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International Socialist Review, May-June 1969

Dick Roberts

The Financial Empires of America’s Ruling Class

From International Socialist Review, Vol.30 No.3, May-June 1969, pp.24-35.
Transcribed & marked up by Einde O’Callaghan for ETOL.

Who owns and controls US corporations? Do the banks play a major role in this pattern of ownership and, if so, what is it? Many people apart from specialists in economics would have a ready answer to the first question. But they would probably grope for an answer to the second question and might even brush it aside as unimportant.

Adolph A. Berle, Jr. expressed what are still the most widely held and academically approved notions about stock ownership and corporate control in his Power Without Property, published in 1959. According to Berle, American capitalism entered a stage of what he called “management control” following the stock market crash of 1929. Berle stated that

“management control is a phrase meaning merely that no large concentrated stockholding exists which maintains close relationship with the management or is capable of challenging it, so that the board of directors may regularly expect a majority, composed of small and scattered holdings, to follow their lead ... This is the locus of power over and the norm of control of the bulk of American industry now.”

Berle was one of the first leading “establishment” economists to draw attention to the growing role of mutual and pension funds, and life insurance companies, in stock investment. In fact, Berle predicted that the “management control” stage of American capitalism would be replaced by a stage in which these fiduciary institutions dominated the corporations. Making their appearance in American economic life mainly following the second world war, these institutions have since grown to hold the dispersed stockholdings of millions of individuals. The stockholdings concentrated in the hands of the “institutional investor,” Berle argued, would eventually give these financial managers the controlling interest in corporations.

Certain aspects of Berle’s viewpoint are shared by some economists of the Marxist school. The late Paul Baran and Paul Sweezy agreed with Berle in their Monopoly Capital (1966) that the “absolute control” of the old-type plutocrats had been largely replaced by management control.

“The domineering founders of family fortunes were dying off,” Baran and Sweezy wrote, “leaving their stockholdings to numerous heirs, foundations, charities, trust funds, and the like, so that the ownership unit which once exercised absolute control over many enterprises became increasingly amorphous and leaderless. Thus the larger corporations gradually won more and more independence from both bankers and dominant stockholders, and their policies accordingly were geared to an ever greater extent each to its own interests rather than being subordinated to the interests of a group.”

The idea that corporations have become more and more independent from stockholders through management control and that mutual and pension funds and life insurance companies are gaining an increasing control over corporate management, leaves banks out of the picture altogether. But banks are at least as omnipresent as corporations in the everyday life of a capitalist society. Most American adults have a savings account, checking account, perhaps a mortgage on their house, or auto or some other bank loan or “credit” card.

It would not be surprising if banks, which play so highly significant a role in the determination of capitalist economic life, should also exert considerable influence over corporate decision making. A closer look will show how great this role is and serve to shed light on the question posed at the outset of this article, “who owns and controls US corporations?”
 

Finance capital and ‘self-financing’

The big banks came to the forefront of capitalist development in the epoch of “classical” imperialism, the rapidly expanding capitalism of the last quarter of the nineteenth century. The domination of banks in the hectic construction of European industry and the plundering of the colonial world – that is, in the division of world markets which led to the first world war – was strongly emphasized by Luxemburg, Hilferding and Lenin. Corporations lacked sufficient capital to meet the opportunities opening everywhere for investment; investment was spurred on by the banks.

Finance capital, that is, banking capital invested in industry and controlling it either directly (by the purchase of shares, the presence of bank representatives on the board of directors, etc.), or indirectly (by establishing holding companies, concerns and “influence groups”) brought corporations under its sway. The gist of Lenin’s viewpoint on this question, contained in the following lines from Imperialism (1917), is worth quoting in full:

“When carrying the current accounts of a few capitalists, the banks, as it were, transact a purely technical and exclusively auxiliary operation. When, however, these operations grow to enormous dimensions we find that a handful of monopolists control all the operations, both commercial and industrial, of the whole of capitalist society. They can, by means of their banking connections, by running current accounts and transacting other financial operations, first ascertain exactly the position of the various capitalists, then control them, influence them by restricting or enlarging, facilitating or hindering their credits, and finally they can entirely determine their fate, determine their income, deprive them of capital, or, on the other hand, permit them to increase their capital rapidly and to enormous dimensions, etc.”

This “absolute control” of industrial capital by finance capital has proved to be a passing phenomenon in a number of the advanced capitalist nations (United States, Great Britain, Japan, Belgium, Netherlands, etc.), because giant corporations are not now so dependent upon banks for funds. Berle was among the first to note this process:

“Since 1939,” he wrote in Twentieth Century Capitalist Development (1954), “undistributed real profits have formed a much more important source of financing than the contribution of the capital market. Since that date, self-financing has always provided over half of the total of the funds under consideration, over 60 per cent in the years 1948-50 ... In this way, the structure of financing in this post war period differs from what it was in the first such period.”

The shift corresponds to the evolution of world imperialism from a stage predominantly characterized by rapid expansion in the world market, where capital funds quickly found arenas for productive investment, to a stage predominantly characterized by saturation of the world market, leading to a vast accumulation of surplus capital. Ernest Mandel has explained this in his Marxist Economic Theory (1962):

“The trusts no longer suffer from a shortage of capital but rather from an excess of it. They resort less and less to obtaining advances from banks. Thus, they can no longer be controlled by banks supplying them with investment credit. They themselves create their own banks, in order to ensure that their available surpluses bring a ‘return.’”

However this has not deprived banks of their importance. As monopoly profits pile up in the banks, their job of ensuring that available surpluses bring a return, i. e., that they are advantageously invested, gives the banks new power over whole layers of industry. Further, although industry has been able more and more to raise investment funds internally, there is still a need for banks to finance outstanding corporate debts. [1] And finally, the close interweaving of bank and industrial interests in the early part of the century produced a melding of certain banking and industrial trusts which has not dissolved even though its initial necessity has disappeared.

The result is a new stage of the “interpenetration of industrial and finance capital,” as Mandel explains.

“A few big trusts dominate whole sectors of industry, including banks which they control, and certain banks hold key positions in the national economy.”

This interpenetration of banks and industry in the United States has recently been documented by the Subcommittee on Domestic Finance of the Committee on Banking and Currency of the US House of Representatives. The subcommittee issued the first two volumes, 1,945 pages long, of its Commercial Banks and Their Trust Activities: Emerging Influence on the American Economy, in July 1968.

The key “discovery” of the House finance subcommittee erases in one stroke the notion that mutual funds, pension funds or even life insurance companies, have monopolized institutional stock ownership. By far the largest institutional investor in the United States is the banks themselves. Of the staggering sum of slightly over $1 trillion in assets held by all institutional investors in 1967, $607 billion, or approximately 60 per cent was held by commercial banks (see Table One).

The voluminous banking committee study, as its name suggests, focused on the bank trust departments which held approximately $250 billion of the $607 billion in total assets held by commercial banks. The bank trusts, in turn, fell into two categories: approximately $180 billion in privately-owned trusts; and roughly $70 billion in pension funds. Since, in fact, the majority of pension funds are held by banks, they do not function as “competing” institutions in the investment field! Although the private trusts and pension funds receive the dividends from stocks held in these funds, the banks normally vote the stocks as trustees.

This is the source of the “emerging influence on the American economy” of commercial bank trust departments. Holding 24 per cent of institutionally controlled assets, the bank trust departments silently wield a bigger influence on corporations through stock ownership than the more highly publicized mutual funds and life insurance companies combined.

It should be underlined that the finance subcommittee primarily examined the structure of these trust department holdings and did not at all examine the even larger holdings owned by the banks themselves. These constitute 34.4 per cent of institutionally controlled assets. Noting this in passing, the finance subcommittee refers to a revealing charge in the first volume of its report. This occurred “in connection with the attempt of Crane Co. to take control of Westinghouse Air Brake Co. Mr. Thomas M. Evans, chairman of Crane, stated that he was curious about the ownership of Westinghouse Air Brake stock and pointed out that four of the nine Westinghouse Air Brake directors were also on the board of Mellon National Bank and Trust Co. of Pittsburgh. Among these four was John A. Mayer, president of the bank. Mr. Evans wondered why the bank was so interested in Westinghouse Air Brake that it would have four director interlocks with that company. Of course, under the present situation,” the committee concluded, “it is difficult if not virtually inpossible, for Mr. Evans or anyone else to find out if Mellon National Bank holds Westing-house Air Brake stock and how much it holds.”

An interesting admission! The US government’s “banking” committee is not able to find out how much stock banks privately own, although this constitutes the largest stockholding in the financial arena. The capitalist ruling class imposes limits upon the penetration of its government agencies into its business and banking secrets.

In addition to investigating bank trust stock ownership, however, the banking committee did tabulate the director interlocks of banks with major corporations. This likewise revealed a weighty interpene-tration of bank and industry control. The committee compared trust stockholdings and director interlocks between the 49 largest banks in ten metropolitan areas and the 500 largest US industrial corporations as compiled by Fortune magazine.

There were 176 separate instances involving 147 of the top 500 corporations, where these 49 banks held 5 per cent or more of the common stock of an individual company in trust. At the same time, these banks held a total of 768 interlocking directorships with 286 of the 500 largest industrial corporations. That is an average of almost three directorships for each corporate board on which bank director representation is found.

Similar facts were cited for the 50 largest merchandising, transportation, utility and life insurance companies. The last category is most interesting. Of the 50 largest life insurance companies, these banks held the very large number of 146 interlocking directorships with 29 of the life insurance companies – averaging 5 directorships per insurance company on whose board these banks were represented.

But bank trust stock ownership and director interlocks were found to go far beyond these biggest industrial and financial corporations. In each area the largest bank or group of banks extend their stock ownership and directors down to the smallest of profitable enterprises. The case of the Mellon National Bank and Trust Co. of Pittsburgh is an example.

The Mellon bank, the fifteenth largest bank by size of total deposits in the country and the sixth largest by size of bank trusts, towers over everything in sight of its Western Pennsylvania domain. It holds 52.1 per cent of all commercial bank deposits in the Pittsburgh metropolitan area and 72.3 per cent of the bank trust assets. The Mellon National Bank holds between 5.1 and 47.3 percent of the common or capital stock of 21 major corporations and has 74 director interlocks with major corporations. Including smaller corporations, the Mellon bank has 229 director interlocks with 176 companies.
 

Accumulation and centralization of capital

These facts and figures make it clear that the banks have become repositories for enormous reserves and that these reserves, in turn, have been employed to extend the banks’ areas of influence and control. By comparison with the assets held by all institutional investors shown in Table One, of slightly over $1 trillion, assets of all manufacturing corporations totaled to approximately $410 billion in the same year.

The trend is towards a strengthened reign of finance capital. But now it is finance capital owned by banks and industry. The inter-penetration of banks and industry has resulted in the development of mammoth “finance corporations,” whether these were originally banks or industries.

The widespread and accelerating phenomenon of corporate “merger” has been matched by a continuous and quickening centralization of commercial banking companies. Indeed, the banks have joined the scramble to “conglomerate” through the establishment of “one bank holding companies.”

In the financial capital of New York City, for example, the past 15 years have seen the merger of the Chase National with the Bank of the Manhattan Co.; J.P. Morgan and Co. with Guaranty Trust Company of New York; Chemical Corn Exchange Bank (itself the result of a merger in 1954) with the New York Trust Company; and Manufacturers Trust Co., with Hanover Bank.

The result is that six banks in New York City – the Morgan Guaranty Trust Co., the Chase Manhattan Bank, Bankers Trust Co., First National City Bank, Manufacturers Hanover Trust Co., and the Chemical Bank New York Trust Co. – have in their trust departments alone, $81.3 billion worth of assets. This is approximately one third of all bank trust assets in the entire country! These six New York banks had a total of 1,489 director interlocks with 1,295 companies. This is an average of 248 director interlocks per bank with an average of 215 companies per bank.

The “one bank holding company” develops when a commercial bank turns itself into a general business corporation. Under this umbrella the bank becomes a subsidiary which can then sop up a variety of other enterprises. Already, some 500 commercial banks have taken this step. A recent spectacular instance was the acquisition by the First National City Corp. of a big insurance holding company, the Chubb Corp. This takeover cost First National City Corp. something over $300 million.

Ernest Mandel has documented the parallel accumulation of assets in the major American industrial and financial trusts for the years 1935, 1945 and 1958 (Marxist Economic Theory, Vol.II, p.514). I have added figures for the year 1967 to compile Table Two. These figures are only indicative, considering the decline of purchasing power of the dollar. Nevertheless, the trend is evident.

The giant trusts have piled up huge reserves, continuously absorbing lesser giants in their paths. In this select group of twenty are included three of the seven members of the international oil cartel which produces over 90 per cent of traded “free world” oil; a corporation which manufactures over one-third of all motor vehicles in the

capitalist world; two of the world’s largest banks and two of the world’s largest insurance companies. The total assets of the twenty corporations shown in Table Two was over $210 billion in 1967. This amount is approximately equal to the gross national products of Great Britain and France combined.
 

Separation of ownership

The separation of stock ownership from corporate management is not a new phenomenon in the history of capitalism.

“It is characteristic of capitalism in general,” Lenin wrote in Imperialism, “that the ownership of capital is separated from the application of capital to production, that money capital is separated from industrial or productive capital, and the rentier, who lives entirely on income obtained from money capital, is separated from the entrepreneurs and from all who are directly concerned in the management of capital.”

But Lenin did not conclude from this fact that the capitalist ruling class had forfeited its “absolute control” of capitalist corporations to a new “managerial class.”

On the contrary, Lenin saw this process as one which strengthened and extended the control of the capitalist rulers. It is easily understandable why this should be so. Let us say that General Motors issues extra common stock and an individual is able to purchase 100 shares. This would cost in the neighborhood of $8,000, and suggest that the purchaser is “on his way up ...” But between 100 shares of GM stock and the board of directors of this corporation, where decisions are actually made, there is still quite a distance.

In 1966, the 28 members of the GM board of directors reported that they and their families owned 2,157,859shares, averaging 75,000 shares – $6 million worth – per family. The 1966 directors included Richard K. Mellon, whose family owned 259,221 shares valued at roughly $21 million and John L. Pratt who individually owned 646,426 shares, nearly $60 million worth.

Paradoxically, the most interested family has no members on the GM board – and for an obvious reason. Federal law would require it to make public its total holdings. This is the du Pont family, which, at last count in 1937, owned 44 per cent of outstanding GM stock. Ferdinand Lundberg has estimated the value of these 66 million shares at $4.9 billion in 1964 (The Rich and the Super-Rich, p.142).

The purchase of 100 shares of GM stock could not bring the owner anywhere near the “power nexus” of this giant corporation. But it would place $8,000 in the hands of those who do control that corporation, i. e., the Pratts, Mellons and du Fonts, to employ as they see fit. The vast spread of stock ownership consequently puts more and more capital at the disposal of the few dominant interest groups and makes it possible for these groups to wield greater power with smaller stockholdings.

The latter point has been stressed in a series of House finance subcommittee reports:

“When a corporation has thousands of shareholders almost all holding a small number of shares, a holder of even 1 per cent of the shares may be by far one of the largest shareholders ... Many very small holdings are voted almost routinely and automatically for management for one reason or another. Therefore management, who are ‘employees’ of the shareowners, will be more apt to listen to and cater to the interests of the few larger and more alert [!] holders of shares ...” (Bank Stock Ownership and Control, Staff Report for the Subcommittee on Domestic Finance of the Committee on Banking and Currency, December 29, 1966.)

Lenin wrote in Imperialism:

“The ‘democratization’ of the ownership of shares, from which the bourgeois sophists and opportunist ‘would-be’ Social Democrats expect (or declare that they expect) the ‘democratization of capital,’ the strengthening of the role and significance of small-scale production, etc., is, in fact, one of the ways of increasing the power of the financial oligarchy. Incidentally, this is why, in the more advanced, or in the older and more ‘experienced’ capitalist countries, the law allows the issue of shares of very small denomination.”
 

Banks and dominant interest groups

Banks perform the special function of mobilizing every penny that they are capable of drawing from the populace for the use of the ruling class. These channels range from the bank’s receipts from all kinds of savings and loans to the few dollars a week deposited by its “Christmas Savings Club” members.

In most cities the banks have financed loans for metropolitan construction, the building of schools, hospitals, airports, subways, etc. In such cases, the residents of the city, when they pay various city taxes or bus and subway fares, are, in the last analysis, paying interest on bank loans to the city.

This siphoning of funds extends to housing and real estate as well. The slumlords who perform the job of collecting rent turn around to pay off most of it in mortgages to the banks. A few banks in every city will be found to dominate vast portions of real estate. Not even cemeteries are so sacred that one can avoid doing business with the banks even after death; life insurance policies provide for posthumous payment of rent. The actual transactions in practically all these categories are hidden to the public eye. The tenant of an apartment house would find it extremely difficult to find out which bank actually owned, through mortgages, the house where he lives.

The House finance subcommittee itself has been unable to find out who owns the banks. In an examination of the Twenty Largest Stockholders of Record in Member Banks of the Federal Reserve System in 1964, the Subcommittee on Domestic Finance reported that

“a large proportion of the stock of the nation’s commercial banks, especially of the larger banks, was held in the name of nominees or trustees. As a result, it was impossible to determine who actually owned, or more importantly, who controlled most commercial banks.”

The reference here is to the private brokerage houses of the ruling capitalist families which hold these families’ trusts and vote their stocks as “nominees.” The ruling class stock ownership of banks is consequently entered in the books under the “street names” of these brokerage houses. For example, King and Co., Sigler and Co., Cudd and Co., are the three largest recorded stockholders in the First National City Bank of New York. These names, unknown to most Americans, stand for ruling-class families known only to Wall Street’s innermost circles.

Nevertheless, it is common knowledge that certain banks are owned and controlled by these interest groups. A closer examination of one of them, the Mellon National Bank and Trust Co. of Pittsburgh, will enable us to see how the banks function to strengthen and expand the dominance of the plutocracy. Although the Mellon family’s holdings in its own bank are unknown, its controlling ownership in three of the nation’s largest corporations was revealed by a Senate committee in 1937: 33 per cent of the outstanding shares of ALCOA; 70 per cent of the outstanding shares of Gulf Oil; and 55.5 per cent of the outstanding shares of Koppers (The Rich and the Super-Rich, p.152).

The Mellon ownership of Gulf Oil, it might be mentioned, is an example of the passing dominance of banking capital as such. The Mellons acquired this corporation in the first years of this century when they financed a budding petroleum company in Texas. But Gulf has subsequently grown to become the nation’s ninth largest corporation as well as one of the seven members of the international oil cartel. Today Gulf is self-financing. However, this evolution did not free Gulf from control by its original financial backers.

The finance subcommittee survey of the stock ownership in the trust department of the Mellon National Bank discloses that these stocks have been used to strengthen the Mellons’ hand in corporations they already are known or thought to control. At the same time they have been used to vastly extend this control. In the former category, the following stock ownership should be mentioned: Koppers Co., 18.5 per cent (of outstanding common stock); Gulf Oil, 17.1 per cent; Jones and Laughlin Steel Corp., 6.6 per cent [2]; ALCOA, 25.3 per cent. In the latter category, the Mellon trust department holdings include: Diamond Alkali, 14.5 per cent; Nalco Chemical, 15.2 per cent; Harbison-Walker Refractories, 11.7 per cent; National Steel Co., 6.6 per cent; Allegheny-Ludlum Steel, 5.1 per cent; H. H. Robertson, 7.9 per cent; Mesta Machine, 7.8 per cent; TRW, Inc., 5.6 per cent; Mine Safety Appliance, 13.5 per cent; Armstrong Cork, 5.9 per cent; Fischer Scientific, 25.3 per cent; National Life Insurance, 5.5 per cent; etc. etc.

Such financial groups as the Mellon family own and control the principal corporations, financial and industrial in this country, as in all advanced capitalist countries. They own banks and insurance companies, industrial, commercial and transport companies. The foundations which bear their names, besides getting around federal taxes, serve as internal holding companies. Thus the Rockefellers’ control of Chase Manhattan Bank is secured through big stockholdings in Chase Manhattan held by the Rockefeller Bros. Fund and the Rockefeller Foundation.

Formerly a single entity such as the Mellon Bank of the Mellons, the Standard Oil Company of the Rockefellers, the du Pont Company of the du Ponts, towered over the other trusts held by the group. This is no longer the case. The accumulation of enormous monopoly superprofits in reserves, both in their banks and their industrial companies, has given various enterprises in these complexes an “independence” they did not have fifty years ago. But it is an independence within the entire interest group and each enterprise remains an integral and subordinate part of the particular financial empire it belongs to.
 

Personal wealth and corporate wealth

The expansion of the financial empires of the capitalist ruling families does not require “proportional” expanding of their stock ownership. It is precisely because they own a few big banks and insurance companies that these families’ domains of control can extend far beyond the corporations they immediately control.

But this fact should not lead one to underestimate the personal wealth of the capitalist rulers. An indicative comparison of personal and corporate wealth in the United States can be based on two US Treasury Department publications of 1966 and 1967. These refer to the years 1962 and 1963 when the total value of common and preferred stock was less than $400 billion (today it is closer to one-and-a-half trillion dollars). Consequently figures are not directly comparable with figures that have been cited earlier in this article for the years 1966 and 1967. Further, these figures refer to tax returns in which case there is undoubtedly a certain underestimation of values. In the comparison, however, one can assume that “errors” cancel each other.

The first Treasury Department publication, Corporation Income Tax Returns for 1963, (April 5, 1966), computed the total assets of all US corporations as follows:

The second Treasury Department paper, Personal Wealth, Estimated from Estate Tax Returns (May 31, 1967), calculated the total wealth (real estate, bonds, corporate stock, life insurance equity, etc.) of all American citizens whose net wealth was believed to be higher than $60,000 in 1962, the year previous to the figures just cited for corporate assets.

This revealed that 4.1 million Americans, approximately 2.2 per cent of the 1962 population, had a total wealth of $752 billion. These plutocrats were privately “worth” more than the finance, insurance and real estate companies combined. The value of their property was higher than the gross national product of the United States and twice as much as all manufacturing industries. The figure of $752 billion is not a great deal smaller than the total corporate wealth of the nation in the same period of $1.3 trillion.

The Treasury Department publication revealed the stock ownership concentrated at the peak of the capitalist social pyramid. These 4.1 million Americans, 2.2 per cent of the population, owned 86 per cent of the corporate stock. [3] Proceeding “upwards”: 1.8 million individuals, 1 per cent of the population, owned 76 per cent of the corporate stock; 177,000 people, 0.1 per cent of the population, owned 41 per cent of the stock; and at the pinnacle, 64,000 persons, .003 per cent of the population, owned 28 per cent of the corporate stock. Each individual at this pinnacle was “worth” over $1 million.

Much of this wealth is held in the bank trust departments investigated by the House finance subcommittee. Even more of it is held by the private semi-anonymous brokerage houses mentioned earlier. These giant accumulations of personal wealth are the primary source of the power wielded by the capitalist rulers. The various industrial and financial corporations they control are diverse depositories for their capital investments. Through these financial empires they are sovereign over the whole American economy.

Footnotes

1. Total government and private debt in the United States reached the astronomical figure of $1.747 trillion in 1968: individual, $517.8 billion; corporate,$724.1 billion; state and local government, $132.3 billion; federal government, $373.1 billion.

2. This corporation, one of the “Big Eight” US steel producers, was “captured” in 1968 by Ling-Temco-Vought, Inc.. the most rapidly growing US “conglomerate.” A federal anti-trust suit was brought against Ling Temco-Vought in 1969 to divest it of the steel company. It is one thing for an “established” family to own dozens of corporations, something else again when this is undertaken even on a considerably smaller scale, by a “young upstart.”

3. In 1962 the total corporate stock was $379.8 billion according to the Economic Almanac for 1964.

 
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