' Many of the
defendants
.
Lundberg - The-Rich-and-the-Super-Rich-by-Ferdinand-Lundberg
In the two decades since 1945 the acts cited by Sutherland continued--in many cases with redoubled force; for the penalties imposed by law are obviously not of sufficient weight to deter.
One can make large sums of money in business by breaking the law up to the point where one is ordered to stop or is indicted.
In the Federal Trade Commission alone, from January 1, 1945, through fiscal 1965 as given in annual reports, there were 3,991 cease-and-desist orders for violations by enterprises large and small. 40 The largest corporations were conspicuously represented, along with ambitious small fry. The specific violations were: false or misleading advertising, using a misleading trade or corporate name, using false or misleading endorsements, removing or concealing law-required markings, disparaging competitors' products, misrepresentation and deception, false invoicing, misbranding and mislabeling, deceptive pricing, failing to make material disclosures, offering deceptive inducements, obtaining information by subterfuge, using misleading product name or title, shipping for demand-payment goods not ordered, etc. , etc.
In the Food and Drug Administration, which administers the amended Food, Drug and Cosmetic Act of 1938, there were 5,208 criminal prosecutions from 1945 through 1961, an average of 306 per year. 41 Many of these were for distributing poisonous or contaminated products. Fines and jail sentences were usually meted out.
In its 26th annual report, the United States Securities and Exchange Commission, empowered to supervise the issuance, sale and resale of securities, reports that "From 1934, when the Commission was established, until June 30, 1960, 2,777 defendants have been indicted in the United States District Courts in 645 cases developed by the Commission, and 1,385 convictions obtained in 585 cases. The record of convictions obtained and upheld is over 85 per cent for the 26-year life of the Commission. " 42
"During the past fiscal year," says the 1960 report, "53 cases were referred to the Department of Justice for prosecution. This is the highest number of referrals in the past 18 years and the second highest in the Commission's history and is in line with the continuing increase in the number of referrals during the past several years. As a result of these and prior referrals, 43 indictments were returned against 289 defendants during the fiscal year. " 43
The Securities and Exchange Commission, of course, deals with thousands more cases each year in which it issues orders to discontinue illegal practices.
The National Labor Relations Board, which processed only a few more than 1,000 cases in 1936 and now processes more than 25,000 a year, enforces fair labor practices
as defined in the twice-amended National Labor Relations Act of 1935. Most of its rulings on appeal to the courts have been sustained.
Of 2,719 cases subjected to judicial review up to June 30, 1964, the orders of the NLRB were fully affirmed in 57 per cent of the cases and affirmed with modifications in 20 per cent. In only 18 per cent of the cases was the Board completely overruled. In appeals to the Supreme Court, the Board was affirmed in 63 per cent of the cases and affirmed with modifications in 8 per cent. The Supreme Court overruled the Board completely in 17 per cent of the cases. 44
This Board, a quasi-judicial tribunal similar to the Federal Trade Commission, the Securities and Exchange Commission and the Food and Drug Administration, issues injunctions and supervises violators and, according to the National Labor Relations Act, "Any person who shall willfully resist, prevent, impede, or interfere with any member of the Board or any of its agents or agencies in the performance of duties pursuant to this act shall be punished by a fine of not more than $5,000 or by imprisonment for not more than one year or both. " Complaints under this criminal statute are brought by individuals and unions against employers and by employers against unions. 45
Business or white collar crimes are usually thought of as nonviolent, thus placing the culprits in public opinion at least a peg above such unorthodox businessmen as Frank Nitti, Tony Accardo and Frank Costello. But this differentiation is clearly false, as is shown in many cases of record before the National Labor Relations Board. A recent pattern, as brought to light by the McClellan Committee, is for Company X to hire "labor relations adviser" A who in turn enrolls certified thugs T1, T2, and T3, to beat up, bribe, drive away or destroy labor organizer L.
Up to 1945, according to Sutherland, labor relations decisions had been made against 43 of the 70 large corporations, or 60 per cent, with 149 decisions in all. All 43 were "repeaters": 39 used interference, restraint and coercion; 33 discriminated against union members; 34 organized company unions; 13 used labor spies; and 5 used violence. Such violence was largely confined to the steel and automobile industries.
The late Henry Ford was quoted as saying in 1937: "We'll never recognize the United Automobile Workers Union or any other union. " The Ford Motor Company had long maintained a service department under Harry Bennett, a former pugilist, staffed with 600 men equipped with guns and blackjacks. With reference to this service department Frank Murphy, then governor of Michigan, said: "Henry Ford employs some of the worst gangsters in our city.
According to undisputed testimony before the NLRB, in 1937 the United Automobile Workers Union started to organize employees at Ford's River Rouge plant. It was announced that Organizers would distribute literature outside the plant at a specified time, and reporters and photographers were present in force. Said a guard to a reporter: "We are going to throw them to hell out of here. " Upon arrival the organizers went up an overhead ramp to one of the entrances, where they were told they were trespassing. Witnesses said they turned and started away. As they left they were assaulted by service department guards--beaten, knocked down and kicked. Witnesses testified that it was a "terrific beating" and "unbelievably brutal. " Among those severely beaten were Walter Reuther and Richard Frankensteen, officials of the United Automobile Workers Union.
The guards followed out into the street. One man's skull was fractured, another's back broken. Cameras of photographers were seized by guards and the films destroyed. Two reporters were chased by automobile at eighty miles an hour through Detroit streets until they reached the sanctuary of a police station. Later when women organizers attempted to distribute literature outside the plant they were attacked by guards,
knocked down and beaten. City policemen who were present during these events stood by and did not interfere--testimony to the local power of Henry Ford. 46
From fiscal years 1959 through 1965, inclusive, the Antitrust Division of the Department of Justice won 147 formally designated criminal cases against companies and lost 24. It won 206 civil cases and lost 9. 47
Other disciplinary bodies to which one should turn for a more complete picture of such business violations as are judicially decided are the Federal Communications Commission, the Civil Aeronautics Authority, Federal Aviation Agency, Federal Power Commission and the Interstate Commerce Commission.
There is no federal agency that compiles, correlates and makes public the statistics on corporate crimes as the FBI does with diverse police-reported crimes in the Federal Uniform Crime Reports. If there were, there would be shown a much larger volume of corporate crime than reported here. It is well recognized by experts that the enforcement of laws against corporate crimes is at best of a sporadic token character carried on by understaffed and underfinanced agencies.
The Federal Uniform Crime Reports serve a purpose beyond merely informing the public of the incidence of crime, which they do only very lopsidedly and exaggeratedly for these particular crimes. The Reports have the intent, as evidenced in many public expressions by J. Edgar Hoover, the redoubtable G-man, of encouraging greater public support for more repressive police measures and stiffer penalties (against errant members of the lower socio-economic classes, who generally commit these direct- action crimes). Some future reader may assess the sagacity of this writer when he says that after this disparity in reporting lower-class and upper-class crimes has been sharply pointed out there will be no change: No federal agency will make a comprehensive annual statistical report on corporate crimes as such, although Washington is literally crawling with expert statisticians who could whip the figures together in a trice. Nor will the penalties for corporate crimes likely be increased to the point where they realistically deter. The offenders will continue to be treated as though they were somewhat crotchety but beloved maiden aunts who have been inexplicably naughty.
The Great Electrical Industry Conspiracy
While the bulk of the cases cited have involved the uncamouflaged criminal jurisdiction, with the judges properly accoutered with everything except the black cap, there have been many recent thumping reminders that carefully planned crime is an inseparable companion of big business. Three cases involved whole basic industries: the electrical, aluminum and steel industries. None of the protagonists was sponsored by the Mafia. They clearly prove that "the bad old days," thought to be conquered by the New Deal, are still with us.
The Great Electrical Industry Case came to a climax in 1961. It involved forty-five individual blue-ribbon defendants and twenty-nine corporations, including ultra-ultra General Electric Company and Westinghouse Electric Corporation, which together lovingly shared more than 75 per cent of the market. As Fortune remarked, it was the "biggest criminal case in the history of the Sherman Act. "
United States District Judge J. Cullen Ganey heard the case in Philadelphia. The prosecution was by the attorney general of the United States, in full panoply. It was crime, crime, crime all the way, front and back, up and down, back and forth. This needs to be emphasized because Fred F. Loock, president of Allen-Bradley Company, one of the defendants, said: "It is the only way a business can be run. It is free enterprise. "
The charge was specifically the dark one of conspiracy--in this case to fix prices, rig bids and divide markets in a series of secret cartels on electrical equipment valued at 81. 75 billion annually. The leading defendants pleaded guilty to the most serious counts, no contest to the rest. The conspiracies extended over many years, going back prior to World War II and in the opinion of some observers to 1896. Surprisingly, this conspiracy was carried on with all the guilt-conscious cloak-and-dagger techniques known to spies: secret codes, mysterious meetings in hotel rooms, queer notes, guarded telephone calls, concealed records, fictitious names, burned memoranda and the like. No patron of TV or the films, watching the actors, could have failed to recognize that an authentic, vintage conspiracy was afoot. Only sinister music was lacking.
Although operating departmental executives stood in the dock and the top managements of GE and Westinghouse virtuously disclaimed knowledge of the whole affair, Judge Ganey felicitously remarked before sentencing: "One would be most naive indeed to believe that these violations of the law, so long persisted in, affecting so large a segment of the industry and finally involving so many millions upon millions of dollars, were facts unknown to those responsible for the corporation and its conduct. . . . I am not naive enough to believe General Electric didn't know about it and it didn't meet their hearty approbation. " But although the government had gathered monumental evidence it had not been able to connect the very top executives directly to the conspiracy in ways required by law.
Judge Ganey imposed total fines of $1,924,500. General Electric was fined $437,500 and Westinghouse $372,500. Damages of $7,470,000 were also assessed. Upon twenty- four individuals in the case jail sentences were imposed--and suspended owing to their advanced ages. William S. Ginn, vice president of General Electric, was given thirty days in jail and fined $12,500. Six other company officers drew fines of $1,000 to $4,000 and thirty days in jail. And it was the unusualness of sentencing these high- salaried company men to thirty days in jail, the usual police-court sentence for disorderly conduct, that attracted special attention. Corporation executives are rarely sent to jail even for brief sojourns. Indeed, they are far more immune to jail terms than high Russian Communist Party officials.
The Great Electrical Industry Conspiracy emerged in a curious way. The Tennessee Valley Authority one day in the 1950's received identical sealed bids from various suppliers of heavy electrical equipment. The fact came to the attention of Senator Estes Kefauver, who threatened to start his own investigation if the Eisenhower Administration did not act. The Department of justice was alerted and began looking into the case, but at first found it difficult to pick up the threads of wrong-doing. It decided to subpoena various records of the companies and finally obtained an account of conspiracy from the official of a small company. His story implicated General Electric.
Queries to General Electric provoked an internal inquiry by top management, which was truthfully informed by some of the operating vice presidents of what went on. Top management professed to be shocked, put pressures on the men and eventually forced all to resign or fired them. This strong line by GE sent angry insiders and their lawyers scurrying to the government with their stories, and the net of evidence wove itself more tightly. In the other companies men were not removed.
General Electric had for many years had a policy formally calling for strict compliance with the antitrust laws. This policy was implemented by written orders conspicuously sent from time to time to operating executives. Nevertheless, General Electric was an old offender, in the 1940's alone being snared in thirteen antitrust cases.
The convicted executives maintained that they had simply inherited procedures carried on by predecessors and were acting under direct orders from higher ups. One of the men knew that he held his job "under risk" for two years unless he increased profits. There was evidence of men who had held some of the same positions earlier, who had refused to, enter into collusive arrangements with competitors and who had lost their jobs. Top officials denied everything. Judge Ganey clearly did not believe them.
Policy for General Electric was set by Chairman Ralph Cordiner, who, president since 1950, became chairman in 1958; his predecessor, Charles E. Wilson, had left to become chief of national defense mobilization. While Cordiner has been criticized for rudely dumping his men for doing what everybody did in this and in other industries (illegal price-fixing is standard business practice) his theoretical position was much sounder than that of others. Cordiner was an avowed devotee of competition, and public policy avowedly requires competition. There is, however, little competition in the American economy. But if this fact were to be formally admitted or authoritatively asserted the way would be paved for sweeping changes costly to big proprietors.
General Electric in sacrificing its men as it did acted in the style of governments who, having found some diplomat or espionage agent embarrassing, simply disavow him. (Most of these men, happily, were later hired by other companies, some at advanced levels. )
Origins of Anti-Monopoly Doctrine
The anti-monopoly doctrine was originally developed by individual business people in Europe who struggled against Crown monopolies in late medieval times. The earliest reported case in England was Darcy v. Allen in 1602 (11 Coke 84). In 1623 Parliament passed the Statute of Monopolies, abolishing nearly all existing monopolies as unlawful (St. 21 James 1, c. III). Englishmen from early times were always opposed to voluntary self-restraints of tradesmen by contract, and English courts refused to uphold such agreements (William Howard Taft, J. , Addyston Pipe case, 85 Fed. 271). The "business revolutions" of 1688 in England and 1789 in France were in part directed against such monopolies. Trade was to be free and open; and the public, in return for granting the trading privilege, would benefit from the resultant low prices wrought by competition. This, too, was the American idea.
In time, particularly in the United States, small businesses grew into large quasi- sovereign businesses and the large businesses found they had become (usually through illegal behavior) large monopolies such as the Aluminum Company, the Standard Oil Trust and many others. Broken up by government action or evolving in separate units, the various industries found in time that two to five or six companies did 75 to 90 per cent of the business and many small companies--tokens of competition--the remainder. This pattern is what economists call oligopoly or rule by a few. Prices are usually set by one company, the "price leader," and others follow the leader. When the few tacitly agree so to "follow the leader," as they usually do, there is in effect a general subtly maintained monopoly.
But if monopolies are indeed tolerated in the American system, if enterprises are not competing so that buyers get the lowest possible prices, what is the constitutional warrant? How does the situation constitute equal protection under the law? There is, in fact, no constitutional warrant. Monopoly is fundamentally illegal, with or without the Sherman Act, which refers to it as a "high misdemeanor. " Why should a select few have the public market as a private plaything?
But, having broken up the electrical and various other clearly proved monopolies, can we not say that the government is keeping the market open to free competition? While many would so argue, concentration and monopoly grow steadily. In view of the steady
denunciations, official and unofficial, and of specific laws against monopoly, how can this be?
Issues and Solutions
The mystery, if such it ever was, is neatly dispelled by judge Thurman Arnold in his The Folklore of Capitalism. Arnold was from 1938 to 1943 in charge of the antitrust division of the Department of Justice, and knew whereof he spoke. The operative function of the Sherman Act, Arnold holds, is to make possible from time to time ceremonial observances of the American belief in competition. These ceremonial observances take the form of criminal prosecutions, so that a concerned fraction of the public may believe the competitive situation is being defended. Meanwhile concentration and monopoly advance in rapid strides from decade to decade as in Europe. Those convicted do not alter their behavior.
And now we come to the basic issue, which the General Electric upper moguls perhaps had in mind in talking and acting as virtuously as they did for the record. If these industries are indeed monopolies that continually strengthen their position and do not give the public the advantages of competition, then they should be subject to regulation at least as strict as that accorded the public utilities in their "natural" monopolies. But it is just this sort of cartel regulation that the corporations fear. They would particularly abhor effective regulation even with stabilized prices. For at what level would the prices be set? At the other extreme from regulation there would be outright government ownership, with profits beyond the recovery of costs going, a la Russe, into the general government operating fund.
No accepted politician in the United States takes either of these positions. All profess themselves in favor of the present situation, which implies only that they fundamentally line up with the big proprietors who find the present situation precisely to their taste: monopoly with ceremonial overtones of pseudo-competition.
A third course might be to break some of the big companies into their constituent parts. General Electric under Cordiner, for example, was found to be organized into twenty-seven autonomous divisions consisting of 110 small companies. Each of these latter was run as if it were a single enterprise, with the boss of each making up his own budget. But there was constant pressure from the top executive suite on the boss of each unit for greater profitability.
This particular course of action, too, would be distasteful to the big companies, most of which are cannibalistic agglomerations, although their physical productivity would not be adversely affected by it. Indeed, it might be enhanced. One consequence of such action would be to produce more top executive jobs, which should be of interest to ambitious middle-class people.
The behavior of corporate man shows that he entertains certain unconscious beliefs, which he never expresses: that it is "his" market, filled with vassals in the form of "his" customers and "his" employees, and that government officials are "his" officials. While in legal theory the corporation exists to serve society, in the unconscious and correct belief of corporate man, society and government operationally now exist to serve the corporationthe be-all and end-all of everything.
In the electrical industry both the men and the companies came in for somewhat rougher treatment than is usually the case. As heavy equipment was involved, the companies were deluged by lawsuits from public utility companies, municipalities and government agencies. In 1965 a judgment was turned in against GE, Westinghouse and some others for $16,863,203 on behalf of a group of midwestern power and light companies. In all, 1,912 civil antitrust suits were filed against the companies, costing
GE a reported $225 million, Westinghouse about $110 million and Allis-Chalmers $45 million. Most were settled out of court for undisclosed sums but, all in all, the moneys involved were considerable even if they came short of erasing illegal profits.
The Prevalence of Price-Fixing
Has price-fixing been terminated by the electrical industry case? The reader can supply the answer for himself by checking competing products in his various stores. Somehow they are all priced about the same--soap, sugar, milk, salt, cereals, automobiles, appliances, cigarettes, etc. By regions the same grades of gasoline have the same prices under various brand names, except for an occasional "price war. " But a "price war," which is ordinary competition for business, is rare, as everyone knows. Established business considers price wars pathological and will do anything to avoid them. For while business believes in free enterprise--freedom to do whatever it desires-- it abhors free competition, whatever it may say to the contrary. The government for its part, while condemning price-fixing, itself supports agricultural prices.
T. K. Quinn, a former vice president of General Electric, has recorded his belief that a third of the American economy--automobiles, steel, cigarettes, cement, oil products, chemicals, roofing material and machinery--is price-stabilized through agreements of the leading companies. But corporation men, precisely like members of the underworld, have their own peculiar definitions for every situation. Thus, Roger Blough, president of United States Steel, has said "a price that matches another price is a competitive price," with which doctrine few nonbusiness people would agree. If every baseball game ended in a tie most fans would begin to suspect that the outcome was "fixed. "
Westinghouse stockholders, when called upon to pass on the conduct of their management, voted overwhelmingly to endorse it. General Electric stockholders simply shouted down any attempt to question the management and approved it by 98 per cent.
Yet this elaborate charade about monopoly, in which many people (including the judge in the case) seriously believe, is played at a price: The big companies, backbone of the American economic system, are formally stigmatized as criminals.
In this respect General Electric (along with many other companies) is what Professor Sutherland calls a "repeater. " Attorney General Robert Kennedy in what was perhaps a grandstand flourish after the trial suggested that an injunction he brought against General Electric, which had twenty-nine adjudicated convictions on its record, to keep it from repeating its conduct under the threat of more severe penalties; this was much as though a lawbreaking ex-convict should be enjoined from breaking the law. To implement this directive the Justice Department in December, 1961, sought a court order to make General Electric subject to unlimited fines if it ever again violated any requirement of the antitrust laws. In support of its action the Justice Department cited 39 antitrust actions against GE, 36 filed since 1941, including here the 29 convictions as well as seven consent decrees and three "adverse findings" by the Federal Trade Commission. Such a record, the Justice Department said, revealed "General Electric's proclivity for persistent and frequent involvement in antitrust violations" in all branches of production. The record of Westinghouse was hardly less immodest. 48
"Has the industry learned any lessons? " asked Fortune. "'One thing I've learned out of all this,' said one executive, 'is to talk to only one other person, not to go to meetings where there are lots of other people.
' Many of the defendants . . . looked on themselves as the fall guys of U. S. business. They protested that they should no more be held up to blame than many another business man, for conspiracy is just as much 'a way of life' in other fields as it was in electrical equipment. 'Why pick on us? ' was the attitude. 'Look at some of those other fellows. '"
In so saying these men showed they did not understand the ceremonial uses of sacrifice. The high Indian civilizations of South and Central America had the custom each year of sacrificing to the gods, by burning or other violence, the most beautiful maidens of the city. By destroying what was manifestly so desirable, the men of the nation showed piety. By stigmatizing with criminal convictions these high-salaried executives, paragons of the mass media, the United States similarly testified to its pious belief in competition even as competition approaches the vanishing point.
As an immediate aftermath to the case, President Robert Paxton of General Electric at the age of fifty-nine, with six years still to go before his compulsory retirement, resigned "because of ill health. " 49
Of a pending series of seven criminal indictments of the steel industry, in the summer of 1965 the companies were first found guilty in two highly significant decisions.
In the first case eight companies were found guilty in federal court of conspiracy to fix prices on carbon sheet steel, which makes up an annual market of $3. 6 billion--far larger than the electrical industry haul--and enters into a wide range of consumer products from automobile bodies and kitchen cabinets to refrigerators, washing machines and office furniture. The companies were fined $50,000 each, the maximum under the applicable section of the law; and sentencing of two principal officers was deferred.
The guilty companies composed most of the steel industry--the United States Steel Corporation, the Bethlehem Steel Company, the National Steel Corporation, the Great Lakes Steel Corporation, the Jones and Laughlin Steel Corporation, the Armco Steel Corporation, the Republic Steel Corporation and the Wheeling Steel Corporation. Named as co-conspirators in the indictment but not as defendants were the Youngstown Sheet and Tube Company, the Granite City Steel Company and the Pittsburgh Steel Company. The companies had felt emboldened to commit the sinister offenses complained of between 1955 and 1961, when a Republican Administration had briefly returned to power.
A curious comment at the time the indictments were handed up was made by Edmund F. Martin, vice chairman of Bethlehem Steel: "Even assuming that the matters charged were true, the Department of Justice is seeking not to correct any illegal or improper present-day situation, but only to harass the industry for practices which, even under the allegations of the indictment, have been abandoned. " This is much as though a man charged with a three-year-old burglary were to claim that authorities were not dealing with current crime but were harassing him, since he had been "going straight" ever since. 50
A few days later another federal judge fined four leading makers of steel forgings and a steel trade association a total of $150,000 after finding them criminally guilty of price fixing and bid rigging in the sale of open die steel forgings to the Army and Navy as well as to private companies from 1948 to 1961, an interval that embraced the Korean War. Bethlehem Steel, second in the industry, was fined $40,000; United States Steel, $35,000; the Midvale-Heppenstall Company of Philadelphia, $35,000; the Erie Forge and Steel Corporation, $25,000; and the Open Die Forging Institute, Inc. , $15,000. The defendants did an estimated $100-million business a year in this line.
While ship shafts for the Navy and cannon for the Army were involved in the forgings, an interesting sidelight was that the defendants were found to have illegally set identical prices for rotors and generator shafts sold to General Electric, Westinghouse and Allis-Chalmers, the top defendants in The Great Electrical Industry Conspiracy. The difference in the size of fines in the steel and electrical cases stemmed from the number of indictments on each charge. The Sherman Act as amended permits a
maximum fine of $50,000 on each charge. In the electrical case there were twenty charges in all, although every company did not fall under each charge.
Asked by the Times whether they intended to start civil suits for treble damages against the steel companies, General Electric said nothing had been decided and Allis- Chalmers said it had no comment; but Westinghouse valiantly reported: "So far as we know, we have received full value for our purchase of steel which we believe to have been made at competitive prices. "
In this case five executives of the companies were fined an aggregate of $44,000 on October 25, 1962, on the same criminal indictment, which they did not contest. 51
The fines in these cases, in relation to the amount of illegal business done, were obviously of the order of a $5 slap on the wrist for grand larceny.
The number of big recent cases-in oil, asphalt, milk, steel, electrical goods and the like--is too great to detail here. No fewer than ninety-two antitrust suits, a record, were begun in 1960 under the Republicans, although enforcement actually eased off sharply under President Kennedy and came to a virtual halt under President Johnson. 52 The Johnson Administration has practically given Big Business the green light on mergers and regulation in general, in return for which the presidential Business Advisory Council, composed of about 100 chairmen and presidents of the biggest corporations, appears to have given its full endorsement of Mr. Johnson's personally engineered disastrous Vietnam war. 53
In these upper reaches of power everything is strictly on a quid pro quo basis. The New Higher Politics
Let us look at all this lawbreaking from another point of view. Perhaps the statutes are somehow misbegotten, as many corporation heads freely assert, even though they are simple expressions of the common law upon which the entire Anglo-American legal system rests. But possibly this legal system, too, is misbegotten and should be scrapped or radically overhauled.
In his devotional biography of John D. Rockefeller I, Professor Allan Nevins, the Columbia historian, suggests that the common view of Rockefeller as the epitome of ruthless Pecuniary Man, freely breaking the law in quest of profits in any and every accessible field, is entirely mistaken. Professor Nevins in his summation (which may be taken as applying just as well to any industrial tycoon) indirectly suggests that Rockefeller is representative in his way of Political Man--that is, a person planning and providing for the entire community even if in ways not readily understood by lesser mortals. This is evident, for example, when Professor Nevins says: "Behind this organizing genius, which has analogies with Richelieu's or Bismarck's, lay a combination of traits not less interesting because of their simplicity, conspicuity, and harmony. " And Rockefeller's single-mindedness, says Professor Nevins, "reminds us of Cecil Rhodes. " 54 In brief, Rockefeller reminds Nevins of commanding political leaders.
Had Professor Nevins chosen for comparison political personalities from nearer home, readers might more readily have detected the untenability of offering Rockefeller as an example of Political Man, acting according to some conception of the general welfare of society rather than milking society for personal gain through the most effective monopoly of all time. Rockefeller in his heyday in fact stood adverse to the common interest and this was formally found to be so by United States courts.
Professor Nevins has generalized beyond Rockefeller: "The architects of our material progress [if such they ever were--F. L. ]--the men like Whitney, McCormick, Westinghouse, Rockefeller, Carnegie, Hill and Ford--will yet stand forth in their true
stature as builders [if indeed they ever were--F. L. ] of a strength which civilization found indispensable. "
In this connection Professor Nevins went on to contend grotesquely that these and other men like them "saved the world" in World War I and later helped the world meet "a succession of world crises. " He thereupon called for a revision of history, at which historians so far look with deep reserve, to give these unjustly evaluated men their proper due as builders and saviors of civilization. 55
As to the role in 1914-18 of the industrial tycoons, American and foreign, far from saving the world, they were the chief operative factors in producing World War I, as a wealth of research conclusively shows. Again, it was the American business leaders who pushed the United States into that war from far out in left field on fantastic grounds of insuring freedom of the seas, terminating militarism and saving the world for democracy. 56 Nearly every major difficulty of the contemporary world can be traced directly to the governments of the major powers, the United States included, in 1914-18, and the leading property holders who stood solidly behind them. They produced, among other things, totalitarian communism as an outgrowth of the situation.
But even though Professor Nevins and others who argue like him are not plausible, there does exist this view that Corporate Man is a disguised Political Man. And if this were so, then the lawbreaking in question might not only be condoned but might even be praised. For if these men are merely trying to get rid of a series of progress-stifling, retrograde laws by wholesale violation and evasion in order to establish industrial feudalism, they may be looked upon as forward-planning political saboteurs, even revolutionaries, who should be compared with and differentiated from Lenin, Trotsky, Gandhi and Mao Tse-tung. It is true that no such general intention has been openly avowed; but perhaps the intent is secret. Perhaps there exists a clandestine political conspiracy to undermine the present form of government and produce the Good Society according to the conception of the U. S. Chamber of Commerce--that is, industrial feudalism. As for Richelieu, Bismarck and Rhodes, none of them was at odds with the system in which he found himself. None was ever found guilty of serious crimes in his nation's courts.
But although the corporation leaders do not seem to be consciously political beyond seeking at all times to install opportunistic puppets and cat's-paws in office, it is a fact, as Professor Sutherland notes, that:
During the last century this economic and political system has changed. The changes have resulted principally from the efforts of businessmen. If the word "subversive" refers to efforts to make fundamental changes in a social system, the business leaders are the most subversive influence in the United States. These business leaders have acted as individuals or in small groups, seeking preferential advantages for themselves. The primary loyalty of the businessman has been to profits, and he has willingly sacrificed the general and abstract principles of free competition and free enterprise in circumstances which promised a pecuniary advantage. Moreover, he has been in a position of power and has been able to secure these preferential advantages. . . .
The restriction of free enterprise has also come principally from business men who have constantly sought to increase government regulation in their own interest, as in the case of tariffs, subsidies and prohibition of price-cutting on trademarked items.
In fact, the interests of businessmen have changed, to a considerable extent, from efficiency in production to efficiency in public manipulation, including manipulation of the government for the attainment of preferential advantages. . . . But the most significant result of the violations of the antitrust laws by large business concerns is that they have made our system of free competition and free enterprise unworkable. We no
longer have competition as a regulator of economic processes; we have not substituted efficient government regulation. We cannot go back to competition. We must go forward to some new system--perhaps communism, perhaps co-operativism, perhaps much more complete governmental regulation than we now have. I don't know what lies ahead of us and am not particularly concerned, but I do know that what was a fairly efficient system has been destroyed by the illegal behavior of Big Business. 57
One can, then, take these various behaviors of the corporations, owned 80 per cent by 1. 6 per cent of the populace, in one of two ways. If the corporate men and their principals are struggling to undermine the political system of 1789, the one established by the Founding Fathers, in order to achieve a new one nearer their heart's desire, they may be looked upon as political engineers and (at least from the point of view of the big property interests) as admirable men such as Professor Nevins finds Rockefeller to have been. But, on the other hand, if the system of 1789 is the good one, and to be defended (as in my own prejudice I suppose it generally to be), then the corporate men stand before history as convicted habitual criminals, true subversives and enemies of established society.
In any event, returning to our initial inquiry, in looking for criminals in the business system one need not look for denizens from the underworld who have wormed their way in. There is, furthermore, no concrete evidence that underworld figures have done so, although anyone may buy stock in the open market. The big criminals consist of the ordinary corporations and their officers--agents and instrumentalities of the rich--and this is a fact repeatedly certified by the federal courts and the quasi-judicial tribunals of the United States of America.
We must confess, then, to failure in the attempt to find members or agents of any Mafia, Cosa Nostra or underworld syndicate of any kind high in the business world, although the established entrepreneurs, securely installed, give a lusty account of themselves in the matter of lawbreaking. Comparatively they make Mafias and Crime Syndicates look like pushcart operations.
Four
THE INHERITORS: I
Large sums and wealthy individuals have been scrutinized for two chapters, but the concentrated core of private American wealth is yet to be examined. This chapter reports the findings of such an examination.
Private wealth acquired by new entrepreneurs, new in the sense of first showing themselves since World War II or even World War I, does not amount to much relatively, as we have observed. The conclusion is evident: Although there are indeed new fortunes large and small, either post-1918 or post-1945, they are neither numerous, of unusual amplitude nor especially potent in politico-economic affairs. With the exception of the Kennedy fortune, none of the later fortunes has played a prominent role in public affairs, and the political activities of the Kennedys have not been a consequence of their financial interests. The Kennedys were political long before they had money, though money has proved to be a fortuitous aid to their political
inclinations. Except for Joseph P. , the Kennedys--grandfathers and grandsons--have all been political rather than pecuniary men.
Nearly all the current large incomes, those exceeding $1 million, $500,000 or even $100,000 or $50,000 a year, are derived in fact from old property accumulations, by inheritors--that is, by people who never did whatever one is required to do, approved or disapproved, creative or noncreative, in order to assemble a fortune. And, it would appear, no amount of dedicated entrepreneurial effort by newcomers can place them in the financial class of the inheritors.
Some 2,000 to 3,000 incomes, more or less, in the range of $50,000 to $500,000 (a very few higher) accrue to salaried corporation executives, the stewards and overseers of vast industrial domains for the very rich. These men came into these revenues rather late in life, in their late forties and fifties mostly, and face early retirement from the scene. Few are heavily propertied. Independent small businessmen--a small enterprise being generally accepted now by connoisseurs as one with assets below $50 million-- account for perhaps the same number of such incomes.
A considerably smaller number accrue to a scattering of popular entertainers and athletes, whose earning power usually diminishes steeply with the fading of their youth. Very few large incomes, contrary to popular supposition, accrue to inventors. None whatever, as the record clearly shows, accrue to scientists, scholars and trained professionals of various kinds; only a handful to highly specialized medical doctors working mainly for the propertied class, and to an occasional executive engineer. Top- rank military officers are paid meagerly, although some manage to find their way to the tag-end of the corporate gravy train for their few years remaining after official retirement. In brief, few members of the most highly trained professional classes even late in life receive incomes approaching the level of $50,000--or even $30,000. They are, income-wise, strictly menials, necessary technicians on the economic plantation. In the world's most opulent economy they, together with the less skilled bulk of the populace, must count their pennies in an economy of widespread personal scarcity.
Increases in the number of large incomes paralleling cyclical increases in prices and quickened economic activity therefore do not indicate, as naive financial observers conclude, that new fortunes are being made right and left. They signify only that established accumulations are profiting by the cyclical trend. Whether the income is high or low the property always remains, ready to show its truly magnificent earning power in upward cyclical phases, showing its brute staying power in downward slides.
In the combined Fortune, Saturday Evening Post and New York Times roundups of the new and established big-wealthy it turned out that about half of the seventy-five-plus given close scrutiny are new-wealthy and the other half old-wealthy. The situation, on the face of it, seems to be about half-and-half, evenly balanced as between the old and the new. This implication tacitly conveyed by the manner in which Fortune in particular presented its list in 1957 will be flatly challenged here, where it will be shown that even granting the new-wealthy all that Fortune claimed for them, they represent little more than a shadow on the surface of a deep, silent and generally unsuspected pool. This pool consists simply of the estates, including trust funds, shown to view by Professor Lampman, cited in Chapter I.
These estates, the owners comprising 1. 6 per cent of the adult population as of 1953 (the percentage is the same or smaller now owing to the disproportionate increase in the nonpropertied through the higher postwar birth rate) that held $60,000 or more of revenue-producing assets, constitute the nearly absolute bulk of the holdings of the propertied class. But more than half of this class own no more than $125,000 each of assets, as Lampman points out, bringing down to 0. 8 per cent those in the group holding
more than $125,000 of assets. And most of this 0. 8 per cent can be considered only moderately wealthy, what is usually meant by the sayings "well fixed" or comfortably off. "
The Fortune rainbow of individual inheritors holding $75 million or more of assets will now be presented but there will, first, be some further demurrer leveled against its categorization of new-wealthy and old-wealthy. It will be recalled that, according to the Lampman findings, there were 27,000 owners of at least $1 million as of 1953, so the Fortune list represents only a very small sample off the top. There were about 90,000 such as of 1967 owing largely to the rise in market values.
Living
Schooling
1. J. Paul Getty
Oxford (B. A. )
Children
5
Stated Net
Worth in
millions
$700-$1,000
$400-$700
$400-$700
$400-$700
$400-$700
$400-$700
$200-$400
$200-$400
$200-$400
$200-$400
$100-$200
Financial Age in
Activity 1957
Executive 65
Getty Oil Co.
Rentier
Director 50
Mellon National Bank,
etc.
Executive 58
Alcoa,
Gulf Oil, etc.
Rentier 54
Standard Oil Group
Stockholder 83
Executive 81
E. I. du Pont,
General Motors
President 61
Delaware Trust Co.
Rentier
Executive 52
Hughes Tool Co.
Real estate 66
owner
London
2. Mrs. Mellon Bruce
(Ailsa Mellon)
New York
3. Paul Mellon
Yale (A. B. ) 2
Upperville, Virginia
Cambridge (A. B. )
4. Richard K. Mellon
Attended 4
Pittsburgh
Princeton
5. Mrs. Alan M. Scaife*
2
(Sarah Mellon)
(Died, 1965)
6. John D. Rockefeller, Jr.
Brown (A. B. ) 6
(Died, 1960)
7. Ire? ne? e du Pont
M. I. T. (M. S) 8
(Died, 1963)
8. William du Pont
5
Wilmington
9. Mrs. Frederick Guest*
(Amy Phipps)
Palm Beach
10. Howard Hughes
Attended None
Houston
Caltech
11. Vincent Astor
Attended None
New York
Harvard
(Died, 1960)
INHERITED WEALTH-HOLDERS, 1957
12. Lammont du Pont Copeland $100-$200
Harvard (B. S. ) 3
Executive 52
E. I. du Pont
General Motors
Company Director
Rentier
Rentier
Corning Glass 58
Corning Glass
Executive 76
Alcoa
Rentier
Rentier
Rentier 54
Publisher 53
Investor
Executive 42
Chase Bank
Standard Oil
Chairman 51
Rockefeller Bros. Fund
Executive 47
Rockefeller interests
Rockefeller interests
Land dev. 45
Government 49
Real estate 57
operator
Chairman 96
Wilmington
13. Mrs. Alfred I. du Pont
Attended None
Longwood College
14. Mrs. Edsel Ford*
4 Detroit
15. Doris Duke*
New York
16. Amory Houghton
Harvard (A. B. ) 5
Ex-Ambassador to France
17. Arthur A. Houghton, Jr.
Attended 4
New York
Harvard
18. Boy Arthur Hunt
Yale (A. B. ) 4
19. Mrs.
In the Federal Trade Commission alone, from January 1, 1945, through fiscal 1965 as given in annual reports, there were 3,991 cease-and-desist orders for violations by enterprises large and small. 40 The largest corporations were conspicuously represented, along with ambitious small fry. The specific violations were: false or misleading advertising, using a misleading trade or corporate name, using false or misleading endorsements, removing or concealing law-required markings, disparaging competitors' products, misrepresentation and deception, false invoicing, misbranding and mislabeling, deceptive pricing, failing to make material disclosures, offering deceptive inducements, obtaining information by subterfuge, using misleading product name or title, shipping for demand-payment goods not ordered, etc. , etc.
In the Food and Drug Administration, which administers the amended Food, Drug and Cosmetic Act of 1938, there were 5,208 criminal prosecutions from 1945 through 1961, an average of 306 per year. 41 Many of these were for distributing poisonous or contaminated products. Fines and jail sentences were usually meted out.
In its 26th annual report, the United States Securities and Exchange Commission, empowered to supervise the issuance, sale and resale of securities, reports that "From 1934, when the Commission was established, until June 30, 1960, 2,777 defendants have been indicted in the United States District Courts in 645 cases developed by the Commission, and 1,385 convictions obtained in 585 cases. The record of convictions obtained and upheld is over 85 per cent for the 26-year life of the Commission. " 42
"During the past fiscal year," says the 1960 report, "53 cases were referred to the Department of Justice for prosecution. This is the highest number of referrals in the past 18 years and the second highest in the Commission's history and is in line with the continuing increase in the number of referrals during the past several years. As a result of these and prior referrals, 43 indictments were returned against 289 defendants during the fiscal year. " 43
The Securities and Exchange Commission, of course, deals with thousands more cases each year in which it issues orders to discontinue illegal practices.
The National Labor Relations Board, which processed only a few more than 1,000 cases in 1936 and now processes more than 25,000 a year, enforces fair labor practices
as defined in the twice-amended National Labor Relations Act of 1935. Most of its rulings on appeal to the courts have been sustained.
Of 2,719 cases subjected to judicial review up to June 30, 1964, the orders of the NLRB were fully affirmed in 57 per cent of the cases and affirmed with modifications in 20 per cent. In only 18 per cent of the cases was the Board completely overruled. In appeals to the Supreme Court, the Board was affirmed in 63 per cent of the cases and affirmed with modifications in 8 per cent. The Supreme Court overruled the Board completely in 17 per cent of the cases. 44
This Board, a quasi-judicial tribunal similar to the Federal Trade Commission, the Securities and Exchange Commission and the Food and Drug Administration, issues injunctions and supervises violators and, according to the National Labor Relations Act, "Any person who shall willfully resist, prevent, impede, or interfere with any member of the Board or any of its agents or agencies in the performance of duties pursuant to this act shall be punished by a fine of not more than $5,000 or by imprisonment for not more than one year or both. " Complaints under this criminal statute are brought by individuals and unions against employers and by employers against unions. 45
Business or white collar crimes are usually thought of as nonviolent, thus placing the culprits in public opinion at least a peg above such unorthodox businessmen as Frank Nitti, Tony Accardo and Frank Costello. But this differentiation is clearly false, as is shown in many cases of record before the National Labor Relations Board. A recent pattern, as brought to light by the McClellan Committee, is for Company X to hire "labor relations adviser" A who in turn enrolls certified thugs T1, T2, and T3, to beat up, bribe, drive away or destroy labor organizer L.
Up to 1945, according to Sutherland, labor relations decisions had been made against 43 of the 70 large corporations, or 60 per cent, with 149 decisions in all. All 43 were "repeaters": 39 used interference, restraint and coercion; 33 discriminated against union members; 34 organized company unions; 13 used labor spies; and 5 used violence. Such violence was largely confined to the steel and automobile industries.
The late Henry Ford was quoted as saying in 1937: "We'll never recognize the United Automobile Workers Union or any other union. " The Ford Motor Company had long maintained a service department under Harry Bennett, a former pugilist, staffed with 600 men equipped with guns and blackjacks. With reference to this service department Frank Murphy, then governor of Michigan, said: "Henry Ford employs some of the worst gangsters in our city.
According to undisputed testimony before the NLRB, in 1937 the United Automobile Workers Union started to organize employees at Ford's River Rouge plant. It was announced that Organizers would distribute literature outside the plant at a specified time, and reporters and photographers were present in force. Said a guard to a reporter: "We are going to throw them to hell out of here. " Upon arrival the organizers went up an overhead ramp to one of the entrances, where they were told they were trespassing. Witnesses said they turned and started away. As they left they were assaulted by service department guards--beaten, knocked down and kicked. Witnesses testified that it was a "terrific beating" and "unbelievably brutal. " Among those severely beaten were Walter Reuther and Richard Frankensteen, officials of the United Automobile Workers Union.
The guards followed out into the street. One man's skull was fractured, another's back broken. Cameras of photographers were seized by guards and the films destroyed. Two reporters were chased by automobile at eighty miles an hour through Detroit streets until they reached the sanctuary of a police station. Later when women organizers attempted to distribute literature outside the plant they were attacked by guards,
knocked down and beaten. City policemen who were present during these events stood by and did not interfere--testimony to the local power of Henry Ford. 46
From fiscal years 1959 through 1965, inclusive, the Antitrust Division of the Department of Justice won 147 formally designated criminal cases against companies and lost 24. It won 206 civil cases and lost 9. 47
Other disciplinary bodies to which one should turn for a more complete picture of such business violations as are judicially decided are the Federal Communications Commission, the Civil Aeronautics Authority, Federal Aviation Agency, Federal Power Commission and the Interstate Commerce Commission.
There is no federal agency that compiles, correlates and makes public the statistics on corporate crimes as the FBI does with diverse police-reported crimes in the Federal Uniform Crime Reports. If there were, there would be shown a much larger volume of corporate crime than reported here. It is well recognized by experts that the enforcement of laws against corporate crimes is at best of a sporadic token character carried on by understaffed and underfinanced agencies.
The Federal Uniform Crime Reports serve a purpose beyond merely informing the public of the incidence of crime, which they do only very lopsidedly and exaggeratedly for these particular crimes. The Reports have the intent, as evidenced in many public expressions by J. Edgar Hoover, the redoubtable G-man, of encouraging greater public support for more repressive police measures and stiffer penalties (against errant members of the lower socio-economic classes, who generally commit these direct- action crimes). Some future reader may assess the sagacity of this writer when he says that after this disparity in reporting lower-class and upper-class crimes has been sharply pointed out there will be no change: No federal agency will make a comprehensive annual statistical report on corporate crimes as such, although Washington is literally crawling with expert statisticians who could whip the figures together in a trice. Nor will the penalties for corporate crimes likely be increased to the point where they realistically deter. The offenders will continue to be treated as though they were somewhat crotchety but beloved maiden aunts who have been inexplicably naughty.
The Great Electrical Industry Conspiracy
While the bulk of the cases cited have involved the uncamouflaged criminal jurisdiction, with the judges properly accoutered with everything except the black cap, there have been many recent thumping reminders that carefully planned crime is an inseparable companion of big business. Three cases involved whole basic industries: the electrical, aluminum and steel industries. None of the protagonists was sponsored by the Mafia. They clearly prove that "the bad old days," thought to be conquered by the New Deal, are still with us.
The Great Electrical Industry Case came to a climax in 1961. It involved forty-five individual blue-ribbon defendants and twenty-nine corporations, including ultra-ultra General Electric Company and Westinghouse Electric Corporation, which together lovingly shared more than 75 per cent of the market. As Fortune remarked, it was the "biggest criminal case in the history of the Sherman Act. "
United States District Judge J. Cullen Ganey heard the case in Philadelphia. The prosecution was by the attorney general of the United States, in full panoply. It was crime, crime, crime all the way, front and back, up and down, back and forth. This needs to be emphasized because Fred F. Loock, president of Allen-Bradley Company, one of the defendants, said: "It is the only way a business can be run. It is free enterprise. "
The charge was specifically the dark one of conspiracy--in this case to fix prices, rig bids and divide markets in a series of secret cartels on electrical equipment valued at 81. 75 billion annually. The leading defendants pleaded guilty to the most serious counts, no contest to the rest. The conspiracies extended over many years, going back prior to World War II and in the opinion of some observers to 1896. Surprisingly, this conspiracy was carried on with all the guilt-conscious cloak-and-dagger techniques known to spies: secret codes, mysterious meetings in hotel rooms, queer notes, guarded telephone calls, concealed records, fictitious names, burned memoranda and the like. No patron of TV or the films, watching the actors, could have failed to recognize that an authentic, vintage conspiracy was afoot. Only sinister music was lacking.
Although operating departmental executives stood in the dock and the top managements of GE and Westinghouse virtuously disclaimed knowledge of the whole affair, Judge Ganey felicitously remarked before sentencing: "One would be most naive indeed to believe that these violations of the law, so long persisted in, affecting so large a segment of the industry and finally involving so many millions upon millions of dollars, were facts unknown to those responsible for the corporation and its conduct. . . . I am not naive enough to believe General Electric didn't know about it and it didn't meet their hearty approbation. " But although the government had gathered monumental evidence it had not been able to connect the very top executives directly to the conspiracy in ways required by law.
Judge Ganey imposed total fines of $1,924,500. General Electric was fined $437,500 and Westinghouse $372,500. Damages of $7,470,000 were also assessed. Upon twenty- four individuals in the case jail sentences were imposed--and suspended owing to their advanced ages. William S. Ginn, vice president of General Electric, was given thirty days in jail and fined $12,500. Six other company officers drew fines of $1,000 to $4,000 and thirty days in jail. And it was the unusualness of sentencing these high- salaried company men to thirty days in jail, the usual police-court sentence for disorderly conduct, that attracted special attention. Corporation executives are rarely sent to jail even for brief sojourns. Indeed, they are far more immune to jail terms than high Russian Communist Party officials.
The Great Electrical Industry Conspiracy emerged in a curious way. The Tennessee Valley Authority one day in the 1950's received identical sealed bids from various suppliers of heavy electrical equipment. The fact came to the attention of Senator Estes Kefauver, who threatened to start his own investigation if the Eisenhower Administration did not act. The Department of justice was alerted and began looking into the case, but at first found it difficult to pick up the threads of wrong-doing. It decided to subpoena various records of the companies and finally obtained an account of conspiracy from the official of a small company. His story implicated General Electric.
Queries to General Electric provoked an internal inquiry by top management, which was truthfully informed by some of the operating vice presidents of what went on. Top management professed to be shocked, put pressures on the men and eventually forced all to resign or fired them. This strong line by GE sent angry insiders and their lawyers scurrying to the government with their stories, and the net of evidence wove itself more tightly. In the other companies men were not removed.
General Electric had for many years had a policy formally calling for strict compliance with the antitrust laws. This policy was implemented by written orders conspicuously sent from time to time to operating executives. Nevertheless, General Electric was an old offender, in the 1940's alone being snared in thirteen antitrust cases.
The convicted executives maintained that they had simply inherited procedures carried on by predecessors and were acting under direct orders from higher ups. One of the men knew that he held his job "under risk" for two years unless he increased profits. There was evidence of men who had held some of the same positions earlier, who had refused to, enter into collusive arrangements with competitors and who had lost their jobs. Top officials denied everything. Judge Ganey clearly did not believe them.
Policy for General Electric was set by Chairman Ralph Cordiner, who, president since 1950, became chairman in 1958; his predecessor, Charles E. Wilson, had left to become chief of national defense mobilization. While Cordiner has been criticized for rudely dumping his men for doing what everybody did in this and in other industries (illegal price-fixing is standard business practice) his theoretical position was much sounder than that of others. Cordiner was an avowed devotee of competition, and public policy avowedly requires competition. There is, however, little competition in the American economy. But if this fact were to be formally admitted or authoritatively asserted the way would be paved for sweeping changes costly to big proprietors.
General Electric in sacrificing its men as it did acted in the style of governments who, having found some diplomat or espionage agent embarrassing, simply disavow him. (Most of these men, happily, were later hired by other companies, some at advanced levels. )
Origins of Anti-Monopoly Doctrine
The anti-monopoly doctrine was originally developed by individual business people in Europe who struggled against Crown monopolies in late medieval times. The earliest reported case in England was Darcy v. Allen in 1602 (11 Coke 84). In 1623 Parliament passed the Statute of Monopolies, abolishing nearly all existing monopolies as unlawful (St. 21 James 1, c. III). Englishmen from early times were always opposed to voluntary self-restraints of tradesmen by contract, and English courts refused to uphold such agreements (William Howard Taft, J. , Addyston Pipe case, 85 Fed. 271). The "business revolutions" of 1688 in England and 1789 in France were in part directed against such monopolies. Trade was to be free and open; and the public, in return for granting the trading privilege, would benefit from the resultant low prices wrought by competition. This, too, was the American idea.
In time, particularly in the United States, small businesses grew into large quasi- sovereign businesses and the large businesses found they had become (usually through illegal behavior) large monopolies such as the Aluminum Company, the Standard Oil Trust and many others. Broken up by government action or evolving in separate units, the various industries found in time that two to five or six companies did 75 to 90 per cent of the business and many small companies--tokens of competition--the remainder. This pattern is what economists call oligopoly or rule by a few. Prices are usually set by one company, the "price leader," and others follow the leader. When the few tacitly agree so to "follow the leader," as they usually do, there is in effect a general subtly maintained monopoly.
But if monopolies are indeed tolerated in the American system, if enterprises are not competing so that buyers get the lowest possible prices, what is the constitutional warrant? How does the situation constitute equal protection under the law? There is, in fact, no constitutional warrant. Monopoly is fundamentally illegal, with or without the Sherman Act, which refers to it as a "high misdemeanor. " Why should a select few have the public market as a private plaything?
But, having broken up the electrical and various other clearly proved monopolies, can we not say that the government is keeping the market open to free competition? While many would so argue, concentration and monopoly grow steadily. In view of the steady
denunciations, official and unofficial, and of specific laws against monopoly, how can this be?
Issues and Solutions
The mystery, if such it ever was, is neatly dispelled by judge Thurman Arnold in his The Folklore of Capitalism. Arnold was from 1938 to 1943 in charge of the antitrust division of the Department of Justice, and knew whereof he spoke. The operative function of the Sherman Act, Arnold holds, is to make possible from time to time ceremonial observances of the American belief in competition. These ceremonial observances take the form of criminal prosecutions, so that a concerned fraction of the public may believe the competitive situation is being defended. Meanwhile concentration and monopoly advance in rapid strides from decade to decade as in Europe. Those convicted do not alter their behavior.
And now we come to the basic issue, which the General Electric upper moguls perhaps had in mind in talking and acting as virtuously as they did for the record. If these industries are indeed monopolies that continually strengthen their position and do not give the public the advantages of competition, then they should be subject to regulation at least as strict as that accorded the public utilities in their "natural" monopolies. But it is just this sort of cartel regulation that the corporations fear. They would particularly abhor effective regulation even with stabilized prices. For at what level would the prices be set? At the other extreme from regulation there would be outright government ownership, with profits beyond the recovery of costs going, a la Russe, into the general government operating fund.
No accepted politician in the United States takes either of these positions. All profess themselves in favor of the present situation, which implies only that they fundamentally line up with the big proprietors who find the present situation precisely to their taste: monopoly with ceremonial overtones of pseudo-competition.
A third course might be to break some of the big companies into their constituent parts. General Electric under Cordiner, for example, was found to be organized into twenty-seven autonomous divisions consisting of 110 small companies. Each of these latter was run as if it were a single enterprise, with the boss of each making up his own budget. But there was constant pressure from the top executive suite on the boss of each unit for greater profitability.
This particular course of action, too, would be distasteful to the big companies, most of which are cannibalistic agglomerations, although their physical productivity would not be adversely affected by it. Indeed, it might be enhanced. One consequence of such action would be to produce more top executive jobs, which should be of interest to ambitious middle-class people.
The behavior of corporate man shows that he entertains certain unconscious beliefs, which he never expresses: that it is "his" market, filled with vassals in the form of "his" customers and "his" employees, and that government officials are "his" officials. While in legal theory the corporation exists to serve society, in the unconscious and correct belief of corporate man, society and government operationally now exist to serve the corporationthe be-all and end-all of everything.
In the electrical industry both the men and the companies came in for somewhat rougher treatment than is usually the case. As heavy equipment was involved, the companies were deluged by lawsuits from public utility companies, municipalities and government agencies. In 1965 a judgment was turned in against GE, Westinghouse and some others for $16,863,203 on behalf of a group of midwestern power and light companies. In all, 1,912 civil antitrust suits were filed against the companies, costing
GE a reported $225 million, Westinghouse about $110 million and Allis-Chalmers $45 million. Most were settled out of court for undisclosed sums but, all in all, the moneys involved were considerable even if they came short of erasing illegal profits.
The Prevalence of Price-Fixing
Has price-fixing been terminated by the electrical industry case? The reader can supply the answer for himself by checking competing products in his various stores. Somehow they are all priced about the same--soap, sugar, milk, salt, cereals, automobiles, appliances, cigarettes, etc. By regions the same grades of gasoline have the same prices under various brand names, except for an occasional "price war. " But a "price war," which is ordinary competition for business, is rare, as everyone knows. Established business considers price wars pathological and will do anything to avoid them. For while business believes in free enterprise--freedom to do whatever it desires-- it abhors free competition, whatever it may say to the contrary. The government for its part, while condemning price-fixing, itself supports agricultural prices.
T. K. Quinn, a former vice president of General Electric, has recorded his belief that a third of the American economy--automobiles, steel, cigarettes, cement, oil products, chemicals, roofing material and machinery--is price-stabilized through agreements of the leading companies. But corporation men, precisely like members of the underworld, have their own peculiar definitions for every situation. Thus, Roger Blough, president of United States Steel, has said "a price that matches another price is a competitive price," with which doctrine few nonbusiness people would agree. If every baseball game ended in a tie most fans would begin to suspect that the outcome was "fixed. "
Westinghouse stockholders, when called upon to pass on the conduct of their management, voted overwhelmingly to endorse it. General Electric stockholders simply shouted down any attempt to question the management and approved it by 98 per cent.
Yet this elaborate charade about monopoly, in which many people (including the judge in the case) seriously believe, is played at a price: The big companies, backbone of the American economic system, are formally stigmatized as criminals.
In this respect General Electric (along with many other companies) is what Professor Sutherland calls a "repeater. " Attorney General Robert Kennedy in what was perhaps a grandstand flourish after the trial suggested that an injunction he brought against General Electric, which had twenty-nine adjudicated convictions on its record, to keep it from repeating its conduct under the threat of more severe penalties; this was much as though a lawbreaking ex-convict should be enjoined from breaking the law. To implement this directive the Justice Department in December, 1961, sought a court order to make General Electric subject to unlimited fines if it ever again violated any requirement of the antitrust laws. In support of its action the Justice Department cited 39 antitrust actions against GE, 36 filed since 1941, including here the 29 convictions as well as seven consent decrees and three "adverse findings" by the Federal Trade Commission. Such a record, the Justice Department said, revealed "General Electric's proclivity for persistent and frequent involvement in antitrust violations" in all branches of production. The record of Westinghouse was hardly less immodest. 48
"Has the industry learned any lessons? " asked Fortune. "'One thing I've learned out of all this,' said one executive, 'is to talk to only one other person, not to go to meetings where there are lots of other people.
' Many of the defendants . . . looked on themselves as the fall guys of U. S. business. They protested that they should no more be held up to blame than many another business man, for conspiracy is just as much 'a way of life' in other fields as it was in electrical equipment. 'Why pick on us? ' was the attitude. 'Look at some of those other fellows. '"
In so saying these men showed they did not understand the ceremonial uses of sacrifice. The high Indian civilizations of South and Central America had the custom each year of sacrificing to the gods, by burning or other violence, the most beautiful maidens of the city. By destroying what was manifestly so desirable, the men of the nation showed piety. By stigmatizing with criminal convictions these high-salaried executives, paragons of the mass media, the United States similarly testified to its pious belief in competition even as competition approaches the vanishing point.
As an immediate aftermath to the case, President Robert Paxton of General Electric at the age of fifty-nine, with six years still to go before his compulsory retirement, resigned "because of ill health. " 49
Of a pending series of seven criminal indictments of the steel industry, in the summer of 1965 the companies were first found guilty in two highly significant decisions.
In the first case eight companies were found guilty in federal court of conspiracy to fix prices on carbon sheet steel, which makes up an annual market of $3. 6 billion--far larger than the electrical industry haul--and enters into a wide range of consumer products from automobile bodies and kitchen cabinets to refrigerators, washing machines and office furniture. The companies were fined $50,000 each, the maximum under the applicable section of the law; and sentencing of two principal officers was deferred.
The guilty companies composed most of the steel industry--the United States Steel Corporation, the Bethlehem Steel Company, the National Steel Corporation, the Great Lakes Steel Corporation, the Jones and Laughlin Steel Corporation, the Armco Steel Corporation, the Republic Steel Corporation and the Wheeling Steel Corporation. Named as co-conspirators in the indictment but not as defendants were the Youngstown Sheet and Tube Company, the Granite City Steel Company and the Pittsburgh Steel Company. The companies had felt emboldened to commit the sinister offenses complained of between 1955 and 1961, when a Republican Administration had briefly returned to power.
A curious comment at the time the indictments were handed up was made by Edmund F. Martin, vice chairman of Bethlehem Steel: "Even assuming that the matters charged were true, the Department of Justice is seeking not to correct any illegal or improper present-day situation, but only to harass the industry for practices which, even under the allegations of the indictment, have been abandoned. " This is much as though a man charged with a three-year-old burglary were to claim that authorities were not dealing with current crime but were harassing him, since he had been "going straight" ever since. 50
A few days later another federal judge fined four leading makers of steel forgings and a steel trade association a total of $150,000 after finding them criminally guilty of price fixing and bid rigging in the sale of open die steel forgings to the Army and Navy as well as to private companies from 1948 to 1961, an interval that embraced the Korean War. Bethlehem Steel, second in the industry, was fined $40,000; United States Steel, $35,000; the Midvale-Heppenstall Company of Philadelphia, $35,000; the Erie Forge and Steel Corporation, $25,000; and the Open Die Forging Institute, Inc. , $15,000. The defendants did an estimated $100-million business a year in this line.
While ship shafts for the Navy and cannon for the Army were involved in the forgings, an interesting sidelight was that the defendants were found to have illegally set identical prices for rotors and generator shafts sold to General Electric, Westinghouse and Allis-Chalmers, the top defendants in The Great Electrical Industry Conspiracy. The difference in the size of fines in the steel and electrical cases stemmed from the number of indictments on each charge. The Sherman Act as amended permits a
maximum fine of $50,000 on each charge. In the electrical case there were twenty charges in all, although every company did not fall under each charge.
Asked by the Times whether they intended to start civil suits for treble damages against the steel companies, General Electric said nothing had been decided and Allis- Chalmers said it had no comment; but Westinghouse valiantly reported: "So far as we know, we have received full value for our purchase of steel which we believe to have been made at competitive prices. "
In this case five executives of the companies were fined an aggregate of $44,000 on October 25, 1962, on the same criminal indictment, which they did not contest. 51
The fines in these cases, in relation to the amount of illegal business done, were obviously of the order of a $5 slap on the wrist for grand larceny.
The number of big recent cases-in oil, asphalt, milk, steel, electrical goods and the like--is too great to detail here. No fewer than ninety-two antitrust suits, a record, were begun in 1960 under the Republicans, although enforcement actually eased off sharply under President Kennedy and came to a virtual halt under President Johnson. 52 The Johnson Administration has practically given Big Business the green light on mergers and regulation in general, in return for which the presidential Business Advisory Council, composed of about 100 chairmen and presidents of the biggest corporations, appears to have given its full endorsement of Mr. Johnson's personally engineered disastrous Vietnam war. 53
In these upper reaches of power everything is strictly on a quid pro quo basis. The New Higher Politics
Let us look at all this lawbreaking from another point of view. Perhaps the statutes are somehow misbegotten, as many corporation heads freely assert, even though they are simple expressions of the common law upon which the entire Anglo-American legal system rests. But possibly this legal system, too, is misbegotten and should be scrapped or radically overhauled.
In his devotional biography of John D. Rockefeller I, Professor Allan Nevins, the Columbia historian, suggests that the common view of Rockefeller as the epitome of ruthless Pecuniary Man, freely breaking the law in quest of profits in any and every accessible field, is entirely mistaken. Professor Nevins in his summation (which may be taken as applying just as well to any industrial tycoon) indirectly suggests that Rockefeller is representative in his way of Political Man--that is, a person planning and providing for the entire community even if in ways not readily understood by lesser mortals. This is evident, for example, when Professor Nevins says: "Behind this organizing genius, which has analogies with Richelieu's or Bismarck's, lay a combination of traits not less interesting because of their simplicity, conspicuity, and harmony. " And Rockefeller's single-mindedness, says Professor Nevins, "reminds us of Cecil Rhodes. " 54 In brief, Rockefeller reminds Nevins of commanding political leaders.
Had Professor Nevins chosen for comparison political personalities from nearer home, readers might more readily have detected the untenability of offering Rockefeller as an example of Political Man, acting according to some conception of the general welfare of society rather than milking society for personal gain through the most effective monopoly of all time. Rockefeller in his heyday in fact stood adverse to the common interest and this was formally found to be so by United States courts.
Professor Nevins has generalized beyond Rockefeller: "The architects of our material progress [if such they ever were--F. L. ]--the men like Whitney, McCormick, Westinghouse, Rockefeller, Carnegie, Hill and Ford--will yet stand forth in their true
stature as builders [if indeed they ever were--F. L. ] of a strength which civilization found indispensable. "
In this connection Professor Nevins went on to contend grotesquely that these and other men like them "saved the world" in World War I and later helped the world meet "a succession of world crises. " He thereupon called for a revision of history, at which historians so far look with deep reserve, to give these unjustly evaluated men their proper due as builders and saviors of civilization. 55
As to the role in 1914-18 of the industrial tycoons, American and foreign, far from saving the world, they were the chief operative factors in producing World War I, as a wealth of research conclusively shows. Again, it was the American business leaders who pushed the United States into that war from far out in left field on fantastic grounds of insuring freedom of the seas, terminating militarism and saving the world for democracy. 56 Nearly every major difficulty of the contemporary world can be traced directly to the governments of the major powers, the United States included, in 1914-18, and the leading property holders who stood solidly behind them. They produced, among other things, totalitarian communism as an outgrowth of the situation.
But even though Professor Nevins and others who argue like him are not plausible, there does exist this view that Corporate Man is a disguised Political Man. And if this were so, then the lawbreaking in question might not only be condoned but might even be praised. For if these men are merely trying to get rid of a series of progress-stifling, retrograde laws by wholesale violation and evasion in order to establish industrial feudalism, they may be looked upon as forward-planning political saboteurs, even revolutionaries, who should be compared with and differentiated from Lenin, Trotsky, Gandhi and Mao Tse-tung. It is true that no such general intention has been openly avowed; but perhaps the intent is secret. Perhaps there exists a clandestine political conspiracy to undermine the present form of government and produce the Good Society according to the conception of the U. S. Chamber of Commerce--that is, industrial feudalism. As for Richelieu, Bismarck and Rhodes, none of them was at odds with the system in which he found himself. None was ever found guilty of serious crimes in his nation's courts.
But although the corporation leaders do not seem to be consciously political beyond seeking at all times to install opportunistic puppets and cat's-paws in office, it is a fact, as Professor Sutherland notes, that:
During the last century this economic and political system has changed. The changes have resulted principally from the efforts of businessmen. If the word "subversive" refers to efforts to make fundamental changes in a social system, the business leaders are the most subversive influence in the United States. These business leaders have acted as individuals or in small groups, seeking preferential advantages for themselves. The primary loyalty of the businessman has been to profits, and he has willingly sacrificed the general and abstract principles of free competition and free enterprise in circumstances which promised a pecuniary advantage. Moreover, he has been in a position of power and has been able to secure these preferential advantages. . . .
The restriction of free enterprise has also come principally from business men who have constantly sought to increase government regulation in their own interest, as in the case of tariffs, subsidies and prohibition of price-cutting on trademarked items.
In fact, the interests of businessmen have changed, to a considerable extent, from efficiency in production to efficiency in public manipulation, including manipulation of the government for the attainment of preferential advantages. . . . But the most significant result of the violations of the antitrust laws by large business concerns is that they have made our system of free competition and free enterprise unworkable. We no
longer have competition as a regulator of economic processes; we have not substituted efficient government regulation. We cannot go back to competition. We must go forward to some new system--perhaps communism, perhaps co-operativism, perhaps much more complete governmental regulation than we now have. I don't know what lies ahead of us and am not particularly concerned, but I do know that what was a fairly efficient system has been destroyed by the illegal behavior of Big Business. 57
One can, then, take these various behaviors of the corporations, owned 80 per cent by 1. 6 per cent of the populace, in one of two ways. If the corporate men and their principals are struggling to undermine the political system of 1789, the one established by the Founding Fathers, in order to achieve a new one nearer their heart's desire, they may be looked upon as political engineers and (at least from the point of view of the big property interests) as admirable men such as Professor Nevins finds Rockefeller to have been. But, on the other hand, if the system of 1789 is the good one, and to be defended (as in my own prejudice I suppose it generally to be), then the corporate men stand before history as convicted habitual criminals, true subversives and enemies of established society.
In any event, returning to our initial inquiry, in looking for criminals in the business system one need not look for denizens from the underworld who have wormed their way in. There is, furthermore, no concrete evidence that underworld figures have done so, although anyone may buy stock in the open market. The big criminals consist of the ordinary corporations and their officers--agents and instrumentalities of the rich--and this is a fact repeatedly certified by the federal courts and the quasi-judicial tribunals of the United States of America.
We must confess, then, to failure in the attempt to find members or agents of any Mafia, Cosa Nostra or underworld syndicate of any kind high in the business world, although the established entrepreneurs, securely installed, give a lusty account of themselves in the matter of lawbreaking. Comparatively they make Mafias and Crime Syndicates look like pushcart operations.
Four
THE INHERITORS: I
Large sums and wealthy individuals have been scrutinized for two chapters, but the concentrated core of private American wealth is yet to be examined. This chapter reports the findings of such an examination.
Private wealth acquired by new entrepreneurs, new in the sense of first showing themselves since World War II or even World War I, does not amount to much relatively, as we have observed. The conclusion is evident: Although there are indeed new fortunes large and small, either post-1918 or post-1945, they are neither numerous, of unusual amplitude nor especially potent in politico-economic affairs. With the exception of the Kennedy fortune, none of the later fortunes has played a prominent role in public affairs, and the political activities of the Kennedys have not been a consequence of their financial interests. The Kennedys were political long before they had money, though money has proved to be a fortuitous aid to their political
inclinations. Except for Joseph P. , the Kennedys--grandfathers and grandsons--have all been political rather than pecuniary men.
Nearly all the current large incomes, those exceeding $1 million, $500,000 or even $100,000 or $50,000 a year, are derived in fact from old property accumulations, by inheritors--that is, by people who never did whatever one is required to do, approved or disapproved, creative or noncreative, in order to assemble a fortune. And, it would appear, no amount of dedicated entrepreneurial effort by newcomers can place them in the financial class of the inheritors.
Some 2,000 to 3,000 incomes, more or less, in the range of $50,000 to $500,000 (a very few higher) accrue to salaried corporation executives, the stewards and overseers of vast industrial domains for the very rich. These men came into these revenues rather late in life, in their late forties and fifties mostly, and face early retirement from the scene. Few are heavily propertied. Independent small businessmen--a small enterprise being generally accepted now by connoisseurs as one with assets below $50 million-- account for perhaps the same number of such incomes.
A considerably smaller number accrue to a scattering of popular entertainers and athletes, whose earning power usually diminishes steeply with the fading of their youth. Very few large incomes, contrary to popular supposition, accrue to inventors. None whatever, as the record clearly shows, accrue to scientists, scholars and trained professionals of various kinds; only a handful to highly specialized medical doctors working mainly for the propertied class, and to an occasional executive engineer. Top- rank military officers are paid meagerly, although some manage to find their way to the tag-end of the corporate gravy train for their few years remaining after official retirement. In brief, few members of the most highly trained professional classes even late in life receive incomes approaching the level of $50,000--or even $30,000. They are, income-wise, strictly menials, necessary technicians on the economic plantation. In the world's most opulent economy they, together with the less skilled bulk of the populace, must count their pennies in an economy of widespread personal scarcity.
Increases in the number of large incomes paralleling cyclical increases in prices and quickened economic activity therefore do not indicate, as naive financial observers conclude, that new fortunes are being made right and left. They signify only that established accumulations are profiting by the cyclical trend. Whether the income is high or low the property always remains, ready to show its truly magnificent earning power in upward cyclical phases, showing its brute staying power in downward slides.
In the combined Fortune, Saturday Evening Post and New York Times roundups of the new and established big-wealthy it turned out that about half of the seventy-five-plus given close scrutiny are new-wealthy and the other half old-wealthy. The situation, on the face of it, seems to be about half-and-half, evenly balanced as between the old and the new. This implication tacitly conveyed by the manner in which Fortune in particular presented its list in 1957 will be flatly challenged here, where it will be shown that even granting the new-wealthy all that Fortune claimed for them, they represent little more than a shadow on the surface of a deep, silent and generally unsuspected pool. This pool consists simply of the estates, including trust funds, shown to view by Professor Lampman, cited in Chapter I.
These estates, the owners comprising 1. 6 per cent of the adult population as of 1953 (the percentage is the same or smaller now owing to the disproportionate increase in the nonpropertied through the higher postwar birth rate) that held $60,000 or more of revenue-producing assets, constitute the nearly absolute bulk of the holdings of the propertied class. But more than half of this class own no more than $125,000 each of assets, as Lampman points out, bringing down to 0. 8 per cent those in the group holding
more than $125,000 of assets. And most of this 0. 8 per cent can be considered only moderately wealthy, what is usually meant by the sayings "well fixed" or comfortably off. "
The Fortune rainbow of individual inheritors holding $75 million or more of assets will now be presented but there will, first, be some further demurrer leveled against its categorization of new-wealthy and old-wealthy. It will be recalled that, according to the Lampman findings, there were 27,000 owners of at least $1 million as of 1953, so the Fortune list represents only a very small sample off the top. There were about 90,000 such as of 1967 owing largely to the rise in market values.
Living
Schooling
1. J. Paul Getty
Oxford (B. A. )
Children
5
Stated Net
Worth in
millions
$700-$1,000
$400-$700
$400-$700
$400-$700
$400-$700
$400-$700
$200-$400
$200-$400
$200-$400
$200-$400
$100-$200
Financial Age in
Activity 1957
Executive 65
Getty Oil Co.
Rentier
Director 50
Mellon National Bank,
etc.
Executive 58
Alcoa,
Gulf Oil, etc.
Rentier 54
Standard Oil Group
Stockholder 83
Executive 81
E. I. du Pont,
General Motors
President 61
Delaware Trust Co.
Rentier
Executive 52
Hughes Tool Co.
Real estate 66
owner
London
2. Mrs. Mellon Bruce
(Ailsa Mellon)
New York
3. Paul Mellon
Yale (A. B. ) 2
Upperville, Virginia
Cambridge (A. B. )
4. Richard K. Mellon
Attended 4
Pittsburgh
Princeton
5. Mrs. Alan M. Scaife*
2
(Sarah Mellon)
(Died, 1965)
6. John D. Rockefeller, Jr.
Brown (A. B. ) 6
(Died, 1960)
7. Ire? ne? e du Pont
M. I. T. (M. S) 8
(Died, 1963)
8. William du Pont
5
Wilmington
9. Mrs. Frederick Guest*
(Amy Phipps)
Palm Beach
10. Howard Hughes
Attended None
Houston
Caltech
11. Vincent Astor
Attended None
New York
Harvard
(Died, 1960)
INHERITED WEALTH-HOLDERS, 1957
12. Lammont du Pont Copeland $100-$200
Harvard (B. S. ) 3
Executive 52
E. I. du Pont
General Motors
Company Director
Rentier
Rentier
Corning Glass 58
Corning Glass
Executive 76
Alcoa
Rentier
Rentier
Rentier 54
Publisher 53
Investor
Executive 42
Chase Bank
Standard Oil
Chairman 51
Rockefeller Bros. Fund
Executive 47
Rockefeller interests
Rockefeller interests
Land dev. 45
Government 49
Real estate 57
operator
Chairman 96
Wilmington
13. Mrs. Alfred I. du Pont
Attended None
Longwood College
14. Mrs. Edsel Ford*
4 Detroit
15. Doris Duke*
New York
16. Amory Houghton
Harvard (A. B. ) 5
Ex-Ambassador to France
17. Arthur A. Houghton, Jr.
Attended 4
New York
Harvard
18. Boy Arthur Hunt
Yale (A. B. ) 4
19. Mrs.
