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Masters of the Universe: Deja Vu All Over Again?, December 22, 2009
In an interview just before the release[this Dec.29] of his already highly praised book "The Lords of Finance:The Bankers Who Broke the World[1914-1944]",Liaquat Ahmed said: "The Great Depression was largely caused by the failure of intellectual will--the men in charge simply did not understand how the economy worked. The risk this time is that a failure of political will, will lead us into an economic catastrophe."
That is now,but this is then: Frederick Allen,1890-1954,was there,then, when he wrote "The Lords of Creation"[1935],"a history of the evolution of financial power in the United States since 1900"[hardback jacket].
Bubbles burst...In Allen's book, orderly mass production is shown to have begun in the mind of the likes of John Pierpont Morgan in 1900-1902 when Henry Ford was producing only 400 cars a year. Even in 1901,during the Northern Pacific[RR] Panic,the New York Times editorialized about the panic as: "an exhibition of the use of vast power for private ends unrestrained by any sense of public responsibility" with contending Wall Street groups acting "...like cowboys on a spree...shooting wildly at each other in entire disregard for the safety of the bystanders".
At about this time[1901]Morgan formed the world's largest corporation, including a heavily-capitalized holding company--the chief engine of 1901's and 2009's financial power. The business man's president,McKinley,was shot in 1901 and the progressive Teddy Roosevelt assumed new presidential powers of market regulation,but with caution so as to not "kill the goose", but, as the comic politico "Mr. Dooley" said: "Th' trusts..are heejous monsthers built up to be th' enlightened intherprise iv th' men that have done so much to advance progress in our beloved country...On the one hand I wud stamp thim under fut; on th' other hand not so fast." Sound familiar in 2009?
Public interest in general,however,did not match up with Mr.Dooley's: The Reader's Guide to Periodical Literature[remember that,oldtimers?]was analyzed by Allen,both for 1900-1904 and 1925-1928--I'm guessing that 2003-2007 wouldn't look much different --:The number of inches devoted to "top 10" politicians like numbers 1,2,& 3 Teddy Roosevelt,McKinley,& Bryan in 1900-1904, was 1/9th of the inches reporting on business men like #1 Morgan or the two Rockefellers,with T.R. beating Morgan 14:1. In 1925-1928 the overall political:business reportage ratio was 7:1--14:1 if we remove #1 politico Calvin Coolidge of "Return to Normalcy" laissez faire "Keep Cool with Coolidge" fame, as well as #1 business man Henry Ford.
The biggest bubble in real estate,stocks,etc,in the history of the world[so far, & I hope,forever]came in October-November 1929, when after tripling in value in 5 years, stocks plunged nearly 50%;and on down to 1/10 of their peak 1929 value in July,1932. The 1929 peak was not regained until 1954!
In the 1934 senate hearings Allen reports that Chairman of the Board,Albert Wiggin,of the then world's largest bank,Chase National Bank,was asked what had brought his bank to trade in stocks: "I think the times"...The Questioner:"I assume you mean the speculative atmosphere?"...Wiggin:""I think perhaps that covers it..there was a great deal of atmosphere..you did a great injustice to everybody if you did not have equity stocks." Questioner:" Did you yield to the temper of the times in that respect?"...Wiggin:"I am afraid so". As Allen quips about the "only" possible excuse: "It was the times".
Even by November 13,1929 enough capital had "vanished" in the U.S as to be equal to 10 times the entire cost to the Union of the Civil War,and nearly as great as the cost to the U.S. for World War I.
Unemployment and underemployment soon affected half of the families in the U.S.,who could ill-afford a toaster let alone an automobile. The failure of Austrian banking in 1931 quickly spread to Germany and Britain. The lack of money and jobs was world wide with Germany having the highest unemployment--nearly 30% in 1932,as Hitler rose to power,becoming "Fuhrer" in 1933.
After 1929 there was no money to lend to countries such as the Soviet Union even if The USSR had been less isolated by the West. Too late--1934--was the USSR admitted to the League of Nations. Major damage had already been done by Stalin,partly it would seem in reaction to the glaring failure of capitalism and its unwillingness, and now its inability, to help itself let alone any beyond the pale. It would,sadly,take a Hitler to pull the world out of its economic slump;probably re-militarizing partly to deal with the rising menace of Stalin's "communist" nightmare.
Meanwhile Stalinism marched on. In the pre-Stalin USSR of 1927 only 1% of farms were collectivized: 99% of farms were still market-based. The first 5 year plan for 1928-1932 forecast only a modest 15% collectives,but--note the timing here re the stock market's October-November 1929 crash--between September,1929 and March,1930 collectivization under Joe Stalin went from 7 or 8 % to 60 %[90 % in 1936].
Thirty million farmers were deported in the USSR at this time[winter!],six million dying in transport or in camps. Soviet economic statisticians showed a drop of 12 million in the population of the USSR in 1929-1932; after which reporting these statisticians themselves were added to the death list.
Fifteen millions died in World War I[a partly nationalist,partly capitalist blunder], another nine million died in the Russian Civil War of 1917-1922,partly due to invading capitalist armies including U.S. forces,but Stalin is[later,1929-] ultimately responsible for the deaths of 20 to 40 million Soviet citizens. The story of general human failure,of course,goes on to Hitler's 20 million bodies,Japan's v.s. China 12 million, Mao's 50 million dead Chinese,Vietnam's 3.5 million,etc.
The last third of this essay[so far] was my own "off the book" digression, if you wish. Allen is great as a contemporary observer of 1929 and all that,but it is easy to see that 1901,1914,1917,and 1918,as well as 1929,1933[Hitler]have an easy reach to 1939,1945,...2009..and beyond[?]. As Allen points out,1929 was not taken to heart:centralization by "The Lords of Creation" went on; For example, six auto makers sold 85.0% of U.S. cars in 1923,but by 1930 three U.S. auto makers[Ford,GM and Chrysler] controlled 83.3% of the market,and by March 1935 93.4%. This is part of an ongoing trend of concentration of power into the reach of a handful of business people or "Lords of Creation"["Masters of the Universe" is a more recent description].
"The problem"--then,as well as now--not a mere "issue",is, as Allen states in the last sentence of "The Lords...": "...how to adjust our institutions to new financial and economic circumstances,...so as to multiply effectively and distribute with some decent approach to fairness the products of the earth, the fruits of labor, and the unprecedented gifts of science--and to do this without destroying human liberty."
Many CEOs [and their big stock holders],at this late date, still take unwarranted liberties with paychecks and bonuses that they write up for each other:often 100 million dollar "perks" that they reward themselves for saving money for themselves and their peers at the expense of everyone else. As well as risking everyone else's future by recklessly gambling money and operations that in truth do not belong to them. We do not allow semi-truck drivers to go 100 across country nor do we employ those who indulge themselves in such deadly antics. Hiring nut job maniacs to run amuck mismanaging our big corporations can not be considered good business by anyone except other drama queen maniacs.
The writing is on the wall for the runaway drivers of the world's economy. The possibility of new Stalins,Hitlers,et al is palpable. One may wish to hope for,however, as the prophet Daniel foresaw, a different kind of regime such as Daniel himself later saw when the Jews' highly revered "King of Kings" Cyrus the Truly Great and his followers, brought an order of magnitude greater justice to Nebuchadnezzar's Babylon and to most of the known world 2,500 years ago.
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