say how he would do it better, as though a judge who found an apple to be sour was under obligation to grow a sweeter one. But in the case of the foundations such a challenge would be easy to meet. In the case of the Ford Foundation a much more consequential commitment of its money would have been to devote it to making an adequate secondary-school education available to all promising students. Secondary education is the weakest link in the American educational chain. What the Ford Foundation could have done, and can still do, is to see that all promising students get into a good school, all expenses paid. As such schools are only rarely found in home neighborhoods it would be necessary that the students be boarded, sometimes clothed and supplied with travel expenses. Some could be placed in existing private schools, although they, too, are crowded. For others, regional private schools with highly motivated, well-paid faculties would have to be supplied.
The task could be left to other agencies, public and private, to see the Ford-grant graduates through college. As it is, a very large percentage of those entering colleges are poorly prepared to profit by college-level work. In my proposed Ford-grant system defects of preparation would be removed.
While the immediate impact of such expenditure would not be apparent, the long-term consequences would be enormous and beneficial.
Politically there is very little that could be said against this plan from any point of view.
Effects of Grants, Good and Bad
That the various foundation emphases in their grants are not without vast social effects we can see from the judgments of informed critics wandering more or less like unheeded ghosts through Foundationland.
As an example of what he considers mischief, Macdonald cites an early cause taken up by the Carnegie Foundation for the Advancement of Teaching. Andrew Carnegie had it brought to his attention how poorly teachers were paid, and he decided to do something about it--thus privately assuming a legislative function (which all the foundations do). So in 1905 he established his foundation to improve teaching, with the objective of giving every down-at-heels college professor in the country a free pension.
When it became evident toward 1920 that all of Carnegie's money could not fill this bill, existing contracts were frozen. There was then established the Teachers Annuity and Insurance Association, supported by contributions from teachers and colleges as well as by Carnegie money. Carnegie's heart, however, had been in the right place.
It had been initially necessary, though, to have a criterion of who was a worthy teacher and what was a college. Many places that call themselves colleges, then and now, are not. The then president of the Carnegie Corporation, Henry Pritchett, composed an "Accepted List" of colleges eligible for Carnegie pensions. An admirer of the German university system, Pritchett laid it down that qualifying colleges must have Ph.D.s as department heads. Many already had such cherished department heads and the Ph.D. up to that time had merely been a degree sought by people committed to research scholarship.
"This put pressure on colleges to qualify, which put pressure on professors to get Ph.D.s, which brought about the present Procrustean situation where no amount of scholarly brilliance or teaching flair will make up for lack of a doctorate. There are those who see in the Ph.D. obsession a major cause of the sterility and mediocrity of our academic life today, and the moral of that is: Doing Good Is a Complicated Business." 73
Without intending to do so but by incautiously exerting their great power, the Carnegie interests, it is contended, actually devalued the Ph.D. degree to its present estate when it is most conspicuously borne by routine jobholders and bureaucratic academic administrators. As hordes of prospective jobholders, looking forward to tenured academic employment and distant pensions, besieged the graduate schools (of which many new ones set up shop to supply the demand) the graduate curriculum was purposely made mechanically more arduous in order to deter all except the most hardy plodders (getting the prized degrees began to take up to ten and twelve years in the less formalized subjects such as history, literature and philosophy). Brilliant minds, superior either as teachers or as scholarly producers, increasingly declined to subject themselves to what was often a creatively sterile grind.
While the Ph.D. requirement lent itself readily to the organizing American corporate approach, in England, not similarly scourged by the Ph.D. mania, one still saw hundreds of brilliant teachers and scores of internationally recognized scholars without the degree. Visiting the United States these English scholars, flaunting only a meager M.A., often lecture to halls filled by goggle-eyed American Ph.D.s. Bertrand Russell was one such.
The point in all this is not that there is anything wrong with the basic idea of the Ph.D. The point is only that it is no longer indicative of a true scholarly interest, which can indeed be shown only by the nature of work done. Many Ph.D.s, too, have come to be awarded in ridiculous fields. Hutchins found one granted for work in automobile driver training!
So this heavy-handed Germanizing of American scholarship traces back to an original ex parte foundation decision.
Not all foundation efforts, by any means, have had such a disputatious outcome.
Carnegie money, for example, financed Abraham Flexner's great investigation of American medical schools. The report, which appeared in 1910, found nearly all of them far below par and some to be rackets, leading to extensive reforms that drove out the worst and converted the remainder from among the worst in the world to the best.
Again, Carnegie money financed Gunnar Myrdal and associates in the monumental study of the American Negro before World War II, titled An American Dilemma. It was on the basis largely of the findings in this report that the Supreme Court rendered its epochal school desegregation decision of 1954.
Rockefeller money largely financed Dr. Alfred Kinsey and associates in the study of sexual behavior which, despite methodological and other controversies that ensued, appeared to represent a long step toward greater light in a puritanically degraded area.
As Macdonald notes, "The Rockefeller agencies made medical history with such exploits as their worldwide campaigns to control malaria and yellow fever, and their detection--and subsequent elimination--of hookworm as a drain on the vitality of rural Southerners." 74 It is evident that there is much one can find to set up on the credit side of the foundations.
And, yet, the critics still find many serpents coiled in the garden. William H. Whyte, in Fortune (November, 1955), held it a bad thing that foundation grants went more and more to institutions or to research teams, less and less to individual workers. As Macdonald reminds us, the greatest work has been done by individuals, and in the "soft" disciplines. 75
Not only must the foundations, with an eye to the cultural vigilantes, stick to safe, tried and true areas, but they cannot support pioneers, who automatically have the animal mobs ranged against them. Had they existed in an earlier day the foundations could not have sponsored Copernicus, Galileo, Vesalius, Darwin, Pasteur, Marx, Freud or many others. These were all, by public acclaim, reprehensible men; some still are.
As recently as the 1920's they could not, owing to low-grade public opinion, support Mrs. Margaret Sanger in her timely but frustrated campaign to disseminate information about birth control. Margaret Sanger, like Socrates, fought as an individual and went to jail as an individual. The birth control movement was stalled, has been revived only recently under dire eleventh-hour necessity.
The original program of the Ford Foundation grew out of criticism by Edwin R. Embree, former president of the Julius Rosenwald Foundation, advanced in an article in Harper's Magazine in 1949 entitled "Timid Billions." Embree held that, because foundations--mainly those of Carnegie and Rockefeller--had pioneered in medicine and health nearly fifty years before, these now highly developed fields had become placid foundation preserves, with about half of all grants going to them, another third to routine universities and colleges, and the rest to routine welfare agencies. He thought it time that new ground was broken, with the results seen in the successful know-nothing attacks on the Ford Foundation.
Embree criticized the foundations for "scatteration." And in its more recent policy this is precisely what the Ford Foundation has come to.
The Guggenheim Foundation more conspicuously than others has awarded grants to the humanities and to individuals. Hundreds of writers and artists have received sustaining funds from this source.
As part of the favorable tax-financed public-relations image the foundations develop for corporations and founders that grew rich in questionable ways, they present the aspect of being highly civilized by proxy association with cultural heroes. Avoiding in their lifetimes creative persons like Margaret Sanger or Socrates who are invariably suspected by the ignorant multitudes of being up to no good, the foundations fondly embrace all established cultural heroes and those potential heroes working in popularly approved cultural channels. Not heroic themselves, they nevertheless exist in a soft, derived heroic light, invoking in the thoughtless gaping multitudes some feeling of being in the shadow of a cathedral. They are, on the contrary, basically demagogic; for the main thrust of their effort is not in any sense the deliverance of man but the protection of their sponsors' plantation. While this is surely narrowly intelligent of them, it is not, as I see it, something to induce public celebration.
And the fact that it is all done, really, with public money certainly puts anyone in the position of being gulled who applauds them more than mildly for good works. It should never be forgotten that if the Ford Foundation had never been founded every cent of the money would have been taken in inheritance taxes by the United States government, thus lightening the tax load for everybody. If the Fords, Dow, should achieve something humanly tremendous through their foundation they would not achieve it with their money but with our money. While not impugning the achievement, whatever it was, or the judgment that led to it, recognition of the nature of the transaction would certainly place it in a somewhat different light.
What the subsidy is in the case of any foundation of any considerable size one can readily ascertain by looking up what the estate tax rate was when it received its funds. This rate, ranging more recently up to 90 per cent, represents the portion of principal saved from taxes. Where income on the principal exceeds $100,000, the amount of taxes avoided, at present rates, is at least 70 per cent and has been as high as 91 per cent.
So, whatever good is accomplished by the foundations is largely accomplished with other people's money, a familiar finpolitan practice. And if one wishes to salute the original source of this beneficence it should be Congress, making free use of our money.
Money funneled into education has to some extent no doubt been of general benefit. However, much of this educational effort has been devoted to producing corporate personnel, with the primary mission of making profits. The Du Ponts have poured heavy sums into M.I.T.; and Carnegie established the Carnegie Institute of Technology in Pittsburgh, a prime source of local plant and departmental managers and company officers. Even more general applications of educational funds can be shown destined primarily for the support of the corporate world.
It is a common experience in the United States for people to read in newspapers and magazines of great new medical advances and discoveries, but they little realize that most of these advances will never be available to them, will be available only to those who can afford them in a few centrally located medical centers. As I gave extended attention thirty years ago to these problems in which there has been little change since, the contemporary reader may be left to the references. 76
Scientific findings have been applied most assiduously in the amassing of corporate profits.
While it is generally gratifying to see so much human ingenuity displayed and developed, it is worth noticing that the fruits of all the effort are for the most part restricted in their distribution. The wide prevalence of slums would suggest to a visitor from another planet that there was little education, science or medicine available to anyone at all in the United States.
If it is nevertheless insisted that all this foundation effort represents philanthropic activity, then it is governmentally coerced philanthropic activity, under the threat of taking the principal in taxes if the income is not devoted to narrowly applied good works. The government, in brief, forces the rich to tend their own plantation.
Intellectual Sleight-of-Hand
I therefore cannot help seeing the entire American philanthropic movement, hailed as something unique in the world, as intellectual sleight-of-hand as far as its claimed disinterested benevolence and general distribution of benefits are concerned. There may have been some gain in allowing private dispositions of the money to be made, where it has been made in good faith, because one cannot suppose it would have been expended more judiciously if left to run-of-the-mill pubpols. The prospect might have been far less entrancing if it had been left to the manipulation of the more self-oriented of these.
The Ford Motor Company does not claim to be philanthropic. But the Ford Foundation, which grew out of it and is the public halo of the company, is claimed to be philanthropic even though it is managed by the same people. When Henry Ford II presides over the Ford Motor Company he is nonphilanthropic, a business barracuda; but when he steps into his role as a trustee of the Ford Foundation he, like a Jekyll-Hyde, suddenly becomes a philanthropist. With the Ford Motor Company he endeavors to garner all the money possible; with the foundation he endeavors to give money--our money--away.
Is he--on balance--richer or poorer? As a result of establishing their many foundations and "giving away" hundreds of millions of dollars, are the Rockefellers and other foundation impresarios richer or poorer, more or less esteemed, more or less solidly ensconced, stronger or weaker?
The answer in every case of a surviving foundation family group is that the foundation has benefited its sponsors more than it benefited the world. Whatever benefit it has wrought for the world it has wrought, too, for the family group. For the world is their village, through which their personal interests ramify in a bewildering network. Why should they not wish to benefit the world as they, too, must live in it? And any benefit wrought, however minor, brings to them vast credit, enhances their status as exalted citizens of the world. They all rate at the highest level in mass-media esteem.
The main point I extract from this is that these are very subtly powerful people, far more powerful even than they are portrayed by a deferential press. Nor are they, despite the deft airbrush of the public relations man, especially benign, as is plainly evident in the heavy commitment to systematic extreme violence of the political system in which they have, by enormous margins, the largest stake.
Never registering opposition to any of the many wars, foreign police actions and military missions against the heathen in which the seemingly detached government engages, usually instead registering enthusiastic approval and giving full support, they must be considered integral to this way of conducting affairs. At the time of this writing this political system is using some of its vast firepower, much of its manpower, with which to establish new foreign bases, as in Vietnam. Although Vietnam is popularly accepted as an heroic dirt-level president's maximum effort, the operation has been formally and enthusiastically endorsed by Governor Nelson A. Rockefeller. It is, obviously, a venture carrying the highest finpolitan sanction. 77
While the Vietnam venture will indeed make all of us more secure against the devil of Communism (or will it?), it is surely going to make some persons far more secure than others. To be entirely fair, we must concede that even the denizens of the slums, thanks to a foresighted president, will be made more secure in their slumminess. This boon happily works both ways: The rich and the poor are benefited by being fully protected in their respective statuses.
Proposed Foundation Reforms
Representative Wright Patman advanced concrete proposals for reforming the foundations, tightening the regulatory leash so they would not be quite so free to maneuver self-servingly as now. His recommendations were as follows:
1. Limit their life to twenty-five years, as in the voluntary cases of the Julius Rosenwald Fund and the foundation established by the late Arthur Curtiss James.
2. Prohibit them from engaging in tax-exempt business in unfair competition with taxpaying businesses.
3. Prohibit them from engaging in tax-free lending and borrowing.
4. Require them to engage in arm's length relationships--that is, prohibit them from extending intramural benefits, say, to the employees of a controlled company, a form of subtle unfair competition with others.
5. Prohibit them from soliciting or accepting contributions from suppliers to and patrons of their companies.
6. Prohibit foundations from owning more than 3 per cent of any corporation, thus shrinking them as factors in corporate control.
7. Make them conform to certain rules in the case of proxy fights in corporations where they hold stock ownership.
8. Prohibit them from trading in and out of securities in quest of capital gains.
9. Allow no tax exemption on contributions to a foundation until the money has been actually put to approved charitable use.
10. Deny tax exemption to any foundation if it has clearly been established for tax avoidance or to obtain financial benefits for the founder.
11. Compute donations of property to a foundation at cost or market value, whichever is lower, rather than on the present basis of market value which permits the evasion of taxes on appreciated assets.
12. In contributions made by corporations, let such contributions be credited to the stockholders, thus keeping untaxed contributions to present limits prescribed by law.
13. Treat all capital gains by foundations as expendable income and do not allow them to be converted into new capital.
14. Add money unreasonably accumulated by corporations controlled by a foundation under present laws to the foundation's own accumulation as if the two were one. "The use of subsidiary corporations should not be permitted to cloak actual accumulations, as is the case in the Howard Hughes Medical Institute of Miami Beach."
15. Corporations controlled by foundations should be subject to taxes on unreasonably accumulated earnings, as prescribed by law for foundations.
16. From the base for the marital deduction there should be excluded amounts left to foundations that are henceforth untaxed. And while money given to foundations is not subject to gift and estate taxes, the rate brackets to be applied to moneys that are taxable should be the same as if the prescribed foundation portions were part of the taxable gifts or estate.
17. Regulation of the foundations by the Treasury Department should be tightened in many specifically indicated ways and the Treasury Department should be obliged by law to function actively in this area.
"These and other reforms," Mr. Patman gravely' concluded, "are vitally necessary." 78 For what little it may be worth, I concur.
The Patman investigation has already influenced the passage of new laws regulating foundations in New York State, where most of them are chartered. The effect of these New York laws will probably be to drive many to states of easier virtue, as in the case of corporations that finally found lax regulatory states in Delaware and New Jersey. In general, regulation in any of the states, of any kind of activity, is about on a par with the regulation of a frontier saloon, which is why entrepreneurs of all kinds prefer state to federal regulation.
Said the New York Times about the new situation in New York:
A sampling of reports filed as the result of a new law this year has shown that many purportedly charitable foundations are tax dodges, according to Attorney General Louis J. Lefkowitz. He said that the foundations were also sources of funds for the personal use of their directors.
The charitable organizations . . . operated without supervision or regulation before last January. . . .
A random sampling of 400 registrants, and examination of the 500 financial reports, has turned up numerous examples that show sufficient evidence of improper manipulation of the funds to justify the calling of an investigation, according to the Attorney General.
Often the manipulators who used the funds for their personal gain had already profited by large tax deductions based on their gifts to the foundations, he added.
. . . some charities have already received millions of dollars this year that they would not otherwise have obtained as a result of his staffs work.
Tax-free ostensible charitable funds had been used (Mr. Lefkowitz discovered tardily) for business purposes, to buy expensive paintings and sculpture for the donors' own homes, to pay salaries to relatives and for a variety of other personal accommodations-facts which anyone could have ascertained in 1937 by reading America's Sixty Families. Most of the New York foundations funded at more than $1 million--and this the authorities now thought suspicious--were set up to make distributions for charitable purposes "to be selected by the directors."
Under the new law the attorney general of the state may at his discretion bring action to remove directors who fail to comply with the law and may compel accountings and order reimbursement for loss of funds resulting from improper activities of directors or trustees. 79
All this, however, will not lock the barn door even tardily because there are forty-nine other states.
Concluding, whatever foundations do, for good or ill, for self or humanity, they do for the most part with publicly conferred money.