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

The Founding Fathers had assumed that the political control of the country would be conducted by men of property and leisure who would generally know each other personally and, facing no need for urgent decisions, would move government to action when they agreed and be able to prevent it from acting, without serious damage, when they could not agree. The American Constitution, with its provisions for division of powers and selection of the chief executive by an electoral college, reflected this point of view. So also did the use of the party caucus of legislative assemblies for nomination to public office and the election of senators by the same assemblies. The arrival of a mass democracy after 1830 changed this situation, establishing the use of party conventions for nominations and the use of entrenched political party machines, supported on the patronage of public office, to mobilize sufficient votes to elect their candidates.

As a result of this situation, the elected official from 1840 to 1880 found himself under pressure from three directions: from the popular electorate which provided him with the votes necessary for election, from the party machine which provided him with the nomination to run for office as well as the patronage appointments by which he could reward his followers, and from the wealthy economic interests which gave him the money for campaign expenses with, perhaps, a certain surplus for his own pocket. This was a fairly workable system, since the three forces were approximately equal, the advantage, if any, resting with the party machine. This advantage became so great in the period 1865-1880 that the forces of finance, commerce, and industry were forced to contribute ever-increasing largesse to the political machines in order to obtain the services from government which they regarded as their due, services such as higher tariffs, land grants to railroads, better postal services, and mining or timber concessions. The fact that these forces of finance and business were themselves growing in wealth and power made them increasingly restive under the need to make constantly larger contributions to party political machines. Moreover, these economic tycoons increasingly felt it to be unseemly that they should be unable to issue orders but instead have to negotiate as equals in order to obtain services or favors from party bosses.

By the late 1870’s business leaders determined to make an end to this situation by cutting with one blow the taproot of the system of party machines, namely, the patronage system. This system, which they called by the derogatory term “spoils system,” was objectionable to big business not so much because it led to dishonesty or inefficiency but because it made the party machines independent of business control by giving them a source of income (campaign contributions from government employees) which was independent of business control. If this source could be cut off or even sensibly reduced, politicians would be much more dependent upon business contributions for campaign expenses. At a time when the growth of a mass press and of the use of chartered trains for political candidates were greatly increasing the expense of campaigning for office, any reduction in campaign contributions from officeholders would inevitably make politicians more subservient to business. It was with this aim in view that civil service reform began in the Federal government with the Pendleton Bill of 1883. As a result, the government was controlled with varying degrees of completeness by the forces of investment banking and heavy industry from 1884 to 1933.

This period, 1884-1933, was the period of financial capitalism in which investment bankers moving into commercial banking and insurance on one side and into railroading and heavy industry on the other were able to mobilize enormous wealth and wield enormous economic, political, and social power. Popularly known as “Society,” or the “400,” they lived a life of dazzling splendor. Sailing the ocean in great private yachts or traveling on land by private trains, they moved in a ceremonious round between their spectacular estates and town houses in Palm Beach, Long Island, the Berkshires, Newport, and Bar Harbor; assembling from their fortress-like New York residences to attend the Metropolitan Opera under the critical eye of Mrs. Astor; or gathering for business meetings of the highest strategic level in the awesome presence of J. P. Morgan himself.

The structure of financial controls created by the tycoons of “Big Banking” and “Big Business” in the period 1880-1933 was of extraordinary complexity, one business fief being built on another, both being allied with semi-independent associates, the whole rearing upward into two pinnacles of economic and financial power, of which one, centered in New York, was headed by J. P. Morgan and Company, and the other, in Ohio, was headed by the Rockefeller family. When these two cooperated, as they generally did, they could influence the economic life of the country to a large degree and could almost control its political life, at least on the Federal level. The former point can be illustrated by a few facts. In the United States the number of billion-dollar corporations rose from one in 1909 (United States Steel, controlled by Morgan) to fifteen in 1930. The share of all corporation assets held by the 200 largest corporations rose from 32 percent in 1909 to 49 percent in 1930 and reached 57 percent in 1939. By 1930 these 200 largest corporations held 49.2 percent of the assets of all 40,000 corporations in the country ($81 billion out of $165 billion); they held 38 percent of all business wealth, incorporated or unincorporated (or $81 billion out of $212 billion); and they held 22 percent of all the wealth in the country (or $81 billion out of $367 billion). In fact, in 1930, one corporation (American Telephone and Telegraph, controlled by Morgan) had greater assets than the total wealth in twenty-one states of the Union.

The influence of these business leaders was so great that the Morgan and Rockefeller groups acting together, or even Morgan acting alone, could have wrecked the economic system of the country merely by throwing securities on the stock market for sale, and, having precipitated a stock-market panic, could then have bought back the securities they had sold but at a lower price. Naturally, they were not so foolish as to do this, although Morgan came very close to it in precipitating the “panic of 1907,” but they did not hesitate to wreck individual corporations, at the expense of the holders of common stocks, by driving them to bankruptcy. In this way, to take only two examples, Morgan wrecked the New York, New Haven, and Hartford Railroad before 1914 by selling to it, at high prices, the largely valueless securities of myriad New England steamship and trolley lines; and William Rockefeller and his friends wrecked the Chicago, Milwaukee, St. Paul, and Pacific Railroad before 1925 by selling to it, at excessive prices, plans to electrify to the Pacific, copper, electricity, and a worthless branch railroad (the Gary Line). These are but examples of the discovery by financial capitalists that they made money out of issuing and selling securities rather than out of the production, distribution, and consumption of goods and accordingly led them to the point where they discovered that the exploiting of an operating company by excessive issuance of securities or the issuance of bonds rather than equity securities not only was profitable to them but made it possible for them to increase their profits by bankruptcy of the firm, providing fees and commissions of reorganization as well as the opportunity to issue new securities.

When the business interests, led by William C. Whitney, pushed through the first installment of civil service reform in 1883, they expected that they would be able to control both political parties equally. Indeed, some of them intended to contribute to both and to allow an alternation of the two parties in public office in order to conceal their own influence, inhibit any exhibition of independence by politicians, and allow the electorate to believe that they were exercising their own free choice. Such an alternation of the parties on the Federal scene occurred in the period 1880-1896, with business influence (or at least Morgan’s influence) as great in Democratic as in Republican administrations. But in 1896 came a shocking experience. The business interests discovered that they could control the Republican Party to a large degree but could not be nearly so confident of controlling the Democratic Party. The reason for this difference lay in the existence of the Solid South as a Democratic section with almost no Republican voters. This section sent delegates to the Republican National Convention as did the rest of the country, but, since these delegates did not represent voters, they came to represent those who were prepared to pay their expenses to the Republican National Convention. In this way these delegates came to represent the business interests of the North, whose money they accepted. Mark Hanna has told us in detail how he spent much of the winter of 1895-1896 in Georgia buying over two hundred delegates for McKinley to the Republican National Convention of 1896. As a result of this system, about a quarter of the votes in a Republican Convention were “controlled” votes from the Solid South, not representing the electorate. After the split in the Republican Party in 1912, this portion of the delegates was reduced to about 17 percent.