It should be stressed that the TNEC study did not embrace all the
holdings
of these groups.
Lundberg - The-Rich-and-the-Super-Rich-by-Ferdinand-Lundberg
I.
du Pont to industrial stardom.
"Forty percent of the shells fired by the Allies were hurled from the cannon by du Pont explosives.
At the same time, the company met fully one-half of America's domestic requirements for dynamite and black blasting powder.
" 29 Eighty-five per cent of production was explosives.
In brief, without Du Pont the Allies could hardly have fought what has been appropriately called the most unnecessary big war in history.
At the same time the company's capital flooded upward from $83 million to $308 million on the basis of a wartime gross business of $1 billion. Net profits for four war years reached $237 million, of which $141 million were paid out in dividends. "Those dividends could be reckoned at four hundred and fifty-eight percent of the stock's par value. " 30
With $49 million of wartime profits not paid out in dividends, E. I. du Pont de Nemours bought its initial interest in General Motors Corporation, then the product of the merger of twenty-one independent automobile companies. 31 Du Pont soon took control.
German interests having been driven from the postwar domestic chemical field, where they had been entrenched, E. I. du Pont de Nemours branched into the general chemical field, in which it previously had only a small foothold. it did this not through some inherent scientific capability, as is sometimes suggested, but by buying up with wartime profits one independent chemical company after the other: Viscoloid Company, National Ammonia, Grasselli Chemicals, Krebs Pigment and Chemical, Capes-Viscose, Roessler and Hasslacher Chemical, Commercial Pigments, Newport Chemical, Remington Arms Company and others. Individual Du Pouts, now well supplied with funds, bought into North American Aviation, Bendix Aviation and United States Steel. 32 Provided with enough money, anyone could have done this.
Offered during World War II a cost-plus-fixed-fee contract to build atomic bomb plants for the Atomic Energy Commission, E. I. du Pont de Nemours, which alone had gathered to its capacious bosom the engineering facilities and personnel for such a gigantic task, set the fee at $1.
What led the company to make this resoundingly modest charge is said in the official history of the Atomic Energy Commission to have been the following considerations:
"The tremendous military potential of the atomic weapon posed a possible threat to the company's future public relations. The du Pont leadership had not forgotten the 'merchants of death' label slapped on the company during the Nye Committee investigations in the 1930's. Certainly it was clear that the company had not sought the assignment; but to keep the record straight, du Pont refused to accept any profit. The fixed fee was limited to one dollar. Any profits accruing from allowances for administrative overhead would be returned to the government. Walter S. Carpenter, Jr. , the du Pont president, disavowed not only profits but also any intention of staying in the atomic bomb business after the war. In his opinion, the production of such weapons should be controlled exclusively by the government. The contract provided that any patent rights arising from the project would lie solely with the United States. " 33
And so we come to the present when the labyrinthine Du Pont enterprise, no longer specializing exclusively in the merchandisable means of death, is devoted to making
thousands of peacetime products, what it calls "better things for better living through chemistry. "
The Mellons
Four leading Mellons on the Fortune list are given a minimal combined worth of $1. 6 billion and a maximum of $2. 8 billion. As market values up to this writing have risen sharply, these figures now embody considerable understatement.
The Mellons are another close family group, with holdings concentrated as shown in the TNEC study in a broad group of leading companies: Aluminum Corporation of America, Gulf Oil Company, the Allis-Chalmers Manufacturing Company, the Bethlehem Steel Corporation, the General American Transportation Corporation, Jones and Laughlin Steel Corporation, Koppers United Company, Lone Star Gas Corporation, Niagara Hudson Power Corporation, Pittsburgh Coal Company, Pittsburgh Plate Glass Company, The Virginian Railway Company, Westinghouse Electric and Manufacturing Company and various others. Of this group the Mellons controlled Aluminum Corporation, Koppers United and Gulf Oil. Five Mellons held these interests directly and through two family holding companies, three closely held insurance and securities companies, six trust funds, one estate and one foundation. 34
In Aluminum Corporation common stock the Mellons held 33. 85 per cent; in the contingent voting preferred stock the family and its foundation held 24. 98 per cent. In Gulf Oil Company the Mellon family and its personal companies owned 70. 24 per cent of the common stock, an unusually large single family stake in so large an enterprise. The Mellons held 52. 42 per cent of the common stock of Koppers United and 1. 52 per cent of the contingent voting preferred. 35
Applying the TNEC percentages of ownership at closing 1964 market prices the value of the Mellon holdings in the three leading companies alone would be:
7,127,725 shares of Aluminum Company common
(33 per cent of outstanding 21,413,177 shares)
at 61-1/2
164,477 shares Aluminum Company
preferred (25 per cent of outstanding
659,909 shares) at median price
of 85-1/2 (1964 price range 83-88)
72,579,487 shares Gulf Oil Corporation
(70 per cent of outstanding 103,684,981
shares) at 58-5/8
1,166,567 common shares Koppers (52-1/2 per cent
of 2,222,032 outstanding shares) at 55-3/8
Other companies
$438,970,087
$9,128,468
$4,254,972,426
$64,599,968
?
_______________
Total $4,767,669,949
This computation is made without considering the Mellon holding in the Mellon National Bank of Pittsburgh, not included in the TNEC study, and in various other banks and in many companies with Mellon participation as reported in the TNEC study. But although the preceding table shows the pattern of the family holdings in general, there have been shifts in Mellon holdings since the TNEC study, notably through the establishment of a series of foundations in the 1940's.
These foundations, whose holdings should not be necessarily considered as additions to those already indicated, are as follows:
Date Founded 1962 Assets
The A. W. Mellon Educational and 1930 $24,197,042
Charitable Trust
(included in TNEC study)
Avalon Foundation, N. Y.
(Mrs. Ailsa Mellon Bruce)
Sarah Mellon Scaife Foundation
Old Dominion Foundation, N. Y.
(Paul Mellon)
Bollingen Foundation, N. Y.
(Paul Mellon)
The (Richard K. ) Mellon Foundation
The (Matthew T. ) Mellon Foundation
1940 $99,182,784
1941 $20,098,157
1941 $65,082,139
1945 $6,013,881
1947 $82,028,250
1946 $160,775
(as of 1960)
____________
$296,763,028
Foundation Total
Although the income and any capital distribution from these foundations must be used for legally prescribed public purposes, the capital investments, as long as they remain undistributed, represent Mellon voting power in industry. But the foundations established since 1940 do not, as comparison with the first tabulation shows, diminish by much the personal Mellon holdings of today when computed according to the TNEC pattern. The family, all lovers of the old-time capitalism will be cheered to note, does not appear to be dissipating its fortune in riotous charity.
Andrew Mellon (1855-1937) was himself an inheritor, the son of Thomas Mellon, a rich Pittsburgh private banker and the pre-Civil War Horatio Alger source of the family fortune. From his father's bank Andrew and his brother, Richard B. , began branching out and initially acquired a commercial bank and an insurance company. It was a small beginning, with far greater deeds of financial derring-do to come.
The first really big Mellon opportunity came, however, when two metallurgists told Andrew in 1989 of a successful new process for smelting aluminum discovered by Charles M. Hall. In return for $250,000 credit with T. Mellon & Sons, the Pittsburgh Reduction Company, owner of the process, gave Mellon control of the company. it was common at the time for banks to demand a "piece of the action" in any promising enterprise that applied for loans, which is how Mellon and other bankers turned up with toothsome participations in so many burgeoning enterprises. 36 For these participations in many if not most cases, they paid nothing whatever but sat in their money-nets like intent spiders and let the flies walk in one by one.
The Mellon participation in Gulf Oil came about similarly. Anthony F. Luchich, a Yugoslav prospector, brought in the great Spindletop gusher in Texas in 1901, which quickly led to more oil than all the Pennsylvania fields had since 1859. Money was now needed to handle the flow and build pipelines, and Pittsburgh interests were appealed to. Among these were William Larimer Mellon, nephew of Andrew and himself an heir of Thomas Mellon. In the upshot there was formed the J. M. Gulley Petroleum Company, capitalized at $15 million. Andrew W. Mellon bought the prospector's interest for $400,000 and altogether put $4. 5 million into the new company, of which Colonel J. M. Guffey, who had an interest in the Spindletop lease, was given the presidency, $1 million and a promise of $500,000 from future dividends. Andrew W. Mellon and his brother, Richard B. , took 40 per cent of the stock and sold 60 per cent to six Pittsburgh capitalists. 37 Guffey Petroleum soon was renamed Gulf Oil. Guffey himself was dropped.
Mellon utilized the same technique again and again with other entrepreneurs who came to him for the means necessary to launch or tide over their enterprises.
The Aluminum Company was eventually judicially designated a monopoly but not until it had enjoyed a long charmed life. It repulsed a number of private suits under the Sherman Act early in the century and on a few occasions outmaneuvered the Federal
Trade Commission, which could not prove its bone-deep belief that the company was engaging in unfair competition. In 1912, however, the Aluminum Company consented to a practically meaningless decree in an action brought by an unenthusiastic Department of Justice charging unfair trade practices.
Again in 1937 the Department of justice brought suit, holding that the company held a 90 per cent monopoly. In 1945 the United States Court of Appeals, Second Circuit, concluded that the company indeed held prewar monopoly control of ingot production. But the court did not force the company to dispose of any plants pending disposition of government aluminummaking facilities built in wartime 1942-45.
During the war, with aluminum in short supply, Reynolds Metals Company with government encouragement began primary production, the first competitor in the field since 1893. After the war the government, bypassing Aluminum Company, offered its plants to 224 different companies--some of them large--and strangely found no buyers. Surplus Property Administrator W. Stuart Symington then accused Aluminum Company of blocking the surplus plant sale by its patent control. After denying this, Alcoa relinquished to the government its many patents, gobbled up during the years, thus throwing them open to free licensing.
Reynolds Metals now bought or leased various of the government plants created around these patents. Kaiser Aluminum, formed for the purpose, took over other government-built plants. Since then the Anaconda Copper Company and Revere Copper and Brass, Inc. , have entered the lucrative field, with still others likely to come. The long Mellon monopoly in aluminum was finally broken, but not before the Mellons made millions from it. And the country is now for the first time well supplied with aluminum.
Who are the Mellons today? There are Paul Mellon, son of Andrew Mellon, director of the Mellon National Bank and various Mellon funds; his children, Timothy and Catherine Conover (Mrs. John W. Warner); Richard King Mellon, Jr. , son of Richard Beatty Mellon, nephew of Andrew, director and officer of various leading Mellon enterprises; his children, Richard, Cassandra, Constance and Seward; Ailsa Mellon (Mrs. Mellon Bruce), daughter of Andrew and mother of Audrey Mellon Bruce; Sarah Mellon (Mrs. Alan M. Scaife, died 1965), daughter of Richard Beatty Mellon and mother of Richard Mellon Scaife, who is a director of the Mellon National Bank and of various Mellon funds and trusts; William Larimer Mellon, M. D. , and others. By no means as numerous as the Du Ponts, the Mellons nevertheless constitute more than the glittering quartet named by Fortune.
The Rockefeller Monolith
Fortune, without mentioning Rockefeller guidance over huge foundation endowments, credited seven Rockefellers with a minimum combined holding in 1957 of $1 billion and a maximum of $1. 9 billion. Although the Rockefeller name is now synonymous with extreme wealth it is probable (owing to its earlier head-on conflicts with the law and consequent attempts to propitiate an aroused public opinion by contributions to publicly approved activities) that the combined Rockefeller fortune today is below that of the Du Ponts, who apparently have not as yet felt it necessary to indulge in baroque endowment operations to appease public opinion. The concentrated Rockefeller financial punch, however, both because of controlled foundations and many personal trust funds, is demonstrably more than double the maximum weight indicated by Fortune; beyond this the Rockefellers have acquired considerable moral influence. To some small extent the larger figure I produce is attributable to the rise in market value between 1957 and 1964; but Fortune left a great deal out of its calculations.
The death of John D. Rockefeller, Jr. , in 1960 provides us with a concrete case for checking on Fortune's estimate of inherited wealth. The probate of the Rockefeller will showed that Fortune was again astray (in this case very far astray) in estimating JDR, Jr. , as pe rsonally worth $400-$700 million in 1957; the probate showed his holdings added up to no more than approximately $150 million. 38 For he had over the years, as it was announced, established trust funds for six children and twenty-two grandchildren. 39 From these trust funds the children receive only income, with the principal sums presumably accruing to the grandchildren. There is thus assured a steady future supply of well-propertied Rockefellers.
If it was not evident before this, it should be clearly evident now that Fortune had no confidential information and no special expertise in computing the value of the large fortunes, individual or collective. Sometimes its procedure produced acceptably accurate results; at other times it was far off the target. Its listing, however, provides a convenient springboard for getting more deeply into the basic data.
The JDR, Jr. , estate paid virtually no inheritance taxes because it was left half to the widow and half to the Rockefeller Brothers Fund, a foundation. Under the inheritance- tax law as revised in 1948, over a presidential veto, half of any estate going to a spouse is nontaxable under what is pleasantly called the marital deduction. Who could be so disagreeable, except one hostile to marriage and possibly home, children and dogs as well, as to object to such a deduction? But the effect of this deduction was to more than halve inheritance taxes for married property holders, a vast majority. The greatest money benefit, obviously, accrued to the very largest property holders, and it was undoubtedly they who deviously pressed for the measure through their many staunch friends in Congress.
As the half of the Rockefeller estate left to the fraternal foundation was also nontaxable, the whole was nontaxable.
However, when, as and if the widow disposed of her trust fund, which she was empowered to do, it became estate-taxable (in lower brackets, to be sure, than if it were still part of the original whole estate). If left to charity it would be nontaxable. But if the widow made no disposition of the capital, it was all to accrue to JDR, Jr's. , children, when it would be taxable as in the case of any noncharitable disposition.
For many years Rockefeller, Jr. , son of the original self-made tycoon, had been prudently reducing his taxable estate by (1) establishing trust funds for members of his family and (2) allocating money to foundations controlled by the family. Thus, early in the 1930's he had begun transferring large holdings into trust funds for the children, according to the federal record. 40 As of December 18, 1934, when stock prices were abnormally low, two trusts for Abby Rockefeller were launched giving 2. 13 per cent ownership of Standard Oil Company of California; one for John D. III giving . 99 per cent ownership; and one for Nelson A. Rockefeller giving . 92 per cent ownership--4. 04 per cent in all. Similar trusts were set up at the same time for the same children in Standard Oil Company of New Jersey. 41 Later, as the will disclosed, trusts had been established for all six children and the twenty-two grandchildren. The family was now resting quietly in trust.
As a general pattern, the TNEC study disclosed that 30 per cent of the Rockefeller holdings were in foundations, 30 per cent in family trust funds and 40 per cent in the hands of individuals, a judiciously balanced diversification. 42 Trust fund holdings are now apparently higher, individual holdings lower.
There are reputed to be a large number of Rockefeller trust funds. According to the Washington Daily News, June 8, 1967, page 69, there may be as many as seventy-five family trust accounts "set up by John D. 'Junior,' for his six children and by those
children for their 23 offspring. The latter generation--known as the 'cousins'--have begun setting up trust accounts for their 44 children. "
In pointing out the low taxability of the JDR, Jr. , estate I do not intend to imply that some sort of impropriety was practiced. Rockefeller, Jr. , acted according to the prescribed laws and like any prudentially motivated parent in making the best possible material provision for his children. My reason for stressing the tax-free status of his estate is only to counter the notion, widely spread by newspapers and right-wing demagogues, that the tax laws in general are breaking down, dispersing or seriously trimming property holdings of all kinds. The dominant effect of the tax laws actually (and not surprisingly in a society dominated by property holders with abundant money and patronage to dispense) is to preserve and solidify private property in general, especially big private property. The latter type, naturally, derives the most substantial benefits from the equal protection of the law which, as Anatole France remarked, majestically allows rich as well as poor to sleep under bridges.
There was the same sort of low-taxable estate left when Rockefeller, Sr. , died in 1937. The probate disclosed that he had left a pitiful $25 million, of which state and federal taxes took about half; nearly all of the remainder was left to a granddaughter, Mrs. Margaret Strong de Cuevas, and her children and to the Rockefeller Institute for Medical Research. 43 The bulk of the fortune he had amassed through the original Standard Oil Trust had already been transferred to his son and to foundations. Whatever may have been transferred before 1914 was tax free; whatever may have been transferred between 1924 and 1930 bore the low tax rates of the Mellon era in government finance; whatever was transferred in the 1930's was at depression-low values.
In brief, the amount of inheritance taxes collected from John D. Rockefeller Sr. and Jr. has been virtually nil. And despite the continual references in the public prints to how taxes are breaking up big fortunes, the Rockefeller fortune, like the Du Pont, Mellon and many others assembled in the nineteenth century, is still intact, fully fleshed and going strong.
As Fortune was very much in error on the JDR, Jr. , holding, there is no reason to suppose it was any more accurate in placing each of the six children in the broad $100- $200 million bracket. The surer procedure, it seems to me, is to ascertain as I have done before what the TNEC, under power of subpoena, found to be the pattern and percentage of total family holdings by individuals, trust funds, family holding companies and foundations, and to assume at least tentatively that this pattern and percentage still persist. When anyone argues (as some are bound to) that holdings in a company may have been altered, it should be pointed that such alteration would not seriously call this method into question. Whatever was sold in one place would be invested somewhere else--probably to better effect, as these large holdings are all under skillful professional supervision and tend to take maximum advantage of circumstances and to minimize disadvantages. New investments outperform old, as in the case of W. Averell Harriman's investment in Polaroid. As for the modest sums paid out in gift taxes it is standard trust doctrine that these can be recovered gradually out of the income of the trust. On top of all this, the big fortunes have an unending stream of dividends, the spending of which would wear anyone out and has indeed worn out some flamboyant spenders. Much of these dividends (after taxes) are reinvested, thus tending to increase the fortune.
The Rockefellers, like the Du Ponts and Mellons, could be relatively poorer today than they were at the end of 1937 (the date of the TNEC data for this phase of the inquiry) only if they had (1) sold substantial interests and hoarded the proceeds in
uninvested cash or placed them in fixed-interest securities; (2) if they had burned or flung away the cash proceeds of investment sales; (3) if they had sold good investments and made bad investments; or (4) if they had given huge properties into the absolute ownership of others. As there is no evidence available that they did any of these things, we may dismiss the idea that their total vested interest is smaller, either absolutely or relatively, than it was at the end of 1937. It must, in fact, be larger owing to the steady receipt of big revenues and the normal use of skilled professional advisers. The TNEC percentages, carried up to the present, must be, if anything, understatements in the case of the Rockefellers as in the cases of the Du Ponts and Mellons.
It should be stressed that the TNEC study did not embrace all the holdings of these groups. It did not include holdings in strictly financial enterprises, such as banks and insurance companies, any real estate or any stockholdings that aggregated less than the twenty largest in any single company. As to the Rockefellers, there was not included their dominant interest in the Chase National Bank, one of the international "Big Three" among commercial banks, colossal Rockefeller Center in New York City and a variety of extensive real estate and landholdings. Indeed, a substantial fortune for each of these big families was deliberately left out of consideration in the TNEC study. If a man were to own whatever the Rockefellers, Du Ponts or Mellons held that was not even counted in the TNEC study, he would be considered one of the nation's nabobs.
The following table applies the percentage of ownership of the Rockefeller interests, including foundations, as they appeared among the twenty largest stockholders as ascertained by the TNEC, and shows the value of these same percentages and at closing 1964 prices. 4
1964 Prices
Stockholdings
(percentage)
Prices
$7,000,000
Atlantic Refining Co. (S. O. ) 1. 16
$6,821,025
Bethlehem Steel Corp. . 41
$10,379,268
Consolidated Edison (N. Y. ) . 28
$10,170,255
Consolidated Oil Corp. (S. O. ) 5. 71
$49,058,436
Continental Oil Co. (S. O. ) . 84
$14,055,174
Illinois Central R. R.
(now Illinois Central Ind. ) . 32
$536,364
Int'l Harvester Co. 2. 31
$24,604,360
Middle West Corporation
(now constituent companies) 2. 11
$8,272,495
Missouri-Kansas-Texas R. R. 1. 14
$115,679
Norfolk and Western Ry. . 32
$782,073
Ohio Oil Co.
(now Marathon Oil Co. [S. O]) 19. 52
$190,165,807
Pere Marquette Ry.
(exchanged for Chesapeake &
$16,000,000
Largest 1937
Ohio R. R. stock) 1. 45
$23,927
Phelps Dodge Corp. . 74
$5,381,811
Radio Corporation . 22
$4,362,775
Santa Fe Railway . 38
$1,576,563
Socony Vacuum Oil Co.
(now Socony Mobil Oil Co. [S. O] 16. 34
$771,303,099
Standard Oil Co. of Calif. 12. 32
$664,330,693
Standard Oil Co. (Indiana) 11. 36
$334,335,677
Standard Oil Co. (New Jersey)
$2,628,070,253
U. S. Steel Corp.
$3,361,473
Western Pacific R. R.
$3,916,487
____________
$4,741,515,014
$76,000,000
$47,250,000
$58,000,000
13. 51* $163,000,000
. 12
4. 79
* The Rockefellers actually had voting power over 20. 20 per cent
of the vast New Jersey Company, in assets the largest industrial
enterprise
of the world, enough to assure control, by reason of New Jersey stock
owned
by the minority-controlled Standard Oil Company (Indiana).
Considering only the largest holdings, it will be seen how magnificently these properties have risen from depression-level valuations--from seven to nearly seventeen times in less than thirty years (the latter in the case of the giant Standard Oil Company of New Jersey). How many persons in the same period have seen their salaries or propertied status improve by as much? If a school teacher, starting out at a salary of $3,000 a year in 1937, had experienced the same ratio of gain in remuneration he would now be paid in the range of $21,000-$51,000. Actually, the school teacher now receives in the range of $6,000-10,000, if that, and is facing early retirement at half pay. There never comes a time when property, large or small, is put on half pay because of age.
In the case of the Rockefellers, as of the Mellons, it has been publicly announced that they have sold some of these holdings: JDR, Jr. , in Socony Mobil Oil and the Mellons in Gulf Oil. What the proceeds were used for--new investments or trust funds for others--is not indicated. At any rate, the foregoing table should not be taken as a recent breakdown of major Rockefeller investments, which in some cases may be larger or smaller, in others may include different properties. But, I argue, whatever the present holdings are, their relative value is almost certainly not smaller than the total for the tabulation and is, for a variety of sound reasons, very probably larger.
What the TNEC study singled out as the personal largest industrial holdings of the Rockefeller family, individuals and trust funds, is shown in the following table computed at closing 1964 prices:
Closing
Largest 1964
__ Total
Value
Stockholdings
(percentage)
Atlantic Refining Co. 1. 16
$6,812,085
Bethlehem Steel Corp. . 41
$10,379,268
Consolidated Oil Corp. 5. 71
$49,058,436
Ohio Oil Co. 9. 83
$190,165,807
Socony Vacuum Oil Co. 16. 34
$771,303. 099
Standard Oil Co. of Calif. 11. 86
$639,326,406
Standard Oil Co. (Indiana) 7. 83
$236,721,770
Standard Oil Co, (New Jersey) 8. 69*
$1,691,696,720
____
$3,595,463,591
__________
Personal
Market
*By reason of the Standard Oil (Indiana) interest in the New
Jersey company,
the personal Rockefeller voting power in the latter company was 15. 38
per cent,
enough to give practical control or "dominance," in the language of
the TNEC study.
If we subtract from this $100 million for the widow (assuming her holdings had appreciated to, this level since 1960) there is left for each of the six third-generation Rockefeller children personally $570,077,232 (including whatever is laid up in trust for the grandchildren, which has lightened the financial burden of the parents). In view of the many ancillary Rockefeller holdings that are not here considered, this figure is far nearer what one should have for each more recently rather than the Fortune figure of $100-$200 million. Market values rose between 1957 and 1964, it is true, but broadly allowing for the rise and excluding grandchildren's trusts, it would seem that each of six Rockefellers must be worth at least in the range of $425-$475 million, including trust funds, and possibly more than $570 million. The apportionment ratio of trusts as between children and grandchildren is not publicly known but, as the grandchildren take from the parents, it is probable that direct trust provision for the grandchildren was made, if at all, on a much smaller scale than for their parents. To venture further into the labyrinth of family trusts without possessing the accountants' figures could only be unwarrantably speculative.
As the foundations make public reports of their holdings, there would be a way of partially checking the correctness of these computations if the same foundations were now in existence as figured in the TNEC study. Unfortunately, the structure and number of Rockefeller foundations have greatly changed since 1937 and only the sketchiest sort of check is possible. just as the Rockefellers have probably shuffled their personal investments, so have they publicly shuffled their foundations consonant with the introduction of a third generation into the management of affairs.
The foundation holdings, reckoning by the TNEC percentages, should have stood at $1,146,051,423 at the end of 1964. At the end of 1962 (the only figures yet available)
Total
the actual foundation holdings, when market values were somewhat lower than at the end of 1964, were $823,485,972, according to the Foundation Directory, 1964. My computations, it is clear, produce a figure that is $322,565,451 higher than seems to be the case.
Before we consider this not inconsiderable discrepancy and what may account for it, the recent foundation holdings should be examined. The Foundation Directory shows them and their stated assets to have been as follows:
Date Founded
General Education Board 1902
Rockefeller Foundation 1913
Sealantic Fund
(Community fund for Seal Harbor,
Me. , and Pocantico Hills, N. Y. ,
where Rockefellers reside) 1938
Jackson Preserve, Inc. 1940
Rockefeller Brothers Fund 1940
American Int'l Ass'n for
Economic and Social Development
(part Rockefeller) 1946
Council on Economic and Cultural
Development 1953
Chase National Bank Foundation
(part Rockefeller) 1958
Total $823,485,972
At the time of the TNEC study there were only the Rockefeller Foundation, the General Education Board and the Spelman Fund of New York in the field. The latter has gone out of business and six others have been added since 1938.
Applying the TNEC pattern, which found that 30 per cent of Rockefeller holdings were in foundations and 30 per cent in personal trusts, with 40 per cent individually held, and using the 1962 foundation holdings as the base of computation, one would have the following as the figure of dominated and owned holdings in 1962:
Foundations--30 per cent
Individual trust funds--30 per cent
Individual holdings--40 per cent
$823,485,972
$823,485,972
$1,077,981,296
______________
Total $2,724,953,240
Using recent foundation holdings as the base to which the TNEC percentage is applied appears to me to result in a downward distortion, first because the individual holdings were concentrated in the upward-spiraling oil industry while much of the foundation investment is in fixed-interest securities, and secondly because the foundation pattern has been altered. My conclusion is that proportional to individual holdings and trust funds the foundation holdings are now either less than 30 per cent of the whole or that their assets by 1964 had moved up in value closer to the projected figure of $1,146,051,423 obtained by my computation.
As the foundation reports are issued at a more leisurely pace than company reports and are not available for 1964 at this writing, direct comparison cannot be made. But critical readers can make the comparison at any time, when the reports become available, provided they always apply market values rather than book values of holdings.
Assets at
End of 1962
$342,834
$632,282,137
$11,639,033
$21,939,398 (1961)
$152,386,637
$752,585 (1961)
$3,360,950
$782,398
____________
If one wishes to examine still another possibility, one can put together the figure of $3,595,463,591 for the 1964 value of the personal holdings obtained by my computation with the 1962 figure of $823,485,972 for foundation holdings. This gives a total of $4,418,949,563 for the combined holdings. I still believe, however, that my original figure of $4,741,515,014 is an understatement of the combined family holding, because the TNEC did not survey all the family properties (only the largest) and notwithstanding the fact that Rockefeller, Jr. , had to pay gift taxes in the establishment of his chain of trust funds for children and grandchildren.
When one throws the Chase Bank, Rockefeller Center and various real estate properties into the pot and considers that Laurance Rockefeller has blossomed in his own right as a venture capitalist in luxury hotels and advanced-technology enterprises, the combined Rockefeller financial "punch" should be above $5 billion. Although apparently outpaced by the Du Ponts in the super-wealth sweepstakes, the Rockefellers seem to me to be running at least neck and neck with the Mellons.
The TNEC study, it must again be stressed, did not pretend to produce the totals of wealth held, for it confined itself only to the twenty largest stockholdings in the 200 largest nonfinancial companies and ignored ownership of banks, insurance companies, bonds, real estate and smaller stockholdings. Relying on the TNEC method alone there might have been missed even larger concentration of wealth, for example if the twenty- first largest stockholder in all 200 companies had been the same person or family; but on other evidential grounds it is known that such a logical possibility did not hold in fact.
The Fords of Dearborn
Mrs. Edsel Ford and her three sons--Henry II, Benson and William-were assigned a combined minimal wealth of $325 million and a maximum of $500 million by Fortune in 1957. Her daughter Josephine (Mrs. Walter Buhl Ford II) was not noticed by Fortune.
It is always fairly easy to compute the collective personal wealth of the Fords because they own 10 per cent of the outstanding stock (but 40 per cent of the voting power) of the Ford Motor Company (always assuming there have been no secret sales or purchases and that there are no side interests). On the face of it (although not really) 10 per cent of the entire stock issue of the company appears to be the sole personal financial strength of the family.
What slightly impedes any computation of Ford wealth is the rather complicated capital structure of the company as created under the wills of Henry and his son Edsel.
At the end of 1964 this capital structure, after split-ups in each class, stood as follows:
Common stock (owned by investors)
Class A stock (owned by the Ford Foundation)
Class B stock (owned by the Ford family)
Shares
52,338,152
46,283,756
12,267,794
___________
Total 110,889,702
The Class A stock is nonvoting until it is either sold by the foundation or given by it to some approved nonprofit organization, when it acquires one vote per share; but never at any time can all the common stock cast more than 60 per cent of the vote at a stockholders' meeting. For, as noted, 40 per cent of voting power is concentrated by charter in all the Class B stock, giving the Ford family very nearly absolute control of the company at all times. All classes of stock participate equally, share for share, in dividends. Control is what counts.
At the closing 1964 quotation of 54-1/2 per share this capitalization had a gross market value of $6,043,488,759. This left the Fords 10-plus per cent apparently valued at $604,348,876. But, considering the factor of control, the Ford family stock has as much voting power as two-thirds of the common, which was valued in the market at $1,901,619,450. Anyone who owns two-thirds of the common stock would have as much voting power as the Fords but would get more dividends--on 34,892,100 shares as against 12,267,794 shares--and to that extent would have more value in hand. But the Class B stock, owing to the heavy weight of voting privileges embodied in it, is worth more, share for share, than the market value of the common stock (although nobody would seek to get that value unless he sought control of the company). If, however, a buyer of control were to show himself, the Ford-held stock at closing 1964 prices would have, in relation to the common, the value of close to $2 billion I have assigned it by this computation. While the Ford stock gets dividends of only about a third of the equivalent amount of voting-power common, this isn't too much of a hardship as the Fords are in an income-tax bracket that hits such soaring dividends hard. Besides, the men all drew high salaries as officers of the company. They have plenty of pocket money.
So, at a price of around 54 for the present outstanding stock of the company, I would rate the value of the family holding at a minimal 82 billion, although any syndicate interested in buying the company would probably have to pay more for it (assuming current or higher levels of profitability).
Compared, then, with the Du Ponts, Mellons and Rockefellers, the Fords are in comparatively modest circumstances although individually the members of the three latter families are on the average richer owing to the participation of a greater number of Du Ponts in the heady Du Pont mixture.
Since 1964, however, there has been a slight alteration in the foundation holdings, which does not affect my computation nor the conclusions drawn from it. In June, 1965, the foundation marketed more shares. Originally it received precisely 88 per cent of all stock in the form of Class A nonvoting shares. Adjusting for stock splits after the 1965 sale it had disposed of very nearly half or 46. 9 million present shares. The 45. 7 million shares it retained composed 35. 8 per cent of the entire capital stock of Ford Motor.
In terms of its own book values of the various securities it held, Ford Motor plus others, the foundation at the end of 1964 was worth $2. 4 billion.
The great care taken by the two elder Fords to see that control remained in the family is shown by the voting provisions for the stocks. If the outstanding Class B stock falls below 5. 4 million shares (which it can do only if it is called in by the family) the total voting power of the common rises to 70 per cent; and if the B stock outstanding falls below 3 million shares it votes equally with the common.
Until the family, then, quixotically decides to call in the B stock (thus cutting its own throat as far as control is concerned) it holds 40 per cent of voting power in the company, tantamount to absolute control. Should some syndicate attempt to buy control in the market the Fords need purchase only 16-2/3 per cent of outstanding common to give it 50 per cent voting power, whereas a syndicate would have to purchase 83-1/3 per cent of all common to reach the same dead-heat point. In such an unequal race the Fords would necessarily win.
But even if a syndicate turned up with all the common, giving it absolute control, the Fords have an ace in reserve. And this ace shows one of the many ways foundation control can be synchronized with industrial control, The Fords control the foundation. And the A stock held by the foundation acquires voting power as it is sold or given to a nonprofit institution. Faced with an opponent who owned all the common, giving him a
60 per cent vote and control, the Fords need merely activate the voting power of the foundation stock by selling it or giving it to friendly hands, thus diluting the voting power of the outstanding common. By converting all its remaining Class A stock into voting stock the foundation could dilute the voting power of the presently outstanding common to 30 per cent of the present capital structure. With the 30 per cent of the voting power in the newly converted common plus the 40 per cent of voting power in the Class B stock the Fords would actually have, as they now potentially have, 70 per cent of the voting power. The foundation, indeed, could sell somewhat more than half of its remaining Ford stock and leave the Fords able to muster 55 per cent of the voting power in any critical showdown.
The ins and outs of this situation may have puzzled some readers. The point to be made is only to show the great care taken to guard control, revealing what the wealthy intend. In acting as they do they are only being reasonable; for the humanly normal thing to do is to guard one's possessions. But we have many propagandists around, led by such errant professors as A. A. Berle, Jr. , who apparently are not afraid of being judged certifiably silly by contending that control as well as ownership of the large companies is being widely spread around, that the big fortunes are being broken up to right and left. The Berle thesis, refuted on every hand by the facts, is that as ownership is dispersed (which it is not in fact), free-lance company managements install themselves in the drivers' seats as something of a new corporate breed. These new managers--the "managerial revolution"--proceed in this fairy tale to elbow aside the Du Ponts, Mellons, Rockefellers, Fords, Pews, Gettys and various others--and thus introduce a new set of actors on the stage of history, a set of actors that conquer by sheer bureaucratic techniques.
Such being the case, reason many readers, we can all just sit back and watch the fun as bright young men rise to conjure the corporations away from the big owners. Like all fantasies, this one has quite a coterie of bemused devotees.
The surviving Fords would have been a great deal richer today than they are if Henry Ford, founder and original master mind of the automotive behemoth, who died in 1947 at eighty-three years of age, had been personally less grasping and if the deaths of central figures in the family had not occurred before the very rich could get a tractable Congress around to trimming the New Deal inheritance taxes. This trimming process was no doubt hastened by the example of the tax-speared disaster that engulfed the massive Ford fortune.
Ford's only son, Edsel, a far more likeable, intelligent and informed man than his flinty father but kept unhappily subordinate all his life, died prematurely at age forty- nine in 1943. The oldest grandson, Henry Ford II, at the age of twenty-five, inexperienced in business and up to 1940 a sociology major at Yale, was hastily spirited out of the wartime Navy where he was an ensign and installed as a director and executive vice president of the vast company, a miraculous corporate success story. His brothers Benson and William, twenty-five and eighteen years old at the time, trailed him into the company later, where they also showed their mettle by quickly rising to the top. Their mother, whom I have perhaps ill-advisedly listed as a rentier, played a strong and constructive role (from a family and property point of view) on the board of directors with Henry II. She backed him particularly, if she did not indeed take the lead, in getting rid of much accumulated deadwood in the cracker-barrel executive suite of Henry I.
Holding tightly ( and tax-expensively) to 58-1/2 per cent of the company's voting stock, Henry Ford at his death was publicly assigned a net worth of $500-$700 million. 45 The value at the time of the Ford Motor Company, since reorganized and vastly
improved internally by the grandsons, was in the vicinity of $1 billion. Ford's death came none too soon for the family fortunes, as the company under his old-style heavy- handed administration had for more than fifteen years been losing ground to free- swinging General Motors and stepped-up Chrysler and had long since tumbled from the top of the motor heap. Definitely on the skids, the company was thought in the automobile industry to be headed for the junkyard that had already engulfed scores of automobile companies.
But the deaths of Edsel and Henry, with the company slipping mainly because the views of Edsel were continually overruled by the feudal owner and his sycophantic cronies in the management, also came at an inopportune time with respect to the tax laws. For the marital deduction and the option of estate splitting had not yet been enacted. Both Edsel's and his father's holdings were faced by a flat 91 per cent inheritance tax, designed under the New Deal expressly to break down big fortunes topheavy with political power. Had the later law been in effect, the two Fords could have assigned half their holdings to their wives, tax free, and the wives could have worked their funds with the help of lawyers into much lower tax brackets. This splitting, it should be noticed, also often puts the testator into a lower tax bracket as well, although it could not have had that effect with the two Fords unless they had made free use of trust funds for the grandchildren. Henry Ford was apparently too tightfisted to do that, which would have cost him only bargain-counter gift taxes.
A partial way out of this tax disaster was engineered in The Ford Foundation for Human Advancement established by Edsel in 1936. (Henry Ford himself was hostile to public benefactions and spoke out freely against them.
At the same time the company's capital flooded upward from $83 million to $308 million on the basis of a wartime gross business of $1 billion. Net profits for four war years reached $237 million, of which $141 million were paid out in dividends. "Those dividends could be reckoned at four hundred and fifty-eight percent of the stock's par value. " 30
With $49 million of wartime profits not paid out in dividends, E. I. du Pont de Nemours bought its initial interest in General Motors Corporation, then the product of the merger of twenty-one independent automobile companies. 31 Du Pont soon took control.
German interests having been driven from the postwar domestic chemical field, where they had been entrenched, E. I. du Pont de Nemours branched into the general chemical field, in which it previously had only a small foothold. it did this not through some inherent scientific capability, as is sometimes suggested, but by buying up with wartime profits one independent chemical company after the other: Viscoloid Company, National Ammonia, Grasselli Chemicals, Krebs Pigment and Chemical, Capes-Viscose, Roessler and Hasslacher Chemical, Commercial Pigments, Newport Chemical, Remington Arms Company and others. Individual Du Pouts, now well supplied with funds, bought into North American Aviation, Bendix Aviation and United States Steel. 32 Provided with enough money, anyone could have done this.
Offered during World War II a cost-plus-fixed-fee contract to build atomic bomb plants for the Atomic Energy Commission, E. I. du Pont de Nemours, which alone had gathered to its capacious bosom the engineering facilities and personnel for such a gigantic task, set the fee at $1.
What led the company to make this resoundingly modest charge is said in the official history of the Atomic Energy Commission to have been the following considerations:
"The tremendous military potential of the atomic weapon posed a possible threat to the company's future public relations. The du Pont leadership had not forgotten the 'merchants of death' label slapped on the company during the Nye Committee investigations in the 1930's. Certainly it was clear that the company had not sought the assignment; but to keep the record straight, du Pont refused to accept any profit. The fixed fee was limited to one dollar. Any profits accruing from allowances for administrative overhead would be returned to the government. Walter S. Carpenter, Jr. , the du Pont president, disavowed not only profits but also any intention of staying in the atomic bomb business after the war. In his opinion, the production of such weapons should be controlled exclusively by the government. The contract provided that any patent rights arising from the project would lie solely with the United States. " 33
And so we come to the present when the labyrinthine Du Pont enterprise, no longer specializing exclusively in the merchandisable means of death, is devoted to making
thousands of peacetime products, what it calls "better things for better living through chemistry. "
The Mellons
Four leading Mellons on the Fortune list are given a minimal combined worth of $1. 6 billion and a maximum of $2. 8 billion. As market values up to this writing have risen sharply, these figures now embody considerable understatement.
The Mellons are another close family group, with holdings concentrated as shown in the TNEC study in a broad group of leading companies: Aluminum Corporation of America, Gulf Oil Company, the Allis-Chalmers Manufacturing Company, the Bethlehem Steel Corporation, the General American Transportation Corporation, Jones and Laughlin Steel Corporation, Koppers United Company, Lone Star Gas Corporation, Niagara Hudson Power Corporation, Pittsburgh Coal Company, Pittsburgh Plate Glass Company, The Virginian Railway Company, Westinghouse Electric and Manufacturing Company and various others. Of this group the Mellons controlled Aluminum Corporation, Koppers United and Gulf Oil. Five Mellons held these interests directly and through two family holding companies, three closely held insurance and securities companies, six trust funds, one estate and one foundation. 34
In Aluminum Corporation common stock the Mellons held 33. 85 per cent; in the contingent voting preferred stock the family and its foundation held 24. 98 per cent. In Gulf Oil Company the Mellon family and its personal companies owned 70. 24 per cent of the common stock, an unusually large single family stake in so large an enterprise. The Mellons held 52. 42 per cent of the common stock of Koppers United and 1. 52 per cent of the contingent voting preferred. 35
Applying the TNEC percentages of ownership at closing 1964 market prices the value of the Mellon holdings in the three leading companies alone would be:
7,127,725 shares of Aluminum Company common
(33 per cent of outstanding 21,413,177 shares)
at 61-1/2
164,477 shares Aluminum Company
preferred (25 per cent of outstanding
659,909 shares) at median price
of 85-1/2 (1964 price range 83-88)
72,579,487 shares Gulf Oil Corporation
(70 per cent of outstanding 103,684,981
shares) at 58-5/8
1,166,567 common shares Koppers (52-1/2 per cent
of 2,222,032 outstanding shares) at 55-3/8
Other companies
$438,970,087
$9,128,468
$4,254,972,426
$64,599,968
?
_______________
Total $4,767,669,949
This computation is made without considering the Mellon holding in the Mellon National Bank of Pittsburgh, not included in the TNEC study, and in various other banks and in many companies with Mellon participation as reported in the TNEC study. But although the preceding table shows the pattern of the family holdings in general, there have been shifts in Mellon holdings since the TNEC study, notably through the establishment of a series of foundations in the 1940's.
These foundations, whose holdings should not be necessarily considered as additions to those already indicated, are as follows:
Date Founded 1962 Assets
The A. W. Mellon Educational and 1930 $24,197,042
Charitable Trust
(included in TNEC study)
Avalon Foundation, N. Y.
(Mrs. Ailsa Mellon Bruce)
Sarah Mellon Scaife Foundation
Old Dominion Foundation, N. Y.
(Paul Mellon)
Bollingen Foundation, N. Y.
(Paul Mellon)
The (Richard K. ) Mellon Foundation
The (Matthew T. ) Mellon Foundation
1940 $99,182,784
1941 $20,098,157
1941 $65,082,139
1945 $6,013,881
1947 $82,028,250
1946 $160,775
(as of 1960)
____________
$296,763,028
Foundation Total
Although the income and any capital distribution from these foundations must be used for legally prescribed public purposes, the capital investments, as long as they remain undistributed, represent Mellon voting power in industry. But the foundations established since 1940 do not, as comparison with the first tabulation shows, diminish by much the personal Mellon holdings of today when computed according to the TNEC pattern. The family, all lovers of the old-time capitalism will be cheered to note, does not appear to be dissipating its fortune in riotous charity.
Andrew Mellon (1855-1937) was himself an inheritor, the son of Thomas Mellon, a rich Pittsburgh private banker and the pre-Civil War Horatio Alger source of the family fortune. From his father's bank Andrew and his brother, Richard B. , began branching out and initially acquired a commercial bank and an insurance company. It was a small beginning, with far greater deeds of financial derring-do to come.
The first really big Mellon opportunity came, however, when two metallurgists told Andrew in 1989 of a successful new process for smelting aluminum discovered by Charles M. Hall. In return for $250,000 credit with T. Mellon & Sons, the Pittsburgh Reduction Company, owner of the process, gave Mellon control of the company. it was common at the time for banks to demand a "piece of the action" in any promising enterprise that applied for loans, which is how Mellon and other bankers turned up with toothsome participations in so many burgeoning enterprises. 36 For these participations in many if not most cases, they paid nothing whatever but sat in their money-nets like intent spiders and let the flies walk in one by one.
The Mellon participation in Gulf Oil came about similarly. Anthony F. Luchich, a Yugoslav prospector, brought in the great Spindletop gusher in Texas in 1901, which quickly led to more oil than all the Pennsylvania fields had since 1859. Money was now needed to handle the flow and build pipelines, and Pittsburgh interests were appealed to. Among these were William Larimer Mellon, nephew of Andrew and himself an heir of Thomas Mellon. In the upshot there was formed the J. M. Gulley Petroleum Company, capitalized at $15 million. Andrew W. Mellon bought the prospector's interest for $400,000 and altogether put $4. 5 million into the new company, of which Colonel J. M. Guffey, who had an interest in the Spindletop lease, was given the presidency, $1 million and a promise of $500,000 from future dividends. Andrew W. Mellon and his brother, Richard B. , took 40 per cent of the stock and sold 60 per cent to six Pittsburgh capitalists. 37 Guffey Petroleum soon was renamed Gulf Oil. Guffey himself was dropped.
Mellon utilized the same technique again and again with other entrepreneurs who came to him for the means necessary to launch or tide over their enterprises.
The Aluminum Company was eventually judicially designated a monopoly but not until it had enjoyed a long charmed life. It repulsed a number of private suits under the Sherman Act early in the century and on a few occasions outmaneuvered the Federal
Trade Commission, which could not prove its bone-deep belief that the company was engaging in unfair competition. In 1912, however, the Aluminum Company consented to a practically meaningless decree in an action brought by an unenthusiastic Department of Justice charging unfair trade practices.
Again in 1937 the Department of justice brought suit, holding that the company held a 90 per cent monopoly. In 1945 the United States Court of Appeals, Second Circuit, concluded that the company indeed held prewar monopoly control of ingot production. But the court did not force the company to dispose of any plants pending disposition of government aluminummaking facilities built in wartime 1942-45.
During the war, with aluminum in short supply, Reynolds Metals Company with government encouragement began primary production, the first competitor in the field since 1893. After the war the government, bypassing Aluminum Company, offered its plants to 224 different companies--some of them large--and strangely found no buyers. Surplus Property Administrator W. Stuart Symington then accused Aluminum Company of blocking the surplus plant sale by its patent control. After denying this, Alcoa relinquished to the government its many patents, gobbled up during the years, thus throwing them open to free licensing.
Reynolds Metals now bought or leased various of the government plants created around these patents. Kaiser Aluminum, formed for the purpose, took over other government-built plants. Since then the Anaconda Copper Company and Revere Copper and Brass, Inc. , have entered the lucrative field, with still others likely to come. The long Mellon monopoly in aluminum was finally broken, but not before the Mellons made millions from it. And the country is now for the first time well supplied with aluminum.
Who are the Mellons today? There are Paul Mellon, son of Andrew Mellon, director of the Mellon National Bank and various Mellon funds; his children, Timothy and Catherine Conover (Mrs. John W. Warner); Richard King Mellon, Jr. , son of Richard Beatty Mellon, nephew of Andrew, director and officer of various leading Mellon enterprises; his children, Richard, Cassandra, Constance and Seward; Ailsa Mellon (Mrs. Mellon Bruce), daughter of Andrew and mother of Audrey Mellon Bruce; Sarah Mellon (Mrs. Alan M. Scaife, died 1965), daughter of Richard Beatty Mellon and mother of Richard Mellon Scaife, who is a director of the Mellon National Bank and of various Mellon funds and trusts; William Larimer Mellon, M. D. , and others. By no means as numerous as the Du Ponts, the Mellons nevertheless constitute more than the glittering quartet named by Fortune.
The Rockefeller Monolith
Fortune, without mentioning Rockefeller guidance over huge foundation endowments, credited seven Rockefellers with a minimum combined holding in 1957 of $1 billion and a maximum of $1. 9 billion. Although the Rockefeller name is now synonymous with extreme wealth it is probable (owing to its earlier head-on conflicts with the law and consequent attempts to propitiate an aroused public opinion by contributions to publicly approved activities) that the combined Rockefeller fortune today is below that of the Du Ponts, who apparently have not as yet felt it necessary to indulge in baroque endowment operations to appease public opinion. The concentrated Rockefeller financial punch, however, both because of controlled foundations and many personal trust funds, is demonstrably more than double the maximum weight indicated by Fortune; beyond this the Rockefellers have acquired considerable moral influence. To some small extent the larger figure I produce is attributable to the rise in market value between 1957 and 1964; but Fortune left a great deal out of its calculations.
The death of John D. Rockefeller, Jr. , in 1960 provides us with a concrete case for checking on Fortune's estimate of inherited wealth. The probate of the Rockefeller will showed that Fortune was again astray (in this case very far astray) in estimating JDR, Jr. , as pe rsonally worth $400-$700 million in 1957; the probate showed his holdings added up to no more than approximately $150 million. 38 For he had over the years, as it was announced, established trust funds for six children and twenty-two grandchildren. 39 From these trust funds the children receive only income, with the principal sums presumably accruing to the grandchildren. There is thus assured a steady future supply of well-propertied Rockefellers.
If it was not evident before this, it should be clearly evident now that Fortune had no confidential information and no special expertise in computing the value of the large fortunes, individual or collective. Sometimes its procedure produced acceptably accurate results; at other times it was far off the target. Its listing, however, provides a convenient springboard for getting more deeply into the basic data.
The JDR, Jr. , estate paid virtually no inheritance taxes because it was left half to the widow and half to the Rockefeller Brothers Fund, a foundation. Under the inheritance- tax law as revised in 1948, over a presidential veto, half of any estate going to a spouse is nontaxable under what is pleasantly called the marital deduction. Who could be so disagreeable, except one hostile to marriage and possibly home, children and dogs as well, as to object to such a deduction? But the effect of this deduction was to more than halve inheritance taxes for married property holders, a vast majority. The greatest money benefit, obviously, accrued to the very largest property holders, and it was undoubtedly they who deviously pressed for the measure through their many staunch friends in Congress.
As the half of the Rockefeller estate left to the fraternal foundation was also nontaxable, the whole was nontaxable.
However, when, as and if the widow disposed of her trust fund, which she was empowered to do, it became estate-taxable (in lower brackets, to be sure, than if it were still part of the original whole estate). If left to charity it would be nontaxable. But if the widow made no disposition of the capital, it was all to accrue to JDR, Jr's. , children, when it would be taxable as in the case of any noncharitable disposition.
For many years Rockefeller, Jr. , son of the original self-made tycoon, had been prudently reducing his taxable estate by (1) establishing trust funds for members of his family and (2) allocating money to foundations controlled by the family. Thus, early in the 1930's he had begun transferring large holdings into trust funds for the children, according to the federal record. 40 As of December 18, 1934, when stock prices were abnormally low, two trusts for Abby Rockefeller were launched giving 2. 13 per cent ownership of Standard Oil Company of California; one for John D. III giving . 99 per cent ownership; and one for Nelson A. Rockefeller giving . 92 per cent ownership--4. 04 per cent in all. Similar trusts were set up at the same time for the same children in Standard Oil Company of New Jersey. 41 Later, as the will disclosed, trusts had been established for all six children and the twenty-two grandchildren. The family was now resting quietly in trust.
As a general pattern, the TNEC study disclosed that 30 per cent of the Rockefeller holdings were in foundations, 30 per cent in family trust funds and 40 per cent in the hands of individuals, a judiciously balanced diversification. 42 Trust fund holdings are now apparently higher, individual holdings lower.
There are reputed to be a large number of Rockefeller trust funds. According to the Washington Daily News, June 8, 1967, page 69, there may be as many as seventy-five family trust accounts "set up by John D. 'Junior,' for his six children and by those
children for their 23 offspring. The latter generation--known as the 'cousins'--have begun setting up trust accounts for their 44 children. "
In pointing out the low taxability of the JDR, Jr. , estate I do not intend to imply that some sort of impropriety was practiced. Rockefeller, Jr. , acted according to the prescribed laws and like any prudentially motivated parent in making the best possible material provision for his children. My reason for stressing the tax-free status of his estate is only to counter the notion, widely spread by newspapers and right-wing demagogues, that the tax laws in general are breaking down, dispersing or seriously trimming property holdings of all kinds. The dominant effect of the tax laws actually (and not surprisingly in a society dominated by property holders with abundant money and patronage to dispense) is to preserve and solidify private property in general, especially big private property. The latter type, naturally, derives the most substantial benefits from the equal protection of the law which, as Anatole France remarked, majestically allows rich as well as poor to sleep under bridges.
There was the same sort of low-taxable estate left when Rockefeller, Sr. , died in 1937. The probate disclosed that he had left a pitiful $25 million, of which state and federal taxes took about half; nearly all of the remainder was left to a granddaughter, Mrs. Margaret Strong de Cuevas, and her children and to the Rockefeller Institute for Medical Research. 43 The bulk of the fortune he had amassed through the original Standard Oil Trust had already been transferred to his son and to foundations. Whatever may have been transferred before 1914 was tax free; whatever may have been transferred between 1924 and 1930 bore the low tax rates of the Mellon era in government finance; whatever was transferred in the 1930's was at depression-low values.
In brief, the amount of inheritance taxes collected from John D. Rockefeller Sr. and Jr. has been virtually nil. And despite the continual references in the public prints to how taxes are breaking up big fortunes, the Rockefeller fortune, like the Du Pont, Mellon and many others assembled in the nineteenth century, is still intact, fully fleshed and going strong.
As Fortune was very much in error on the JDR, Jr. , holding, there is no reason to suppose it was any more accurate in placing each of the six children in the broad $100- $200 million bracket. The surer procedure, it seems to me, is to ascertain as I have done before what the TNEC, under power of subpoena, found to be the pattern and percentage of total family holdings by individuals, trust funds, family holding companies and foundations, and to assume at least tentatively that this pattern and percentage still persist. When anyone argues (as some are bound to) that holdings in a company may have been altered, it should be pointed that such alteration would not seriously call this method into question. Whatever was sold in one place would be invested somewhere else--probably to better effect, as these large holdings are all under skillful professional supervision and tend to take maximum advantage of circumstances and to minimize disadvantages. New investments outperform old, as in the case of W. Averell Harriman's investment in Polaroid. As for the modest sums paid out in gift taxes it is standard trust doctrine that these can be recovered gradually out of the income of the trust. On top of all this, the big fortunes have an unending stream of dividends, the spending of which would wear anyone out and has indeed worn out some flamboyant spenders. Much of these dividends (after taxes) are reinvested, thus tending to increase the fortune.
The Rockefellers, like the Du Ponts and Mellons, could be relatively poorer today than they were at the end of 1937 (the date of the TNEC data for this phase of the inquiry) only if they had (1) sold substantial interests and hoarded the proceeds in
uninvested cash or placed them in fixed-interest securities; (2) if they had burned or flung away the cash proceeds of investment sales; (3) if they had sold good investments and made bad investments; or (4) if they had given huge properties into the absolute ownership of others. As there is no evidence available that they did any of these things, we may dismiss the idea that their total vested interest is smaller, either absolutely or relatively, than it was at the end of 1937. It must, in fact, be larger owing to the steady receipt of big revenues and the normal use of skilled professional advisers. The TNEC percentages, carried up to the present, must be, if anything, understatements in the case of the Rockefellers as in the cases of the Du Ponts and Mellons.
It should be stressed that the TNEC study did not embrace all the holdings of these groups. It did not include holdings in strictly financial enterprises, such as banks and insurance companies, any real estate or any stockholdings that aggregated less than the twenty largest in any single company. As to the Rockefellers, there was not included their dominant interest in the Chase National Bank, one of the international "Big Three" among commercial banks, colossal Rockefeller Center in New York City and a variety of extensive real estate and landholdings. Indeed, a substantial fortune for each of these big families was deliberately left out of consideration in the TNEC study. If a man were to own whatever the Rockefellers, Du Ponts or Mellons held that was not even counted in the TNEC study, he would be considered one of the nation's nabobs.
The following table applies the percentage of ownership of the Rockefeller interests, including foundations, as they appeared among the twenty largest stockholders as ascertained by the TNEC, and shows the value of these same percentages and at closing 1964 prices. 4
1964 Prices
Stockholdings
(percentage)
Prices
$7,000,000
Atlantic Refining Co. (S. O. ) 1. 16
$6,821,025
Bethlehem Steel Corp. . 41
$10,379,268
Consolidated Edison (N. Y. ) . 28
$10,170,255
Consolidated Oil Corp. (S. O. ) 5. 71
$49,058,436
Continental Oil Co. (S. O. ) . 84
$14,055,174
Illinois Central R. R.
(now Illinois Central Ind. ) . 32
$536,364
Int'l Harvester Co. 2. 31
$24,604,360
Middle West Corporation
(now constituent companies) 2. 11
$8,272,495
Missouri-Kansas-Texas R. R. 1. 14
$115,679
Norfolk and Western Ry. . 32
$782,073
Ohio Oil Co.
(now Marathon Oil Co. [S. O]) 19. 52
$190,165,807
Pere Marquette Ry.
(exchanged for Chesapeake &
$16,000,000
Largest 1937
Ohio R. R. stock) 1. 45
$23,927
Phelps Dodge Corp. . 74
$5,381,811
Radio Corporation . 22
$4,362,775
Santa Fe Railway . 38
$1,576,563
Socony Vacuum Oil Co.
(now Socony Mobil Oil Co. [S. O] 16. 34
$771,303,099
Standard Oil Co. of Calif. 12. 32
$664,330,693
Standard Oil Co. (Indiana) 11. 36
$334,335,677
Standard Oil Co. (New Jersey)
$2,628,070,253
U. S. Steel Corp.
$3,361,473
Western Pacific R. R.
$3,916,487
____________
$4,741,515,014
$76,000,000
$47,250,000
$58,000,000
13. 51* $163,000,000
. 12
4. 79
* The Rockefellers actually had voting power over 20. 20 per cent
of the vast New Jersey Company, in assets the largest industrial
enterprise
of the world, enough to assure control, by reason of New Jersey stock
owned
by the minority-controlled Standard Oil Company (Indiana).
Considering only the largest holdings, it will be seen how magnificently these properties have risen from depression-level valuations--from seven to nearly seventeen times in less than thirty years (the latter in the case of the giant Standard Oil Company of New Jersey). How many persons in the same period have seen their salaries or propertied status improve by as much? If a school teacher, starting out at a salary of $3,000 a year in 1937, had experienced the same ratio of gain in remuneration he would now be paid in the range of $21,000-$51,000. Actually, the school teacher now receives in the range of $6,000-10,000, if that, and is facing early retirement at half pay. There never comes a time when property, large or small, is put on half pay because of age.
In the case of the Rockefellers, as of the Mellons, it has been publicly announced that they have sold some of these holdings: JDR, Jr. , in Socony Mobil Oil and the Mellons in Gulf Oil. What the proceeds were used for--new investments or trust funds for others--is not indicated. At any rate, the foregoing table should not be taken as a recent breakdown of major Rockefeller investments, which in some cases may be larger or smaller, in others may include different properties. But, I argue, whatever the present holdings are, their relative value is almost certainly not smaller than the total for the tabulation and is, for a variety of sound reasons, very probably larger.
What the TNEC study singled out as the personal largest industrial holdings of the Rockefeller family, individuals and trust funds, is shown in the following table computed at closing 1964 prices:
Closing
Largest 1964
__ Total
Value
Stockholdings
(percentage)
Atlantic Refining Co. 1. 16
$6,812,085
Bethlehem Steel Corp. . 41
$10,379,268
Consolidated Oil Corp. 5. 71
$49,058,436
Ohio Oil Co. 9. 83
$190,165,807
Socony Vacuum Oil Co. 16. 34
$771,303. 099
Standard Oil Co. of Calif. 11. 86
$639,326,406
Standard Oil Co. (Indiana) 7. 83
$236,721,770
Standard Oil Co, (New Jersey) 8. 69*
$1,691,696,720
____
$3,595,463,591
__________
Personal
Market
*By reason of the Standard Oil (Indiana) interest in the New
Jersey company,
the personal Rockefeller voting power in the latter company was 15. 38
per cent,
enough to give practical control or "dominance," in the language of
the TNEC study.
If we subtract from this $100 million for the widow (assuming her holdings had appreciated to, this level since 1960) there is left for each of the six third-generation Rockefeller children personally $570,077,232 (including whatever is laid up in trust for the grandchildren, which has lightened the financial burden of the parents). In view of the many ancillary Rockefeller holdings that are not here considered, this figure is far nearer what one should have for each more recently rather than the Fortune figure of $100-$200 million. Market values rose between 1957 and 1964, it is true, but broadly allowing for the rise and excluding grandchildren's trusts, it would seem that each of six Rockefellers must be worth at least in the range of $425-$475 million, including trust funds, and possibly more than $570 million. The apportionment ratio of trusts as between children and grandchildren is not publicly known but, as the grandchildren take from the parents, it is probable that direct trust provision for the grandchildren was made, if at all, on a much smaller scale than for their parents. To venture further into the labyrinth of family trusts without possessing the accountants' figures could only be unwarrantably speculative.
As the foundations make public reports of their holdings, there would be a way of partially checking the correctness of these computations if the same foundations were now in existence as figured in the TNEC study. Unfortunately, the structure and number of Rockefeller foundations have greatly changed since 1937 and only the sketchiest sort of check is possible. just as the Rockefellers have probably shuffled their personal investments, so have they publicly shuffled their foundations consonant with the introduction of a third generation into the management of affairs.
The foundation holdings, reckoning by the TNEC percentages, should have stood at $1,146,051,423 at the end of 1964. At the end of 1962 (the only figures yet available)
Total
the actual foundation holdings, when market values were somewhat lower than at the end of 1964, were $823,485,972, according to the Foundation Directory, 1964. My computations, it is clear, produce a figure that is $322,565,451 higher than seems to be the case.
Before we consider this not inconsiderable discrepancy and what may account for it, the recent foundation holdings should be examined. The Foundation Directory shows them and their stated assets to have been as follows:
Date Founded
General Education Board 1902
Rockefeller Foundation 1913
Sealantic Fund
(Community fund for Seal Harbor,
Me. , and Pocantico Hills, N. Y. ,
where Rockefellers reside) 1938
Jackson Preserve, Inc. 1940
Rockefeller Brothers Fund 1940
American Int'l Ass'n for
Economic and Social Development
(part Rockefeller) 1946
Council on Economic and Cultural
Development 1953
Chase National Bank Foundation
(part Rockefeller) 1958
Total $823,485,972
At the time of the TNEC study there were only the Rockefeller Foundation, the General Education Board and the Spelman Fund of New York in the field. The latter has gone out of business and six others have been added since 1938.
Applying the TNEC pattern, which found that 30 per cent of Rockefeller holdings were in foundations and 30 per cent in personal trusts, with 40 per cent individually held, and using the 1962 foundation holdings as the base of computation, one would have the following as the figure of dominated and owned holdings in 1962:
Foundations--30 per cent
Individual trust funds--30 per cent
Individual holdings--40 per cent
$823,485,972
$823,485,972
$1,077,981,296
______________
Total $2,724,953,240
Using recent foundation holdings as the base to which the TNEC percentage is applied appears to me to result in a downward distortion, first because the individual holdings were concentrated in the upward-spiraling oil industry while much of the foundation investment is in fixed-interest securities, and secondly because the foundation pattern has been altered. My conclusion is that proportional to individual holdings and trust funds the foundation holdings are now either less than 30 per cent of the whole or that their assets by 1964 had moved up in value closer to the projected figure of $1,146,051,423 obtained by my computation.
As the foundation reports are issued at a more leisurely pace than company reports and are not available for 1964 at this writing, direct comparison cannot be made. But critical readers can make the comparison at any time, when the reports become available, provided they always apply market values rather than book values of holdings.
Assets at
End of 1962
$342,834
$632,282,137
$11,639,033
$21,939,398 (1961)
$152,386,637
$752,585 (1961)
$3,360,950
$782,398
____________
If one wishes to examine still another possibility, one can put together the figure of $3,595,463,591 for the 1964 value of the personal holdings obtained by my computation with the 1962 figure of $823,485,972 for foundation holdings. This gives a total of $4,418,949,563 for the combined holdings. I still believe, however, that my original figure of $4,741,515,014 is an understatement of the combined family holding, because the TNEC did not survey all the family properties (only the largest) and notwithstanding the fact that Rockefeller, Jr. , had to pay gift taxes in the establishment of his chain of trust funds for children and grandchildren.
When one throws the Chase Bank, Rockefeller Center and various real estate properties into the pot and considers that Laurance Rockefeller has blossomed in his own right as a venture capitalist in luxury hotels and advanced-technology enterprises, the combined Rockefeller financial "punch" should be above $5 billion. Although apparently outpaced by the Du Ponts in the super-wealth sweepstakes, the Rockefellers seem to me to be running at least neck and neck with the Mellons.
The TNEC study, it must again be stressed, did not pretend to produce the totals of wealth held, for it confined itself only to the twenty largest stockholdings in the 200 largest nonfinancial companies and ignored ownership of banks, insurance companies, bonds, real estate and smaller stockholdings. Relying on the TNEC method alone there might have been missed even larger concentration of wealth, for example if the twenty- first largest stockholder in all 200 companies had been the same person or family; but on other evidential grounds it is known that such a logical possibility did not hold in fact.
The Fords of Dearborn
Mrs. Edsel Ford and her three sons--Henry II, Benson and William-were assigned a combined minimal wealth of $325 million and a maximum of $500 million by Fortune in 1957. Her daughter Josephine (Mrs. Walter Buhl Ford II) was not noticed by Fortune.
It is always fairly easy to compute the collective personal wealth of the Fords because they own 10 per cent of the outstanding stock (but 40 per cent of the voting power) of the Ford Motor Company (always assuming there have been no secret sales or purchases and that there are no side interests). On the face of it (although not really) 10 per cent of the entire stock issue of the company appears to be the sole personal financial strength of the family.
What slightly impedes any computation of Ford wealth is the rather complicated capital structure of the company as created under the wills of Henry and his son Edsel.
At the end of 1964 this capital structure, after split-ups in each class, stood as follows:
Common stock (owned by investors)
Class A stock (owned by the Ford Foundation)
Class B stock (owned by the Ford family)
Shares
52,338,152
46,283,756
12,267,794
___________
Total 110,889,702
The Class A stock is nonvoting until it is either sold by the foundation or given by it to some approved nonprofit organization, when it acquires one vote per share; but never at any time can all the common stock cast more than 60 per cent of the vote at a stockholders' meeting. For, as noted, 40 per cent of voting power is concentrated by charter in all the Class B stock, giving the Ford family very nearly absolute control of the company at all times. All classes of stock participate equally, share for share, in dividends. Control is what counts.
At the closing 1964 quotation of 54-1/2 per share this capitalization had a gross market value of $6,043,488,759. This left the Fords 10-plus per cent apparently valued at $604,348,876. But, considering the factor of control, the Ford family stock has as much voting power as two-thirds of the common, which was valued in the market at $1,901,619,450. Anyone who owns two-thirds of the common stock would have as much voting power as the Fords but would get more dividends--on 34,892,100 shares as against 12,267,794 shares--and to that extent would have more value in hand. But the Class B stock, owing to the heavy weight of voting privileges embodied in it, is worth more, share for share, than the market value of the common stock (although nobody would seek to get that value unless he sought control of the company). If, however, a buyer of control were to show himself, the Ford-held stock at closing 1964 prices would have, in relation to the common, the value of close to $2 billion I have assigned it by this computation. While the Ford stock gets dividends of only about a third of the equivalent amount of voting-power common, this isn't too much of a hardship as the Fords are in an income-tax bracket that hits such soaring dividends hard. Besides, the men all drew high salaries as officers of the company. They have plenty of pocket money.
So, at a price of around 54 for the present outstanding stock of the company, I would rate the value of the family holding at a minimal 82 billion, although any syndicate interested in buying the company would probably have to pay more for it (assuming current or higher levels of profitability).
Compared, then, with the Du Ponts, Mellons and Rockefellers, the Fords are in comparatively modest circumstances although individually the members of the three latter families are on the average richer owing to the participation of a greater number of Du Ponts in the heady Du Pont mixture.
Since 1964, however, there has been a slight alteration in the foundation holdings, which does not affect my computation nor the conclusions drawn from it. In June, 1965, the foundation marketed more shares. Originally it received precisely 88 per cent of all stock in the form of Class A nonvoting shares. Adjusting for stock splits after the 1965 sale it had disposed of very nearly half or 46. 9 million present shares. The 45. 7 million shares it retained composed 35. 8 per cent of the entire capital stock of Ford Motor.
In terms of its own book values of the various securities it held, Ford Motor plus others, the foundation at the end of 1964 was worth $2. 4 billion.
The great care taken by the two elder Fords to see that control remained in the family is shown by the voting provisions for the stocks. If the outstanding Class B stock falls below 5. 4 million shares (which it can do only if it is called in by the family) the total voting power of the common rises to 70 per cent; and if the B stock outstanding falls below 3 million shares it votes equally with the common.
Until the family, then, quixotically decides to call in the B stock (thus cutting its own throat as far as control is concerned) it holds 40 per cent of voting power in the company, tantamount to absolute control. Should some syndicate attempt to buy control in the market the Fords need purchase only 16-2/3 per cent of outstanding common to give it 50 per cent voting power, whereas a syndicate would have to purchase 83-1/3 per cent of all common to reach the same dead-heat point. In such an unequal race the Fords would necessarily win.
But even if a syndicate turned up with all the common, giving it absolute control, the Fords have an ace in reserve. And this ace shows one of the many ways foundation control can be synchronized with industrial control, The Fords control the foundation. And the A stock held by the foundation acquires voting power as it is sold or given to a nonprofit institution. Faced with an opponent who owned all the common, giving him a
60 per cent vote and control, the Fords need merely activate the voting power of the foundation stock by selling it or giving it to friendly hands, thus diluting the voting power of the outstanding common. By converting all its remaining Class A stock into voting stock the foundation could dilute the voting power of the presently outstanding common to 30 per cent of the present capital structure. With the 30 per cent of the voting power in the newly converted common plus the 40 per cent of voting power in the Class B stock the Fords would actually have, as they now potentially have, 70 per cent of the voting power. The foundation, indeed, could sell somewhat more than half of its remaining Ford stock and leave the Fords able to muster 55 per cent of the voting power in any critical showdown.
The ins and outs of this situation may have puzzled some readers. The point to be made is only to show the great care taken to guard control, revealing what the wealthy intend. In acting as they do they are only being reasonable; for the humanly normal thing to do is to guard one's possessions. But we have many propagandists around, led by such errant professors as A. A. Berle, Jr. , who apparently are not afraid of being judged certifiably silly by contending that control as well as ownership of the large companies is being widely spread around, that the big fortunes are being broken up to right and left. The Berle thesis, refuted on every hand by the facts, is that as ownership is dispersed (which it is not in fact), free-lance company managements install themselves in the drivers' seats as something of a new corporate breed. These new managers--the "managerial revolution"--proceed in this fairy tale to elbow aside the Du Ponts, Mellons, Rockefellers, Fords, Pews, Gettys and various others--and thus introduce a new set of actors on the stage of history, a set of actors that conquer by sheer bureaucratic techniques.
Such being the case, reason many readers, we can all just sit back and watch the fun as bright young men rise to conjure the corporations away from the big owners. Like all fantasies, this one has quite a coterie of bemused devotees.
The surviving Fords would have been a great deal richer today than they are if Henry Ford, founder and original master mind of the automotive behemoth, who died in 1947 at eighty-three years of age, had been personally less grasping and if the deaths of central figures in the family had not occurred before the very rich could get a tractable Congress around to trimming the New Deal inheritance taxes. This trimming process was no doubt hastened by the example of the tax-speared disaster that engulfed the massive Ford fortune.
Ford's only son, Edsel, a far more likeable, intelligent and informed man than his flinty father but kept unhappily subordinate all his life, died prematurely at age forty- nine in 1943. The oldest grandson, Henry Ford II, at the age of twenty-five, inexperienced in business and up to 1940 a sociology major at Yale, was hastily spirited out of the wartime Navy where he was an ensign and installed as a director and executive vice president of the vast company, a miraculous corporate success story. His brothers Benson and William, twenty-five and eighteen years old at the time, trailed him into the company later, where they also showed their mettle by quickly rising to the top. Their mother, whom I have perhaps ill-advisedly listed as a rentier, played a strong and constructive role (from a family and property point of view) on the board of directors with Henry II. She backed him particularly, if she did not indeed take the lead, in getting rid of much accumulated deadwood in the cracker-barrel executive suite of Henry I.
Holding tightly ( and tax-expensively) to 58-1/2 per cent of the company's voting stock, Henry Ford at his death was publicly assigned a net worth of $500-$700 million. 45 The value at the time of the Ford Motor Company, since reorganized and vastly
improved internally by the grandsons, was in the vicinity of $1 billion. Ford's death came none too soon for the family fortunes, as the company under his old-style heavy- handed administration had for more than fifteen years been losing ground to free- swinging General Motors and stepped-up Chrysler and had long since tumbled from the top of the motor heap. Definitely on the skids, the company was thought in the automobile industry to be headed for the junkyard that had already engulfed scores of automobile companies.
But the deaths of Edsel and Henry, with the company slipping mainly because the views of Edsel were continually overruled by the feudal owner and his sycophantic cronies in the management, also came at an inopportune time with respect to the tax laws. For the marital deduction and the option of estate splitting had not yet been enacted. Both Edsel's and his father's holdings were faced by a flat 91 per cent inheritance tax, designed under the New Deal expressly to break down big fortunes topheavy with political power. Had the later law been in effect, the two Fords could have assigned half their holdings to their wives, tax free, and the wives could have worked their funds with the help of lawyers into much lower tax brackets. This splitting, it should be noticed, also often puts the testator into a lower tax bracket as well, although it could not have had that effect with the two Fords unless they had made free use of trust funds for the grandchildren. Henry Ford was apparently too tightfisted to do that, which would have cost him only bargain-counter gift taxes.
A partial way out of this tax disaster was engineered in The Ford Foundation for Human Advancement established by Edsel in 1936. (Henry Ford himself was hostile to public benefactions and spoke out freely against them.
