No More Learning

On what grounds can one assume that the family investment in E. I. du Pont de Nemours remained at 44 per cent? First, the investment of this company in General Motors itself was not diminished. Second, since the TNEC study, a new investment was made in General Motors by Christiana; whether this represented an increase in over-all General Motors holdings or a transfer from some other part of the Du Pont exchequer is not shown, but presumably it represented an enlarged investment. If anything, the family investment, through individuals, was increased since 1937, the date of the TNEC data. For the Du Ponts in the intervening years were in receipt of vast cash dividends. In the meantime, many of them had reduced their once-opulent and ultra-expensive scale of living. Unless they had, off the record, somehow disposed of large sums it would seem inevitable that their investment position was enlarged. Their foundations did not, in the meantime, show any large new accretion of funds.
It is true that the family participation in General Motors cannot be computed accurately at the figure given for the end of 1964 even after allowing for the sales of GM by Christiana because the Du Pont trust funds were also required to sell whatever GM they received in the distribution. But the equivalent value in money, depending upon what point in the rising market GM was sold, would remain in Du Pont hands.
Taking into consideration various factors such as these, and others, the entire family holding should be at least $7. 629 billion, rather than the vague recent estimate of $3 billion by a family historian. 8
I conclude, therefore, that the financially cohesive Du Pont family is capable of throwing something around a $7. 5-billion "punch" at any time in the American political-economy on the present price level. Its members should not, despite their partial setback in General Motors, be looked upon as a miscellaneous collection of
financial tabby cats. The individual Du Ponts, it, should be noticed, retain their GM holdings, constituting the largest identifiable block in General Motors stock.
The Du Pouts have additionally established a string of at least eighteen foundations, 9 the most recent assets of which are reported by the Foundation Directory, 1964, at an aggregate of $148,046,401. These foundations are Bredin, Carpenter, Chichester du Pont, Copeland Andelot, Crestlea, Good Samaritan, Ire? ne? e du Pont, Jr. , Eleutherian Mills-Hagley, Kraemer, Lalor, Lesesne, Longwood, Nemours, Rencourt, Sharp, Theano, Welfare and Winterthur.
The largest of these, Longwood and Winterthur, with combined assets of $122,559,001, are largely devoted to maintaining in all their splendor former Du Pont estates as public museums and botanical gardens. 10 The estates, thus dedicated to public uses, were not required to pay ad valorem inheritance taxes.
But the invested voting power of these assets, funneled through banks and trustees, provides some additional Du Pont strength in politico-economic decision-making.
Even if one were able to pinpoint the value of the family holdings at $7. 629 billion this would not be especially significant. The big fortunes rise and fall in value with the economy so that in one decade their values are up and in another down. But the significant fact is that throughout economic changes the big fortunes, and the companies underlying them, outperform expansions of the economy. Put another way, more and more of the economy is constantly being preempted by fewer and fewer generic interests even though through inheritance the generic property income is distributed among a greater number of individuals. There are, in brief, more Du Ponts, Rockefellers, Mellons and their like today than there were in 1900. But they each share in much enlarged central stakes.
The divestiture of General Motors stock took place after the United States Supreme Court ordered it upon finding E. I. du Pont de Nemours and Company guilty of violating Section 7 of the Clayton Act, which forbids any stock acquisition whose effect "may be substantially to lessen competition or tend to create a monopoly. " This case of closing the barn door after it had been wide open for more than thirty years began in 1949 under President Harry Truman. The Supreme Court, overruling a lower court, found that Du Pont's ownership of 23 per cent of GM, which it controlled, placed it in a favored market position in the sale of automobile finishes and fabrics, to the detriment of competitors. GM, in fact, was a captive customer. As the New York Times incidentally reported, "Few if any large companies have been the subject of so many anti-trust suits as du Pont. " 11 Since 1939 nineteen have been counted.
But Du Pont holdings, as indicated, are by no means all channeled through Christiana Securities. During the GM proceedings it was reported to the court, for example, that William du Pont, Jr. , personally owned 1,269,788 shares of E. I. du Point de Nemours. And, unless the family investment pattern has changed greatly since the TNEC study, other Du Ponts are heavy individual holders in E. I. du Pont de Nemours and other companies.
The TNEC study showed the following individual Du Ponts directly holding stock in E. I. du Pont de Nemours: Pierre S. ; Eugene; Archibald; M. L. ; H. F. ; Eugene E. ; Ernest; trustees for Philip F. ; trustees for Elizabeth B. ; trustees on behalf of William du Pont, Jr. , and Mrs. Marion du Pont Scott; and Charles Copeland. This group held 5. 75 per cent. 12
One member of the family and the Broseco Corporation, another family holding company, held stock directly in General Motors, substantial even by Du Pont standards. 13 A family trust held much more.
But twenty-two other Du Points, none named above, held stock in the Delaware Realty and Investment Company (since absorbed by Christiana Securities), which in turn held 2. 75 per cent of E. I. du Pont de Nemours stock.
Thirty-nine other Du Ponts, none named above or included in the Delaware Realty group, held stock in Almours Securities, Inc. (since dissolved), which held 5. 24 per cent of E. I. du Pont de Nemours stock as well as an interest in the Mid-Continent Petroleum Corporation. 14
The TNEC study uncovered eight Du Pont family securities holding comparties 15 and seven separate trust funds. 16 This variety of financial instruments was in part at least the residue of earlier feuds and financial squabbles in the family with charges of individual overreaching and tricky dealing aired in public. In recent decades most of these quarrels appear to have been composed in favor of consolidating family interests.
The government in its General Motors case held that the Du Ponts were a "cohesive group of at least 75 persons. " But it named 184 members of the Du Pont family in its complaint.
Spokesman for the Du Ponts, after the GM decision was given, said that GM stockholders closely affiliated with the Du Pont management would sell an additional three million shares of General Motors. 17
The TNEC study showed that individual Du Ponts, their family holding companies and/or their trust funds held stock in many other companies. The largest of these additional stockholdings was in the giant United States Rubber Company, which the Du Ponts in effect controlled. Here the Rubber Securities Company, a Du Pont family company, and seven individual Du Ponts owned 10. 5 per cent and constituted the largest cohesive stockholding group. The continued presence of the Du Pont interest in the United States Rubber Company as of 1965 is signaled by the presence on the board of directors of J. S. Dean, president and director of the Nemours Corporation and a director and member of the executive committee of the Wilmington Trust Company, and of George P. Edwards, chairman of the Wilmington Trust Company. Other companies in which various of the Du Pouts, their family companies and/or trust funds held smaller ownership positions were the American Sugar Refining Company, the Mid-Continent Petroleum Corporation, Phillips Petroleum Company and the United Fruit Company. At various times they have been interested in still other companies. 18
Du Ponts are also found in other pecuniary pastures. Thus Edmond and A. Rhett du Pont, sons of Francis I. du Pont, a member of the reorganized main corporation in 1903, have independently developed (using family-derived money) Francis I. du Pont and Company into the second largest brokerage house in the United States, with branches at home and abroad. Du Pont in-laws are the chief partners of the highly rated brokerage house of Laird, Bissell and Meeds. Still other Du Ponts, outside the main financial line, have established themselves in a variety of varyingly lucrative enterprises large and small. 19
E. I. du Pont de Nemours and Company, since its beginning in 1803 with an initial capital of some $36,000, is now one of the world's industrial giants. Because, despite some recent adverse publicity, its history is not nearly as well known as that of the Standard Oil Company or the Ford Motor Company, highlights of its rise may provide insight here into some ways large fortunes are made.
After early difficulties the company became successful because its French-trained owners made a better gunpowder. Helped along by the War of 1812, the company was made prosperous by the Civil War.
In 1872, with the market glutted by postwar surplus powder, the Du Ponts organized other leading powdermakers and themselves into the Gunpowder Trade Association, which dictated prices and ruled the market for hunting and blasting powder with an iron hand. Hostile competitors were undersold until they capitulated or went out of business, when prices would again be raised. This enterprise, later known as "The Powder Trust," continued without challenge into the first decade of the twentieth century. 20
Under one-man rule for many years and with wars scarce, by 1902 the company seemed to be losing ground and its weary chief owners thought of selling it to outsiders. But one, Alfred I. , the "Savior of the Du Ponts," objected and, bringing to the fore younger cousins T. Coleman of the Kentucky branch of the family, and Pierre S. , made a purchase offer that was accepted. The price was $15,360,000, more than $3,000,000 above what it had been hoped to get from outsiders. The new owners soon found, moreover, that the property was worth more than $24 million. Best of all, the new owners put up no cash but gave $12 million of 4 per cent notes plus $3,360,000 in stock of a new company just founded, a company purely on paper. This company, without assets, took over the old company. Only incorporation expenses of $2,100 were paid out by the three up-and-coming cousins.
As part of a feud that in time developed, Alfred I. was later forced out of the management by T. Coleman and Pierre S. Meanwhile, Pierre had brought in his brothers Lammot and Ire? ne? e and, after the withdrawal of Coleman, these three ran the show. In a deal from which Alfred I. was excluded, Pierre, Lammot and Ire? ne? e purchased the shares of T. Coleman in 1915 with money borrowed from J. P. Morgan and Company. Furiously Alfred I. charged that Pierre had used the standing of the company to borrow for the purchase and freeze him out. He brought suit against Pierre but lost. He was never reconciled.
Although the power play by Pierre and his brothers was not illegal it seemed--and with this Alfred I. would agree--very much like self-centered overreaching, not against the outside hoi palloi, always fair game, but against an original sponsor and benefactor-- an all-too-familiar story on the power levels of world history.
The company in the meantime had blossomed unbelievably under T. Coleman's merger policy and it stood on the threshold of its present eminence. The diverse members of the "The Powder Trust" had now, one by one, been bought up or otherwise absorbed by Du Pont.
"With breathtaking speed, companies were merged into the parent Du Pont corporation. By 1906, sixty-four corporations had been dissolved. A year later, Du Pont was producing from sixty-four to seventy-four per cent of the total national output of each of five types of explosives, and one hundred per cent of the privately produced smokeless military powder. Only the Standard Oil trust was as well organized. " 21
In 1907 complaints finally led the government to file languid suit against the company for violation of the Sherman Act, and after five years it was absent-mindedly convicted. Since 1903, when its investment was valued at a maximum of $36 million, it had earned nearly $45 million. 22
But because the companies absorbed by Du Pont had been dissolved, the court was in a mild quandary about how to separate the blend. It asked the government and the company, as partners in the minuet, to work out a plan of reorganization. Alfred I. went to see President William Howard Taft.
"At the White House, Alfred insisted that it would be to the advantage of the government and of the nation as a whole for du Pont to retain its one hundred percent monopoly of smokeless military power: du Ponts were aware that war might break out
soon in Europe. When it was pointed out that du Pont had been found guilty of violating the law, Alfred turned to Taft's Attorney General, George W. Wickersham, who was present, and reminded him that he had been du Pont's lawyer at the time the violations had taken place. If du Pont had broken the law, it was because the company had received bad legal counsel. " 23
At special court hearings a long procession of generals and admirals appeared to testify for the Du Ponts, contending that it was absolutely vital to national security that Du Pont retain its monopoly of smokeless military powder.
"Unbelievably," says the not unsympathetic but frank and independent family historian, "the court accepted these arguments. To split up the military powder business among several competing companies would do damage to the close co-operation between du Pont and the government and thus jeopardize the security of the nation without any corresponding benefit to the public. Or so the court held in its final ruling in June, 1912. Thus du Pont was permitted to keep its one hundred percent monopoly of military powder. " 24
The less strategic powder divisions were placed in two new companies: the Atlas Powder Company and the Hercules Powder Company, the stocks and bonds of which were turned over to E. I. du Pont stockholders. The effect of the court order was merely to replace control of the new companies by the Du Pont company with control by the collective Du Pont family. 25
But in 1942 E. I. du Pont de Nemours and five other companies, including Atlas and Hercules, were indicted in an antitrust suit and pleaded nolo contendere, automatically bringing a judgment of guilty. "Since the case was a criminal cause, no injunction was in order. Thus the only deterrent effect was the penalty. " 26
Substantially, however, "It is quite clear that the government lost the case," said Harvard economist Edward W. Proctor. "No permanent or even temporary restraint was placed on any of the practices of which the government complained. In fact, the companies calmly continued doing business the same way they had been doing it before the government brought suit. The case solved nothing--it really did not punish the law offenders nor did it alleviate the restraints on competition. " 27
As William H. A. Carr, the already-cited family historian, remarks, "This may not be as bad as it sounds. Proctor and other economists believe the wartime prosecution was politically motivated. Supporting this suspicion is the fact that the Department of Justice first tried to obtain an indictment in Norfolk, Virginia, but the grand jury there refused to return a true bill. Then the government took its evidence to Philadelphia, where another grand jury went along with Washington's demand for action. " 28
Actually, every proper prosecution or official act of any government official is politically motivated as an act in the management of the State (polis). The pejorative connotation that has become attached to the word "political" in popular American usage has developed owing to the frequent charge, usually made by anti-regulation business spokesmen, that questioned political acts are improper acts for personal advantage, which they may or may not be.
But whatever the motivation of the prosecutors, the companies did not deny the charges and the court made its decision on the basis of them. If the companies were indeed blameless, then the court itself became the partner in an improper action. And we are always faced with this alternative whenever it is argued that companies brought before the bar are being persecuted: If the companies are innocent, even when they plead guilty or no contest, then there is a grave fault in the American constitutional system. But the schools and leading privately owned agencies of public information all
say the American constitutional system is excellent, the best in the world. The intelligent citizen, therefore, must feel not a little confused when he hears charges made of improper political motivation. If that is the kind of system we have, some will reasonably conclude, it ought to be changed in the interests of simple justice.
World War I saw the swift rise of E. I. du Pont to industrial stardom. "Forty percent of the shells fired by the Allies were hurled from the cannon by du Pont explosives. At the same time, the company met fully one-half of America's domestic requirements for dynamite and black blasting powder. " 29 Eighty-five per cent of production was explosives. In brief, without Du Pont the Allies could hardly have fought what has been appropriately called the most unnecessary big war in history.
At the same time the company's capital flooded upward from $83 million to $308 million on the basis of a wartime gross business of $1 billion. Net profits for four war years reached $237 million, of which $141 million were paid out in dividends. "Those dividends could be reckoned at four hundred and fifty-eight percent of the stock's par value. " 30
With $49 million of wartime profits not paid out in dividends, E. I. du Pont de Nemours bought its initial interest in General Motors Corporation, then the product of the merger of twenty-one independent automobile companies. 31 Du Pont soon took control.
German interests having been driven from the postwar domestic chemical field, where they had been entrenched, E. I. du Pont de Nemours branched into the general chemical field, in which it previously had only a small foothold. it did this not through some inherent scientific capability, as is sometimes suggested, but by buying up with wartime profits one independent chemical company after the other: Viscoloid Company, National Ammonia, Grasselli Chemicals, Krebs Pigment and Chemical, Capes-Viscose, Roessler and Hasslacher Chemical, Commercial Pigments, Newport Chemical, Remington Arms Company and others. Individual Du Pouts, now well supplied with funds, bought into North American Aviation, Bendix Aviation and United States Steel. 32 Provided with enough money, anyone could have done this.
Offered during World War II a cost-plus-fixed-fee contract to build atomic bomb plants for the Atomic Energy Commission, E. I. du Pont de Nemours, which alone had gathered to its capacious bosom the engineering facilities and personnel for such a gigantic task, set the fee at $1.
What led the company to make this resoundingly modest charge is said in the official history of the Atomic Energy Commission to have been the following considerations:
"The tremendous military potential of the atomic weapon posed a possible threat to the company's future public relations. The du Pont leadership had not forgotten the 'merchants of death' label slapped on the company during the Nye Committee investigations in the 1930's. Certainly it was clear that the company had not sought the assignment; but to keep the record straight, du Pont refused to accept any profit. The fixed fee was limited to one dollar. Any profits accruing from allowances for administrative overhead would be returned to the government. Walter S. Carpenter, Jr. , the du Pont president, disavowed not only profits but also any intention of staying in the atomic bomb business after the war. In his opinion, the production of such weapons should be controlled exclusively by the government. The contract provided that any patent rights arising from the project would lie solely with the United States. " 33
And so we come to the present when the labyrinthine Du Pont enterprise, no longer specializing exclusively in the merchandisable means of death, is devoted to making
thousands of peacetime products, what it calls "better things for better living through chemistry. "
The Mellons
Four leading Mellons on the Fortune list are given a minimal combined worth of $1. 6 billion and a maximum of $2. 8 billion. As market values up to this writing have risen sharply, these figures now embody considerable understatement.
The Mellons are another close family group, with holdings concentrated as shown in the TNEC study in a broad group of leading companies: Aluminum Corporation of America, Gulf Oil Company, the Allis-Chalmers Manufacturing Company, the Bethlehem Steel Corporation, the General American Transportation Corporation, Jones and Laughlin Steel Corporation, Koppers United Company, Lone Star Gas Corporation, Niagara Hudson Power Corporation, Pittsburgh Coal Company, Pittsburgh Plate Glass Company, The Virginian Railway Company, Westinghouse Electric and Manufacturing Company and various others. Of this group the Mellons controlled Aluminum Corporation, Koppers United and Gulf Oil. Five Mellons held these interests directly and through two family holding companies, three closely held insurance and securities companies, six trust funds, one estate and one foundation. 34
In Aluminum Corporation common stock the Mellons held 33. 85 per cent; in the contingent voting preferred stock the family and its foundation held 24. 98 per cent. In Gulf Oil Company the Mellon family and its personal companies owned 70. 24 per cent of the common stock, an unusually large single family stake in so large an enterprise. The Mellons held 52. 42 per cent of the common stock of Koppers United and 1. 52 per cent of the contingent voting preferred. 35
Applying the TNEC percentages of ownership at closing 1964 market prices the value of the Mellon holdings in the three leading companies alone would be:
7,127,725 shares of Aluminum Company common
(33 per cent of outstanding 21,413,177 shares)
at 61-1/2
164,477 shares Aluminum Company
preferred (25 per cent of outstanding
659,909 shares) at median price
of 85-1/2 (1964 price range 83-88)
72,579,487 shares Gulf Oil Corporation
(70 per cent of outstanding 103,684,981
shares) at 58-5/8
1,166,567 common shares Koppers (52-1/2 per cent
of 2,222,032 outstanding shares) at 55-3/8
Other companies
$438,970,087
$9,128,468
$4,254,972,426
$64,599,968
?
_______________
Total $4,767,669,949
This computation is made without considering the Mellon holding in the Mellon National Bank of Pittsburgh, not included in the TNEC study, and in various other banks and in many companies with Mellon participation as reported in the TNEC study. But although the preceding table shows the pattern of the family holdings in general, there have been shifts in Mellon holdings since the TNEC study, notably through the establishment of a series of foundations in the 1940's.
These foundations, whose holdings should not be necessarily considered as additions to those already indicated, are as follows:
Date Founded 1962 Assets
The A. W. Mellon Educational and 1930 $24,197,042
Charitable Trust
(included in TNEC study)
Avalon Foundation, N. Y.
(Mrs. Ailsa Mellon Bruce)
Sarah Mellon Scaife Foundation
Old Dominion Foundation, N. Y.
(Paul Mellon)
Bollingen Foundation, N. Y.
(Paul Mellon)
The (Richard K. ) Mellon Foundation
The (Matthew T. ) Mellon Foundation
1940 $99,182,784
1941 $20,098,157
1941 $65,082,139
1945 $6,013,881
1947 $82,028,250
1946 $160,775
(as of 1960)
____________
$296,763,028
Foundation Total
Although the income and any capital distribution from these foundations must be used for legally prescribed public purposes, the capital investments, as long as they remain undistributed, represent Mellon voting power in industry. But the foundations established since 1940 do not, as comparison with the first tabulation shows, diminish by much the personal Mellon holdings of today when computed according to the TNEC pattern. The family, all lovers of the old-time capitalism will be cheered to note, does not appear to be dissipating its fortune in riotous charity.
Andrew Mellon (1855-1937) was himself an inheritor, the son of Thomas Mellon, a rich Pittsburgh private banker and the pre-Civil War Horatio Alger source of the family fortune. From his father's bank Andrew and his brother, Richard B. , began branching out and initially acquired a commercial bank and an insurance company. It was a small beginning, with far greater deeds of financial derring-do to come.
The first really big Mellon opportunity came, however, when two metallurgists told Andrew in 1989 of a successful new process for smelting aluminum discovered by Charles M. Hall. In return for $250,000 credit with T. Mellon & Sons, the Pittsburgh Reduction Company, owner of the process, gave Mellon control of the company. it was common at the time for banks to demand a "piece of the action" in any promising enterprise that applied for loans, which is how Mellon and other bankers turned up with toothsome participations in so many burgeoning enterprises. 36 For these participations in many if not most cases, they paid nothing whatever but sat in their money-nets like intent spiders and let the flies walk in one by one.
The Mellon participation in Gulf Oil came about similarly. Anthony F. Luchich, a Yugoslav prospector, brought in the great Spindletop gusher in Texas in 1901, which quickly led to more oil than all the Pennsylvania fields had since 1859. Money was now needed to handle the flow and build pipelines, and Pittsburgh interests were appealed to. Among these were William Larimer Mellon, nephew of Andrew and himself an heir of Thomas Mellon. In the upshot there was formed the J. M. Gulley Petroleum Company, capitalized at $15 million. Andrew W. Mellon bought the prospector's interest for $400,000 and altogether put $4. 5 million into the new company, of which Colonel J. M. Guffey, who had an interest in the Spindletop lease, was given the presidency, $1 million and a promise of $500,000 from future dividends. Andrew W. Mellon and his brother, Richard B. , took 40 per cent of the stock and sold 60 per cent to six Pittsburgh capitalists. 37 Guffey Petroleum soon was renamed Gulf Oil. Guffey himself was dropped.
Mellon utilized the same technique again and again with other entrepreneurs who came to him for the means necessary to launch or tide over their enterprises.
The Aluminum Company was eventually judicially designated a monopoly but not until it had enjoyed a long charmed life. It repulsed a number of private suits under the Sherman Act early in the century and on a few occasions outmaneuvered the Federal
Trade Commission, which could not prove its bone-deep belief that the company was engaging in unfair competition. In 1912, however, the Aluminum Company consented to a practically meaningless decree in an action brought by an unenthusiastic Department of Justice charging unfair trade practices.
Again in 1937 the Department of justice brought suit, holding that the company held a 90 per cent monopoly. In 1945 the United States Court of Appeals, Second Circuit, concluded that the company indeed held prewar monopoly control of ingot production. But the court did not force the company to dispose of any plants pending disposition of government aluminummaking facilities built in wartime 1942-45.
During the war, with aluminum in short supply, Reynolds Metals Company with government encouragement began primary production, the first competitor in the field since 1893. After the war the government, bypassing Aluminum Company, offered its plants to 224 different companies--some of them large--and strangely found no buyers. Surplus Property Administrator W. Stuart Symington then accused Aluminum Company of blocking the surplus plant sale by its patent control. After denying this, Alcoa relinquished to the government its many patents, gobbled up during the years, thus throwing them open to free licensing.
Reynolds Metals now bought or leased various of the government plants created around these patents. Kaiser Aluminum, formed for the purpose, took over other government-built plants. Since then the Anaconda Copper Company and Revere Copper and Brass, Inc. , have entered the lucrative field, with still others likely to come. The long Mellon monopoly in aluminum was finally broken, but not before the Mellons made millions from it. And the country is now for the first time well supplied with aluminum.
Who are the Mellons today? There are Paul Mellon, son of Andrew Mellon, director of the Mellon National Bank and various Mellon funds; his children, Timothy and Catherine Conover (Mrs. John W. Warner); Richard King Mellon, Jr. , son of Richard Beatty Mellon, nephew of Andrew, director and officer of various leading Mellon enterprises; his children, Richard, Cassandra, Constance and Seward; Ailsa Mellon (Mrs. Mellon Bruce), daughter of Andrew and mother of Audrey Mellon Bruce; Sarah Mellon (Mrs. Alan M. Scaife, died 1965), daughter of Richard Beatty Mellon and mother of Richard Mellon Scaife, who is a director of the Mellon National Bank and of various Mellon funds and trusts; William Larimer Mellon, M. D. , and others. By no means as numerous as the Du Ponts, the Mellons nevertheless constitute more than the glittering quartet named by Fortune.
The Rockefeller Monolith
Fortune, without mentioning Rockefeller guidance over huge foundation endowments, credited seven Rockefellers with a minimum combined holding in 1957 of $1 billion and a maximum of $1. 9 billion. Although the Rockefeller name is now synonymous with extreme wealth it is probable (owing to its earlier head-on conflicts with the law and consequent attempts to propitiate an aroused public opinion by contributions to publicly approved activities) that the combined Rockefeller fortune today is below that of the Du Ponts, who apparently have not as yet felt it necessary to indulge in baroque endowment operations to appease public opinion. The concentrated Rockefeller financial punch, however, both because of controlled foundations and many personal trust funds, is demonstrably more than double the maximum weight indicated by Fortune; beyond this the Rockefellers have acquired considerable moral influence. To some small extent the larger figure I produce is attributable to the rise in market value between 1957 and 1964; but Fortune left a great deal out of its calculations.
The death of John D. Rockefeller, Jr. , in 1960 provides us with a concrete case for checking on Fortune's estimate of inherited wealth. The probate of the Rockefeller will showed that Fortune was again astray (in this case very far astray) in estimating JDR, Jr. , as pe rsonally worth $400-$700 million in 1957; the probate showed his holdings added up to no more than approximately $150 million. 38 For he had over the years, as it was announced, established trust funds for six children and twenty-two grandchildren. 39 From these trust funds the children receive only income, with the principal sums presumably accruing to the grandchildren. There is thus assured a steady future supply of well-propertied Rockefellers.
If it was not evident before this, it should be clearly evident now that Fortune had no confidential information and no special expertise in computing the value of the large fortunes, individual or collective. Sometimes its procedure produced acceptably accurate results; at other times it was far off the target. Its listing, however, provides a convenient springboard for getting more deeply into the basic data.
The JDR, Jr. , estate paid virtually no inheritance taxes because it was left half to the widow and half to the Rockefeller Brothers Fund, a foundation. Under the inheritance- tax law as revised in 1948, over a presidential veto, half of any estate going to a spouse is nontaxable under what is pleasantly called the marital deduction. Who could be so disagreeable, except one hostile to marriage and possibly home, children and dogs as well, as to object to such a deduction? But the effect of this deduction was to more than halve inheritance taxes for married property holders, a vast majority. The greatest money benefit, obviously, accrued to the very largest property holders, and it was undoubtedly they who deviously pressed for the measure through their many staunch friends in Congress.
As the half of the Rockefeller estate left to the fraternal foundation was also nontaxable, the whole was nontaxable.
However, when, as and if the widow disposed of her trust fund, which she was empowered to do, it became estate-taxable (in lower brackets, to be sure, than if it were still part of the original whole estate). If left to charity it would be nontaxable. But if the widow made no disposition of the capital, it was all to accrue to JDR, Jr's. , children, when it would be taxable as in the case of any noncharitable disposition.
For many years Rockefeller, Jr. , son of the original self-made tycoon, had been prudently reducing his taxable estate by (1) establishing trust funds for members of his family and (2) allocating money to foundations controlled by the family. Thus, early in the 1930's he had begun transferring large holdings into trust funds for the children, according to the federal record. 40 As of December 18, 1934, when stock prices were abnormally low, two trusts for Abby Rockefeller were launched giving 2. 13 per cent ownership of Standard Oil Company of California; one for John D. III giving . 99 per cent ownership; and one for Nelson A. Rockefeller giving . 92 per cent ownership--4. 04 per cent in all. Similar trusts were set up at the same time for the same children in Standard Oil Company of New Jersey. 41 Later, as the will disclosed, trusts had been established for all six children and the twenty-two grandchildren. The family was now resting quietly in trust.
As a general pattern, the TNEC study disclosed that 30 per cent of the Rockefeller holdings were in foundations, 30 per cent in family trust funds and 40 per cent in the hands of individuals, a judiciously balanced diversification. 42 Trust fund holdings are now apparently higher, individual holdings lower.
There are reputed to be a large number of Rockefeller trust funds. According to the Washington Daily News, June 8, 1967, page 69, there may be as many as seventy-five family trust accounts "set up by John D. 'Junior,' for his six children and by those
children for their 23 offspring. The latter generation--known as the 'cousins'--have begun setting up trust accounts for their 44 children. "
In pointing out the low taxability of the JDR, Jr. , estate I do not intend to imply that some sort of impropriety was practiced. Rockefeller, Jr. , acted according to the prescribed laws and like any prudentially motivated parent in making the best possible material provision for his children. My reason for stressing the tax-free status of his estate is only to counter the notion, widely spread by newspapers and right-wing demagogues, that the tax laws in general are breaking down, dispersing or seriously trimming property holdings of all kinds. The dominant effect of the tax laws actually (and not surprisingly in a society dominated by property holders with abundant money and patronage to dispense) is to preserve and solidify private property in general, especially big private property. The latter type, naturally, derives the most substantial benefits from the equal protection of the law which, as Anatole France remarked, majestically allows rich as well as poor to sleep under bridges.
There was the same sort of low-taxable estate left when Rockefeller, Sr. , died in 1937. The probate disclosed that he had left a pitiful $25 million, of which state and federal taxes took about half; nearly all of the remainder was left to a granddaughter, Mrs. Margaret Strong de Cuevas, and her children and to the Rockefeller Institute for Medical Research. 43 The bulk of the fortune he had amassed through the original Standard Oil Trust had already been transferred to his son and to foundations. Whatever may have been transferred before 1914 was tax free; whatever may have been transferred between 1924 and 1930 bore the low tax rates of the Mellon era in government finance; whatever was transferred in the 1930's was at depression-low values.
In brief, the amount of inheritance taxes collected from John D. Rockefeller Sr. and Jr. has been virtually nil. And despite the continual references in the public prints to how taxes are breaking up big fortunes, the Rockefeller fortune, like the Du Pont, Mellon and many others assembled in the nineteenth century, is still intact, fully fleshed and going strong.
As Fortune was very much in error on the JDR, Jr. , holding, there is no reason to suppose it was any more accurate in placing each of the six children in the broad $100- $200 million bracket. The surer procedure, it seems to me, is to ascertain as I have done before what the TNEC, under power of subpoena, found to be the pattern and percentage of total family holdings by individuals, trust funds, family holding companies and foundations, and to assume at least tentatively that this pattern and percentage still persist. When anyone argues (as some are bound to) that holdings in a company may have been altered, it should be pointed that such alteration would not seriously call this method into question. Whatever was sold in one place would be invested somewhere else--probably to better effect, as these large holdings are all under skillful professional supervision and tend to take maximum advantage of circumstances and to minimize disadvantages. New investments outperform old, as in the case of W. Averell Harriman's investment in Polaroid. As for the modest sums paid out in gift taxes it is standard trust doctrine that these can be recovered gradually out of the income of the trust. On top of all this, the big fortunes have an unending stream of dividends, the spending of which would wear anyone out and has indeed worn out some flamboyant spenders. Much of these dividends (after taxes) are reinvested, thus tending to increase the fortune.
The Rockefellers, like the Du Ponts and Mellons, could be relatively poorer today than they were at the end of 1937 (the date of the TNEC data for this phase of the inquiry) only if they had (1) sold substantial interests and hoarded the proceeds in
uninvested cash or placed them in fixed-interest securities; (2) if they had burned or flung away the cash proceeds of investment sales; (3) if they had sold good investments and made bad investments; or (4) if they had given huge properties into the absolute ownership of others. As there is no evidence available that they did any of these things, we may dismiss the idea that their total vested interest is smaller, either absolutely or relatively, than it was at the end of 1937. It must, in fact, be larger owing to the steady receipt of big revenues and the normal use of skilled professional advisers. The TNEC percentages, carried up to the present, must be, if anything, understatements in the case of the Rockefellers as in the cases of the Du Ponts and Mellons.
It should be stressed that the TNEC study did not embrace all the holdings of these groups. It did not include holdings in strictly financial enterprises, such as banks and insurance companies, any real estate or any stockholdings that aggregated less than the twenty largest in any single company. As to the Rockefellers, there was not included their dominant interest in the Chase National Bank, one of the international "Big Three" among commercial banks, colossal Rockefeller Center in New York City and a variety of extensive real estate and landholdings. Indeed, a substantial fortune for each of these big families was deliberately left out of consideration in the TNEC study. If a man were to own whatever the Rockefellers, Du Ponts or Mellons held that was not even counted in the TNEC study, he would be considered one of the nation's nabobs.
The following table applies the percentage of ownership of the Rockefeller interests, including foundations, as they appeared among the twenty largest stockholders as ascertained by the TNEC, and shows the value of these same percentages and at closing 1964 prices. 4
1964 Prices
Stockholdings
(percentage)
Prices
$7,000,000
Atlantic Refining Co. (S. O. ) 1. 16
$6,821,025
Bethlehem Steel Corp. . 41
$10,379,268
Consolidated Edison (N. Y.