The Power of Property

To the Editors:

John Kenneth Galbraith may be absolutely right in holding that the Rockefellers are fading away into the sunset [NYR, March 18], but he deigns not to quantify even vaguely their supposed decline in power: from what it was to what it is now and what it is leading to. Have they diminished from ninety to seventy, from seventy to forty, or has it been a shrinkage from possibly something-something to almost nothing (as it seems to me he wants to suggest)? As to all this, Galbraith sayeth not although it is doubtless true that they have fallen in public esteem since the disclosure of the mechanics and consequences of Nelson’s governorship of New York. At least they retain the power of the concentrated buck. And it is this buck-power that until as recently as a year or so ago was sufficient to draw fairly intense scrutiny from the committees on judiciary of both houses of Congress, with press, radio, and TV giving fulsome attention.

And if the Rockefellers hold negligible and diminishing power one gathers, reading Galbraith, that the same holds even more strongly for Du Ponts, Mellons, Fords, Pews, Gettys, Houghtons, McCormicks, Dukes, Whitneys, Cabots, Harrimans, Olins, McKnights, Woodruffs, Dorrances, Ludwigs, Bechtels, Howard Hughes and down through the entire catalogue of concentrated wealth. Of course, in a trivial way all of us, not being immortal, are fading. And on this trivial level Galbraith is surely as right as a trivet.

One gathers from Galbraith’s insouciant cadenza on two books, one of which was my own recent The Rockefeller Syndrome, that he does not rate the Rockefellers as powerful people at all, as magnates of the imperial republic. And he states his central reason, which can be shown plainly to be unsound. For, following the late Adolph A. Berle, Galbraith does not believe major stockholders, and banks holding large blocks of corporate stocks and bonds in trust funds, have much if anything to say about the control of corporations. Like Berle, Galbraith contends that corporations are controlled lock, stock and barrel by their official bureaucracies, their officers.

Now, nobody at all ever contended that the official bureaucracies are not a massive and pervasive influence throughout the corporations. The officers, from the top down, are those responsible for the day-to-day management of corporations unquestionably, make all tactical decisions. But in the making of strategic decisions, their role, unless they are also major stockholders (as they sometimes are), is purely advisory.

If I may spell it out so that even cloistered professors can understand control as it is understood throughout Wall Street, the officers exercise power that is delegated to them by stockholders and by-laws. Among the stockholders, most of whom are small, are always, on the record, a discernible integrated cluster of major stockholders and trustee banks and insurance companies. Usually there is no question about the delegated controlling power of the officers. When the question arises, when the conduct of the officers is challenged, delegated power is withdrawn and exercised by the stock-holders, with major stockholders having the major voice. As it turns out in case after case, the company officers who own little stock are no more than puppets of the stockholders, the major stockholders.

If company officers were truly, of their own right and power, in full control they would surely never voluntarily relinquish their power. Yet over the years we see many cases of officers, whole top layers of officers, being kicked out of corporations. Who kicks them out? Who or what inspires them to turn their backs on jobs paying anywhere from $200,000 to $1 million or so per year? In the lexicons of Berle and Galbraith we have here a mystery on our hands.

Very recently the three top officers of the Gulf Oil Corporation were booted out for having brought the company under a public cloud in the matter of illegal political payments at home and abroad—one of the known payments being to President Lyndon B. Johnson, personally, in the White House. One would suppose that if they were in control they would have declined to leave a good thing. The Mellons, however, the big stockholders, did not leave, did not give up their stock. They remain, in ultimate control. Indeed, it was the Mellons who initiated the leave-taking, with heavy pensions, of the officers. The pensions, as in the case of all retiring officers, insure their continued interest in the welfare of the company.

In The Rockefeller Syndrome I cite the cases of two companies—the Standard Oil Company of Indiana and the Anaconda Copper Mining Company—wherein the top officer of the first in 1929 and the entire officer corps of the second in 1971 were summarily removed, against their wills, at the direct initiation of the Rockefellers. J.B.M. Place, a vice president of David Rockefeller’s Chase Manhattan Bank, was sent out to carry out the Anaconda house-cleaning and to become the top officer. That’s control, as Wall Street understands the term. For control extends over the corporate bureaucracy which Galbraith, after Berle, believes controls the corporation. And the discharged Anaconda people didn’t carry away pensions, at least not all, with the consequence that they are doing plenty of talking.

It was A. A. Berle’s thesis in The Modern Corporation and Private Property (1932) that because stockholdings are widely dispersed among many small holders (which he hypothesized because the data were not available) the officers in charge of a company, internally coopted from the bureaucracy, are the one and only controllers of companies, with stockholders having no say. For my part, I was at some pains to show on the basis of Securities and Exchange Commission data in my The Rich and the Super-Rich (1968) that this contention was at complete variance with the facts. While in some companies officers own little stock, somebody always owns stock in quantities. And in very many companies, large, medium and small, officers themselves often own large blocks of stock. Large blocks of stock in companies are held by individuals, family trusts, integrated groups and banks. Du Ponts, individually and through their Christiana Corporation, own nearly 50 percent of E. I. du Pont de Nemours.

Berle, for reasons known only to himself, was always anxious to show that property exercised little or no power in the United States, an unusual thesis. He even wrote a book titled Power Without Property. Property is certainly not the only ingredient of power but it is surely one, and a big one, despite what any strolling minstrels may claim.

If stockholdings did not carry controlling corporate power how could one corporation, by bidding in large blocks of stock in another, take that other corporation under its wing and, as is often done, replace the officers of the purchased corporation with another set? The old officers, the powerful bureaucracy according to Galbraith, simply walk the plank.

What is the issue in all this? The issue simply is: who calls the shots? I don’t say that the method of leading owners exercising ultimate control over their corporations is necessarily bad. I merely say that’s the way it is. To maintain as Galbraith does, after Berle, that it is the coopted officers who control is, as I see it, simply to throw dust in the public eye, to screen the big operators and actual power-wielders from public scrutiny. The whole tendency of Galbraith’s contention is to push the big owners—in this case the Rockefellers—to one side as of little or no consequence. I speculate that this is done because the fact of big concentrated ownership, heavily established on the public record, constitutes a big fly in the ointment of the American Dream. As the troublesome magnates cannot be removed in actuality they are removed in fantasy, vanish into the sunset.

I must say, though, that The New York Review deserves to be commended for allowing even a deprecating allusion to The Rockefeller Syndrome in its pages. Although formally published on November 8, 1976, to this date the book has not been reviewed or so much as mentioned that I know of in any metropolitan publication except The Chicago Tribune. It has, however, been reviewed in many of the smaller-city newspapers, and has been taken account of in marginal publications.

Unusual for an author, I tried to warn my publisher prior to going ahead that all this ostentatious non-interest might be the fate of the book because I didn’t want him to proceed without knowing of the minefield ahead. I did the same before signing a contract for The Rich and the Super-Rich but in that instance was proven wrong by the way the market devoured the book like a starving wolf despite complete non-mention in publications like Time and Newsweek (the former with an announced policy of reviewing all bestsellers) and barefaced misrepresentation of the book’s contents in The New York Times. Far from being indignant about any of this I was merely amused by the self-revelation of their drab souls by the media moguls.

Ferdinand Lundberg

Chappaqua, New York

John Kenneth Galbraith replies:

I do not, of course, deny the power of property. I do believe that in the large corporation power passes from owners to the management; until a few years ago the managers of the (then) Standard Oil Company of New Jersey, the original Rockefeller corporation, appointed all directors from the top management, which directors then appointed the management that had appointed them. Such managerial power and autonomy can be ignored only by those rather strongly determined to do so. Otherwise let me say that Mr. Lundberg has well earned the right to state his side of the case, and I am glad he has done so.