Lords of Creation

by Frederick Lewis Allen

  In part, the vast prestige of business was due to the vigorous pressure of majority opinion upon the heretical, a pressure most heavily felt in the small city or town. The orthodox thing to do was to boost the town, to follow the lead of the Rotary and the Chamber of Commerce, to accept without question the policies of the economic masters of the community; the heretic might retain his technical freedom of speech and of action, but there were a hundred ways in which he might be made uncomfortable. To question the soundness of a local real-estate development, to question the rates set by the local electric-light company, to believe in labor unions, was in many communities to be considered queer, or unreliable, or even “un-American,”—to have trouble, perhaps, in getting credit at the bank, or getting a job, or making sales; to meet opposition when one sought admission to clubs and other organizations; to be looked at askance at social gatherings; to be, in short, at a general disadvantage in the great race for success and prestige.

  Yet even the flood of propaganda and the pressure of majority opinion could not have been effective unless most men and women had wanted to believe that the business man was the heir to the ages, that independent business was the great American cornucopia of plenty. In part, the chorus of acclaim which we have been analyzing was quite spontaneous. As prosperity advanced, a natural market was created for the flattery of big business. The reason why The Man Nobody Knows, which described Christ as “a startling example of executive success,” was for two years the best-selling American book in the non-fiction class, was that ordinary men and women had become ready to listen to and to endorse such preposterous doctrine. The business propaganda of those days is not to be thought of as the dark device of a minority to convert or bamboozle a skeptical majority. It merely reflected and intensified the views of the crowd, merely added somewhat to the size and velocity of a snowball which was already rolling downhill.

  For seven years the big business man enjoyed a golden age of power and public obeisance. For seven years the public distrust of Wall Street steadily diminished, until by 1928 and 1929 the big financiers, like the big industrialists, had become the objects of a general veneration. Rich men predominated in the Cabinet at Washington; cartoons which depicted the millionaire as a portly gentleman with a greedy face and a huge dollar-mark on his convex waistcoat became a rarity; the dissenting voices of the radicals and the skeptics were drowned in the hosannas of the faithful. It was the rulers of big business who held the golden keys to a golden American future.

  3

  How is this extraordinary change to be explained? The explanations already given in these pages—such as the reaction from governmental regimentation during the war, the reaction against too strong a diet of idealism, the influence of business propaganda, the pressure which business could exert upon the community—are only partial explanations. There is another and very potent one. The system worked—or, if you prefer, it seemed to work. At the end of these seven years the economic condition of the American people was on the whole better—or again, if you prefer, seemed to be better—than ever before in the history of the country.

  That such prosperity could have been achieved when the economic relations between the United States and other countries were highly. abnormal was nothing less than astonishing. Europe owed America huge sums of money. She could make payments on these debts only in goods—for such is the nature of international trade. America refused to give up the idea of receiving such payments. And yet America also stubbornly refused to lower the high tariff barrier which prevented goods from coming into the country in quantity. The effect which any economist would have expected from this combination of circumstances—the seemingly inevitable effect-would have been a forced shrinkage in the exports from America, which would have been very bad for American business. But the shrinkage did not take place. What prevented it was partly the lavish expenditure of money in Europe by Americans traveling abroad in unprecedented numbers, and partly the purchase of vast amounts of foreign bonds by Americans. In other words, most of the money which Europe needed in order to make payments on her debts without ruining the foreign business of American corporations was obligingly lent to her by the American purchasers of European bonds; the rest was spent in the Rue de la Paix and on the Riviera and in London by Americans on vacation. Thus the reckoning was postponed, miraculously and precariously postponed.

  That prosperity could have been achieved when agriculture was continuously depressed was no less astonishing. For generations past, the economic health of the farming community had been the foundation upon which the prosperity of the rest of the country was built. In 1879 and in 1897, the turn of the economic tide had been effected by bumper American crops and good prices for them in foreign markets. In 1922, on the other hand, there was no such stimulus to trade. All through the seven fat years, in fact, the growers of staple crops like wheat and corn remained in a very bad way. The foreign markets which they had won during the war had been lost—permanently, it seemed. Meanwhile farming had become more efficient. Production was therefore large, and prices were low. The farmers were burdened with mortgages and taxes based upon the inflated land values set during the war-time boom, and many of them were burdened also with expensive machinery which could justify its cost only if production were heavy and prices were high. The result was trouble for the farmer. Nothing but an extraordinary prosperity in the cities and towns could have enabled the country as a whole to withstand the depressing effect of prolonged hard times on the farms. Yet to a large extent this effect was successfully withstood. Industry and commerce were strong enough to redress the balance.

  There were several reasons for their strength.

  One was the emergence of several industries which offered irresistible temptations to spend money in quantity: for example, the automobile industry and the brand-new radio industry.

  Another was a prolonged boom in the construction industry: the building of countless suburban developments (due largely to the new popularity of the automobile), big apartment houses, and skyscraper business buildings. All the way from Coral Gables to the Empire State Building the masons and plasterers and riveters were at work, and the financial top-heaviness of many of the structures that they built was shored up by a faith which even the collapse of the Florida land-craze did not weaken for long.

  Another reason was that on top of the inflation brought about by the war there was a further large inflation of credit, partly through the purchase of heavily mortgaged houses, partly through the purchase of automobiles and other expensive articles on the installment plan, and partly through the stock-market boom of 1928 and 1929. Of the way in which this stock-market boom was engineered and of its effects upon the country we shall have more to say in a later chapter; for the present it is enough to remark that if a hundred men each buy, let us say, American Can at 87 and sell it at 112, and each purchases a shiny new automobile with his profits, the money for these hundred automobiles goes into circulation and the factories hum—though this money may have come out of thin air and be destined one day to return to it. So long as the debts keep piling up and the stock-market prices climb the steep ascent of a speculator’s heaven, just so long business will boom.

  But there were also sounder reasons for the prosperity of the seven fat years. There was an astonishing gain in manufacturing efficiency. New and more ingenious machines were devised; industrial managers were learning the lessons of scientific efficiency which had been taught by Frederick W. Taylor, Henry Ford, and other pioneers in intelligent factory management; the use of scientific research, the employment of engineers and efficiency experts and economic consultants became widespread; the big executive’s desk was littered with blue-prints and charts and scientific reports and graphs, and some of these proved useful. A further aid to quantity production was the growing use of steam power and particularly of electric power. In Recent Economic Changes, that encyclopaedia of economic facts produced in 1929 by a committee headed by Herbert Hoover, there is one statistic
which presents clearly the result of this increase in efficiency: During the five years 1922–27, the output per man increased in manufacturing establishments by an average of 3.5 per cent each year. That adds up to nearly 19 per cent of increase in output per man in five years: it is a striking gain.

  We have heard much in recent years about technological unemployment. A new and more complicated machine is put to work in a factory; as a result, the factory can produce with fewer workers the same amount of material which it produced before; the superfluous workers are thereupon thrown out of employment. What about technological unemployment during the seven fat years? The figures available give a fairly clear answer. The increase in the volume of goods produced was almost exactly equal to the increase in the productivity per worker; in other words, the number of workers employed in industry remained just about stationary. Just about as many were taken on—in new factories or in enlarging industries—as were thrown out, by the machine or otherwise. Meanwhile, of course, the country was growing in population, and also the number of women who had jobs was increasing. Industry could not take care of this increase in the working population. But the overflow did not go into bread-lines—it went into selling goods and into all manner of services: the ex-automobile-maker ran a gas station, the ex-textile-worker became a shopgirl, and quantities of young men whose fathers had “begun at the bottom” in the factory became teachers or brokers or insurance salesmen or government employees. In so far as these surplus workers became dependent upon the luxury trades, upon the prosperity of the well-to-do classes, and thus upon the credit inflation of which the well-to-do classes were the immediate beneficiaries, the choice of occupation which was thrust upon them probably increased the economic instability of the country; but for the time being the inroads of technological unemployment were counteracted by the gain in these other occupations, and few of the disastrous effects so dramatically set forth by the technocrats in 1932 were visible.

  Meanwhile, also, those wage-earners who were able to hold their jobs were getting some of the advantage of this new efficiency. Just how much, it is difficult to say positively; on this point there is a conflict of statistics. If we accept the careful estimates in Recent Economic Changes, we may say that during the 1922–27 period, while the output of each factory worker was increasing by 3.5 per cent a year, his earnings were increasing by 2.4 per cent a year. A considerable increase; but not quite enough—if these estimates are accurate—to give him the full benefit of the improvements in technique, especially as the cost of living rose slightly in the interval. And it is interesting to note that during the 1923–27 period the profits of industrial corporations increased by as much as 9 per cent a year, which suggests that part of the benefit of these improvements was being drawn off at the top in enlarged dividends. Apparently, too, the drawing-off process was accentuated in 1928–29.

  Nor should it be implied, when we speak of the seven fat years as prosperous, that the industrial wage-earner’s standard of living, even at the end of this period, was any great credit to the country. According to the estimates in America’s Capacity to Consume, published by the Brookings Institution, in the year 1929 the wealthy and well-to-do (families with income of over $10,000 a year and unattached individuals with incomes of over $5,000) constituted only 2.4 per cent of the American population; the comfortably and moderately circumstanced (families with incomes of between $3,000 and $10,000 and unattached individuals with incomes of between $1,500 and $5,000) constituted only 19.6 per cent; the remaining 78 per cent of the American population lived on family incomes of less than $3,000 or individual incomes of less than $ 1,500. And of these 78 per cent, more than half had family incomes of less than $1, 500 or individual incomes of less than $750 a year.

  To talk of the saturation point having been reached in the American public’s demand for goods when millions of Americans were living on such a meagre scale is preposterous; to use the word prosperity at all in connection with a period when the workingman remained in such a plight may seem almost equally preposterous. Yet all things are relative; and the fact remains that the workingman, by and large, was better off during the seven fat years than he had been before, and that he had sufficient hope of improving his condition to be in the main not keenly dissatisfied with the going economic order, so far as he could understand the nature of it. And in certain effectively unionized trades—in the building trades, for example—his wages were so high that many observers, seeing the lines of Fords and Chevrolets, yes, and Buicks, parked beside a construction job, could not believe that labor in general was not actually prosperous far beyond all precedent.

  Meanwhile the gain in prosperity for those who were fortunate enough to be neither farmers nor industrial wage-earners was on the whole greater, and at some points was immense. Salaries, profits, and dividends rose. The total national income soared from a little less than 65 billions in 1922 to almost 90 billions in 1928. Unequally as this income was distributed and unstable as were some of its foundations, for the time being it seemed to justify everything that was shouted in the chorus of acclaim for big business. And apparently this new age of plenty was just in its infancy. The day was coming soon—so men and women cheerfully believed—when there would be two cars in every garage—even, perhaps, in the day laborer’s garage. If business men were only given continued free rein, the future held the promise of boundless wealth.

  4

  With the coming of the seven fat years, the movement for which old Pierpont Morgan’s formation of the Steel Corporation had struck the keynote back in 1901 went into double-quick. These were conspicuously years of concentration of economic power, of big business becoming bigger business, of vast and dazzling financial operations, of the mighty aggrandizement of capital.

  The extent to which business was becoming organized into larger and larger corporate units has been graphically sketched by Berle and Means in The Modern Corporation and Private Property. Let us first set down a few of the facts assembled by these students, in order to make the general outlines of the picture clear. (Berle and Means leave out of their analysis the banks, and other financial concerns such as insurance companies; the figures given here are for non-financial corporations only.)

  1. In 1929 there were over three hundred thousand non-financial corporations in the country. That is a very large number; clearly, the average American business was still a small business.

  2. But mark this contrasting fact. Among these three hundred thousand corporations there were giants; and the biggest two hundred of these giants controlled nearly half of all the corporate wealth and did over two-fifths of the business in the non-financial field. To put it in another way: for every one of these two hundred giants there were 1500 little corporations—and yet the giants did two-thirds as much business as all the little corporations put together!

  3. Furthermore, the giants were growing much faster than their little rivals. In 1909, the assets of what were then the 200 biggest had amounted to 26 billion dollars. Ten years later, in 1919, the figure for the giants had risen to 43.7 billion dollars. In 1929, at the end of the seven fat years, it had almost doubled again, reaching 81 billion dollars. And this growth, according to the compilations of Berle and Means, was two and a half times as fast, during those twenty years, as that of the smaller corporations. During the years 1924–28, in fact, it was three times as fast. The giants were crowding out the rest.

  Notice also that these giants whose growth was measured by Berle and Means were all non-financial corporations. In addition to them there were financial giants: banks, bank affiliates, insurance companies, and toward the end of the period, investment trusts. The trend toward larger units was marked in finance too. Consider, for example, the banks and the insurance companies.

  Up to the depression of 1921, banks had been becoming more plentiful in the United States. Many of these were small-town banks whose business was largely dependent on farming. Many of them would never have been allowed to open, much less to continue
in business, if the banking laws in many parts of the country had not been—as we have previously remarked—inexcusably lax. All through the seven fat years these small banks were dying: dying at the incredible rate of something like fifty a month. Meanwhile there was a great increase in bank mergers and in branch banking. (The number of branches in the United States had been only 1,280 in 1920; by 1930 it had risen to 3,516.) The result of these changes was that the number of banks in the country dwindled by over five thousand in the nine years 1920–1929; and that on the other hand the big urban banks, and particularly the metropolitan banks, grew much faster than the other survivors. At the beginning of 1930, therefore, this was the situation: There were something like 25,000 banks in all. And one per cent of these 25,000—only 250 giant banks—controlled 46 per cent of the total resources.