Carroll Quigley - Tragedy and Hope - A History of the World in Our Time

In the United States, where this process has been studied most carefully, it was found that from 1909 to 1930 the number of billion-dollar corporations rose from 1 to 15, and the share of all corporation assets held by the 200 largest rose from 32 percent to over 49 percent. By 1939 this figure reached 57 percent. This meant that the largest 200 corporations were growing faster than other corporations (5.4 percent a year compared to 2.0 percent a year) and faster than total national wealth. As a result, by 1930 these 200 largest corporations had 49.2 percent of all corporate assets (or $81 billion out of $165 billion); they had 38 percent of all business wealth (or $81 billion out of $212 billion); they held 22 percent of all wealth in the country (or $81 billion out of $367 billion). In fact, in 1930, a single corporation (American Telephone and Telegraph) had greater assets than the total wealth in 21 states. No such figures are available for European countries, but there can be no doubt that similar growth was taking place in most of them during this period.

4. Dispersal of ownership of enterprise was a natural result of the growth of size of enterprise, and was made possible by the corporate method of organization. As corporations increased in size, it became less and less possible for any individual or small group to own any important fractions of their stocks. In most countries the number of security holders increased faster than the number of outstanding securities. In the United States the former increased in numbers seven times as fast as the latter from 1900 to 1928. This was a greater spread than in other countries, but elsewhere there was also a considerable spreading out of corporate ownership. This was exactly contrary to the prediction of Karl Marx that the owners of industry would get fewer and fewer as well as richer and richer.

5. The separation of ownership from control has already been mentioned. It was an inevitable counterpart of the advent of the corporate form of business organization; indeed, the corporate form was devised for this very purpose—that is, to mobilize the capital owned by many persons into a single enterprise controlled by a few. As we have seen, this inevitable counterpart was carried to a quite unexpected degree by the devices invented by financial capitalism.

6. The concentration of control was also inevitable in the long run, but here also was carried by special devices to an extraordinary degree. As a result, in highly industrialized countries, the economic systems were dominated by a handful of industrial complexes. The French economy was dominated by three powers (Rothschild, Mirabaud, and Schneider); the German economy was dominated by two (I. G. Farben and Vereinigte Stahl Werke); the United States was dominated by two (Morgan and Rockefeller). Other countries, like Italy or Britain, were dominated by somewhat larger numbers. In no country was the power of these great complexes paramount and exclusive, and in no country were these powers able to control the situation to such a degree that they were able to prevent their own decline under the impact of world political and economic conditions, but their ability to dominate their spheres is undeniable. In France, Rothschild and Schneider were not able to weather the assault of Hitler; in Germany, Thyssen was not able to withstand the attacks of Flick and Göring. In the United States, Morgan was unable to prevent the economic swing from financial to monopoly capitalism, and yielded quite gracefully to the rising power of du Pont. In Britain, likewise, the masters of financial capitalism yielded to the masters of chemical products and vegetable oils, once the inevitable writing on the wall had been traced out in a convincing fashion. But all these shifts of power within the individual economic systems indicate merely that individuals or groups are unable to maintain their positions in the complex flux of modern life, and do not indicate any decentralization of control. On the contrary, even as group succeeds group, the concentration of control becomes greater.

7. A decline in competition is a natural consequence of the concentration of control. This decline in competition refers, of course, only to price competition in the market, since this was the mechanism which made the economic system function in the nineteenth century. This decline is evident to all students of modern economics, and is one of the most widely discussed aspects of the modern economic system. It is caused not only by the activities of businessmen but also by the actions of labor unions, of governments, of private social welfare organizations, and even of the herdlike behavior of consumers themselves.

8. The increasing disparity in the distribution of income is the most controversial and least well-established characteristic of the system. The available statistical evidence is so inadequate in all European countries that the characteristic itself cannot be proved conclusively. An extensive study of the subject, using the available materials for both Europe and the United States, with a careful analysis of the much better American materials, will permit the following tentative conclusions. Leaving aside all government action, it would appear that the disparity in the distribution of the national income has been getting wider.

In the United States, for example, according to the National Industrial Conference Board, the richest one-fifth of the population received 46.2 percent of the national income in 1910, 51.3 percent in 1929, and 48.5 percent in 1937. In the same three years, the share of the poorest one-fifth of the population fell from 8.3 percent to 5.4 percent to 3.6 percent. Thus the ratios between the portion obtained by the richest one-fifth and that obtained by the poorest one-fifth increased in these three years from $.6 to 9.3 to 13.5. If, instead of one-fifths, we examine the ratios between the percentage obtained by the richest one-tenth and that obtained by the poorest one-tenth, we find that in 1910 the ratio was 10; in 1929 it was 21.7; and in 1937 it was 34.4. This means that the rich in the United States were getting richer relatively and probably absolutely while the poor were getting poorer both relatively and absolutely. This last is caused by the fact that the increase in the real national income in the period 1910-1937 was not great enough to compensate for the decrease in percentage going to the poor or for the increase in number of persons in that class.

As a result of such an increase in disparity in the distribution of national income, there will be a tendency for savings to rise and for consumers’ purchasing power to decline relative to each other. This is because the savings of a community are largely made by the richer persons in it, and savings increase out of all proportion as incomes rise. On the other hand, the incomes of the poor class are devoted primarily to expenditures for consumption. Thus, if it is correct that there is an increasing disparity in the distribution of the national income of a country, there will be a tendency for savings to rise and consumer purchasing power to decline relative to each other. If this is so, there will be an increasing reluctance on the part of the controllers of savings to invest their savings in new capital equipment, since the existing decline of purchasing power will make it increasingly difficult to sell the products of the existing capital equipment and highly unlikely that the products of any new capital equipment could be sold more easily.

This situation, as we have described it, assumes that the government has not intervened in such a way as to change the distribution of the national income as determined by economic factors. If, however, the government does intervene to disturb this distribution, its actions will either increase the disparity in its distribution or will decrease it. If these actions increase it, the problem of the discrepancy to which we have referred between savings, on one hand, and the level of purchasing power and investment, on the other, will be made worse. If, on the other hand, the government adopts a program which seeks to reduce the disparity in the distribution of the national income, by, for example, adopting a program of taxation which reduces the savings of the rich while increasing the purchasing power of the poor, the same problem of insufficient investment will arise. Such a tax program as we have described would have to be based on a graduated income tax, and, because of the concentration of saving in the upper-income brackets, would have to be carried to such a sharp degree of graduation that the taxes of the very rich would be rapidly approaching the level of confiscation. This would, as the conservatives say, “kill incentive.” Of this there can be no doubt, for any person with an income already large enough to satisfy his consumers’ wants will be very unlikely to possess any incentive to invest if each dollar of profit made from such investment is to have all but a few cents of its value taken by the government in the form of taxation.