Fortune to its own satisfaction
identified
155 of them by name.
Lundberg - The-Rich-and-the-Super-Rich-by-Ferdinand-Lundberg
And this occasional process leads to further concentration.
The federal estate-tax statistics since 1916 show that an avalanche of wealth has been transferred over fifty years by testamentary bequest. Individuals inherited in nearly every case. Whatever the presence of rags-to-riches moneymakers in the past the acquisitors now are largely gone. The inheritors are in possession.
Extended Family Groups
Lampman's figures relate to individuals. They do not show that most of the people in the upper 1/2 of 1 per cent that now probably own at least 33 per cent (by value) of all assets are members of extended family groups. There are more than 1,600 Du Ponts, not all individually in the upper circle. There are sizable clusters of Rockefellers, Vanderbilts, Whitneys, Mellons, Woolworths, Fishers, Phippses, Hartfords and others. Through distaff marriages part of the big fortunes are concealed behind offbeat names, such as Cecil (Vanderbilt). The well-groomed heirs or their representatives often sit together amicably on the same boards of directors. Most belong to the same metropolitan clubs.
But the rather well-populated group that Lampman calls top wealth-holders also certainly contains many blanks as far as big wealth is concerned. It will be recalled he stressed that more than half of his top group had no more than $125,000 of assets--a paltry sum, even though in thousands of neighborhoods around the country a man with such wealth would be looked upon as a Croesus.
Owing to intermarriage among the wealthy, property holdings tend to concentrate in fewer and fewer hands. For the propertied, not without sound reason, often suspect the marital motivations of the nonpropertied. 42
These processes cannot help but concentrate wealth and make the scope of new estate builders less ample. There is less and less room at the top for new moneymakers. Although there are new successful enterprises, they are all comparatively small. Some are absorbed by the bigger enterprises on advantageous terms. None shows the slightest sign of becoming another Ford Motor Company. All the big bets seem to be down. Rien n'a va plus.
Apologists on the Defensive
But this panorama of contemporary private wealth and power throws some doubt on the doctrines of earlier apologists for the big fortunes. It was once widely preached from pulpits as well as editorial pages that great wealth was either the reward for social service (such as graciously building a vast industry to cater to an undeserving public) or it represented the inevitable, natural and wholly acceptable outcome of an evolutionary struggle in which the fittest survived and the unfit landed in the gutter. On the basis of this doctrine the present top wealth-holders are the offspring of public benefactors and the fittest of a past generation. Fortunately, they are not themselves facing the same tests of fitness.
It was also once often said that, if all money were equally divided among all the people, in less than a generation it would be back in the same hands. While this may have been true when the original fortune-builders were alive, it is hardly true any longer, when the heirs would have to contend with gentry like Mr. James J. Hoffa and Mr. Frank Costello. In a struggle waged outside the Marquis of Queensberry rules (which is where the fortune-builders operated) most of the present wealth-holders, many of them personally attractive, would hardly be voted most likely to succeed. Could they make much headway against Jake Guzik and Tony Accardo? Al Capone and Machine- Gun Jack McGurn?
Down through the years all the estates have been subject to taxation--federal and sometimes state--but to much less than is commonly supposed, as we shall see. There is no process of estate destruction taking place in the United States through taxation, as is commonly suggested by propagandists of the Establishment. And few estates, unless there are no heirs, pass to institutions. But many estates pass indirectly as well as directly to heirs through various arrangements such as delayed-action trust funds, endowments and foundations. The indirectly conveyed portions are operated by the heirs for their own beneficial interest.
The Fortress of Interlaced Wealth
What has developed, then, under the operation of inheritance laws handed down from days when property ownership was far more modest to a day when vast properties have been created mainly by technology, is a huge, solid fortress of interlaced wealth against which even clever new wealthseekers, try as they will, cannot make a tiny dent. About the only way one can get in (and that way isn't always rewarding) is by marriage. If a potential new Henry Ford produces an invention and sets out with friends to market it he generally finds (as did Professor Edwin H. Armstrong, inventor of wide-swing radio frequency modulation, the regenerative circuit for vacuum tubes, ultra short-wave super-regeneration and the superheterodyne circuit) that it is boldly infringed by
established companies. After he spends the better part of a lifetime in court straining to protect his rights he may win (usually he does not); but if he wins he collects only a percentage royalty. What the infringers can show they have earned through their promotional efforts they may keep, with the blessings of the courts, who are sticklers for equity: All effort must be rewarded. And then the overwrought inventor, as Professor Armstrong did in 1954, can commit suicide.
Henry Ford came up when there were only small competing companies in the field. When established companies are in the field, inventors must sell out, or suffer a fate similar to Professor Armstrong's.
The Role of the People
The inheritance laws have played a major role in the development of great fortunes. But they haven't been the only factor. A small group, unless possessed of direct dictatorial power, could not unaided have served itself so generously, even if masters of stealth. Writing about the wealthy in America's Sixty Families, page 5, I remarked: "The situation, for which the people themselves are in a great measure to blame. . . . " The public itself has facilitated and continues to facilitate the building of vast hereditary private power within the American elective system of government. This public is in many ways a self-made victim, as sociologists now regard many victims of crimes.
The contrast I have posed between concentrated wealth and widely distributed poverty may seem to suggest that I am arguing for the equalization of wealth. But though there is obviously considerable room for some equalization I shall not argue for it because there are millions of people who could not hold on to $10 for five minutes or $10,000 for five months.
If wealth were equalized, what would we have? As Lampman showed, if all asset- wealth as of 1953 were equally apportioned, there would be about $10,000 for each adult. Let us suppose that a share in this amount were held for each adult in a national trust supervised by the United States treasury. The income from each share at 5 per cent would be $500 per annum. If one adds this to the present amount of each person's earned income it would not amount to much, however welcome it would be for some in the lowest brackets.
If inequality of income is not the main question, what is?
Policy-Making Power of Wealth
First, the present concentration of wealth confers self-arrogated and defaulted political policy-making power at home and abroad in a grossly disproportionate degree on a small and not especially qualified mainly hereditary group; secondly, this group allocates vast economic resources in narrow, self-serving directions, both at home and abroad, rather than in socially and humanly needed public directions.
When, through its agents, it cannot enlist the government in support of its various plans at home and abroad it can, and does, frustrate the government in various proceedings that have full public endorsement. It involves the nation in cycles of ferocious wars that are to the interest of asset preservation and asset expansion but are contrary to the interest of the nation and the world. It can and does establish connections all over the world that covertly involve American power in all sorts of ways unknown until some last-minute denouement even to Congress and the president.
It doesn't do any of this maliciously, to be sure, any more than an elephant feels malice when it rubs against a sapling and breaks it in two. An elephant must behave like an elephant, beyond any moral stricture. And power of any kind must exert itself. Historically it has invariably exerted itself in its own self-visualized interests.
So, concentrated asset-wealth not only brings in large personal incomes, but confers on the owners and their deputies a disproportionately large voice in economic, political and cultural affairs. Thus the owners may make or frustrate public policy, at home and abroad.
Low Incomes of Vital Personnel
Managers of concentrated asset-wealth determine, among other things, how much is to be paid for various services--who is to be paid a great deal and who is to be paid very little. Some people, for the convenience purely of asset-wealth, are rewarded munificently for services of comparatively slight social importance--for example, certain leading company executives. Other persons are paid poorly for what are universally insisted to be superlatively valuable services--for example, scientists, engineers, artists and teachers. The pay of scientists in the United States in the 1960's, according to the National Science Foundation, is in the range $6,000-$15,000 per annum,43 far less than that of an astute salesman of encyclopedias or vacuum cleaners. Referring to "starvation wages," Paul Woodring, educational consultant to the Fund for the Advancement of Education of the Ford Foundation, said: "There are dozens of liberal arts colleges which pay average salaries as low as $3,000 per year and minimum salaries much lower still. " 44 If it is said that such compensation has more recently been increased (which isn't generally true), one may still ask: Is it anywhere near the astronomical level of executive salaries?
Of salaries of scientists and teachers, a company director would say: "What have we to do with those? They aren't in our jurisdiction. The executive salaries, I admit, are. "
My response to this is: When the leading cadres of wealth want to be the government, as we shall see, they are the government. When they don't want to be, when there is some delicate problem to be solved, they say, "Go to Washington about that. It's out of our jurisdiction. " But even in Washington they have many friends who believe that teachers and scientists should not be spoiled by being paid ample wages.
Marxism and the Workers
Marxists hold that it is the workers-factory workers--who are 'being deprived to insure profits for the rich. And this may be so to some extent in some times and places, and at one time it was so universally in the United States. But the workers would not likely be paid more and would probably be paid less than they are now in thoroughly unionized industries: under such so-called Marxist regimes as we have yet seen.
In some instances, owing to organization and the balance of external forces, some categories of unionized workers in the United States today are probably disproportionately rewarded, are paid more than many trained scientists. Their leaders have simply seized opportunities to exert leverage in the power structure, threatening to disrupt production.
Lest I leave a misleading impression of American workers, it must be said that the position of the unorganized and unskilled is very bleak, in the depths of poverty. So- called white collar workers are also poorly paid. Since World War II the custom has
spread among low-paid skilled people, particularly teachers, of working at two jobs, a practice known as "moonlighting. " Police and firemen, too, participate in the practice, and so do even skilled factory operatives who wish to keep above the poverty level. At a time when many sociologists discourse fervidly about a coming thirty-hour week and assert increasing leisure to be a basic human problem, many moonlighters work sixty and seventy hours a week, hardly a step forward from the nineteenth century twelve- hour day. The moonlighters drive taxis, tend bar, act as property guards, work in stores, etc.
But if the workers in general are indeed deprived for the sake of profits they wouldn't be benefited much directly by an egalitarian distribution of assets, nor would anyone else. For it isn't the factor of ownership of assets in itself that is crucial. It is the factor of general control that concentrated ownership confers that needs to be understood. Owing to the strength given them by their concentrated and combined assets, the big owners and their paid managers have a major if not always decisive voice in running the economic system, in backing the political parties and their candidates and in influencing if not determining national policies from the highest to the lowest. The ownership titles, reinforced many times over from the vantage point of banks and insurance companies, are what constitute the ticket of admission. The amount of ownership at the top of the pyramid necessary to insure such control for any group may be only 5 per cent. Scattered smaller owners, if there are any, cannot gather enough stock to overcome the leading blocks and would not know what to do if they could.
The Radiation of Control
This control at one or a few points radiates through all of industry, with a few central groups participating in a cooperative manner. The industrial control (to be shown later) gives command over vast resources, some of which are used to influence political parties and candidates, newspapers and other publications. A tacit, uncriticized scheme of values is put into action and is absorbed by many people far from the scene. The point to be raised is this: Is this scheme of values always conducive to the security and well-being of the Republic? Whether it is or not, it is often decisive at crucial historical turning points. And it isn't subject to review in any public forum.
I don't assert that every single individual--man, woman and child--in the circle of great wealth has an active role in this process of control. Many are far from the centers of power, leading la dolce vita, and hardly know what goes on. Some are utterly incapable, confined in sanatoria, the wards of family trustees. Still others, present in full command of able faculties, disapprove of the general trend but are unable to prevail against what is basically a group momentum.
Many people own some stock. Each share is entitled to a vote. An owner may refuse to vote, in which case decisions are made despite him. Usually he sends in his proxy to be voted for the management, which is the way the Russians vote: for a single ticket. However, he may decide that he wants to vote against the management, in which case he must at great cost and effort round up many other stockholders. This task in any company is about as great as putting an opposition slate in the field in a Russian "election. " Occasionally it succeeds, although not when initiated by small stockholders. One must have some large blocks of stock to begin with if one hopes to check or unseat any established management-blocks of 5, 10 or 15 per cent of all outstanding stock. If one has that, one appeals for other large blocks to join, or buys additional large blocks in the market (for vast sums, which one must be presumed to have). For it is ownership blocks that determine who the managers shall be.
If one miraculously wins the election, one has the task of installing new managers, men more to one's liking. But the one who can do this is himself one of the top dogs. He is not a small stockholder.
Such control is exercised not in one company or in a few companies (contrary to what is often supposed) but through a long series of interlocking companies. It is what constitutes power in the American system. It may not be power as great at a single moment as that possessed by some elected officials, such as the president, but it is a more continuous power. An elected public official, even a president, must from time to time undergo the hazards of a formal election at regular intervals. And even a president is limited to a maximum term of eight years, whereas the head of a big corporation or bank can remain in office for forty or fifty years and can see many presidents of the United States come and go.
Deficit in Public Services
The converse of the great concentration of personal wealth is the great deficit in needed public social services. On the corporation front, the country is obviously extremely lusty. But in education and medicine, to cite merely two areas, everything suddenly becomes extremely meager, scrounging and hand-to-mouth. This disparity is curious in a wealthy country and forcefully reminds one of Benjamin Disraeli's allusion to two nations, the rich and the poor. But the deficits in these areas, the dialecticians will be quick to point out, are gradually being met now by government out of taxes. As we shall see later, however, the contribution of the top wealth-holders to taxes is disproportionately low. The wealthy, like everyone else, dislike to pay taxes and, unlike most other people, they know how to minimize them through the exercise of political influence. This is one of the nice differences between being wealthy and being poor.
The Constitution of the United States bars the bestowal of titles of nobility. But in many ways it would clear up much that is now obscure if titles were allowed. Not only would they show, automatically, to whom deference was due as a right but they would publicly distinguish those who held continuing hereditary power from people who are merely temporarily voted in or appointed for limited terms. The chroniclers of High Society-that is, the circles of wealth--recognize this need and, in order to show hereditary status and family position, they allude to males in the line of descent by number, as in the case of royal dynasties. Thus in the English branch of the Astor family there is a John Jacob Astor VII. 45 But there are also George F. Baker III, August Belmont IV, William Bird III, Joseph H. Choate III, Ire? ne? e and Pierre du Pont III, Marshall Field V, Potter Palmer III, John D. Rockefeller IV, Cornelius Vanderbilt V and so on. 46
It is names such as these that would properly be found in an American Almanach de Gotha.
Two
ROOM AT THE TOP: THE NEW RICH
Were it not for the miscellaneous batch of hard-bitten, shirt-sleeved Texas oil-lease speculators and wildcatters that since World War I has risen on a tide of special tax privileges like science-fiction dinosaurs, it could well be said that the day of accumulating gargantuan new personal fortunes in the United States is just about ended; this leaves the tubbed, scrubbed, and public-relations-anointed inheritors of the nineteenth-century money scramble holding most of the chips. As it is, fortune-building continues--albeit at a greatly subdued pace outside the lushly flowing oil industry. For just about everything else of marketable value is tightly vaulted down, much of it resting comfortably in trust. But even in the oil industry, magnitudes are exaggerated, Texas-style, by writers who desire to bedazzle readers with a modern if oil-soaked Arabian Nights tale.
New personal wealth is dealt with in this chapter-that is, great individual wealth that has shown itself since World War I and, more particularly, since World War II. For the most part it is wealth not known to Gustavus Myers, historian of the first waves of American fortunes and, partly because of the give-away oil depletion allowance, it postdates America's Sixty Families (1937). Classification of these new fortunes with respect to wealth and super-wealth and their comparison with the old fortunes are deferred until Chapter IV.
Actually, before larger sums are bandied about in these pages, let it be noted that a person worth only $10 million (insignificant though $10 million is compared with many modern fortunes) is very, very wealthy indeed. If a prudent, hardworking, God-fearing, home-loving 100 per cent American saved $100,000 a year after taxes and expenses it would take him a full century to accumulate such a sum. A self-incorporated film star who earned 81 million a year and paid a 10 per cent agent's fee, 10 per cent in business expenses, a rounded 50 per cent corporation tax on the net and then withdrew $100,000 for his own use (on which he also paid about 50 per cent tax) would need to be a box- office rage for thirty-four unbroken years before he could save $10 million. Yet some men do acquire such sums--and much more. But never by offering mere talent, whatever it is, in a free market. Even the most talented bank robbers or kidnappers have never approached such an accumulation before being laid low by the eager gendarmerie.
The incandescent Marilyn Monroe, as big as they come in filmdom and a veritable box office Golconda, died broke-an old story with the mothlike entertainers and professional athletes. She bequeathed 81 million to friends but, despite posthumous earnings of $800,000 accruing to her estate, nothing was left after taxes and creditors' claims. Clearly she was in need of a tax lawyer. There was even nothing left to establish a trust fund to generate a paltry $5,000 a year for her invalid mother. Yet Miss Monroe, obviously a true-blue American, reportedly drew $200 million to the box office from 1950 to 1963. 1 More recent reports indicate that something was salvaged for her mother.
Hard to get, $10 million shows its power in another way. If invested in tax-exempt securities it can generate about $250,000 a year. Now if the owner exercises initial frugality and invests this income similarly each year, it will produce $6,250 the first year and (disregarding compound interest all along) $12,500 the second year, $18, 750 the third year, $25,000 the fourth year and so on, In the tenth year the income of the accumulated income of the original $10 million Will be $62,500 on a new capital sum of $2. 5 million, which automatically doubles itself every ten years. The owner might
even do a bit better by investing in taxable securities and paying taxes, particularly on the second accumulation, but I have focused on tax-exempt securities in order to keep to the simplest terms. Yet the ordinary man on his 4 or 5 per cent in the savings bank must pay full taxes. This sort of accumulating on the income of the income, thus generating new capital sums, has long been the investment style of old Boston and Philadelphia families. Careful to a fault, they own only small yachts, drive only old (but well- maintained) cars and are accustomed to wear old but expensive clothes of the first class so that they look quaintly dowdy. And they intermarry with old families, unfailingly. They are people who would rather study the fine engraving on a stock certificate than the brush strokes of an old master. They are, in short, respectably, unobtrusively rich.
How the sizes of new fortunes were obtained will appear in the text. The Most conservative available figures are used throughout and are critically evaluated. For precise figures it would be necessary to get certified copies of net worth, which (not being voluntarily proffered ) could be obtained only in the unlikely event of a congressional subpoena with the acquiescence of the Supreme Court. The sacred right to privacy is used to screen the dimensions of great wealth, although privacy becomes expendable when young men are summoned into the armed forces for "police" duty at coolie pay and are unceremoniously ordered to strip naked for minute scrutiny and examination. And if subpoenaed the figures might not be even momentarily accurate because, owing to the undeveloped state of a part of many large holdings, the owners themselves honestly don't know how much, at going market prices, they are worth. Seeking such accuracy in the figures amounts to committing the fallacy of misplaced precision. 2
The Fortune Study
Fortune, stepping into the data vacuum decreed by a delicately sensitive Congress, has given us the latest pre? cis on the largest individual contemporary fortunes. 3 Beginning our exposition with it and selecting only the relative newcomers, we find that with few exceptions the newer fortunes rose on the basis of oil and its generous depletion allowances, and upper executive position in General Motors Corporation.
Fortune assumed, reasonably enough, that an income of $1 million or more per year (some incomes range much higher--up to perhaps $25 to $50 million) might suggest asset-holdings of at least $50 million. But some large incomes are nonrepetitive, derive from unloading assets (which might have been procured very cheaply) at a large profit; they are not the same as continuing incomes from investments. The incomes swollen by relieving oneself of assets at higher prices (capital gains) are reflected in boom times in the sharp rise in million-dollar incomes-- from 49 in 1940 to 398 in 1961. But no steady million-dollar incomes at all blossom from the sale of services or talent; not even the most extravagantly rewarded executives or film stars pick up that much in straight across-the-board pay.
The point of departure for Fortune was a Treasury official's estimate that in 1957 there were between 150 and 500 $50-million-plus asset-holders; there were actually 223 incomes of $1 million-plus, according to the Treasury's subsequently published Statistics of Income: 1957 (p. 20).
Fortune to its own satisfaction identified 155 of them by name. Of this group it published the names of half, the ones thought to possess assets of $75 million upward, and gave estimates of their net worth in broad ranges. Fortune also named a few other steady big-income beneficiaries at random in its text, outside its list, giving no reason for this deviation. The list, confined to then living people, did not name all the big post-1918 fortunes, although here and there some persons who had
recently died were mentioned. Some such fortunes omitted from the Fortune list will be mentioned further along.
Before scanning the Fortune list and then noting qualifications of it, the reader will be better prepared if he ponders over the tables in Appendix A that provide a broad statistical background since 1940 on the larger incomes and lay the ground for some incisive observations. In the upper brackets at least, these income recipients abstractly impaled like skeletal insects in the tables are unquestionably included among Lampman's 1. 6 per cent of adults that compose American wealth-holders. No doubt the Fortune list in its entirety, with some additions to be supplied, represents a part of the moneyed elite of the Lampman higher strata. But in the group of Appendix A incomes below $100,000 or so, many are only those of potential wealth-holders--for the simple reason that they are from salaries.
Property and Politics
Nonetheless the varying totals shown in Appendix A of incomes in excess of $25,000--numbering 49,806 in 1940 and 626,997 in 1961--certainly represent the cream of the take in the American svstem. This is not a large group and, in relation to a population of nearly 260 million, of which more than half are adults, it is not any different in relative size from the small group of tight-fisted landowners found in Latin American countries or from the Communist Party of Soviet Russia.
In order to participate in politics in the Soviet Union one must be a member of the Communist Party. This is a formal condition. Similarly, in order to participate meanirtgfully in politics in the United States one must be a property owner. This is not a formal requirement; formally anyone may participate. But, informally, participation beyond voting for alternate preselected candidates is so difficult for the nonpropertied as to be, in effect, impossible. The nonpropertied person in the United States who wishes to attain and hold a position of leverage in politics must quickly become a property owner. And this is one reason why unendowed budding American politicians, not being property owners, must find or create opportunities (legal or illegal) for themselves to acquire property. Without it they are naked to the first wind of partisan adversity and gratuitous public spitefulness.
Politically the nonpropertied carry little efficient influence in the United States--that is, they have at best only marginal individual leverage--which is not the same as saying that all property owners participate in politics. But, when all the chips are down, these latter rule or significantly modify the situation in committee rooms and cloakrooms, directly or through amply rewarded intermediaries, In the United States the ownership of property, often evidenced by possession of a credit card, gives the same personal amplitude that possession of a party, card confers in Soviet Russia.
Although different, the political systems of Soviet Russia and the United States are not basically so different as widely supposed. The United States can be looked upon as having, in effect, a single party: the Property Party. This party can be looked upon as having two subdivisions: the Republican Party, hostile to accommodating adjustments (hence dubbed "Conservative"), and the Democratic Party, of recent decades favoring such adjustments (hence dubbed "Liberal"). The big reason third parties have come to naught--a puzzle to some political scientists--is simiply that no substantial group of property owners has seen fit to underwrite one. There is no Anti-Property Party.
BIG NEW WEALTH-HOLDERS
Stated Net Financial Age
Worth Activity in
Name
Schooling
1. J. Paul Getty
Oxford (A. B. )
(Los Angeles)
2. H. L. Hunt
grade
(Dallas)
(millions)
$700-$1,000
$400-$700
1957
Integrated oil 65
companies
3. Arthur Vining Davis ditto
Amherst (A. B. )
(deceased 1962)
4. Joseph P. Kennedy $200-$400
Harvard (A. B. )
Alcoa executive 90
Market operator 69
Ship operator 60
(Boston)
5. Daniel K. Ludwig
Public school
(New York)
6. Sid Richardson*
college
(deceased 1959)
ditto
ditto
Oil operator
60+ Some
7. Alfred P. Sloan, Jr. ditto
M. I. T.
(New York)
8. James Abercrombie* $100-$200
(Houston)
General Motors executive 82
9. Stephen Bechtel
college
(San Francisco)
10. William Blakley*
(Dallas)
11. Jacob Blaustein
college
(Baltimore)
12. Clarence Dillon
Harvard (A. B. )
(New York)
13. William Keck*
(Los Angeles)
14. Charles Kettering
State
(deceased 1959)
ditto
ditto ditto
ditto
ditto ditto
Oil operator
Public construction
57 Some
15. William L. McKnight ditto
Public school
(St. Paul)
Railway Express and airlines
Integrated oil companies 65 Some
Investment banker 75
Oil operator
General Motors executive 81 Ohio
Minnesota Mining and 70
Manufacturing Co.
Oil operator
67 Fifth
16. John Mecom ditto
college
(Houston)
17. C. W. Murchison ditto
college
(Dallas)
18. John L. Pratt* ditto
(Fredericksburg)
19. R. E. Smith* ditto
(Houston)
20. Michael Benedum $75-$100
Public school
(deceased 1961)
21. Donaldson Brown ditto
Virginia
(Baltimore)
Polytechnic
tute
22. George R. Brown ditto
college
(Houston)
23. Herman Brown ditto
college
(deceased 1962)
24. James A. Chapman* ditto
(Tulsa)
25. Leo Corrigan ditto
Public school
(Dallas)
26. Erle F. Halliburton*
(Duncan, Oklahoma)
27. Henry J. Kaiser ditto
Public school
(Oakland)
28. John W. Kicckhefer ditto
(Milwaukee)
29. John E. Mabee* ditto
(Tulsa)
30. John D. MacArthur ditto
Public school
(Chicago)
31. H. H. Meadows ditto
school
(Dallas)
Oil operator
Oil operator
45 Some
62 Some
General Motors executive
Oil operator
Oil operator 88
General Motors 72
and Du Pont executive
Public construction
Public construction
Oil operator
Insti 59 Some
65 Some
Real estate and 63
hotel operation
Oil well equipment
Public construction 75
Paper, containers
Oil operations
Insurance promotion 60
Oil operator
58 Law
32. Charles S. Mott
Stevens Institute
(Flint)
Technology
33. James Sottile, Jr.
Public school
(Miami)
34. George W. Strake*
(Texas)
35. Louis Wolfson
college
ditto General Motors exec. 82
of
ditto Banking 44
ditto Oil operations
ditto Financial operator 45 Some
New York)
*Not listed in Who's Who 1956-57, 1964-65.
In general, American politics are not nearly so brusque, arbitrary and doctrinaire as Russian politics. But those carried away by the lullaby of American democracy should consult the harsh experience of the Negro and other repressed groups in the American system. There matters begin to take on a distinctly Russian complexion.
As to the sources of the big incomes (those above $500,000 and over $1 million), Appendix A shows that the aggregate received in this category includes comparatively little in salaries or partnership profits. Receipts in the form of dividends and capital gains, interest and other forms of property return, were comparatively colossal. The 398 persons in the $1 million-plus income class in 1961, for example, took only $18,607,000 in salaries, an average of $46,753, and $10,503,000 in partnership profits but took $259,574,000 in dividends, $434,272,000 in capital gains, $8,754,000 in interest, $3,163,000 from trust funds (not including capital gains from such) and $2,371,000 from rents and royalties. The group as a whole also absorbed $7,915,000 of business loss, more than offset by the interest it received. This, in brief, is not a group of workers even of the upper executive class, and the same holds true of the $500,000- $1,000,000 group of income recipients.
Fortune differentiated between inherited and personally assembled wealth. We will leave the inheritors for Chapter IV; examined above is the Fortune list of the new big wealth-holders, thirty-five in number.
Left off the Fortune list but referred to in its text were Dr. Martin Miller, New Orleans surgeon, with a reported annual income of $7-$8 million from oil royalties; E. V. Richards, New Orleans real estate operator estimated by Fortune to be worth $50-$100 million; and Matilda Geddings Gray of New Orleans, who inherited an oil fortune of unstated present value from her father. Fortune also mentioned a sprinkling of new names in the $50-million bracket, but these persons need not detain us here.
Revision of the List
Under critical analysis, this list requires some pruning and rearranging, both with respect to the number of inclusions among the new big rich and to estimated size of holdings.
Only the probates of estates of those who have died since 1957 can give . us a clue to the value of the fortune, although even they cannot be decisive. But Michael Benedum, "King of the Wild-Catters," died in 1961 at the age of ninety-two and the probate of his will in Pittsburgh showed a net estate of $68,199,539, putting him only some 10 per
cent below Fortune's $75-$100 million range in which be appears. 4 I count this estimate a direct "hit," as holdings of this size can easily vary in value by 10 to 25 per cent from year to year, up or down.
Benedum left half his estate to the inevitable tax-evading foundation and after a number of specific bequests to relatives be left the residue to a nephew, Paul G. Benedum, who now ranks as a wealthy man of the lower ranks and directs the Benedum oil properties through his own holdings and those of the Benedum foundation. In passing, it may be noted that Benedum, as Fortune relates, had the amiable and rare habit of cutting younger and even menial employees in on some of his lucrative ventures; thus, a chauffeur who looked for no more than a steady $50 per week was so favored and predeceased his benefactor worth some $17 million.
Arthur Vining Davis, former head of the Mellons' Aluminum Corporation of America, died in 1962. The press report of his will played back the Fortune estimate of $400 million on his wealth,5 but the probate showed that Fortune had missed wildly on this one; it was too high by about 370 per cent. 6 The actual size of the Davis estate was $86,629,282. 83, not including $5 million of Cuban property. As there is no record of early Davis gifts large enough to have ever put him in the $400- to $700-million class of wealth-holder, on this one Fortune must be debited with a very bad miss.
There is no public evidence to justify such a high estimate by Fortune. As of December 11, 1939, according to a Securities and Exchange Commission study (TNEC study, Monograph No. 29, to be cited later), Mr. Davis owned 11. 4 per cent of Aluminum Company of America common and a brother owned . 96 per cent. Mr. Davis also owned 5. 41 per cent of the cumulative preferred. At-the 54-3/4 close for 1962 a block of 12 per cent of Aluminum common then outstanding was worth $140,397,615; 5. 5 per cent of the preferred was worth $3,128,547 at the year's high. At the record high of 133-1/2 in 1956, 12 per cent of Aluminum was worth $329,262,364.
This block of stock never could have put Davis into the $400- to $700-million class even in a momentary market flurry. As it was, he had obviously sold much of it at lower levels or transferred it to others off the record. He could not have sold at or anywhere near its high point because then the proceeds exceeding $300 million would have been in his estate; he was too old at the time to divest himself of any by gift under the provisions of the tax code.
The Davis will, after assigning $1 million and his home to his secretary, divided the estate into 100 shares. Of these, 50 were put into a public trust with the First National Bank of Miami, a nephew among the co-trustees; 25 were put into a public trust with the Mellon National Bank and Trust Company of Pittsburgh, the nephew and a son-in- law among the trustees. Ten shares went to the heirs of a deceased brother, 10 shares to a stepdaughter and 5 shares were set aside for inheritance taxes. Thus, 75 per cent of the estate escaped taxes. The tax-free income of the trusts was broadly designated for the usual charities and scientific, educational and religious work But the trustees, like those of many similar establishments, will continue to exercise the corporate voting power of the Davis holdings, which is what counts. Davis thus passed his financial power, diminished only by an overall tax of 5 per cent, on to his relatives.
In 1952 Davis had established another foundation, the Arthur Vining Davis Foundation, which, according to the Foundation Directory, 1964, at the end of 1961 had assets of only $1,379,672. So no earlier Davis wealth of substantial proportions appears to have escaped notice.
A report is not yet available on the estate of Herman Brown of the construction firm of Brown and Root, Inc. , of Dallas, who died in 1962.
Charles F. Kettering, research director of General Motors, died in 1958 and left an estate "conservatively" estimated at a little more than $200 million but no inventory was cited. " The bulk went to the Charles F. Kettering Foundation and a trust. At the end of 1962 the Foundation had assets of $72,020,128, according to the Foundation Directory; and as Kettering in his lifetime placed large sums for medical research, there seems no reason to question seriously the Fortune rating of the $200-million range. (One of the surer ways of spotting truly big wealth is that it shows itself in huge public transfers of assets during the lifetime of the owner. )
Alfred P. Sloan, Jr. , also appears to be justifiably rated. By the end of 1962 Sloan had conveyed to the Alfred P. Sloan Foundation assets then worth $222,715,014 at the market. Charles Stewart Mott, also of General Motors, had at the end of 1960 put assets worth $76,754,317 into a foundation bearing his name. The John L. Pratt Foundation of Fredericksburg, Virginia, however, at the end of 1962 had assets of only $88,753. But this structure can be looked upon as a prepared financial tomb to receive a large portion of the Pratt fortune, ,which can be tentatively accepted as close to or in the range laid out by Fortune.
It is evident that the Fortune estimates as checked against available probates show extremely wide variations, approximately correct at times but at other times far off the mark. It would, in fact, be remarkable if Fortune had found an unofficial way to being even approximately correct in all cases.
Ambiguity of the New Wealth
Additionally, one must notice that much of this "new money" is concentrated in real estate, promotional effort and uncertain oil prospecting. The owner of real estate or of oil-producing land holds something not readily translated into dollars. The independent oil prospector is subject to price fluctations, curtailment of politically arranged tax privileges and, in many parts of the world, confiscation. In any event, his wealth consists largely of estimated below-ground reserves, which may be erroneous. The real estate operator, in order to cash in, must find for his properties buyers, who are relatively scarce; and often the big realty operator is sitting on a slippery cushion of bank loans and mortgages. His own equity is seldom as imposing as the facades of his properties.
Few men on the list are in manufacturing or banking, where there is not only solid evidence of what an enterprise is worth but where the heavy money is found. And even big oil operators fall on evil days. Glenn McCarthy, who in 1949 threw open the Shamrock Hotel of Houston to a less-than-astounded world and who is more recently financially in an ambiguous position, is a case in point. Hence I would place a question mark after the name of nearly every independent oil prospector on this list with respect to the rated extent of his wealth. I do this for two reasons: Most of them own purely private companies and few publish balance sheets and income statements. Those that do, such as Murchison's Delhi-Taylor Oil Corporation, have years of deficit operations alternating with profitable years. What nonfinancial observers do is to look at a heap of assets, usually no more than leases and land concessions, and put some figure on the heap. They do not take into consideration offsetting liabilities--cost of leases, drilling equipment, political contributions and the like. This is not to deny that the oil men mentioned are wealthy in varying degrees.
Nor is this a point made in passing. The issue underlying my remarks is this: Are large fortunes, solidly comparable in size to the inherited fortunes, still being made in profusion by free-as-air rugged entrepreneurs in the American economy? Fortune, the
Wall Street Journal and most newspapers that follow the "party line" laid down by these over-arching publications say "Yes. " I say, most respectfully, "No. " In the upshot, the reader can make his own choice.
We have already seen that Arthur Vining Davis drops like the proverbial plummet from Fortune's $400-million class to the $86-million class in probate autopsy and I venture to say that most of the independent oil operators will, when they throw in their final hands, show similar downward variations from ebullient outside estimates. But I incline to keep Jacob Blaustein pretty much in the position Fortune assigned him because be is a full-scale operator, is high in national political councils and is a known big stockholder of the muscular Standard Oil Company of Indiana--a solid, old-line Rockefeller enterprise.
The J. Paul Getty Story
J. Paul Getty may be worth less than Fortune rates him, but Getty does not belong to the list of new wealth. Getty himself provides this information as well as his own comments on the Fortune estimate. As wealthy people seldom contribute to the discussion of their affairs, Getty's action was most unusual.
Getty, incidentally, was scarcely known except to business associates until the Fortune article appeared, crowning him the world's richest man. "Illustrative of the extent to which I had been able to maintain my anonymity through the years," Getty writes in his memoirs, "was a chance encounter with a former classmate I had not seen since my undergraduate days at the University of California at Berkeley.
The federal estate-tax statistics since 1916 show that an avalanche of wealth has been transferred over fifty years by testamentary bequest. Individuals inherited in nearly every case. Whatever the presence of rags-to-riches moneymakers in the past the acquisitors now are largely gone. The inheritors are in possession.
Extended Family Groups
Lampman's figures relate to individuals. They do not show that most of the people in the upper 1/2 of 1 per cent that now probably own at least 33 per cent (by value) of all assets are members of extended family groups. There are more than 1,600 Du Ponts, not all individually in the upper circle. There are sizable clusters of Rockefellers, Vanderbilts, Whitneys, Mellons, Woolworths, Fishers, Phippses, Hartfords and others. Through distaff marriages part of the big fortunes are concealed behind offbeat names, such as Cecil (Vanderbilt). The well-groomed heirs or their representatives often sit together amicably on the same boards of directors. Most belong to the same metropolitan clubs.
But the rather well-populated group that Lampman calls top wealth-holders also certainly contains many blanks as far as big wealth is concerned. It will be recalled he stressed that more than half of his top group had no more than $125,000 of assets--a paltry sum, even though in thousands of neighborhoods around the country a man with such wealth would be looked upon as a Croesus.
Owing to intermarriage among the wealthy, property holdings tend to concentrate in fewer and fewer hands. For the propertied, not without sound reason, often suspect the marital motivations of the nonpropertied. 42
These processes cannot help but concentrate wealth and make the scope of new estate builders less ample. There is less and less room at the top for new moneymakers. Although there are new successful enterprises, they are all comparatively small. Some are absorbed by the bigger enterprises on advantageous terms. None shows the slightest sign of becoming another Ford Motor Company. All the big bets seem to be down. Rien n'a va plus.
Apologists on the Defensive
But this panorama of contemporary private wealth and power throws some doubt on the doctrines of earlier apologists for the big fortunes. It was once widely preached from pulpits as well as editorial pages that great wealth was either the reward for social service (such as graciously building a vast industry to cater to an undeserving public) or it represented the inevitable, natural and wholly acceptable outcome of an evolutionary struggle in which the fittest survived and the unfit landed in the gutter. On the basis of this doctrine the present top wealth-holders are the offspring of public benefactors and the fittest of a past generation. Fortunately, they are not themselves facing the same tests of fitness.
It was also once often said that, if all money were equally divided among all the people, in less than a generation it would be back in the same hands. While this may have been true when the original fortune-builders were alive, it is hardly true any longer, when the heirs would have to contend with gentry like Mr. James J. Hoffa and Mr. Frank Costello. In a struggle waged outside the Marquis of Queensberry rules (which is where the fortune-builders operated) most of the present wealth-holders, many of them personally attractive, would hardly be voted most likely to succeed. Could they make much headway against Jake Guzik and Tony Accardo? Al Capone and Machine- Gun Jack McGurn?
Down through the years all the estates have been subject to taxation--federal and sometimes state--but to much less than is commonly supposed, as we shall see. There is no process of estate destruction taking place in the United States through taxation, as is commonly suggested by propagandists of the Establishment. And few estates, unless there are no heirs, pass to institutions. But many estates pass indirectly as well as directly to heirs through various arrangements such as delayed-action trust funds, endowments and foundations. The indirectly conveyed portions are operated by the heirs for their own beneficial interest.
The Fortress of Interlaced Wealth
What has developed, then, under the operation of inheritance laws handed down from days when property ownership was far more modest to a day when vast properties have been created mainly by technology, is a huge, solid fortress of interlaced wealth against which even clever new wealthseekers, try as they will, cannot make a tiny dent. About the only way one can get in (and that way isn't always rewarding) is by marriage. If a potential new Henry Ford produces an invention and sets out with friends to market it he generally finds (as did Professor Edwin H. Armstrong, inventor of wide-swing radio frequency modulation, the regenerative circuit for vacuum tubes, ultra short-wave super-regeneration and the superheterodyne circuit) that it is boldly infringed by
established companies. After he spends the better part of a lifetime in court straining to protect his rights he may win (usually he does not); but if he wins he collects only a percentage royalty. What the infringers can show they have earned through their promotional efforts they may keep, with the blessings of the courts, who are sticklers for equity: All effort must be rewarded. And then the overwrought inventor, as Professor Armstrong did in 1954, can commit suicide.
Henry Ford came up when there were only small competing companies in the field. When established companies are in the field, inventors must sell out, or suffer a fate similar to Professor Armstrong's.
The Role of the People
The inheritance laws have played a major role in the development of great fortunes. But they haven't been the only factor. A small group, unless possessed of direct dictatorial power, could not unaided have served itself so generously, even if masters of stealth. Writing about the wealthy in America's Sixty Families, page 5, I remarked: "The situation, for which the people themselves are in a great measure to blame. . . . " The public itself has facilitated and continues to facilitate the building of vast hereditary private power within the American elective system of government. This public is in many ways a self-made victim, as sociologists now regard many victims of crimes.
The contrast I have posed between concentrated wealth and widely distributed poverty may seem to suggest that I am arguing for the equalization of wealth. But though there is obviously considerable room for some equalization I shall not argue for it because there are millions of people who could not hold on to $10 for five minutes or $10,000 for five months.
If wealth were equalized, what would we have? As Lampman showed, if all asset- wealth as of 1953 were equally apportioned, there would be about $10,000 for each adult. Let us suppose that a share in this amount were held for each adult in a national trust supervised by the United States treasury. The income from each share at 5 per cent would be $500 per annum. If one adds this to the present amount of each person's earned income it would not amount to much, however welcome it would be for some in the lowest brackets.
If inequality of income is not the main question, what is?
Policy-Making Power of Wealth
First, the present concentration of wealth confers self-arrogated and defaulted political policy-making power at home and abroad in a grossly disproportionate degree on a small and not especially qualified mainly hereditary group; secondly, this group allocates vast economic resources in narrow, self-serving directions, both at home and abroad, rather than in socially and humanly needed public directions.
When, through its agents, it cannot enlist the government in support of its various plans at home and abroad it can, and does, frustrate the government in various proceedings that have full public endorsement. It involves the nation in cycles of ferocious wars that are to the interest of asset preservation and asset expansion but are contrary to the interest of the nation and the world. It can and does establish connections all over the world that covertly involve American power in all sorts of ways unknown until some last-minute denouement even to Congress and the president.
It doesn't do any of this maliciously, to be sure, any more than an elephant feels malice when it rubs against a sapling and breaks it in two. An elephant must behave like an elephant, beyond any moral stricture. And power of any kind must exert itself. Historically it has invariably exerted itself in its own self-visualized interests.
So, concentrated asset-wealth not only brings in large personal incomes, but confers on the owners and their deputies a disproportionately large voice in economic, political and cultural affairs. Thus the owners may make or frustrate public policy, at home and abroad.
Low Incomes of Vital Personnel
Managers of concentrated asset-wealth determine, among other things, how much is to be paid for various services--who is to be paid a great deal and who is to be paid very little. Some people, for the convenience purely of asset-wealth, are rewarded munificently for services of comparatively slight social importance--for example, certain leading company executives. Other persons are paid poorly for what are universally insisted to be superlatively valuable services--for example, scientists, engineers, artists and teachers. The pay of scientists in the United States in the 1960's, according to the National Science Foundation, is in the range $6,000-$15,000 per annum,43 far less than that of an astute salesman of encyclopedias or vacuum cleaners. Referring to "starvation wages," Paul Woodring, educational consultant to the Fund for the Advancement of Education of the Ford Foundation, said: "There are dozens of liberal arts colleges which pay average salaries as low as $3,000 per year and minimum salaries much lower still. " 44 If it is said that such compensation has more recently been increased (which isn't generally true), one may still ask: Is it anywhere near the astronomical level of executive salaries?
Of salaries of scientists and teachers, a company director would say: "What have we to do with those? They aren't in our jurisdiction. The executive salaries, I admit, are. "
My response to this is: When the leading cadres of wealth want to be the government, as we shall see, they are the government. When they don't want to be, when there is some delicate problem to be solved, they say, "Go to Washington about that. It's out of our jurisdiction. " But even in Washington they have many friends who believe that teachers and scientists should not be spoiled by being paid ample wages.
Marxism and the Workers
Marxists hold that it is the workers-factory workers--who are 'being deprived to insure profits for the rich. And this may be so to some extent in some times and places, and at one time it was so universally in the United States. But the workers would not likely be paid more and would probably be paid less than they are now in thoroughly unionized industries: under such so-called Marxist regimes as we have yet seen.
In some instances, owing to organization and the balance of external forces, some categories of unionized workers in the United States today are probably disproportionately rewarded, are paid more than many trained scientists. Their leaders have simply seized opportunities to exert leverage in the power structure, threatening to disrupt production.
Lest I leave a misleading impression of American workers, it must be said that the position of the unorganized and unskilled is very bleak, in the depths of poverty. So- called white collar workers are also poorly paid. Since World War II the custom has
spread among low-paid skilled people, particularly teachers, of working at two jobs, a practice known as "moonlighting. " Police and firemen, too, participate in the practice, and so do even skilled factory operatives who wish to keep above the poverty level. At a time when many sociologists discourse fervidly about a coming thirty-hour week and assert increasing leisure to be a basic human problem, many moonlighters work sixty and seventy hours a week, hardly a step forward from the nineteenth century twelve- hour day. The moonlighters drive taxis, tend bar, act as property guards, work in stores, etc.
But if the workers in general are indeed deprived for the sake of profits they wouldn't be benefited much directly by an egalitarian distribution of assets, nor would anyone else. For it isn't the factor of ownership of assets in itself that is crucial. It is the factor of general control that concentrated ownership confers that needs to be understood. Owing to the strength given them by their concentrated and combined assets, the big owners and their paid managers have a major if not always decisive voice in running the economic system, in backing the political parties and their candidates and in influencing if not determining national policies from the highest to the lowest. The ownership titles, reinforced many times over from the vantage point of banks and insurance companies, are what constitute the ticket of admission. The amount of ownership at the top of the pyramid necessary to insure such control for any group may be only 5 per cent. Scattered smaller owners, if there are any, cannot gather enough stock to overcome the leading blocks and would not know what to do if they could.
The Radiation of Control
This control at one or a few points radiates through all of industry, with a few central groups participating in a cooperative manner. The industrial control (to be shown later) gives command over vast resources, some of which are used to influence political parties and candidates, newspapers and other publications. A tacit, uncriticized scheme of values is put into action and is absorbed by many people far from the scene. The point to be raised is this: Is this scheme of values always conducive to the security and well-being of the Republic? Whether it is or not, it is often decisive at crucial historical turning points. And it isn't subject to review in any public forum.
I don't assert that every single individual--man, woman and child--in the circle of great wealth has an active role in this process of control. Many are far from the centers of power, leading la dolce vita, and hardly know what goes on. Some are utterly incapable, confined in sanatoria, the wards of family trustees. Still others, present in full command of able faculties, disapprove of the general trend but are unable to prevail against what is basically a group momentum.
Many people own some stock. Each share is entitled to a vote. An owner may refuse to vote, in which case decisions are made despite him. Usually he sends in his proxy to be voted for the management, which is the way the Russians vote: for a single ticket. However, he may decide that he wants to vote against the management, in which case he must at great cost and effort round up many other stockholders. This task in any company is about as great as putting an opposition slate in the field in a Russian "election. " Occasionally it succeeds, although not when initiated by small stockholders. One must have some large blocks of stock to begin with if one hopes to check or unseat any established management-blocks of 5, 10 or 15 per cent of all outstanding stock. If one has that, one appeals for other large blocks to join, or buys additional large blocks in the market (for vast sums, which one must be presumed to have). For it is ownership blocks that determine who the managers shall be.
If one miraculously wins the election, one has the task of installing new managers, men more to one's liking. But the one who can do this is himself one of the top dogs. He is not a small stockholder.
Such control is exercised not in one company or in a few companies (contrary to what is often supposed) but through a long series of interlocking companies. It is what constitutes power in the American system. It may not be power as great at a single moment as that possessed by some elected officials, such as the president, but it is a more continuous power. An elected public official, even a president, must from time to time undergo the hazards of a formal election at regular intervals. And even a president is limited to a maximum term of eight years, whereas the head of a big corporation or bank can remain in office for forty or fifty years and can see many presidents of the United States come and go.
Deficit in Public Services
The converse of the great concentration of personal wealth is the great deficit in needed public social services. On the corporation front, the country is obviously extremely lusty. But in education and medicine, to cite merely two areas, everything suddenly becomes extremely meager, scrounging and hand-to-mouth. This disparity is curious in a wealthy country and forcefully reminds one of Benjamin Disraeli's allusion to two nations, the rich and the poor. But the deficits in these areas, the dialecticians will be quick to point out, are gradually being met now by government out of taxes. As we shall see later, however, the contribution of the top wealth-holders to taxes is disproportionately low. The wealthy, like everyone else, dislike to pay taxes and, unlike most other people, they know how to minimize them through the exercise of political influence. This is one of the nice differences between being wealthy and being poor.
The Constitution of the United States bars the bestowal of titles of nobility. But in many ways it would clear up much that is now obscure if titles were allowed. Not only would they show, automatically, to whom deference was due as a right but they would publicly distinguish those who held continuing hereditary power from people who are merely temporarily voted in or appointed for limited terms. The chroniclers of High Society-that is, the circles of wealth--recognize this need and, in order to show hereditary status and family position, they allude to males in the line of descent by number, as in the case of royal dynasties. Thus in the English branch of the Astor family there is a John Jacob Astor VII. 45 But there are also George F. Baker III, August Belmont IV, William Bird III, Joseph H. Choate III, Ire? ne? e and Pierre du Pont III, Marshall Field V, Potter Palmer III, John D. Rockefeller IV, Cornelius Vanderbilt V and so on. 46
It is names such as these that would properly be found in an American Almanach de Gotha.
Two
ROOM AT THE TOP: THE NEW RICH
Were it not for the miscellaneous batch of hard-bitten, shirt-sleeved Texas oil-lease speculators and wildcatters that since World War I has risen on a tide of special tax privileges like science-fiction dinosaurs, it could well be said that the day of accumulating gargantuan new personal fortunes in the United States is just about ended; this leaves the tubbed, scrubbed, and public-relations-anointed inheritors of the nineteenth-century money scramble holding most of the chips. As it is, fortune-building continues--albeit at a greatly subdued pace outside the lushly flowing oil industry. For just about everything else of marketable value is tightly vaulted down, much of it resting comfortably in trust. But even in the oil industry, magnitudes are exaggerated, Texas-style, by writers who desire to bedazzle readers with a modern if oil-soaked Arabian Nights tale.
New personal wealth is dealt with in this chapter-that is, great individual wealth that has shown itself since World War I and, more particularly, since World War II. For the most part it is wealth not known to Gustavus Myers, historian of the first waves of American fortunes and, partly because of the give-away oil depletion allowance, it postdates America's Sixty Families (1937). Classification of these new fortunes with respect to wealth and super-wealth and their comparison with the old fortunes are deferred until Chapter IV.
Actually, before larger sums are bandied about in these pages, let it be noted that a person worth only $10 million (insignificant though $10 million is compared with many modern fortunes) is very, very wealthy indeed. If a prudent, hardworking, God-fearing, home-loving 100 per cent American saved $100,000 a year after taxes and expenses it would take him a full century to accumulate such a sum. A self-incorporated film star who earned 81 million a year and paid a 10 per cent agent's fee, 10 per cent in business expenses, a rounded 50 per cent corporation tax on the net and then withdrew $100,000 for his own use (on which he also paid about 50 per cent tax) would need to be a box- office rage for thirty-four unbroken years before he could save $10 million. Yet some men do acquire such sums--and much more. But never by offering mere talent, whatever it is, in a free market. Even the most talented bank robbers or kidnappers have never approached such an accumulation before being laid low by the eager gendarmerie.
The incandescent Marilyn Monroe, as big as they come in filmdom and a veritable box office Golconda, died broke-an old story with the mothlike entertainers and professional athletes. She bequeathed 81 million to friends but, despite posthumous earnings of $800,000 accruing to her estate, nothing was left after taxes and creditors' claims. Clearly she was in need of a tax lawyer. There was even nothing left to establish a trust fund to generate a paltry $5,000 a year for her invalid mother. Yet Miss Monroe, obviously a true-blue American, reportedly drew $200 million to the box office from 1950 to 1963. 1 More recent reports indicate that something was salvaged for her mother.
Hard to get, $10 million shows its power in another way. If invested in tax-exempt securities it can generate about $250,000 a year. Now if the owner exercises initial frugality and invests this income similarly each year, it will produce $6,250 the first year and (disregarding compound interest all along) $12,500 the second year, $18, 750 the third year, $25,000 the fourth year and so on, In the tenth year the income of the accumulated income of the original $10 million Will be $62,500 on a new capital sum of $2. 5 million, which automatically doubles itself every ten years. The owner might
even do a bit better by investing in taxable securities and paying taxes, particularly on the second accumulation, but I have focused on tax-exempt securities in order to keep to the simplest terms. Yet the ordinary man on his 4 or 5 per cent in the savings bank must pay full taxes. This sort of accumulating on the income of the income, thus generating new capital sums, has long been the investment style of old Boston and Philadelphia families. Careful to a fault, they own only small yachts, drive only old (but well- maintained) cars and are accustomed to wear old but expensive clothes of the first class so that they look quaintly dowdy. And they intermarry with old families, unfailingly. They are people who would rather study the fine engraving on a stock certificate than the brush strokes of an old master. They are, in short, respectably, unobtrusively rich.
How the sizes of new fortunes were obtained will appear in the text. The Most conservative available figures are used throughout and are critically evaluated. For precise figures it would be necessary to get certified copies of net worth, which (not being voluntarily proffered ) could be obtained only in the unlikely event of a congressional subpoena with the acquiescence of the Supreme Court. The sacred right to privacy is used to screen the dimensions of great wealth, although privacy becomes expendable when young men are summoned into the armed forces for "police" duty at coolie pay and are unceremoniously ordered to strip naked for minute scrutiny and examination. And if subpoenaed the figures might not be even momentarily accurate because, owing to the undeveloped state of a part of many large holdings, the owners themselves honestly don't know how much, at going market prices, they are worth. Seeking such accuracy in the figures amounts to committing the fallacy of misplaced precision. 2
The Fortune Study
Fortune, stepping into the data vacuum decreed by a delicately sensitive Congress, has given us the latest pre? cis on the largest individual contemporary fortunes. 3 Beginning our exposition with it and selecting only the relative newcomers, we find that with few exceptions the newer fortunes rose on the basis of oil and its generous depletion allowances, and upper executive position in General Motors Corporation.
Fortune assumed, reasonably enough, that an income of $1 million or more per year (some incomes range much higher--up to perhaps $25 to $50 million) might suggest asset-holdings of at least $50 million. But some large incomes are nonrepetitive, derive from unloading assets (which might have been procured very cheaply) at a large profit; they are not the same as continuing incomes from investments. The incomes swollen by relieving oneself of assets at higher prices (capital gains) are reflected in boom times in the sharp rise in million-dollar incomes-- from 49 in 1940 to 398 in 1961. But no steady million-dollar incomes at all blossom from the sale of services or talent; not even the most extravagantly rewarded executives or film stars pick up that much in straight across-the-board pay.
The point of departure for Fortune was a Treasury official's estimate that in 1957 there were between 150 and 500 $50-million-plus asset-holders; there were actually 223 incomes of $1 million-plus, according to the Treasury's subsequently published Statistics of Income: 1957 (p. 20).
Fortune to its own satisfaction identified 155 of them by name. Of this group it published the names of half, the ones thought to possess assets of $75 million upward, and gave estimates of their net worth in broad ranges. Fortune also named a few other steady big-income beneficiaries at random in its text, outside its list, giving no reason for this deviation. The list, confined to then living people, did not name all the big post-1918 fortunes, although here and there some persons who had
recently died were mentioned. Some such fortunes omitted from the Fortune list will be mentioned further along.
Before scanning the Fortune list and then noting qualifications of it, the reader will be better prepared if he ponders over the tables in Appendix A that provide a broad statistical background since 1940 on the larger incomes and lay the ground for some incisive observations. In the upper brackets at least, these income recipients abstractly impaled like skeletal insects in the tables are unquestionably included among Lampman's 1. 6 per cent of adults that compose American wealth-holders. No doubt the Fortune list in its entirety, with some additions to be supplied, represents a part of the moneyed elite of the Lampman higher strata. But in the group of Appendix A incomes below $100,000 or so, many are only those of potential wealth-holders--for the simple reason that they are from salaries.
Property and Politics
Nonetheless the varying totals shown in Appendix A of incomes in excess of $25,000--numbering 49,806 in 1940 and 626,997 in 1961--certainly represent the cream of the take in the American svstem. This is not a large group and, in relation to a population of nearly 260 million, of which more than half are adults, it is not any different in relative size from the small group of tight-fisted landowners found in Latin American countries or from the Communist Party of Soviet Russia.
In order to participate in politics in the Soviet Union one must be a member of the Communist Party. This is a formal condition. Similarly, in order to participate meanirtgfully in politics in the United States one must be a property owner. This is not a formal requirement; formally anyone may participate. But, informally, participation beyond voting for alternate preselected candidates is so difficult for the nonpropertied as to be, in effect, impossible. The nonpropertied person in the United States who wishes to attain and hold a position of leverage in politics must quickly become a property owner. And this is one reason why unendowed budding American politicians, not being property owners, must find or create opportunities (legal or illegal) for themselves to acquire property. Without it they are naked to the first wind of partisan adversity and gratuitous public spitefulness.
Politically the nonpropertied carry little efficient influence in the United States--that is, they have at best only marginal individual leverage--which is not the same as saying that all property owners participate in politics. But, when all the chips are down, these latter rule or significantly modify the situation in committee rooms and cloakrooms, directly or through amply rewarded intermediaries, In the United States the ownership of property, often evidenced by possession of a credit card, gives the same personal amplitude that possession of a party, card confers in Soviet Russia.
Although different, the political systems of Soviet Russia and the United States are not basically so different as widely supposed. The United States can be looked upon as having, in effect, a single party: the Property Party. This party can be looked upon as having two subdivisions: the Republican Party, hostile to accommodating adjustments (hence dubbed "Conservative"), and the Democratic Party, of recent decades favoring such adjustments (hence dubbed "Liberal"). The big reason third parties have come to naught--a puzzle to some political scientists--is simiply that no substantial group of property owners has seen fit to underwrite one. There is no Anti-Property Party.
BIG NEW WEALTH-HOLDERS
Stated Net Financial Age
Worth Activity in
Name
Schooling
1. J. Paul Getty
Oxford (A. B. )
(Los Angeles)
2. H. L. Hunt
grade
(Dallas)
(millions)
$700-$1,000
$400-$700
1957
Integrated oil 65
companies
3. Arthur Vining Davis ditto
Amherst (A. B. )
(deceased 1962)
4. Joseph P. Kennedy $200-$400
Harvard (A. B. )
Alcoa executive 90
Market operator 69
Ship operator 60
(Boston)
5. Daniel K. Ludwig
Public school
(New York)
6. Sid Richardson*
college
(deceased 1959)
ditto
ditto
Oil operator
60+ Some
7. Alfred P. Sloan, Jr. ditto
M. I. T.
(New York)
8. James Abercrombie* $100-$200
(Houston)
General Motors executive 82
9. Stephen Bechtel
college
(San Francisco)
10. William Blakley*
(Dallas)
11. Jacob Blaustein
college
(Baltimore)
12. Clarence Dillon
Harvard (A. B. )
(New York)
13. William Keck*
(Los Angeles)
14. Charles Kettering
State
(deceased 1959)
ditto
ditto ditto
ditto
ditto ditto
Oil operator
Public construction
57 Some
15. William L. McKnight ditto
Public school
(St. Paul)
Railway Express and airlines
Integrated oil companies 65 Some
Investment banker 75
Oil operator
General Motors executive 81 Ohio
Minnesota Mining and 70
Manufacturing Co.
Oil operator
67 Fifth
16. John Mecom ditto
college
(Houston)
17. C. W. Murchison ditto
college
(Dallas)
18. John L. Pratt* ditto
(Fredericksburg)
19. R. E. Smith* ditto
(Houston)
20. Michael Benedum $75-$100
Public school
(deceased 1961)
21. Donaldson Brown ditto
Virginia
(Baltimore)
Polytechnic
tute
22. George R. Brown ditto
college
(Houston)
23. Herman Brown ditto
college
(deceased 1962)
24. James A. Chapman* ditto
(Tulsa)
25. Leo Corrigan ditto
Public school
(Dallas)
26. Erle F. Halliburton*
(Duncan, Oklahoma)
27. Henry J. Kaiser ditto
Public school
(Oakland)
28. John W. Kicckhefer ditto
(Milwaukee)
29. John E. Mabee* ditto
(Tulsa)
30. John D. MacArthur ditto
Public school
(Chicago)
31. H. H. Meadows ditto
school
(Dallas)
Oil operator
Oil operator
45 Some
62 Some
General Motors executive
Oil operator
Oil operator 88
General Motors 72
and Du Pont executive
Public construction
Public construction
Oil operator
Insti 59 Some
65 Some
Real estate and 63
hotel operation
Oil well equipment
Public construction 75
Paper, containers
Oil operations
Insurance promotion 60
Oil operator
58 Law
32. Charles S. Mott
Stevens Institute
(Flint)
Technology
33. James Sottile, Jr.
Public school
(Miami)
34. George W. Strake*
(Texas)
35. Louis Wolfson
college
ditto General Motors exec. 82
of
ditto Banking 44
ditto Oil operations
ditto Financial operator 45 Some
New York)
*Not listed in Who's Who 1956-57, 1964-65.
In general, American politics are not nearly so brusque, arbitrary and doctrinaire as Russian politics. But those carried away by the lullaby of American democracy should consult the harsh experience of the Negro and other repressed groups in the American system. There matters begin to take on a distinctly Russian complexion.
As to the sources of the big incomes (those above $500,000 and over $1 million), Appendix A shows that the aggregate received in this category includes comparatively little in salaries or partnership profits. Receipts in the form of dividends and capital gains, interest and other forms of property return, were comparatively colossal. The 398 persons in the $1 million-plus income class in 1961, for example, took only $18,607,000 in salaries, an average of $46,753, and $10,503,000 in partnership profits but took $259,574,000 in dividends, $434,272,000 in capital gains, $8,754,000 in interest, $3,163,000 from trust funds (not including capital gains from such) and $2,371,000 from rents and royalties. The group as a whole also absorbed $7,915,000 of business loss, more than offset by the interest it received. This, in brief, is not a group of workers even of the upper executive class, and the same holds true of the $500,000- $1,000,000 group of income recipients.
Fortune differentiated between inherited and personally assembled wealth. We will leave the inheritors for Chapter IV; examined above is the Fortune list of the new big wealth-holders, thirty-five in number.
Left off the Fortune list but referred to in its text were Dr. Martin Miller, New Orleans surgeon, with a reported annual income of $7-$8 million from oil royalties; E. V. Richards, New Orleans real estate operator estimated by Fortune to be worth $50-$100 million; and Matilda Geddings Gray of New Orleans, who inherited an oil fortune of unstated present value from her father. Fortune also mentioned a sprinkling of new names in the $50-million bracket, but these persons need not detain us here.
Revision of the List
Under critical analysis, this list requires some pruning and rearranging, both with respect to the number of inclusions among the new big rich and to estimated size of holdings.
Only the probates of estates of those who have died since 1957 can give . us a clue to the value of the fortune, although even they cannot be decisive. But Michael Benedum, "King of the Wild-Catters," died in 1961 at the age of ninety-two and the probate of his will in Pittsburgh showed a net estate of $68,199,539, putting him only some 10 per
cent below Fortune's $75-$100 million range in which be appears. 4 I count this estimate a direct "hit," as holdings of this size can easily vary in value by 10 to 25 per cent from year to year, up or down.
Benedum left half his estate to the inevitable tax-evading foundation and after a number of specific bequests to relatives be left the residue to a nephew, Paul G. Benedum, who now ranks as a wealthy man of the lower ranks and directs the Benedum oil properties through his own holdings and those of the Benedum foundation. In passing, it may be noted that Benedum, as Fortune relates, had the amiable and rare habit of cutting younger and even menial employees in on some of his lucrative ventures; thus, a chauffeur who looked for no more than a steady $50 per week was so favored and predeceased his benefactor worth some $17 million.
Arthur Vining Davis, former head of the Mellons' Aluminum Corporation of America, died in 1962. The press report of his will played back the Fortune estimate of $400 million on his wealth,5 but the probate showed that Fortune had missed wildly on this one; it was too high by about 370 per cent. 6 The actual size of the Davis estate was $86,629,282. 83, not including $5 million of Cuban property. As there is no record of early Davis gifts large enough to have ever put him in the $400- to $700-million class of wealth-holder, on this one Fortune must be debited with a very bad miss.
There is no public evidence to justify such a high estimate by Fortune. As of December 11, 1939, according to a Securities and Exchange Commission study (TNEC study, Monograph No. 29, to be cited later), Mr. Davis owned 11. 4 per cent of Aluminum Company of America common and a brother owned . 96 per cent. Mr. Davis also owned 5. 41 per cent of the cumulative preferred. At-the 54-3/4 close for 1962 a block of 12 per cent of Aluminum common then outstanding was worth $140,397,615; 5. 5 per cent of the preferred was worth $3,128,547 at the year's high. At the record high of 133-1/2 in 1956, 12 per cent of Aluminum was worth $329,262,364.
This block of stock never could have put Davis into the $400- to $700-million class even in a momentary market flurry. As it was, he had obviously sold much of it at lower levels or transferred it to others off the record. He could not have sold at or anywhere near its high point because then the proceeds exceeding $300 million would have been in his estate; he was too old at the time to divest himself of any by gift under the provisions of the tax code.
The Davis will, after assigning $1 million and his home to his secretary, divided the estate into 100 shares. Of these, 50 were put into a public trust with the First National Bank of Miami, a nephew among the co-trustees; 25 were put into a public trust with the Mellon National Bank and Trust Company of Pittsburgh, the nephew and a son-in- law among the trustees. Ten shares went to the heirs of a deceased brother, 10 shares to a stepdaughter and 5 shares were set aside for inheritance taxes. Thus, 75 per cent of the estate escaped taxes. The tax-free income of the trusts was broadly designated for the usual charities and scientific, educational and religious work But the trustees, like those of many similar establishments, will continue to exercise the corporate voting power of the Davis holdings, which is what counts. Davis thus passed his financial power, diminished only by an overall tax of 5 per cent, on to his relatives.
In 1952 Davis had established another foundation, the Arthur Vining Davis Foundation, which, according to the Foundation Directory, 1964, at the end of 1961 had assets of only $1,379,672. So no earlier Davis wealth of substantial proportions appears to have escaped notice.
A report is not yet available on the estate of Herman Brown of the construction firm of Brown and Root, Inc. , of Dallas, who died in 1962.
Charles F. Kettering, research director of General Motors, died in 1958 and left an estate "conservatively" estimated at a little more than $200 million but no inventory was cited. " The bulk went to the Charles F. Kettering Foundation and a trust. At the end of 1962 the Foundation had assets of $72,020,128, according to the Foundation Directory; and as Kettering in his lifetime placed large sums for medical research, there seems no reason to question seriously the Fortune rating of the $200-million range. (One of the surer ways of spotting truly big wealth is that it shows itself in huge public transfers of assets during the lifetime of the owner. )
Alfred P. Sloan, Jr. , also appears to be justifiably rated. By the end of 1962 Sloan had conveyed to the Alfred P. Sloan Foundation assets then worth $222,715,014 at the market. Charles Stewart Mott, also of General Motors, had at the end of 1960 put assets worth $76,754,317 into a foundation bearing his name. The John L. Pratt Foundation of Fredericksburg, Virginia, however, at the end of 1962 had assets of only $88,753. But this structure can be looked upon as a prepared financial tomb to receive a large portion of the Pratt fortune, ,which can be tentatively accepted as close to or in the range laid out by Fortune.
It is evident that the Fortune estimates as checked against available probates show extremely wide variations, approximately correct at times but at other times far off the mark. It would, in fact, be remarkable if Fortune had found an unofficial way to being even approximately correct in all cases.
Ambiguity of the New Wealth
Additionally, one must notice that much of this "new money" is concentrated in real estate, promotional effort and uncertain oil prospecting. The owner of real estate or of oil-producing land holds something not readily translated into dollars. The independent oil prospector is subject to price fluctations, curtailment of politically arranged tax privileges and, in many parts of the world, confiscation. In any event, his wealth consists largely of estimated below-ground reserves, which may be erroneous. The real estate operator, in order to cash in, must find for his properties buyers, who are relatively scarce; and often the big realty operator is sitting on a slippery cushion of bank loans and mortgages. His own equity is seldom as imposing as the facades of his properties.
Few men on the list are in manufacturing or banking, where there is not only solid evidence of what an enterprise is worth but where the heavy money is found. And even big oil operators fall on evil days. Glenn McCarthy, who in 1949 threw open the Shamrock Hotel of Houston to a less-than-astounded world and who is more recently financially in an ambiguous position, is a case in point. Hence I would place a question mark after the name of nearly every independent oil prospector on this list with respect to the rated extent of his wealth. I do this for two reasons: Most of them own purely private companies and few publish balance sheets and income statements. Those that do, such as Murchison's Delhi-Taylor Oil Corporation, have years of deficit operations alternating with profitable years. What nonfinancial observers do is to look at a heap of assets, usually no more than leases and land concessions, and put some figure on the heap. They do not take into consideration offsetting liabilities--cost of leases, drilling equipment, political contributions and the like. This is not to deny that the oil men mentioned are wealthy in varying degrees.
Nor is this a point made in passing. The issue underlying my remarks is this: Are large fortunes, solidly comparable in size to the inherited fortunes, still being made in profusion by free-as-air rugged entrepreneurs in the American economy? Fortune, the
Wall Street Journal and most newspapers that follow the "party line" laid down by these over-arching publications say "Yes. " I say, most respectfully, "No. " In the upshot, the reader can make his own choice.
We have already seen that Arthur Vining Davis drops like the proverbial plummet from Fortune's $400-million class to the $86-million class in probate autopsy and I venture to say that most of the independent oil operators will, when they throw in their final hands, show similar downward variations from ebullient outside estimates. But I incline to keep Jacob Blaustein pretty much in the position Fortune assigned him because be is a full-scale operator, is high in national political councils and is a known big stockholder of the muscular Standard Oil Company of Indiana--a solid, old-line Rockefeller enterprise.
The J. Paul Getty Story
J. Paul Getty may be worth less than Fortune rates him, but Getty does not belong to the list of new wealth. Getty himself provides this information as well as his own comments on the Fortune estimate. As wealthy people seldom contribute to the discussion of their affairs, Getty's action was most unusual.
Getty, incidentally, was scarcely known except to business associates until the Fortune article appeared, crowning him the world's richest man. "Illustrative of the extent to which I had been able to maintain my anonymity through the years," Getty writes in his memoirs, "was a chance encounter with a former classmate I had not seen since my undergraduate days at the University of California at Berkeley.
