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Four
THE INHERITORS: I
Large sums and wealthy individuals have been scrutinized for two chapters, but the concentrated core of private American wealth is yet to be examined. This chapter reports the findings of such an examination.
Private wealth acquired by new entrepreneurs, new in the sense of first showing themselves since World War II or even World War I, does not amount to much relatively, as we have observed. The conclusion is evident: Although there are indeed new fortunes large and small, either post-1918 or post-1945, they are neither numerous, of unusual amplitude nor especially potent in politico-economic affairs. With the exception of the Kennedy fortune, none of the later fortunes has played a prominent role in public affairs, and the political activities of the Kennedys have not been a consequence of their financial interests. The Kennedys were political long before they had money, though money has proved to be a fortuitous aid to their political inclinations. Except for Joseph P., the Kennedys--grandfathers and grandsons--have all been political rather than pecuniary men.
Nearly all the current large incomes, those exceeding $1 million, $500,000 or even $100,000 or $50,000 a year, are derived in fact from old property accumulations, by inheritors--that is, by people who never did whatever one is required to do, approved or disapproved, creative or noncreative, in order to assemble a fortune. And, it would appear, no amount of dedicated entrepreneurial effort by newcomers can place them in the financial class of the inheritors.
Some 2,000 to 3,000 incomes, more or less, in the range of $50,000 to $500,000 (a very few higher) accrue to salaried corporation executives, the stewards and overseers of vast industrial domains for the very rich. These men came into these revenues rather late in life, in their late forties and fifties mostly, and face early retirement from the scene. Few are heavily propertied. Independent small businessmen--a small enterprise being generally accepted now by connoisseurs as one with assets below $50 million--account for perhaps the same number of such incomes.
A considerably smaller number accrue to a scattering of popular entertainers and athletes, whose earning power usually diminishes steeply with the fading of their youth. Very few large incomes, contrary to popular supposition, accrue to inventors. None whatever, as the record clearly shows, accrue to scientists, scholars and trained professionals of various kinds; only a handful to highly specialized medical doctors working mainly for the propertied class, and to an occasional executive engineer. Top-rank military officers are paid meagerly, although some manage to find their way to the tag-end of the corporate gravy train for their few years remaining after official retirement. In brief, few members of the most highly trained professional classes even late in life receive incomes approaching the level of $50,000--or even $30,000. They are, income-wise, strictly menials, necessary technicians on the economic plantation. In the world's most opulent economy they, together with the less skilled bulk of the populace, must count their pennies in an economy of widespread personal scarcity.
Increases in the number of large incomes paralleling cyclical increases in prices and quickened economic activity therefore do not indicate, as naive financial observers conclude, that new fortunes are being made right and left. They signify only that established accumulations are profiting by the cyclical trend. Whether the income is high or low the property always remains, ready to show its truly magnificent earning power in upward cyclical phases, showing its brute staying power in downward slides.
In the combined Fortune, Saturday Evening Post and New York Times roundups of the new and established big-wealthy it turned out that about half of the seventy-five-plus given close scrutiny are new-wealthy and the other half old-wealthy. The situation, on the face of it, seems to be about half-and-half, evenly balanced as between the old and the new. This implication tacitly conveyed by the manner in which Fortune in particular presented its list in 1957 will be flatly challenged here, where it will be shown that even granting the new-wealthy all that Fortune claimed for them, they represent little more than a shadow on the surface of a deep, silent and generally unsuspected pool. This pool consists simply of the estates, including trust funds, shown to view by Professor Lampman, cited in Chapter I.
These estates, the owners comprising 1.6 per cent of the adult population as of 1953 (the percentage is the same or smaller now owing to the disproportionate increase in the nonpropertied through the higher postwar birth rate) that held $60,000 or more of revenue-producing assets, constitute the nearly absolute bulk of the holdings of the propertied class. But more than half of this class own no more than $125,000 each of assets, as Lampman points out, bringing down to 0.8 per cent those in the group holding more than $125,000 of assets. And most of this 0.8 per cent can be considered only moderately wealthy, what is usually meant by the sayings "well fixed" or comfortably off."
The Fortune rainbow of individual inheritors holding $75 million or more of assets will now be presented but there will, first, be some further demurrer leveled against its categorization of new-wealthy and old-wealthy. It will be recalled that, according to the Lampman findings, there were 27,000 owners of at least $1 million as of 1953, so the Fortune list represents only a very small sample off the top. There were about 90,000 such as of 1967 owing largely to the rise in market values.
INHERITED WEALTH-HOLDERS, 1957
Stated Net
Worth in Financial Age in Living
millions Activity 1957 Schooling Children
1. J. Paul Getty $700-$1,000 Executive 65 Oxford (B.A.) 5
London Getty Oil Co.
2. Mrs. Mellon Bruce $400-$700 Rentier
(Ailsa Mellon)
New York
3. Paul Mellon $400-$700 Director 50 Yale (A.B.) 2
Upperville, Virginia Mellon National Bank, Cambridge (A.B.)
etc.
4. Richard K. Mellon $400-$700 Executive 58 Attended 4
Pittsburgh Alcoa, Princeton
Gulf Oil, etc.
5. Mrs. Alan M. Scaife* $400-$700 Rentier 54 2
(Sarah Mellon)
(Died, 1965)
6. John D. Rockefeller, Jr. $400-$700 Standard Oil Group Brown (A.B.) 6
(Died, 1960) Stockholder 83
7. Irénée du Pont $200-$400 Executive 81 M.I.T. (M.S) 8
(Died, 1963) E. I. du Pont,
General Motors
8. William du Pont $200-$400 President 61 5
Wilmington Delaware Trust Co.
9. Mrs. Frederick Guest* $200-$400 Rentier
(Amy Phipps)
Palm Beach
10. Howard Hughes $200-$400 Executive 52 Attended None
Houston Hughes Tool Co. Caltech
11. Vincent Astor $100-$200 Real estate 66 Attended None
New York owner Harvard
(Died, 1960)
12. Lammont du Pont Copeland $100-$200 Executive 52 Harvard (B.S.) 3
Wilmington E. I. du Pont
General Motors
13. Mrs. Alfred I. du Pont $100-$200 Company Director Attended None
Longwood College
14. Mrs. Edsel Ford* $100-$200 Rentier 4
Detroit
15. Doris Duke* $100-$200 Rentier
New York
16. Amory Houghton $100-$200 Corning Glass 58 Harvard (A.B.) 5
Ex-Ambassador to France
17. Arthur A. Houghton, Jr. $100-$200 Corning Glass Attended 4
New York Harvard
18. Boy Arthur Hunt $100-$200 Executive 76 Yale (A.B.) 4
Alcoa
19. Mrs. Jean Mauze* $100-$200 Rentier
(Abby Rockefeller)
20. Mrs. Chauncey McCormick* $100-$200 Rentier
(Marion Deering)
Chicago
21. Mrs. Charles Payson $100-$200 Rentier 54 Attended 4
(Joan Whitney) Barnard
22. John Hay Whitney $100-$200 Publisher 53 Attended 2
Ex-Ambassador to Britain Investor Oxford
New York Yale
23. David Rockefeller $100-$200 Executive 42 Harvard (B.S.) 6
Chase Bank Chicago (Ph.D.)
Standard Oil
24. John D. Rockefeller III $100-$200 Chairman 51 Princeton (B.S.) 4
New York Rockefeller Bros. Fund
25. Laurance Rockefeller $100-$200 Executive 47 Princeton (A.B.) 4
New York Rockefeller interests
26. Winthrop Rockefeller $100-$200 Rockefeller interests Attended Yale 1
Governor, Arkansas Land dev. 45
27. Nelson A. Rockefeller $100-$200 Government 49 Dartmouth (A.B.) 6
Governor, New York
28. John Nicholas Brown $75-$100 Real estate 57 Harvard (A.B.)
Newport operator
29. Godfrey L. Cabot $75-$100 Chairman 96 Harvard (A.B.) 5
(Died, 1962) Godfrey L. Cabot, Inc.
Chemicals
30. Mrs. Horace Dodge, Sr.* $75-$100 Rentier
Palm Beach
31. John T. Dorrance, Jr. $75-$100 Beneficiary 38 Princeton (A.B.) 3
Philadelphia Campbell Soup Trust
32. Benson Ford $75-$100 Ford Motors 38 Attended 2
Detroit Vice President Princeton
33. Henry Ford II $75-$100 Ford Motors 40 Attended Yale 2
Detroit Chairman
34. William C. Ford $75-$100 Ford Motors 27 Yale (B.S.) 2
Detroit Vice President
35. W. Averell Harriman $75-$100 Government, 66 Yale (A.B.) 2
New York Investments
36. Robert Kleberg, Jr $75-$100 Cattle, oil 61 Attended 1
King Ranch, Texas Univ. Wisc.
37. John M. Olin $75-$100 Executive 65 Cornell (B.S.) 3
Alton, Illinois Olin Mathieson
Chemicals
38. Spencer T. Olin $75-$100 Executive 57 Cornell (M.E.) 4
Alton, Illinois Olin Mathieson
Chemicals
39. J. Howard Pew $75-$100 Executive 75 Attended None
Philadelphia Sun Oil Co. M.I.T. listed
40. Joseph N. Pew, Jr. $75-$100 Executive 71 Cornell (M.E.) 4
Sun Oil Co.
41. Mrs. M. Merriweather Post $75-$100 Director 70 Finishing 3
Washington, D.C. General Foods School
42. Robert Woodruff $75-$100 Executive 68 Attended Emory
Atlanta Coca-Cola, etc.
*Not listed in Who's Who, 1956-57, 1964-65.
As a beginning, the name of J. Paul Getty will be placed now on the list of inheritors, where it properly belongs; he was placed on the list in Chapter II only to appease, temporarily, those who suppose on the basis of public reports that he made the grade strictly on his own. One other name will be included among the inheritors that Fortune classified as new-wealthy; reasons for the reclassification will be given and the reader may judge for himself as between Fortune and this writer.
The name added to the list, termed one of the new-wealthy by Fortune, is that of Godfrey L. Cabot of Boston, who died in 1962 at 101. He was a member of the famous Cabot family of Boston (who proverbially speak only to God) that was founded by Jean Cabot or Chabot who came to America in 1700 from the Anglo-French island of Jersey. Cabot soon became one of the large landowners of the new colonies, and the family ever since has been distinguished by propertied business and professional men, diplomats and political figures. It and the allied Lowell and various other Boston families have been "in the money" all along, some from earlier than Paul Revere's ride.
Godfrey Cabot, after his graduation from Harvard in 1882 and some study abroad, went to western Pennsylvania where he engaged in the new oil and gas business and soon, responding to his chemist's training, became interested in carbon black, a byproduct of natural gas that to others was plain soot. He invested money, of which he had more than a little, in carbon black plants (he soon owned ten), and in natural gas pipelines. He could well be called "Cabot the Carbon Black King." Carbon black has many uses in the chemical industry, in which Cabot and a brother were long leading figures. Cabot, in short, was a moneyed investor-entrepreneur, as good as they come, and ran his original stake up to a level recently worthy of notice from Fortune. He clearly classifies as an inheritor, albeit personally more creative than most. All the extant Cabots are inheritors. 1
An Incomplete List
There is no way to guarantee that this list of forty-two exhausts all individuals with inherited holdings, improved or unimproved, of $75 million or more. The list is probably incomplete even within the terms laid down by Fortune. Thus, not included on it was William Rand Kenan, who died July 28, 1965, aged ninety-three, leaving an estate for probate tentatively estimated at $100 million. He was a founder of the Union Carbide Company. 2 That the Kenans were no financial midgets is attested by the fact that William Rand Kenan, Jr., is at present chairman of the board of the Niagara County National Bank and Trust Company; president of the Peninsular and Occidental Steamship Company, the Florida East Coast Railway Company, the Florida East Coast Hotel Company, the Florida East Coast Car Ferry Company, the Model Land Company, Perrine Grant Land Company, West Palm Beach Water Company, Carolina Apartment Company and Western Block Company; and a director of various other companies including the Florida Power and Light Company. So many presidencies suggest large personal holdings.
Just how many similar big fish may have escaped our dragnet one cannot be sure. The big-wealthy Rosenwalds of Sears, Roebuck were omitted. We have already seen how J. Paul Getty moved along in shadowy anonymity most of his life. The Mellon family, already astronomically rich, was nationally unknown until Andrew Mellon, his name never before printed by the New York Times, was made secretary of the treasury by President Warren G. Harding. (This was much like making Casanova headmaster of a school for young ladies, as the sequel showed. For Mellon dished out with a lavish hand huge unexpected tax rebates to the surprised rich and, as a distiller himself, did not prevent distillers' stocks from inundating the Volstead Act, which was under his official jurisdiction.)
Although the list, then, is not exhaustive, it may be taken as tentatively indicative of those who in 1957 individually possessed inherited wealth in excess of $75 million. But the prime value of the list is that it points the way to far larger concentrations of wealth that Fortune chose to ignore.
Family Holdings: The Key
It is noticeable that most of these individuals belong to a financially prominent family, their fortunes a slice from a single source. As the holdings are now vested in individual names they each, from one defensible point of view, hold a single fortune. Generically, however, their family-derived holdings together constitute a single fortune. And without the family holdings they would amount to little financially.
On a generic basis, indeed, many clusters of individually inherited fortunes, no single one as large as $75 million, do in fact exceed some of the strictly individual large ones such as that of Howard Hughes. For five related and cooperating persons holding a mere $50 million each from a single source--and there are many in this pattern--would represent a generic fortune of $250 million.
What I term super-wealth is prominently, although not completely, represented on this list. Super-wealth simply consists of a very large generic fortune that may or may not be split into several parts. It has other characteristics: First, it generally controls and revolves around one or more important banks. It absolutely controls or has a controlling ownership stake in from one to three or more of the largest industrial corporations. It has established and controls through the family one to three or four or more super foundations designed to achieve a variety of stated worthy purposes as well as confer vast industrial control through stock ownership and extend patronage-influence over wide areas. It has established or principally supports one or several major universities or leading polytechnic institutes. It is a constant heavy political contributor, invariably to the Republican Party, the political projection of super-wealth, It has extremely heavy property holdings abroad so that national, foreign and military policy is of particular interest to it. And it has vast indirect popular cultural influence because of the huge amount of advertising its corporations place in the mass media.
Critics mistakenly blame a shadowy entity called "Madison Avenue" for the culturally stultifying quality as well as intrusiveness of most advertising. But here it should be noticed that Madison Avenue can produce only what is approved by its clients, the big corporations. If these latter ordered Elizabethan verse, Greek drama and great pictorial art, Madison Avenue would supply them with alacrity.
Beyond this, the dependence upon corporate advertising of the mass media--newspapers, magazines, radio and television--makes them editorially subservient, without in any way being prompted, to points of view known or thought to be favored by the big property owners. Sometimes, of course, as the record abundantly shows, they have been prompted and even coerced to alter attitudes. But the willing subservience shows itself most generally, apart from specific acts of omission or commission, in an easy blandness on the part of the mass media toward serious social problems. These are all treated, when treated at all, as part of a diverting kaleidoscopic spectacle, the modern Roman circus of tele-communication. As Professor J. Kenneth Galbraith aptly remarked, in the United States it is a case of the bland leading the bland. No doubt it would be bad for trade if there was serious stress on the problematic side of affairs. It would disturb "confidence."
On this Fortune list, valuable in its way, we find among the super-wealthy, among others less prominent, the Du Ponts, Mellons, Rockefellers and Fords as well as the Pews. The primary but not exclusive sources of their wealth have been E. I. du Pont de Nemours and Company, the Aluminum Corporation of America, the Standard Oil group of companies and the Ford Motor Company. Each of these companies has many times been formally adjudicated in violation of the laws, the first three repeatedly named in crucial successful prosecutions charging vast monopolies. Aluminum, Standard Oil and Du Pont achieved their positions precisely through monopoly, as formally determined by the courts.
The Du Pont Dynasty
The combined wealth of four Du Ponts, as given by Fortune, was minimally $600 million and at a maximum stood at $1.2 billion. But here, it becomes clearly evident, it is possible to understate greatly the size of a generic fortune by singling out for notice only a few of its most prominent representatives.
For there are many additional wealthy, soigné Du Ponts. Perhaps they do not individually hold as much as $75 million, but many of them out of a total group (exceeding 1,600 persons descended from Pierre-Samuel du Pont [1739-1817] ) hold somewhat lesser fortunes that stem directly or indirectly from the central Du Pont financial complex. Not included on the Fortune list were Alexis Felix du Pont, Jr., born 1905; Alfred Rhett du Pont, born 1907; Alfred Victor du Pont, born 1900; Edmond du Pont, born 1906; Henry B. du Pont, born 1898; Henry Francis du Pont, born 1880; Pierre S. du Pont III, born 1911; and a variety of active highly pecunious Du Ponts bearing the Du Pont name or alien names brought into the golden dynastic circle through exogamous marriages of Du Pont women. Endogamous marriages among the Du Ponts, however, have been frequent.
The financially elite among the Du Ponts number about 250 "and most of the family's riches are in their hands." 3 There are, then, 250 Big Du Ponts and many Little Du Ponts.
The generic Du Pont fortune appears to be the largest, now, of the four here under scrutiny. Not only is the Du Pont company the oldest of them, but as a prolific clan the Du Ponts have included many individual entrepreneurs, none perhaps individually as outstanding as Rockefeller or Ford but collectively more persistent. Again, as an ordnance enterprise in an era of big wars Du Pont grew astronomically, attaining its biggest growth in World War I, and thus provided the sinews for branching out into at least four of the biggest modern industries: chemicals, automobiles, oil and rubber. It is the American Krupp.
But, the question should be raised, is any violence being done the facts in examining a generic fortune rather than its individual slivers? The picture would indeed be distorted if the individual heirs had gone their separate ways and an analyst nevertheless insisted upon treating them collectively. But the Du Ponts, as well as others, have not gone their separate ways with their inheritances; they have, despite intra-family feuds, acted as a collectivity. In Note 2, Chapter II, I mentioned a C. Wright Mills reference to an earlier work of mine in which he says chidingly that I once generalized "cousinbood only" into political and economic power. In the Du Ponts, however, we have a literal, closely cohering financial and political cousinhood, as in the case of the Mellons. In the case of the Fords and Rockefellers we have, staving within these terms, brotherhoods.
The Du Pont cousinhood coheres, tightly, through a network of family holding companies and trust funds which, under a unified concentrated family management, gives a single, unified thrust to the family enterprises. There is danger of distortion in treating any single one of this cousinhood, financially, as an individual. It is misleading because it shows only a few facets on top of the huge iceberg, neglects the concealed major portion below the surface.
The precise size of the generic Du Pont fortune would be difficult to determine. But the Christiana Securities Company alone, largest of the family holding companies, at the end of 1964 held investments valued by itself at $3.271 billion in E. 1. du Pont de Nemours, the Wilmington Trust Company, the Wilmington News-Journal and the Hercules Powder Company. 4 This, be it noted, was after E. 1. du Pont had divested itself of sixty-three million shares of General Motors common, in which others than the Du Ponts, of course, had some equity.
The Christiana portion of this GM distribution was 18,247,283 shares, 5 worth $1.788 billion at a closing price of $98 a share for 1964. At that time the whole original E. I. du Pont GM block had a market value of $6.174 billion.
E. I. du Pont paid an average price of $2.09 a share for this stock, according to Senator Harrison A. Williams, Jr., of New Jersey, or $131,670,000 in all. 6
With 10,026 formally registered separate common stockholders at the end of 1964, Christiana has stockholders other than Du Ponts and their in-laws; these other stockholders are mainly company officers and employees. But the extent of Du Pont family participation in Christiana before World War II, according to a government investigation of dominant owners of the 200 largest nonfinancial corporations, was 74 per cent. 7
Assuming that the financial core of the Du Pont family still held 44 per cent of E. 1. du Pont de Nemours stock (as per the TNEC study), the recent record stands approximately as follows:
Market Value Market Value
Dec. 31, 1961 Dec. 31, 1964
44 per cent family interest in
45,994,520 E. 1. du Pont shares
at 247-1/2 for end 1961, 241-3/4
for end 1964 $5,001,257,472 $4,892,433,792
44 per cent family interest in
63 million General Motors
shares divested by E. I. Du
Pont at 1964 closing price of
98. (Individual Du Ponts hold-
ing GM not included) $2,716,560,000
Christiana Securities direct
holding in GM (added since
TNEC study) at 57-7/8 for end
1961, 98 a share for end 1964 30,962,102 52,430,000
______________ ______________
Totals for above $5,032,219,574 $7,661,423,792
Less: Sales of 1,050,000 shares
GM by Christiana Securities
for taxes and cost of distribu-
tion at average price of about 62 62,193,750
______________ ______________
Corrected totals $5,032,219,574 $7,599,230,042
Less: Further planned sale of
457,312 GM shares by Christi
ana at beginning of 1965 at
estimated minimal price of 100 45,731,200
______________ ______________
Revised totals $5,032,219,574 $7,553,498,842
Add: 10.5 per cent Du Pont
interest in U.S. Rubber Co., as
shown by TNEC study held by
individuals and the Du Pont
owned Rubber Securities Company $34,316,836 $38,232,179
Add: Holdings of Christiana
Securities other than E. 1. du
Pont and General Motors $37,749,136
Add: Various assorted individ-
ual investments by Du Pouts
and ownership in extensive
landed estates ? ?
______________ ______________
Total $7,629,480,000 plus
The figure of $7.629 billion for 1964, as indicated above, is an approximation, but one close to the figures available. In view of the many individual Du Pont investments not included-for various of the Du Ponts have long branched into other fields-it is beyond doubt an understatement.
On what grounds can one assume that the family investment in E. I. du Pont de Nemours remained at 44 per cent? First, the investment of this company in General Motors itself was not diminished. Second, since the TNEC study, a new investment was made in General Motors by Christiana; whether this represented an increase in over-all General Motors holdings or a transfer from some other part of the Du Pont exchequer is not shown, but presumably it represented an enlarged investment. If anything, the family investment, through individuals, was increased since 1937, the date of the TNEC data. For the Du Ponts in the intervening years were in receipt of vast cash dividends. In the meantime, many of them had reduced their once-opulent and ultra-expensive scale of living. Unless they had, off the record, somehow disposed of large sums it would seem inevitable that their investment position was enlarged. Their foundations did not, in the meantime, show any large new accretion of funds.
It is true that the family participation in General Motors cannot be computed accurately at the figure given for the end of 1964 even after allowing for the sales of GM by Christiana because the Du Pont trust funds were also required to sell whatever GM they received in the distribution. But the equivalent value in money, depending upon what point in the rising market GM was sold, would remain in Du Pont hands.
Taking into consideration various factors such as these, and others, the entire family holding should be at least $7.629 billion, rather than the vague recent estimate of $3 billion by a family historian. 8
I conclude, therefore, that the financially cohesive Du Pont family is capable of throwing something around a $7.5-billion "punch" at any time in the American political-economy on the present price level. Its members should not, despite their partial setback in General Motors, be looked upon as a miscellaneous collection of financial tabby cats. The individual Du Ponts, it, should be noticed, retain their GM holdings, constituting the largest identifiable block in General Motors stock.
The Du Pouts have additionally established a string of at least eighteen foundations, 9 the most recent assets of which are reported by the Foundation Directory, 1964, at an aggregate of $148,046,401. These foundations are Bredin, Carpenter, Chichester du Pont, Copeland Andelot, Crestlea, Good Samaritan, Irénée du Pont, Jr., Eleutherian Mills-Hagley, Kraemer, Lalor, Lesesne, Longwood, Nemours, Rencourt, Sharp, Theano, Welfare and Winterthur.
The largest of these, Longwood and Winterthur, with combined assets of $122,559,001, are largely devoted to maintaining in all their splendor former Du Pont estates as public museums and botanical gardens. 10 The estates, thus dedicated to public uses, were not required to pay ad valorem inheritance taxes.
But the invested voting power of these assets, funneled through banks and trustees, provides some additional Du Pont strength in politico-economic decision-making.
Even if one were able to pinpoint the value of the family holdings at $7.629 billion this would not be especially significant. The big fortunes rise and fall in value with the economy so that in one decade their values are up and in another down. But the significant fact is that throughout economic changes the big fortunes, and the companies underlying them, outperform expansions of the economy. Put another way, more and more of the economy is constantly being preempted by fewer and fewer generic interests even though through inheritance the generic property income is distributed among a greater number of individuals. There are, in brief, more Du Ponts, Rockefellers, Mellons and their like today than there were in 1900. But they each share in much enlarged central stakes.
The divestiture of General Motors stock took place after the United States Supreme Court ordered it upon finding E. I. du Pont de Nemours and Company guilty of violating Section 7 of the Clayton Act, which forbids any stock acquisition whose effect "may be substantially to lessen competition or tend to create a monopoly." This case of closing the barn door after it had been wide open for more than thirty years began in 1949 under President Harry Truman. The Supreme Court, overruling a lower court, found that Du Pont's ownership of 23 per cent of GM, which it controlled, placed it in a favored market position in the sale of automobile finishes and fabrics, to the detriment of competitors. GM, in fact, was a captive customer. As the New York Times incidentally reported, "Few if any large companies have been the subject of so many anti-trust suits as du Pont." 11 Since 1939 nineteen have been counted.
But Du Pont holdings, as indicated, are by no means all channeled through Christiana Securities. During the GM proceedings it was reported to the court, for example, that William du Pont, Jr., personally owned 1,269,788 shares of E. I. du Point de Nemours. And, unless the family investment pattern has changed greatly since the TNEC study, other Du Ponts are heavy individual holders in E. I. du Pont de Nemours and other companies.
The TNEC study showed the following individual Du Ponts directly holding stock in E. I. du Pont de Nemours: Pierre S.; Eugene; Archibald; M. L.; H. F.; Eugene E.; Ernest; trustees for Philip F.; trustees for Elizabeth B.; trustees on behalf of William du Pont, Jr., and Mrs. Marion du Pont Scott; and Charles Copeland. This group held 5.75 per cent. 12
One member of the family and the Broseco Corporation, another family holding company, held stock directly in General Motors, substantial even by Du Pont standards. 13 A family trust held much more.
But twenty-two other Du Points, none named above, held stock in the Delaware Realty and Investment Company (since absorbed by Christiana Securities), which in turn held 2.75 per cent of E. I. du Pont de Nemours stock.
Thirty-nine other Du Ponts, none named above or included in the Delaware Realty group, held stock in Almours Securities, Inc. (since dissolved), which held 5.24 per cent of E. I. du Pont de Nemours stock as well as an interest in the Mid-Continent Petroleum Corporation. 14
The TNEC study uncovered eight Du Pont family securities holding comparties 15 and seven separate trust funds. 16 This variety of financial instruments was in part at least the residue of earlier feuds and financial squabbles in the family with charges of individual overreaching and tricky dealing aired in public. In recent decades most of these quarrels appear to have been composed in favor of consolidating family interests.
The government in its General Motors case held that the Du Ponts were a "cohesive group of at least 75 persons." But it named 184 members of the Du Pont family in its complaint.
Spokesman for the Du Ponts, after the GM decision was given, said that GM stockholders closely affiliated with the Du Pont management would sell an additional three million shares of General Motors. 17
The TNEC study showed that individual Du Ponts, their family holding companies and/or their trust funds held stock in many other companies. The largest of these additional stockholdings was in the giant United States Rubber Company, which the Du Ponts in effect controlled. Here the Rubber Securities Company, a Du Pont family company, and seven individual Du Ponts owned 10.5 per cent and constituted the largest cohesive stockholding group. The continued presence of the Du Pont interest in the United States Rubber Company as of 1965 is signaled by the presence on the board of directors of J. S. Dean, president and director of the Nemours Corporation and a director and member of the executive committee of the Wilmington Trust Company, and of George P. Edwards, chairman of the Wilmington Trust Company. Other companies in which various of the Du Pouts, their family companies and/or trust funds held smaller ownership positions were the American Sugar Refining Company, the Mid-Continent Petroleum Corporation, Phillips Petroleum Company and the United Fruit Company. At various times they have been interested in still other companies. 18
Du Ponts are also found in other pecuniary pastures. Thus Edmond and A. Rhett du Pont, sons of Francis I. du Pont, a member of the reorganized main corporation in 1903, have independently developed (using family-derived money) Francis I. du Pont and Company into the second largest brokerage house in the United States, with branches at home and abroad. Du Pont in-laws are the chief partners of the highly rated brokerage house of Laird, Bissell and Meeds. Still other Du Ponts, outside the main financial line, have established themselves in a variety of varyingly lucrative enterprises large and small. 19
E. I. du Pont de Nemours and Company, since its beginning in 1803 with an initial capital of some $36,000, is now one of the world's industrial giants. Because, despite some recent adverse publicity, its history is not nearly as well known as that of the Standard Oil Company or the Ford Motor Company, highlights of its rise may provide insight here into some ways large fortunes are made.
After early difficulties the company became successful because its French-trained owners made a better gunpowder. Helped along by the War of 1812, the company was made prosperous by the Civil War.
In 1872, with the market glutted by postwar surplus powder, the Du Ponts organized other leading powdermakers and themselves into the Gunpowder Trade Association, which dictated prices and ruled the market for hunting and blasting powder with an iron hand. Hostile competitors were undersold until they capitulated or went out of business, when prices would again be raised. This enterprise, later known as "The Powder Trust," continued without challenge into the first decade of the twentieth century. 20
Under one-man rule for many years and with wars scarce, by 1902 the company seemed to be losing ground and its weary chief owners thought of selling it to outsiders. But one, Alfred I., the "Savior of the Du Ponts," objected and, bringing to the fore younger cousins T. Coleman of the Kentucky branch of the family, and Pierre S., made a purchase offer that was accepted. The price was $15,360,000, more than $3,000,000 above what it had been hoped to get from outsiders. The new owners soon found, moreover, that the property was worth more than $24 million. Best of all, the new owners put up no cash but gave $12 million of 4 per cent notes plus $3,360,000 in stock of a new company just founded, a company purely on paper. This company, without assets, took over the old company. Only incorporation expenses of $2,100 were paid out by the three up-and-coming cousins.
As part of a feud that in time developed, Alfred I. was later forced out of the management by T. Coleman and Pierre S. Meanwhile, Pierre had brought in his brothers Lammot and Irénée and, after the withdrawal of Coleman, these three ran the show. In a deal from which Alfred I. was excluded, Pierre, Lammot and Irénée purchased the shares of T. Coleman in 1915 with money borrowed from J. P. Morgan and Company. Furiously Alfred I. charged that Pierre had used the standing of the company to borrow for the purchase and freeze him out. He brought suit against Pierre but lost. He was never reconciled.
Although the power play by Pierre and his brothers was not illegal it seemed--and with this Alfred I. would agree--very much like self-centered overreaching, not against the outside hoi palloi, always fair game, but against an original sponsor and benefactor--an all-too-familiar story on the power levels of world history.
The company in the meantime had blossomed unbelievably under T. Coleman's merger policy and it stood on the threshold of its present eminence. The diverse members of the "The Powder Trust" had now, one by one, been bought up or otherwise absorbed by Du Pont.
"With breathtaking speed, companies were merged into the parent Du Pont corporation. By 1906, sixty-four corporations had been dissolved. A year later, Du Pont was producing from sixty-four to seventy-four per cent of the total national output of each of five types of explosives, and one hundred per cent of the privately produced smokeless military powder. Only the Standard Oil trust was as well organized." 21
In 1907 complaints finally led the government to file languid suit against the company for violation of the Sherman Act, and after five years it was absent-mindedly convicted. Since 1903, when its investment was valued at a maximum of $36 million, it had earned nearly $45 million. 22
But because the companies absorbed by Du Pont had been dissolved, the court was in a mild quandary about how to separate the blend. It asked the government and the company, as partners in the minuet, to work out a plan of reorganization. Alfred I. went to see President William Howard Taft.
"At the White House, Alfred insisted that it would be to the advantage of the government and of the nation as a whole for du Pont to retain its one hundred percent monopoly of smokeless military power: du Ponts were aware that war might break out soon in Europe. When it was pointed out that du Pont had been found guilty of violating the law, Alfred turned to Taft's Attorney General, George W. Wickersham, who was present, and reminded him that he had been du Pont's lawyer at the time the violations had taken place. If du Pont had broken the law, it was because the company had received bad legal counsel." 23
At special court hearings a long procession of generals and admirals appeared to testify for the Du Ponts, contending that it was absolutely vital to national security that Du Pont retain its monopoly of smokeless military powder.
"Unbelievably," says the not unsympathetic but frank and independent family historian, "the court accepted these arguments. To split up the military powder business among several competing companies would do damage to the close co-operation between du Pont and the government and thus jeopardize the security of the nation without any corresponding benefit to the public. Or so the court held in its final ruling in June, 1912. Thus du Pont was permitted to keep its one hundred percent monopoly of military powder." 24
The less strategic powder divisions were placed in two new companies: the Atlas Powder Company and the Hercules Powder Company, the stocks and bonds of which were turned over to E. I. du Pont stockholders. The effect of the court order was merely to replace control of the new companies by the Du Pont company with control by the collective Du Pont family. 25
But in 1942 E. I. du Pont de Nemours and five other companies, including Atlas and Hercules, were indicted in an antitrust suit and pleaded nolo contendere, automatically bringing a judgment of guilty. "Since the case was a criminal cause, no injunction was in order. Thus the only deterrent effect was the penalty." 26
Substantially, however, "It is quite clear that the government lost the case," said Harvard economist Edward W. Proctor. "No permanent or even temporary restraint was placed on any of the practices of which the government complained. In fact, the companies calmly continued doing business the same way they had been doing it before the government brought suit. The case solved nothing--it really did not punish the law offenders nor did it alleviate the restraints on competition." 27
As William H. A. Carr, the already-cited family historian, remarks, "This may not be as bad as it sounds. Proctor and other economists believe the wartime prosecution was politically motivated. Supporting this suspicion is the fact that the Department of Justice first tried to obtain an indictment in Norfolk, Virginia, but the grand jury there refused to return a true bill. Then the government took its evidence to Philadelphia, where another grand jury went along with Washington's demand for action." 28
Actually, every proper prosecution or official act of any government official is politically motivated as an act in the management of the State (polis). The pejorative connotation that has become attached to the word "political" in popular American usage has developed owing to the frequent charge, usually made by anti-regulation business spokesmen, that questioned political acts are improper acts for personal advantage, which they may or may not be.
But whatever the motivation of the prosecutors, the companies did not deny the charges and the court made its decision on the basis of them. If the companies were indeed blameless, then the court itself became the partner in an improper action. And we are always faced with this alternative whenever it is argued that companies brought before the bar are being persecuted: If the companies are innocent, even when they plead guilty or no contest, then there is a grave fault in the American constitutional system. But the schools and leading privately owned agencies of public information all say the American constitutional system is excellent, the best in the world. The intelligent citizen, therefore, must feel not a little confused when he hears charges made of improper political motivation. If that is the kind of system we have, some will reasonably conclude, it ought to be changed in the interests of simple justice.
World War I saw the swift rise of E. I. du Pont to industrial stardom. "Forty percent of the shells fired by the Allies were hurled from the cannon by du Pont explosives. At the same time, the company met fully one-half of America's domestic requirements for dynamite and black blasting powder." 29 Eighty-five per cent of production was explosives. In brief, without Du Pont the Allies could hardly have fought what has been appropriately called the most unnecessary big war in history.
At the same time the company's capital flooded upward from $83 million to $308 million on the basis of a wartime gross business of $1 billion. Net profits for four war years reached $237 million, of which $141 million were paid out in dividends. "Those dividends could be reckoned at four hundred and fifty-eight percent of the stock's par value." 30
With $49 million of wartime profits not paid out in dividends, E. I. du Pont de Nemours bought its initial interest in General Motors Corporation, then the product of the merger of twenty-one independent automobile companies. 31 Du Pont soon took control.
German interests having been driven from the postwar domestic chemical field, where they had been entrenched, E. I. du Pont de Nemours branched into the general chemical field, in which it previously had only a small foothold. it did this not through some inherent scientific capability, as is sometimes suggested, but by buying up with wartime profits one independent chemical company after the other: Viscoloid Company, National Ammonia, Grasselli Chemicals, Krebs Pigment and Chemical, Capes-Viscose, Roessler and Hasslacher Chemical, Commercial Pigments, Newport Chemical, Remington Arms Company and others. Individual Du Pouts, now well supplied with funds, bought into North American Aviation, Bendix Aviation and United States Steel. 32 Provided with enough money, anyone could have done this.
Offered during World War II a cost-plus-fixed-fee contract to build atomic bomb plants for the Atomic Energy Commission, E. I. du Pont de Nemours, which alone had gathered to its capacious bosom the engineering facilities and personnel for such a gigantic task, set the fee at $1.
What led the company to make this resoundingly modest charge is said in the official history of the Atomic Energy Commission to have been the following considerations:
"The tremendous military potential of the atomic weapon posed a possible threat to the company's future public relations. The du Pont leadership had not forgotten the 'merchants of death' label slapped on the company during the Nye Committee investigations in the 1930's. Certainly it was clear that the company had not sought the assignment; but to keep the record straight, du Pont refused to accept any profit. The fixed fee was limited to one dollar. Any profits accruing from allowances for administrative overhead would be returned to the government. Walter S. Carpenter, Jr., the du Pont president, disavowed not only profits but also any intention of staying in the atomic bomb business after the war. In his opinion, the production of such weapons should be controlled exclusively by the government. The contract provided that any patent rights arising from the project would lie solely with the United States." 33
And so we come to the present when the labyrinthine Du Pont enterprise, no longer specializing exclusively in the merchandisable means of death, is devoted to making thousands of peacetime products, what it calls "better things for better living through chemistry."
The Mellons
Four leading Mellons on the Fortune list are given a minimal combined worth of $1.6 billion and a maximum of $2.8 billion. As market values up to this writing have risen sharply, these figures now embody considerable understatement.
The Mellons are another close family group, with holdings concentrated as shown in the TNEC study in a broad group of leading companies: Aluminum Corporation of America, Gulf Oil Company, the Allis-Chalmers Manufacturing Company, the Bethlehem Steel Corporation, the General American Transportation Corporation, Jones and Laughlin Steel Corporation, Koppers United Company, Lone Star Gas Corporation, Niagara Hudson Power Corporation, Pittsburgh Coal Company, Pittsburgh Plate Glass Company, The Virginian Railway Company, Westinghouse Electric and Manufacturing Company and various others. Of this group the Mellons controlled Aluminum Corporation, Koppers United and Gulf Oil. Five Mellons held these interests directly and through two family holding companies, three closely held insurance and securities companies, six trust funds, one estate and one foundation. 34
In Aluminum Corporation common stock the Mellons held 33.85 per cent; in the contingent voting preferred stock the family and its foundation held 24.98 per cent. In Gulf Oil Company the Mellon family and its personal companies owned 70.24 per cent of the common stock, an unusually large single family stake in so large an enterprise. The Mellons held 52.42 per cent of the common stock of Koppers United and 1.52 per cent of the contingent voting preferred. 35
Applying the TNEC percentages of ownership at closing 1964 market prices the value of the Mellon holdings in the three leading companies alone would be:
7,127,725 shares of Aluminum Company common (33 per cent of outstanding 21,413,177 shares) at 61-1/2 $438,970,087
164,477 shares Aluminum Company preferred (25 per cent of outstanding 659,909 shares) at median price of 85-1/2 (1964 price range 83-88) $9,128,468
72,579,487 shares Gulf Oil Corporation (70 per cent of outstanding 103,684,981 shares) at 58-5/8 $4,254,972,426
1,166,567 common shares Koppers (52-1/2 per cent of 2,222,032 outstanding shares) at 55-3/8 $64,599,968
Other companies ?
_______________
Total $4,767,669,949
This computation is made without considering the Mellon holding in the Mellon National Bank of Pittsburgh, not included in the TNEC study, and in various other banks and in many companies with Mellon participation as reported in the TNEC study. But although the preceding table shows the pattern of the family holdings in general, there have been shifts in Mellon holdings since the TNEC study, notably through the establishment of a series of foundations in the 1940's.
These foundations, whose holdings should not be necessarily considered as additions to those already indicated, are as follows:
Date Founded 1962 Assets
The A. W. Mellon Educational and 1930 $24,197,042
Charitable Trust
(included in TNEC study)
Avalon Foundation, N.Y. 1940 $99,182,784
(Mrs. Ailsa Mellon Bruce)
Sarah Mellon Scaife Foundation 1941 $20,098,157
Old Dominion Foundation, N.Y. 1941 $65,082,139
(Paul Mellon)
Bollingen Foundation, N.Y. 1945 $6,013,881
(Paul Mellon)
The (Richard K.) Mellon Foundation 1947 $82,028,250
The (Matthew T.) Mellon Foundation 1946 $160,775
(as of 1960)
____________
Foundation Total $296,763,028
Although the income and any capital distribution from these foundations must be used for legally prescribed public purposes, the capital investments, as long as they remain undistributed, represent Mellon voting power in industry. But the foundations established since 1940 do not, as comparison with the first tabulation shows, diminish by much the personal Mellon holdings of today when computed according to the TNEC pattern. The family, all lovers of the old-time capitalism will be cheered to note, does not appear to be dissipating its fortune in riotous charity.
Andrew Mellon (1855-1937) was himself an inheritor, the son of Thomas Mellon, a rich Pittsburgh private banker and the pre-Civil War Horatio Alger source of the family fortune. From his father's bank Andrew and his brother, Richard B., began branching out and initially acquired a commercial bank and an insurance company. It was a small beginning, with far greater deeds of financial derring-do to come.
The first really big Mellon opportunity came, however, when two metallurgists told Andrew in 1989 of a successful new process for smelting aluminum discovered by Charles M. Hall. In return for $250,000 credit with T. Mellon & Sons, the Pittsburgh Reduction Company, owner of the process, gave Mellon control of the company. it was common at the time for banks to demand a "piece of the action" in any promising enterprise that applied for loans, which is how Mellon and other bankers turned up with toothsome participations in so many burgeoning enterprises. 36 For these participations in many if not most cases, they paid nothing whatever but sat in their money-nets like intent spiders and let the flies walk in one by one.
The Mellon participation in Gulf Oil came about similarly. Anthony F. Luchich, a Yugoslav prospector, brought in the great Spindletop gusher in Texas in 1901, which quickly led to more oil than all the Pennsylvania fields had since 1859. Money was now needed to handle the flow and build pipelines, and Pittsburgh interests were appealed to. Among these were William Larimer Mellon, nephew of Andrew and himself an heir of Thomas Mellon. In the upshot there was formed the J. M. Gulley Petroleum Company, capitalized at $15 million. Andrew W. Mellon bought the prospector's interest for $400,000 and altogether put $4.5 million into the new company, of which Colonel J. M. Guffey, who had an interest in the Spindletop lease, was given the presidency, $1 million and a promise of $500,000 from future dividends. Andrew W. Mellon and his brother, Richard B., took 40 per cent of the stock and sold 60 per cent to six Pittsburgh capitalists. 37 Guffey Petroleum soon was renamed Gulf Oil. Guffey himself was dropped.
Mellon utilized the same technique again and again with other entrepreneurs who came to him for the means necessary to launch or tide over their enterprises.
The Aluminum Company was eventually judicially designated a monopoly but not until it had enjoyed a long charmed life. It repulsed a number of private suits under the Sherman Act early in the century and on a few occasions outmaneuvered the Federal Trade Commission, which could not prove its bone-deep belief that the company was engaging in unfair competition. In 1912, however, the Aluminum Company consented to a practically meaningless decree in an action brought by an unenthusiastic Department of Justice charging unfair trade practices.
Again in 1937 the Department of justice brought suit, holding that the company held a 90 per cent monopoly. In 1945 the United States Court of Appeals, Second Circuit, concluded that the company indeed held prewar monopoly control of ingot production. But the court did not force the company to dispose of any plants pending disposition of government aluminummaking facilities built in wartime 1942-45.
During the war, with aluminum in short supply, Reynolds Metals Company with government encouragement began primary production, the first competitor in the field since 1893. After the war the government, bypassing Aluminum Company, offered its plants to 224 different companies--some of them large--and strangely found no buyers. Surplus Property Administrator W. Stuart Symington then accused Aluminum Company of blocking the surplus plant sale by its patent control. After denying this, Alcoa relinquished to the government its many patents, gobbled up during the years, thus throwing them open to free licensing.
Reynolds Metals now bought or leased various of the government plants created around these patents. Kaiser Aluminum, formed for the purpose, took over other government-built plants. Since then the Anaconda Copper Company and Revere Copper and Brass, Inc., have entered the lucrative field, with still others likely to come. The long Mellon monopoly in aluminum was finally broken, but not before the Mellons made millions from it. And the country is now for the first time well supplied with aluminum.
Who are the Mellons today? There are Paul Mellon, son of Andrew Mellon, director of the Mellon National Bank and various Mellon funds; his children, Timothy and Catherine Conover (Mrs. John W. Warner); Richard King Mellon, Jr., son of Richard Beatty Mellon, nephew of Andrew, director and officer of various leading Mellon enterprises; his children, Richard, Cassandra, Constance and Seward; Ailsa Mellon (Mrs. Mellon Bruce), daughter of Andrew and mother of Audrey Mellon Bruce; Sarah Mellon (Mrs. Alan M. Scaife, died 1965), daughter of Richard Beatty Mellon and mother of Richard Mellon Scaife, who is a director of the Mellon National Bank and of various Mellon funds and trusts; William Larimer Mellon, M.D., and others. By no means as numerous as the Du Ponts, the Mellons nevertheless constitute more than the glittering quartet named by Fortune.
The Rockefeller Monolith
Fortune, without mentioning Rockefeller guidance over huge foundation endowments, credited seven Rockefellers with a minimum combined holding in 1957 of $1 billion and a maximum of $1.9 billion. Although the Rockefeller name is now synonymous with extreme wealth it is probable (owing to its earlier head-on conflicts with the law and consequent attempts to propitiate an aroused public opinion by contributions to publicly approved activities) that the combined Rockefeller fortune today is below that of the Du Ponts, who apparently have not as yet felt it necessary to indulge in baroque endowment operations to appease public opinion. The concentrated Rockefeller financial punch, however, both because of controlled foundations and many personal trust funds, is demonstrably more than double the maximum weight indicated by Fortune; beyond this the Rockefellers have acquired considerable moral influence. To some small extent the larger figure I produce is attributable to the rise in market value between 1957 and 1964; but Fortune left a great deal out of its calculations.
The death of John D. Rockefeller, Jr., in 1960 provides us with a concrete case for checking on Fortune's estimate of inherited wealth. The probate of the Rockefeller will showed that Fortune was again astray (in this case very far astray) in estimating JDR, Jr., as pe rsonally worth $400-$700 million in 1957; the probate showed his holdings added up to no more than approximately $150 million. 38 For he had over the years, as it was announced, established trust funds for six children and twenty-two grandchildren. 39 From these trust funds the children receive only income, with the principal sums presumably accruing to the grandchildren. There is thus assured a steady future supply of well-propertied Rockefellers.
If it was not evident before this, it should be clearly evident now that Fortune had no confidential information and no special expertise in computing the value of the large fortunes, individual or collective. Sometimes its procedure produced acceptably accurate results; at other times it was far off the target. Its listing, however, provides a convenient springboard for getting more deeply into the basic data.
The JDR, Jr., estate paid virtually no inheritance taxes because it was left half to the widow and half to the Rockefeller Brothers Fund, a foundation. Under the inheritance-tax law as revised in 1948, over a presidential veto, half of any estate going to a spouse is nontaxable under what is pleasantly called the marital deduction. Who could be so disagreeable, except one hostile to marriage and possibly home, children and dogs as well, as to object to such a deduction? But the effect of this deduction was to more than halve inheritance taxes for married property holders, a vast majority. The greatest money benefit, obviously, accrued to the very largest property holders, and it was undoubtedly they who deviously pressed for the measure through their many staunch friends in Congress.
As the half of the Rockefeller estate left to the fraternal foundation was also nontaxable, the whole was nontaxable.
However, when, as and if the widow disposed of her trust fund, which she was empowered to do, it became estate-taxable (in lower brackets, to be sure, than if it were still part of the original whole estate). If left to charity it would be nontaxable. But if the widow made no disposition of the capital, it was all to accrue to JDR, Jr's., children, when it would be taxable as in the case of any noncharitable disposition.
For many years Rockefeller, Jr., son of the original self-made tycoon, had been prudently reducing his taxable estate by (1) establishing trust funds for members of his family and (2) allocating money to foundations controlled by the family. Thus, early in the 1930's he had begun transferring large holdings into trust funds for the children, according to the federal record. 40 As of December 18, 1934, when stock prices were abnormally low, two trusts for Abby Rockefeller were launched giving 2.13 per cent ownership of Standard Oil Company of California; one for John D. III giving .99 per cent ownership; and one for Nelson A. Rockefeller giving .92 per cent ownership--4.04 per cent in all. Similar trusts were set up at the same time for the same children in Standard Oil Company of New Jersey. 41 Later, as the will disclosed, trusts had been established for all six children and the twenty-two grandchildren. The family was now resting quietly in trust.
As a general pattern, the TNEC study disclosed that 30 per cent of the Rockefeller holdings were in foundations, 30 per cent in family trust funds and 40 per cent in the hands of individuals, a judiciously balanced diversification. 42 Trust fund holdings are now apparently higher, individual holdings lower.
There are reputed to be a large number of Rockefeller trust funds. According to the Washington Daily News, June 8, 1967, page 69, there may be as many as seventy-five family trust accounts "set up by John D. 'Junior,' for his six children and by those children for their 23 offspring. The latter generation--known as the 'cousins'--have begun setting up trust accounts for their 44 children."
In pointing out the low taxability of the JDR, Jr., estate I do not intend to imply that some sort of impropriety was practiced. Rockefeller, Jr., acted according to the prescribed laws and like any prudentially motivated parent in making the best possible material provision for his children. My reason for stressing the tax-free status of his estate is only to counter the notion, widely spread by newspapers and right-wing demagogues, that the tax laws in general are breaking down, dispersing or seriously trimming property holdings of all kinds. The dominant effect of the tax laws actually (and not surprisingly in a society dominated by property holders with abundant money and patronage to dispense) is to preserve and solidify private property in general, especially big private property. The latter type, naturally, derives the most substantial benefits from the equal protection of the law which, as Anatole France remarked, majestically allows rich as well as poor to sleep under bridges.
There was the same sort of low-taxable estate left when Rockefeller, Sr., died in 1937. The probate disclosed that he had left a pitiful $25 million, of which state and federal taxes took about half; nearly all of the remainder was left to a granddaughter, Mrs. Margaret Strong de Cuevas, and her children and to the Rockefeller Institute for Medical Research. 43 The bulk of the fortune he had amassed through the original Standard Oil Trust had already been transferred to his son and to foundations. Whatever may have been transferred before 1914 was tax free; whatever may have been transferred between 1924 and 1930 bore the low tax rates of the Mellon era in government finance; whatever was transferred in the 1930's was at depression-low values.
In brief, the amount of inheritance taxes collected from John D. Rockefeller Sr. and Jr. has been virtually nil. And despite the continual references in the public prints to how taxes are breaking up big fortunes, the Rockefeller fortune, like the Du Pont, Mellon and many others assembled in the nineteenth century, is still intact, fully fleshed and going strong.
As Fortune was very much in error on the JDR, Jr., holding, there is no reason to suppose it was any more accurate in placing each of the six children in the broad $100-$200 million bracket. The surer procedure, it seems to me, is to ascertain as I have done before what the TNEC, under power of subpoena, found to be the pattern and percentage of total family holdings by individuals, trust funds, family holding companies and foundations, and to assume at least tentatively that this pattern and percentage still persist. When anyone argues (as some are bound to) that holdings in a company may have been altered, it should be pointed that such alteration would not seriously call this method into question. Whatever was sold in one place would be invested somewhere else--probably to better effect, as these large holdings are all under skillful professional supervision and tend to take maximum advantage of circumstances and to minimize disadvantages. New investments outperform old, as in the case of W. Averell Harriman's investment in Polaroid. As for the modest sums paid out in gift taxes it is standard trust doctrine that these can be recovered gradually out of the income of the trust. On top of all this, the big fortunes have an unending stream of dividends, the spending of which would wear anyone out and has indeed worn out some flamboyant spenders. Much of these dividends (after taxes) are reinvested, thus tending to increase the fortune.
The Rockefellers, like the Du Ponts and Mellons, could be relatively poorer today than they were at the end of 1937 (the date of the TNEC data for this phase of the inquiry) only if they had (1) sold substantial interests and hoarded the proceeds in uninvested cash or placed them in fixed-interest securities; (2) if they had burned or flung away the cash proceeds of investment sales; (3) if they had sold good investments and made bad investments; or (4) if they had given huge properties into the absolute ownership of others. As there is no evidence available that they did any of these things, we may dismiss the idea that their total vested interest is smaller, either absolutely or relatively, than it was at the end of 1937. It must, in fact, be larger owing to the steady receipt of big revenues and the normal use of skilled professional advisers. The TNEC percentages, carried up to the present, must be, if anything, understatements in the case of the Rockefellers as in the cases of the Du Ponts and Mellons.
It should be stressed that the TNEC study did not embrace all the holdings of these groups. It did not include holdings in strictly financial enterprises, such as banks and insurance companies, any real estate or any stockholdings that aggregated less than the twenty largest in any single company. As to the Rockefellers, there was not included their dominant interest in the Chase National Bank, one of the international "Big Three" among commercial banks, colossal Rockefeller Center in New York City and a variety of extensive real estate and landholdings. Indeed, a substantial fortune for each of these big families was deliberately left out of consideration in the TNEC study. If a man were to own whatever the Rockefellers, Du Ponts or Mellons held that was not even counted in the TNEC study, he would be considered one of the nation's nabobs.
The following table applies the percentage of ownership of the Rockefeller interests, including foundations, as they appeared among the twenty largest stockholders as ascertained by the TNEC, and shows the value of these same percentages and at closing 1964 prices. 4
Largest 1937 1964
Stockholdings Prices Prices
(percentage)
Atlantic Refining Co. (S.O.) 1.16 $6,821,025
Bethlehem Steel Corp. .41 $10,379,268
Consolidated Edison (N. Y.) .28 $10,170,255
Consolidated Oil Corp. (S.O.) 5.71 $7,000,000 $49,058,436
Continental Oil Co. (S.O.) .84 $14,055,174
Illinois Central R. R.
(now Illinois Central Ind.) .32 $536,364
Int'l Harvester Co. 2.31 $24,604,360
Middle West Corporation
(now constituent companies) 2.11 $8,272,495
Missouri-Kansas-Texas R. R. 1.14 $115,679
Norfolk and Western Ry. .32 $782,073
Ohio Oil Co.
(now Marathon Oil Co. [S.O]) 19.52 $16,000,000 $190,165,807
Pere Marquette Ry.
(exchanged for Chesapeake &
Ohio R. R. stock) 1.45 $23,927
Phelps Dodge Corp. .74 $5,381,811
Radio Corporation .22 $4,362,775
Santa Fe Railway .38 $1,576,563
Socony Vacuum Oil Co.
(now Socony Mobil Oil Co. [S.O] 16.34 $76,000,000 $771,303,099
Standard Oil Co. of Calif. 12.32 $47,250,000 $664,330,693
Standard Oil Co. (Indiana) 11.36 $58,000,000 $334,335,677
Standard Oil Co. (New Jersey) 13.51* $163,000,000 $2,628,070,253
U.S. Steel Corp. .12 $3,361,473
Western Pacific R. R. 4.79 $3,916,487
______________
Total $4,741,515,014
* The Rockefellers actually had voting power over 20.20 per cent
of the vast New Jersey Company, in assets the largest industrial enterprise
of the world, enough to assure control, by reason of New Jersey stock owned
by the minority-controlled Standard Oil Company (Indiana).
Considering only the largest holdings, it will be seen how magnificently these properties have risen from depression-level valuations--from seven to nearly seventeen times in less than thirty years (the latter in the case of the giant Standard Oil Company of New Jersey). How many persons in the same period have seen their salaries or propertied status improve by as much? If a school teacher, starting out at a salary of $3,000 a year in 1937, had experienced the same ratio of gain in remuneration he would now be paid in the range of $21,000-$51,000. Actually, the school teacher now receives in the range of $6,000-10,000, if that, and is facing early retirement at half pay. There never comes a time when property, large or small, is put on half pay because of age.
In the case of the Rockefellers, as of the Mellons, it has been publicly announced that they have sold some of these holdings: JDR, Jr., in Socony Mobil Oil and the Mellons in Gulf Oil. What the proceeds were used for--new investments or trust funds for others--is not indicated. At any rate, the foregoing table should not be taken as a recent breakdown of major Rockefeller investments, which in some cases may be larger or smaller, in others may include different properties. But, I argue, whatever the present holdings are, their relative value is almost certainly not smaller than the total for the tabulation and is, for a variety of sound reasons, very probably larger.
What the TNEC study singled out as the personal largest industrial holdings of the Rockefeller family, individuals and trust funds, is shown in the following table computed at closing 1964 prices:
Largest 1964 Closing
Personal Market Value
Stockholdings
(percentage)
Atlantic Refining Co. 1.16 $6,812,085
Bethlehem Steel Corp. .41 $10,379,268
Consolidated Oil Corp. 5.71 $49,058,436
Ohio Oil Co. 9.83 $190,165,807
Socony Vacuum Oil Co. 16.34 $771,303.099
Standard Oil Co. of Calif. 11.86 $639,326,406
Standard Oil Co. (Indiana) 7.83 $236,721,770
Standard Oil Co, (New Jersey) 8.69* $1,691,696,720
______________
Total $3,595,463,591
*By reason of the Standard Oil (Indiana) interest in the New Jersey company,
the personal Rockefeller voting power in the latter company was 15.38 per cent,
enough to give practical control or "dominance," in the language of the TNEC study.
If we subtract from this $100 million for the widow (assuming her holdings had appreciated to, this level since 1960) there is left for each of the six third-generation Rockefeller children personally $570,077,232 (including whatever is laid up in trust for the grandchildren, which has lightened the financial burden of the parents). In view of the many ancillary Rockefeller holdings that are not here considered, this figure is far nearer what one should have for each more recently rather than the Fortune figure of $100-$200 million. Market values rose between 1957 and 1964, it is true, but broadly allowing for the rise and excluding grandchildren's trusts, it would seem that each of six Rockefellers must be worth at least in the range of $425-$475 million, including trust funds, and possibly more than $570 million. The apportionment ratio of trusts as between children and grandchildren is not publicly known but, as the grandchildren take from the parents, it is probable that direct trust provision for the grandchildren was made, if at all, on a much smaller scale than for their parents. To venture further into the labyrinth of family trusts without possessing the accountants' figures could only be unwarrantably speculative.
As the foundations make public reports of their holdings, there would be a way of partially checking the correctness of these computations if the same foundations were now in existence as figured in the TNEC study. Unfortunately, the structure and number of Rockefeller foundations have greatly changed since 1937 and only the sketchiest sort of check is possible. just as the Rockefellers have probably shuffled their personal investments, so have they publicly shuffled their foundations consonant with the introduction of a third generation into the management of affairs.
The foundation holdings, reckoning by the TNEC percentages, should have stood at $1,146,051,423 at the end of 1964. At the end of 1962 (the only figures yet available) the actual foundation holdings, when market values were somewhat lower than at the end of 1964, were $823,485,972, according to the Foundation Directory, 1964. My computations, it is clear, produce a figure that is $322,565,451 higher than seems to be the case.
Before we consider this not inconsiderable discrepancy and what may account for it, the recent foundation holdings should be examined. The Foundation Directory shows them and their stated assets to have been as follows:
Date Assets at
Founded End of 1962
General Education Board 1902 $342,834
Rockefeller Foundation 1913 $632,282,137
Sealantic Fund
(Community fund for Seal Harbor,
Me., and Pocantico Hills, N.Y.,
where Rockefellers reside) 1938 $11,639,033
Jackson Preserve, Inc. 1940 $21,939,398 (1961)
Rockefeller Brothers Fund 1940 $152,386,637
American Int'l Ass'n for
Economic and Social Development
(part Rockefeller) 1946 $752,585 (1961)
Council on Economic and Cultural
Development 1953 $3,360,950
Chase National Bank Foundation
(part Rockefeller) 1958 $782,398
____________
Total $823,485,972
At the time of the TNEC study there were only the Rockefeller Foundation, the General Education Board and the Spelman Fund of New York in the field. The latter has gone out of business and six others have been added since 1938.
Applying the TNEC pattern, which found that 30 per cent of Rockefeller holdings were in foundations and 30 per cent in personal trusts, with 40 per cent individually held, and using the 1962 foundation holdings as the base of computation, one would have the following as the figure of dominated and owned holdings in 1962:
Foundations--30 per cent $823,485,972
Individual trust funds--30 per cent $823,485,972
Individual holdings--40 per cent $1,077,981,296
______________
Total $2,724,953,240
Using recent foundation holdings as the base to which the TNEC percentage is applied appears to me to result in a downward distortion, first because the individual holdings were concentrated in the upward-spiraling oil industry while much of the foundation investment is in fixed-interest securities, and secondly because the foundation pattern has been altered. My conclusion is that proportional to individual holdings and trust funds the foundation holdings are now either less than 30 per cent of the whole or that their assets by 1964 had moved up in value closer to the projected figure of $1,146,051,423 obtained by my computation.
As the foundation reports are issued at a more leisurely pace than company reports and are not available for 1964 at this writing, direct comparison cannot be made. But critical readers can make the comparison at any time, when the reports become available, provided they always apply market values rather than book values of holdings.
If one wishes to examine still another possibility, one can put together the figure of $3,595,463,591 for the 1964 value of the personal holdings obtained by my computation with the 1962 figure of $823,485,972 for foundation holdings. This gives a total of $4,418,949,563 for the combined holdings. I still believe, however, that my original figure of $4,741,515,014 is an understatement of the combined family holding, because the TNEC did not survey all the family properties (only the largest) and notwithstanding the fact that Rockefeller, Jr., had to pay gift taxes in the establishment of his chain of trust funds for children and grandchildren.
When one throws the Chase Bank, Rockefeller Center and various real estate properties into the pot and considers that Laurance Rockefeller has blossomed in his own right as a venture capitalist in luxury hotels and advanced-technology enterprises, the combined Rockefeller financial "punch" should be above $5 billion. Although apparently outpaced by the Du Ponts in the super-wealth sweepstakes, the Rockefellers seem to me to be running at least neck and neck with the Mellons.
The TNEC study, it must again be stressed, did not pretend to produce the totals of wealth held, for it confined itself only to the twenty largest stockholdings in the 200 largest nonfinancial companies and ignored ownership of banks, insurance companies, bonds, real estate and smaller stockholdings. Relying on the TNEC method alone there might have been missed even larger concentration of wealth, for example if the twenty-first largest stockholder in all 200 companies had been the same person or family; but on other evidential grounds it is known that such a logical possibility did not hold in fact.
The Fords of Dearborn
Mrs. Edsel Ford and her three sons--Henry II, Benson and William-were assigned a combined minimal wealth of $325 million and a maximum of $500 million by Fortune in 1957. Her daughter Josephine (Mrs. Walter Buhl Ford II) was not noticed by Fortune.
It is always fairly easy to compute the collective personal wealth of the Fords because they own 10 per cent of the outstanding stock (but 40 per cent of the voting power) of the Ford Motor Company (always assuming there have been no secret sales or purchases and that there are no side interests). On the face of it (although not really) 10 per cent of the entire stock issue of the company appears to be the sole personal financial strength of the family.
What slightly impedes any computation of Ford wealth is the rather complicated capital structure of the company as created under the wills of Henry and his son Edsel.
At the end of 1964 this capital structure, after split-ups in each class, stood as follows:
Shares
Common stock (owned by investors) 52,338,152
Class A stock (owned by the Ford Foundation) 46,283,756
Class B stock (owned by the Ford family) 12,267,794
___________
Total 110,889,702
The Class A stock is nonvoting until it is either sold by the foundation or given by it to some approved nonprofit organization, when it acquires one vote per share; but never at any time can all the common stock cast more than 60 per cent of the vote at a stockholders' meeting. For, as noted, 40 per cent of voting power is concentrated by charter in all the Class B stock, giving the Ford family very nearly absolute control of the company at all times. All classes of stock participate equally, share for share, in dividends. Control is what counts.
At the closing 1964 quotation of 54-1/2 per share this capitalization had a gross market value of $6,043,488,759. This left the Fords 10-plus per cent apparently valued at $604,348,876. But, considering the factor of control, the Ford family stock has as much voting power as two-thirds of the common, which was valued in the market at $1,901,619,450. Anyone who owns two-thirds of the common stock would have as much voting power as the Fords but would get more dividends--on 34,892,100 shares as against 12,267,794 shares--and to that extent would have more value in hand. But the Class B stock, owing to the heavy weight of voting privileges embodied in it, is worth more, share for share, than the market value of the common stock (although nobody would seek to get that value unless he sought control of the company). If, however, a buyer of control were to show himself, the Ford-held stock at closing 1964 prices would have, in relation to the common, the value of close to $2 billion I have assigned it by this computation. While the Ford stock gets dividends of only about a third of the equivalent amount of voting-power common, this isn't too much of a hardship as the Fords are in an income-tax bracket that hits such soaring dividends hard. Besides, the men all drew high salaries as officers of the company. They have plenty of pocket money.
So, at a price of around 54 for the present outstanding stock of the company, I would rate the value of the family holding at a minimal 82 billion, although any syndicate interested in buying the company would probably have to pay more for it (assuming current or higher levels of profitability).
Compared, then, with the Du Ponts, Mellons and Rockefellers, the Fords are in comparatively modest circumstances although individually the members of the three latter families are on the average richer owing to the participation of a greater number of Du Ponts in the heady Du Pont mixture.
Since 1964, however, there has been a slight alteration in the foundation holdings, which does not affect my computation nor the conclusions drawn from it. In June, 1965, the foundation marketed more shares. Originally it received precisely 88 per cent of all stock in the form of Class A nonvoting shares. Adjusting for stock splits after the 1965 sale it had disposed of very nearly half or 46.9 million present shares. The 45.7 million shares it retained composed 35.8 per cent of the entire capital stock of Ford Motor.
In terms of its own book values of the various securities it held, Ford Motor plus others, the foundation at the end of 1964 was worth $2.4 billion.
The great care taken by the two elder Fords to see that control remained in the family is shown by the voting provisions for the stocks. If the outstanding Class B stock falls below 5.4 million shares (which it can do only if it is called in by the family) the total voting power of the common rises to 70 per cent; and if the B stock outstanding falls below 3 million shares it votes equally with the common.
Until the family, then, quixotically decides to call in the B stock (thus cutting its own throat as far as control is concerned) it holds 40 per cent of voting power in the company, tantamount to absolute control. Should some syndicate attempt to buy control in the market the Fords need purchase only 16-2/3 per cent of outstanding common to give it 50 per cent voting power, whereas a syndicate would have to purchase 83-1/3 per cent of all common to reach the same dead-heat point. In such an unequal race the Fords would necessarily win.
But even if a syndicate turned up with all the common, giving it absolute control, the Fords have an ace in reserve. And this ace shows one of the many ways foundation control can be synchronized with industrial control, The Fords control the foundation. And the A stock held by the foundation acquires voting power as it is sold or given to a nonprofit institution. Faced with an opponent who owned all the common, giving him a 60 per cent vote and control, the Fords need merely activate the voting power of the foundation stock by selling it or giving it to friendly hands, thus diluting the voting power of the outstanding common. By converting all its remaining Class A stock into voting stock the foundation could dilute the voting power of the presently outstanding common to 30 per cent of the present capital structure. With the 30 per cent of the voting power in the newly converted common plus the 40 per cent of voting power in the Class B stock the Fords would actually have, as they now potentially have, 70 per cent of the voting power. The foundation, indeed, could sell somewhat more than half of its remaining Ford stock and leave the Fords able to muster 55 per cent of the voting power in any critical showdown.
The ins and outs of this situation may have puzzled some readers. The point to be made is only to show the great care taken to guard control, revealing what the wealthy intend. In acting as they do they are only being reasonable; for the humanly normal thing to do is to guard one's possessions. But we have many propagandists around, led by such errant professors as A. A. Berle, Jr., who apparently are not afraid of being judged certifiably silly by contending that control as well as ownership of the large companies is being widely spread around, that the big fortunes are being broken up to right and left. The Berle thesis, refuted on every hand by the facts, is that as ownership is dispersed (which it is not in fact), free-lance company managements install themselves in the drivers' seats as something of a new corporate breed. These new managers--the "managerial revolution"--proceed in this fairy tale to elbow aside the Du Ponts, Mellons, Rockefellers, Fords, Pews, Gettys and various others--and thus introduce a new set of actors on the stage of history, a set of actors that conquer by sheer bureaucratic techniques.
Such being the case, reason many readers, we can all just sit back and watch the fun as bright young men rise to conjure the corporations away from the big owners. Like all fantasies, this one has quite a coterie of bemused devotees.
The surviving Fords would have been a great deal richer today than they are if Henry Ford, founder and original master mind of the automotive behemoth, who died in 1947 at eighty-three years of age, had been personally less grasping and if the deaths of central figures in the family had not occurred before the very rich could get a tractable Congress around to trimming the New Deal inheritance taxes. This trimming process was no doubt hastened by the example of the tax-speared disaster that engulfed the massive Ford fortune.
Ford's only son, Edsel, a far more likeable, intelligent and informed man than his flinty father but kept unhappily subordinate all his life, died prematurely at age forty-nine in 1943. The oldest grandson, Henry Ford II, at the age of twenty-five, inexperienced in business and up to 1940 a sociology major at Yale, was hastily spirited out of the wartime Navy where he was an ensign and installed as a director and executive vice president of the vast company, a miraculous corporate success story. His brothers Benson and William, twenty-five and eighteen years old at the time, trailed him into the company later, where they also showed their mettle by quickly rising to the top. Their mother, whom I have perhaps ill-advisedly listed as a rentier, played a strong and constructive role (from a family and property point of view) on the board of directors with Henry II. She backed him particularly, if she did not indeed take the lead, in getting rid of much accumulated deadwood in the cracker-barrel executive suite of Henry I.
Holding tightly ( and tax-expensively) to 58-1/2 per cent of the company's voting stock, Henry Ford at his death was publicly assigned a net worth of $500-$700 million. 45 The value at the time of the Ford Motor Company, since reorganized and vastly improved internally by the grandsons, was in the vicinity of $1 billion. Ford's death came none too soon for the family fortunes, as the company under his old-style heavy-handed administration had for more than fifteen years been losing ground to free-swinging General Motors and stepped-up Chrysler and had long since tumbled from the top of the motor heap. Definitely on the skids, the company was thought in the automobile industry to be headed for the junkyard that had already engulfed scores of automobile companies.
But the deaths of Edsel and Henry, with the company slipping mainly because the views of Edsel were continually overruled by the feudal owner and his sycophantic cronies in the management, also came at an inopportune time with respect to the tax laws. For the marital deduction and the option of estate splitting had not yet been enacted. Both Edsel's and his father's holdings were faced by a flat 91 per cent inheritance tax, designed under the New Deal expressly to break down big fortunes topheavy with political power. Had the later law been in effect, the two Fords could have assigned half their holdings to their wives, tax free, and the wives could have worked their funds with the help of lawyers into much lower tax brackets. This splitting, it should be noticed, also often puts the testator into a lower tax bracket as well, although it could not have had that effect with the two Fords unless they had made free use of trust funds for the grandchildren. Henry Ford was apparently too tightfisted to do that, which would have cost him only bargain-counter gift taxes.
A partial way out of this tax disaster was engineered in The Ford Foundation for Human Advancement established by Edsel in 1936. (Henry Ford himself was hostile to public benefactions and spoke out freely against them.) 46 But even with the help of the Ford Foundation, the personal Ford fortune, which under standard tax management would have been much larger today, was literally decimated nine times over.
Edsel left the greater part of his holdings to the Ford Foundation, thus escaping the big tax, and his father eventually had to do the same or see his money go largely to Washington and its hated New Dealers.
In this flukey way the Ford Foundation received nearly 90 per cent of the stock in the Ford Motor Company, all of it nonvoting as long as the foundation held it but participating equally in dividends. 47 As far as Henry Ford himself was concerned, the foundation was an unwilling benefaction, the lesser of two ghastly evils.
"On the Foundation's books, this [Ford money] was given the value, for tax purposes, of $416,000,000, but its real value, as measured by the earnings of Ford Motors, was at least $2,500,000,000. This is considerably more than half as much money as all the other foundations in the country have among them." 48
Still salvaging what they could in a bad situation, the Fords stipulated that the stock made over to the foundation should be nonvoting, leaving the 10 per cent in the hands of the family with an initial 100 per cent voting power.
Asked whether he would rather have all the Ford Motor dividends or company control, the average man would probably choose the dividends. He would be mistaken, for those in control determine whether there shall be any dividends at all. One in control could decide to invest earnings elsewhere until the designated dividend-receiver came to some sort of terms, not disadvantageous to a controller. Control is always the prime objective of the true leaders in all large organizations--political, financial, economic, philanthropic, educational or otherwise. For control determines everything that is subject to the will.
And, finally, the family, now controlling the company, was also placed by the elder Fords' testaments in control of the foundation. Although it could not receive foundation income or any part of it, the family could manage the foundation (as it has since done) to the advantage of the Ford Motor Company, the goose that lays the golden eggs.
The Ford Foundation, which when Henry Ford was alive was devoted purely to community projects in and around Detroit that were beneficial to the Ford Motor Company, began its national operations only in 1950, when it started spewing forth huge grants for educational and other purposes in unprecedented fashion. Ordinarily hard-to-get money began to float around the country in huge gobs. In 1954 the foundation bestowed $68 million, four times the annual Rockefeller contribution to the charitable kitty and ten times that of the third largest foundation, The Carnegie Corporation. This figure, a mere taste of what was yet to come, was as much as all American foundations combined spent in any single year up to 1948 and was about a quarter of the spending of all foundations in 1954. 49 If the Ford Foundation is a good thing, as many maintain, then it must be attributed to New Deal tax laws.
In connection with trust funds earlier, the reader may recall there was a somewhat cryptic reference to "standard doctrine." The two Fords relied on standard doctrine in creating the Ford Foundation. just what is standard doctrine? Most broadly and informally, and applicable in all social and political contexts, standard doctrine was perhaps most pungently expressed by the late W. C. Fields when he voiced the deathless maxim: "Never give a sucker an even break." But, more specifically, it relates in our social system to known legal ways of maximizing advantages and minimizing disadvantages for property, especially under existing tax laws. Moreover, it shows one in detail how to accomplish these ends. With reference to the tax laws in all their ramifications the doctrine is now well codified, notably in a series of multiple-volume loose-leaf publications titled the Standard Federal Tax Reporter published by the Commerce Clearing House in New York. Supplementing the income-tax series there are the sub-series titled Federal Excise Tax Reporter and Federal Estate and Gift Tax Reporter.
With respect to a structure like the Ford Foundation, standard doctrine holds:
"Charitable giving through the channels of charitable, tax-exempt foundations has achieved a position of importance in estate planning. Apart from the humanitarian aspects involved, the family foundation can be an effective means of reducing income and estate taxes and of continuing control of a closely held corporation in the family of the donor." 5O These are precisely the ends that were achieved by the testamentary dispositions of the Ford estates.
Foundations, in other words, are a way of reducing taxes, and this is part of standard doctrine. Newspapers and other propaganda media, however, have long referred to them in their whimsical way as benefactions (which in certain cases they may also be) and their creators as philanthropists rather than as tax-sensitive acquisitors (which they may or may not be), and invariably refer to the transferred money as donations and gifts (which they are not necessarily). The donations, so-called, are the consequence of big tax write-downs offered by the government precisely for such a possibly benign placement of funds.
But a large section of the public has been instilled with the unwarranted belief that something is being given away for nothing. And, anomalously, as I have had occasion before to point out 51 these huge so-called gifts sprang from the hoards of men who in their active lifetimes left no stone unturned to amass for themselves great wealth. The most acquisitive, it would seem in this fantastic newspaper scenario, turn out to be the most benevolently inclined.
More broadly, standard doctrine holds that one should always pay the lowest possible wages and taxes, charge the highest possible prices and rents, and never give anything away unless the gift confers some hidden possibly overcompensatory personal benefit. The big propertied usually do their level best to adhere to it.
This may sound cynical to some, but only because they have witlessly allowed themselves to be deluded by unrealistic propaganda lullabies. It is not only standard but sound doctrine in any social system that pits its citizens competitively against each other and makes property ownership a cornerstone of well being. Would any property owner be considered sensible if he elected to pay maximum wages and taxes, charge minimal prices and then, if he had anything left, gave it away to Tom, Dick and Harry? Even to steer a middle course between the two extremes would not be considered very astute.
Although Henry Ford died worth $500-$700 million at 1947 values, he met his final tax problem well, even though until then he had steered a less than canny course. His federal tax was only $21,108,160.91 on a taxable estate of $70 million which consisted of $31,451,909.36 plus some Ford stock. 52
Edsel paid about $12 million, or 6 per cent, on an estate then estimated to be worth $200 million. 53 But in 1935 he had established trusts for his four children. In addition to Ford stock, he owned most of the stock of the Manufacturers National Bank of Detroit, which he left to his widow. As it was disclosed, Henry Ford owned 55 per cent of the stock of Ford Motor, Edsel 41-1/2 per cent and Mrs. Henry Ford 3-1/2 per cent. 54 Together Henry and Edsel paid inheritance taxes of a little more than $30 million. The elder Ford would have done better, as the elder Rockefeller did, by giving his son, wife and grandchildren stock over a period of years.
But if Edsel and Henry had not had recourse to the foundation--at the last moment almost--the estate would have been forced to pay a 91 per cent tax. This would have left a mere 9 per cent of outstanding ordinary stock in Ford family hands, hardly enough to control the corporation. Instead, they were left with 10 per cent of the stock (clothed by charter with 40 per cent voting power) and 100 per cent control over the asset-logged foundation, which as it engages in good works cannot help but generate friendly feelings for the Ford Motor Company in many worthy bosoms. 55
A further advantage in the plan adopted (for which some unsung lawyer deserves a summa cum laude) is that its provision for selling foundation stock created a horde of stockholding allies for the Ford family, which was dangerously isolated when it was the sole owner. Now when anyone wishes to make a face at the Ford Motor Company, the Ford Foundation or, indeed, at any of the Fords, he must reckon not only with all the grateful beneficiaries of foundation grants but with thousands of dividend-hungry small stockholders. Big owners have many small partners.
The Realm of Super-Wealth
The Du Ponts, Mellons, Rockefellers and Fords, in any event, are the four cardinal points of the compass in the realm of super-wealth. The Fords must be included by reason of the sheer magnitude of their controlled holdings even though they do not yet have as varied an organizational task force as their peers.
On the basis of sheer magnitude, again, J. Paul Getty should probably be thought of in the same class, although we do not yet know what will be the post mortem status of his holdings.
The other major clear-cut claimants to super-wealth status--and theirs would be minor super-wealth--are the Pews of the Sun Oil Company.
Neither the Houghtons of Corning Glass nor the Olins of Olin Mathieson Chemical appear to quite make it. But the Hartfords and Rosenwalds should be considered. The Houghtons, incidentally, were missed by the TNEC dragnet.
Fortune mentioned only two Pews, but the TNEC study showed them to be a numerous clan: J. Howard Pew, Marv Ethel Pew, J. N. Pew, Jr., Mabel Pew Myrin, Walter C. Pew, Albert H. Pew, Mrs. Mary C. Pew, Arthur E. Pew, Jr., John G. Pew, Helen T. Pew, Alberta C. Pew and others. The Pews collectively--individually and through estates and trust funds--owned 70.6 per cent of Sun Oil Company common stock as of February 15, 1938. 56
Assuming that this same percentage of ownership was maintained, they would be collectively worth $708,458,121 at closing prices for Sun Oil in 1964.
But the Pews since TNEC days have also set up foundations. As of March 2, 1965, the Pew Memorial Trust (through The Glenmede Trust Company) owned 21.7 per cent of Sun Oil stock and held as fiduciary for other Pew trusts and estates 20.9 per cent. 57 The Foundation Directory, 1964, states the 1960 assets of the Memorial Trust alone, leaving out its fiduciary holdings, at $135,309,481.
Before we pass to lesser but interesting wealth-holders (the extremely wealthy as distinguished from the super-wealthy), we may scan those we have examined in this chapter for common characteristics apart from their holdings of wealth.
Characteristics of the Super-Wealthy
All were born American citizens; their families have been in the United States for generations. All are inheritors in greater or less degree and, except for the Du Ponts who sprang from a revolutionary savant, all are far better educated than their family founders. Such being the case, they have a broader awareness of the world and its vagaries. None of these groups has its younger members placed in less than the third generation of wealth; the Du Ponts stand at least seven generations in the stream of gold. Such being the case they all together contradict the American folk-belief that a family passes from shirtsleeves to shirtsleeves in three generations. None of these gilt-edged people, obviously, are having any of that.
Offhand it would be said that they are all white, Anglo-Saxon Protestants; but such a statement would be somewhat misleading. The Du Ponts are of French Huguenot origin, and there is a Jewish crossing (Belin) in one of their lines of descent. Nor can it be said categorically that they are all Protestants. For Henry Ford II became a convert to Catholicism on the occasion of his first marriage and, through the foundation, funnels large sums to Catholic schools and colleges. As a consequence of his divorce and remarriage outside the Church, he is now automatically excommunicated but remains a Catholic. His children are Catholic.
Despite the fuss made by outsiders about being white, Anglo-Saxon and Protestant (or Catholic-Jewish) it is doubtful that any of these people attach much importance to the point. Most of them, from all indications, are pretty worldly wise and wear their ethincity and religiosity debonairly. Money, they know, is what counts in the established scheme.
Sinews of Republicanism
A far more significant common characteristic of all these super-wealthy families is that they have long been the main supporters nationally of the Republican Party, the party of plutocratic oligarchy. They have been its big sinews. Except for some minor Democratic deviants among the Du Ponts (and the Du Ponts can show many kinds of deviants from the basic family pattern) all leading members are Republican and their forebears were Republican.
With the exception of the Fords each has at various times played strong forward roles in the Republican party--the Rockefellers particularly under the McKinley Administration; the Mellons under the Harding-Coolidge-Hoover Administrations; the Du Ponts with the Liberty League in fighting a strong rearguard action during the 1930's against the resurgent Democratic Party; and the Pews ever since in being the wealthiest supporters (among many) of unreconstructed right-wing Republicanism down to the present. If not kings themselves, they are king-makers.
The RockefelIers have in recent years come again to play a forward role through the person of Nelson A. Rockefeller. Thrice elected governor of New York, until his divorce and remarriage to a divorced woman he was considered a chief Republican presidential prospect. Every professional politician in the country agrees that if the personable and outgoing Nelson had pressed for the Republican presidential nomination in 1960 he would have obtained it and beaten John F. Kennedy. While his divorce might not under other circumstances have kept him from the presidency its inflation to a major issue by ultra-rightist Republicans tended to have that effect in the 1960's.
But the Rockefellers still play a very strong role in Republican politics and Winthrop has become the Republican governor of Arkansas. Ultra-rightist Republicans, however, give them credit for too much by blaming them chiefly for the electoral disaster that overtook their implausible darling, Barry Goldwater, in 1964.
As important wheels in the political process these families have always had quick and direct access to the White House, no matter what the party of the president. Not only in times of war (when gossamer party lines tend to blur) but in times of peace, representatives of these families have always been able to obtain an audience even with a Democratic president, and sometimes have been summoned for counsel, comfort and advice by dazed Republican presidents. But the name of Rockefeller was once under such a public cloud that on a visit to the White House the younger Rockefeller was spirited in by a back entrance to talk to President William Howard Taft. 58
Yet these and other magnates of extreme wealth have been far from Strangers to the Democratic Party. Both the political parties have been supported--the Republican mainly by weightily propertied elements. The parties are opposite sides of the same coin. Instead of saying that the United States has a two-party system, it would be more nearly correct to say it has a dual-party system.
After the Civil War, with the plantation owners self-destroyed, the Democratic Party always attracted large propertied elements whenever it made strong bids to win national elections. The Cleveland Administrations were as close to Wall Street, manned by Wall Streeters, as any Republican Administration. William Jennings Bryan, although anathema to the Wall Street Establishment, was supported by western mining interests, for whom "free silver" was so much extra gravy. The Wilson Administration was as completely under the thumb of Wall Street as the subsequent Harding, Coolidge and Hoover Administrations. 59 John W. Davis, the Democratic candidate for president in 1924 was a Wall Street corporation lawyer.
In 1928 Al Smith had his chief backing, financial and emotional, from fellow-Catholic John J. Raskob, prime minister of the Du Ponts. If Smith had won he would have been far less a Catholic than a Du Pont president, although the religious question was what was pushed to the fore by a politically obtuse electorate. Hoover, the Republican, was a J. P. Morgan puppet; Smith, his democratic opponent, was in the pocket of the Du Ponts, for whom J. P. Morgan and Company was the banker. By 1936 Smith was a roaring Liberty Leaguer. The victory of either man put J. P. Morgan and the Du Pouts into the presidential driver's seat. W. Averell Harriman was one of the leading wealthy Republicans who crossed the line to the Democrats in 1928 and has been a Democrat, and a high government official, in all subsequent Democratic Administrations.
Under Franklin Delano Roosevelt, owing chiefly to troubled circumstances, for the first time it appeared that some of the magnates might be unwelcome at the White House. The wealthiest, especially the Du Ponts, opposed him bitterly, which meant that he was opposed by the banks and heavy industry. Those numerous wealthy persons who became staunch Rooseveltians were mainly of the second or third tier of wealth and nearly all in merchandising and light industry, immediately dependent upon the stagnating mass-consumption market. They were down-the-line New Dealers but not, as misconceived Republican propaganda had it, Socialists, Populists or even Welfare-Staters.
But owing to the disastrous Republican-fostered and Wall Street nurtured economic depression, which interrupted seventy-two years of unbroken rule by the magnates through either Republican or Democratic puppets, the Democratic Party became the inheritor of vast social problems informally created largely by Republican neglect. The big special problems in the United States always develop through neglect, in part because so many active and intelligent elements are permanently siphoned off into the chicaneries of the money-making process. If profitability cannot be shown for an activity, such as raising the cultural level and tending to the lame, the halt, the blind and the stricken, such activity is left to quixotic and somewhat suspect elements--quixotic at least by prevailing standards.
Not that the Democratic Party moved very far to the Left in coping with domestic disaster, as hostile propaganda has it; for the magnates had ready to their call almost the entire southern congressional delegation, which had been their ready tool ever since Reconstruction days in a deal that left the Negroes to the mercies of their former masters in return for giving southern Support to the Republican magnates in Congress. The southern wing of the Democratic Party, rooted in grass-roots ineptitude, was as much a political tool of big wealth as was the Republican Party.
Under the impact of the depression the Democratic Party became the national spokesman for the suddenly risen industrial city with all its problems. its mass base was urban. The mass base of the Republican Party had always been in the small towns and rural areas, close to the fly-blown cracker barrel, although its telltale inaction in the 1920's lost it the overexploited western farmers. But behind these disparate mass bases--city dwellers for the Democrats and country dwellers for the Republicans, with southern Democrat politicos spiritually in harmony with the Republicans, and western Republicans veering into the Democratic fold--there was at all times, in both parties, big wealth pulling the strings and arranging the scenes in its own succulent interests, a grotesque spectacle.
It simply so happened that the biggest wealth, shaped by policies since the Civil War, was Republican, and included the Rockefellers, Du Ponts, Mellons and Fords. The Democrats had with them, however, plenty of heavy money, committed to different handling of the domestic mess created by the Republicans.
Although Roosevelt and his New Deal became the hated devil of big wealth, which brought 85 per cent of the newspapers to bear against him through its control of corporate advertising, with the advent of war and the adoption of a bipartisan foreign policy it was Roosevelt who made the first overtures toward bringing the less fanatical Republicans into the government. He brought into his Cabinet, for example, Colonel Frank Knox, Republican vice presidential candidate of 1940; Henry L. Stimson, Hoover's secretary of state; E. R. Stettinius, Jr., of J. P. Morgan and Company; and James V. Forrestal of the investment banking house of Dillon Read and Company. He gave Nelson A. Rockefeller his first leg up in political office by making him Coordinator of Latin-American Affairs. With these and similar appointments Roosevelt made his third administration seem a Bar Harbor, Newport and Park Avenue affair. As FDR himself said, "the New Deal is out the window."
After two Republican Administrations from 1952 to 1960, gained by using a clearly apolitical war hero as a stalking horse, the country again went Democratic under John F. Kennedy, himself a wealthy heir although basically a political man from a political family. Kennedy, even with no war providing an excuse for a coalition, awarded his chief Cabinet posts to Republicans from the camp of big wealth. Douglas Dillon, Republican and very wealthy heir of the founder of Dillon Read and Company, Forrestal's old firm, was made Secretary of the Treasury. Robert S. McNamara, Republican president of the Ford Motor Company, was made Secretary of Defense. McGeorge Bundy, Republican, was made liaison man to the CIA. Dean Rusk, a Democrat, but president of the Rockefeller Foundation from 1952 to 1960, was made Secretary of State.
The basic government posts, in other words, went to men deep in the camp of big wealth. But those posts that required dealings with the hoi polloi in social contexts went to party men versed in the rhetoric of inspirational ambiguity.
Dillon resigned under Johnson and was replaced by Henry H. Fowler, a career Democrat; but most of the rest of the Kennedy team continued, with the distant goal a mirage: the Great Society. The laudable stated ends of this Great Society are the end of want and of inequalities of opportunity.
As Princeton University political sociologist Richard F. Hamilton remarks,
In an affluent society, a liberal, welfare-oriented party can go a long way toward satisfying the wishes of its followers. Rather than preside over a drawn-out struggle between the people and the interests, as if it were an either/or game, the new style is to give both what they want and pay for it out of the returns from a stable and rapidly growing economy. In essence this is the Galbraithian solution--not to struggle over the "take" but to increase its size. Thus, the typical new figure on the political scene is the liberal demagogue--one who can cater to the masses because he is willing to pay them off and can do so without depriving the interests of what they want. He can be for civil rights, for improved housing, for urban renewal, for a poverty program, and at the same time can vote against a reduction of the depletion allowance. The Great Society synthesis overcomes that age-old problem of liberal politics: how to reward the clientele. Before affluence, the result was a long, hard and usually indecisive fight with the interests or it was capitulation. The new liberal, however, does not have to fight or switch. 60
The attraction of the Great Society for the wealthy, however, is the new opportunities it creates for making money on huge government contracts. In the area of defense there is a huge tax-supported military establishment making constant highly profitable demands--up to 40 and 50 per cent profit--on industry for complex new weapons. In urban renewal there is the vast profitable enterprise, replete with windfalls, of rehabilitating the commercial heart of the big cities. In slum clearance and school buildings there are vast slushy construction projects of low quality in the offing. And in the antipoverty program itself there is vast roadbuilding, as in Appalachia (which needs few roads), as well as opportunities for the local political machines.
As Dr. Hamilton remarks, "Large numbers of entrepreneurial types have recently discovered that 'there's money in poverty.'"
We have, then, as he notes, now developed "liberals of convenience" as contrasted with "liberals of conviction," and staunch Republicanism is no longer to be taken for granted among the big wealthy, whatever their past history. For big wealth cannot afford to back political losers.
Everything about the Great Society as blueprinted spells lucrative contracts for someone. Hence the party of the Great Society now has special attractions for the wealthy that the Republican Party, fallen into the hands of dervishes of the cracker barrel, no longer has. The defections of the professional elite and leading mass media from the Republican cause in 1964, when a "true" Republican ran, clearly show the way the wind is blowing.
In point of fact, the Johnsonian Democratic Party is the new political rallying ground of big wealth, which is forced by circumstance suddenly to see some validity in the Democratic approach ("Me-Tooism"). The social programs of marginal rehabilitation and repair will go forward, but at a snug profit, provided the military can spare the money. And big wealth will continue to get its depletion allowances, tax cuts and big deduction writeoffs.
Lest we be carried away by the prospect of an early marriage of old-line Republicans with the Democratic Party we are reminded of difficulties by no less a personage than David Rockefeller, president of the mammoth Chase National Bank (1964 assets: $13 billion). Explaining in a television interview that he had "great admiration for the president [Johnson]," Mr. Rockefeller said he was nevertheless "disturbed by the Government's move in the aluminum price increase" that was rescinded after the government moved to sell stockpiled aluminum. In words that his grandfather would have unhesitatingly endorsed, the Chase bank chief said "the aluminum industry was the best judge of whether prices should go up" and added that he was "in disagreement with the attitude of Government that prices should be controlled."
The problem of inflation should be dealt with through "natural economic forces within the capitalist system," the Times said he observed, without specifying just what these natural forces were and to what extent they included greed, which is certainly a sturdy, old reliable natural force. An assumption in his position, as in that of the early classical economists, is that if something is natural it is acceptable, which tenet would make tuberculosis or cancer acceptable. A further assumption was that if someone intervenes in any process, as in regulating industry or practicing surgery, there is something "unnatural" and to be condemned about it. Actually, whatever any human being does--spit on the sidewalk, paint monstrosities on the walls, set fire to buildings, fornicate with lower animals, or regulate the actions of other people--is entirely natural. For if it weren't natural they couldn't do it. Mr. Rockefeller, like many others, reserves natural as a description of that of which he approves.
Said the Times report: "Mr. Rockefeller said the manner in which President Johnson handled the aluminum increase, even though he remained largely behind the scenes, was not appreciated by business [read. persons of wealth] anymore than President Kennedy's halting of a proposed steel increase." 61
But the reason Democratic presidents must be sympathetic toward the big wealthy at all times, short of allowing them to upset the new synthesis, is simple: All these people, even if Republican, carry great weight in American affairs because of their intimate hereditary involvement through professional subordinates in complex enterprises penetrating into every comer of society. They may no longer be self-made they may have been sired by trust, testament or codicil out of holding company, foundation and monopoly-but they are independent power wielders. They aren't average citizens. And this is a political fact, not likely to be overlooked by any serious politician.
Any criticism of Presidents Kennedy and Johnson for the nature of their top appointments should face up to this question: Where should they look for Cabinet officers? Kennedy and Johnson looked for them where Eisenhower looked for them, and where Roosevelt looked: in the large financial and industrial organizations. These organizations belong to the wealthy. They are part of their plantation, which in its broadest sweep is the market place itself.
Experts of greater if not complete independence of judgment are to be had, to be sure, from the leading universities, and Franklin D. Roosevelt and John F. Kennedy both drew heavily upon them for certain tasks. But scholars have neither the habit of command nor is their authority apt to be recognized by men practiced in the arts of expedient manipulation--Plato's men of the appetites. Any president has to look to the big enterprises, selecting competent men who are least compromised by egocentric self-service.
To be sure, it is not the quintet of Du Ponts, Rockefellers, Mellons, Fords and Pews that alone has supported the Republican Party in its struggles to protect and nourish big wealth and is now playing around the edges at least of the Democratic Party. They have had many collaborators among groups of lesser wealth, most of them strong Republicans in the past as now, even though some of them seem inclined to take fright as latter-day woozy fanatics come to the fore in the Republican Party.
When, as and if they become Democratic the Democratic Party will have to become more tractable along the lines David Rockefeller suggests; it will have to become more Republican. This not too difficult process may take place gradually and stealthily. But the power of money is such that it can easily come about.