Chapter 5 Part II —The Genesis of Corporate Socialism
Making Society Work for the Few
have described Franklin D. Roosevelt's seven-year career on "the
Street" that ended with his election as Governor of New York in 1928.
This description was taken from FDR's own letter files. To avoid possible
misinterpretation, portions of these letters were reproduced verbatim
and at length. On the basis of these letters, there is no question that
FDR used political influence almost exclusively to gain bonding business
while vice president of Fidelity & Deposit Co.; that significant and
questionable international financial and political links surface in the
case of United European Investors and International Germanic Trust; and
that his intimate associates ranged from Owen D. Young, president of General
Electric, a member of the élitist financial establishment, to men
described by an agent of the Proudfoot Agency as a "band of crooks."
The next four chapters comprising Part Two of this book expand upon this theme of politicization of business enterprise. First, we cast a wider net to formulate the thesis of corporate socialism and identify some prominent corporate socialists, mostly associated with FDR. Then we move back in time to the 1840's to one of FDR's ancestors, Assemblyman Clinton Roosevelt of New York and his early version of NRA. This scheme is compared to Baruch's War Industries Board in 1917, the operation of the Federal Reserve System, and the Roosevelt-Hoover American Construction Council of the 1920s. Finally, in the last chapter of this part we detail the financial investment of Wall Street in the New Deal.
THE ORIGINS OF CORPORATE SOCIALISM
Old John D. Rockefeller and his 19th century fellow-capitalists were convinced of one absolute truth: that no great monetary wealth could be accumulated under the impartial rules of a competitive laissez faire society. The only sure road to the acquisition of massive wealth was monopoly: drive out your competitors, reduce competition, eliminate laissez-faire, and above all get state protection for your industry through compliant politicians and government regulation. This last avenue yields a legal monopoly, and a legal monopoly always leads to wealth.
This robber baron schema is also, under different labels, the socialist plan. The difference between a corporate state monopoly and a socialist state monopoly is essentially only the identity of the group controlling the power structure. The essence of socialism is monopoly control by the state using hired planners and academic sponges. On the other hand, Rockefeller, Morgan, and their corporate friends aimed to acquire and control their monopoly and to maximize its profits through influence in the state political apparatus; this, while it still needs hired planners and academic sponges, is a discreet and far more subtle process than outright state ownership under socialism. Success for the Rockefeller gambit has depended particularly upon focusing public attention upon largely irrelevant and superficial historical creations, such as the myth of a struggle between capitalists and communists, and careful cultivation of political forces by big business. We call this phenomenon of corporate legal monopoly—market control acquired by using political influence—by the name of corporate socialism.
The most lucid and frank description of corporate socialism and its mores and objectives is to be found in a 1906 booklet by Frederick Clemson Howe, Confessions of a Monopolist.1
Frederick Howe's role in the 1917 Bolshevik Revolution and its aftermath was described in Wall Street and the Bolshevik Revolution.2 Howe also emerges in Roosevelt's New Deal as consumer counsel in the Agricultural Adjustment Administration. So Howe's interest in society and its problems spans the early 20th century, from his association with Newton D. Baker, later Secretary of War, to communist Lincoln Steffens. As a special U.S. Commissioner, Howe made studies of municipal ownership of public utilities in England and in 1914 was appointed by President Wilson as U.S. Commissioner of Immigration.
What is the secret of making great wealth? Howe answers the question as follows: "Mr. Rockefeller may think he made his hundreds of millions by economy, by saving on his gas bills, but he didn't. He managed to get the people of the globe to work for him...."3
In brief, corporate socialism is intimately related to making society work for the few.
MAKING SOCIETY WORK FOR THE FEW
This is the significant theme in Howe's book, expressed time and time again, with detailed examples of the "let others work for you" system at work. How did Mr. Rockefeller and his fellow monopolists get the globe to work for them? It went like this, according to Howe:
Howe's opposite to this system of corrupt monopoly is described as "labor for labor, value for value, something for something." But these values are also the essential hall marks of a market system, that is, a purely competitive system, where market clearing prices are established by impartial interaction of supply and demand in the market place. Such an impartial system cannot, of course, be influenced or corrupted by politics. The monopoly economic system based on corruption and privilege described by Howe is a politically run economy. It is at the same time also a system of disguised forced labor, called by Ludwig von Mises the Zwangswirtschaft system, a system of compulsion. It is this element of compulsion that is common to all politically run economies: Hitler's New Order, Mussolini's corporate state, Kennedy's New Frontier, Johnson's Great Society, and Nixon's Creative Federalism. Compulsion was also an element in Herbert Hoover's reaction to the depression and much more obviously in Franklin D. Roosevelt's New Deal and the National Recovery Administration.
It is this element of compulsion that enables a few—those who hold and gain from the legal monopoly—to live in society at the expense of the many. Those who control or benefit from the legislative franchises and regulation and who influence the government bureaucracies at the same time are determining the rules and regulations to protect their present wealth, prey on the wealth of others, and keep out new entrants from their business. For example, to make the point clear, the Interstate Commerce Commission, created in 1880, exists to restrict competition in the transportation industry, not to get the best deal possible for shippers. Similarly, the Civil Aeronautics Board exists to protect the domestic aviation industry, not the airline traveler. For a current example, among hundreds, witness the CAB seizure in July 1974 of a Philippines Air Lines (PAL) DC-10 at San Francisco airport. What sin had PAL committed? The airline merely substituted a DC-10 plane, for which equipment CAB had not granted permission, for a DC-8. Who gained? The domestic U.S. airlines, because of less competition. Who lost? The traveler denied seats and a choice of equipment. Any doubts about whose side the CAB might be on were dispelled by an article a few weeks later in The Wall Street Journal (August 13, 1974) entitled "CAB Is an Enthusiastic Backer of Moves to Trim Airline Service, Increase Fares." This piece contained a gem by CAB vice chairman Whitney Gillilland: "We've had too much emphasis on passenger convenience in the past." Gillilland added that the CAB must be more tolerant of capacity-packed planes, "even if it may mean somebody has to wait a day to get a flight."
In brief, regulatory agencies are devices to use the police power of the state to shield favored industries from competition, to protect their inefficiencies, and to guarantee their profits. And, of course, these devices are vehemently defended by their wards: the regulated businessmen or, as we term them, "the corporate socialists."
This system of legal compulsion is the modern expression of Frederic Bastiat's dictum that socialism is a system where everyone attempts to live at the expense of everyone else. Consequently, corporate socialism is a system where those few who hold the legal monopolies of financial and industrial control profit at the expense of all others in society.
In modern America the most significant illustration of society as a whole working for the few is the 1913 Federal Reserve Act. The Federal Reserve System is, in effect, a private banking monopoly, not answerable to Congress or the public, but with legal monopoly control over money supply without let or hindrance or even audit by the General Accounting Office.5 It was irresponsible manipulation of money supply by this Federal Reserve System that brought about the inflation of the 1920s, the 1929 Depression, and so the presumed requirement for a Roosevelt New Deal. In the next chapter we shall examine more closely the Federal Reserve System and its originators. For the moment, let's look more closely at the arguments made by the Wall Street financier-philosophers to justify their "making society work for the few" credo.
THE CORPORATE SOCIALISTS ARGUE THEIR CASE
One can trace a literary path by which prominent financiers have pushed for national planning and control for their own benefit and that ultimately evolved into the Roosevelt New Deal.
Such themes of cooperation and rejection of competition are expressed in different ways and with varying degrees of lucidity. Businessmen are not persuasive writers. Their books tend to be turgid, superficially self-seeking, and somewhat weightily pedantic. A few such examples will, however, demonstrate how Wall Street corporate socialists made their case.
Bernard Baruch was the outstanding corporate socialist whose ideas we shall examine in the next chapter. After Baruch and the Warburgs, also discussed in the next chapter, the next most prolific writer was influential banker Otto Kahn of Kuhn, Loeb & Co.
Kahn is notable for his support of both the Bolshevik Revolution and Benito Mussolini, support which he concretized in such totalitarian expressions as, "The deadliest foe of democracy is not autocracy but liberty frenzied."6 On socialism, Otto Kahn stated his sympathy toward its objectives on many occasions. For instance, his address to the socialist League of Industrial Democracy in 1924 included the following:
A number of these financier-philosophers from Wall Street were trustees of the Brookings Institution in Washington D.C.., responsible for many of the policy guides to achieve this desired system. Robert S. Brookings, founder of the Brookings Institution, is generally termed an economist, but Brookings himself wrote: "I certainly have no claim to that professional title. I write only as one who, through a long business experience of more than sixty years, has had much to do with manufacturing and distribution. . . ."8 In his self-described role of businessman, Brookings published three books: Industrial Ownership, Economic Democracy, and The Way Forward. In these three books, Brookings argues that classical political economy, as reflected in the work of Adam Smith and his school,
Consequently, but without presenting his evidence, Brookings rejects the free enterprise ideas of Adam Smith and accepts the statist ideas of List—also, by the way, reflected in the Hitlerian corporate state. From rejection of free enterprise Brookings finds it quite easy to deduce a "moral" system rejecting the market place and substituting an approximation to the Marxist labor theory of value. For example, Brookings writes:
A sound system of economic morality demands therefore that instead of our paying labor merely a market wage, the minimum necessary to secure its services, capital should receive the market wage necessary to secure its services, and the balance should go to labor and the consuming public.10
From this quasi-Marxist argument Brookings constructs, rather vaguely and without detailed support, the outlines of proposals needed to combat the "evils" of the prevailing market system. Of these proposals, "The first is the revision of the anti-trust laws in such a way as to permit extensive cooperation."11 This, argues Brookings, would have two effects: advance research and development and flatten out the business cycle. Just how these objectives follow from "cooperation" is not stated by Brookings, but he cites Herbert Hoover at length to support his argument, and particularly Hoover's article, "If Business Doesn't, Government Will."12
like any good socialist, Brookings concludes: "Efficiently managed
corporations have nothing to fear from intelligent public supervision
designed to protect the public and the trade alike from grasping and intractable
minorities."13 This is necessary because, Brookings argues
elsewhere, statistics indicate that most businesses operate inefficiently,
"So we know from sad experience that blind or ignorant competition
has failed to make its reasonable contribution through earnings to our
national economic needs."14
In 1932 Brookings emerged from his shell in The Way Forward to become even more outspoken about developments in Soviet Communism:
The verbal damning of communism now prevalently popular in the United States will get us nowhere. The decision between capitalism and communism hinges on one point. Can capitalism adjust itself to this new age? Can it move out from its old individualism, dominated by the selfish profit motive, and so create a new co-operative epoch with social planning and social control, that it can serve, better than it has, the welfare of all the people? If it can, it can survive. If it cannot, some form of communism will be forced upon our children. Be sure of that!15
And in the same book Brookings has good words to say about another forced labor system, Italian fascism:
What then is preeminent in Brookings' writing is his predilection for any social system, communism, fascism, call it what you will, that reduces individual initiative and effort and substitutes collective experience and operation. What is left unsaid by Brookings and his fellow financier philosophers is the identity of the few running the forced labor collective. It is implicit in their arguments that the operators of the system will be the corporate socialists themselves.
From the purely theoretical proposals of Brookings we can move to those of George W. Perkins, who combined parallel proposals with some effective, but hardly moral ways of putting them into practice.
George W. Perkins was the forceful, energetic builder of the great New York Life Insurance Company. Perkins was also, along with Kahn and Brookings, an articulate expounder of the evils of competition and the great advantages to be gained from ordered cooperation in business. Perkins preached this collectivist theme as one of a series of lectures by businessmen at Columbia University in December 1907. His speech was hardly a roaring success; biographer John Garraty claims that when it was over:
Garraty summarizes Perkins' business philosophy:
At the same hearing the vice president of Mutual Life Insurance also advanced the interesting concept that business had a "duty" to "scotch" unwelcome ideas and policies. The history of corporate financing of politics has hardly maintained the principles of the Constitution and a free society. More specifically, there is a gross inconsistency between the social do-good principles of cooperation advanced by Perkins and his fellow businessmen and the contemporary antisocial behavior of his own New York Life Insurance Company.
In brief, the principles of corporate socialism are but a thin veneer for the acquisition of wealth by a few at the expense of the many.
We can now look profitably at the preaching of those financiers more intimately associated with Roosevelt and the New Deal. One such financier-philosopher who expressed his collectivist ideas in writing was Edward Filene (1860-1937) The Filenes were a family of highly innovative businessmen, owners of the large department store William Filene's Sons Co. in Boston. A vice president of Filene's became one of the three musketeers running the National Recovery Administration in 1933; the other two of the triumvirate were Walter Teagle, president of Standard Oil and John Raskob, vice president of Du Pont and General Motors.
From the turn of the century Edward Filene concerned himself with public affairs. He served as chairman of the Metropolitan Planning Commission of Boston, promoter of people's banks, and provided assistance to various cooperative movements. Filene was active in the Red Cross and the U.S. Chamber of Commerce; a founder of the League to Enforce Peace; a founder and later president of the Cooperative League, subsequently renamed the Twentieth Century Fund; and a member of the Foreign Policy Association and the Council on Foreign Relations. In Roosevelt's era Filene was chairman of the Massachusetts State Recovery Board and active in the 1936 campaign for FDR's reelection. Filene wrote several books, of which two, The Way Out (1924)20 and Successful Living in this Machine Age, (1932),21 express his philosophical leanings. In The Way Out, Filene emphasizes the theme of reducing waste, and the shortsightedness of competition and stresses the value of cooperation between business and government. Filene summarizes his argument as follows:
This "public service is private business" theme is expanded in another of his books:
We also find in Filene "the road to peace is the balance of power" argument—a repeat of a 19th-century formula resurrected by Henry Kissinger in the 1970s and one that has always ultimately led to war rather than peace. Filene phrases his version as follows:
This theme of promotion of the public interest as a matter of primary benefit to business itself is also found in Myron C. Taylor, chairman of United States Steel Company. The public interest, Taylor argues, needs cooperation by business for rational production. The blindness of big business is clear when Taylor denies this would also be restraint of trade. Taylor omits to explain how we can adjust production to consumption without compulsion of those who may not want to cooperate. Taylor summarizes his proposals as follows:
The Standard Oil contribution to this liturgy is expressed by Walter C. Teagle, president of Standard Oil Company of New Jersey and appointed by President Roosevelt to a top position in his NRA. Teagle phrases his version of corporate socialism as follows:
More bluntly than the others, Teagle wants the police power of the State to enforce voluntary cooperation:
These extracts reflect the basic outlook of our Wall Street financier philosophers. These were not minor figures on the Street. On the contrary, they were the powerful and influential elements and in significant cases associated with Roosevelt and the New Deal. Otto Kahn was a prime mover in the Federal Reserve System. Lamont and Perkins were key figures in the banking and insurance fields. Businessman Brookings gave his name and money to the influential research institute that produced the reports upon which much policy came to be based. Louis Kirstein, a vice president of Filene's firm, and Walter Teagle of Standard Oil became two of the three dominant men who ran the National Recovery Administration under Bernard Baruch's protégé Hugh Johnson. Bernard Baruch was probably the most prestigious Wall Streeter of all time, perhaps even exceeding in influence both Morgan and Rockefeller. We will examine Baruch and the Warburgs next.
What was the philosophy of the financiers so far described? Certainly anything but laissez-faire competition, which was the last system they envisaged. Socialism, communism, fascism or their variants were acceptable. The ideal for these financiers was "cooperation," forced if necessary. Individualism was out, and competition was immoral. On the other hand, cooperation was consistently advocated as moral and worthy, and nowhere is compulsion rejected as immoral. Why? Because, when the verbiage is stripped away from the high-sounding phrases, compulsory cooperation was their golden road to a legal monopoly. Under the guise of public service, social objectives, and assorted do-goodism it is fundamentally "Let society go to work for Wall Street."
1. Frederic C. Howe, Confessions of a Monopolist (Chicago: Public Publishing Co. 1906). The sponsor of Howe's book was the same publisher who in 1973 put out a collectivist dirge by John D. Rockefeller III entitled The Second American Revolution.
2. Sutton, Bolshevik Revolution, op. cit.
3. Howe, op. cit., p. 145.
4. Howe, op. cit., pp. V-VI.
5. A very limited audit of the Federal Reserve System was voted by Congress in 1974.
6. Otto H. Kahn, Frenzied Liberty: The Myth of a Rich Man's War, Address at University of Wisconsin, Jan. 14, 1918, p. 8.
7. Otto H. Kahn, Of Many Things, (New York: Boni & Liveright, 1925), p. 175.
8. R. S. Brookings, Economic Democracy, (New York: Macmillan, 1929), p. xvi.
9. Ibid., pp. xxi-xxii.
10. R. S. Brookings, Industrial Ownership (New York: Macmillan, 1925), p. 28.
11. Ibid., p. 44.
12. The Nation's Business, June 5, 1924, pp. 7-8.
13. Brookings, Industrial Ownership, op. cit., p. 56.
14. Brookings, Economic Democracy, op. cit., p. 4
15. R. S. Brookings, The Way Forward (New York: Macmillan, 1932), p. 6.
16. Ibid., p. 8.
17. John A. Garraty, Right Hand Man: The Life of George W. Perkins, (New York: Harper & Row, n.d.), p. 216.
19. Quoted in Louise Overacker, Money in Elections, (New York: Macmillan, 1932), p. 18.
20. Edward A. Filene, The Way Out, (A Forecast of Coming Changes in American Business and Industry) (New York: Doubleday, Page, 1924).
21. Edward A. Filene, Successful Living in this Machine Age (New York: Simon & Schuster, 1932).
22. Filene, The Way Out, op. cit., p. 281.
23. Filene, Successful Living in This Machine Age, op. cit., p. 269.
24. Ibid., p. 79.
25. From Samuel Crowther, A Basis for Stability, (Boston: Little, Brown, 1932), p. 59.
26. Ibid., p. 111
27. Ibid., p. 113