job and has collected his protected wages, he has to go to the stores
and spend his money, and there he pays higher prices for everything
he buys, because all these things have been “protected” from foreign
competition, and the manufacturers of the things have been able to form
trusts and fix the prices at higher levels. Just how much higher are
the levels? The answer is easy; they are always a little higher than
the wages! The whole story was told in the figures I gave you as to the
movement of real wages in our country. Following the example of the
“Grand Old Party,” let me give you a slogan:
_The protective tariff in the past thirty-five years has reduced
the real wages of the American workingman by five per cent!_
And what about the farmer? The farmer does not get much protection on
his products, but has to buy vast quantities of manufactured goods at
“protected” prices. Take the United States Census Reports, and study
the growth of farm mortgages from 1890 to 1920. This is the final test,
you understand; for the farmer does not give the banker a mortgage on
his land because he loves the banker, but solely and simply because the
cost of running his farm is greater than the income derived from the
farm. We find that in 1890 there were mortgages on 27.8% of our farms,
and in 1920 on 37.2%. So here is a slogan for the farmers:
_The protective tariff has increased the enslavement of the
farmers to the bankers by thirty-three per cent in thirty years!_
And what has been the effect of the protective tariff upon our
politics? That also is easy to answer: it has made them a football to
be kicked about by rival greedy interests; it has made our government
a fat oyster to be opened and eaten at the banquets of trust magnates.
The lobbyists of the big manufacturing interests have swarmed to
Washington with their pockets full of bribes, and our congressmen and
senators have been hogs at a swill-trough. Our political conventions
have been bargain-counters, where candidates have met in secret
hotel-rooms with the agents of the trusts, and have sold their honor
and the welfare of the people. When the campaigns begin, the protected
interests are frightened into putting up huge sums--“frying out
the fat” is the phrase; and then we have red fire and torch-light
processions and banners and a wild hurrah, and the voters are herded to
the polls like sheep--at the standard price of two dollars per sheep.
I grant you, Judd, that it might have been a reasonable policy for
the American people to tax themselves to build up their industries at
the beginning, when the industries were young and needed help. But
what are we to say when these carefully nourished “infant industries”
grow up into highwaymen that knock us on the head? It happened that in
1917 our country went to war “to make the world safe for democracy”;
and that was surely a time for patriotic sacrifices on the part of
these beneficiaries of protection! From a report of the Secretary of
the Treasury I take a few figures concerning the profits they made in
that year. One woolen mill, hiding behind the carefully constructed
tariff wall, made 1770% on its capital stock; and in case that Wall
Street method of figuring should puzzle you, Judd, I put it into
your kind of figures; you build a house for $1,000, and sell it for
$18,700. Seventeen woolen mills reported profits of over 100% on
their capital stock--that is, the stockholders got back in one year’s
profit the total amount of their investment. The great American Woolen
Company, with its capital stock of $60,000,000, made a net profit of
$28,560,342. Canners of fruits and vegetables, tariff protected, made
as high as 2032%. Clothing and dry goods stores, tariff protected,
made a profit of 9826%. One steel mill, tariff protected, made as high
as 290,999%. This, you will say, must be a joke; but I am quoting the
figures of Secretary of the Treasury McAdoo: the capital stock of the
concern was $5,000, and the net profits were $14,549,952. The great
steel trust, our billion dollar infant, made in two years a net profit
exceeding its capital stock.
These of course, are war-time profits; but I assure you, Judd, such
things are being done right along, up to this hour. Take our textile
industry, highly protected, and paying starvation wages to its horde
of wretched slaves. The great Amoskeag Company, manufacturing many
kinds of cotton goods, had in 1907 a capital of $4,000,000, which it
has increased to $44,500,000, all out of profits. Last year it made
a net profit of $2,851,131, which is 71% on the original investment.
Or take the bread trust, which feeds--or feeds upon--the poor in our
slum tenements. In 1922 the General Baking Company earned at the rate
of 117% on each share of its original common stock. This stock rose
from $2 in 1916 to $1,350 in 1925; and I assure you that is not a
misprint--it is exactly as written! In this morning’s paper I read how
the president of this company has just paid $200,000 for a box at the
opera; the story tells how he rose from poverty, and we are expected to
be proud of him!
Some understanding of the tariff robbery having begun to filter down to
the people, our political masters promised us a reform. There was to
be a “scientific” tariff; a commission was to study costs and prices,
and provide exactly the right amount of protection. Well, last year
this commission turned in a report, most “scientific,” showing how the
sugar trust was exploiting the American people and advising the cutting
of their tariff favors. And what did President Coolidge do with the
report? He did his best to suppress the facts; and his action cost us a
total of $53,000,000 in nine months!
Or again, take aluminum, used in making our kitchen utensils. This
trust was organized in 1888, with a paid up capital of $20,000. Not
one dollar more of real money has ever been put into it; but it has a
tariff protection of 7 cents a pound, and in 1923 the concern paid a
profit of 1000% on the original investment! The company’s circular now
claims assets of $110,000,000, and last year a report of the Federal
Trade Commission declared the company a monopoly which “threatened
competitors with extermination unless obedient to the company’s will.”
The United States Attorney-General declared, in February, 1925, that
this company had violated provisions of the dissolution decree and had
“shown itself indifferent to the provisions of the decree.”
And what did President Coolidge do about that? The answer is easy--he
always does the same thing, which is nothing. And why? The Aluminum
Company of America is another name for the Mellon family, and the
head of this family, the third richest man in America, is President
Coolidge’s Secretary of the Treasury, the man who determines the
financial policy of our country. Since he took his high office he
has had just one idea, which the entire propaganda department of Big
Business has been hammering into the heads of our people--that the way
to make prosperity for the poor is to reduce the taxes of the rich, so
that the rich will start plenty of industries and pay big wages to the
poor. You may see exactly how it works, when you learn that this rich
law-breaker who sits in our cabinet pays his aluminum workers a wage of
$3.36 per day! Figure the income of such a worker, on the basis of six
days a week at full time, with no holidays whatever; and then consult
last year’s income tax returns, and see what income is acknowledged by
the Honorable Andrew W. Mellon; and so you get a perfect picture of the
Coolidge idea of “prosperity.” It runs as follows:
_For a wage-slave of the aluminum trust and his family, $88 a
month; for a law-defying, whiskey-distilling Pittsburgh banker
in the cabinet, $284,000 a month; and to help out the family,
$178,000 a month for his brother!_
LETTER VI
MY DEAR JUDD:
Figure to yourself a man pumping water from the ground, filling a tank
to supply his house. There is an abundance of water, and the pump is
big and powerful, and every time the man pushes the handle many gallons
go rushing towards the tank. The man works all day, yet when he goes
to the house in the evening, he discovers there are only a few drops
of water in his tank. Some men have tapped the pipe, all along the
way, and have diverted the water to their own tanks; so the man has to
supply hundreds of gallons to others before he can get a few drops for
himself. Would you not say that it was worth while for that man to find
out about those tap-lines; how much they take off, how they got to be
there, and by what right they remain?
Well, Judd, that is the position of the American laborer and the
American farmer. The tap-lines are called rent, interest, dividends,
profits, royalty, taxes, tariffs, speculation, manipulation, inflation,
stock dividends, stock watering--a vast tangle of pipes. Let us pay
one more visit to the jungle of Wall Street, and trace a few of these
biggest tap-lines, which make it necessary for you to break your back
all day pumping water for idlers and parasites, before you can get a
mouthful to drink.
When they teach you about corporation finance in high school and
college, this is how they picture it: Some men put their savings,
earned by honest labor, into a company, and buy machinery, and
manufacture goods, and sell them at a competitive price, and so of
course the profits belong to them, and it all is fair and square, and
a beautiful system, under which the public gets an abundant supply of
cheap goods. Such a pretty picture these capitalists manufacturers of
school text-books prepare--with money they get from Wall Street, and
which they parcel out, in the form of commissions to school boards and
school superintendents!
But what are the real facts? Well, the first thing the big corporation
financier does is to seek out some form of special privilege, some
opening through which he knows that he can make quick and certain
profits. Understand, I am not talking about the fake schemes, got up
by fellows whose purpose is to unload worthless stocks. The Department
of Justice estimates that such operations have taken three billion
dollars from the public since the war; but that is merely small change,
compared with the gains of the real insiders, the perfectly legal and
respectable gentlemen who finance our business affairs.
Perhaps it is a franchise or public privilege you are seeking; in
that case you buy it from a legislature or city council. Or perhaps it
is land; in that case you employ shrewd lawyers and commit wholesale
evasions of public land laws. Or you buy tariff favors; or you get a
patent from an inventor by giving him a few shares of stock; or you get
secret favors from railroads or other corporations, by giving stock to
the officials. There are so many ways and combinations of ways, that I
should need a volume to tell about them. Whatever the “good thing” may
be, you get it, and then you take it to your friend the big banker, and
“let him in” on it. He gives you in return a supply of that life-blood
of industry which he dispenses--not real money, of course, but credit,
based upon the real money which other people have deposited in his
bank. With this you can go out and order all kinds of real wealth--an
office, a factory, raw materials, labor--everything will come to you,
Aladdin’s magic was nothing compared to it. Carpenters will come, Judd,
with their saws and hammers and toil for days and months and years; it
is a “job!”
Profits are certain--you have seen to that; and on the basis of this
certainty you have fixed your capital. Understand, you never put up a
dollar of real money--the big insiders never do, they would laugh at
the idea. You fix your capital as a function of your expected profits.
That sounds complicated, but is really very simple. Wall Street profits
average about 7%; therefore you fix your capital stock at fourteen
times what your profits are going to be. After you get started, and
your graft works, you may find you are making twice what you expected;
if that happens, you call your capital twice as much. If you make
$70,000 during the year, your capital is $1,000,000. If next year you
make $700,000, you increase your capital to $10,000,000. If you make
$7,000,000, your capital becomes $100,000,000. You, poor old laborer,
will surely think I am joking in such a statement; you cannot conceive
such things taking place outside of a dream. Yet, I pledge you my
honor, this is the regular routine of Wall Street today, and I could
fill pages of this book with a list of companies which have done this
very thing, quite as a matter of course.
Take the Standard Oil Company of New York. I recall how, before the
war, this concern’s stock was quoted on the market at $700 a share,
or seven times its par value. What did that mean? It meant that the
Rockefellers were old-fashioned, and afraid of the new corporation
tricks; they kept their concern at its old capitalization of
$15,000,000, while its profits were 70% on that amount. But the time
came when the public clamor got so intense that the Rockefellers had to
hide like the rest; and what did they do? Well, in 1913, the Standard
Oil Company of New York declared a “stock dividend” of 400%; that is,
it gave its stockholders four additional shares for each one they
already had; so the company now had a capitalization of $75,000,000,
where formerly it had $15,000,000. Naturally, then, its profits didn’t
look so big; they had to be divided among five times as many shares.
And then again, in 1922, the capital was multiplied by three, becoming
$225,000,000. The company now pays 14% and that seems bad enough; but
what would you say if you figured on the old capitalization and knew it
was paying 210% every year!
This is the device known as “stock dividends”--paste it in your hat,
Judd! And paste this also: Stock dividends are not profits, according
to a decision of the United States Supreme Court! And when you have
diluted down your capitalization like this, you are no longer making
excess profits, and so you no longer have to pay the excess profits
tax! And so, of course, all the corporations hasten to adjust their
paper securities; in 1922, more than $2,328,000,000 dollars were
distributed in the form of “stock dividends” to happy stockholders.
The Standard Oil Company of Indiana paid 2,900% stock dividends in one
year. The Brown & Sharpe Company, which makes tools for carpenters like
you, Judd, paid stock dividends of 16,000% in 1922! Don’t you see how
they’ve got you hog-tied?
Consider our mighty steel trust, Judge Gary’s pet, and the darling of
our government. I knew intimately the lawyer who was paid a million
dollars to form it, and he showed me a lot of “inside stuff”; for
example, John W. Gates, Wall Street “plunger,” taking a private car
load of steel magnates, prostitutes and champagne bottles on a three
day orgy, riding about the country and buying steel plants for a joke,
at any price the owners cared to ask! Well, when the joke was over,
Morgan took the whole outfit away from him--he didn’t consider Gates a
sufficiently sound man to carry such a great responsibility! So Morgan
employed my friend, James B. Dill, to make the trust law-proof, and he
put out the common stock of $500,000,000, all pure water and a swindle
on the public. I knew an elderly widow who put all she owned into
it, and it went to six cents on the dollar! But out of its monopoly
of raw materials the trust made good in the end--in two years of the
war its net profits were equal to the full amount of the original
capitalization, something over $888,000,000!
Or take the beef trust. Armour and Company started with $160,000, and
all the rest has come out of profits. In a single year they distributed
stock dividends of $80,000,000! Or take that Aluminum Company of
America, the family pet of the Mellons, that gets so many kinds of
favors from our government; they once declared a stock dividend of
500%, and yet they can only pay their workers $3.36 per day! Or take
the bread trust, Wall Street’s newest peace baby; the General Baking
Company has increased the value of its investment 67,500% in nine
years! And out of what? Well, if you are an insider, and can go to
the right banks and get a sufficient “line” of credit, you can build
huge electric ovens, which will bake bread so fast and so cheaply as
to wipe the little hand bakers off the map; they will come to you as
wage-slaves, and you will have a monopoly of fresh bread in a great
city, and out of your profits you can pay lawyers and aldermen and
editors and labor-sluggers, and be safe against every form of attack.
There is no use piling up examples, Judd. Suffice it to say, that
every big business in America is owned and run under that system; and
you pay for it. During the war you got your dollar an hour wages, and
you thought it was next door to heaven; but you see, for every dollar
you made, these Wall Street fellows were making tens of millions; and
when it came to the spending of the money, each one of their tens of
millions was just as powerful, just as legal and as sweet-smelling, as
your pitiful one!
LETTER VII
MY DEAR JUDD:
When I was a youth, trying to find out about my country, one of the
first things I learned was that its politics were corrupt. I lived in
New York City, and saw that corruption all about me, and the hideous
ruin of human lives; naturally I tried to figure out why these things
had to be. The explanation given me in school was that it was the
ignorant foreigners who crowded into our cities; they didn’t understand
our institutions, they sold their votes, and delivered our political
parties into the hands of bosses.
It happened that I had a certain relative--I won’t tell his name,
suffice it that he was a financial man, on his way to becoming one of
our great millionaires. He wanted to break into New York, so he opened
an office, and gave a big block of stock to Richard Croker, at that
time boss of Tammany Hall; he made another Tammany chieftain the head
of his New York office--and that was all there was to it, he was “in,”
and his firm took over the city’s business along that line, and all
city officials and employes were given to understand that they must
patronize it. Later on my relative--he was very fond of me, and told
me all his doings--named a certain man for treasurer of New York state
on the Democratic ticket; he smiled as he told me what that was going
to mean, his firm would open offices all over the state and would get
the state’s business. After which my worthy relative proceeded to scold
me for my budding “radicalism,” and to assure me that our big business
leaders were all patriots and men of honor.
Thus I saw the game from the inside, and little by little I came
to understand it. Yes, it was true that the boss paid the ignorant
foreigners for their votes; but where did the boss get the money for
that purpose? The answer, though painful, was plain: he got it from
my relative; he got it from all such business men, seeking all such
favors and privileges from the state. And here was a further fact which
was plain--my relative did not pay the boss for nothing; he intended
to get, and did get, a hundred times as much out of the bargain as he
paid to the boss and to the political machine of the boss. And that,
I found, was the universal rule of this game of graft; the boss was
merely an agent, set up by big business men to run the political
part of their affairs; and as for the ignorant foreigner, he was a
convenience which the business man made use of, in politics as in the
labor market.
In the old days of the Tweed ring, the politicians used to steal
our money outright; but that is over now, because every politician
knows, just as every business man knows, that it is so much better
to “make” money than to steal it; you can “make” so much more, and
there is no danger of being sent to jail. So nowadays the rule of our
politics is “honest graft.” The chiefs of Tammany Hall do not loot
the treasury; what they do is to receive blocks of stock in paving
companies and construction companies, which do the work for the city
at enormous profits; they own stock in the banks which handle the
city’s funds; they are in on all the big traction deals; they get
up little pet companies, to do this or that service for the public
service corporations--to furnish them with ink erasers, or time-clocks,
or chewing gum, at several times the market price; and all that is
perfectly safe and regular, and instead of sending them to jail we envy
them.
I open my morning paper, and here is Arthur Brisbane, sneering at some
young men in New York who are starting a paper called “The New Masses”:
nobody in America wants to belong to the “masses,” and the young men
ought to call their paper, “How to Make a Million the First Year.” Yes,
Judd, that is what everybody wants; but can everybody do it? That is
a point which Mr. Brisbane, multi-millionaire real estate speculator,
fails to cover. But you see how it is: the very essence of “making a
million the first year” is that you take it away from other people, who
lose in the great business gamble, and remain the “masses,” in spite of
desperate determination not to.
There is a charming fable by an old-time Italian named Pestolozzi,
to the effect that the little fishes in the pond held a meeting to
protest against the cruelty of the big pike; and the pike considered
their protest and declared the matter should be remedied by a decree
to the effect that every year two little fishes should be permitted to
become pike. The fable does not tell us how the little fishes took that
offer; but if they had been little American fishes they would have been
delighted, and would have called it “liberty.”
Whether or not some particular little fish becomes a pike is a matter
of interest to that little fish, but it does not change the social
system. The “masses” remain, and by their labor produce the wealth, and
the “classes” take it away from them. What I am trying to make clear
to you, friend Judd, is that when you admire the possessor of a bit
of juicy graft, what you are really admiring is the power to rob you;
because it is your wealth the robber is getting, there is no other
wealth for him to get. The old-fashioned criminal graft came out of
the tax-payers; and the new fashioned “honest graft” comes out of the
consumers of gas and electricity and telephones and transportation and
all other services. Every dollar of profits, whether legitimate or
illegitimate, is either paid by the consumer, or else it is written
down as obligations, covered by “securities” of some sort, stocks or
bonds, and forever after its claim is sacred, and the courts will
protect its right to draw tribute from the consumer to the end of all
time.
Take our railroads, for example; the history of American railroads is
a history of bribery and fraud, continued through generations, and of
stock-watering and speculation monstrous beyond belief. The common idea
is that two-thirds of our railroad securities are water. LaFollette
succeeded in getting a provision for a “physical valuation” of the
railroads, and I saw, tucked away in an obscure corner of a newspaper,
the results for two Southern lines--the water was nine dollars out of
ten! So the “physical valuation” project was apparently dropped--at
least, I can’t find out any more about it. And now what has happened?
The courts have decided that the railroads are entitled to a “fair
return” on their present paper values; it is the law of the land that
they are guaranteed 5½% on their securities, and if they fail to earn
that, the government makes it up to them!