No More Learning

There was, first, the Bessemer Investment Company, instrument of the Phipps (Carnegie Steel) family that included, among many persons named Phipps, such names acquired by distaff marriages as Douglas, Janey, Sevastopoulo, Martin, and Winston and Raymond Guest. In all, twenty or more Phippses were beneficiaries. All appeared to have the financial status of rentiers and were well known social registerites and polo players. Bessemer Investment Company was found to be a principal stockholder in New England Power Association, International Hydro-Electric System and International Paper Company, whatever else it held of lesser dimensions.
Oldwood, Inc. , was 66. 58 per cent owned by the Bessemer Investment Company and a group including the Chace, Gammack, Majes, Cox Brady and Phipps families. It was a leading stockholder, too, in the New England Power Association.
More than twenty Du Ponts had a participation large enough to list for Christiana Securities Company, which had among its stockholders other Du Pont family holding companies such as Delaware Realty and Investment Company, Archmere, Inc. , and Du Pont trust funds.
The Cliffs Corporation, the personal instrument of the Mather family, owned all the common stock of the Cleveland Cliffs Iron Company, which was among the principal stockholders of the Wheeling Steel Corporation and the Republic Steel Corporation.
The Coalesced Company was owned 50-50 by Paul Mellon and Ailsa Mellon Bruce, and in turn was among the top stockholders in Koppers United Co. , The Virginian Railway Co. , Pittsburgh Coal Company and General American Transportation Company.
The Mellon Securities Company, owned by Richard K. Mellon, Sarah Mellon Scaife and various Mellon trusts, was a leading stockholder in Aluminum Company of America and the Gulf Oil Corporation.
The Curtiss Southwestern Company belonged to Arthur Curtiss James and Harriet P. James and in turn was a principal owner of the Phelps Dodge Corporation, the Western Pacific Railroad Corporation and the Missouri-Kansas-Texas Railroad Company.
The Empire Power Corporation was the instrument of the Laurimore Corporation (owned by Ellis and Kathryn Phillips), the Delaware Olmsted Company (owned by the Olmsted family), the Eastern Seaboard Securities Corporation (a joint Olmsted-Phillips venture) and individual Olmsteds and Phillipses. Empire Power was a principal stockholder of the Long Island Lighting Company.
The Falls Company was a holding company for the very numerous Rosengarten family and was a principal stockholder of the United Gas Improvement Company, the Duquesne Light Company and the Philadelphia Electric Company.
The M. A. Hanna Company, monument to Mark Hanna of McKinley era fame, belonged to the Hanna family and its numerous inter-related genetic lines. It was a principal stockholder in Phelps Dodge, Lehigh Coal and Navigation and the National Steel Corporation.
The Illges Securities Company belonged to the numerous Illges-Chenoweth-Woodruff and other families and was a principal stockholder in the Coca-Cola Company.
The Illinois Glass Company was the holding company of the numerous Levis family and was a principal stockholder in Owens-Illinois Glass Company and National Distillers Products Corporation.
Light and Power Securities Corporation belonged to the Starling W. Childs family and was a principal stockholder in four large public utility companies.
The Miami Corporation, a holding company for the Deering estate, was a chief stockholder in International Harvester Company and the Chesapeake and Ohio Railway Company.
The New Castle Corporation, owned by Mr. and Mrs. Alfred P. Sloan, held the Sloan stock in the General Motors Corporation and the Phillips Petroleum Company, both among the big holdings.
The North Negros Sugar Company belonged to the Ossorio family and was a principal stockholder of the Great Western Sugar Company and the American Sugar Refining Company.
The Phillips family, quite numerous, owned the T. W. Phillips Gas and Oil Company, which in turn was the dominant stockholder of the Federal Water Service Corporation.
The Pitcairn Company, a leading stockholder in the Pittsburgh Plate Glass Company, the Consolidated Oil Corporation and the Columbia Gas and Electric Corporation, was owned by the Pitcairn family of Pittsburgh.
The Provident Securities Company was owned by William W. Crocker, Helen Crocker Russell, Charles Crocker and Ethel Mary de Limur and in turn was a leading stockholder of the Tidewater Associated Oil Company, General Mills, Inc. , Pacific Telephone and Telegraph Company, Pacific Gas and Electric Company and the Southern California Edison Company.
The Rieck Investment Company belonged to the Rieck-Woodworth families and was a principal stockholder in the National Dairy Products Corporation and the Firestone Tire and Rubber Company.
The Taykair Corporation, which held a large number of serially numbered trusts, belonged to the Benjamin family and was a big stockholder in The Virginian Railway Company, Gimbel Brothers, Inc. , and the Brooklyn Union Gas Company.
Serial and paralleling family holding companies are not uncommon. For example, the Colgate family, of the Colgate-Palmolive-Peet Company, reported a tangle of holding companies that with a few other relatively small interests made up 31. 85 per cent of the twenty largest Colgate-Palmolive stockholdings. There was the Beechwood Securities Company; the Oakbrook Company; the Bertco Company; the Holly Security Company, which was 100 per cent owned by the Filston Security Company, itself a holding company for family members; and the Orange Security Company, owned 100 per cent by the Beechwood Securities Company; and then there were individual holdings by individual Colgates and distaff descendants.
One could go on at great length exhuming the names of hundreds of additional family holding companies but nothing would be added except repetitive detail to the essentials of this report.
It is not usually the case, then, that a big fortune is subject to the ownership and direction of some single individual, some dominating Croesus. It is usually directed by a small family committee with access to expert professional advice, each member of this committee owning only a small percentage of the big pie. But the decisions respecting the big pie are the same as far as the world outside is concerned as if one man owning hundreds of millions made his will effective.
Under American law the entailment of estates is prohibited, but the prohibition has in effect been nullified through what may be termed serial entailment. For property owners of the third generation make provisions for placing property once again in untouchable trusts extending to three more generations, and so on ad infinitum. Boston is a particular center of such long-range serialized trusts. 25
As in England under legal entailment, in the United States huge properties are thus secured for generations unborn. The future beneficiaries can never have made any compensatory social contribution and may never make any after they are born. They are simply privileged by prescription as under the longstanding American-despised European system.
Trust Funds
Whereas private family holding companies are a favorite way of keeping big holdings intact and under central direction (even though the beneficial interest in income may be spread among scores or hundreds of cousins, aunts and in-laws), there are also individual trust funds, usually under the direction of a bank. The concentration of many trust funds in large banks, of course, concentrates just this much industrial voting power under the boards of directors of the banks. It makes them powers in the land.
Some of these trusts are relatively small. But, altogether, they add up to an enormously big financial punch. And, as the banks largely maneuver according to the same point of view, they in effect act in concert in voting these securities in various corporations. Indeed the size of the holdings they represent often enables them to name members of corporate boards of directors, which is one of the reasons so many bank officials are found strewn among the corporate boards. The large amount of stock that places them in position is not their own. But it gives them a great deal of veiled authority.
In some cases, various apparently unconnected members of the boards of directors of the corporations are like so many horses running out of the same stables, carrying the same ownership colors. The family that is the biggest stockholder in Corporation X, holding 20 per cent, is also the biggest stockholder in the bank with many trust fund holdings in relatively small amounts of stock of Corporation X, also perhaps adding up to 20 per cent. Another bank, also holding a great deal of trust stock, perhaps 12 per cent in hundreds of trust funds, may not be controlled by any of the first parties but is merely a friendly back-scratching ally. Together the two groups absolutely control the corporation, name its officers, determine its policies, apply its influence.
To what extent are funds now under trusteeship?
"At the end of 1964, trust departments of commercial banks bad investment responsibility for assets of approximately $150 billion, of which about $50 billion represented employee benefit accounts. In addition, bank trust departments provided investnment management for agency accounts with assets of at least $35 billion. " 26 In these last the banks acted as agents for other trustees. We see, then, that nonemployee or individual trust funds amount to at least $135 billion, although the true figure is actually larger than this, for there are nonbank trustees who do not make use of banks even as agents.
Of the trust holdings of national banks, "More than 59 percent of these assets were invested in common stocks; about 52 percent of the employee benefit accounts, and approximately 62 percent of the other accounts. " 27
Most of these trust funds were concentrated in a few large banks. "Twenty-one banks with investment responsibility for trust assets of more than $500 million held approximately 56 percent of the total, and the 100 largest trust departments held more than 80 percent of the trust assets of national banks. Asset concentration was greatest among employee benefit accounts for which the 21 largest national bank trust departments held almost 80 percent of the assets where national banks acted as trustee. Large trust departments, for the most part, are concentrated in the largest commercial banks, although there are many exceptions where moderate-sized banks have very large trust operations and vice versa. " 28
"National banks with trust assets in excess of $5 million reported having approximately 580,000 trust accounts, including 68,500 corporate accounts, and 340,000 accounts where they exercised investment responsibility. " 29 These figures indicate, excluding the corporate employee accounts, that there are at least 920,000 individual or private trust accounts in national banks alone. Some persons, of course, are the beneficiaries of many trust funds. Not all trust funds are large, may indeed be as
small as $5,000 or $10,000, but the larger banks will not accept these. The larger New York banks do not like to be named as trustee for anything under $100,000 even for inclusion in their collective trust funds, in which there is a mingling of many smallish trust funds with proportionate participations, as in an investment trust.
The average size of trust accounts where the bank exercised investment responsibility, excluding employee benefit accounts, was $173,000; but in the larger banks the average size was $300,000. Smaller banks carried trust accounts at an average size of $53,000. 30
But "Investment management accounts tend to be larger than the average for other trust accounts, since many banks set a relatively high minimum size or minimum fee on such accounts. " 31 Thus the average size of such accounts was $582,000, and in the bigger banks it was $735,000.
In addition to national banks there are the state-chartered banks to be considered.
"We estimate that state-chartered banks have investment responsibility for trust assets, apart from those of employee benefit accounts, of approximately $51 billion, bringing the total of such assets for all banks to approximately $105. 5 billion. " 32 Employee- benefit accounts in such state-chartered banks were estimated at $29. 5 billion, with the New York State Banking Department alone accounting for $23. 6 billion as a definite nonestimated figure. For all state-chartered banks, investment management accounts were estimated at $20 billion. 33
Total trust accounts for which banks have investment responsibility, then, amounted to $155. 8 billion at the end of 1964, of which $105. 5 billion represented nonemployee benefit or individual accounts . 34 There was another $35 billion for which the banks acted as investment advisory agencies and an unknown amount in the bands of individuals or corporations that did not make use of banks as advisory agencies.
There are two significant aspects of these trust-fund figures.
First, they represent an entirely new set of statistics, the gathering of which was begun by the comptroller of the currency only in 1963.
Of greater significance, however, is that the figures show the deep foundations of vested inherited wealth in the United States. Trust funds are popularly thought of as solely for the benefit of widows and minor orphans, and such are no doubt included among the beneficiaries. But, by and large, most of the beneficiaries are able-bodied adults, unwidowed, unorphaned and, as often as not, pleasantly idle. In many cases the first generation in receipt of trust-fund benefits never collects the principal at all, which is left to the next generation. When principal is paid out, it is often in dribbling installments throughout the recipients' lifetimes. In the case of the original Marshall Field, trusts were established that did not allow the grandchildren to collect the last part of principal until they were fifty years of age.
Such provisos keep the fortune from being dissipated through the exercise of immature judgment. The first generation cannot disturb the principal and the next generation does not get all of it or, sometimes, any of it until its members are quite advanced in age. At that point many of them lock the principal, Boston-style, back in new trusts for the benefit of the next two generations. Again, too, inheritance taxes are bypassed except at those points where principal is paid over.
From a property-ownership point of view all this undoubtedly has great merit. But what it signifies for the unpropertied is that they will never lay hands on any of this property no matter how they perform, short of overturning the legal system and the military forces behind it. The beneficiaries cannot even be swindled out of their benefices. Obviously, economic opportunities, legal and illegal, are considerably
narrowed for the multitude when so much property is closely sequestered for the benefit of unborn generations.
The trust funds, like the family holding companies, point up the fact that the United States, like the Europe it proposed to surpass in equality of opportunity, has developed a permanent hereditary propertied class. Indeed, owing to the far greater proportion of public ownership now in western Europe, the United States actually has more of a hereditary property system than does Europe.
And if this seems paradoxical, one may notice this even greater paradox: There are kings now in Europe who are far more democratic in their attitudes than the average American citizen.
What stocks are trust funds concentrated in? This is not difficult to ascertain. Although individual trust funds may, by stipulation, be concentrated in one or a few stocks, when there is no such stipulation the principle of diversification is resorted to by competent trust officers. This amounts to invoking the principle of the investment trusts that limits their holding of any issue to no more than 2 per cent of the entire capital. The big New York banks issue to interested parties the portfolio list of their collective trust funds--that is, those where many smaller trusts are mingled together, with each trust participating proportionately to its size. A small trust is defined in different ways by different banks and may be as much as $500,000. "Small" here means too small to be managed profitably by itself.
As these lists of collective trust funds show, the stock investment is mainly in the list of the 200 largest companies and the 500 largest industrial companies and the 50 largest merchandising, public utilities and railroads, respectively, on the annual Fortune lists. Trust funds are not invested in the biggest companies per se but in the relatively well- performing stable companies that are relatively cheapest at each time of purchase. Public utility and insurance company stocks have for some time especially attracted trust accounts.
While questionable practices were uncovered in some trust accounts in the 1930's, such as stuffing them with dubious issues for which the bank was in an underwriting syndicate (now no longer possible with the separation of underwriting from banking under the law), in an advanced jurisdiction like New York the trust companies are under strict state supervision. The trust company has come to the fore as an institution because of the many cases in the past where individual trustees have exercised bad judgment or turned out to have sticky fingers with respect to the trusteed property. The very life of a trust company depends upon its proper operation within average limits.
Before leaving this topic of trust funds one may ask: What is their major utility? The trust funds are designed to keep principal intact and impervious to error of inexperienced heirs, and to hold inheritance taxes to a minimum.
Family Holding Companies Revisited
The personal and family holding companies also perform this function, and more. A personal holding company is defined in the Revenue Code as a company owned 50 per cent or more by no more than five stockholders with income derived primarily from certain types of investments. The two Mellon entities already named are examples. The family holding companies are the equivalent of close investment trusts and operate under tax laws appropriate to such entities.
Says Standard Doctrine: "A personal holding company is a close corporation, organized to hold corporate stocks and bonds and other investment assets, including personal service contracts, and employed to retain income for distribution at such time as is most advantageous to the individual stockholders from a tax point of view. " 35
As of 1958, the latest date available, there were 6,285 personal holding companies. Another type of closely held corporation, similar in many cases in its functions, is the legally defined Small Business Corporation. There were, as of 1962, more than 120,000 of these. They are taxed through their stockholders, of which there may not be more than ten.
The personal holding companies are purely investment companies. The total assets for all of them were $5,236,429,000, but $4,304,158,000 of the assets were concentrated in only 652 with assets of $1 million or more; 25 had assets exceeding $50 million, 12 exceeding $25 million and 48 exceeding $10 million. Total income of these entities was $361,916,000, of which $216,822,000 came from dividends. Whatever their size, these were instrumentalities of larger property holders. 36
A remaining advantage in both corporate forms is that they concentrate corporate voting power for the special benefit of all the beneficiaries. Let us, for the sake of simplicity, suppose that there is a family group of 200 individuals, each owning precisely $1 million stock in the mythical SuperCosmos Corporation whose outstanding stock is valued at $1 billion. Each one of these persons would on the basis of his personal equity have little to say about the company, it is clear, but would be part of the rabble of minor stockholders. Combined, however, possibly in a group of personal holding companies, they own 20 per cent of the stock and thus name members of the board and are always well advised in advance of inner-company developments. Their representatives, too, can trade such inner-company information with similar groups in other companies for investment orientation. They are, also, politically powerful as a group.
Again, under existing tax laws it is the general strategy of the very rich to keep dividend pay-outs low in relation to earnings. The family investment company can hold back some of its income as corporate reserve, thus reducing the tax liability of its members. This corporate reserve, in turn, is reinvested.
In the sphere of operating corporations as a whole, producing goods or services for the public, the average dividend pay-out is ordinarily about 50 per cent of earnings. Some of the earnings are retained to replace wornout equipment, to expand and to keep dividends stabilized in less profitable years. But corporations differ in their pay-out rates, even among good earners, ranging from zero to 80 per cent. Small stockholders tend to favor those with high pay-out rates. But many big stockholders have come to prefer those with small pay-out rates, for then personal income taxes are lower.
Control of companies, however exercised, enables one to have something to say on this important subject of pay-out rates.
But in recent years many of the large corporations have retained earnings greatly in excess of replacement and future dividend needs. Such earnings have been used in the acquisition of companies in unrelated fields, as part of a policy of investment diversification, and in buying control of foreign companies, which might be classed as economic imperialism. The advantage to the big stockholders is that the money is not paid out in taxable income but is continually ploughed back to increase the underlying value of equities. However, if any big stockholder wants more income he can take it in the form of low-taxed capital gains by selling some of his stock. The large yearly aggregates of capital-gain income reported to the Internal Revenue Bureau since 1950 reveal what is happening.
A fairly recent concept that has emerged in the corporate world is that of the "growth company. " A growth company, manifestly, is a company that grows. The name is attached rather indiscriminately by brokers to new companies in technologically novel fields: electronics, space-age, atomic power, etc. Not all of these are growth companies
for, as experience shows, not all of them grow. But any company that ploughs back a large proportion of its earnings steadily is obviously a growth company. With taxes in mind such companies are advantageous.
The very wealthy, in brief, are less interested in increasing their taxable incomes than in increasing their nontaxable ownership stake. This, when necessary, can always be cashed.
Observations En Passant
There remain some observations to be made about the American hereditary owners,
contradicting common beliefs.
It is generally supposed that the heirs of the big fortune-builders are comparatively incompetent playboys or at best poor copies of the original Old Man. While wastrels have been seen among some of the very wealthy, most of them women or some man intent upon impressing some woman (Astor, Vanderbilt, Hearst and others), in all the big surviving fortunes the heirs seem to show greater and greater finesse in applying Standard Doctrine under more and more complex conditions. The original fortune- builder might not understand everything they were doing but he would have to admit they are getting results as good as or better than he ever got. One reason for this is that the heirs now have available to them much more highly developed professional experts, deeply versed in the intricacies of each situation: economists, statisticians, analysts, engineers, psychologists, lawyers and the like.
Two original Du Ponts did very well in launching E. I. du Pont de Nemours and Company and deserve a reverent salute from all deeply committed money fans. But they seem to have been outdone by every succeeding generation of Du Ponts, each of which appears to have missed no opportunity to enlarge that part of the fortune it inherited.
The same with the Fords. After his first great success Henry Ford, set in his ways, dogmatic, began to lose his touch. He refused to defer to his son Edsel, who close observers believe would have put the company on a sounder footing than it found itself in the 1940's. But Henry Ford II, a grandson in his twenties, later aided by two younger brothers, brought the Ford Motor Company up to new heights of wealth, public esteem and prestige. In a little more than ten years the grandsons more than sextupled the value of the company, outperforming the economy as a whole, and have no doubt engaged in unknown side coups of more than modest proportions.
Judge Thomas Mellon's sons outdid his financial feats, and his grandchildren do not appear, under more difficult circumstances, to have lost the golden touch. The Mellons are still going strong, surrounded by family holding companies, trust funds and banks.
As to the Rockefellers, it might appear that none of them will ever be able to outdistance the wily old monopolist who put the family on the financial and political maps. But many authorities would argue that John D. Rockefeller, Jr. , performed a far more difficult feat in holding the fortune together under strong political attack. Judge Mellon's opinion that it is harder to hold on to money than to make it has been explicitly made part of Standard Doctrine. 37
If this is so then Rockefeller, Jr. , who inherited a difficult situation, must be considered to have surpassed his father.
The grandchildren are doing even better, for in addition to advancing the family fortunes they have performed the difficult feat of making themselves the idols of a considerable public.
As to it being more difficult to retain money than to make it, probably few would readily agree with this proposition. But slight reflection will show that it is true. Most adults have jobs and are paid. But how long does the weekly pay check last? Could one
resolve not to spend it? Most people could not make such a resolution unless they wished to starve. Actually, most persons are unable to save as much as an average 5 per cent of their earnings. This state of affairs illustrates the point.
The average man in the street might contend that if his pay were only higher he would retain some of it; and in some few cases, let us agree, he would. But from time to time there are big sweepstakes and lottery winners, suddenly possessed of goodly sums. How old judge Mellon would smile if he could hear them excitedly telling newspaper reporters what they are going to do with their windfalls: a new house, a new wheelchair for grandma, crutches for Tiny Tim, a new car, a trip to Florida and then some government bonds of declining purchasing power! A year or so later, as it turns out, they are all where they were financially to begin with, looking back wistfully to the time they were suddenly rich. What happened to the money? they ask. Where did it go?
What defeats most people in holding onto money, reinforcing the judgment of Judge Mellon, is that they are basically childish spenders. And therein lies part of the opportunity of acquisitive moneymakers. One task of the marketplace is to separate people from their money, often giving them something meretricious in return.
Present Status of 200 TNEC Corporations
What has happened to the two hundred corporations of the TNEC in the twenty-five years that have elapsed? Have any fallen by the wayside, carrying their owners to disaster? Have any slipped from the top of the heap?
"Analysis of the 1937 group of 200 non-financial corporations," according to The Dartmouth Study 38 "reveals on the surface a number of things. In terms of current dollar values there has been great growth for the group as a whole. In terms of constant dollars (values adjusted for depreciation of money), the total growth is probably not much greater than the rate of growth of our economy. This point cannot be pressed further, however, in the absence of detailed information about the accounting adjustments which the various firms have made as the value of the dollar has declined and as new assets have been added. "
The TNEC list is set forth parallel with the 1964 list of biggest nonfinancial corporations in Appendix B.
There have been changes of detail in the list (although not significant) with respect to who owns and controls the wealth. With the exception of a few newcomers, the same groups own the companies as owned them in 1937.
Certain companies have moved off the master list of the leading 200, not because they have lost out entirely but because they have been squeezed off by mergers or by the emergence of new industries such as aviation and natural gas pipelines.
Except for the Mellon (Pittsburgh) Consolidation Coal Company, all coal companies have been pushed off the list, replaced by gas pipelines. Railroads have moved down on the list and some have moved off; but a merger kept Erie-Lackawanna on the list. Pullman, Inc. , a Mellon enterprise, has declined, partly because of an adverse antitrust decision. It is evident that the loss of a monopoly position in the face of new means of transport is what has taken the bloom off the railroads. In meat packing, the "big four" have been supplanted by the "big two"--Swift and Armour.
The electric utilities on the two lists are not strictly comparable. On the later list are many new regional companies that are the outcome of the dissolution of the old holding companies. But in essentials the same electric power properties are on both lists, though often under different names.
Film companies have been pushed off the list, owing to the competitive advent of television and adverse antitrust decisions. Their owners were never seriously classified among the big-wealthy.
In all, close to fifty companies appear to have been pushed off the list. In addition to three coal companies, two packers and fifteen old-line utility holding companies, they are: Texas Gulf Sulphur, American Sugar Refining, American Woolen (Textron), Hearst Consolidated, International Shoe, New Jersey Zinc, U. S. Smelting, National Supply, United Shoe Machinery, Gimbel's, Marshall Field, R. H. Macy, Hudson and Manhattan Rail Road, six interstate railroads and two film companies. No really big interests experienced a decline.
Some newcomers are the product of split-offs. Western Electric came out of AT&T and now ranks twenty-fifth in size. The only other newcomer in the first twenty-five is Tennessee Gas Transmission, representing new capital mobilization. The only newcomer in the second twenty-five is El Paso Natural Gas, owing to similar circumstances.
The second fifty have among them as new faces only Sperry Rand and Olin Mathieson, outcomes of mergers.
The most recent list, in brief, represents the same old crowd with a few additions produced mainly by mergers and subtractions by squeezing.
At the very top there is DO change except that the companies have grown much larger. AT&T, largest company in the world, leader of both lists and the stock of which is widely held, had total 1964 assets of $30. 306 billion compared with $3. 859 billion in 1937. Standard Oil (New Jersey), largest purely industrial company in the world in point of assets, had assets of $12. 49 billion compared with $2. 06 billion in 1937, and was in second place both times.
The smallest company on the TNEC list was Texas Gulf Sulphur, with assets of $62. 9 million. The smallest company on the later Fortune list was Scott Paper, closely shadowed by Allied Stores, with assets of $413. 8 million.
The TNEC list was compiled during a depression, the Fortune list after a war and twenty years of boom, heightened concentration and inflation.
As to the owners and controllers, there has been no significant change except that they are more firmly established in the ascendancy than before, Four Rockefeller companies appear among the first twenty-five compared with 3 in 1937, and there are 6 of them on the TNEC list and 7 on the Fortune list. The two big Du Pont companies have moved up among the first twenty-five, improving relatively. One of the chief Mellon properties, Gulf Oil, has moved into the first twenty-five, in eighth place, where it was not to be found in 1937. The Ford Motor Company has moved up from twenty-third to fourth place.
One of the most spectacular improvements in the approximately thirty or so years separating the two lists was Sears, Roebuck and Company, which moved from sixty- ninth place, with assets of $284 million, to ninth place, with assets of $4. 271 billion, making it the world's leading retail merchandiser. The position of the dominant Rosenwald family has been correspondingly improved, making it easily worth more than $500 million and on the threshold of super-wealth. An even more spectacular growth company was International Business Machines, leader of the computer- automation field, which moved from one hundred eighty-fifth to twelfth place in size of assets. Most of the newcomers to the list, however, are the result of mergers, spin-offs or the rise of new industries such as aviation and gas pipelines on the basis of new capital. But, although there are newcomers, few of the newcomers are new properties.
Mergers either brought companies onto the list, moved companies up on the list or kept them on the list: General Telephone, American Metal Climax, International Telephone and Telegraph, Olin Mathieson, Burlington Industries, Erie-Lackawanna, Georgia- Pacific, General Dynamics, United Merchants and others.
While the lists in both cases represent only a small sample of American companies, these companies represent almost 70 per cent of U. S. output. Basic economic activity outside these lists represents the lesser portion of the pie.
Aluminum Company of America moved from seventy-ninth to thirty-eighth place even though its monopoly position was broken by the sale of wartime government aluminum plants to competitors. The Kaiser interests--one of these competitors, and nurtured by government patronage--have put no less than three new companies on the master list: Kaiser Aluminum, Kaiser Industries and Kaiser Steel.
The Pew family's Sun Oil Company moved up from one hundred thirty-eighth place to seventy-fifth. Although J. Paul Getty's Tidewater Oil is only sixty-ninth on the list, up from ninety-second place, it should be remembered that Getty owns most of it and has many other oil interests whose lesser dimensions fail to qualify them for this list.
Viewed again purely from the perspective of this most recent list of the biggest American proprietors, the financial grand dukes of the United States appear still to be, individually and collectively, the Rockefellers, Du Ponts, Fords, Mellons, Rosenwalds, Pews, Gettys, Phiippses, Mathers, Hartfords, McCormicks and individuals like Allen Kirby, who in addition to his New York Central and Woolworth holdings is a leading stockholder of the big Manufacturers Hanover Trust Co. of New York.
The old question pops up: Have positions in these companies been maintained at the same level throughout the years? In some cases, as in that of the Du Ponts, we know they have. There have been some shifts in Rockefeller holdings, and the Ford holdings are about what they were when Henry Ford I died. At the time of the TNEC study the Rosenwalds held 12. 5 per cent of Sears, Roebuck. In view of the steady strong growth of this company one would not suppose they would have sold out. If anything, guided by Standard Doctrine, they would have increased their holdings.
As groups like railroads and coal companies declined in the economy, no doubt leading holders tended to sell them out. But they may also have reestablished positions at lower prices, and in recent years the railroads have shown great improvement, both in earnings and in market action of securities.
No big interests such as Hartfords, Zellerbachs, Weyerhaeusers, Dukes, Pitcairns, Mathews, Swifts and others are reported to have cleared out. Among smaller interests there have undoubtedly been inter-company shifts of holdings, as into oils, aviation, natural gas and gas pipelines.
Old money, though, has found its way into successful new enterprises, as in the Harriman-Warburg-Straus ground-floor investment in Polaroid.
We have seen that concentrated ownership is a more prominent feature of small companies. This circumstance and the fact that there is such concentrated ownership of very large companies show that concentration of ownership and control in few hands is a built-in feature of the American economy. While twenty million or more stockholders have an equity (usually trifling) in these and hundreds of other companies, it is a fact, as the TNEC study showed, that from two to three up to twenty of the largest stockholders own very large to total percentages of the companies. Total ownership by small inter- related groups was shown for Great Atlantic & Pacific Tea Company, Ford Motor Company and Campbell Soup Company. The small stockholders are therefore no more than insects crawling on the backs of rhinoceri.
Six
WHERE ARE THEY NOW?
As the TNEC data are more than twenty-five years old the question naturally arises: Are these large holdings of wealth still extant? Have they not been destroyed by ruthlessly vicious taxation? Aren't the large heirs--under pressure not only of a monstrous tax burden but of militant trade unions, draconic government regulation, intense competition with each other, hostile legislators, public welfare schemes at home and Communist inroads at home and abroad--really in reduced and increasingly precarious circumstances?
The sociologist C. Wright Mills, as noticed in Chapter 2, note 2, found difficulty in ascertaining who was wealthy. He spent a good deal of time making inquiries of people supposed to know and who, though sympathetic to his quest, found the question of identities equally mysterious. He was reduced to culling names as they had been more or less randomly mentioned in various books and by authors dealing with unsystematic data and constructing his own architectonic symmetries from them.
While it cannot be claimed on the basis of any available collection of data that one has unearthed every wealthy person and clan, the means are at hand for making far better contemporary determinations than did Mills, who was apparently not aware of the monumental TNEC data. But even the TNEC findings are continually being supplemented in monthly reports of significant securities transactions, required by law, to the United States Securities and Exchange Commission (SEC), Moreover, any new issuance of securities by an existing company, or in the launching of a new company, requires that information be supplied to the SEC about major individual participations in ownership. This information is open to public scrutiny.
The reports to the SEC are tabulated alphabetically and published each month in the Official Summary of Security Transactions and Holdings, published by the United States Securities and Exchange Commission, All persons can consult back numbers in any central metropolitan public library or can subscribe to the publication at $1. 50 per year.
Under the Securities and Exchange Act, 1934, all corporate officers, directors, closed- end investment companies and individual nonofficer owners or beneficiaries of 10 per cent or more of any securities issue of any company offering securities for sale in the American market must report each month all purchases, sales or other transfers of securities in any company in which they have a direct or indirect interest.
This requirement in some ways provides far more data than did the TNEC study. For it relates to all security-selling companies, not merely the 200 largest. And while, unlike the TNEC study, it does not single out the largest stockholders as such, the requirement that stockholders owning 10 per cent or more of any issue report changes in investment position often discloses the biggest elements. If someone owned only 2 per cent of an issue but was among the twenty largest stockholders, the SEC reports, unlike the TNEC study, would not disclose him unless he was also an officer or a director.
To some extent the 10-per cent requirement partially screens big wealth, which is held mainly in family phalanxes. For if three buyers or sellers each held 9. 9 per cent of the stock of a big company, amounting to 29. 7 per cent control, the SEC reports would not show them unless they were officers or directors. The same would be true if ten members of a family each owned 5. 5 per cent of the stock, amounting to 55 per cent or absolute control. They could be represented on the board of directors by nominees, their own lawyers or bankers, who might hold only a few directors' qualifying shares.
Not only do the SEC reports show purchases and sales but also acquisitions or dispositions by bequest or inheritance, compensation, corporate distribution, exchange or conversion, stock dividends, stock splits, redemptions and gifts. While personal gifts of stock are strewn throughout the year (apparently in observance of birthdays), Christmas appears to be a favorite time of the propertied for giving stock. The Christmas gifts are especially reflected in the January and February reports for each year.
What the SEC reports do not tell us about wealth-holdings would perhaps be a better guide than the statement of what they do contain.
The SEC reports do not inform us at all about (1) federal, state and municipal bondholdings (although they do inform us about corporate bondholdings and about all senior and junior issues); (2) noncorporate real estate, land or mortgage holdings; (3) personal interests in enterprises abroad that do not offer securities in the American market; (4) holdings of noncorporate promissory notes, options, cash, foreign exchange, insurance policies and collections of jewels or objets d'art; or (5) miscellaneous personal property, such as Swiss bank accounts, racing stables, foreign islands, yachts, airplanes and cars.
It is not our intention to determine the exact extent of participation of any fortune in a particular property, although the TNEC study did make such a determination possible with respect to the largest corporations. Nor is it our intention to determine the exact investment position of any fortune at any given moment. Such a determination could only be made by a new government study or by a Permanent National Economic Committee; even the TNEC study did not inquire into stockholdings below the top twenty, although a person could be incalculably wealthy if he was the twenty-first largest stockholder in many companies. Nor is it our intention to trace shifts in holdings among various companies, although in certain cases such shifts are clearly shown by SEC data.
Despite the logical possibility of concealment of a fortune in, say, tax-exempt bonds or jewels, it should be noticed that no big fortune was ever made in such investment media. The modern corporation, plus engineering technique, more recently aided by huge government contracts, is the big and virtually exclusive instrument of modern fortune-building, and a fortune once made cannot disappear from view merely by going into tax-exempts or real estate. One can usually trace it, as in the case of Delphine Dodge, at least up to the point of its conversion into more static media.
Even with the help of the voluminous SEC reports, it is possible to lose exact trace of some large fortunes although, having no evidence of their destruction, one knows they must still exist in some form. Individuals or groups owning 15 per cent of enterprises scrutinized by the TNEC may have halved their participation and spread the proceeds of sale among various companies. If they do not function as officers or directors or hold at least 10 per cent of some company, their further transactions are not reported by the SEC.
Lamentable though this may appear, it does not impede us by much for most of the large interests stay put. They are more likely to increase their holdings as J. Paul Getty
and the Du Ponts have steadily done to the date of this writing, than to reduce them. If they merely retain their holdings, new investments are apt to be made with income from the old investments, thus obtaining desirable diversification as a shield against changes of various kinds: technological, political, cultural, economic and social.
Aims of SEC Reports
The object of the SEC reports was to terminate the rigging of securities markets, prevalent before the passage of their enabling law. Before the law was passed, company officers, directors and leading stockholders (while issuing optimistic or pessimistic reports) would secretly sell or buy the company's stock on the basis of knowledge at variance with the reports. A large public of gullible small stockbuyers was in this way repeatedly stung and tended gradually to lose faith in the riproaring Republic for which an earlier gullible horde had bled and died.
Under the securities law, insiders cannot long keep to themselves favorable or unfavorable turns in a company's outlook. Again, what they say can be evaluated in relation to what they actually do in their own securities.
Buying and selling by insiders do not invariably indicate something about a company. Insiders, too, have been wrong in their estimates of a company's position in the context of public policies and conditions. Sometimes insiders sell some of their holdings because they need money for taxes, because they see a better opportunity elsewhere or because they have a fixed policy of taking low-tax capital gains in companies with low dividend payouts. Usually it means only that they are taking profits or avoiding losses.
Some small market operators mechanically follow the buying and selling of insiders, but not with universally fortunate results. Everything else being equal, as it seldom is, it is not a bad policy to pay heed to company officers and directors when they buy or sell heavily. For this reason the SEC monthly reports are closely studied by market aficionados. But company officers, playing only for swings in the market, often sell as quickly as they buy and the knowledge is only available a month later-sometimes too late for outsiders.
One thing the SEC reports show clearly is that in many companies the officers and directors repeatedly buy and sell as a block. Presented to the country as masterful managers of giant enterprises that are the envy of the world, as builders of the nation indeed, they nevertheless in many cases seem interested in playing this private poker game which has no economic justification. It does nothing for gross national product. In so doing they show they are basically Pecuniary Men willing to turn their attention to anything that will swell their bankrolls. If they could go out on the corner and make money by trading baseball cards or stamps the way children do, or lagging pennies, one would find them out on the corner. Their icon is the stock ticker.
Different companies have different policies about timely flutters in the securities market by officers and directors. In some cases such transactions are rare. In many companies it is apparently thought to be one of the perquisites of officers to trade tip and down in a percentage of their holdings, thus incurring low capital-gains taxes while getting more income so their wives and children won't fall behind on country-club dues.
With such factors in mind the monthly SEC reports on holdings have been selectively checked with a view to updating the TNEC data, thus reassuring anxious critics that our material is all fresh and new. But, in general, in-and-out trading by mere company officers and directors has been ignored here except when it has seemed to be of significant proportions or by significant officers.
Attention has been concentrated pretty much on the original TNEC list and the 1964 Fortune list of the largest nonfinancial companies, although there is also presented an extensive listing of control groups in other well-known companies.
As to the method used in examining the SEC reports, which embrace thousands of companies and tens of thousands of individuals: The reports have been closely scrutinized in their entirety from 1960, inclusive, through 1965. As every transaction registered requires that the net remaining holding be given, one is assured of what the latest position is, confirming or not the TNEC finding at a distance of about twenty-five years. In this way, too, late-coming names of big holders (if they buy or sell) are brought into view.
Where significant large holdings have not turned up in this 1960 decade, a special tracing backward by individual companies was made prior to 1960 to ascertain the latest date when a net position was given for some family member (thus showing the continued presence of the family).
In certain companies the holdings were traced back to 1945 or to the point that yielded the latest total holding. Such a complete tracing was made of all the major Rockefeller, Mellon, Ford, Du Pont and Rosenwald properties; it was not necessary in the case of others because their presence is fully revealed by the data of the 1960's in almost all cases.
What may seem to be a defect in this method, and perhaps it is a genuine defect, is that by stopping the retroactive survey with 1960 we won't pick up any new investments made by either new or old wealth-holders prior to 1960. But the objective here is not to show the entire investment position of either new or old wealth-holders or to trace all these elements from one company to another in such cases in which they have transferred investment allegiance. All I am trying to do is to show who is rich now and who is a big newcomer to riches by presenting some large samples.
Nor am I trying to develop in detail the names and holdings of every one of 90,000 or more millionaires. Limited space makes it necessary to confine attention to the cream of the crop.
In the case of some of the new companies, I have examined the original prospectus filed with the SEC, as required by law, to ascertain any significant changes in holdings and identities. Particular attention was given to the new public utility operating companies organized out of the old holding companies, because as matters stood in the earlier chapter we tended to lose sight of the owners in the shuffle. The question is: Are they still there? If not, who has taken their place?
We are initially armed with the fact that these companies aren't owned by just anybody out of 190 million-odd in the population. Even the most tenuous kind of ownership puts the owner into about 10 per cent of the populace. And any holding of any kind worth minimally $60,000 net as of 1953 places him within 1. 6 per cent of the population. The holdings with which we are most concerned are limited to a circle consisting of 0. 11 of 1 per cent of the population.
Thus narrowed, our attention is focused directly on the biggest American proprietors-- the magnates, the big shots.
The SEC requires that reports of a person's entire interest be made if there is any change. in any holding in which he has a beneficial interest. This means that his personal holdings, those in which he has an indirect beneficial interest as from a trust or family holding company, those held by a spouse, those for which he acts as trustee or custodian, must all be reported if more than 100 shares are bought or sold in any part of
the holding, direct or indirect. A good picture is therefore given of particular beneficial interests.
While such reporting is for individuals--except when made by a closed-end or family investment company--the holdings of big financial groups are revealed through different transactions on behalf of various members of a family.