Soon afterward my sister-in-law Tod joined us for a portion of the trip. Tod and Nelson were living in England that summer while Nelson worked at the London branch of the Chase National Bank. Before leaving New York, Dick and I had invited her to join us for a week but had little hope she would be able to make it. We were pleasantly surprised when she actually agreed to come. She met us in Lucerne, and from there we drove through the Swiss and Austrian Alps. My Model A had no trunk, and there was barely room for Tod and our bags, but we managed well and had a congenial time. This happy adventure thoroughly scandalized Aunt Lucy, who thought it terribly inappropriate for a married woman to travel unchaperoned with two young men. In fact, it was all quite innocent. Tod and I had developed a good relationship on our Egyptian trip six years earlier, and she and Nelson had served on several occasions as chaperons at the house parties I gave at Abeyton Lodge during college vacations. Tod was like an older sister to me, and I think she was very pleased to get off on a spree with two college boys.
After our tour of the Alps we drove through Austria to Vienna, where we visited Sigmund Freud. The visit was arranged by Dick’s aunt, who had been analyzed by Freud and had stayed on with the family as a companion and coauthor with Anna Freud of many books on child psychology. Freud by that time was quite old and was suffering from cancer of the jaw, but despite his evident discomfort, he was very friendly to us. He seemed less interested in discussing Freudian psychology—about which we knew next to nothing anyway—than in talking about his extraordinary collection of Egyptian, Greek, and Roman artifacts, which crowded his study and living areas. He was intrigued that I had been to Egypt and questioned me closely about what I had seen and learned. I found out later that Freud had become almost obsessed with the idea of phylogeny, specifically the historical evolution of the ego, and thought about little else. We also spent some time with Anna Freud discussing the more familiar aspects of psychology. She must have been persuasive because I informed my parents that “certainly the Freudian doctrine has been much twisted by half-baked critics, as what we heard from her was most sane.”
THE ROCKEFELLER INHERITANCE
The fall of 1934 proved to be a crucial time for me and for the future of my family. In December 1934, Father decided to set up a series of irrevocable trusts for Mother and each of his six children with an initial value of approximately $60 million. The 1934 Trusts, as they are referred to within the family, allowed Father to pass on at least a portion of the family’s wealth without estate taxes through three generations. Today these trusts hold the majority of the family’s wealth. Without them, much of the Rockefeller fortune would have gone either to the government in taxes or to charity.
As strange as it may seem, I never took for granted that I would inherit great wealth. Naturally, I knew Father was very wealthy, but I also knew the Depression was taking its toll on his fortune as well as everyone else’s. I well recall receiving a letter from Father during my freshman year in which he stated that the way things were going, I was very likely going to have to “work for a living.” While admittedly this is what most people expect to do, it was more surprising coming from one of the wealthiest men in the country.
I knew Father was balancing many competing and even contradictory demands from among his extensive philanthropic commitments and financial obligations for Rockefeller Center and the necessity to make provisions for his family. Father understood that we needed a certain amount of economic independence, which he would have to provide. But he believed all of us were too young and too inexperienced to handle large amounts of money without expert supervision and guidance. His father, after all, hadn’t begun passing on any sizable sums to him until he was in his forties, and as I have noted earlier, it may not have been Grandfather’s initial intention to leave him a major part of his fortune at all. My guess is that Father would have preferred to wait some years before he decided how to distribute his fortune.
Ironically, it was Franklin D. Roosevelt’s tax policies targeted at the wealthy that persuaded Father to act when he did. Steep increases in both gift and estate tax rates in 1934 convinced Father that he had no alternative if he wanted to provide us with independent means. However, his real concerns about our maturity and inexperience led him to establish trusts with very strict limits on access to income and invasion of principal by any of the beneficiaries.
Father’s original intention was to give each of his children a small but gradually increasing income until we reached the age of thirty. The trusts were set up to accomplish that objective. Until we reached thirty the income from the trusts in excess of what was paid out to us, rather than being reinvested, was distributed to a number of named charitable institutions, among them the Rockefeller Institute and the Riverside Church.
In 1935, the first full year the trust was in operation, I received only $2,400, a tiny percentage of a much larger income. This income was to cover all my living and college expenses, apart from tuition, then $400 a year, which Father continued to pay during the remainder of my college years. On occasion I did find myself a bit short of cash and had to ask Father for an advance. He usually viewed my requests as an opportunity to impart wisdom and guidance. In one letter he wrote me in 1935, he noted disapprovingly that
you have spent far more during the period than your anticipated income—which as you say is, of course, poor financing and is a mistake. . . . That I am somewhat disappointed at you again being in financial difficulties, you have of course imagined. When you were getting $1,500 a year you had no difficulty. As increases have been made, the difficulties have seemed to grow greater. The old saying that one is apt to lose one’s head with growing prosperity is a very true one. I hope from now on your financial plans will be such as to give no further occasion to believe this is true in your case. The $400 will be sent today to your bank account.
At the time the 1934 Trusts were created, Father informed Laurance, Winthrop, and me that our trusts would contain assets of significantly less value than the ones he had established for Mother and our older siblings. Father wrote me a letter to explain his reasons. It gives a good sense of his feelings about the dangerous mixture of youth and money: “When I first talked with you about this matter, I had in mind to establish trusts for you three younger boys in the same amounts as for the older children. On further thought, I have come to the conclusion that to do so would be unfair to you … first, because it might result in your being put in a position where you would find yourself bewildered and unprepared because suddenly saddled with heavy and relatively new obligations … Secondly, it would … seriously curtail the opportunity for current guidance and advice during formative years which it is a father’s duty to provide.”
However, when Congress increased the gift and estate tax rates in 1935, Father had to change his strategy. He reluctantly concluded that it was now or never if he was to increase the value of the trusts for his three youngest children, so he added additional assets to ours and thereby equalized the value of all the trusts at about $16 million. It was not until several years later that I was told the value of my trust.
In mid-June 1935, Father wrote to me shortly before Dick and I left on our trip to Europe:
I should have preferred not to take this step now but circumstances seem to have forced me to do so. The knowledge of how to manage and handle property wisely is best acquired through gradually increasing experience. That thought has been uppermost in my mind in all the gifts I have made for your benefit. . . . I am putting great trust in you. I know, however, that you will never give me a cause to regret it.
Affectionately, Father.
CHOOSING A CAREER
My senior year was occupied with writing my senior thesis on Fabian socialism, “Destitution Through Fabian Eyes.” The essay pointed to the fact that the traditional European approach to poverty was based on the Christian precept of atoning for one’s sins by giving alms to the poor. The focus was more on the benefits in the afterlife to the donor than on the noti
on that individuals had a social obligation to provide assistance to people in need. Fabian Socialists, under the leadership of Beatrice and Sidney Webb, took the opposite view. They saw the provision of a minimum standard of living for everyone as a basic right of all citizens and an inherent responsibility of government.
The concepts advanced by the Webbs and other Fabians established the foundation for the work of Sir William Beveridge, then the director of the London School of Economics, where I would soon go to study. Sir William, later Lord Beveridge, became one of the principal architects of the welfare state, which began to gain acceptance in Britain in the mid-1930s.
With my undergraduate years coming to an end, I had no clear idea of what I wanted to make of my life or even what I wanted to do immediately after graduation. I was inclined toward pursuing something in the international field, and I leaned toward something independent of the Family Office since three of my brothers were already there. Postgraduate studies in business or economics had some appeal, but even that was not a clear objective. I felt the need to get advice from someone I respected and whose own life had been successful.
Over the years I had come to admire William Lyon Mackenzie King, who had become a close friend of Father’s through their work together in the aftermath of the Ludlow strike. Mr. King later assumed leadership of the Liberal Party in Canada and became prime minister in 1935. He often stayed with my parents when he was in New York and sometimes visited Seal Harbor as well. He was always warm and friendly to me, and I felt comfortable talking with him. The Mackenzie King I knew did not correspond at all with the steely, remote, and offbeat reputation I later learned he had in Canada.
After consulting Father, I wrote Mr. King asking if I could visit him in Ottawa to seek his advice. Mr. King quickly responded by inviting me to spend a weekend with him in the spring of 1936. During our long hours of conversation on my options and interests, it became clear that a career in either government or international banking made the most sense for me. In either case, Mr. King felt I would be well served by taking a Ph.D. in economics, a course that he himself had pursued many years earlier. Not only would this be good training in a field of knowledge useful to both government and banking, but it would also give me credibility with people who otherwise might feel that any job I had was principally because of my family’s influence.
Mr. King’s arguments were convincing, and I decided to remain at Harvard for one year of graduate work in order to begin my study of economics under Joseph A. Schumpeter, the famous Austrian economist. After that year my plan was to attend the London School of Economics and then finish my studies at the University of Chicago so that I could acquire as broad a background as possible. By spending time at three universities I would have a chance to work with many of the world’s greatest economists.
CHAPTER 7
LEARNING FROM THE GREAT ECONOMISTS
In mid-September 1936, Dick Gilder and I attended the Republican Convention in Cleveland and watched the nomination of Governor Alfred Landon of Kansas as the forlorn hope to run against the immensely popular President Franklin D. Roosevelt. My family had supported the Republican Party since the 1850s—Grandfather told me that he had voted for Abraham Lincoln in 1860—and I considered myself a Republican as well. The party regulars were pessimistic about their chances and deeply divided between the progressives, who opposed the New Deal but saw a necessary role for government in the economic life of the country, and the conservatives, who were convinced that the United States was undergoing a Bolshevik revolution and wanted to return to the laissez-faire world of the nineteenth century.
With the convention over, Dick and I returned to Cambridge and reoccupied our old suite of rooms in Eliot House. Dick entered Harvard Business School, and I, with some trepidation, began the demanding course of graduate study in economics.
SCHUMPETER AND KEYNES
I soon knew I had made the right decision. I began graduate work just as John Maynard Keynes’s controversial ideas on state intervention to stimulate economic activity provoked an explosive debate within the profession and more broadly.
I was most influenced that year by Joseph A. Schumpeter. In fact, one of the intellectual high points of my graduate work was his basic course in economic theory. Schumpeter was already considered one of the world’s premier economists. He had been active in politics in Austria and had served briefly as minister of finance in 1919. He had also run a private bank in Vienna for a time in the 1920s. He arrived at Harvard in 1932 and was in his mid-fifties when I met him in the fall of 1936.
Schumpeter was most interested in the entrepreneur’s role in the process of economic development, and by the mid-1930s he had emerged as one of the principal champions of the neoclassical economic tradition. But he was not a simple defender of the old order. He agreed with Keynes that something had to be done to deal with the unprecedented levels of unemployment of the Depression and the political and social instability it had produced. However, he rejected the central element of Keynes’s theory that without government intervention the capitalist economy is vulnerable to prolonged periods of massive unemployment and reduced levels of economic activity.
Schumpeter feared that Keynesianism would permanently substitute government control for the normal and healthy operations of the marketplace. He was quite alarmed at the impact these “unorthodox” ideas were already having on the fiscal, tax, and monetary policies of a number of Western countries, including the United States.
Fit, trim, and aristocratic in bearing, Schumpeter had driven horses competitively when he was younger. He was also a great admirer of the female sex and was rumored to have had many elegant amours. He once said in class that he had three goals in life: to become the greatest economist, the greatest lover, and the greatest horseman of his generation, but felt he had not yet fulfilled his ambitions—at least in respect to horses! Unlike most Harvard professors he dressed stylishly in well-tailored suits, with a silk handkerchief jutting out of his jacket pocket. Arriving in class with an air of being in a great hurry, he would throw his overcoat on a chair, whip his handkerchief from his pocket, flip it out toward the room, then fold it and carefully mop his brow and the top of his balding head before saying, in his heavy German accent, “Ladies and gentlemen, let us begin.”
Paul Samuelson, who has since become a renowned economist in his own right, was also in Schumpeter’s class that term. Paul already had a master’s degree in economics and was a superb mathematician as well. Since economics was already becoming reliant on mathematical analysis, Schumpeter would often call on him to go to the blackboard and write out complex economic formulas, which I usually didn’t understand. I had entered the graduate program with little knowledge of calculus, which had already become critical to economic analysis. Although I had written my senior thesis on a subject bordering on economics, I had taken only two rudimentary economics courses as an undergraduate and had a lot of catching up to do.
Paul’s formidable knowledge of economics made me all the more self-conscious about my own modest background. However, at the end of the first term I remember going to the bulletin board outside the classroom to check our posted grades. To my great surprise and delight I got an A-, a much better grade than I had expected. I was standing there feeling thrilled with myself when Paul arrived. He had received a solid A. He also looked quite pleased until he saw my grade, listed just above his. His face fell immediately. Clearly his grade lost significance if a novice like me could get an A−.
HABERLER AND MASON
Professor Gottfried von Haberler’s course on international trade also influenced me greatly. A charming man with courteous European manners, Professor von Haberler had just arrived on campus that fall with a reputation as a staunch defender of free trade. His ideas were ignored in the 1930s when nations around the world gave in to the siren song of protectionism, but they would have a great impact after World War II when international trade expanded and world economic growth surged dramatica
lly.
Professor Edward S. Mason’s equally interesting course covered the nascent area of international economic development. Mason emphasized the technical inputs needed to stimulate broader economic growth in what we would later call the “underdeveloped world.” His pioneering work would make him one of the leading proponents of foreign economic assistance in the years after World War II, a subject that would engage me deeply as I became involved with Latin America and Africa later in my career.
The courses with Schumpeter, Haberler, and Mason provided me with a superb introduction to the study of economics and a solid grounding in economic theory as it was evolving during that critical period. I also discovered that I enjoyed the subject and maybe even had a flair for it.
THE LONDON SCHOOL OF ECONOMICS
Since my first year of graduate study had gone well, I decided to go on to the London School of Economics and Political Science, commonly known as the LSE. Fortunately, I found a genial companion to share the adventure. In the course of my graduate year at Harvard I became acquainted with Bill Waters, a fellow resident of Eliot House whose father ran a manufacturing company in Minneapolis. I discovered that Bill also planned to spend the following year at LSE. We struck up a friendship and decided to room together in London.
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