-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 DECLARATION & DISCLAIMER ========== CTRL is a discussion and informational exchange list. 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