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Dwight Macdonald

Reading from Left to Right

The Monopoly Committee – First Year

(April 1939)


From New International, Vol.5 No.4, April 1939, pp.105-108.
Transcribed & marked up by Einde O’ Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).


IN A FEW WEEKS the Temporary National Economic Committee, popularly known as the Monopoly Committee, will celebrate its first birthday. Its work has had the personal approval of the President, who was given direct control of $400,000 of its $500,000 initial appropriation, and who recently let it be known he hoped Congress would grant the Committee the $2,000,000 more it will need to complete its work through 1940. I think it is worth devoting this month’s column to a consideration of just what this Committee, so impressively sponsored, so lavishly publicized, has done in its first year of existence.

Congress set up the Committee in response to a special message from President Roosevelt suggesting “a thorough study of the concentration of economic power in American industry and the effect of that concentration upon the decline of competition.” As further defined by Congress and by its own members, the Monopoly Committee’s scope takes in every aspect of our economic life, from employment and wage levels to holding companies and branch banking. Twelve men are on the Committee: two reactionaries and one New Dealer from the House; one reactionary (King of Utah) and two wobbly liberals (Borah of Idaho and O’Mahoney of Wyoming) from the Senate; and six representatives from various executive agencies, most notable being Thurman Arnold (Justice), W.O. Douglas and his alternate, Jerome Frank (SEC), Garland Ferguson (Federal Trade Commission), and Isidor Lubin (Labor). The Committee’s executive secretary is Leon Henderson, chief economist of WPA and one of the leading leftish intellectuals in the Administration. Altogether, the Committee rates remarkably high in brains, the low level of the congressional contingent being more than outweighed by the calibre of the delegates from the executive departments. (It will be understood that this judgement is not absolute, but on the scale of American bourgeois politics today.)

It was Secretary Henderson who best summed up the question which the twelve wise men are trying to answer: “Why have we not had full employment and full utilization of our magnificent resources?” From time to time in our history, other such committees have struggled with this question: the Trust Investigation of 1900, the Armstrong Committee of 1906, the Stanley Committee of 1911, the Pujo Money Trust Investigation of 1912, the Industrial Commission of 1916. Each of these tried to answer this simple question, and each failed, for the same reason the Monopoly Committee is failing, because each tried to work out a solution within the bounds of capitalism.

The Monopoly Committee, however, is failing in a different way from any of its predecessors. In their attacks on the monopoly octopus, all these committees have fought the battle not of the proletariat, but of the petty bourgeoisie, driven bankrupt by the onward march of the trusts, eternally exploited and hornswoggled as an investor by the big bourgeoisie who pull the strings of the system. The older committees, in an era when the basic stability of American capitalism was not questioned, lustily attacked the enemy, exposing vast quantities of dirty linen and even extorting a few minor concessions. But by now it is clear that our capitalism as a whole is none too secure, and that minor reforms will not be enough. A slashing onslaught in the old trust-busting style might be more than the rickety old structure could stand—and so the Monopoly Committee adopts a tone of sympathy rather than of indignation toward the monopolists it questions. When capitalism is really sick, the petty bourgeoisie shows its basic class solidarity with the big bourgeoisie. If the Monopoly Committee has not yet gone very far beneath the surface and shows no signs of wanting to do so, it is not for lack of brains or money. It is simply that it doesn’t dare to.
 

“Our Interests Are Really the Same”

From the moment of its creation, the Monopoly Committee began assuring the business community that its intentions were of the friendliest. “This is not a punitive expedition,” Chairman O’Mahoney kept repeating. “I don’t believe in centralized planning.” By the end of August, the American Bar Association, the US Chamber of Commerce, and the National Association of Manufacturers had all offered their “cooperation” to the Committee. (The NAM, indeed, carried cooperation so far as to announce that it was spending $50,000 of its good money on a patent study which it hoped would “aid” the Committee.) Until the hearings began, many in both the right and the left camps maintained that all this talk of “cooperation” was a ruse de guerre, that once the Trojan Horse was inside the citadel of monopoly, from its belly would come pouring forth an army of trustbusters thirsting for Wall Street blood. But now the Wooden Horse is inside the walls of Troy, and from it have issued not Greeks but—more Trojans. General Johnson, one of the most clamorous Cassandras of the right, recently admitted he had entertained unjust suspicions of the committee, that it really was “cooperating” in splendid fashion. And Arthur Krock, the NY Times’ bitterly conservative political editor, a few weeks ago expressed the hope that

“Senator O’Mahoney will keep it as thoughtful and restrained as he has thus far—or postpone it indefinitely if the crackpots and political maneuverers break their leashes ...”

But no one on the Committee particularly wants to break his leash. As Chairman O’Mahoney remarked, speaking of their attitude toward the industrialists and bankers who testify before them:

“We of the Committee might just as well be sitting on the other side of the table. Our interests are really the same.”

You could hardly ask for anything plainer than that.

After seven months of preparation and false starts, the Committee began its hearings with a series of lectures by economists armed with charts and pointers. These were so dull as to clear out half the spectators the very first day. There was nothing new in the data presented, but it is worth setting down a few of the major items. The Committee learned that the total loss in national income since 1929 is $293,000,000,000 or seven times the present national debt; that wages in 1929 were $63,000,000,000, dividends $16,000,000,000, as against 1938 totals of $54,000,000,000 for wages and $15,000,000,000 for dividends; that 54% of the nation’s families have incomes of less than $1200 a year; that even if production climbed back to 1929 levels, there would still be 7,000,000 unemployed; that the total loss of working time in the last nine years comes to one year and two months per worker.
 

Love Feast

After three days of charts and pointers, the Committee got down to business. It took up first the burning issue of—patents. The automobile barons were summoned to the stand to tell a beamingly sympathetic Committee (and, through the press, the rest of the American people) how enlightened their patent policies are. Edsel Ford said his father’s company swapped patents with other companies. “Fine!” said the Committee. President Macauley of Packard said that his company paid and collected royalties. “Bully!” said the Committee. The manager of the Automobile Manufacturers Association, to which everybody except Ford and Packard belong, said that the members pooled their patents. “Splendid!” cried the Committee. The AMA manager noted also that this pooling arrangement applied only to patents taken out before 1930, because the companies naturally wanted to cash in on their new gadgets before letting society, and their competitors, have the benefit of them. This bit of vulgar economic self-seeking the Committee passed over in delicate silence. They were plainly interested in the more idealistic aspects of the automobile business. They had a particularly good time spinning technocratic dreams with the genial Charles F. Kettering, chief engineer for General Motors, who put on for them his Homespun Inventor act.

“If we could only have an inventions congress here,” sighed Mr. Kettering, “in which we had business men and economists and representatives of government and could sit down and say, ‘Now what are the most probable things that we can do?’”

“So far as I am concerned,” warmly responded Chairman O’Mahoney, “the principal purpose of these hearings is to provide a forum for just such a conference with respect to our national economy. And may I say to you, Mr. Kettering, that I feel very much stimulated by your testimony this afternoon?”

No wonder the trade magazine, Steel, commented on “last week’s love feast of automobile executives with the Monopoly Committee in Washington.” Steel also reported that when Edsel Ford showed annoyance at the continual popping of photographers’ flashbulbs, one of the Senators on the Committee admonished him: “This helps to sell automobiles as well as politicians, you know.”
 

Empire in Glass

For its horrible example of a “bad” use of patents, the Committee was careful to pick a comparatively small industry, and even so to pull its punches. But the general effect was gruesome enough, all the same—and the one piece of good old-fashioned muckraking the Committee has allowed itself to date. It seems that a company no one has ever heard of, the Hartford-Empire Co. of Hartford, Conn., owns the patents on the machinery which last year produced 67% of the nation’s glass containers, including most of our fruit jars and almost all our milk bottles. It is a very nice business, indeed. Throughout the depression, Hartford-Empire’s revenues rose steadily year by year, touching 48% on invested capital in 1936 and 68% in 1937. What did it do to reap this rich reward from society? It does nothing so obvious as make bottles. It doesn’t even make the machines that make the bottles. It merely controls the patents without which no one can make these machines—and, consequently, no one can make milk bottles. It pays another company to make to its order these machines, which it then rents to such bottle makers as it thinks advisable. By never selling its machines, Hartford-Empire keeps complete control of the whole process in its own hands.

The Hartford patents are on the “gob” process. The only other important process, the “suction” method, is controlled by the big Owens-Illinois Glass Co. Last year, 29% of the nation’s glass containers were made either by Owens or by companies licensed by it, leaving just 4% of the industry for the “independents”. Hartford and Owens work amicably together, united by various contracts. Corning Glass, the other big glass company, controls Hartford-Empire through a series of intervening companies. As President Levis of Owens remarked to the Committee: “Everybody in the glass business is pretty friendly.” Everybody on the inside, that is. What happens to brash outsiders who try to buck Hartford’s patent empire was told in detail to the Committee. As was the long tale of Hartford’s suppression of such advances in the art of glassmaking as do not seem to be to its commercial advantage.

“In some cases,” concluded Chairman O’Mahoney cautiously, “the evidence seems to indicate that the original intention of the patent grant as stated in the Constitution to promote the progress of science and the useful arts, has been obscured.”
 

Patents—and Publicity

The automobile industry was not the only one to cash in on the excellent sounding-board offered by the Committee’s hearings. A Mr. Farnsworth who has a radio and television company told the Committee in detail how he had discovered the basic principles of television at the age of fourteen. A Mr. Baekland, inventor and promoter of the plastic, Bakelite, was induced to admit, also in detail, that Bakelite would be ideal for certain airplane parts now made of inferior materials. Dr. Coolidge, director of General Electric’s research laboratories, proclaimed the virtues of his firm’s “Invisible Glass” (with samples for the Committee members). The Capital wits began to say that if the Committee couldn’t get a further appropriation from Congress, it might finance itself by charging business men so much an hour for the use of its witness stand.

Except for the job on Hartford-Empire, such muckraking as the Committee did in the patent field was purely involuntary and accidental. It was quite by chance, for instance, that Dr. Jewett, head of the Bell Telephone Laboratories, happened to mention a vacuum radio tube which lasts 50,000 hours, as against the 1,000-hour life of the tubes now sold for use in home receiving sets. His laboratories invented this in 1923, and the parent company, American Telephone and Telegraph, has been using it in its business ever since. Although Dr. Jewett said this tube could be adapted to use in home sets, it has never been put on the market. Neither Western Electric, a subsidiary of AT&T, nor RCA, nor General Electric—who have cross-licensing agreements on patents with AT&T—have shown any interest in giving the public this 50-times better tube. (Mr. Lubin of the Committee said he was “terribly upset about this long life tube”.) When some one asked Dr. Jewett why these great companies had not put the tube on the market, he replied bluntly: “It isn’t commercially to their advantage to do it.”
 

Life Insurance Gets Another Whirl

The liberal-reformists gallop off to their crusades on the most dashing chargers, to the accompaniment of martial airs. But closer inspection reveals that the hoofs of their spirited steeds are firmly anchored, that the exhilirating motion is due to the revolving of the merry-go-round, while the humble source of the thrilling music is the steam calliope in the center. By this time, the reformers have covered a good deal of territory, always, of course, in a circular motion. The same problems, the same “solutions” crop up decade after decade, as the merry-go-round completes its appointed rounds. But if the law of motion of reformism is circular, that of capitalist accumulation leads in all too straight a line to monopoly, state capitalism, and fascism. The reformists are grappling today with the same monsters they failed to slay thirty years ago, but, while the dragon-slayers are no bigger, the dragons have grown in the interim to really terrifying proportions.

Which is a somewhat ponderous prelude to the investigation of life insurance companies which the SEC is conducting for the Monopoly Committee. Because of the appalling size of the major companies, and because 64,000,000 Americans hold some sort of life insurance policy, this is the key study of them all. But the repetitive nature of these things is already apparent. The classic insurance investigation, the one on which the SEC inquiry is frankly modelled, was that conducted by Charles Evans Hughes in 1905-6 for the Armstrong Committee of the New York State Legislature. The Armstrong Committee uncovered a remarkable amount of dirt—there was a remarkable amount there—and stimulated some drastic changes in the control and business methods of the great insurance companies. The committee reached two major conclusions: (1) insurance companies in 1906 were too big and wielded too great financial power for the good of the nation; (2) this power was autocratically used by a small group of insiders to advance their own interests, without any control either by their policy-holders or by society in general. Thirty years later, the SEC is making precisely the same discoveries about the insurance business, only on a larger scale.

In 1906 there were 136 legal reserve companies, with $2,900,000,000 in assets. Today there are 308, with $26,250,000,000. In 1906 the three biggest companies had half a billion assets apiece. Today, New York Life has $2,500,000,000; Prudential has $3,500,000,000; and Metropolitan, which had $176,000,000 in 1906, has amassed the incredible total of $5,000,000,000. (Every day of the year, including Sundays, Metropolitan finds itself with $2,000,000 it must invest.) At the end of last year, 49 of the biggest insurance companies owned 23% of all railroad bonds, 15% of all industrial bonds, 14% of all city mortgages. Last year the ten biggest companies alone bought 55% of all corporate bonds and notes issued. “No useful purpose,” the Armstrong Committee noted of the insurance companies, “will be served by their becoming larger.”

After the Armstrong investigation, many big companies went “mutual”, that is, they reorganized themselves so that their policyholders were also their owners. But this has turned out to be mere eyewash. Control is still gripped tightly by a small inner circle of financiers. The SEC finds that in recent years, in the twelve biggest mutual companies, the percentage of policyholders who even bother to vote for “their” trustees in elections runs from 0.01 to 2.51. There is no case on record of an “independent” (of the management) candidate being elected in a major company, and only five cases on record since 1906 of an independent candidate even being proposed. The Metropolitan had an especially high percentage of ballots cast in its elections. A dozen Metropolitan agents told the Committee that it was common practice for them to write in signatures on ballots themselves without bothering the policyholders.

As for the business conduct of the “trustees”—ironical term—the SEC already has found much the sort of evidence the Armstrong Committee uncovered. Al Smith used his trusteeship in NY Life to extort fuel oil orders for his Meenan Oil Co.; Mutual Life’s deposit at Bankers Trust jumped from $150,000 to $1,500,000 when President Colt of Bankers Trust went on its board; Guaranty Trust rejoices in five Mutual Life directors, and also in $23,400,000 of Mutual money on deposit; etc., etc.

The insurance hearings have been adjourned until the SEC completes its survey. The ineffable Chairman O’Mahoney hastened to do his usual whitewashing job: “Nothing whatever was developed at the hearings to reflect upon the integrity or the ability of the men who administer these huge organizations.” Whitewashing is still fairly easy; the surface has hardly been scratched.
 

Douglas Gets His Brass Ring

The chances that the SEC will dig really deep into the life insurance situation have probably been lessened by the “elevation” (read: sterilization) of its chairman to the Supreme Court. For Douglas is courageous, honest, and energetic—insofar as those qualities are consistent with a reformist philosophy. Much too bold and energetic, indeed, for both Wall Street and the White House in this era of appeasement. It goes without saying that Douglas accepted the nomination at once. This is another aspect of the reformist merry-go-round. The crusaders who ride its painted steeds, every now and then capture a brass ring which entitles them, not to another ride as in most merry-go-rounds, but quite the contrary—to dismount from their warhorses and take it easy in some comfortable berth of extreme honor. Thus Douglas takes the seat of Brandeis, who, thirty years before him, also viewed with articulate alarm the insurance monster — until he presently got his brass ring and retired to the Supreme Court. And the fiery prosecutor of the Armstrong Committee, whose bristling red whiskers used to strike terror to the most insolent insurance mogul, has long since found his berth as chief justice of the same august tribunal.

There is another sort of brass ring, less dignified and secure but more rewarding in other ways, which the riders on the reformist merry-go-round often snatch off. This is a job with one of the wicked corporations the crusader has been tilting against. A curious example of this sort of thing came to light during the Monopoly Committee’s hearings on the Hartford-Empire patent racket. The Committee’s counsel produced an extremely damaging memorandum from the company’s files, which bluntly announced its “three main purposes in securing patents” to be:

  1. to prevent duplication of our machines
  2. to block the development of other machines; and
  3. to get patents on all possible improvements of competing machines so as to prevent their reaching an improved stage.

The author of this memorandum was a certain Herbert Knox Smith, who was secretary and chief counsel for the company until his death in 1931. Mr. Smith had also been Commissioner of Corporations under Theodore Roosevelt, and as such had supervised a still celebrated series of reports on the tobacco trust, the meat trust, the steel trust, and so on. Apparently, he had learned so much about monopolistic methods while he was fighting the trusts that he was practically invaluable, in his later years, to a company like Hartford-Empire.

Hobson’s Choice

The Committee, of course, is split between its reactionary and its progressive wings. But this split is not very serious because the progressives are both more numerous and more articulate than the reactionaries. The really significant division, which is largely responsible for the inconclusive fumbling of the Committee to date, has appeared in recent weeks as the Federal Trade Commission has been taking over the witness stand. It soon became obvious that the progressives are deeply split among themselves. The FTC leads the old-fashioned trust-busters, who take the classic anti-monopoly position: enforce the anti-trust laws and restore free competition. The New Deal brain-trusters—Douglas, Frank, Henderson, Lubin, Arnold—are all for regulation rather than trust-busting. They seem to be working towards some sort of revived NRA, which would permit business to “organize” itself, subject to state control, exercised through commissions composed of representatives of business, labor, consumers, and the government. Already, Thurman Arnold and his chief, Attorney General Murphy, are reported to have worked out some such scheme for enforcing the anti-trust laws.

It must be granted that the neo-NRA advocates are more brilliant and sophisticated than their opponents.

They are more aware of the post-war changes in American capitalism, and the inevitable direction of its development. They hope, of course, to be able to confine the drive of monopoly capitalism safely within the bounds of reformism. But objectively, their proposals would make it easier for monopoly capitalism to take over complete and direct state power and install fascism. Sincere anti-fascists though they are—now — their program represents the slow swing of the middle classes behind big business in time of capitalist crisis and decay. It is the program of the White House and “business appeasement”. And so it is not surprising that the FTC finds itself pretty much isolated on the Monopoly Committee. It, too, is fighting the battle of the petty bourgeoisie, but from a position which is by now definitely of the past. The fight was lost when America came out of the World War the most powerful monopoly capitalist state in the world.

But the FTC is effective on the Committee far beyond the support its program gets. For one thing, it has had twenty-five years of experience in trying to regulate business, and it knows a great deal more about business than any of the brain-trusters do. For a large part of its raw material, the Committee is dependent on the FTC And since the FTC’s view of American business is realistic, and even cynical, the Committee finds itself constantly confronted with data which proves just what it doesn’t want to prove. Furthermore, the FTC, in its stodgy way, is able to poke holes in the thesis of the brain-trusters without much difficulty. Its officials refer to the NRA as an example of what happens when business is given self-regulatory powers. And they are constantly making such remarks as:

“The abandonment of free capitalism here as in other nations will require the abandonment of democracy.”

Or:

“Monopoly constitutes the death of capitalism and the genesis of authoritarian government.”

The Frank-Henderson-Arnold wing is equally effective in rebuttal. They have little difficulty showing that a return to pure competition would be impossible, and, even if possible, socially undesirable because of the nature of many industries. They can point to a long record of futility and impotence in trust-busting. The first great period of trust-forming began in 1898, eight years after the Sherman Anti-Trust Act was passed. The second big era of industrial combination began in 1922, eight years after the Clayton Act was passed and the FTC was created.

The fact is that the middle classes, for which both wings of the Committee speak, are confronted by Hobson’s choice. They can either struggle against monopoly capitalism—and ultimate fascism—with the antiquated and ineffective weapons offered them by the FTC. Or they can follow along after the President and his brain-trusters, whose program of regulation and “appeasement” is practical and effective today precisely because tomorrow it will offer the least resistance to fascism. The only hope of the middle classes lies in a program, the revolutionary struggle for socialism, which the Monopoly Committee cannot be expected to take into account. Without that alternative, the choice confronting the middle classes, and their Monopoly Committee, is Hobsonian indeed.

 


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