Advertising, seen in this aspect, is obviously a vast booby trap, a legally
condoned
swindle for profit.
Lundberg - The-Rich-and-the-Super-Rich-by-Ferdinand-Lundberg
8 per cent over twenty-five as of 1960 had graduated from high school, with 7.
5 per cent finishing four years or more of college and 8.
8 attending college for one to three years, mostly one.
There is obviously a weak base here for general intelligent political action.
Statistically, the certified laggards outnumber the certified competents.
Recalling the figures on the distribution of intelligence, knowing that formal completion of schooling in a loose system is not always indicative of solid knowledge and good judgment, it is evident why the populace is not able to select, elect and retain representatives who will act in their broad interests.
The Brain Drain
Educational attainment in the United States, indeed, is generally so low that this complex industrial nation must now increasingly draw much of its highly skilled personnel from abroad, often attracting from needier nations their people of great skill. Just as the United States now processes far more of the raw materials of the world than any other country so it seems well over the threshold of attracting to its shores by offers of higher salaries and better professional facilities most of the brains of the world. The process has been called "the brain drain. " Immigration, once confined to the unskilled, now features the highly skilled.
According to Foreign Affairs on the subject of the "brain drain" to the United States, "the statistics that have been developed on the so-called 'brain drain' present a somber picture. According to one UNESCO report, 43,000 scientists and engineers emigrated to the United States between 1949 and 1961, 'many' of whom came from the less developed countries. Of the 11,200 immigrants from Argentina alone between 1951 and 1963, nearly half were technicians and professional people, 15 percent were high-level administrators and 38 percent skilled workers. In 1964-65, 28 percent of the internships and 26 percent of the residencies in U. S. hospitals were filled by foreign graduates--
nearly 11,000 in all--and 80 percent of the foreign interns and 70 percent of the foreign residents were from developing countries. The drain from Asian nations, particularly Taiwan and Korea, is the most serious: it is estimated that over 90 percent of the Asian students who come here to study never return home. " 26
Those who came to the United States as advanced students came under foreign assistance programs; but they remain to fill in gaps of higher personnel that are not filled by the native products of the American school system.
England, which itself drains the Commonwealth countries of talent, is alarmed at the drain of its own physicians, surgeons and scientists to the United States. It is losing physicians and surgeons in the proportion of one-fifth to one-third of the graduates of its medical schools each year, some of them intensively trained specialists. 27
While the official unemployment rate hovers a little below 4 per cent and the extreme poverty rate around 25 per cent, the Department of Labor has advised that there are three million high-level jobs more or less permanently vacant in the country--for engineers, scientists, technicians, statisticians, administrators, nurses, physicians, teachers and the like. Neither the populace nor the educational system seems able to supply fully the needs of a technologically advanced system, partly because of native incapacity, partly because of educational shortsightedness and parsimony and partly because of low-level communal goals set by half-literate local community leaders and politicos.
Corporations, universities and government agencies compete madly with each other for well-schooled personnel. Local communities flounder and sink because men of informed judgment have been drawn away to distant points of the compass, leaving local Chamber of Commerce mentalities in charge.
These figures, true enough, can be interpreted in various ways. It can be said that technology has advanced so fast that it has left much of the population behind, breathless, which is strictly true. It can also be said that the population and communal institutions have not been adequate to meet rising needs, which is equally true.
Just as the level of educational attainment is not sufficient to meet the general needs of the time so, it is my argument, the level of educational attainment is not sufficient to meet the political needs of the people in selecting political personnel devoted to the needs of the nation. One gets instead the well-known variety of peanut politician, mainly exemplified at or near the top in streamlined hicks like Lyndon B. Johnson, Everett Dirksen, Orville Faubus and George C. Wallace, to name only a few of the currently most obtrusive and obnoxious. 28
As politics is the realm productive of public policy, the troubles of the country trace back inevitably to politics. Here we find largely inadequate officeholders chosen by largely inadequate people on the basis of largely irrelevant criteria, always allowing for the fact that a minority of the officeholders and a minority of the people are fully adequate to their responsibilities.
The democratic system thus comes full circle and in the United States presents a parody of itself on the governmental level. 29 As a consequence the entire land is officially plunged into Madison Avenue nonsense. The system, it turns out, has been infiltrated and subverted by boobocrats.
While institutional inadequacy is involved it is (contrary to a long line of radicals, liberals and plain democrats) by no means the whole story. Although many Americans above age twenty-five are inadequately educated and schooled, nobody at all is twisting their arms to make them remain that way. The major cities are all heavily supplied with public night schools on every level from the primary grades to university postgraduate
levels and anybody may rectify his educational defects very readily, usually free of direct charge. Some do; most don't. Again, most of the major cities have excellent libraries, very lightly patronized.
Where the interests of the broad public he may be discerned on any weekend when they hit the roads in their cars. While this aimless driving about on superb highways may be cosmically innocent, like praying, it is not done by a populace seriously concerned about its destiny. It is done, in fact, by handicapped boobs.
The Market Place
What we have before us is an operative and a formal political-legal system. The latter, it should be perfectly understood, is quite well devised to respond in an orderly, systematic way to the collective will of the populace.
The operative system, the real system--control by corporation--subsidized politicians--quickly came into being and prevailed owing simply to the inability of the electorate to understand and use properly the system offered. This electorate consisted almost entirely of rustic Anglo-Saxon and Scotch-Irish hinds and, in the course of time, largely illiterate continental European immigrants.
With the spread of the popular franchise after 1830 the system decreasingly elevated characters like George Washington, John Adams, Thomas Jefferson and James Madison, the choices of an educated landed and mercantile enfranchised political elite, and instead pushed up from the soil confused Jacksons, Van Burens, Buchanans, Grants, McKinleys and more recently Hardings, Coolidges, Eisenhowers, Johnsons et al. The trend was even more marked on the lower levels and only exceptionally did men of genuine political grasp make their way upward. Many of this order simply did not make it and turned away from politics.
The operative system that came into being, then, was a reflex to popular rather than institutional inadequacy, an important distinction. It is the Marxist idea that all social evil is traceable to existing institutions. I deny this although I do not deny that existing institutions are often influences toward evil, especially as these institutions are distorted under usage. Beautiful parks are despoiled by ordinary people misusing them, not by their managers. 30
In glancing at the market place, it will be observed that what is chiefly criticizable about it is that much of it, as in "democratic" politics, represents a genuine adjustment to the low-level understanding and goals of much of its public, the customers. It is also true, however, that much of this market place simply ignores the customer, the public, and goes about blithely frying its fish in its own way, as in the establishment of monopoly arrangements. In many ways the market and its institutions, as it turns out, pointedly do not exist to serve the public; the public exists to serve the market, to facilitate its operation. 31
The American economist Thorstein Veblen developed the concept of economic surplus, most recently employed by the neo-Marxists Baran and Sweezy in computing it (for the first time) for 1929-63. It was Veblen's contention in The Theory of Business Enterprise and The Theory of the Leisure Class that much, perhaps most, of this surplus was wasted, purposely and conscientiously, so that it could not be used to improve institutions or the life of the people as a whole. The argument was: Capitalism establishes monopolies and uses advanced technology in order to increase surplus to a certain point and then wastes much or most of this surplus in order not to alter the necessary conditions for generating such surplus. Instead of operating to uplift and improve everybody and ameliorate the conditions of life, thus altering institutions, it
was held it operated to keep everybody right where he was, which meant that the rich became richer and the poor remained poor or meagerly sustained.
The economic surplus, specifically, is the difference between what a society produces and the cost of producing it. The larger the surplus the more a society has to dispose of in various ways of its theoretical choice.
As derived by Baran and Sweezy with the assistance of Joseph D. Phillips from orthodox official data, since 1929 the American surplus has ranged from a low of 40. 4 per cent of gross national product in 1934 to a high of 71. 6 per cent in 1943; it stood at 56. 1 per cent in 1963. It stood at 46. 9 per cent in 1929 and has shown a definite tendency to rise over the decades. As estimates are used even in some of the official government figures employed, there is room for error. But even if error went as high as 10 per cent, or even 15 per cent, either way, the computations would be broadly indicative.
The major components of the surplus for 1963, for example, were as follows: 32
Total property income
(Corporate and noncorporate income, rents,
interest, profit component of corporate
officers, etc. )
Waste in distribution (sales effort, trade
advertising, etc. )
Nontrade corporate advertising
$104,618,000,000
Surplus employees' compensation
(Finance, insurance, realty and legal services,
which last cost only $870 million)
Absorbed by government
Total surplus
Percentage of Gross National Product
168,008,000,000
$327,725,000,000
56. 1
The direct return to property, then (out of gross national product of $589. 2 billions- plus), amounted to more than 17 per cent, which accrued in all to not much more than 10 per cent of the populace by any reckoning and was concentrated most heavily in a thin upper level of this 10 per cent. With respect to the surplus itself, the take of property was nearly 30 per cent.
Waste in the Business Process
The components of waste in the business process shown in the Baran-Sweezy computation consist of expenditures for advertising, market research, expense-account entertaining, maintaining an excessive number of sales outlets, public relations and lobbying, salaries and bonuses of salesmen, maintenance of showy office buildings and business litigation. None of this adds anything to the value or utility of what is produced. 33
There would be an element of waste in any system, but the argument here is that the waste under capitalism is institutionally determined in order to maintain capitalism itself rather than a high quality of social life. It does no good to argue with a Moscow- oriented Marxist that there is as much or more waste and irrationality in the Soviet system, because the defensive answer here would be that the Russian system was not an outgrowth of capitalism, as Marx stipulated that socialism should be, but is an originally backward system that must pass through a capitalist phase of labor exploitation and the
29,749,000,000
7,700,000,000
17,650,000,000
like in order to establish an industrial base for socialism, which is something that will be ushered into being in due course. Those who believe this, in view of the rise of a Soviet vested political bureaucracy, must draw upon whatever credulity they possess. My own view with respect both to capitalism and to sovietism is: There is no Santa Claus. Under whichever system one has, workers, it seems, will work and administrators will administer, on terms more or less unequal in all cases unless administrators deliberately choose to play fair.
As to advertising, it is recognized by many economists of repute as an uneconomic aberration, introduced by corporations as a substitute for competitive pricing. The advertisements create the illusion of product differentiation among large varieties of essentially identical products. These essentially identical products are, it is true, differently styled and packaged but in most cases the "talking points" are irrelevant.
Economists agree that the ultimate consumer pays for the advertising which in turn defeats the ultimate consumer in his search for lower prices, maintains monopoly prices. The worst thing that can happen in the system, in the view of its managers, is price- cutting, which reduces surplus.
Continual advertising itself, by its overwhelming success, in some cases leads to a virtual monopoly of some products--for example, the Gillette among the wet-shave safety razors.
As the gilt-edged economist E. H. Chamberlin observed, "selling methods which play upon the buyer's susceptibilities, which use against him [my emphasis] laws of psychology with which he is unfamiliar and therefore against which he cannot defend himself, which frighten or flatter or disarm him--all of these have nothing to do with his knowledge. They are not informative; they are manipulative. They create a new scheme of wants by rearranging his motives. " 34
"Madison Avenue" has come in for a great deal of condemnation. It should be observed, however, that the irrational extravagances of advertising could not be employed if there were not a vast public unable to see through the transparently deceptive devices used. It is public response that sustains advertising.
It is not that the advertisements are false in general, although false advertisements, advancing direct claims that can be disproven, have been found in abundance by the Federal Trade Commission. But, even though not false, the advertisements are almost invariably grossly misleading. They are vague, ambiguous, irrelevant and often absolutely nonsensical. By freely using improper techniques, advertising effectively subverts the work of the schools in teaching the proper uses of language and clarity in thinking. The multitudes of handicapped are intellectually defenseless when they come to advertising, and the process of absorbing the nonsense of the free-ranging advertisers intensifies their intellectual handicap. Many people talk and think about the world the way Madison Avenue has vividly but zanily taught them. 35
The logic of Madison Avenue is to employ language and pictures irrationally with a rational view to selling price-fixed goods and making money. It is able to do this because it carefully exploits human weakness--suggestibility and ignorance. In saying this, nothing is said about products or their quality--another story.
Reinvestment of Surplus
Whatever property owners do not consume or allocate to various self-serving nonprofit purposes they reinvest. Such reinvestment may be in already established areas or in new areas: new industries or foreign lands. Precisely what the propertied element consumes cannot be directly computed. Small property holders probably consume most
of their income. In the case of large property holders, income cannot be consumed without resorting to colossal extravagances such as the maintenance of six large homes.
What is left for consumption and personal reinvestment one may obtain some glimpse of by taking account what is reinvested by corporations. In 1962, as Baran and Sweezy show, expenditures of surplus by nonfinancial corporations for research and development totaled $12 billion and for outlays on plant and equipment $32 billion, of which a fantastic 81. 9 per cent was greedily charged as depreciation. Since 1953 the totals for research and development, plant outlays and abnormally exaggerated depreciation had climbed steadily and phenomenally. There was, thus, $48 billion reinvested out of total property income for the year of $99. 2 billion, or nearly half.
There was, furthermore, the item of foreign investment, possibly not more than half of which represented actual flow of capital from the United States. The total of direct foreign investments increased from $11. 8 billion in 1950 to $40. 6 billion in 1963, an increase of $28. 8 billion, according to official figures. Between 1950 and 1956 such investment each year ranged from half to three-quarters billion but thereafter in each year has usually far exceeded $1 billion and in 1957 exceeded $2 billion. It therefore seems safe to say that on the average at least half of property income is usually reinvested, with the proportions of what is reinvested increasing as one moves up the scale of property holders in point of individual magnitude. In general, the invested position of the propertied is steadily improving. Foreign investment is far more lucrative than domestic and the quest for foreign markets is what enables American industry to bypass in so many ways its own population.
Some of the approximate $50 billion that was left over may also have been reinvested as new personal investments. In any event, the property owners in that year had some $50 billion of unearned income at their personal disposition, roughly equivalent to the sum absorbed by the armed forces.
Yet, as Baran and Sweezy remark, the monopoly system tends to work at cross purposes with itself.
It tends to generate ever more surplus, yet it fails to provide the consumption and investment outlets required for the absorption of a rising surplus and hence for the smooth working of the system. Since surplus which cannot be absorbed will not be produced, it follows that the normal state of the monopoly capitalist economy is stagnation. With a given stock of capital and a given cost and price structure, the system's operating rate cannot rise above the point at which the amount of surplus produced can find the necessary outlets. And this means chronic underutilization of available human and material resources. Or, to put the point in slightly different terms, the system must operate at a point low enough on its profitability schedule not to generate more surplus than can be absorbed. 36
Compensation for surplus or intermediary employees, as Baran and Sweezy admit, would exist in any system; but it is their argument, for which they cite good reasons, that under the American system much of it is excessive and wasteful. The intermediation of brokers and agents adds nothing to the value of products. A real estate or stock broker, for example, may mediate the sale of the same property many times a year, drawing a commission each time. Nothing new has been added.
Government Absorption of Surplus
The largest absorption of the surplus of the highly productive American system, however, takes place through government. Here, as official data show, absorption of surplus has risen steadily from $10. 2 billion in 1929 to the level of $168 billion in 1963. Here is the statistical basis for the cry of statism against the welfare-warfare-subsidy
state. From 1929 to 1961 government spending steadily rose from 9. 8 per cent to 28. 8 per cent of gross national product. 37
It is common knowledge that some of government expenditure by anybody's standards represents waste, expenditure for socially unnecessary ends. The common notion of the congressional "pork barrel," with respect to which congressmen trade votes in order to get unnecessary expensive projects for their districts, supports the notion. The local folks are pleased but are postoffices in the form of Greek temples and colonial mansions necessary? Are various airfields and army posts necessary? Governmental absorption and spending of surplus, however, whether wasteful or not, "pumps" money back into the economy. The government, thus--local, state and federal--is the biggest customer in the marketplace and, if it considerably reduced or withdrew its patronage, the so-called private enterprise economic system would almost instantly collapse. By running Keynesian deficits it can push the economy ahead. By curtailing expenditures it can depress the whole structure.
Despite the outcries against statism, it has been mainly for the military establishment that government demands on the economy have been made. Whereas in 1929 less than 1 per cent of gross national product was devoted to military purposes, by 1957 it had risen to more than 10 per cent and accounted for approximately two-thirds of the aggregate expansion of all government spending. Government spending, then, is largely military spending.
Which government expenditures are socially necessary or sustaining and which are waste of surplus? We know already there is some waste, by common agreement; the question is only to determine how much there is, a difficult if not impossible task.
Whereas nondefense or civilian expenditures by government increased only from 7. 5 per cent of gross national product in 1929 to 9. 2 per cent in 1957, the military proportion increased by fifteen times. Transfer payments increased from 1. 6 per cent to 5. 9 per cent, less than four times. 38 Transfer payments comprise interest on government debt, subsidies minus surpluses of government enterprises, veterans' allowances, old- age pensions, unemployment benefits and the like.
Although some argue that military spending is not a prop to the economy and contend despite the 1930's that there would not be a depression if military spending were reduced (because with the reduction in military expenses there would presumably be a corresponding reduction in taxes and a compensating rise in private spending or in redundant investment), it seems inescapable that no scattered private spending or investment could replace the massive concentrated military effort which currently takes more than three million men out of the labor force and makes an effective demand for more than 10 per cent of the production of the labor force.
Instead of military spending, others argue, there could be an increase in socially necessary civilian spending as for hospitals, schools, sanatoria, playgrounds, health resorts, community centers, galleries, museums, lecture halls, libraries, public housing and the like. While such creations would indeed absorb surplus at as great a rate as one liked they would, clearly, be "socialistic. " Such a civilian creation by government would in many directions, as in housing, medicine and other areas, conflict with profit enterprises and by supplying libraries, museums, lecture halls, playgrounds and the like would provide alternate uses for the free time of people, to the possible detriment of profit enterprises like TV, movies, automobiles and so on. All this is precisely what is not wanted by the vested interests who exert decisive political leverage. But if there were effective political leadership, overswollen military budgets could be trimmed for these domestic purposes.
Merely to staff a great expansion in such socially useful facilities would require the diversion of much upper-level personnel from profit-making enterprises.
Some percentage of the military establishment, by the testimony of all schools of thought, represents waste. Some of it is necessary waste, arising from unavoidable circumstances; some is avoidable waste. There are, again, those who would argue that, humanly speaking, it is all waste; we need not follow this line of thought in a highly imperfect world. Owing to continual technological advance, moreover, there is rapid obsolescence of much military equipment in a situation where it is felt, hysterically, that the nation must be prepared at any moment for a maximum military effort to save its very life.
Large portions of civilian outlay by government can also readily be interpreted as waste. The federal roadbuilding program, as indicated in Note 28, supra, is considered (I think rightly) a huge example of compounding social waste by Baran and Sweezy, who also interpret slum clearance as in good part a waste of public money. This last item of waste comes about in this way: Instead of utilizing low-cost open spaces, readily available, the slum-clearing programs buy up deteriorated properties at good prices to the owners and then supply contractor-promoters with huge sums and excessive tax rebates to construct new buildings that rent at such prices as to bar slum dwellers. Slum clearance thus becomes indirectly subsidized luxury building, a delight to politicians, many of them participants in the building syndicates.
Government expenditures for schools and hospitals, health and sanitary measures (water supply, sewage and garbage removal), conservation and recreation, housing and facilitation of commerce, police and fire protection, courts and prisons, legislatures and administrative offices are conceded by these writers to be socially necessary. Presumably they would agree that libraries, post offices, government printing and the maintenance of rivers and harbors are in the same category. But, as they point out, there has been little expansion of such services relative to the expansion of gross national product. Most expansion of governmental spending and allocation of funds has been in areas that are more or less, or entirely, socially and economically wasteful or rationally questionable.
Thus, while socially necessary services are skimped and held down with cries for "economy in government," the sluice gates are wide open for the military in repelling a Leninist communism held to be lapping at distant shores and in underwriting schemes of roadbuilding and urban renewal that not only facilitate huge profit-making enterprises but undermine those that are socially more efficient such as railroads.
In general, what Baran and Sweezy say here is true. The stake of property is steadily being increased under the camouflage of high depreciation write-offs. Persuasive advertising is wasteful and exploitative of credulity, a substitute for genuine competition. More surplus employees are utilized than is socially necessary, although not more than this kind of system requires. Much of what the government spends is indeed wasteful in various degrees and from various points of view and much of it, as in the approach to housing and the automobile complex, is positively harmful. In this last category we have, not merely social waste for profit, but positive, certifiable social harm for profit. Beyond the harm produced by the approaches of public policy to urban housing and the automobile complex there is the harm induced by misallocation of resources, as in military overspending for Over-Kill.
The prime virtue of capitalism in theory is that it provides a mechanism--the ostensible free market--for meeting the effective varied demands of people at the best prices. What happens, however, when people are deviously induced to make an effective demand for something they do not need (automobiles instead of houses) or
something that will not meet some need (chewing gum instead of psychotherapy) is not embraced in the theory. People must know their need and how to satisfy it. Again, if the market is under monopoly, people cannot make effective demand at the best possible prices even for things they do not need--things that do not cater to necessity, convenience or comfort. Ideas of spurious need are inculcated by playing upon latent fears, such as that other people will ostracize them if they do not use deodorants and a long line of other products.
Advertising, seen in this aspect, is obviously a vast booby trap, a legally condoned swindle for profit. 39
Quality in the Consumer Economy
As to the quality of goods in the Consumer Economy, where consumption in and of itself is regarded by many public men as the remedy for all ills, there is a wide range. In order to appeal to the impecunious, much of what is offered is sleazy, saturated with built-in obsolescence. The case made by Ralph Nader about the Detroit automobile could in general be applied to many products, although in the automobile it was more serious than usual owing to the immediate life-and-death aspect. 40
In order that at least the more literate portions of the middle classes may pick their way about among a large variety of substandard, overpriced and absolutely unnecessary products that cater at most to free-floating anxiety and suppressed restiveness, there have emerged successful private enterprises such as Consumer's Union and Consumer's Research. By means of regular reports these organizations, and others, advise subscribers of the results of product analysis and price comparison.
Strong in the production of capital goods (generally machinery designed for further production), the American productive system in the line of consumer offerings is about as uneven as the American school system. The main consideration all along the line is admittedly the rate of profit. Producers, it must be conceded, are entitled to fair returns for effort, but the object of business enterprise in general and of the American business system in all its parts is to obtain maximum possible return without regard for quality or social necessity, comfort or convenience. Do-nothing products, economic placebos, are quite common. Under the rubric of glorious freedom, if they make a big profit through misleading advertising as in the case of deodorants, they are justified. The vendor has given the customer what he has been frightened or cajoled into wanting and has given employment perhaps to thousands who are raising children to grow into another army of worker-consumers making null or below-par products--all, however, for somebody's profit.
Many products in the market, especially in pharmaceuticals and foods, are repeatedly found in government laboratories to be positively harmful. This is a long story in itself.
Just how little fear of authority producers feel under the skull-and-crossbones of freedom we learn from Admiral Hyman G. Rickover, of the Bureau of Ships of the Navy and known as "The Father of the Atomic Submarine," a really competent man. Rickover announced that work on many atomic submarines was being delayed because parts, upon which performance depended, were being delivered that did not follow specifications. He cited "the inability of American industry to meet the exacting demands for quality and reliability posed by modem technology. " and charged that industrialists did not know what went on in their plants, which were left to administrators chiefly interested in getting more contracts. The National Aeronautics and Space Administration at the same time voiced similar complaints, which it later smothered in a tribute to the cooperation of industry. Rickover not only held to his position but has many times made it known in the same terms. 41 The deaths of three astronauts were ascribed to poor equipment.
Not all officials react disagreeably to treating the government as though it was a rank- and-file customer. The political authorities of Massachusetts, for example, accepted the Massachusetts Turnpike as constructed. Soon after completion the road was already crumbling over long stretches and was being extensively rebuilt. As one who has driven over this road many times and experienced its undulations, seen it pitted with holes and watched repair crews at work over its entire length, I can personally testify to its generally poor condition, especially as contrasted with the New York State Thruway, with which it connects. As soon as one travels on to the New York State road from the Massachusetts road one is aware of a dramatic transition from uncertainty and hazard to a well-engineered, well-built road. The ancient Romans built roads that are still used for heavy-duty purposes.
A very wide range of consumer goods conforms more to the standards of the Massachusetts Turnpike than to the New York State Thruway, all produced under the pressing motivation of a quest for maximum profits. Cheap goods, perhaps not paradoxically, are often socially expensive goods.
Institutions or People
'The full-blown Marxist will have no difficulty putting his finger on the difficulty. He will say it is capitalism, or monopoly capitalism. With this convenient analytical abstraction, I do not agree.
Capitalist institutions, being oriented toward private profit in return for the commitment of private capital, no doubt facilitate and reinforce inherent selfish drives in the acquisitive-minded, encourage corner-cutting. It is part of self-serving capitalist theory that the driving self-interest of the entrepreneur indirectly serves society, with an invisible hand conferring benefits out of the process. Up to a point this may be true, or it may once under competitive conditions have come nearer the truth than it is under monopoly conditions. But as the screws are rationally tightened to generate more and more profits, more and more surplus, the gains in the productive sector of the economy are increasingly made at the expense of the consuming sector. And social welfare lies at least as much as or more in the consuming sector than in the producing sector. Production is merely the means, consumption the end. In dominant American thinking, this order is reversed, Again, much of what is termed capitalism has been simple illegality, outside the system.
If the general public were as rational as the producers and had at its fingertips as much knowledge and insight, and ability to apply knowledge and insight, all would perhaps be well. But a very large section of the public, a majority, is woefully handicapped through the possession of insufficient rationality, knowledge and insight. Its members are as amateur participants in a card game with experts. Not only are the politico-economic adversaries of the broad public highly expert but they are what is known among card players as sharpers, prone to violate the rules. These sharpers play a cooperative game with marked cards. Not only this but to some extent they are mind readers. Armed with a knowledge of psychological laws and backed up by computer technology, the large- scale entrepreneur knows in advance what plays the amateurs in elections and markets are bound to make. The amateurs, in fact, are inherently restricted in the plays they are able to make in their own defense. Even if they were pantologists they would not be able to make better choices than a mass-oriented monopoly market and complex political system offer.
In the selection and purchase of goods and services, the disorganized public is led in some cases by necessity, in others by the quest for convenience and comfort and, at times, by the attraction of dispensable diversion and luxury. Beyond these ends it may, too, as advertisers well realize, be led by the prospect of purely imaginary and illusory
advantages, as that ladies will become intensely amorous at the sight of men who use certain pomades.
By Way of Summation
The cleverness of the rich, as I see it, has consisted largely of the fact that the acquisitors among them have been able to operate practically unhindered by law among multitudes of thoroughly confused people, who are readily victimized in politics and economics. The victims have at all times been left externally free to choose in their own way. The rich, whether they knew it or not, could always have been fortified in the thought that the handicapped will usually make the wrong choices under the rule of external freedom.
Approached from the standpoint either of IQ or formal education, far more than half the population has not had the knowledge, intelligence or ability to make choices in its own interests. It has merely drifted with the tide, trusting to its feelings, while others gathered in the hay. Nobody in most instances twisted the arms of this population to make it perform as it did in the polling booth and the market; on the other hand, rescue parties have been few and have not been understood as such by the victims, who regarded saviors such as Mrs. Sanger as enemies. A whole line of would-be saviors, including socialists such as Norman Thomas, have been rotten-egged for taking the trouble to make known their panaceas to this same population. Left and right, radicals, reformers, liberals and labor organizers have been bustled off to jails, not usually by capitalists or even by capitalist agents, but by the local rank and file of victims and their duly elected officers.
Underlying the low IQs and faulty education have been deliberately contrived cultural deprivation as in the case of Negroes and spontaneous, self-induced cultural deprivation as in the case of rural and small-town Protestants and urban Catholics. These, it is evident, have been self-designated victims in a game with rules the rank-and-file did not understand.
What is evidently the case is that a large section of the population is dependent- emotionally, intellectually, economically and politically--and is unable inherently or by conditioning to function in its own behalf under free institutions. A large section of the population, indeed, if it is to be properly served, should be regarded as public wards, ethically subject to rather close highly informed benign guidance in making life dispositions. No doubt much of this dependency arises from its conditioning, from its unreasonably inculcated faith that provision will be made for it, if not by man then by some remote deity. Perhaps a socialist sector of society should be established for it, perhaps true socialism itself is the ultimate answer.
As to socialism as the answer to social ills: I have never been a socialist simply because socialism has seemed to be a dispensation out of practical reach. As shown by the nonindustrial countries where it has been forced by revolutionary means, installed at a time of total social collapse, it can hardly be attained by force. The consequence is simple totalitarianism, with heavyhanded politicians in the saddle. Nor, as is evident from public indifference to it in the face of persuasive argument by a long line of intelligent men from G. B. Shaw to Bertrand Russell, can it be attained by persuasion. Socialism, which long antedates Karl Marx, who merely gave a distinctive romantic turn to the way of attaining it, is in fact an aristocratic doctrine, originated by a French count-Claude Henri de Rouvroy de Saint-Simon (1760-1825), who fought in the American revolution and was imprisoned during the French revolution. Like socialists in general, aristocrats were disdainful of men of business, who believed in turning everything, including all of society, into a profit-making scheme. As Veblen said, "Men whose aim is not an increase in possessions do not go into business. " 42
Not only is the profit-seeking way of the businessman distasteful to aristocrats, who long looked down on "people in trade," but it has been looked at askance by professionals from time immemorial. To the ancient Greeks, Hermes was not only the god of commerce but also of cunning and theft. While traders have perhaps been more influential than any other group in the diffusion of culture-more than the philosopher, theologian or writer--their influence here was no more than an unconscious byproduct of their intrusions into all corners of the world.
It was basically the existence of this sort of trusting, optimistic, dependent, happy-go- lucky population that made it possible within a single generation for the wealth of the nation to find its way into hands almost as few as in some of the long-established older countries. The cleverness of the American rich comes down to the fact that acquisitors found themselves, like delirious foxes in a chicken farm, turned loose among so many unprotected suckers and boobs--the handicapped. From this situation sprang the rule, the overriding operating principle of American society: Never give a sucker an even break.
The result was not brought about by capitalism, as the socialists claim, for such an abstraction has no power to do anything whatever. It was brought about by individual capitalists--that is to say, it was brought about by people seeking wealth, using convenient institutions, ideologies and strategies, versus less adroit people.
Human life, in truth, is less an affair of institutions and systems than of people and an interplay of motivations and abilities.
What I have said in this chapter, it is evident, reflects on the sagacity of most of the public, the darling of the democratic ideologue, who replaced God with "The People" as an object of veneration and faith. Any critical evaluation of the public usually is rejected as, somehow, unacceptable in the light of democratic dogma. 43
The objective role of the democratic ideologue is precisely as follows: Out of his own inner need to see humanity liberated from the rule of others be preaches his ideology. Into the network of institutions and policies thereby generated steps the economic entrepreneur and the politician, who convert democratic institutions into something of vast profit-to themselves. It is time, by now, to see that most people are not capable of wielding this instrument of democracy in their own interests. They do not know by what standards to select representatives who will secure the popular interest. Perhaps, even, they do not care.
Fourteen
FINPOLITAN FRONTIERS
As the management of properties is considered by apologists to represent in itself a great social contribution (which may in some muted degree indeed be so), in this chapter there will be passingly considered this aspect--even though the management of personal holdings can hardly be considered a clearcut public contribution. At best it would be an ambiguous one. Just because a man runs his plantation well provides no ground in itself for immoderate public rejoicing (as public relations men insist), however much we may admire his adroitness and democratic bearing.
As to corporations, most of the big ones are run well. They are models of self- centered efficiency and rational planning. In some cases they are managed by dominant owners, in others by well-paid hired managers acting for dominant owners. But while laudable efficiency and rational planning--in their own self-oriented interests--mark the large corporations, the dominant public ideology sponsored by the leaders of these very corporations is that there should be no public planning. Planning is a wicked word when engaged in by government, for it allegedly leads to "statism," by definition a bad thing. But corporate planning for maximum profits is virtuous. The consequence is that only corporate policy is rational, in the interests of the corporation, and helter-skelter public policy is helpless to defend itself against the corporations. Such being the case it can only be incidentally that the well-managed corporation is publicly supportive; often it is discovered as overtly anti-social. Merely managing a corporation well, then, does not represent a social contribution. Such action may represent carefully contrived piracy. We can, therefore, forget about corporate management as ipso facto a social contribution even though it may be in some instances.
The Rockefeller Empire
The Rockefeller empire of contrapuntal profit and nonprofit enterprises is here taken, purely for illustrative purposes, as the central and conventionally most creditable of such ostensible contributions, with allusion later to lesser similar finpolitan complexes. Currently this empire is an international network of industrial, financial, cultural and political activities that for variety, quantity and quality put everything of a similar kind in the shade. The present third generation of ruling Rockefellers--five sons and a daughter of John D. , Jr. , without considering the independent branch of the founder's brother, William-has at its fingertips what is the quintessence of many great fiefdoms, worthy to be included in a modern Arabian Nights tale. All of it is bone and muscle, none either of fat or meagerness. It is not only quantitatively but qualitatively rich, like a Christmas fruit-nut-brandy cake.
The reigning Rockefeller brothers are John D. III (b. 1906), Nelson Aldrich (b. 1908), Laurance S. (b. 1910), Winthrop (b. 1912) and David (b. 1915). They have a sister, Mrs. Abby Mauze? , who figures in the giltedged sextette, according to reports by family friends, pretty much as a silent partner. All appear to be of good intelligence, not the least of their assets, although actually the intelligence at their disposal--the pooled family intelligence deriving from long experience with a mercurial world plus that of their large professional advisory and research staffs--greatly exceeds their personal intelligence, Like the ruler of a great state they have far more relevant information at their ready disposition than they carry with them in their own heads. As far as the contemporary world is concerned, they are thoroughly informed. They can, in fact, out- think most contemporaries.
The fourth, and even fifth, generation is being readied in the wings. At this writing there are twenty-three living members of the fourth generation. John D. III has one son and three daughters, Nelson four living sons and two daughters, Laurance one son and three daughters, Winthrop one son, David two sons and four daughters and Abby two children. Some of these offspring are now married and themselves have children of the fifth Rockefeller generation, members of an established world dynasty.
In Their Own Eyes
The self-image of the Rockefellers is quite different from that which a detached observer might arrive at, although it is a conception that many people now share through the power of public relations. "The boys' father," says Joe Alex Morris, "had been brought up with the feeling, which his mother emphasized, that the family's money belonged to God and that he was to be merely a steward. He impressed something of
this idea on his sons. . . . " 1 They are, then, stewards of wealth. In this case the laudably humble role carries with it vast emoluments, privileges, immunities and intangible advantages and disadvantages.
Discussing foreign trade after World War II, Nelson remarked: 'In the last century capital went where it could make the greatest profit. In this century, it must go where it can render the greatest service. " 2 Noble words. . . .
Again, speaking of the financing of various enterprises in Latin America, Nelson said: "We're really setting up pilot plants. Our way of life is confronted with a lot of big problems that have to be solved. We hope that our pilot plant operations will demonstrate some of the things that American enterprise can do to help solve these problems that are vital to our everyday life and to our position in world affairs. Because we've got to master such problems if our system is going to survive. " 3 Survival of "our system," then, is a matter of concern.
The Rockefellers, then, look upon themselves as stewards rendering service and helping solve big world problems in harmony with "our system. " They are, in fact, problem solvers, within limits imposed by mass irrationality.
The Economic Base
"Any real clues as to the wealth of the brothers," says Fortune, "have been vigilantly guarded since their birth. None of the terms of the trusts established for them by their father has ever been revealed, and even the names of the trustees are known only to the family and a few key advisers. The great concentration of the brothers' wealth is in oil companies like Jersey Standard, Creole, and Socony-Vacuum, but the precise amount is still their secret since the holdings are not big enough for mandatory disclosure to the SEC. " 4 Glimpses of some of the trust funds, however, were obtained from TNEC records as cited in Chapter Four. As the SEC does not require the reporting of stockholdings of less than 10 per cent in a company unless held by an officer, the six Rockefellers, none of whom is a Standard Oil officer or director, could (but certainly do not) own up to nearly 60 per cent of the stock of each of the many Standard Oil companies without the fact appearing on the public record.
"Though these circumstances make appraisal inordinately difficult, appraisal is essential to an understanding of the material source of the brothers' power--their wealth," Fortune continued. "Their personal fortunes are estimated at upwards of $100 million each [as of pre-boom 1955 and prior to their father's death--F. L. ]; the money is mostly tied up in trust funds, yielding them individual incomes of probably $5 million a year before taxes, but leaving control to trustees. Roughly $7 million is given away each year to standard charities, or in gifts such as Laurance's recent offer of one-half the island of St. John for a national park in the Virgin Islands. Apart from the, trusts, they have an asset of roughly $150 million in Rockefeller Center [an understatement, clearly, for the Empire State Building alone recently sold for $100 million--F. L. ]; some $15 million is put out as U. S. venture capital; $12 million has gone into Latin-American enterprises such as dairies, supermarkets, fisheries, hog farms. At a minimum, then, the brothers are probably worth over $500 million. Even in 1955 dollars, this does not compare too badly with the 1913 fortune of $900 million-considering that the holdings of their father, their sister, and other Rockefeller kin are not included in the $500 million, considering all that has been given away, and finally, considering taxes. " 5
Since the death of John D. Rockefeller, Jr. , in 1960, the center of financial gravity has moved, manifestly, to the brothers. And inheritance taxes have not whittled down the original Standard Oil fortune by much because the original John D. transferred most of it to his son (and daughters) by gift, himself dying comparatively stripped of wealth, and the son in turn transferred at least half of it by bits and pieces to his children, thus
incurring only gift taxes. As some was transferred in the 1930's at depression prices, some no doubt nontaxable at birth, possibly by the grandfather as well as the father, the gift taxes on highly elastic, dynamic properties were minimal. Morris says. "With the third generation, the family's accumulated wealth is being dissipated on a great descending curve by taxes, philanthropies and division among the heirs. . . . " 6
Now, whatever else one may say, one cannot rightly say the Rockefeller fortune is in any way being dissipated; it is, apart from that portion undeniably dedicated to public purposes, only being subdivided as to direct beneficiaries but held together in concentrated form in properties. One can dismiss the so-called tax bite out of hand. Owing to its trustification the fortune left in private bands is intact, and a potent influence.
Precisely how much has been paid in inheritance taxes, even while many publicists erroneously assert that taxes are breaking down big estates, can easily be shown. John D. Rockefeller's estate after death in 1937 totaled $26,410,837, of which $16,630,000 was paid in federal and state taxes. 7 His son's estate totaled approximately $150 million, of which half went to the Rockefeller Brothers Fund and half to his wife. The first half was nontaxable as a philanthropic contribution and the second half was nontaxable under the marital deduction of the tax law, a spouse receiving tax free under 1947 law half of any estate above the basic deduction of $60,000. 8 There was some small real and personal property in the estate of the junior Rockefeller, and any of it that was not given to institutions would be subject to a minor tax, tax experts pointed out.
We see, then, that the Rockefeller fortune, estimated at $900 million in 1913, has to this date not paid much more than $16,630,000 in inheritance taxes.
Leaving it at this would be misleading because the 1913 dollar has depreciated by approximately 70 per cent to the Johnson dollar of August, 1966. In terms of the value of current dollars, as measured by the Bureau of Labor Statistics indexes of the cost of living, Rockefeller's fortune as of 1913 was worth approximately $3 billion, exclusive of what he had put into foundations before 1913. A man today would need to make $100 per week to equal in purchasing power $30 per week in 1913, when, moreover, he was not subject to a federal tax bite. Put another way, what cost 30 cents on the average in 1913 now costs $1, taxes sometimes added.
Fraternal Investments
The brothers' investments, apart from trust funds of which the capital is distributable only to their grandchildren (an example of serial entailment if the grandchildren replace the trusts with new trusts according to standard estate doctrine) are held through Rockefeller Brothers, Inc. There was also established by them in 1940 the Rockefeller Brothers Fund to finance nonprofit or philanthropic properties. 9
None of the brothers is actively associated with the management of any of the Standard Oil companies, although most, like their father, held minor jobs with some of them upon emerging from college and some have for a time been directors. All are directors of Rockefeller Brothers, Inc. , formed in 1946, and Rockefeller Center, Inc. , and trustees of the Rockefeller Brothers Fund.
The Brain Drain
Educational attainment in the United States, indeed, is generally so low that this complex industrial nation must now increasingly draw much of its highly skilled personnel from abroad, often attracting from needier nations their people of great skill. Just as the United States now processes far more of the raw materials of the world than any other country so it seems well over the threshold of attracting to its shores by offers of higher salaries and better professional facilities most of the brains of the world. The process has been called "the brain drain. " Immigration, once confined to the unskilled, now features the highly skilled.
According to Foreign Affairs on the subject of the "brain drain" to the United States, "the statistics that have been developed on the so-called 'brain drain' present a somber picture. According to one UNESCO report, 43,000 scientists and engineers emigrated to the United States between 1949 and 1961, 'many' of whom came from the less developed countries. Of the 11,200 immigrants from Argentina alone between 1951 and 1963, nearly half were technicians and professional people, 15 percent were high-level administrators and 38 percent skilled workers. In 1964-65, 28 percent of the internships and 26 percent of the residencies in U. S. hospitals were filled by foreign graduates--
nearly 11,000 in all--and 80 percent of the foreign interns and 70 percent of the foreign residents were from developing countries. The drain from Asian nations, particularly Taiwan and Korea, is the most serious: it is estimated that over 90 percent of the Asian students who come here to study never return home. " 26
Those who came to the United States as advanced students came under foreign assistance programs; but they remain to fill in gaps of higher personnel that are not filled by the native products of the American school system.
England, which itself drains the Commonwealth countries of talent, is alarmed at the drain of its own physicians, surgeons and scientists to the United States. It is losing physicians and surgeons in the proportion of one-fifth to one-third of the graduates of its medical schools each year, some of them intensively trained specialists. 27
While the official unemployment rate hovers a little below 4 per cent and the extreme poverty rate around 25 per cent, the Department of Labor has advised that there are three million high-level jobs more or less permanently vacant in the country--for engineers, scientists, technicians, statisticians, administrators, nurses, physicians, teachers and the like. Neither the populace nor the educational system seems able to supply fully the needs of a technologically advanced system, partly because of native incapacity, partly because of educational shortsightedness and parsimony and partly because of low-level communal goals set by half-literate local community leaders and politicos.
Corporations, universities and government agencies compete madly with each other for well-schooled personnel. Local communities flounder and sink because men of informed judgment have been drawn away to distant points of the compass, leaving local Chamber of Commerce mentalities in charge.
These figures, true enough, can be interpreted in various ways. It can be said that technology has advanced so fast that it has left much of the population behind, breathless, which is strictly true. It can also be said that the population and communal institutions have not been adequate to meet rising needs, which is equally true.
Just as the level of educational attainment is not sufficient to meet the general needs of the time so, it is my argument, the level of educational attainment is not sufficient to meet the political needs of the people in selecting political personnel devoted to the needs of the nation. One gets instead the well-known variety of peanut politician, mainly exemplified at or near the top in streamlined hicks like Lyndon B. Johnson, Everett Dirksen, Orville Faubus and George C. Wallace, to name only a few of the currently most obtrusive and obnoxious. 28
As politics is the realm productive of public policy, the troubles of the country trace back inevitably to politics. Here we find largely inadequate officeholders chosen by largely inadequate people on the basis of largely irrelevant criteria, always allowing for the fact that a minority of the officeholders and a minority of the people are fully adequate to their responsibilities.
The democratic system thus comes full circle and in the United States presents a parody of itself on the governmental level. 29 As a consequence the entire land is officially plunged into Madison Avenue nonsense. The system, it turns out, has been infiltrated and subverted by boobocrats.
While institutional inadequacy is involved it is (contrary to a long line of radicals, liberals and plain democrats) by no means the whole story. Although many Americans above age twenty-five are inadequately educated and schooled, nobody at all is twisting their arms to make them remain that way. The major cities are all heavily supplied with public night schools on every level from the primary grades to university postgraduate
levels and anybody may rectify his educational defects very readily, usually free of direct charge. Some do; most don't. Again, most of the major cities have excellent libraries, very lightly patronized.
Where the interests of the broad public he may be discerned on any weekend when they hit the roads in their cars. While this aimless driving about on superb highways may be cosmically innocent, like praying, it is not done by a populace seriously concerned about its destiny. It is done, in fact, by handicapped boobs.
The Market Place
What we have before us is an operative and a formal political-legal system. The latter, it should be perfectly understood, is quite well devised to respond in an orderly, systematic way to the collective will of the populace.
The operative system, the real system--control by corporation--subsidized politicians--quickly came into being and prevailed owing simply to the inability of the electorate to understand and use properly the system offered. This electorate consisted almost entirely of rustic Anglo-Saxon and Scotch-Irish hinds and, in the course of time, largely illiterate continental European immigrants.
With the spread of the popular franchise after 1830 the system decreasingly elevated characters like George Washington, John Adams, Thomas Jefferson and James Madison, the choices of an educated landed and mercantile enfranchised political elite, and instead pushed up from the soil confused Jacksons, Van Burens, Buchanans, Grants, McKinleys and more recently Hardings, Coolidges, Eisenhowers, Johnsons et al. The trend was even more marked on the lower levels and only exceptionally did men of genuine political grasp make their way upward. Many of this order simply did not make it and turned away from politics.
The operative system that came into being, then, was a reflex to popular rather than institutional inadequacy, an important distinction. It is the Marxist idea that all social evil is traceable to existing institutions. I deny this although I do not deny that existing institutions are often influences toward evil, especially as these institutions are distorted under usage. Beautiful parks are despoiled by ordinary people misusing them, not by their managers. 30
In glancing at the market place, it will be observed that what is chiefly criticizable about it is that much of it, as in "democratic" politics, represents a genuine adjustment to the low-level understanding and goals of much of its public, the customers. It is also true, however, that much of this market place simply ignores the customer, the public, and goes about blithely frying its fish in its own way, as in the establishment of monopoly arrangements. In many ways the market and its institutions, as it turns out, pointedly do not exist to serve the public; the public exists to serve the market, to facilitate its operation. 31
The American economist Thorstein Veblen developed the concept of economic surplus, most recently employed by the neo-Marxists Baran and Sweezy in computing it (for the first time) for 1929-63. It was Veblen's contention in The Theory of Business Enterprise and The Theory of the Leisure Class that much, perhaps most, of this surplus was wasted, purposely and conscientiously, so that it could not be used to improve institutions or the life of the people as a whole. The argument was: Capitalism establishes monopolies and uses advanced technology in order to increase surplus to a certain point and then wastes much or most of this surplus in order not to alter the necessary conditions for generating such surplus. Instead of operating to uplift and improve everybody and ameliorate the conditions of life, thus altering institutions, it
was held it operated to keep everybody right where he was, which meant that the rich became richer and the poor remained poor or meagerly sustained.
The economic surplus, specifically, is the difference between what a society produces and the cost of producing it. The larger the surplus the more a society has to dispose of in various ways of its theoretical choice.
As derived by Baran and Sweezy with the assistance of Joseph D. Phillips from orthodox official data, since 1929 the American surplus has ranged from a low of 40. 4 per cent of gross national product in 1934 to a high of 71. 6 per cent in 1943; it stood at 56. 1 per cent in 1963. It stood at 46. 9 per cent in 1929 and has shown a definite tendency to rise over the decades. As estimates are used even in some of the official government figures employed, there is room for error. But even if error went as high as 10 per cent, or even 15 per cent, either way, the computations would be broadly indicative.
The major components of the surplus for 1963, for example, were as follows: 32
Total property income
(Corporate and noncorporate income, rents,
interest, profit component of corporate
officers, etc. )
Waste in distribution (sales effort, trade
advertising, etc. )
Nontrade corporate advertising
$104,618,000,000
Surplus employees' compensation
(Finance, insurance, realty and legal services,
which last cost only $870 million)
Absorbed by government
Total surplus
Percentage of Gross National Product
168,008,000,000
$327,725,000,000
56. 1
The direct return to property, then (out of gross national product of $589. 2 billions- plus), amounted to more than 17 per cent, which accrued in all to not much more than 10 per cent of the populace by any reckoning and was concentrated most heavily in a thin upper level of this 10 per cent. With respect to the surplus itself, the take of property was nearly 30 per cent.
Waste in the Business Process
The components of waste in the business process shown in the Baran-Sweezy computation consist of expenditures for advertising, market research, expense-account entertaining, maintaining an excessive number of sales outlets, public relations and lobbying, salaries and bonuses of salesmen, maintenance of showy office buildings and business litigation. None of this adds anything to the value or utility of what is produced. 33
There would be an element of waste in any system, but the argument here is that the waste under capitalism is institutionally determined in order to maintain capitalism itself rather than a high quality of social life. It does no good to argue with a Moscow- oriented Marxist that there is as much or more waste and irrationality in the Soviet system, because the defensive answer here would be that the Russian system was not an outgrowth of capitalism, as Marx stipulated that socialism should be, but is an originally backward system that must pass through a capitalist phase of labor exploitation and the
29,749,000,000
7,700,000,000
17,650,000,000
like in order to establish an industrial base for socialism, which is something that will be ushered into being in due course. Those who believe this, in view of the rise of a Soviet vested political bureaucracy, must draw upon whatever credulity they possess. My own view with respect both to capitalism and to sovietism is: There is no Santa Claus. Under whichever system one has, workers, it seems, will work and administrators will administer, on terms more or less unequal in all cases unless administrators deliberately choose to play fair.
As to advertising, it is recognized by many economists of repute as an uneconomic aberration, introduced by corporations as a substitute for competitive pricing. The advertisements create the illusion of product differentiation among large varieties of essentially identical products. These essentially identical products are, it is true, differently styled and packaged but in most cases the "talking points" are irrelevant.
Economists agree that the ultimate consumer pays for the advertising which in turn defeats the ultimate consumer in his search for lower prices, maintains monopoly prices. The worst thing that can happen in the system, in the view of its managers, is price- cutting, which reduces surplus.
Continual advertising itself, by its overwhelming success, in some cases leads to a virtual monopoly of some products--for example, the Gillette among the wet-shave safety razors.
As the gilt-edged economist E. H. Chamberlin observed, "selling methods which play upon the buyer's susceptibilities, which use against him [my emphasis] laws of psychology with which he is unfamiliar and therefore against which he cannot defend himself, which frighten or flatter or disarm him--all of these have nothing to do with his knowledge. They are not informative; they are manipulative. They create a new scheme of wants by rearranging his motives. " 34
"Madison Avenue" has come in for a great deal of condemnation. It should be observed, however, that the irrational extravagances of advertising could not be employed if there were not a vast public unable to see through the transparently deceptive devices used. It is public response that sustains advertising.
It is not that the advertisements are false in general, although false advertisements, advancing direct claims that can be disproven, have been found in abundance by the Federal Trade Commission. But, even though not false, the advertisements are almost invariably grossly misleading. They are vague, ambiguous, irrelevant and often absolutely nonsensical. By freely using improper techniques, advertising effectively subverts the work of the schools in teaching the proper uses of language and clarity in thinking. The multitudes of handicapped are intellectually defenseless when they come to advertising, and the process of absorbing the nonsense of the free-ranging advertisers intensifies their intellectual handicap. Many people talk and think about the world the way Madison Avenue has vividly but zanily taught them. 35
The logic of Madison Avenue is to employ language and pictures irrationally with a rational view to selling price-fixed goods and making money. It is able to do this because it carefully exploits human weakness--suggestibility and ignorance. In saying this, nothing is said about products or their quality--another story.
Reinvestment of Surplus
Whatever property owners do not consume or allocate to various self-serving nonprofit purposes they reinvest. Such reinvestment may be in already established areas or in new areas: new industries or foreign lands. Precisely what the propertied element consumes cannot be directly computed. Small property holders probably consume most
of their income. In the case of large property holders, income cannot be consumed without resorting to colossal extravagances such as the maintenance of six large homes.
What is left for consumption and personal reinvestment one may obtain some glimpse of by taking account what is reinvested by corporations. In 1962, as Baran and Sweezy show, expenditures of surplus by nonfinancial corporations for research and development totaled $12 billion and for outlays on plant and equipment $32 billion, of which a fantastic 81. 9 per cent was greedily charged as depreciation. Since 1953 the totals for research and development, plant outlays and abnormally exaggerated depreciation had climbed steadily and phenomenally. There was, thus, $48 billion reinvested out of total property income for the year of $99. 2 billion, or nearly half.
There was, furthermore, the item of foreign investment, possibly not more than half of which represented actual flow of capital from the United States. The total of direct foreign investments increased from $11. 8 billion in 1950 to $40. 6 billion in 1963, an increase of $28. 8 billion, according to official figures. Between 1950 and 1956 such investment each year ranged from half to three-quarters billion but thereafter in each year has usually far exceeded $1 billion and in 1957 exceeded $2 billion. It therefore seems safe to say that on the average at least half of property income is usually reinvested, with the proportions of what is reinvested increasing as one moves up the scale of property holders in point of individual magnitude. In general, the invested position of the propertied is steadily improving. Foreign investment is far more lucrative than domestic and the quest for foreign markets is what enables American industry to bypass in so many ways its own population.
Some of the approximate $50 billion that was left over may also have been reinvested as new personal investments. In any event, the property owners in that year had some $50 billion of unearned income at their personal disposition, roughly equivalent to the sum absorbed by the armed forces.
Yet, as Baran and Sweezy remark, the monopoly system tends to work at cross purposes with itself.
It tends to generate ever more surplus, yet it fails to provide the consumption and investment outlets required for the absorption of a rising surplus and hence for the smooth working of the system. Since surplus which cannot be absorbed will not be produced, it follows that the normal state of the monopoly capitalist economy is stagnation. With a given stock of capital and a given cost and price structure, the system's operating rate cannot rise above the point at which the amount of surplus produced can find the necessary outlets. And this means chronic underutilization of available human and material resources. Or, to put the point in slightly different terms, the system must operate at a point low enough on its profitability schedule not to generate more surplus than can be absorbed. 36
Compensation for surplus or intermediary employees, as Baran and Sweezy admit, would exist in any system; but it is their argument, for which they cite good reasons, that under the American system much of it is excessive and wasteful. The intermediation of brokers and agents adds nothing to the value of products. A real estate or stock broker, for example, may mediate the sale of the same property many times a year, drawing a commission each time. Nothing new has been added.
Government Absorption of Surplus
The largest absorption of the surplus of the highly productive American system, however, takes place through government. Here, as official data show, absorption of surplus has risen steadily from $10. 2 billion in 1929 to the level of $168 billion in 1963. Here is the statistical basis for the cry of statism against the welfare-warfare-subsidy
state. From 1929 to 1961 government spending steadily rose from 9. 8 per cent to 28. 8 per cent of gross national product. 37
It is common knowledge that some of government expenditure by anybody's standards represents waste, expenditure for socially unnecessary ends. The common notion of the congressional "pork barrel," with respect to which congressmen trade votes in order to get unnecessary expensive projects for their districts, supports the notion. The local folks are pleased but are postoffices in the form of Greek temples and colonial mansions necessary? Are various airfields and army posts necessary? Governmental absorption and spending of surplus, however, whether wasteful or not, "pumps" money back into the economy. The government, thus--local, state and federal--is the biggest customer in the marketplace and, if it considerably reduced or withdrew its patronage, the so-called private enterprise economic system would almost instantly collapse. By running Keynesian deficits it can push the economy ahead. By curtailing expenditures it can depress the whole structure.
Despite the outcries against statism, it has been mainly for the military establishment that government demands on the economy have been made. Whereas in 1929 less than 1 per cent of gross national product was devoted to military purposes, by 1957 it had risen to more than 10 per cent and accounted for approximately two-thirds of the aggregate expansion of all government spending. Government spending, then, is largely military spending.
Which government expenditures are socially necessary or sustaining and which are waste of surplus? We know already there is some waste, by common agreement; the question is only to determine how much there is, a difficult if not impossible task.
Whereas nondefense or civilian expenditures by government increased only from 7. 5 per cent of gross national product in 1929 to 9. 2 per cent in 1957, the military proportion increased by fifteen times. Transfer payments increased from 1. 6 per cent to 5. 9 per cent, less than four times. 38 Transfer payments comprise interest on government debt, subsidies minus surpluses of government enterprises, veterans' allowances, old- age pensions, unemployment benefits and the like.
Although some argue that military spending is not a prop to the economy and contend despite the 1930's that there would not be a depression if military spending were reduced (because with the reduction in military expenses there would presumably be a corresponding reduction in taxes and a compensating rise in private spending or in redundant investment), it seems inescapable that no scattered private spending or investment could replace the massive concentrated military effort which currently takes more than three million men out of the labor force and makes an effective demand for more than 10 per cent of the production of the labor force.
Instead of military spending, others argue, there could be an increase in socially necessary civilian spending as for hospitals, schools, sanatoria, playgrounds, health resorts, community centers, galleries, museums, lecture halls, libraries, public housing and the like. While such creations would indeed absorb surplus at as great a rate as one liked they would, clearly, be "socialistic. " Such a civilian creation by government would in many directions, as in housing, medicine and other areas, conflict with profit enterprises and by supplying libraries, museums, lecture halls, playgrounds and the like would provide alternate uses for the free time of people, to the possible detriment of profit enterprises like TV, movies, automobiles and so on. All this is precisely what is not wanted by the vested interests who exert decisive political leverage. But if there were effective political leadership, overswollen military budgets could be trimmed for these domestic purposes.
Merely to staff a great expansion in such socially useful facilities would require the diversion of much upper-level personnel from profit-making enterprises.
Some percentage of the military establishment, by the testimony of all schools of thought, represents waste. Some of it is necessary waste, arising from unavoidable circumstances; some is avoidable waste. There are, again, those who would argue that, humanly speaking, it is all waste; we need not follow this line of thought in a highly imperfect world. Owing to continual technological advance, moreover, there is rapid obsolescence of much military equipment in a situation where it is felt, hysterically, that the nation must be prepared at any moment for a maximum military effort to save its very life.
Large portions of civilian outlay by government can also readily be interpreted as waste. The federal roadbuilding program, as indicated in Note 28, supra, is considered (I think rightly) a huge example of compounding social waste by Baran and Sweezy, who also interpret slum clearance as in good part a waste of public money. This last item of waste comes about in this way: Instead of utilizing low-cost open spaces, readily available, the slum-clearing programs buy up deteriorated properties at good prices to the owners and then supply contractor-promoters with huge sums and excessive tax rebates to construct new buildings that rent at such prices as to bar slum dwellers. Slum clearance thus becomes indirectly subsidized luxury building, a delight to politicians, many of them participants in the building syndicates.
Government expenditures for schools and hospitals, health and sanitary measures (water supply, sewage and garbage removal), conservation and recreation, housing and facilitation of commerce, police and fire protection, courts and prisons, legislatures and administrative offices are conceded by these writers to be socially necessary. Presumably they would agree that libraries, post offices, government printing and the maintenance of rivers and harbors are in the same category. But, as they point out, there has been little expansion of such services relative to the expansion of gross national product. Most expansion of governmental spending and allocation of funds has been in areas that are more or less, or entirely, socially and economically wasteful or rationally questionable.
Thus, while socially necessary services are skimped and held down with cries for "economy in government," the sluice gates are wide open for the military in repelling a Leninist communism held to be lapping at distant shores and in underwriting schemes of roadbuilding and urban renewal that not only facilitate huge profit-making enterprises but undermine those that are socially more efficient such as railroads.
In general, what Baran and Sweezy say here is true. The stake of property is steadily being increased under the camouflage of high depreciation write-offs. Persuasive advertising is wasteful and exploitative of credulity, a substitute for genuine competition. More surplus employees are utilized than is socially necessary, although not more than this kind of system requires. Much of what the government spends is indeed wasteful in various degrees and from various points of view and much of it, as in the approach to housing and the automobile complex, is positively harmful. In this last category we have, not merely social waste for profit, but positive, certifiable social harm for profit. Beyond the harm produced by the approaches of public policy to urban housing and the automobile complex there is the harm induced by misallocation of resources, as in military overspending for Over-Kill.
The prime virtue of capitalism in theory is that it provides a mechanism--the ostensible free market--for meeting the effective varied demands of people at the best prices. What happens, however, when people are deviously induced to make an effective demand for something they do not need (automobiles instead of houses) or
something that will not meet some need (chewing gum instead of psychotherapy) is not embraced in the theory. People must know their need and how to satisfy it. Again, if the market is under monopoly, people cannot make effective demand at the best possible prices even for things they do not need--things that do not cater to necessity, convenience or comfort. Ideas of spurious need are inculcated by playing upon latent fears, such as that other people will ostracize them if they do not use deodorants and a long line of other products.
Advertising, seen in this aspect, is obviously a vast booby trap, a legally condoned swindle for profit. 39
Quality in the Consumer Economy
As to the quality of goods in the Consumer Economy, where consumption in and of itself is regarded by many public men as the remedy for all ills, there is a wide range. In order to appeal to the impecunious, much of what is offered is sleazy, saturated with built-in obsolescence. The case made by Ralph Nader about the Detroit automobile could in general be applied to many products, although in the automobile it was more serious than usual owing to the immediate life-and-death aspect. 40
In order that at least the more literate portions of the middle classes may pick their way about among a large variety of substandard, overpriced and absolutely unnecessary products that cater at most to free-floating anxiety and suppressed restiveness, there have emerged successful private enterprises such as Consumer's Union and Consumer's Research. By means of regular reports these organizations, and others, advise subscribers of the results of product analysis and price comparison.
Strong in the production of capital goods (generally machinery designed for further production), the American productive system in the line of consumer offerings is about as uneven as the American school system. The main consideration all along the line is admittedly the rate of profit. Producers, it must be conceded, are entitled to fair returns for effort, but the object of business enterprise in general and of the American business system in all its parts is to obtain maximum possible return without regard for quality or social necessity, comfort or convenience. Do-nothing products, economic placebos, are quite common. Under the rubric of glorious freedom, if they make a big profit through misleading advertising as in the case of deodorants, they are justified. The vendor has given the customer what he has been frightened or cajoled into wanting and has given employment perhaps to thousands who are raising children to grow into another army of worker-consumers making null or below-par products--all, however, for somebody's profit.
Many products in the market, especially in pharmaceuticals and foods, are repeatedly found in government laboratories to be positively harmful. This is a long story in itself.
Just how little fear of authority producers feel under the skull-and-crossbones of freedom we learn from Admiral Hyman G. Rickover, of the Bureau of Ships of the Navy and known as "The Father of the Atomic Submarine," a really competent man. Rickover announced that work on many atomic submarines was being delayed because parts, upon which performance depended, were being delivered that did not follow specifications. He cited "the inability of American industry to meet the exacting demands for quality and reliability posed by modem technology. " and charged that industrialists did not know what went on in their plants, which were left to administrators chiefly interested in getting more contracts. The National Aeronautics and Space Administration at the same time voiced similar complaints, which it later smothered in a tribute to the cooperation of industry. Rickover not only held to his position but has many times made it known in the same terms. 41 The deaths of three astronauts were ascribed to poor equipment.
Not all officials react disagreeably to treating the government as though it was a rank- and-file customer. The political authorities of Massachusetts, for example, accepted the Massachusetts Turnpike as constructed. Soon after completion the road was already crumbling over long stretches and was being extensively rebuilt. As one who has driven over this road many times and experienced its undulations, seen it pitted with holes and watched repair crews at work over its entire length, I can personally testify to its generally poor condition, especially as contrasted with the New York State Thruway, with which it connects. As soon as one travels on to the New York State road from the Massachusetts road one is aware of a dramatic transition from uncertainty and hazard to a well-engineered, well-built road. The ancient Romans built roads that are still used for heavy-duty purposes.
A very wide range of consumer goods conforms more to the standards of the Massachusetts Turnpike than to the New York State Thruway, all produced under the pressing motivation of a quest for maximum profits. Cheap goods, perhaps not paradoxically, are often socially expensive goods.
Institutions or People
'The full-blown Marxist will have no difficulty putting his finger on the difficulty. He will say it is capitalism, or monopoly capitalism. With this convenient analytical abstraction, I do not agree.
Capitalist institutions, being oriented toward private profit in return for the commitment of private capital, no doubt facilitate and reinforce inherent selfish drives in the acquisitive-minded, encourage corner-cutting. It is part of self-serving capitalist theory that the driving self-interest of the entrepreneur indirectly serves society, with an invisible hand conferring benefits out of the process. Up to a point this may be true, or it may once under competitive conditions have come nearer the truth than it is under monopoly conditions. But as the screws are rationally tightened to generate more and more profits, more and more surplus, the gains in the productive sector of the economy are increasingly made at the expense of the consuming sector. And social welfare lies at least as much as or more in the consuming sector than in the producing sector. Production is merely the means, consumption the end. In dominant American thinking, this order is reversed, Again, much of what is termed capitalism has been simple illegality, outside the system.
If the general public were as rational as the producers and had at its fingertips as much knowledge and insight, and ability to apply knowledge and insight, all would perhaps be well. But a very large section of the public, a majority, is woefully handicapped through the possession of insufficient rationality, knowledge and insight. Its members are as amateur participants in a card game with experts. Not only are the politico-economic adversaries of the broad public highly expert but they are what is known among card players as sharpers, prone to violate the rules. These sharpers play a cooperative game with marked cards. Not only this but to some extent they are mind readers. Armed with a knowledge of psychological laws and backed up by computer technology, the large- scale entrepreneur knows in advance what plays the amateurs in elections and markets are bound to make. The amateurs, in fact, are inherently restricted in the plays they are able to make in their own defense. Even if they were pantologists they would not be able to make better choices than a mass-oriented monopoly market and complex political system offer.
In the selection and purchase of goods and services, the disorganized public is led in some cases by necessity, in others by the quest for convenience and comfort and, at times, by the attraction of dispensable diversion and luxury. Beyond these ends it may, too, as advertisers well realize, be led by the prospect of purely imaginary and illusory
advantages, as that ladies will become intensely amorous at the sight of men who use certain pomades.
By Way of Summation
The cleverness of the rich, as I see it, has consisted largely of the fact that the acquisitors among them have been able to operate practically unhindered by law among multitudes of thoroughly confused people, who are readily victimized in politics and economics. The victims have at all times been left externally free to choose in their own way. The rich, whether they knew it or not, could always have been fortified in the thought that the handicapped will usually make the wrong choices under the rule of external freedom.
Approached from the standpoint either of IQ or formal education, far more than half the population has not had the knowledge, intelligence or ability to make choices in its own interests. It has merely drifted with the tide, trusting to its feelings, while others gathered in the hay. Nobody in most instances twisted the arms of this population to make it perform as it did in the polling booth and the market; on the other hand, rescue parties have been few and have not been understood as such by the victims, who regarded saviors such as Mrs. Sanger as enemies. A whole line of would-be saviors, including socialists such as Norman Thomas, have been rotten-egged for taking the trouble to make known their panaceas to this same population. Left and right, radicals, reformers, liberals and labor organizers have been bustled off to jails, not usually by capitalists or even by capitalist agents, but by the local rank and file of victims and their duly elected officers.
Underlying the low IQs and faulty education have been deliberately contrived cultural deprivation as in the case of Negroes and spontaneous, self-induced cultural deprivation as in the case of rural and small-town Protestants and urban Catholics. These, it is evident, have been self-designated victims in a game with rules the rank-and-file did not understand.
What is evidently the case is that a large section of the population is dependent- emotionally, intellectually, economically and politically--and is unable inherently or by conditioning to function in its own behalf under free institutions. A large section of the population, indeed, if it is to be properly served, should be regarded as public wards, ethically subject to rather close highly informed benign guidance in making life dispositions. No doubt much of this dependency arises from its conditioning, from its unreasonably inculcated faith that provision will be made for it, if not by man then by some remote deity. Perhaps a socialist sector of society should be established for it, perhaps true socialism itself is the ultimate answer.
As to socialism as the answer to social ills: I have never been a socialist simply because socialism has seemed to be a dispensation out of practical reach. As shown by the nonindustrial countries where it has been forced by revolutionary means, installed at a time of total social collapse, it can hardly be attained by force. The consequence is simple totalitarianism, with heavyhanded politicians in the saddle. Nor, as is evident from public indifference to it in the face of persuasive argument by a long line of intelligent men from G. B. Shaw to Bertrand Russell, can it be attained by persuasion. Socialism, which long antedates Karl Marx, who merely gave a distinctive romantic turn to the way of attaining it, is in fact an aristocratic doctrine, originated by a French count-Claude Henri de Rouvroy de Saint-Simon (1760-1825), who fought in the American revolution and was imprisoned during the French revolution. Like socialists in general, aristocrats were disdainful of men of business, who believed in turning everything, including all of society, into a profit-making scheme. As Veblen said, "Men whose aim is not an increase in possessions do not go into business. " 42
Not only is the profit-seeking way of the businessman distasteful to aristocrats, who long looked down on "people in trade," but it has been looked at askance by professionals from time immemorial. To the ancient Greeks, Hermes was not only the god of commerce but also of cunning and theft. While traders have perhaps been more influential than any other group in the diffusion of culture-more than the philosopher, theologian or writer--their influence here was no more than an unconscious byproduct of their intrusions into all corners of the world.
It was basically the existence of this sort of trusting, optimistic, dependent, happy-go- lucky population that made it possible within a single generation for the wealth of the nation to find its way into hands almost as few as in some of the long-established older countries. The cleverness of the American rich comes down to the fact that acquisitors found themselves, like delirious foxes in a chicken farm, turned loose among so many unprotected suckers and boobs--the handicapped. From this situation sprang the rule, the overriding operating principle of American society: Never give a sucker an even break.
The result was not brought about by capitalism, as the socialists claim, for such an abstraction has no power to do anything whatever. It was brought about by individual capitalists--that is to say, it was brought about by people seeking wealth, using convenient institutions, ideologies and strategies, versus less adroit people.
Human life, in truth, is less an affair of institutions and systems than of people and an interplay of motivations and abilities.
What I have said in this chapter, it is evident, reflects on the sagacity of most of the public, the darling of the democratic ideologue, who replaced God with "The People" as an object of veneration and faith. Any critical evaluation of the public usually is rejected as, somehow, unacceptable in the light of democratic dogma. 43
The objective role of the democratic ideologue is precisely as follows: Out of his own inner need to see humanity liberated from the rule of others be preaches his ideology. Into the network of institutions and policies thereby generated steps the economic entrepreneur and the politician, who convert democratic institutions into something of vast profit-to themselves. It is time, by now, to see that most people are not capable of wielding this instrument of democracy in their own interests. They do not know by what standards to select representatives who will secure the popular interest. Perhaps, even, they do not care.
Fourteen
FINPOLITAN FRONTIERS
As the management of properties is considered by apologists to represent in itself a great social contribution (which may in some muted degree indeed be so), in this chapter there will be passingly considered this aspect--even though the management of personal holdings can hardly be considered a clearcut public contribution. At best it would be an ambiguous one. Just because a man runs his plantation well provides no ground in itself for immoderate public rejoicing (as public relations men insist), however much we may admire his adroitness and democratic bearing.
As to corporations, most of the big ones are run well. They are models of self- centered efficiency and rational planning. In some cases they are managed by dominant owners, in others by well-paid hired managers acting for dominant owners. But while laudable efficiency and rational planning--in their own self-oriented interests--mark the large corporations, the dominant public ideology sponsored by the leaders of these very corporations is that there should be no public planning. Planning is a wicked word when engaged in by government, for it allegedly leads to "statism," by definition a bad thing. But corporate planning for maximum profits is virtuous. The consequence is that only corporate policy is rational, in the interests of the corporation, and helter-skelter public policy is helpless to defend itself against the corporations. Such being the case it can only be incidentally that the well-managed corporation is publicly supportive; often it is discovered as overtly anti-social. Merely managing a corporation well, then, does not represent a social contribution. Such action may represent carefully contrived piracy. We can, therefore, forget about corporate management as ipso facto a social contribution even though it may be in some instances.
The Rockefeller Empire
The Rockefeller empire of contrapuntal profit and nonprofit enterprises is here taken, purely for illustrative purposes, as the central and conventionally most creditable of such ostensible contributions, with allusion later to lesser similar finpolitan complexes. Currently this empire is an international network of industrial, financial, cultural and political activities that for variety, quantity and quality put everything of a similar kind in the shade. The present third generation of ruling Rockefellers--five sons and a daughter of John D. , Jr. , without considering the independent branch of the founder's brother, William-has at its fingertips what is the quintessence of many great fiefdoms, worthy to be included in a modern Arabian Nights tale. All of it is bone and muscle, none either of fat or meagerness. It is not only quantitatively but qualitatively rich, like a Christmas fruit-nut-brandy cake.
The reigning Rockefeller brothers are John D. III (b. 1906), Nelson Aldrich (b. 1908), Laurance S. (b. 1910), Winthrop (b. 1912) and David (b. 1915). They have a sister, Mrs. Abby Mauze? , who figures in the giltedged sextette, according to reports by family friends, pretty much as a silent partner. All appear to be of good intelligence, not the least of their assets, although actually the intelligence at their disposal--the pooled family intelligence deriving from long experience with a mercurial world plus that of their large professional advisory and research staffs--greatly exceeds their personal intelligence, Like the ruler of a great state they have far more relevant information at their ready disposition than they carry with them in their own heads. As far as the contemporary world is concerned, they are thoroughly informed. They can, in fact, out- think most contemporaries.
The fourth, and even fifth, generation is being readied in the wings. At this writing there are twenty-three living members of the fourth generation. John D. III has one son and three daughters, Nelson four living sons and two daughters, Laurance one son and three daughters, Winthrop one son, David two sons and four daughters and Abby two children. Some of these offspring are now married and themselves have children of the fifth Rockefeller generation, members of an established world dynasty.
In Their Own Eyes
The self-image of the Rockefellers is quite different from that which a detached observer might arrive at, although it is a conception that many people now share through the power of public relations. "The boys' father," says Joe Alex Morris, "had been brought up with the feeling, which his mother emphasized, that the family's money belonged to God and that he was to be merely a steward. He impressed something of
this idea on his sons. . . . " 1 They are, then, stewards of wealth. In this case the laudably humble role carries with it vast emoluments, privileges, immunities and intangible advantages and disadvantages.
Discussing foreign trade after World War II, Nelson remarked: 'In the last century capital went where it could make the greatest profit. In this century, it must go where it can render the greatest service. " 2 Noble words. . . .
Again, speaking of the financing of various enterprises in Latin America, Nelson said: "We're really setting up pilot plants. Our way of life is confronted with a lot of big problems that have to be solved. We hope that our pilot plant operations will demonstrate some of the things that American enterprise can do to help solve these problems that are vital to our everyday life and to our position in world affairs. Because we've got to master such problems if our system is going to survive. " 3 Survival of "our system," then, is a matter of concern.
The Rockefellers, then, look upon themselves as stewards rendering service and helping solve big world problems in harmony with "our system. " They are, in fact, problem solvers, within limits imposed by mass irrationality.
The Economic Base
"Any real clues as to the wealth of the brothers," says Fortune, "have been vigilantly guarded since their birth. None of the terms of the trusts established for them by their father has ever been revealed, and even the names of the trustees are known only to the family and a few key advisers. The great concentration of the brothers' wealth is in oil companies like Jersey Standard, Creole, and Socony-Vacuum, but the precise amount is still their secret since the holdings are not big enough for mandatory disclosure to the SEC. " 4 Glimpses of some of the trust funds, however, were obtained from TNEC records as cited in Chapter Four. As the SEC does not require the reporting of stockholdings of less than 10 per cent in a company unless held by an officer, the six Rockefellers, none of whom is a Standard Oil officer or director, could (but certainly do not) own up to nearly 60 per cent of the stock of each of the many Standard Oil companies without the fact appearing on the public record.
"Though these circumstances make appraisal inordinately difficult, appraisal is essential to an understanding of the material source of the brothers' power--their wealth," Fortune continued. "Their personal fortunes are estimated at upwards of $100 million each [as of pre-boom 1955 and prior to their father's death--F. L. ]; the money is mostly tied up in trust funds, yielding them individual incomes of probably $5 million a year before taxes, but leaving control to trustees. Roughly $7 million is given away each year to standard charities, or in gifts such as Laurance's recent offer of one-half the island of St. John for a national park in the Virgin Islands. Apart from the, trusts, they have an asset of roughly $150 million in Rockefeller Center [an understatement, clearly, for the Empire State Building alone recently sold for $100 million--F. L. ]; some $15 million is put out as U. S. venture capital; $12 million has gone into Latin-American enterprises such as dairies, supermarkets, fisheries, hog farms. At a minimum, then, the brothers are probably worth over $500 million. Even in 1955 dollars, this does not compare too badly with the 1913 fortune of $900 million-considering that the holdings of their father, their sister, and other Rockefeller kin are not included in the $500 million, considering all that has been given away, and finally, considering taxes. " 5
Since the death of John D. Rockefeller, Jr. , in 1960, the center of financial gravity has moved, manifestly, to the brothers. And inheritance taxes have not whittled down the original Standard Oil fortune by much because the original John D. transferred most of it to his son (and daughters) by gift, himself dying comparatively stripped of wealth, and the son in turn transferred at least half of it by bits and pieces to his children, thus
incurring only gift taxes. As some was transferred in the 1930's at depression prices, some no doubt nontaxable at birth, possibly by the grandfather as well as the father, the gift taxes on highly elastic, dynamic properties were minimal. Morris says. "With the third generation, the family's accumulated wealth is being dissipated on a great descending curve by taxes, philanthropies and division among the heirs. . . . " 6
Now, whatever else one may say, one cannot rightly say the Rockefeller fortune is in any way being dissipated; it is, apart from that portion undeniably dedicated to public purposes, only being subdivided as to direct beneficiaries but held together in concentrated form in properties. One can dismiss the so-called tax bite out of hand. Owing to its trustification the fortune left in private bands is intact, and a potent influence.
Precisely how much has been paid in inheritance taxes, even while many publicists erroneously assert that taxes are breaking down big estates, can easily be shown. John D. Rockefeller's estate after death in 1937 totaled $26,410,837, of which $16,630,000 was paid in federal and state taxes. 7 His son's estate totaled approximately $150 million, of which half went to the Rockefeller Brothers Fund and half to his wife. The first half was nontaxable as a philanthropic contribution and the second half was nontaxable under the marital deduction of the tax law, a spouse receiving tax free under 1947 law half of any estate above the basic deduction of $60,000. 8 There was some small real and personal property in the estate of the junior Rockefeller, and any of it that was not given to institutions would be subject to a minor tax, tax experts pointed out.
We see, then, that the Rockefeller fortune, estimated at $900 million in 1913, has to this date not paid much more than $16,630,000 in inheritance taxes.
Leaving it at this would be misleading because the 1913 dollar has depreciated by approximately 70 per cent to the Johnson dollar of August, 1966. In terms of the value of current dollars, as measured by the Bureau of Labor Statistics indexes of the cost of living, Rockefeller's fortune as of 1913 was worth approximately $3 billion, exclusive of what he had put into foundations before 1913. A man today would need to make $100 per week to equal in purchasing power $30 per week in 1913, when, moreover, he was not subject to a federal tax bite. Put another way, what cost 30 cents on the average in 1913 now costs $1, taxes sometimes added.
Fraternal Investments
The brothers' investments, apart from trust funds of which the capital is distributable only to their grandchildren (an example of serial entailment if the grandchildren replace the trusts with new trusts according to standard estate doctrine) are held through Rockefeller Brothers, Inc. There was also established by them in 1940 the Rockefeller Brothers Fund to finance nonprofit or philanthropic properties. 9
None of the brothers is actively associated with the management of any of the Standard Oil companies, although most, like their father, held minor jobs with some of them upon emerging from college and some have for a time been directors. All are directors of Rockefeller Brothers, Inc. , formed in 1946, and Rockefeller Center, Inc. , and trustees of the Rockefeller Brothers Fund.
