When I was young, there were people whom everybody knew to be very “wealthy.” Nobody had the slightest idea of what the “wealth” consisted. “Rich” people sometimes had their own private banks — as, for instance, J.P. Morgan and Company. Ordinary people rushed to deposit their earnings in the wealthy people’s banks.
Society likes the idea of a bank as a safekeeping device. People have always believed that when they put their money in the bank, it stayed there. They had no idea it went out on loan within minutes after it came in. They were completely hoodwinked by the appearance of the banks as safe, fireproof, and robberproof depositories of their earnings. Even today, in the last twenty years of the twentieth century, people know little more about banks than they did in 1932, when all they knew was that they had lost their deposits in most of them.
In 1930, for the first time ever, the hands of the U.S. American wealthy were exposed (and, by inference, all land-based capitalism everywhere around the world) — most were empty. It turned out that the “wealthys’ ” wealth was non existent. Their marble-walled, steel-barred, visibly vaulted banks had been psychologically attractive to the depositors, who preferred to have their savings along with the wealth of the powerfully rich. What the banks had been doing was to loan the people’s deposits to other people. The banks had no money themselves.
In 1927 and 1928 the bigger Western city banks began to foreclose on their local country banks that had financed great farm machinery sales and had been borrowing to cover their unprecedentedly expanded loaning. Word of the bad news gradually went around; small bank “runs” began; and in 1929 came the great crash in the stock market. All business went from worse to worser. Unemployment multiplied. There came a “pecking-order” point when the central Chicago banks foreclosed on all the other big Western city banks — followed by the big New York City central banks foreclosing on Chicago’s central banks. Finally came the denouement, when the big New York banks found themselves about to close because they were already behind-the-scenes insolvent. The U.S.A. citizens themselves and their government had become the wealth resource “of last recourse.” The underwriting wealth belongs to all the people and not to the few.
With the bluff of wealth over in March 1933, almost all business in America stopped. On the inauguration of Franklin Delano Roosevelt the emergency was so absolute that Congress voted unanimously for whatever corrective measures the New Deal prescribed.
The New Deal completely separated from banking what Morgan and many of the private banks had been doing — taking deposit money and putting it into common stocks and even into the bankers’ own highly speculative private ventures. Few remember today that a half-century ago a number of New York and Chicago’s top bankers were sentenced to penitentiaries — the senior partner of J.P. Morgan and Company, the President of National City Bank, the president of Chase Bank. Every one of them had been found to be doing reprehensible financial tricks. They were manipulating the stock market. They were manipulating everybody.
Roosevelt and his advisors said, “One thing is clear. Despite the emergency, America abhors socialism. Americans don’t like the assumption that everybody is equal. Americans are so independent, they don’t feel at all equal.” When the government owns the wealth and controls the issuance of its money, it is socialism. The New Deal was not trying to deceive the people but was engaged in a rescue operation of the first order and was hopeful of not irritating the people psychologically by what it seemed was critically mandatory to accomplish.
What became noticeable at this time was the uniformity of position taken by all the great corporation managements in respect to actions taken by the New Deal — for instance, the great corporations’ across-the-board refusal to expend surplus on research and development. It was the former J.P. Morgan’s and other financiers’ lawyers who now counseled all the as-yet-solvent big-industry managements to guard their surplus and refuse to cooperate with the New Deal.
Then FDR’s U.S.A. Treasury, with all FDR’s lawyers’ advice, ruled that the large private-enterprise corporations could make their new plant expansion and equipment improvements and charge the costs to operating expenses, which expenses were then to be deducted from new earnings before calculating income taxes. This amounted, in fact, to an indirect subsidy to cover all new-equipment acquisition. The U.S.A. Treasury next ruled that all research and development was also to be considered an operating expense and also to be deducted from income before taxes. The New Deal then ruled that advertising was henceforth to be classified as research and development. Thus advertising became a hidden subsidy of very great size — about $7 billion a year at that time — hidden in tax-calculating procedures. The subsidy was so great as to cover the founding of what has come to be known as “Madison Avenue.”
While the government was doing all this, the Congress passed strict and comprehensive rent controls, bank-loan-interest controls, and price controls of every kind. It was pure socialism. It had to be done that way. There was no question.
The New Deal rationalized its strategic acts by arguing to itself, “In order to continue as a nation we must have our national defense. Since it is established that there is nowhere nearly enough life support to go around in this world, if we don’t have a formidable national defense, we’re going to be successfully attacked by hungry enemies.” The New Deal said “we have to be prepared” . . . and their “preparedness” ordering increased. The government voted minimum-wage limits of a substantial magnitude. The economy was going again. Empty buildings filled. People were getting more and more jobs — how many depended on how many prime contracts the government gave out. World War II was clearly looming ahead.
The Wall Street lawyers could see clearly what the public couldn’t see — i.e., that while the New Deal was unilaterally socializing the system, it was doing so without exacting any contractual obligation on the corporations to acknowledge the government’s economic recovery strategies. The corporations gave no legal acknowledgement of their socialized status. The Wall Street lawyers reasoned somewhat as follows: “A socialized system cannot tolerate free enterprise’s freedom of initiative. There is no lucrative law practice in socialized states — ergo, if we are to survive, we lawyers on Wall Street had best figure out how to go about keeping the fundamentals of capitalism alive amongst the few great industrial corporations that remain solvent.” The latter’s research discovered that they would not soon be able to popularly and legally overthrow the New Deal. It was clear that not until World War II was over might they find conditions suitable for untying all the economic controls established by the New Deal.
By World War II’s end labor was earning so much that, for the first time, it was feeling truly secure, affluent, and successful. Emulating the pattern of the rich, individuals of labor were becoming little capitalists. The Wall Street lawyers, being astute observers of such matters, realized that this labor affluence had brought about a psychological reorientation of the body politic. People no longer remembered or felt the depression of spirit that followed the Great Crash.
Eisenhower had no political conviction, one way or the other. His vanity was excited at the idea of becoming president of his country. The Wall Street lawyers explained to Eisenhower the prevailing psychology of affluence and convinced him that the new affluent majority would elect a Republican. Thus they successfully persuaded him to become a Republican. As soon as they had Eisenhower in office in 1952, they instructed him to break loose all the economic controls of the New Deal. They had him cut all price controls, all rent controls, all interest-rate controls; they had him terminate anything that was stymieing the making of big money by big business. The great U.S.A. corporations, having been saved in 1933 by being only “unilaterally socialized” and having in the subsequent fifteen years become powerfully healthy from enormous war orders, immediately after Eisenhower’s election started escalating prices. By 1953 it became apparent that the Wall Street lawyers were moving the major American corporations out of America. Of the 100 largest corporations in America, four out of five of their annual investment dollars in new machinery and buildings in 1953 went exclusively into their foreign operations. This four-fifths rate persisted for a score of years. Foreign aid paid for the move. The average annual foreign-aid appropriation has been $4 billion (1950 value) per year over the twenty-seven-year period from 1952 to 1979, which amounted a $100 billion total. Each new year’s foreign aid bill had a rider that said if American companies were present in the country being aided, the money had to be spent through those American companies.
Moving out of America could be done readily because a corporation is only a legal entity — it is not a human being. You and I cannot move out of America because we are physical — we need a passport. A corporation does not. So the Wall Street lawyers simply moved their prime corporate operations elsewhere. The main objective of the Wall Street lawyers was for the corporations to get out from under the tax control of the American government. In 1933 the American people had saved the corporations by subsidizing them; then, twenty years later, the Wall Street lawyers moved them out of America, getting the American people to pay for the move.
All excerpts from the chapter “Legally Piggly” in Critical Path by Buckminster Fuller copyright 1981 by R. Buckminster Fuller. Permission to use materials gratefully acknowledged. Critical Path is published by St. Martin’s Press, New York.
© Copyright 1981 R. Buckminster Fuller
