This circumstance and the fact that there is such concentrated ownership of very large companies show that
concentration
of ownership and control in few hands is a built-in feature of the American economy.
Lundberg - The-Rich-and-the-Super-Rich-by-Ferdinand-Lundberg
34 There was another $35 billion for which the banks acted as investment advisory agencies and an unknown amount in the bands of individuals or corporations that did not make use of banks as advisory agencies.
There are two significant aspects of these trust-fund figures.
First, they represent an entirely new set of statistics, the gathering of which was begun by the comptroller of the currency only in 1963.
Of greater significance, however, is that the figures show the deep foundations of vested inherited wealth in the United States. Trust funds are popularly thought of as solely for the benefit of widows and minor orphans, and such are no doubt included among the beneficiaries. But, by and large, most of the beneficiaries are able-bodied adults, unwidowed, unorphaned and, as often as not, pleasantly idle. In many cases the first generation in receipt of trust-fund benefits never collects the principal at all, which is left to the next generation. When principal is paid out, it is often in dribbling installments throughout the recipients' lifetimes. In the case of the original Marshall Field, trusts were established that did not allow the grandchildren to collect the last part of principal until they were fifty years of age.
Such provisos keep the fortune from being dissipated through the exercise of immature judgment. The first generation cannot disturb the principal and the next generation does not get all of it or, sometimes, any of it until its members are quite advanced in age. At that point many of them lock the principal, Boston-style, back in new trusts for the benefit of the next two generations. Again, too, inheritance taxes are bypassed except at those points where principal is paid over.
From a property-ownership point of view all this undoubtedly has great merit. But what it signifies for the unpropertied is that they will never lay hands on any of this property no matter how they perform, short of overturning the legal system and the military forces behind it. The beneficiaries cannot even be swindled out of their benefices. Obviously, economic opportunities, legal and illegal, are considerably
narrowed for the multitude when so much property is closely sequestered for the benefit of unborn generations.
The trust funds, like the family holding companies, point up the fact that the United States, like the Europe it proposed to surpass in equality of opportunity, has developed a permanent hereditary propertied class. Indeed, owing to the far greater proportion of public ownership now in western Europe, the United States actually has more of a hereditary property system than does Europe.
And if this seems paradoxical, one may notice this even greater paradox: There are kings now in Europe who are far more democratic in their attitudes than the average American citizen.
What stocks are trust funds concentrated in? This is not difficult to ascertain. Although individual trust funds may, by stipulation, be concentrated in one or a few stocks, when there is no such stipulation the principle of diversification is resorted to by competent trust officers. This amounts to invoking the principle of the investment trusts that limits their holding of any issue to no more than 2 per cent of the entire capital. The big New York banks issue to interested parties the portfolio list of their collective trust funds--that is, those where many smaller trusts are mingled together, with each trust participating proportionately to its size. A small trust is defined in different ways by different banks and may be as much as $500,000. "Small" here means too small to be managed profitably by itself.
As these lists of collective trust funds show, the stock investment is mainly in the list of the 200 largest companies and the 500 largest industrial companies and the 50 largest merchandising, public utilities and railroads, respectively, on the annual Fortune lists. Trust funds are not invested in the biggest companies per se but in the relatively well- performing stable companies that are relatively cheapest at each time of purchase. Public utility and insurance company stocks have for some time especially attracted trust accounts.
While questionable practices were uncovered in some trust accounts in the 1930's, such as stuffing them with dubious issues for which the bank was in an underwriting syndicate (now no longer possible with the separation of underwriting from banking under the law), in an advanced jurisdiction like New York the trust companies are under strict state supervision. The trust company has come to the fore as an institution because of the many cases in the past where individual trustees have exercised bad judgment or turned out to have sticky fingers with respect to the trusteed property. The very life of a trust company depends upon its proper operation within average limits.
Before leaving this topic of trust funds one may ask: What is their major utility? The trust funds are designed to keep principal intact and impervious to error of inexperienced heirs, and to hold inheritance taxes to a minimum.
Family Holding Companies Revisited
The personal and family holding companies also perform this function, and more. A personal holding company is defined in the Revenue Code as a company owned 50 per cent or more by no more than five stockholders with income derived primarily from certain types of investments. The two Mellon entities already named are examples. The family holding companies are the equivalent of close investment trusts and operate under tax laws appropriate to such entities.
Says Standard Doctrine: "A personal holding company is a close corporation, organized to hold corporate stocks and bonds and other investment assets, including personal service contracts, and employed to retain income for distribution at such time as is most advantageous to the individual stockholders from a tax point of view. " 35
As of 1958, the latest date available, there were 6,285 personal holding companies. Another type of closely held corporation, similar in many cases in its functions, is the legally defined Small Business Corporation. There were, as of 1962, more than 120,000 of these. They are taxed through their stockholders, of which there may not be more than ten.
The personal holding companies are purely investment companies. The total assets for all of them were $5,236,429,000, but $4,304,158,000 of the assets were concentrated in only 652 with assets of $1 million or more; 25 had assets exceeding $50 million, 12 exceeding $25 million and 48 exceeding $10 million. Total income of these entities was $361,916,000, of which $216,822,000 came from dividends. Whatever their size, these were instrumentalities of larger property holders. 36
A remaining advantage in both corporate forms is that they concentrate corporate voting power for the special benefit of all the beneficiaries. Let us, for the sake of simplicity, suppose that there is a family group of 200 individuals, each owning precisely $1 million stock in the mythical SuperCosmos Corporation whose outstanding stock is valued at $1 billion. Each one of these persons would on the basis of his personal equity have little to say about the company, it is clear, but would be part of the rabble of minor stockholders. Combined, however, possibly in a group of personal holding companies, they own 20 per cent of the stock and thus name members of the board and are always well advised in advance of inner-company developments. Their representatives, too, can trade such inner-company information with similar groups in other companies for investment orientation. They are, also, politically powerful as a group.
Again, under existing tax laws it is the general strategy of the very rich to keep dividend pay-outs low in relation to earnings. The family investment company can hold back some of its income as corporate reserve, thus reducing the tax liability of its members. This corporate reserve, in turn, is reinvested.
In the sphere of operating corporations as a whole, producing goods or services for the public, the average dividend pay-out is ordinarily about 50 per cent of earnings. Some of the earnings are retained to replace wornout equipment, to expand and to keep dividends stabilized in less profitable years. But corporations differ in their pay-out rates, even among good earners, ranging from zero to 80 per cent. Small stockholders tend to favor those with high pay-out rates. But many big stockholders have come to prefer those with small pay-out rates, for then personal income taxes are lower.
Control of companies, however exercised, enables one to have something to say on this important subject of pay-out rates.
But in recent years many of the large corporations have retained earnings greatly in excess of replacement and future dividend needs. Such earnings have been used in the acquisition of companies in unrelated fields, as part of a policy of investment diversification, and in buying control of foreign companies, which might be classed as economic imperialism. The advantage to the big stockholders is that the money is not paid out in taxable income but is continually ploughed back to increase the underlying value of equities. However, if any big stockholder wants more income he can take it in the form of low-taxed capital gains by selling some of his stock. The large yearly aggregates of capital-gain income reported to the Internal Revenue Bureau since 1950 reveal what is happening.
A fairly recent concept that has emerged in the corporate world is that of the "growth company. " A growth company, manifestly, is a company that grows. The name is attached rather indiscriminately by brokers to new companies in technologically novel fields: electronics, space-age, atomic power, etc. Not all of these are growth companies
for, as experience shows, not all of them grow. But any company that ploughs back a large proportion of its earnings steadily is obviously a growth company. With taxes in mind such companies are advantageous.
The very wealthy, in brief, are less interested in increasing their taxable incomes than in increasing their nontaxable ownership stake. This, when necessary, can always be cashed.
Observations En Passant
There remain some observations to be made about the American hereditary owners,
contradicting common beliefs.
It is generally supposed that the heirs of the big fortune-builders are comparatively incompetent playboys or at best poor copies of the original Old Man. While wastrels have been seen among some of the very wealthy, most of them women or some man intent upon impressing some woman (Astor, Vanderbilt, Hearst and others), in all the big surviving fortunes the heirs seem to show greater and greater finesse in applying Standard Doctrine under more and more complex conditions. The original fortune- builder might not understand everything they were doing but he would have to admit they are getting results as good as or better than he ever got. One reason for this is that the heirs now have available to them much more highly developed professional experts, deeply versed in the intricacies of each situation: economists, statisticians, analysts, engineers, psychologists, lawyers and the like.
Two original Du Ponts did very well in launching E. I. du Pont de Nemours and Company and deserve a reverent salute from all deeply committed money fans. But they seem to have been outdone by every succeeding generation of Du Ponts, each of which appears to have missed no opportunity to enlarge that part of the fortune it inherited.
The same with the Fords. After his first great success Henry Ford, set in his ways, dogmatic, began to lose his touch. He refused to defer to his son Edsel, who close observers believe would have put the company on a sounder footing than it found itself in the 1940's. But Henry Ford II, a grandson in his twenties, later aided by two younger brothers, brought the Ford Motor Company up to new heights of wealth, public esteem and prestige. In a little more than ten years the grandsons more than sextupled the value of the company, outperforming the economy as a whole, and have no doubt engaged in unknown side coups of more than modest proportions.
Judge Thomas Mellon's sons outdid his financial feats, and his grandchildren do not appear, under more difficult circumstances, to have lost the golden touch. The Mellons are still going strong, surrounded by family holding companies, trust funds and banks.
As to the Rockefellers, it might appear that none of them will ever be able to outdistance the wily old monopolist who put the family on the financial and political maps. But many authorities would argue that John D. Rockefeller, Jr. , performed a far more difficult feat in holding the fortune together under strong political attack. Judge Mellon's opinion that it is harder to hold on to money than to make it has been explicitly made part of Standard Doctrine. 37
If this is so then Rockefeller, Jr. , who inherited a difficult situation, must be considered to have surpassed his father. The grandchildren are doing even better, for in addition to advancing the family fortunes they have performed the difficult feat of making themselves the idols of a considerable public.
As to it being more difficult to retain money than to make it, probably few would readily agree with this proposition. But slight reflection will show that it is true. Most adults have jobs and are paid. But how long does the weekly pay check last? Could one
resolve not to spend it? Most people could not make such a resolution unless they wished to starve. Actually, most persons are unable to save as much as an average 5 per cent of their earnings. This state of affairs illustrates the point.
The average man in the street might contend that if his pay were only higher he would retain some of it; and in some few cases, let us agree, he would. But from time to time there are big sweepstakes and lottery winners, suddenly possessed of goodly sums. How old judge Mellon would smile if he could hear them excitedly telling newspaper reporters what they are going to do with their windfalls: a new house, a new wheelchair for grandma, crutches for Tiny Tim, a new car, a trip to Florida and then some government bonds of declining purchasing power! A year or so later, as it turns out, they are all where they were financially to begin with, looking back wistfully to the time they were suddenly rich. What happened to the money? they ask. Where did it go?
What defeats most people in holding onto money, reinforcing the judgment of Judge Mellon, is that they are basically childish spenders. And therein lies part of the opportunity of acquisitive moneymakers. One task of the marketplace is to separate people from their money, often giving them something meretricious in return.
Present Status of 200 TNEC Corporations
What has happened to the two hundred corporations of the TNEC in the twenty-five years that have elapsed? Have any fallen by the wayside, carrying their owners to disaster? Have any slipped from the top of the heap?
"Analysis of the 1937 group of 200 non-financial corporations," according to The Dartmouth Study 38 "reveals on the surface a number of things. In terms of current dollar values there has been great growth for the group as a whole. In terms of constant dollars (values adjusted for depreciation of money), the total growth is probably not much greater than the rate of growth of our economy. This point cannot be pressed further, however, in the absence of detailed information about the accounting adjustments which the various firms have made as the value of the dollar has declined and as new assets have been added. "
The TNEC list is set forth parallel with the 1964 list of biggest nonfinancial corporations in Appendix B.
There have been changes of detail in the list (although not significant) with respect to who owns and controls the wealth. With the exception of a few newcomers, the same groups own the companies as owned them in 1937.
Certain companies have moved off the master list of the leading 200, not because they have lost out entirely but because they have been squeezed off by mergers or by the emergence of new industries such as aviation and natural gas pipelines.
Except for the Mellon (Pittsburgh) Consolidation Coal Company, all coal companies have been pushed off the list, replaced by gas pipelines. Railroads have moved down on the list and some have moved off; but a merger kept Erie-Lackawanna on the list. Pullman, Inc. , a Mellon enterprise, has declined, partly because of an adverse antitrust decision. It is evident that the loss of a monopoly position in the face of new means of transport is what has taken the bloom off the railroads. In meat packing, the "big four" have been supplanted by the "big two"--Swift and Armour.
The electric utilities on the two lists are not strictly comparable. On the later list are many new regional companies that are the outcome of the dissolution of the old holding companies. But in essentials the same electric power properties are on both lists, though often under different names.
Film companies have been pushed off the list, owing to the competitive advent of television and adverse antitrust decisions. Their owners were never seriously classified among the big-wealthy.
In all, close to fifty companies appear to have been pushed off the list. In addition to three coal companies, two packers and fifteen old-line utility holding companies, they are: Texas Gulf Sulphur, American Sugar Refining, American Woolen (Textron), Hearst Consolidated, International Shoe, New Jersey Zinc, U. S. Smelting, National Supply, United Shoe Machinery, Gimbel's, Marshall Field, R. H. Macy, Hudson and Manhattan Rail Road, six interstate railroads and two film companies. No really big interests experienced a decline.
Some newcomers are the product of split-offs. Western Electric came out of AT&T and now ranks twenty-fifth in size. The only other newcomer in the first twenty-five is Tennessee Gas Transmission, representing new capital mobilization. The only newcomer in the second twenty-five is El Paso Natural Gas, owing to similar circumstances.
The second fifty have among them as new faces only Sperry Rand and Olin Mathieson, outcomes of mergers.
The most recent list, in brief, represents the same old crowd with a few additions produced mainly by mergers and subtractions by squeezing.
At the very top there is DO change except that the companies have grown much larger. AT&T, largest company in the world, leader of both lists and the stock of which is widely held, had total 1964 assets of $30. 306 billion compared with $3. 859 billion in 1937. Standard Oil (New Jersey), largest purely industrial company in the world in point of assets, had assets of $12. 49 billion compared with $2. 06 billion in 1937, and was in second place both times.
The smallest company on the TNEC list was Texas Gulf Sulphur, with assets of $62. 9 million. The smallest company on the later Fortune list was Scott Paper, closely shadowed by Allied Stores, with assets of $413. 8 million.
The TNEC list was compiled during a depression, the Fortune list after a war and twenty years of boom, heightened concentration and inflation.
As to the owners and controllers, there has been no significant change except that they are more firmly established in the ascendancy than before, Four Rockefeller companies appear among the first twenty-five compared with 3 in 1937, and there are 6 of them on the TNEC list and 7 on the Fortune list. The two big Du Pont companies have moved up among the first twenty-five, improving relatively. One of the chief Mellon properties, Gulf Oil, has moved into the first twenty-five, in eighth place, where it was not to be found in 1937. The Ford Motor Company has moved up from twenty-third to fourth place.
One of the most spectacular improvements in the approximately thirty or so years separating the two lists was Sears, Roebuck and Company, which moved from sixty- ninth place, with assets of $284 million, to ninth place, with assets of $4. 271 billion, making it the world's leading retail merchandiser. The position of the dominant Rosenwald family has been correspondingly improved, making it easily worth more than $500 million and on the threshold of super-wealth. An even more spectacular growth company was International Business Machines, leader of the computer- automation field, which moved from one hundred eighty-fifth to twelfth place in size of assets. Most of the newcomers to the list, however, are the result of mergers, spin-offs or the rise of new industries such as aviation and gas pipelines on the basis of new capital. But, although there are newcomers, few of the newcomers are new properties.
Mergers either brought companies onto the list, moved companies up on the list or kept them on the list: General Telephone, American Metal Climax, International Telephone and Telegraph, Olin Mathieson, Burlington Industries, Erie-Lackawanna, Georgia- Pacific, General Dynamics, United Merchants and others.
While the lists in both cases represent only a small sample of American companies, these companies represent almost 70 per cent of U. S. output. Basic economic activity outside these lists represents the lesser portion of the pie.
Aluminum Company of America moved from seventy-ninth to thirty-eighth place even though its monopoly position was broken by the sale of wartime government aluminum plants to competitors. The Kaiser interests--one of these competitors, and nurtured by government patronage--have put no less than three new companies on the master list: Kaiser Aluminum, Kaiser Industries and Kaiser Steel.
The Pew family's Sun Oil Company moved up from one hundred thirty-eighth place to seventy-fifth. Although J. Paul Getty's Tidewater Oil is only sixty-ninth on the list, up from ninety-second place, it should be remembered that Getty owns most of it and has many other oil interests whose lesser dimensions fail to qualify them for this list.
Viewed again purely from the perspective of this most recent list of the biggest American proprietors, the financial grand dukes of the United States appear still to be, individually and collectively, the Rockefellers, Du Ponts, Fords, Mellons, Rosenwalds, Pews, Gettys, Phiippses, Mathers, Hartfords, McCormicks and individuals like Allen Kirby, who in addition to his New York Central and Woolworth holdings is a leading stockholder of the big Manufacturers Hanover Trust Co. of New York.
The old question pops up: Have positions in these companies been maintained at the same level throughout the years? In some cases, as in that of the Du Ponts, we know they have. There have been some shifts in Rockefeller holdings, and the Ford holdings are about what they were when Henry Ford I died. At the time of the TNEC study the Rosenwalds held 12. 5 per cent of Sears, Roebuck. In view of the steady strong growth of this company one would not suppose they would have sold out. If anything, guided by Standard Doctrine, they would have increased their holdings.
As groups like railroads and coal companies declined in the economy, no doubt leading holders tended to sell them out. But they may also have reestablished positions at lower prices, and in recent years the railroads have shown great improvement, both in earnings and in market action of securities.
No big interests such as Hartfords, Zellerbachs, Weyerhaeusers, Dukes, Pitcairns, Mathews, Swifts and others are reported to have cleared out. Among smaller interests there have undoubtedly been inter-company shifts of holdings, as into oils, aviation, natural gas and gas pipelines.
Old money, though, has found its way into successful new enterprises, as in the Harriman-Warburg-Straus ground-floor investment in Polaroid.
We have seen that concentrated ownership is a more prominent feature of small companies.
This circumstance and the fact that there is such concentrated ownership of very large companies show that concentration of ownership and control in few hands is a built-in feature of the American economy. While twenty million or more stockholders have an equity (usually trifling) in these and hundreds of other companies, it is a fact, as the TNEC study showed, that from two to three up to twenty of the largest stockholders own very large to total percentages of the companies. Total ownership by small inter- related groups was shown for Great Atlantic & Pacific Tea Company, Ford Motor Company and Campbell Soup Company. The small stockholders are therefore no more than insects crawling on the backs of rhinoceri.
Six
WHERE ARE THEY NOW?
As the TNEC data are more than twenty-five years old the question naturally arises: Are these large holdings of wealth still extant? Have they not been destroyed by ruthlessly vicious taxation? Aren't the large heirs--under pressure not only of a monstrous tax burden but of militant trade unions, draconic government regulation, intense competition with each other, hostile legislators, public welfare schemes at home and Communist inroads at home and abroad--really in reduced and increasingly precarious circumstances?
The sociologist C. Wright Mills, as noticed in Chapter 2, note 2, found difficulty in ascertaining who was wealthy. He spent a good deal of time making inquiries of people supposed to know and who, though sympathetic to his quest, found the question of identities equally mysterious. He was reduced to culling names as they had been more or less randomly mentioned in various books and by authors dealing with unsystematic data and constructing his own architectonic symmetries from them.
While it cannot be claimed on the basis of any available collection of data that one has unearthed every wealthy person and clan, the means are at hand for making far better contemporary determinations than did Mills, who was apparently not aware of the monumental TNEC data. But even the TNEC findings are continually being supplemented in monthly reports of significant securities transactions, required by law, to the United States Securities and Exchange Commission (SEC), Moreover, any new issuance of securities by an existing company, or in the launching of a new company, requires that information be supplied to the SEC about major individual participations in ownership. This information is open to public scrutiny.
The reports to the SEC are tabulated alphabetically and published each month in the Official Summary of Security Transactions and Holdings, published by the United States Securities and Exchange Commission, All persons can consult back numbers in any central metropolitan public library or can subscribe to the publication at $1. 50 per year.
Under the Securities and Exchange Act, 1934, all corporate officers, directors, closed- end investment companies and individual nonofficer owners or beneficiaries of 10 per cent or more of any securities issue of any company offering securities for sale in the American market must report each month all purchases, sales or other transfers of securities in any company in which they have a direct or indirect interest.
This requirement in some ways provides far more data than did the TNEC study. For it relates to all security-selling companies, not merely the 200 largest. And while, unlike the TNEC study, it does not single out the largest stockholders as such, the requirement that stockholders owning 10 per cent or more of any issue report changes in investment position often discloses the biggest elements. If someone owned only 2 per cent of an issue but was among the twenty largest stockholders, the SEC reports, unlike the TNEC study, would not disclose him unless he was also an officer or a director.
To some extent the 10-per cent requirement partially screens big wealth, which is held mainly in family phalanxes. For if three buyers or sellers each held 9. 9 per cent of the stock of a big company, amounting to 29. 7 per cent control, the SEC reports would not show them unless they were officers or directors. The same would be true if ten members of a family each owned 5. 5 per cent of the stock, amounting to 55 per cent or absolute control. They could be represented on the board of directors by nominees, their own lawyers or bankers, who might hold only a few directors' qualifying shares.
Not only do the SEC reports show purchases and sales but also acquisitions or dispositions by bequest or inheritance, compensation, corporate distribution, exchange or conversion, stock dividends, stock splits, redemptions and gifts. While personal gifts of stock are strewn throughout the year (apparently in observance of birthdays), Christmas appears to be a favorite time of the propertied for giving stock. The Christmas gifts are especially reflected in the January and February reports for each year.
What the SEC reports do not tell us about wealth-holdings would perhaps be a better guide than the statement of what they do contain.
The SEC reports do not inform us at all about (1) federal, state and municipal bondholdings (although they do inform us about corporate bondholdings and about all senior and junior issues); (2) noncorporate real estate, land or mortgage holdings; (3) personal interests in enterprises abroad that do not offer securities in the American market; (4) holdings of noncorporate promissory notes, options, cash, foreign exchange, insurance policies and collections of jewels or objets d'art; or (5) miscellaneous personal property, such as Swiss bank accounts, racing stables, foreign islands, yachts, airplanes and cars.
It is not our intention to determine the exact extent of participation of any fortune in a particular property, although the TNEC study did make such a determination possible with respect to the largest corporations. Nor is it our intention to determine the exact investment position of any fortune at any given moment. Such a determination could only be made by a new government study or by a Permanent National Economic Committee; even the TNEC study did not inquire into stockholdings below the top twenty, although a person could be incalculably wealthy if he was the twenty-first largest stockholder in many companies. Nor is it our intention to trace shifts in holdings among various companies, although in certain cases such shifts are clearly shown by SEC data.
Despite the logical possibility of concealment of a fortune in, say, tax-exempt bonds or jewels, it should be noticed that no big fortune was ever made in such investment media. The modern corporation, plus engineering technique, more recently aided by huge government contracts, is the big and virtually exclusive instrument of modern fortune-building, and a fortune once made cannot disappear from view merely by going into tax-exempts or real estate. One can usually trace it, as in the case of Delphine Dodge, at least up to the point of its conversion into more static media.
Even with the help of the voluminous SEC reports, it is possible to lose exact trace of some large fortunes although, having no evidence of their destruction, one knows they must still exist in some form. Individuals or groups owning 15 per cent of enterprises scrutinized by the TNEC may have halved their participation and spread the proceeds of sale among various companies. If they do not function as officers or directors or hold at least 10 per cent of some company, their further transactions are not reported by the SEC.
Lamentable though this may appear, it does not impede us by much for most of the large interests stay put. They are more likely to increase their holdings as J. Paul Getty
and the Du Ponts have steadily done to the date of this writing, than to reduce them. If they merely retain their holdings, new investments are apt to be made with income from the old investments, thus obtaining desirable diversification as a shield against changes of various kinds: technological, political, cultural, economic and social.
Aims of SEC Reports
The object of the SEC reports was to terminate the rigging of securities markets, prevalent before the passage of their enabling law. Before the law was passed, company officers, directors and leading stockholders (while issuing optimistic or pessimistic reports) would secretly sell or buy the company's stock on the basis of knowledge at variance with the reports. A large public of gullible small stockbuyers was in this way repeatedly stung and tended gradually to lose faith in the riproaring Republic for which an earlier gullible horde had bled and died.
Under the securities law, insiders cannot long keep to themselves favorable or unfavorable turns in a company's outlook. Again, what they say can be evaluated in relation to what they actually do in their own securities.
Buying and selling by insiders do not invariably indicate something about a company. Insiders, too, have been wrong in their estimates of a company's position in the context of public policies and conditions. Sometimes insiders sell some of their holdings because they need money for taxes, because they see a better opportunity elsewhere or because they have a fixed policy of taking low-tax capital gains in companies with low dividend payouts. Usually it means only that they are taking profits or avoiding losses.
Some small market operators mechanically follow the buying and selling of insiders, but not with universally fortunate results. Everything else being equal, as it seldom is, it is not a bad policy to pay heed to company officers and directors when they buy or sell heavily. For this reason the SEC monthly reports are closely studied by market aficionados. But company officers, playing only for swings in the market, often sell as quickly as they buy and the knowledge is only available a month later-sometimes too late for outsiders.
One thing the SEC reports show clearly is that in many companies the officers and directors repeatedly buy and sell as a block. Presented to the country as masterful managers of giant enterprises that are the envy of the world, as builders of the nation indeed, they nevertheless in many cases seem interested in playing this private poker game which has no economic justification. It does nothing for gross national product. In so doing they show they are basically Pecuniary Men willing to turn their attention to anything that will swell their bankrolls. If they could go out on the corner and make money by trading baseball cards or stamps the way children do, or lagging pennies, one would find them out on the corner. Their icon is the stock ticker.
Different companies have different policies about timely flutters in the securities market by officers and directors. In some cases such transactions are rare. In many companies it is apparently thought to be one of the perquisites of officers to trade tip and down in a percentage of their holdings, thus incurring low capital-gains taxes while getting more income so their wives and children won't fall behind on country-club dues.
With such factors in mind the monthly SEC reports on holdings have been selectively checked with a view to updating the TNEC data, thus reassuring anxious critics that our material is all fresh and new. But, in general, in-and-out trading by mere company officers and directors has been ignored here except when it has seemed to be of significant proportions or by significant officers.
Attention has been concentrated pretty much on the original TNEC list and the 1964 Fortune list of the largest nonfinancial companies, although there is also presented an extensive listing of control groups in other well-known companies.
As to the method used in examining the SEC reports, which embrace thousands of companies and tens of thousands of individuals: The reports have been closely scrutinized in their entirety from 1960, inclusive, through 1965. As every transaction registered requires that the net remaining holding be given, one is assured of what the latest position is, confirming or not the TNEC finding at a distance of about twenty-five years. In this way, too, late-coming names of big holders (if they buy or sell) are brought into view.
Where significant large holdings have not turned up in this 1960 decade, a special tracing backward by individual companies was made prior to 1960 to ascertain the latest date when a net position was given for some family member (thus showing the continued presence of the family).
In certain companies the holdings were traced back to 1945 or to the point that yielded the latest total holding. Such a complete tracing was made of all the major Rockefeller, Mellon, Ford, Du Pont and Rosenwald properties; it was not necessary in the case of others because their presence is fully revealed by the data of the 1960's in almost all cases.
What may seem to be a defect in this method, and perhaps it is a genuine defect, is that by stopping the retroactive survey with 1960 we won't pick up any new investments made by either new or old wealth-holders prior to 1960. But the objective here is not to show the entire investment position of either new or old wealth-holders or to trace all these elements from one company to another in such cases in which they have transferred investment allegiance. All I am trying to do is to show who is rich now and who is a big newcomer to riches by presenting some large samples.
Nor am I trying to develop in detail the names and holdings of every one of 90,000 or more millionaires. Limited space makes it necessary to confine attention to the cream of the crop.
In the case of some of the new companies, I have examined the original prospectus filed with the SEC, as required by law, to ascertain any significant changes in holdings and identities. Particular attention was given to the new public utility operating companies organized out of the old holding companies, because as matters stood in the earlier chapter we tended to lose sight of the owners in the shuffle. The question is: Are they still there? If not, who has taken their place?
We are initially armed with the fact that these companies aren't owned by just anybody out of 190 million-odd in the population. Even the most tenuous kind of ownership puts the owner into about 10 per cent of the populace. And any holding of any kind worth minimally $60,000 net as of 1953 places him within 1. 6 per cent of the population. The holdings with which we are most concerned are limited to a circle consisting of 0. 11 of 1 per cent of the population.
Thus narrowed, our attention is focused directly on the biggest American proprietors-- the magnates, the big shots.
The SEC requires that reports of a person's entire interest be made if there is any change. in any holding in which he has a beneficial interest. This means that his personal holdings, those in which he has an indirect beneficial interest as from a trust or family holding company, those held by a spouse, those for which he acts as trustee or custodian, must all be reported if more than 100 shares are bought or sold in any part of
the holding, direct or indirect. A good picture is therefore given of particular beneficial interests.
While such reporting is for individuals--except when made by a closed-end or family investment company--the holdings of big financial groups are revealed through different transactions on behalf of various members of a family.
It is true that this method will not reveal the holdings of an entire family group in a particular company unless every member of the group engages in transactions, as they sometimes do. But we already know the names of the big family groups so that if we see one member altering his investment position it may be deduced that the others are still solvent but are merely not interested in buying or selling.
We cannot tell in every case who is better off or worse off. A family group may have closed out a very large holding and diversified its ownership in smaller slices in many companies. The new diversified position may have improved its position or not. In dollar values, owing to the general inflation of prices, probably all positions have been improved. At the very top, among Mellons, Du Pouts, Rockefellers, Rosenwalds, Fords and Pews, we know that relative positions have been improved because their companies have outperformed the economy, sometimes by very wide margins. Comparisons can be made here by relating gross sales to gross national product, gross income to national income and net income to net national income.
The reports are set down by the SEC in the following general form:
John Doe
Transaction
? X shares
Net Holding
X shares
X2 do.
X2 do.
X3 do.
X4 do.
X5 do.
X6 do.
X7 do.
X8 do.
Trust
Savings fund
Employer's fund
Wife or family
As trustee
As custodian
Investment company
Partnership
X1 do.
X2 do.
X3 do.
X4 do.
X5 do
X6 do.
X7 do.
X8 do.
The plus-or-minus, indicating a purchase or sale, is credited in the SEC report to whatever individual or instrumentality did the buying or selling.
It would require too much space here to report individual by individual in this way. A somewhat different form of presentation has been adopted to convey the same information.
Our findings will be set forth as much as possible in semi-tabular form. Although share totals will be given, they will not be translated into market values. This task may be left as an exercise for the interested reader, who will be given the 1965 prices for the biggest companies.
As a foretaste of what we are after let us ask, for example, how do matters stand in the late 1960's with J. Paul Getty? Is he still rich? The SEC Official Summary, September, 1965, informs us that he personally owned 4,610,217 shares of the Getty Oil Company and was an indirect participant in trusts with 7,948,272 shares--a total of 12,558,489 shares or about 80 per cent. At a price of 34-7/8 for Getty Oil on November 22, 1965, this holding had a market value of nearly $438 million; in late 1967, $1. 2 billion.
This figure by no means represents everything owned by Getty, who is interested directly and indirectly in many other companies, but it does satisfy us that he is still very rich, probably worth more than a billion. And that is all we are concerned with. For many years, he and his companies have been steadily adding to their holdings. The SEC
report for July, 1965, showed Getty Oil owned 4,077,240 shares of Mission Development, a different company. The report for December, 1963, showed that Getty Oil, after buying 21,169 shares, owned 2,748,883 shares or 63 per cent of Tidewater Oil Company, in which J. Paul Getty through a trust fund owned now only 4,225 shares. He owned none directly, having exchanged his earlier Tidewater stock for Getty Oil stock. The report for June, 1964, showed that Mission Corporation in turn, after buying 8,500 shares, owned 3,431,280 shares of Skelly Oil Company. These are all majority ownerships.
We could go on in this way analyzing the multifarious holdings and interholdings of J. Paul Getty but we would never get to the bottom of it in any event. For Getty, like many others, is a big foreign operator and unquestionably does not have all his holdings registered on the American record.
Getty is clearly officially certified as still in possession of vast wealth. But we must continue, as there may be gnawing doubts about others, such as Rockefellers and Pews, Pitcairns, Do Ponts, McCormicks and Rosenwalds, Clarks and Dukes. 1
In requiring reports of a beneficial interest in trust funds and of holdings as a trustee, the law reveals a large portion of the social security system of the rich. It is an excellent system, and provides much security for its beneficiaries. But in considering it, one wonders about the oft-heard thesis of many conservative and ultra-conservative spokesmen and newspapers that the federal Social Security System, the Family Welfare System and the trade-union system all carry great danger of destroying the characters of the participants. They might, among other things, become mercenary or lazy.
The rich themselves very evidently do not believe that being the beneficiaries of huge trust funds has undermined their characters, or that establishing trust funds for their children will distort the children's characters. No case has come to light where the children of the wealthy have been left penniless for their own benefit. All known cases of disinheritance are punitive, because the children have displeased the parents. Why, if drawing benefits without labor from a big trust fund does not destroy character, will drawing benefits in old age from Social Security or a pension system do so? Why would a true Welfare State be injurious to the general public when a private welfare system of trust funds is not apparently injurious to its limited number of beneficiary heirs?
The Du Ponts Today
As it is never wrong to begin with the Du Ponts in any discussion of American wealth, let us begin with this fabulous clan, leveling our fundamental question: Where are they now, financially speaking? The evidence strongly suggests that they are still massively concentrated in Christiana Securities Company, E. I. du Pont de Nemours and Company, General Motors, Remington Arms and other enterprises of the kind they were partial to in the 1930's. They stand approximately where they were shown to be in the TNEC study. They have neither gone elsewhere, suffered diminution, become bored with property ownership nor disappeared. Taxes have not exterminated them or even visibly shaken them.
Some revelatory SEC reports by members of the Du Pont family in the 1960's are, incompletely, as follows (dates refer to monthly issues of the Official Summary of Security Transactions and Holdings):
Christiana Securities Company
Irene? e du Pont, Jr
Trust
Price range 1965: $232-$315
Shares Date Reported
150,460 March, 1965
22,322
A. Felix du Pont, Jr.
Trust
L. du Pont Copeland
Trust
Crawford H. Greenewalt
Trust
S. Hallock du Pont
William Winder Laird
R. R. M. Carpenter, Jr.
Trusts
Pierre S. du Pont
Lammot du Pont Copeland,
through Delaware Realty
and Investment, merged
with Christiana
20,510
92,132
252,657 August, 1964
100
52,848
4,410
140,000 March, 1964
88,546 August, 1963
11,520 February, 1963
130,995
29,472 October, 1961
52,299*
*Shares of Delaware Realty and Investment
These holdings vary from year to year. Some of the Du Ponts are, from time to time, fairly active traders in a marginal percentage of their holdings. And while they do not reflect the entire holding of the Du Pont family in Christiana Securities, for which the TNEC study showed the family owning 73. 958 per cent of common and 58. 541 of preferred prior to its absorption of Delaware Realty (of which the family owned 83. 985 per cent), what these deals since 1960 do positively show is that the Du Pont family is today still ensconced where it was found to be by the TNEC inquiry. 2
As for E. I. du Pont de Nemours and Company, the world's largest chemical company, the SEC reports show the following incomplete recent holdings:
E. I. du Pont de Nemours Price range 1965: $225-1/4--$261
Shares Date Reported
Christiana Securities
Crawford H. Greenewalt
Co-trustee
L. du Pont Copeland
Andelot, Inc.
Trust
Irene? e du Pont, Jr. ,
Trusts
Pierre S. du Pont
William du Pont, Jr. ,
Trusts
Irene? e du Pont, Jr. , Trust
Henry B. du Pont
Emile F. du Pont
13,416,120 February, 1965
11,710
4,000
69,297 November, 1963
40,668
86,072
7,562 August, 1963
20,000
2,926 March, 1963
8,000 February, 1963
1,261,888
143,864 September, 1962
12,407 September, 1961
8,766 March, 1961
These are by no means the only transaction dates for Du Ponts in stock of Christiana Securities and E. I. du Pont de Nemours in the early 1960's.
There are two significant aspects of these trust-fund figures.
First, they represent an entirely new set of statistics, the gathering of which was begun by the comptroller of the currency only in 1963.
Of greater significance, however, is that the figures show the deep foundations of vested inherited wealth in the United States. Trust funds are popularly thought of as solely for the benefit of widows and minor orphans, and such are no doubt included among the beneficiaries. But, by and large, most of the beneficiaries are able-bodied adults, unwidowed, unorphaned and, as often as not, pleasantly idle. In many cases the first generation in receipt of trust-fund benefits never collects the principal at all, which is left to the next generation. When principal is paid out, it is often in dribbling installments throughout the recipients' lifetimes. In the case of the original Marshall Field, trusts were established that did not allow the grandchildren to collect the last part of principal until they were fifty years of age.
Such provisos keep the fortune from being dissipated through the exercise of immature judgment. The first generation cannot disturb the principal and the next generation does not get all of it or, sometimes, any of it until its members are quite advanced in age. At that point many of them lock the principal, Boston-style, back in new trusts for the benefit of the next two generations. Again, too, inheritance taxes are bypassed except at those points where principal is paid over.
From a property-ownership point of view all this undoubtedly has great merit. But what it signifies for the unpropertied is that they will never lay hands on any of this property no matter how they perform, short of overturning the legal system and the military forces behind it. The beneficiaries cannot even be swindled out of their benefices. Obviously, economic opportunities, legal and illegal, are considerably
narrowed for the multitude when so much property is closely sequestered for the benefit of unborn generations.
The trust funds, like the family holding companies, point up the fact that the United States, like the Europe it proposed to surpass in equality of opportunity, has developed a permanent hereditary propertied class. Indeed, owing to the far greater proportion of public ownership now in western Europe, the United States actually has more of a hereditary property system than does Europe.
And if this seems paradoxical, one may notice this even greater paradox: There are kings now in Europe who are far more democratic in their attitudes than the average American citizen.
What stocks are trust funds concentrated in? This is not difficult to ascertain. Although individual trust funds may, by stipulation, be concentrated in one or a few stocks, when there is no such stipulation the principle of diversification is resorted to by competent trust officers. This amounts to invoking the principle of the investment trusts that limits their holding of any issue to no more than 2 per cent of the entire capital. The big New York banks issue to interested parties the portfolio list of their collective trust funds--that is, those where many smaller trusts are mingled together, with each trust participating proportionately to its size. A small trust is defined in different ways by different banks and may be as much as $500,000. "Small" here means too small to be managed profitably by itself.
As these lists of collective trust funds show, the stock investment is mainly in the list of the 200 largest companies and the 500 largest industrial companies and the 50 largest merchandising, public utilities and railroads, respectively, on the annual Fortune lists. Trust funds are not invested in the biggest companies per se but in the relatively well- performing stable companies that are relatively cheapest at each time of purchase. Public utility and insurance company stocks have for some time especially attracted trust accounts.
While questionable practices were uncovered in some trust accounts in the 1930's, such as stuffing them with dubious issues for which the bank was in an underwriting syndicate (now no longer possible with the separation of underwriting from banking under the law), in an advanced jurisdiction like New York the trust companies are under strict state supervision. The trust company has come to the fore as an institution because of the many cases in the past where individual trustees have exercised bad judgment or turned out to have sticky fingers with respect to the trusteed property. The very life of a trust company depends upon its proper operation within average limits.
Before leaving this topic of trust funds one may ask: What is their major utility? The trust funds are designed to keep principal intact and impervious to error of inexperienced heirs, and to hold inheritance taxes to a minimum.
Family Holding Companies Revisited
The personal and family holding companies also perform this function, and more. A personal holding company is defined in the Revenue Code as a company owned 50 per cent or more by no more than five stockholders with income derived primarily from certain types of investments. The two Mellon entities already named are examples. The family holding companies are the equivalent of close investment trusts and operate under tax laws appropriate to such entities.
Says Standard Doctrine: "A personal holding company is a close corporation, organized to hold corporate stocks and bonds and other investment assets, including personal service contracts, and employed to retain income for distribution at such time as is most advantageous to the individual stockholders from a tax point of view. " 35
As of 1958, the latest date available, there were 6,285 personal holding companies. Another type of closely held corporation, similar in many cases in its functions, is the legally defined Small Business Corporation. There were, as of 1962, more than 120,000 of these. They are taxed through their stockholders, of which there may not be more than ten.
The personal holding companies are purely investment companies. The total assets for all of them were $5,236,429,000, but $4,304,158,000 of the assets were concentrated in only 652 with assets of $1 million or more; 25 had assets exceeding $50 million, 12 exceeding $25 million and 48 exceeding $10 million. Total income of these entities was $361,916,000, of which $216,822,000 came from dividends. Whatever their size, these were instrumentalities of larger property holders. 36
A remaining advantage in both corporate forms is that they concentrate corporate voting power for the special benefit of all the beneficiaries. Let us, for the sake of simplicity, suppose that there is a family group of 200 individuals, each owning precisely $1 million stock in the mythical SuperCosmos Corporation whose outstanding stock is valued at $1 billion. Each one of these persons would on the basis of his personal equity have little to say about the company, it is clear, but would be part of the rabble of minor stockholders. Combined, however, possibly in a group of personal holding companies, they own 20 per cent of the stock and thus name members of the board and are always well advised in advance of inner-company developments. Their representatives, too, can trade such inner-company information with similar groups in other companies for investment orientation. They are, also, politically powerful as a group.
Again, under existing tax laws it is the general strategy of the very rich to keep dividend pay-outs low in relation to earnings. The family investment company can hold back some of its income as corporate reserve, thus reducing the tax liability of its members. This corporate reserve, in turn, is reinvested.
In the sphere of operating corporations as a whole, producing goods or services for the public, the average dividend pay-out is ordinarily about 50 per cent of earnings. Some of the earnings are retained to replace wornout equipment, to expand and to keep dividends stabilized in less profitable years. But corporations differ in their pay-out rates, even among good earners, ranging from zero to 80 per cent. Small stockholders tend to favor those with high pay-out rates. But many big stockholders have come to prefer those with small pay-out rates, for then personal income taxes are lower.
Control of companies, however exercised, enables one to have something to say on this important subject of pay-out rates.
But in recent years many of the large corporations have retained earnings greatly in excess of replacement and future dividend needs. Such earnings have been used in the acquisition of companies in unrelated fields, as part of a policy of investment diversification, and in buying control of foreign companies, which might be classed as economic imperialism. The advantage to the big stockholders is that the money is not paid out in taxable income but is continually ploughed back to increase the underlying value of equities. However, if any big stockholder wants more income he can take it in the form of low-taxed capital gains by selling some of his stock. The large yearly aggregates of capital-gain income reported to the Internal Revenue Bureau since 1950 reveal what is happening.
A fairly recent concept that has emerged in the corporate world is that of the "growth company. " A growth company, manifestly, is a company that grows. The name is attached rather indiscriminately by brokers to new companies in technologically novel fields: electronics, space-age, atomic power, etc. Not all of these are growth companies
for, as experience shows, not all of them grow. But any company that ploughs back a large proportion of its earnings steadily is obviously a growth company. With taxes in mind such companies are advantageous.
The very wealthy, in brief, are less interested in increasing their taxable incomes than in increasing their nontaxable ownership stake. This, when necessary, can always be cashed.
Observations En Passant
There remain some observations to be made about the American hereditary owners,
contradicting common beliefs.
It is generally supposed that the heirs of the big fortune-builders are comparatively incompetent playboys or at best poor copies of the original Old Man. While wastrels have been seen among some of the very wealthy, most of them women or some man intent upon impressing some woman (Astor, Vanderbilt, Hearst and others), in all the big surviving fortunes the heirs seem to show greater and greater finesse in applying Standard Doctrine under more and more complex conditions. The original fortune- builder might not understand everything they were doing but he would have to admit they are getting results as good as or better than he ever got. One reason for this is that the heirs now have available to them much more highly developed professional experts, deeply versed in the intricacies of each situation: economists, statisticians, analysts, engineers, psychologists, lawyers and the like.
Two original Du Ponts did very well in launching E. I. du Pont de Nemours and Company and deserve a reverent salute from all deeply committed money fans. But they seem to have been outdone by every succeeding generation of Du Ponts, each of which appears to have missed no opportunity to enlarge that part of the fortune it inherited.
The same with the Fords. After his first great success Henry Ford, set in his ways, dogmatic, began to lose his touch. He refused to defer to his son Edsel, who close observers believe would have put the company on a sounder footing than it found itself in the 1940's. But Henry Ford II, a grandson in his twenties, later aided by two younger brothers, brought the Ford Motor Company up to new heights of wealth, public esteem and prestige. In a little more than ten years the grandsons more than sextupled the value of the company, outperforming the economy as a whole, and have no doubt engaged in unknown side coups of more than modest proportions.
Judge Thomas Mellon's sons outdid his financial feats, and his grandchildren do not appear, under more difficult circumstances, to have lost the golden touch. The Mellons are still going strong, surrounded by family holding companies, trust funds and banks.
As to the Rockefellers, it might appear that none of them will ever be able to outdistance the wily old monopolist who put the family on the financial and political maps. But many authorities would argue that John D. Rockefeller, Jr. , performed a far more difficult feat in holding the fortune together under strong political attack. Judge Mellon's opinion that it is harder to hold on to money than to make it has been explicitly made part of Standard Doctrine. 37
If this is so then Rockefeller, Jr. , who inherited a difficult situation, must be considered to have surpassed his father. The grandchildren are doing even better, for in addition to advancing the family fortunes they have performed the difficult feat of making themselves the idols of a considerable public.
As to it being more difficult to retain money than to make it, probably few would readily agree with this proposition. But slight reflection will show that it is true. Most adults have jobs and are paid. But how long does the weekly pay check last? Could one
resolve not to spend it? Most people could not make such a resolution unless they wished to starve. Actually, most persons are unable to save as much as an average 5 per cent of their earnings. This state of affairs illustrates the point.
The average man in the street might contend that if his pay were only higher he would retain some of it; and in some few cases, let us agree, he would. But from time to time there are big sweepstakes and lottery winners, suddenly possessed of goodly sums. How old judge Mellon would smile if he could hear them excitedly telling newspaper reporters what they are going to do with their windfalls: a new house, a new wheelchair for grandma, crutches for Tiny Tim, a new car, a trip to Florida and then some government bonds of declining purchasing power! A year or so later, as it turns out, they are all where they were financially to begin with, looking back wistfully to the time they were suddenly rich. What happened to the money? they ask. Where did it go?
What defeats most people in holding onto money, reinforcing the judgment of Judge Mellon, is that they are basically childish spenders. And therein lies part of the opportunity of acquisitive moneymakers. One task of the marketplace is to separate people from their money, often giving them something meretricious in return.
Present Status of 200 TNEC Corporations
What has happened to the two hundred corporations of the TNEC in the twenty-five years that have elapsed? Have any fallen by the wayside, carrying their owners to disaster? Have any slipped from the top of the heap?
"Analysis of the 1937 group of 200 non-financial corporations," according to The Dartmouth Study 38 "reveals on the surface a number of things. In terms of current dollar values there has been great growth for the group as a whole. In terms of constant dollars (values adjusted for depreciation of money), the total growth is probably not much greater than the rate of growth of our economy. This point cannot be pressed further, however, in the absence of detailed information about the accounting adjustments which the various firms have made as the value of the dollar has declined and as new assets have been added. "
The TNEC list is set forth parallel with the 1964 list of biggest nonfinancial corporations in Appendix B.
There have been changes of detail in the list (although not significant) with respect to who owns and controls the wealth. With the exception of a few newcomers, the same groups own the companies as owned them in 1937.
Certain companies have moved off the master list of the leading 200, not because they have lost out entirely but because they have been squeezed off by mergers or by the emergence of new industries such as aviation and natural gas pipelines.
Except for the Mellon (Pittsburgh) Consolidation Coal Company, all coal companies have been pushed off the list, replaced by gas pipelines. Railroads have moved down on the list and some have moved off; but a merger kept Erie-Lackawanna on the list. Pullman, Inc. , a Mellon enterprise, has declined, partly because of an adverse antitrust decision. It is evident that the loss of a monopoly position in the face of new means of transport is what has taken the bloom off the railroads. In meat packing, the "big four" have been supplanted by the "big two"--Swift and Armour.
The electric utilities on the two lists are not strictly comparable. On the later list are many new regional companies that are the outcome of the dissolution of the old holding companies. But in essentials the same electric power properties are on both lists, though often under different names.
Film companies have been pushed off the list, owing to the competitive advent of television and adverse antitrust decisions. Their owners were never seriously classified among the big-wealthy.
In all, close to fifty companies appear to have been pushed off the list. In addition to three coal companies, two packers and fifteen old-line utility holding companies, they are: Texas Gulf Sulphur, American Sugar Refining, American Woolen (Textron), Hearst Consolidated, International Shoe, New Jersey Zinc, U. S. Smelting, National Supply, United Shoe Machinery, Gimbel's, Marshall Field, R. H. Macy, Hudson and Manhattan Rail Road, six interstate railroads and two film companies. No really big interests experienced a decline.
Some newcomers are the product of split-offs. Western Electric came out of AT&T and now ranks twenty-fifth in size. The only other newcomer in the first twenty-five is Tennessee Gas Transmission, representing new capital mobilization. The only newcomer in the second twenty-five is El Paso Natural Gas, owing to similar circumstances.
The second fifty have among them as new faces only Sperry Rand and Olin Mathieson, outcomes of mergers.
The most recent list, in brief, represents the same old crowd with a few additions produced mainly by mergers and subtractions by squeezing.
At the very top there is DO change except that the companies have grown much larger. AT&T, largest company in the world, leader of both lists and the stock of which is widely held, had total 1964 assets of $30. 306 billion compared with $3. 859 billion in 1937. Standard Oil (New Jersey), largest purely industrial company in the world in point of assets, had assets of $12. 49 billion compared with $2. 06 billion in 1937, and was in second place both times.
The smallest company on the TNEC list was Texas Gulf Sulphur, with assets of $62. 9 million. The smallest company on the later Fortune list was Scott Paper, closely shadowed by Allied Stores, with assets of $413. 8 million.
The TNEC list was compiled during a depression, the Fortune list after a war and twenty years of boom, heightened concentration and inflation.
As to the owners and controllers, there has been no significant change except that they are more firmly established in the ascendancy than before, Four Rockefeller companies appear among the first twenty-five compared with 3 in 1937, and there are 6 of them on the TNEC list and 7 on the Fortune list. The two big Du Pont companies have moved up among the first twenty-five, improving relatively. One of the chief Mellon properties, Gulf Oil, has moved into the first twenty-five, in eighth place, where it was not to be found in 1937. The Ford Motor Company has moved up from twenty-third to fourth place.
One of the most spectacular improvements in the approximately thirty or so years separating the two lists was Sears, Roebuck and Company, which moved from sixty- ninth place, with assets of $284 million, to ninth place, with assets of $4. 271 billion, making it the world's leading retail merchandiser. The position of the dominant Rosenwald family has been correspondingly improved, making it easily worth more than $500 million and on the threshold of super-wealth. An even more spectacular growth company was International Business Machines, leader of the computer- automation field, which moved from one hundred eighty-fifth to twelfth place in size of assets. Most of the newcomers to the list, however, are the result of mergers, spin-offs or the rise of new industries such as aviation and gas pipelines on the basis of new capital. But, although there are newcomers, few of the newcomers are new properties.
Mergers either brought companies onto the list, moved companies up on the list or kept them on the list: General Telephone, American Metal Climax, International Telephone and Telegraph, Olin Mathieson, Burlington Industries, Erie-Lackawanna, Georgia- Pacific, General Dynamics, United Merchants and others.
While the lists in both cases represent only a small sample of American companies, these companies represent almost 70 per cent of U. S. output. Basic economic activity outside these lists represents the lesser portion of the pie.
Aluminum Company of America moved from seventy-ninth to thirty-eighth place even though its monopoly position was broken by the sale of wartime government aluminum plants to competitors. The Kaiser interests--one of these competitors, and nurtured by government patronage--have put no less than three new companies on the master list: Kaiser Aluminum, Kaiser Industries and Kaiser Steel.
The Pew family's Sun Oil Company moved up from one hundred thirty-eighth place to seventy-fifth. Although J. Paul Getty's Tidewater Oil is only sixty-ninth on the list, up from ninety-second place, it should be remembered that Getty owns most of it and has many other oil interests whose lesser dimensions fail to qualify them for this list.
Viewed again purely from the perspective of this most recent list of the biggest American proprietors, the financial grand dukes of the United States appear still to be, individually and collectively, the Rockefellers, Du Ponts, Fords, Mellons, Rosenwalds, Pews, Gettys, Phiippses, Mathers, Hartfords, McCormicks and individuals like Allen Kirby, who in addition to his New York Central and Woolworth holdings is a leading stockholder of the big Manufacturers Hanover Trust Co. of New York.
The old question pops up: Have positions in these companies been maintained at the same level throughout the years? In some cases, as in that of the Du Ponts, we know they have. There have been some shifts in Rockefeller holdings, and the Ford holdings are about what they were when Henry Ford I died. At the time of the TNEC study the Rosenwalds held 12. 5 per cent of Sears, Roebuck. In view of the steady strong growth of this company one would not suppose they would have sold out. If anything, guided by Standard Doctrine, they would have increased their holdings.
As groups like railroads and coal companies declined in the economy, no doubt leading holders tended to sell them out. But they may also have reestablished positions at lower prices, and in recent years the railroads have shown great improvement, both in earnings and in market action of securities.
No big interests such as Hartfords, Zellerbachs, Weyerhaeusers, Dukes, Pitcairns, Mathews, Swifts and others are reported to have cleared out. Among smaller interests there have undoubtedly been inter-company shifts of holdings, as into oils, aviation, natural gas and gas pipelines.
Old money, though, has found its way into successful new enterprises, as in the Harriman-Warburg-Straus ground-floor investment in Polaroid.
We have seen that concentrated ownership is a more prominent feature of small companies.
This circumstance and the fact that there is such concentrated ownership of very large companies show that concentration of ownership and control in few hands is a built-in feature of the American economy. While twenty million or more stockholders have an equity (usually trifling) in these and hundreds of other companies, it is a fact, as the TNEC study showed, that from two to three up to twenty of the largest stockholders own very large to total percentages of the companies. Total ownership by small inter- related groups was shown for Great Atlantic & Pacific Tea Company, Ford Motor Company and Campbell Soup Company. The small stockholders are therefore no more than insects crawling on the backs of rhinoceri.
Six
WHERE ARE THEY NOW?
As the TNEC data are more than twenty-five years old the question naturally arises: Are these large holdings of wealth still extant? Have they not been destroyed by ruthlessly vicious taxation? Aren't the large heirs--under pressure not only of a monstrous tax burden but of militant trade unions, draconic government regulation, intense competition with each other, hostile legislators, public welfare schemes at home and Communist inroads at home and abroad--really in reduced and increasingly precarious circumstances?
The sociologist C. Wright Mills, as noticed in Chapter 2, note 2, found difficulty in ascertaining who was wealthy. He spent a good deal of time making inquiries of people supposed to know and who, though sympathetic to his quest, found the question of identities equally mysterious. He was reduced to culling names as they had been more or less randomly mentioned in various books and by authors dealing with unsystematic data and constructing his own architectonic symmetries from them.
While it cannot be claimed on the basis of any available collection of data that one has unearthed every wealthy person and clan, the means are at hand for making far better contemporary determinations than did Mills, who was apparently not aware of the monumental TNEC data. But even the TNEC findings are continually being supplemented in monthly reports of significant securities transactions, required by law, to the United States Securities and Exchange Commission (SEC), Moreover, any new issuance of securities by an existing company, or in the launching of a new company, requires that information be supplied to the SEC about major individual participations in ownership. This information is open to public scrutiny.
The reports to the SEC are tabulated alphabetically and published each month in the Official Summary of Security Transactions and Holdings, published by the United States Securities and Exchange Commission, All persons can consult back numbers in any central metropolitan public library or can subscribe to the publication at $1. 50 per year.
Under the Securities and Exchange Act, 1934, all corporate officers, directors, closed- end investment companies and individual nonofficer owners or beneficiaries of 10 per cent or more of any securities issue of any company offering securities for sale in the American market must report each month all purchases, sales or other transfers of securities in any company in which they have a direct or indirect interest.
This requirement in some ways provides far more data than did the TNEC study. For it relates to all security-selling companies, not merely the 200 largest. And while, unlike the TNEC study, it does not single out the largest stockholders as such, the requirement that stockholders owning 10 per cent or more of any issue report changes in investment position often discloses the biggest elements. If someone owned only 2 per cent of an issue but was among the twenty largest stockholders, the SEC reports, unlike the TNEC study, would not disclose him unless he was also an officer or a director.
To some extent the 10-per cent requirement partially screens big wealth, which is held mainly in family phalanxes. For if three buyers or sellers each held 9. 9 per cent of the stock of a big company, amounting to 29. 7 per cent control, the SEC reports would not show them unless they were officers or directors. The same would be true if ten members of a family each owned 5. 5 per cent of the stock, amounting to 55 per cent or absolute control. They could be represented on the board of directors by nominees, their own lawyers or bankers, who might hold only a few directors' qualifying shares.
Not only do the SEC reports show purchases and sales but also acquisitions or dispositions by bequest or inheritance, compensation, corporate distribution, exchange or conversion, stock dividends, stock splits, redemptions and gifts. While personal gifts of stock are strewn throughout the year (apparently in observance of birthdays), Christmas appears to be a favorite time of the propertied for giving stock. The Christmas gifts are especially reflected in the January and February reports for each year.
What the SEC reports do not tell us about wealth-holdings would perhaps be a better guide than the statement of what they do contain.
The SEC reports do not inform us at all about (1) federal, state and municipal bondholdings (although they do inform us about corporate bondholdings and about all senior and junior issues); (2) noncorporate real estate, land or mortgage holdings; (3) personal interests in enterprises abroad that do not offer securities in the American market; (4) holdings of noncorporate promissory notes, options, cash, foreign exchange, insurance policies and collections of jewels or objets d'art; or (5) miscellaneous personal property, such as Swiss bank accounts, racing stables, foreign islands, yachts, airplanes and cars.
It is not our intention to determine the exact extent of participation of any fortune in a particular property, although the TNEC study did make such a determination possible with respect to the largest corporations. Nor is it our intention to determine the exact investment position of any fortune at any given moment. Such a determination could only be made by a new government study or by a Permanent National Economic Committee; even the TNEC study did not inquire into stockholdings below the top twenty, although a person could be incalculably wealthy if he was the twenty-first largest stockholder in many companies. Nor is it our intention to trace shifts in holdings among various companies, although in certain cases such shifts are clearly shown by SEC data.
Despite the logical possibility of concealment of a fortune in, say, tax-exempt bonds or jewels, it should be noticed that no big fortune was ever made in such investment media. The modern corporation, plus engineering technique, more recently aided by huge government contracts, is the big and virtually exclusive instrument of modern fortune-building, and a fortune once made cannot disappear from view merely by going into tax-exempts or real estate. One can usually trace it, as in the case of Delphine Dodge, at least up to the point of its conversion into more static media.
Even with the help of the voluminous SEC reports, it is possible to lose exact trace of some large fortunes although, having no evidence of their destruction, one knows they must still exist in some form. Individuals or groups owning 15 per cent of enterprises scrutinized by the TNEC may have halved their participation and spread the proceeds of sale among various companies. If they do not function as officers or directors or hold at least 10 per cent of some company, their further transactions are not reported by the SEC.
Lamentable though this may appear, it does not impede us by much for most of the large interests stay put. They are more likely to increase their holdings as J. Paul Getty
and the Du Ponts have steadily done to the date of this writing, than to reduce them. If they merely retain their holdings, new investments are apt to be made with income from the old investments, thus obtaining desirable diversification as a shield against changes of various kinds: technological, political, cultural, economic and social.
Aims of SEC Reports
The object of the SEC reports was to terminate the rigging of securities markets, prevalent before the passage of their enabling law. Before the law was passed, company officers, directors and leading stockholders (while issuing optimistic or pessimistic reports) would secretly sell or buy the company's stock on the basis of knowledge at variance with the reports. A large public of gullible small stockbuyers was in this way repeatedly stung and tended gradually to lose faith in the riproaring Republic for which an earlier gullible horde had bled and died.
Under the securities law, insiders cannot long keep to themselves favorable or unfavorable turns in a company's outlook. Again, what they say can be evaluated in relation to what they actually do in their own securities.
Buying and selling by insiders do not invariably indicate something about a company. Insiders, too, have been wrong in their estimates of a company's position in the context of public policies and conditions. Sometimes insiders sell some of their holdings because they need money for taxes, because they see a better opportunity elsewhere or because they have a fixed policy of taking low-tax capital gains in companies with low dividend payouts. Usually it means only that they are taking profits or avoiding losses.
Some small market operators mechanically follow the buying and selling of insiders, but not with universally fortunate results. Everything else being equal, as it seldom is, it is not a bad policy to pay heed to company officers and directors when they buy or sell heavily. For this reason the SEC monthly reports are closely studied by market aficionados. But company officers, playing only for swings in the market, often sell as quickly as they buy and the knowledge is only available a month later-sometimes too late for outsiders.
One thing the SEC reports show clearly is that in many companies the officers and directors repeatedly buy and sell as a block. Presented to the country as masterful managers of giant enterprises that are the envy of the world, as builders of the nation indeed, they nevertheless in many cases seem interested in playing this private poker game which has no economic justification. It does nothing for gross national product. In so doing they show they are basically Pecuniary Men willing to turn their attention to anything that will swell their bankrolls. If they could go out on the corner and make money by trading baseball cards or stamps the way children do, or lagging pennies, one would find them out on the corner. Their icon is the stock ticker.
Different companies have different policies about timely flutters in the securities market by officers and directors. In some cases such transactions are rare. In many companies it is apparently thought to be one of the perquisites of officers to trade tip and down in a percentage of their holdings, thus incurring low capital-gains taxes while getting more income so their wives and children won't fall behind on country-club dues.
With such factors in mind the monthly SEC reports on holdings have been selectively checked with a view to updating the TNEC data, thus reassuring anxious critics that our material is all fresh and new. But, in general, in-and-out trading by mere company officers and directors has been ignored here except when it has seemed to be of significant proportions or by significant officers.
Attention has been concentrated pretty much on the original TNEC list and the 1964 Fortune list of the largest nonfinancial companies, although there is also presented an extensive listing of control groups in other well-known companies.
As to the method used in examining the SEC reports, which embrace thousands of companies and tens of thousands of individuals: The reports have been closely scrutinized in their entirety from 1960, inclusive, through 1965. As every transaction registered requires that the net remaining holding be given, one is assured of what the latest position is, confirming or not the TNEC finding at a distance of about twenty-five years. In this way, too, late-coming names of big holders (if they buy or sell) are brought into view.
Where significant large holdings have not turned up in this 1960 decade, a special tracing backward by individual companies was made prior to 1960 to ascertain the latest date when a net position was given for some family member (thus showing the continued presence of the family).
In certain companies the holdings were traced back to 1945 or to the point that yielded the latest total holding. Such a complete tracing was made of all the major Rockefeller, Mellon, Ford, Du Pont and Rosenwald properties; it was not necessary in the case of others because their presence is fully revealed by the data of the 1960's in almost all cases.
What may seem to be a defect in this method, and perhaps it is a genuine defect, is that by stopping the retroactive survey with 1960 we won't pick up any new investments made by either new or old wealth-holders prior to 1960. But the objective here is not to show the entire investment position of either new or old wealth-holders or to trace all these elements from one company to another in such cases in which they have transferred investment allegiance. All I am trying to do is to show who is rich now and who is a big newcomer to riches by presenting some large samples.
Nor am I trying to develop in detail the names and holdings of every one of 90,000 or more millionaires. Limited space makes it necessary to confine attention to the cream of the crop.
In the case of some of the new companies, I have examined the original prospectus filed with the SEC, as required by law, to ascertain any significant changes in holdings and identities. Particular attention was given to the new public utility operating companies organized out of the old holding companies, because as matters stood in the earlier chapter we tended to lose sight of the owners in the shuffle. The question is: Are they still there? If not, who has taken their place?
We are initially armed with the fact that these companies aren't owned by just anybody out of 190 million-odd in the population. Even the most tenuous kind of ownership puts the owner into about 10 per cent of the populace. And any holding of any kind worth minimally $60,000 net as of 1953 places him within 1. 6 per cent of the population. The holdings with which we are most concerned are limited to a circle consisting of 0. 11 of 1 per cent of the population.
Thus narrowed, our attention is focused directly on the biggest American proprietors-- the magnates, the big shots.
The SEC requires that reports of a person's entire interest be made if there is any change. in any holding in which he has a beneficial interest. This means that his personal holdings, those in which he has an indirect beneficial interest as from a trust or family holding company, those held by a spouse, those for which he acts as trustee or custodian, must all be reported if more than 100 shares are bought or sold in any part of
the holding, direct or indirect. A good picture is therefore given of particular beneficial interests.
While such reporting is for individuals--except when made by a closed-end or family investment company--the holdings of big financial groups are revealed through different transactions on behalf of various members of a family.
It is true that this method will not reveal the holdings of an entire family group in a particular company unless every member of the group engages in transactions, as they sometimes do. But we already know the names of the big family groups so that if we see one member altering his investment position it may be deduced that the others are still solvent but are merely not interested in buying or selling.
We cannot tell in every case who is better off or worse off. A family group may have closed out a very large holding and diversified its ownership in smaller slices in many companies. The new diversified position may have improved its position or not. In dollar values, owing to the general inflation of prices, probably all positions have been improved. At the very top, among Mellons, Du Pouts, Rockefellers, Rosenwalds, Fords and Pews, we know that relative positions have been improved because their companies have outperformed the economy, sometimes by very wide margins. Comparisons can be made here by relating gross sales to gross national product, gross income to national income and net income to net national income.
The reports are set down by the SEC in the following general form:
John Doe
Transaction
? X shares
Net Holding
X shares
X2 do.
X2 do.
X3 do.
X4 do.
X5 do.
X6 do.
X7 do.
X8 do.
Trust
Savings fund
Employer's fund
Wife or family
As trustee
As custodian
Investment company
Partnership
X1 do.
X2 do.
X3 do.
X4 do.
X5 do
X6 do.
X7 do.
X8 do.
The plus-or-minus, indicating a purchase or sale, is credited in the SEC report to whatever individual or instrumentality did the buying or selling.
It would require too much space here to report individual by individual in this way. A somewhat different form of presentation has been adopted to convey the same information.
Our findings will be set forth as much as possible in semi-tabular form. Although share totals will be given, they will not be translated into market values. This task may be left as an exercise for the interested reader, who will be given the 1965 prices for the biggest companies.
As a foretaste of what we are after let us ask, for example, how do matters stand in the late 1960's with J. Paul Getty? Is he still rich? The SEC Official Summary, September, 1965, informs us that he personally owned 4,610,217 shares of the Getty Oil Company and was an indirect participant in trusts with 7,948,272 shares--a total of 12,558,489 shares or about 80 per cent. At a price of 34-7/8 for Getty Oil on November 22, 1965, this holding had a market value of nearly $438 million; in late 1967, $1. 2 billion.
This figure by no means represents everything owned by Getty, who is interested directly and indirectly in many other companies, but it does satisfy us that he is still very rich, probably worth more than a billion. And that is all we are concerned with. For many years, he and his companies have been steadily adding to their holdings. The SEC
report for July, 1965, showed Getty Oil owned 4,077,240 shares of Mission Development, a different company. The report for December, 1963, showed that Getty Oil, after buying 21,169 shares, owned 2,748,883 shares or 63 per cent of Tidewater Oil Company, in which J. Paul Getty through a trust fund owned now only 4,225 shares. He owned none directly, having exchanged his earlier Tidewater stock for Getty Oil stock. The report for June, 1964, showed that Mission Corporation in turn, after buying 8,500 shares, owned 3,431,280 shares of Skelly Oil Company. These are all majority ownerships.
We could go on in this way analyzing the multifarious holdings and interholdings of J. Paul Getty but we would never get to the bottom of it in any event. For Getty, like many others, is a big foreign operator and unquestionably does not have all his holdings registered on the American record.
Getty is clearly officially certified as still in possession of vast wealth. But we must continue, as there may be gnawing doubts about others, such as Rockefellers and Pews, Pitcairns, Do Ponts, McCormicks and Rosenwalds, Clarks and Dukes. 1
In requiring reports of a beneficial interest in trust funds and of holdings as a trustee, the law reveals a large portion of the social security system of the rich. It is an excellent system, and provides much security for its beneficiaries. But in considering it, one wonders about the oft-heard thesis of many conservative and ultra-conservative spokesmen and newspapers that the federal Social Security System, the Family Welfare System and the trade-union system all carry great danger of destroying the characters of the participants. They might, among other things, become mercenary or lazy.
The rich themselves very evidently do not believe that being the beneficiaries of huge trust funds has undermined their characters, or that establishing trust funds for their children will distort the children's characters. No case has come to light where the children of the wealthy have been left penniless for their own benefit. All known cases of disinheritance are punitive, because the children have displeased the parents. Why, if drawing benefits without labor from a big trust fund does not destroy character, will drawing benefits in old age from Social Security or a pension system do so? Why would a true Welfare State be injurious to the general public when a private welfare system of trust funds is not apparently injurious to its limited number of beneficiary heirs?
The Du Ponts Today
As it is never wrong to begin with the Du Ponts in any discussion of American wealth, let us begin with this fabulous clan, leveling our fundamental question: Where are they now, financially speaking? The evidence strongly suggests that they are still massively concentrated in Christiana Securities Company, E. I. du Pont de Nemours and Company, General Motors, Remington Arms and other enterprises of the kind they were partial to in the 1930's. They stand approximately where they were shown to be in the TNEC study. They have neither gone elsewhere, suffered diminution, become bored with property ownership nor disappeared. Taxes have not exterminated them or even visibly shaken them.
Some revelatory SEC reports by members of the Du Pont family in the 1960's are, incompletely, as follows (dates refer to monthly issues of the Official Summary of Security Transactions and Holdings):
Christiana Securities Company
Irene? e du Pont, Jr
Trust
Price range 1965: $232-$315
Shares Date Reported
150,460 March, 1965
22,322
A. Felix du Pont, Jr.
Trust
L. du Pont Copeland
Trust
Crawford H. Greenewalt
Trust
S. Hallock du Pont
William Winder Laird
R. R. M. Carpenter, Jr.
Trusts
Pierre S. du Pont
Lammot du Pont Copeland,
through Delaware Realty
and Investment, merged
with Christiana
20,510
92,132
252,657 August, 1964
100
52,848
4,410
140,000 March, 1964
88,546 August, 1963
11,520 February, 1963
130,995
29,472 October, 1961
52,299*
*Shares of Delaware Realty and Investment
These holdings vary from year to year. Some of the Du Ponts are, from time to time, fairly active traders in a marginal percentage of their holdings. And while they do not reflect the entire holding of the Du Pont family in Christiana Securities, for which the TNEC study showed the family owning 73. 958 per cent of common and 58. 541 of preferred prior to its absorption of Delaware Realty (of which the family owned 83. 985 per cent), what these deals since 1960 do positively show is that the Du Pont family is today still ensconced where it was found to be by the TNEC inquiry. 2
As for E. I. du Pont de Nemours and Company, the world's largest chemical company, the SEC reports show the following incomplete recent holdings:
E. I. du Pont de Nemours Price range 1965: $225-1/4--$261
Shares Date Reported
Christiana Securities
Crawford H. Greenewalt
Co-trustee
L. du Pont Copeland
Andelot, Inc.
Trust
Irene? e du Pont, Jr. ,
Trusts
Pierre S. du Pont
William du Pont, Jr. ,
Trusts
Irene? e du Pont, Jr. , Trust
Henry B. du Pont
Emile F. du Pont
13,416,120 February, 1965
11,710
4,000
69,297 November, 1963
40,668
86,072
7,562 August, 1963
20,000
2,926 March, 1963
8,000 February, 1963
1,261,888
143,864 September, 1962
12,407 September, 1961
8,766 March, 1961
These are by no means the only transaction dates for Du Ponts in stock of Christiana Securities and E. I. du Pont de Nemours in the early 1960's.
