-Caveat Lector-
an excerpt from:
America’s Sixty Families
Ferdinand Lundberg
The Vanguard Press©1937 & 1938
The Citadel Press
New York, NY
578 pages Out-of-print
--[1]--
V
The Politics of Finance Capital: 1920-1932
THE political ruffians of the Grant era functioned under semirevolutionary
sanctions; they were the unconscious midwives of a new industrial society
which represented definite material progress. No similar sanctions supported
the carpetbaggers of the period following the World War, who had no higher
historical mission than common burglars. The robber barons of 1860-1900
accomplished, whatever the means they employed, whatever the waste and losses
they inflicted, a vast job of construction. Their heirs and assigns of
1920-1932 were reduced to the practice of empty legerdemain, creating holding
companies without end and issuing a complicated tangle of worthless
hierarchically graded stocks and bonds.
To such an extent was corruption interwoven with high govern-mental
policies during the postwar years of Republican rapine- years which were, it
should not be forgotten, logical continuations of the second Wilson
Administration—that this pathological phase must be treated in a following
chapter. The White House became, quite simply, a political dive.
Even in their superficial aspects the successive Republican Administrations
were suspect. They differed from each other only in the name of the White
House occupant. Warren G. Harding was an amiable drunkard who left a legacy
of scandal mere allusion to which constitutes a breach of good taste; Calvin
Coolidge simply did what he was told by Andrew W. Mellon and by Dwight W.
Morrow his political godfather; Herbert Hoover was an erstwhile vendor and
promoter of shady mining stocks who before the war had been reprehended by
an. English court for his role in a promotional swindle.
"Harding," said Alice Longworth, daughter of Theodore Roosevelt, in a summary
that must be considered scientifically exact, "was not a bad man. He was just
a slob." [1] Coolidge, according to Senator Medill McCormick, part owner of
the rabidly Republican Chicago Tribune, was a plain "boob." [2] He was so
shunned, as Vice-President, that when he became Chief Executive he made
Senator Frank B. Kellogg, the only man in Washington who had spoken a kind
word to him, his Secretary of State. The third of the Republican postwar
Presidents, in H. L. Mencken's judiciously insulting phrase, was a "fat
Coolidge," sweatingly tremulous under the domination of Thomas W. Lamont of
J. P. Morgan and Company, whom he invariably consulted over the long-distance
telephone before ever announcing any decision of moment. Of Coolidge's
ignorance of common affairs, which was transcended only by Harding's, the
late Clinton W. Gilbert, long the Washington correspondent for the New York Ev
ening Post, related that upon ascending to the presidency Coolidge confounded
his advisers when he confided that he believed goods sold in international
trade were paid for in actual gold bullion, so much gold for so much
merchandise.
The exceptionally low caliber of the Coolidge mentality was never better
illustrated than in 1921 when, as Vice-President, he wrote for a woman's
magazine a series of articles under the title, "Enemies of the Republic: Are
the Reds Stalking Our College Women?" The childish intellect displayed in
these writings is sufficient commentary upon the scheming minds that
carefully nurtured Coolidge's political fortunes.
Under the Presidents of 1896-1920 the government did little for the people,
much for the special interests. But under the three postwar Republican
Presidents the government became an actively hostile power, baleful,
audacious, and irresponsible, functioning directly against the common
interest. The party discipline imposed by Hanna was shattered.
The truly significant thing about the postwar Republican Presidents is that
they were installed by banking capital, which in 1920 was just settling
itself firmly in the saddle. They were the "blank sheets of paper" that Henry
P. Davison craved in 1916. And if they did not participate personally in the
looting, they had guilty knowledge of what took place, and for their
co-operation were permitted to occupy the highest office within the gift of
the American people.
During the early phases of the contest for the Republican nomination in 1920
the main support of the wealthy families was thrown, through their banks, to
General Leonard Wood, who in Cuba and the Philippines had functioned as the
nation's first imperial proconsul. Premature revelations about the sinister
nature of his financial backing squelched Wood's boom at the eleventh hour;
he would, in the face of the revelations, have been unable to snare votes.
The Wood supporters thereupon flocked to Harding.
Not only had it been recognized after the Republican Congressional victories o
f 1918 that the Democrats had slight prospect of retaining popular support,
but it was also evident that Wilson's "Copper Administration," dominated by
the National City Bank, was to be succeeded, no matter what figurehead
adorned the White House, by an "Oil Administration." The priority of oil was
unmistakably foreshadowed by the brisk wartime development of the automobile
industry. Henry Ford's phenomenal success with the popular-priced car
indicated that a big market awaited automobile manufacturers, and
publications like The Wall Street journal predicted an automobile boom.
During the Wilson Administration the automobile interests had made themselves
sufficiently heard to obtain passage of the Federal Aid Road Act under which,
ostensibly to help the farmers, $240,000,000 of public funds were made
available for road building. The United States was soon to be crisscrossed by
the most elaborate system of roads in the world, constructed at public
expense, and worth billions to the infant automobile industry.
Major policy was at stake as well as oil reserves and casual plunder. Finance
capital, to retain the dominance won in the war, required certain special
governmental policies. These, as they came into view, provided for the
nonprosecution of the war profiteers; reduction of wartime income taxes which
threatened to recapture a portion of public funds siphoned into private
hands; administration of the credit machinery through the Federal Reserve
System to facilitate speculation and the flow of surplus -capital into an
expanding capital-goods industry; a moratorium upon governmental regulation
of finance and industry; and the making of empty, but convincing,
gestures where the interests of farmers, labor, and consumers were concerned.
The first two policies were readily shaped, but subsidiary objectives
remained. As the reduction and remission of taxes on large incomes, left
national finances in a precarious position, and as the soundness of national
finances was integral to the well-being of private wealth, the finances had
to be strengthened by some device that would not inconvenience the large
fortunes.
The method finally approved involved the flotation of billions of dollars of
foreign securities in the domestic market, tapping the savings of thousands
of small investors; with the proceeds of these flotations Europe and Latin
America continued to buy American goods and, what was important, to make
payments upon the adjusted intergovernmental debts. The financial strain
which the magnates had imposed upon the government in 1917 to save their own
fiscal skins was, therefore, partially eased.
>From the beginning all regulation of private wealth was discarded. The
government, instead of regulating, collaborated, notably in the use of the
Federal Reserve System, by keeping speculative activity at fever pitch and
facilitating the proliferation of holding companies, investment trusts,
mortgage companies, and stock-market pools.
So gloomy were Democratic prospects in 1920 that there was no genuine contest
for the presidential nomination, which was given to James Cox, Ohio
politician, newspaper proprietor, and partner, with the Republican Dawes
clique of Chicago, in the Pure Oil Company. Franklin D. Roosevelt was the
vice-presidential nominee, although E. L. Doheny of the Mexican Petroleum
Company sought that honor for himself. Cox was given distinguished backing
because he espoused Wilson's League of Nations. Chief among those who spoke
for him was J. P. Morgan and Company's Thomas W. Lamont, whose recently
acquired New York Evening Post led the pro-League newspaper campaign. But
even the Morgan camp was split wide open on the League issue, and Cox was
opposed by some of Lamont's partners. Cox, like Alton B. Parker in 1904, made
sensational charges about a huge Republican slush fund. He could not prove
his case, but he precipitated a Senate investigation distinctive chiefly in
that it failed to uncover the true situation.
One of the allegations was that Henry Clay Frick had given a private dinner
in 1919 in honor of General Wood, with the guests present including George
Harvey, George W. Perkins, John T. King (Connecticut Republican boss and Wood
campaign manager subsequently indicted in alien property custodian frauds; he
died before coming to trial with a co-conspirator who was sentenced to
Atlanta Penitentiary), Dan R. Hanna, son of Mark Hanna, E. L. Doheny, Harry
F. Sinclair, Ambrose Monell of the International Nickel Company, George
Whelan, head of the United Cigar Stores Company of America, H. M. Byllesby,
public utilities holding company operator, A. A. Sprague, wholesale grocer of
Chicago, and William Boyce Thompson.
Thompson and Harvey took the initiative in bringing about the nomination of
Harding after the Wood boom had collapsed under the weight of gold. Harvey,
indeed, astutely picked Harding early in 1919 when, a year before the
Republican convention, he wrote the name of the candidate he thought would
capture the nomination and placed it, before many witnesses, in a sealed
envelope. After the convention the envelope was opened. The name inscribed
was Warren Gamaliel Harding.[3]
Wall Street, with Will Hays of the Sinclair Oil Company deputized to handle
details, began the collection of the Republican slush fund early in 1919. All
leading corporation executives were dragooned into giving from $100 to
$1,000. As Hays, a Presbyterian elder, had piously spread the tidings that no
contribution exceeding $1,000 would be accepted, the leading figures of
wealth cautiously made their early offerings only in installments of $1,000
each. Members of the wealthy families who gave $1,000 from two to twelve
times (with two to eight members of some families contributing) were S. R.
Guggenheim, Murry Guggenheim, William Boyce Thompson, R. Livingston Beekman,
Edward H. Clark, C. A. Coffin, Daniel Guggenheim, Percy A. Rockefeller,
Thomas Cochran (Morgan partner), George F. Baker, Charles Hayden, John N.
Willys, Elisha Walker, Harry F. Sinclair, E. H. Gary, J. Leonard Replogle,
James ,McLean, William H. Woodin, Clarence H. Mackay, Eugene Grace, E. C.
Converse, W. C. Durant, Charles M. Schwab, Earl W. Sinclair, Theodore N.
Vail, Dwight Morrow (Morgan partner), George D. Pratt, James B. Duke, David
A. Schulte, Edwin Gould, Frank J. Gould, Vincent Astor, Mrs. Vincent Astor,
Helen Astor, James A. Farrell, H. E. Huntington, George Washington Hill,
George J. Whelan, Ludwig Vogelstein (head of a company seized by the U. S. in
the war and later fraudulently paid for with public funds), Albert H. Wiggin,
Dunlevy Milbank, Horace Havemeyer, Ogden Reid, W. K. Vanderbilt, Jr., Henry
P. Davison (Morgan partner), August Heckscher, John T. Pratt, Ruth Baker
Pratt, T. F. Manville, H. H. Westinghouse, James Speyer, Helen Frick, Walter
P. Chrysler, Childs Frick, John D. Rockefeller, John D. Rockefeller, Jr.,
Mrs. Edwin Harkness, Julius Fleischmann, W. L. Mellon, Andrew W. Mellon, T.
Coleman du Pont, Mrs. Otto Kahn, W. K. Vanderbilt, Mrs. T. Cole, man du Pont,
Eugene Meyer, Felix Warburg, Adolph Lewisohn, Mrs, John D. Rockefeller, Mrs.
Henry Seligman, Mrs. Felix Warburg, Mrs. Ogden Mills, Alexis I. du Pont, W.
A. Harriman, F. A. Juilliard, Chauncey Depew, Mrs. F. W. Vanderbilt, Miss
Flora Whitney, Miss Barbara Whitney, Mrs. Harry Sinclair, Ogden L. Mills,
Howard Phipps, Frederick B. Pratt, George W. Perkins, Marshall Field, J.
Ogden Armour, F. Edson White, Daniel G. Reid, Mrs. Marshall Field, Mrs.
Stanley Field, Mrs. Samuel Insull, Charles E. Mitchell, Harold I. Pratt, Mrs.
Harry Payne Whitney, Otto Kahn, and John W. Weeks.
>From January 1, 1919, to August 26, 1920, the Republican National Committee
collected $2,359,676 for general party purposes, irrespective of
contributions on behalf of individual candidates. This was all the Kenyon
Committee could find, although in subsequent years vast additional sums were
brought to light. According to the final report of the Kenyon Senatorial
Investigating Committee, Harry F. Sinclair on May 15, 191g, made two
contributions of $1,000 each. Yet, testifying under oath on June 2, 1920,
Sinclair made the following answers to questions:
Q. You have had nothing to do with political campaigns at all?
A. No, sir.
Q. Directly or indirectly?
A. No, sir.
The Kenyon Committee got no further with its inquiry into the $10,000,000
Republican slush fund of 1920, but it brought about the elimination of Wood
by discovering that his preconvention fund totaled at least $1,773,033.
William Boyce Thompson in 1922, how-ever, confided to C. W. Barron: "There
was no limit on the State contributions or the Senatorial Committee. Every
Congressional District and every State had all the money it could use. In all
six million dollars must have been spent."[4] As chairman of the Repub-lican
Ways and Means Committee which directed Hays, Sinclair attorney and national
campaign manager, Thompson presumably knew whereof he spoke. Other committee
members were John W. Weeks, of the brokerage house of Hornblower and Weeks,
and the United States Senate; William Cooper Procter, head of the Procter and
Gamble Soap Company, of Cincinnati; T. Coleman du Pont, William Crocker, and
Mrs. John T. Pratt (Standard Oil).
Concealment of campaign contributions is customary. Frank R. Kent, of the
Baltimore Sun, writes in his authoritative Political Behavior: "Indictments
for violations of the. Corrupt Practices Acts are almost unknown and
convictions practically nonexistent. From President down, all elective
officers are chosen as a result of campaigns in which both state and Federal
laws ... are evaded and violated. In every campaign for the presidency there
is in each party always some man other than the treasurer and chairman, close
to the candidate and who knows the game, to whom personal contributions that
are never advertised and for which there is no need to account can be made."
Detailed contributions to the Wood fund uncovered by the Kenyon Committee
included $731,000 from Procter; $100,000 each from George J. Whelan (United
Cigar Stores), Rufus Patterson (tobacco), and Ambrose Monell (International
Nickel); $50,000 from Henry H. Rogers (Standard Oil); $25,000 from John D.
Rockefeller, Jr.; $15,000 from H. M. Byllesby; $10,000 each from George W.
Perkins, William Wrigley, and John C. Shaffer, Chicago newspaper publisher
and oil man; $6,000 from G. H. Payne, and $5,000 from Philip de Ronde, sugar
importer. John T. King collected $91,000, but could not remember the donors.
His successor as Wood's campaign manager was William Loeb, President Theodore
Roosevelt's White House secretary but long before 1920 promoted to vice
president of the Guggenheims' American Smelting and Refining Company and
president of the Yukon Gold Company.
The second largest preconvention fund belonged to Frank 0. Lowden, son-in-law
of the late George M. Pullman, financier of Charles G. Dawes' Central Trust
Company of Chicago, a leading spirit in the formation of the American
Radiator Company, and wartime Governor of Illinois. Lowden's fund amounted to
$414,984, most of which he contributed himself; it was of special interest
because the Senate Committee obtained a glimpse of how some. of it was used
to "finance" two Missouri convention delegates.
Hiram Johnson came third with a fund Of $194,393, Herbert Hoover fourth with
$173,542, and Warren G. Harding fifth with $113,iog. The Coolidge
preconvention fund was only $68,375, so far as the record shows, but the
Kenyon Committee failed to turn, up the names of Dwight W. Morrow and Thomas
Cochran although other sources show that these men contributed and were,
indeed, the moving spirits behind the Coolidge boom.[5] The largest
contributor to the Coolidge fund found by the Kenyon Committee was Frank W.
Stearns, Boston department-store owner, who gave $12,500. Harry M. Daugherty
was the principal Harding preconvention contributor.
For eight years after 1920 new disclosures were forthcoming about vast
contributions to the Republican slush fund; further inquiry would perhaps
disclose additional sums. In 1924 it was brought out that Harry F. Sinclair
gave $75,000 in the course of the campaign; in 1928 it was found that he had
given $185,000 additionally in Liberty Bonds to defray the campaign deficit.
James Patten, wheat speculator, the 1928 disclosures showed, gave $50,000.
Andrew W. Mellon gave at least $25,000 more than had previously been admitted.
John T. Pratt, brother of Herbert Pratt of the Standard Oil Company, gave
$50,000 more than was uncovered by the Kenyon Committee. Edward L. Doheny,
contributing $34,900 to the Republicans, also gave $75,000 to the Democrats.
T. Coleman du Pont gave the Republicans $25,000 over and above the Kenyon
Committee's figures.
In 1928 Hays reluctantly admitted that Daniel G. Reid, member of the board of
the United States Steel Corporation, chairman of the American Can Company,
president of the Tobacco Products Company, and director of the Bankers Trust
Company, Guaranty Trust Company, and numerous other Morgan banks and trust
companies, had given $100,000 in 1920.[6] William Boyce Thompson lent the
Republicans $150,000 and gave $60,000.[7] Perjury was rife in all the
hearings. The New York Herald Tribune, organ of the Republican Mills-Reid
family, gently said of Hays that his "evasion of the law and the truth has
been deplorable." [8]
Whereas the known Republican contributions finally came close to $10,000,000,
with the usual fat donations under names like Morgan, Rockefeller, and
Vanderbilt suspiciously absent, the Democratic slush fund amounted to only
$2,327,750.
The day before Harding's nomination the room of George W. Harvey at the
Blackstone Hotel was the scene of the notorious midnight conference that was
saturated in oil, whiskey, and tobacco smoke. In the light of his earlier
prediction that Harding would capture the nomination it is impossible not to
see him as the bearer of the highest Wall Street sanction, for as an original
deputy of Ryan, who collaborated on equal terms with Morgan, Rockefeller, and
Frick, Harvey had handled confidential political missions for all the big
financial clans.
Daugherty, who was a purely minor figure in the conspiracy but slated to be
Harding's Attorney General, knew enough only to tell newspaper men before the
convention that "the nomination would be decided on by twelve or thirteen men
'at two o'clock in the morning, in a smoke-filled room.’"[9]
The political deputies of wealth in Harvey's room were Senators Henry Cabot
Lodge (Morgan), Medill McCormick (Chicago Tribune-International Harvester
Company), James E. Watson of Indiana (Ku Klux Klan), Reed Smoot (Utah sugar
interests), James W. Wadsworth of New York (Morgan) and Frank Brandegee of
Connecticut (Morgan); the only person in the room who was not a Senator,
other than Harvey, was Joseph R. Grundy, chief lobbyist of the Pennsylvania
Manufacturers' Association and personal representative of Senator Boies
Penrose, who was lying in Philadelphia at the point of death but was
nevertheless in constant telephonic communication with Harvey's hotel suite.
Although not a delegate to the convention, Harvey "was second to nobody there
in influence upon its proceedings."[10] Others on the ground, and in intimate
association with the convention managers, were Elbert H. Gary, Henry P.
Davison, Thomas W. Lamont, W. W. Atterbury, president of the Pennsylvania
Railroad, Richard Mellon, George F. Baker, Frank A. Vanderlip, and F. H.
Allen, partner in Lee, Higginson and Company of Boston and New York.[11]
These latter, according to Senator R. F. Pettigrew of South Dakota, actually
dictated what went into the hodgepodge collection of evasions that
constituted the Republican platform; and "they were willing to take Lowden or
Wood ... They were holding Knox and Hoover, Harding and Senator Watson of
Indiana in reserve . . ."[12] The proceedings of the convention were
determined each day in advance by the clique around Harvey.[13]
Harding, somewhat incoherent and slightly wilted by heat and beverages, was
summoned to Harvey's room at midnight on the eve of his nomination. Solemnly
asked if there was anything that would make him unfit for the presidency—a
guarded reference to a whisper that Negro blood flowed in his veins-he as
solemnly replied in the negative. He was thereupon assured that the finger of
destiny had settled upon his shoulder, designating him a successor of
Washington, Jefferson, Jackson, and Lincoln. Harding left in a daze to plead
unsuccessfully with Senator Hiram Johnson to accept the vice-presidency.
Johnson, in bed, haughtily declined the honor and turned his face to the wall.
After Harding's nomination the unseen movers of the convention selected
Coolidge as his running mate, a decision disappointing to Steams but
acquiesced in by Morrow and Cochran behind the scenes. Lodge, as convention
chairman, adroitly moved the Morgan candidate ahead of Senator Lenroot of
Wisconsin.
Like Cox, Taft, and McKinley, Harding was a product of Standard Oil's Ohio.
He was, indeed, a product of Mark Hanna's old Standard Oil machine, of which
he became a rank-and-file member in his youth while starting out as a
small-town newspaper publisher. Ohio State Senator from 1900 to 1904,
Lieutenant Governor from 1904 to 1906, Harding formally nominated William
Howard Taft in 1912, and in 1914 was sent to the United States Senate. In
1908 Harding had boomed Standard Oil's Joseph D. Foraker for the presidency.
Although it was not written upon his brow, Harding was, truth to tell, a
Standard Oil man; his regime was, moreover, to be soaked, hardly by accident,
in petroleum.
J. P. Morgan's Coolidge was himself no more than a puppet. After astounding
his fellow townsmen by capturing the mayoralty of Northampton, Massachusetts,
from two abler candidates, he was elected to the Massachusetts Senate as the
protege of the wealthy Senator W. Murray Crane, director of the American
Telephone and Telegraph Company and other J. P. Morgan enterprises. In 1913
Coolidge was elevated to the Massachusetts Senate presidency, to the
astonishment of outsiders, as a climax to the forehanded intrigue of J. Otis
Wardwell, attorney for Kidder, Peabody and Company, close banking associate
of J. P. Morgan and Company; a collaborator in this intrigue was Arthur P.
Russell, attorney for the New York, New Haven and Hartford Railroad and
various other Morgan public-utilities companies.[14] As Senate President,
Coolidge exercised power second only to that of the Governor.
In 1915 he was elected Lieutenant Governor, this time with the help of funds
from Dwight W. Morrow, whose classmate he had been at Amherst College.[15]
Two years later Morrow assisted Coolidge into the governorship, where he was
hibernating when the Boston police strike of 1919 goaded conservatives to
fury and insensate fear. Before the inept Governor dared to move, the strike
fell to pieces, whereupon he issued a resolute proclamation of defiance
against the strikers. Coolidge's ostensible forthright action in breaking
down the forces of lawlessness, it was argued at Chicago, made him a logical
presidential aspirant; but the hard-bitten, booze-soaked delegates were not
convinced.
Although keeping himself in the background, the soft-spoken Morrow was
present at Chicago, an aspiring President-maker. "Morrow's room at the hotel
became the center of intensive lobbying. He expounded, he argued, he
cajoled."[16] When Harding was nominated Morrow wrote to Lamont that he did
not relish the man, but "nevertheless I feel that there is nothing against
him and that there is very much in his favor."[17]
The decisive election victory of Harding and Coolidge at once placed Harvey
in a pre-eminent political position. Harvey was, in fact, the real President
while Harding occupied the White House, He was offered the post of Secretary
of State, but declined and took the London ambassadorship. Harding and Will
Hays together telephoned to Harvey in New York from the South to solicit his
approval of the Cabinet members. As the names of the men who were to sit in
the "Black Cabinet" were read Harvey exclaimed, "Admirable! . . . Perfect! .
. . You could not possibly do better."[18]
Until his death President Harding corresponded frequently with Harvey and
sought his advice.[19] When Harvey was -named to the London post John D.
Rockefeller thought it fitting to congratulate him.[20] And even after
Harding died Harvey's influence at the White House was scarcely diminished,
although it was subordinate to that of Dwight W. Morrow. Harvey and Coolidge
corresponded often, and Harvey, resigning his London post to be nearer the
scene of action after his political creation had passed into the afterworld,
was often at the White House.[21] Harvey, indeed, constantly shuttled in and
out to confer with Coolidge.[22] At one time the President wrote to Harvey:
"If you get an idea any time, let me have it."[23] Harvey and Coolidge, as a
matter of fact, had an "exceptionally intimate and confidential
friendship."[24]
On the occasion of one of Coolidge's opaque speeches Harvey and the senior
John D. Rockefeller jointly signed a message of felicitation to the
President.[25] The dual signature was, perhaps, a delicate way of reminding
Coolidge for whom Harvey was the spokesman. So great a political force was
Harvey known to be that the pathetically ambitious Herbert Hoover sought and
was given his potent aid in the 11928 presidential campaign.[26]
At the instance of Henry Clay Frick, who conveyed his wishes through Senator
Philander C. Knox of Pennsylvania, Harding named Andrew W. Mellon Secretary
of the Treasury.[27]* Until his appointment Mellon had been virtually unknown
to the general public, although he was one of the five richest individuals in
the country and since 1871 had been Frick's banker. The appointment of
Charles Evans Hughes, Standard Oil attorney, as Secretary of State, was
probably dictated by Harvey. According to the talkative William Boyce
Thompson "Hughes was the connection with John D. Rockefeller."[28] [* Some
writers say Daugherty suggested Mellon, but this is highly improbable. Frick
was not only the logical man to propose Mellon but George Harvey, an insider,
says he did propose him.]
When Philander C. Knox died, incidentally, he was replaced in the Senate by
his law partner, David A. Reed, of Pittsburgh, counsel to the Mellon banks,
as Knox had been. The Mellon-Frick Senatorial succession was not permitted to
lapse; it was kept alive, however, only by wholesale pecuniary debasement of
the electoral processes, as disclosed by a Senate committee.
Hughes and Mellon were the most significant appointees in the Harding
Cabinet, the one ruling over the delicate field of foreign affairs, which
involved the settlement of war debts and apportionment of postwar markets,
and the other over the equally delicate field of domestic finances. It is no
wonder that Lodge confided to Barron in 1923 that "Harding is very
satisfactory to the financial interests."[29] As to Hughes and the debt
settlement, Barron quotes Harding's Secretary of State as saying in June,
1921, "I know Mr. Rockefeller quite well and we are getting the benefit of
Mr. Morgan's opinion."[30]
Senator Weeks, Boston broker and Morgan connection, was named Secretary of
War. Hays, Sinclair Oil attorney, became Postmaster General for a brief term,
resigning to become moral arbiter for the motion-picture industry. Daugherty,
a ward politician, was Harding's personal selection as Attorney General.
Hoover, about whose connections more will be said later, was named Secretary
of Commerce at the bidding of William Boyce Thompson, who probably spoke with
the approval of his close friend, Thomas W. Lamont. The pliant Senator Albert
B. Fall, protege of E. L.
Doheny, Harry F. Sinclair, and Cleveland H. Dodge, was given the portfolio of
the Interior Department, which carried with it custody of the public lands.-
Edwin B. Denby of Michigan was named
Secretary of the Navy. Henry A. Wallace of Iowa became Secretary of
Agriculture.
Harding surrounded himself with a motley crew of personal advisers. His
"poker Cabinet" included Mellon, Harvey, Will Hays, William Wrigley, Chicago
chewing-gum manufacturer, Charles M. Schwab, Harry F. Sinclair, and Walter C.
Teagle, president of the Standard Oil Company of New Jersey.[31] The
President's private parties soon caused whispering in Washington, so much so
that many prominent persons were curious to see the White House room where
they took place, although it was not until the Teapot Dome investigation
that the mysterious "little green house on K Street" also became widely known
as a haunt of the President and his poker-playing friends.
"I had heard rumors and was curious to see for myself what truth was in
them," says Alice Longworth of a White House visit. "No rumor could have
exceeded the reality; the study was filled with cronies, Daugherty, Jess
Smith, Alex Moore, and others, the air heavy with tobacco smoke, trays with
bottles, containing every imaginable brand of whiskey stood about
[prohibition was a Federal law], cards and poker chips ready at hand—a
general atmosphere of waist-coats unbuttoned, feet on the desk, and the
spittoon alongside."[32]
Immediately after the Inaugural the piratical poker-playing crew in
charge of the ship of state scrambled for the strongbox with the un-erring
instinct of cracksmen seeking the family heirlooms. Hughes negotiated
agreements for the payment of the inter-Allied debts and a general reduction
in naval armaments; these were, relatively,
"clean" jobs, although of tax benefit to the millionaires. Mellon cheerfully
took over the job of manipulating the public exchequer. Fall and Denby, with
the President's explicit consent, permitted the ravishment of the naval oil
reserves by the Sinclair-Doheny-Standard Oil syndicate. Daugherty quashed
prosecutions of war profiteers and other spoilsmen of Wall Street and waged
vigorous warfare against labor organizations. Hoover expanded the Department
of Commerce at great public expense and used it as a marketing agency for the
big industries, which were given its valuable services free of charge.
But, most significantly of all, Hoover used the Department of Commerce to
foster monopoly on the most complete scale ever seen outside a Fascist state.
The antitrust movement had collapsed completely during the war; even the
pretense of enforcing the Sherman and Clayton Acts was discarded. Under
Hoover the trust movement took a new form. Approximately four hundred trade
associations had come into being during the war, sponsored by the various
industries and encouraged by the government.
In 1921 the Supreme Court had held that the pooling of commercial information
was in restraint of trade. Daugherty, as Attorney General, contended that the
distribution of information and statistics among member's of trade
associations violated the law. In 1923 the Supreme Court held that the
Association of Linseed Oil Producers restrained trade.
"Secretary Hoover then took the final step in using the machinery of his
department to circumvent the restraints of the Supreme Court and the
Department of Justice. Voluntary committees within the industrial and trade
groups sent statistical data to the department. This was combined with data
furnished by the Bureau of Census and the Bureau of Foreign Commerce,
analyzed, and returned to the associations to be distributed among
members:"[33]
The Federal Trade Commission protested against this as arrant price-fixing,
but the Supreme Court approved. Monopoly and trustification. had now reached
its highest form: it was carried on through the agency of the government. Up
to 1927, no fewer than 243 trade agreements had been arranged through
Hoover's Department of Commerce, all having the effect of jacking up prices
to the ultimate consumer. It was in recognition of this notable work in
improving the mechanism for extracting money from the consumer that Hoover
was given general banking support for the presidency in 1928 when Andrew W.
Mellon's boom collapsed.
Hoover was not above engaging in even more devious practices to channel money
into the hands of the financial lords. Early in his administration of the-
Commerce Department, for example, he put out a false prediction of a
sugar-crop shortage which made possible an increase in prices that netted the
Sugar Trust a profit of $55,000,000 in three months.
Hoover's trade associations functioned behind the screen of the highest
tariff yet devised, the Fordney-McCumber Tariff Act of 1922, passed by the
Republican majority and approved by Harding. Illustrative of the fact that
the tariff rates were not arrived at on the basis of abstract principle were
the increases on aluminum houseware fixed for the benefit of Mellon's
Aluminum Corporation, which in 1921 paid a dividend of one thousand per cent
on its original capital and which immediately after passage of the
Fordney-McCumber Act declared an additional dividend of five hundred per
cent. Other big companies benefited similarly.
The Aluminum Company, to digress momentarily, had been recognized as a
monopoly in 1912 by the Federal courts; in 1924 the Federal Trade Commission
reported it as an absolute monopoly, and although the Trade Commission filed
complaints against it again in 1928 and 1930 nothing was done about it until
1937 when the government again filed suit to break it up. Mellon, in short,
enjoyed the immunity reserved for those in possession of money.
But the hub of government, immediately after Harding was installed, became
the Treasury Department. Mellon went to work upon the public vaults with a
celerity that showed what the election had been about. Under Mellon
reductions and remissions of income taxes for wealthy individuals exceeded
$6,000,000,000; until he appeared in Washington wholesale tax rebates had
been unheard of. The details of Mellon's tax-reduction program were worked
out by Assistant Secretary of the Treasury S. Parker Gilbert, who later
became a partner of J. P. Morgan and Company. Gilbert was a protege of Owen
D. Young and Russell C. Leffingwell, Assistant Secretary of the Treasury
under Wilson and subsequently a Morgan partner.
Mellon also launched a movement to impose a Federal sales tax upon all
articles in retail trade, a barefaced attempt to increase the tax burden of
the lower classes. Although repeated efforts to pass the sales tax were made
under Harding, Coolidge and Hoover, with Mellon the individual driving force,
it was repeatedly defeated by the Senate insurgents of both parties. The
proposed sales tax was applauded by most of the big newspapers, notably by
the Hearst chain.
At the time Mellon threw around himself the mantle of Alexander Hamilton the
moguls of vested wealth were in danger of losing some portion of their war
profits to the public Treasury, whence, indeed, they had come. Upon the
declaration of war, Congress had devised an excess-profits tax based on
corporation earnings of the 1911-1914 period. The tax amounted to twenty per
cent on profits fifteen per cent in excess of the basing figure; to
thirty-five per cent on the excess up to fifteen to twenty-five per cent; to
forty-five per cent on the excess up to twenty-five to thirty-three per cent;
and to sixty per cent on the excess above thirty-three per cent. Despite
these relatively punitive rates the profits taken after payment of taxes were
enormous. A wartime surtax of two to three per cent was imposed on individual
incomes of $8,000 to $50,000; of twelve to twenty-four per cent on incomes Of
$50,000 to $100,000; of twenty-seven to fifty-two per cent on incomes of
$100,000 to $2,000,000; and of sixty-three to sixty-five per cent on incomes
from $2,000,000 upward.
Various ways were discovered by the rich for evading these taxes. One method
was to invest in tax-exempt government securities. There were not enough of
these to supply the demand from wealthy families, but they were supplemented
by tax-exempt securities issued by state and local governments, which the
investment bankers stimulated to tap the vast surplus capital resources of
Wall Street. Other ways of evading taxes were to invest money abroad; to
declare stock dividends and transfer cash earnings to surplus to be held
against a day of low taxes for distribution; to build unnecessary plants,
hotels, and office buildings; to pay inordinately high salaries to
corporation officials; and to resort to technically legal subterfuges such as
personal holding companies. Although the income of the wealthy class had
risen sharply, in 1922 incomes of more than $300,000 paid income taxes on
only $366,000,000, compared with nearly $1,000,000,000 in 1916 before the
imposition of the emergency taxes!
Mellon failed to block any of the tax loopholes.
But on the plea of stopping tax evasion the Revenue Act of 1921, drawn by
Mellon's Department, eliminated the excess, profits tax entirely, saving
corporation stockholders $1,500,000,000 a year at one stroke. The maximum
surtax on individual incomes was reduced by Congress from sixty-five to fifty
per cent, with Mellon calling for a twenty-five per cent surtax. The
concession by Congress was not sufficient for the avid Mellon and his
supporters, however, for late in 1923 additional measures were enacted that
further eased the tax load on the rich. The proposed tax bill of 1924 reduced
the maximum surtax from fifty to twenty-five per cent; this was considered so
flagrant that the bill could not be stomached even by a subservient Congress.
In the substitute bill a surtax of thirty-seven and a half per cent was
established and estate taxes were raised from twenty-five to forty per cent
on fortunes of $10,000,000 or more. Mellon thereupon advised Coolidge to use
the veto, but the President, heeding advice from other quarters, allowed the
measure to become law.
Mellon argued that the tax would so operate as to confiscate estates in two
or three generations, ending, as he vowed, the existence of private property.
Senate liberals, however, pointed to the fact that the Guggenheim, Du Pont,
Harkness, and Pratt fortunes had doubled or trebled in the hands of many
heirs. Alexis I. Du Pont, who died in 1921 as a member of the fourth
generation of a dynasty whose founder left $40,000,000, alone had an estate
of $30,000,000; a dozen other members of the fourth generation had fortunes
of equal or ,greater size. Stephen V. Harkness left an estate of less than
$50,000,000, yet his two sons left $100,000,000 and $170,000,000 respectively.
In 1926 Coolidge signed Mellon's bill that provided for a twenty per cent
maximum surtax on individual income taxes; a basic tax rate of 5 per cent;
reduction of the inheritance tax; repeal of the gift tax and of the tax on
automobile trucks and accessories. Up to this point the Mellon tax reductions
had saved wealthy individuals and corporations an officially estimated
$4,000,000,000 annually, exclusive of remissions.
Had a halt been called there something might have been saved from the
wreckage. But Mellon was coldly savage in his determina-tion to obtain
virtually complete tax exemption for the clans of great wealth. The Treasury
Department quietly indicated, the moment Mellon took office, particularly to
generous Republican Party contributors, that the Internal Revenue Bureau had
adopted a policy of "liberal" interpretation of tax laws to allow remissions
of taxes paid from "1917 onward. At one time more than twenty-seven thou-sand
lawyers, accountants, and tax experts were handling tax-rebate cases in
Washington.
The situation soon caused the launching of a special Senate investigation
under the chairmanship of Senator James Couzens of Michigan. One of the cases
cited by Couzens concerned a zinc property bought by William Boyce Thompson
in 1913 for $10,000 and sold in 1918 for $600,000, upon the five thousand
nine hundred percent profit of which transaction no taxes were collected
because, it was said with absurd illogicality, the property had been really
worth $600,000 from the first.
The Couzens investigation disclosed other rank favoritism if not criminal
intent in the bestowal of public funds disguised as tax rebates; Mellon
vindictively retaliated by filing suit against Couzens for the collection of
$10,000,000 in taxes allegedly due on the sale in 1918 of Couzens' stock in
the Ford Motor Company. Couzens won the case, but at great expense. Before
his recent death Couzens enjoyed the distinction of being the only wealthy
man ever to sit in the Senate with a keen sense of responsibility to the
common welfare. A similar Senator, not so wealthy, was the late Bronson
Cutting of New Mexico.
During his first four years in office Mellon gave himself a tax refund Of
$404,000, second only to one Of $457,000 for John D. Rockefeller, Jr. The
United States Steel Corporation received a refund Of $27,000,000, typical of
those to large corporations. It is manifestly impossible to cite all the
refunds, for up to December, 1924 the list of tax refunds filled eight folio
volumes of ten thousand pages. When Mellon left office the list was more than
twice as large.
Mellon on one occasion overstepped the bounds of legality, when a refund Of
$91,472 to the Mellon banks in Pittsburgh was assailed as improper; it was
promptly defended on the Senate floor by Senator David A. Reed, Mellon's
lawyer. But the Treasury Department was constrained to admit, in the face of
a general outcry from the Senate liberals, that the refund was illegal. It
was recalled.
Mellon, of course, fought the disclosure of 1923 and 1924 tax payments
brought about by Couzens and the Senate liberals, and he and Coolidge were
successful in having this salutary practice discontinued. The Couzens
inquiry, unfortunately, did not stop Mellon from ladling out public funds.
Indeed, Couzens' committee was not equipped to unravel the tortuous details
of all the tax transactions. But the committee made it glaringly evident that
virtually -very tax transaction of the Treasury Department under the
Pittsburgh banker and aluminum monopolist is suspect. During Mellon's tenure
a total of $1,271,000,000 of tax refunds were made, of which $7,000,000 were
for Mellon's personal account, $14,000,000 for the account of his
corporation. In remissions, rebates, and reductions of rates more 'than
$6,000,000,000 was siphoned from the Treasury into private pockets. The
Mellon regime therefore had the effect of leaving the national debt larger by
this amount than it would have been and of increasing the aggregate of war
profits by at least half this amount, since it was capital gains from wartime
operations that figured largely in the tax juggling.
Not satisfied with the havoc already wrought in the public finances Mellon
and President Hoover in November, 1929, announced a reduction of one per cent
on individual and corporation taxes for 1930, of which $100,000,000 accrued
to corporations and $60,000,000 to individuals. This reduction was temporary
only; since then there has been no fundamental reform in the income-tax
schedules, which should never, in the interests of sound public finance, have
been changed from the 1919 basis. The Franklin D. Roosevelt Administration,
however, closed some tax loopholes, but while it has raised estate and income
taxes it has kept a loosely drawn gift-tax law that virtually nullifies
estate-tax provisions.
Mellon played politics in many ways with the Treasury Department. During his
incumbency he predicted, from time to time, heavy deficits. These predictions
had the effect of deterring war veterans and farmers from demanding Federal
assistance. In 1921, 1922, and 1924 Mellon predicted deficits in the face of
the bonus agitation, and each year there was a substantial surplus. But after
1929, when deficits became the rule, Mellon took to predicting surpluses so
that income and inheritance taxes would not be increased by Congress.
As the nation writhed after 1929 in the grip of the crisis, economists
criticized the Secretary of the Treasury for having reduced taxes in
prosperous years when they might have liquidated the national debt and so
left the Treasury in a position to shoulder its proper responsibility to the
people as a whole. The conservative Dr. E. R. A. Seligman, McVickar Professor
Emeritus of Political Economy at Columbia University, lashed out at Mellon
for the "absurdly inadequate" revenues received from the meager inheritance
taxes.
The Treasury Department under Mellon was shot through with scandals, of which
the Barco concession deal was outstanding.* The Mellon tax policies were
scandal enough, however; they played a big part in fueling the speculative
boom of 1924-1929, for the funds released for private use could in many cases
find no constructive economic outlet. They were therefore directed into the
stock market, into the proliferation of holding companies and investment
trusts, and into wild personal extravagances that stimulated luxury trades
which later collapsed.[*The Carib Syndicate, controlled by Henry L. Doherty
and J. P. Morgan, in 1917 bought a Colombian oil concession known as the
Barco Concession. It had not been developed owing to high costs, and in 1926
the Colombian government proposed to cancel it. The Mellon's Gulf Oil
Company, however, although knowing the facts, on January 5, 1926, paid
Doherty $1,500,000 for the concession. Gulf Oil argued against cancellation
of the undeveloped concession, and its contentions were upheld by the State
Department. American banks instituted an embargo against Colombia, and thus
brought about a severe internal political and economic crisis. The National
City Bank of New York, appealed to by Dr. Enrique Olaya Herrera, Colombian
Minister to Washington, said that nothing could be done about Colombian
financing until the confidence of investors was restored. To assist in
restoring confidence Herrera was given H. Freeman Matthews, assistant chief
of the Latin-American division of the State Department and Jefferson Caffrey,
American Minister to Colombia. They recommended the engagement by Colombia of
Dr. Edwin Kemmerer, of Princeton University, to revise Colombia's fiscal
policies, and of George Rublee, Dwight W. Morrow's aide in Mexico, to advise
on legislation. Colombia adopted the petroleum code recommended by these
Americans, but only after stormy debate. The new petroleum law gave the Gulf
Oil Company a fifty-year concession. Ten days after the law's adoption, the
National City Bank advanced to Colombia the final $4,000,000 installment of a
$20,000,000 credit earlier contracted for. The New Republic expressed
astonishment that "an American Secretary of State had used his high office to
persuade the National City Bank of New York to grant an unsound bank credit
to the government of Colombia as a means of obtaining one of the world's
largest oil concessions for a company controlled by the interests of Mr.
Mellon, our Secretary of Treasury."]
pps. 149-169
--[cont]--
Aloha, He'Ping,
Om, Shalom, Salaam.
Em Hotep, Peace Be,
Omnia Bona Bonis,
All My Relations.
Adieu, Adios, Aloha.
Amen.
Roads End
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