|President Kennedy receives the flag of the cuba exiles (Brigade 2506) in Miami in Dec. 29, 1962 and declares: "I promise to return this flag in a free Havana." Kennedy had been misinformed about the exact details of the planned Cuban invasion.|
On November 18th, 1963, John F. Kennedy predicted that the month of April, 1964, would bring "the longest and strongest peacetime economic expansion in our Nation's entire history." And he added: "The steady conquest of the surely yielding enemies of misery and hopelessness, hunger, and injustice is the central task for the Americas in our time . . . 'Nothing is true except a man or men adhere to it -- to live for it, to spend themselves on it, to die for it . . . '"
Time was slipping through his hands . . . he had four days to live.
And today - we are so far from his dream that most American citizens cannot even imagine that he almost made it happen. Never before in the written history of mankind, have we been so precariously poised on the brink of total, global war - a war from which humanity may not emerge alive - that we can only think that those forces that brought John Kennedy's life to a horrifying end intended the result. But, we will come to that soon enough.
John Kennedy's prediction - his hopes for the April to come, the April he never saw - may have related in an indirect way to certain remarks he had made on a previous April day in 1961. The title of the speech was "The President and the Press" and it was delivered to the American Newspaper Publishers Association at the Waldorf-Astoria Hotel in New York. It's a curious speech for several reasons and I have transcribed part of it though you can download listen to the whole talk, in his own voice, here. I think you will be able to detect in his voice the deadly serious maneuver he was making in this speech, that he was saying things that had to be said very carefully, because the message was being delivered on several levels.
After some cleverly humorous opening remarks, John Kennedy gets down to brass tacks; he identifies not only the "enemy," but the way to defeat that enemy:
Our way of life is under attack. Those who make themselves our enemy are advancing around the globe. The survival of our friends is in danger. And yet no war has been declared; no borders have been crossed by marching troops; no missiles have been fired.
If the press is awaiting a declaration of war before it imposes the self-discipline of combat conditions, then I can only say that no war ever posed a greater threat to our security. If you are awaiting a finding of clear and present danger, then I can only say that the danger has never been more clear, and its presence has never been more imminent. It requires a change in outlook, a change in tactics, a change in missions, by the government, by the people, by every businessman, every labor leader, and by every newspaper.
For we are opposed, around the world, by a monolithic and ruthless conspiracy that relies primarily on covert means for expanding its sphere of influence; in infiltration instead of invasion; on subversion instead of elections, on intimidation instead of free choice; on guerillas by night instead of armies by day. It is a system which has conscripted vast human and material resources into the building of a tightly knit, highly efficient machine that combines military, diplomatic, intelligence, economic, scientific, and political operations. Its preparations are concealed not published. Its mistakes are buried, not headlined, its dissenters are silenced, not praised; no expenditure is questioned, no rumor is printed, no secret is revealed. It conducts the cold war, in short, with a wartime discipline no democracy would ever hope to wish to match. ...
Perhaps there is no answer to the dilemma faced by a free and open society in a cold and secret war. In times of peace, any discussion of this subject and any action that results are both painful and without precedent. But this is a time of peace and peril which knows no precedent in history.
It is the unprecedented nature of this that also gives rise to your second obligation, an obligation which I share and that is our obligation to inform and alert the American people, to make certain that they possess all the facts that they need and understand them as well; the peril, the prospects, the purposes of our program and the choices that we face.
No president should fear public scrutiny of his program, for from that scrutiny comes understanding, and from that understanding comes support or opposition; and both are necessary.
I'm not asking your newspapers to support an administration, but I am asking your help in the tremendous task of informing and alerting the American people, For I have complete confidence in the response and dedication of our citizens whenever they are fully informed. I not only could not stifle controversy among your readers, I welcome it. This administration intends to be candid about its errors for, as a wise man once said, "an error doesn't become a mistake until you refuse to correct it. We intend to accept full responsibility for our errors, and we expect you to point them out when we miss them.
Without debate, without criticism, no administration and no country can succeed, and no republic can survive. That is why the Athenian law makers once decreed it a crime for any citizen to shrink from controversy. And that is why our press is protected by the First Amendment.
The only business in America specifically protected by the Constitution, not primarily to amuse and entertain, not to emphasize the trivial and the sentimental, not to simply give the public what it wants, but to inform, to arouse, to reflect, to state our dangers, our opportunities, to indicate our crises and our choices, to lead, mold, educate, and sometimes even anger public opinion. This means greater coverage and analysis of international news. For it is no longer far away and foreign, but close at hand and local. It means greater attention to improved understanding of the news as well as improved transmission. And it means finally, that government at all levels must meet its obligation to provide you with the fullest possible information outside the narrow limits of national security. And we intend to do it.
It was early in the 17th century that Francis Bacon remarked on three recent inventions already transforming the world: the compass, gunpowder and the printing press. Now the links between the nations first forged by the compass have made us all citizens of the world, the hopes and threats of one becoming the hopes and threats of us all.
In that one-world effort to live together, the evolution of gunpowder to its ultimate limit has warned mankind of the terrible consequences of failure.
And so it is to the printing press, the recorder of mans deeds, the keeper of his conscience, the courier of his news, that we look for strength and assistance, confident that with your help man will be what he was born to be: Free and Independent.
Now, the above speech was made on April 27th, 1961, some ten days after the Bay of Pigs fiasco that has been reported in retrospect as the major "embarrassment" of the Kennedy Administration. This "Bay of Pigs" thing has almost become some sort of "slogan." Just the other day, some ignorant net-troll whipped it out as the final word on John Kennedy. "Remember the Bay of Pigs!" Say what?! Only a fascist supporter of the Bush Reich - the same gang that was behind the Bay of Pigs - would say something like that.
Wikipedia tells us about the Bay of Pigs::
As a result of the failure, CIA director Allen Dulles, deputy CIA director Charles Cabell, and Deputy Director of Operations Richard Bissell were all forced to resign. All three were held responsible for the planning of the operation at the CIA. Responsibility of the Kennedy Administration and the US State Department for modifications of the plans were not apparent until later. ...
That is, the alleged responsibility of Kennedy for the Bay of Pigs disaster was not manufactured until later. The fact is, both the Mafia and the CIA faced the loss of millions upon millions of dollars after Castro kicked them and their gambling, drugs and white slavery trade out of Cuba. Up to the time of Castro, Cuba had been virtually a "client state" of the Mob and the CIA, and they wanted it back! That's what the Bay of Pigs was really all about.
Zack Shelton, retired FBI agent and Kennedy assassination investigator says: "The mob was in bed with the CIA."
The operation to kill Castro and re-take Cuba was a joint Mafia/CIA operation. An apologist for the Mafia/CIA, and obvious disinformation vector, John Hughes said in an interview:
And then we have the Bay of Pigs. The Bay of pigs - of course, it was a disaster - It was a disaster thanks to John Kennedy who, at 1:30 on April the 16th, had okayed the flight of airplanes out of Nicaragua to take care of the Bay of Pigs invasion. And then, at 9:30 that night, he rescinded it.
Hughes is effetely horrified by this mentioning the number of anti-Castro fighters that were captured or killed. It doesn't seem to affect him at all to think of the fate of the Cuban people once the CIA/Mafia regime was re-installed.
An interesting question is: What did John Kennedy learn in that period of time between authorizing the Bay of Pigs invasion, and then pulling the plug on it? And do we have some indications in the speech he gave to the press ten days later as to what it was he learned? If you carefully re-read the excerpt from the speech, and then compare it to the following from Wikipedia, I think you might realize that Kennedy understood that the Bay of Pigs was a trap that had been set for the U.S., designed to involve it in the beginnings of a global war:
Wikipedia: The CIA's near certainty that the Cuban people would rise up and join them was based on the agency's extremely weak presence on the ground in Cuba. Castro's counterintelligence, trained by Soviet Bloc specialists including Enrique Lister, had infiltrated most resistance groups. Because of this, almost all the information that came from exiles and defectors was "contaminated." CIA operative E. Howard Hunt had interviewed Cubans in Havana prior to the invasion; in a future interview with CNN, he said, "...all I could find was a lot of enthusiasm for Fidel Castro."
An April 29, 2000 Washington Post article, "Soviets Knew Date of Cuba Attack", reported that the CIA had information indicating that the Soviet Union knew the invasion was going to take place and did not inform Kennedy. Radio Moscow actually broadcast an English-language newscast on April 13, 1961 predicting the invasion "in a plot hatched by the CIA" using paid "criminals" within a week. The invasion took place four days later. According to British minister David Ormsby-Gore, British intelligence estimates, which had been made available to the CIA, showed that the Cuban people were predominantly behind Castro and that there was no likelihood of mass defections or insurrections following the invasion.
Apparently, Kennedy was doing some fast work behind the scenes and getting up to speed on this thing that had been sprung on him as almost a fait accompli. The clues are in what he said about it 10 days later:
For we are opposed, around the world, by a monolithic and ruthless conspiracy that relies primarily on covert means for expanding its sphere of influence; in infiltration instead of invasion; on subversion instead of elections, on intimidation instead of free choice; on guerillas by night instead of armies by day. It is a system which has conscripted vast human and material resources into the building of a tightly knit, highly efficient machine that combines military, diplomatic, intelligence, economic, scientific, and political operations. Its preparations are concealed not published. Its mistakes are buried, not headlined, its dissenters are silenced, not praised; no expenditure is questioned, no rumor is printed, no secret is revealed. It conducts the cold war, in short, with a wartime discipline no democracy would ever hope to wish to match.
I believe that John Kennedy was selecting his words with great care in order to convey his message, his declaration of war on this "monolithic and ruthless conspiracy." I have also suggested in an earlier chapter of this series that John and Bobby Kennedy had a plan to use the system that was in place to get into office and then clean it up; they knew that there was no other way to do it. And, as noted above, there are plenty of apologists for the system of corruption in this country, such as John Hughes who opines:
Joseph Kennedy taught his kids that they could get away with anything, and no matter what they could always get away with it. And therefore, we have drug addiction in some of the Kennedy kids - well, we can get away with it, we'll solve everything. But Bobby Kennedy - oh, many, many instance where he thought he could get away with anything; John Kennedy believing that he could have intercourse with any woman in the world and get away with it; and so, I think that there was absolutely on feeling amongst the entire Kennedy clan that whatever we want to do, we can do, and we will get away with it. I think this was the Kennedy attitude.
And, if Bobby were really smart, he would have known - and I'm sure he did know - about the promise that his father made to the Mob - if he were really smart he wouldn't go after the Mob the way he did. But it was very selfish on his part - he was gonna make his name - to get rid of the mob. Of course, it is said that Bobby Kennedy did realize that he - in an interesting way - was the reason his brother got killed.
The above is just the type of slimy, psychopathic garbage that gets propagated by skilled defamation artists who are deviants to the core. What poverty of soul must exist in a person to take such a view, to twist and distort reality that way!
But it was true that the Mob helped Kennedy get elected. It's also possible that John and Bobby Kennedy did not know about any deal their father cut with the Mob, that John honestly believed that it was his own hard campaign work that helped him into office. In any event, it is typically psychopathic to accuse the victim of being responsible for their own death. "You should have known that if you stood up against evil that evil was gonna go after you so you deserve what you got!" That is exactly what Hughes is saying.
Retired FBI agent, Zack Shelton confirms the Mob connection:
Basically, Joe Kennedy promised the Mob the White House: "elect my son and the White House is yours."
So, what did they do? They thought they had elected his son because Illinois is the [state] that flipped [the election] (and West Virginia). They felt like they got Kennedy elected. So, when Bobby steps in, they felt betrayed.
Author David Scheim adds to the legend of the Mob being behind the Kennedy assassinations:
In the Spring and Summer of 1963, according to credible federal witnesses, 3 major Mafia figures were all discussing thoughts to kill John and Robert Kennedy. (Marcello, Trafficante, Hoffa.)
And we can't forget that the Mob was in bed with the CIA. Zack Shelton remarks:
The CIA didn't answer to anybody and Kennedy was about to disband it. He wasn't happy with the Bay of Pigs, he wasn't happy with all the operations they had going on to kill Castro. He was rather embarrassed by some of the operations they had going. He fired Dulles, he fired General Cabell and, strangely enough, the mayor of Dallas Texas was General Cabell's brother.
But obviously, even though he had fired some of the ringleaders and was preparing to go after others and put decent men into administrative positions, something was still afoot.
In 1962, the Chairman of the Joint Chiefs of Staff, General Lyman Lemnitzer, endorsed Operation Northwoods, a plot to gather public support for military intervention in Cuba. The plot called for acts of terrorism against the United States, including the development of a "terror campaign". We begin to realize that Kennedy wasn't just talking about Communists "over there" when he said we face a "monolithic and ruthless conspiracy that relies primarily on covert means for expanding its sphere of influence; in infiltration instead of invasion; on subversion instead of elections, on intimidation instead of free choice; on guerillas by night instead of armies by day. It is a system which has conscripted vast human and material resources into the building of a tightly knit, highly efficient machine that combines military, diplomatic, intelligence, economic, scientific, and political operations."
Many people have died to keep the secrets of the Kennedy assassination including military men, Mobsters and CIA agents at the highest levels, so it is clear that the apex of this pyramid of power is not to be found either within the military, the Mob or the CIA. All of them are just tools for the "monolithic and ruthless conspiracy." Certainly it is likely that the CIA and the Mob both had teams of shooters in Dallas that day. It is also obvious that the FBI turned a blind eye to the matter indicating Hoover's tacit approval of the assassination even if the FBI was not directly involved. But there is more to this than meets the eye.
As John Kennedy noted in his speech quoted above, he believed that an error was not a mistake until you refused to correct it and he was finding a lot of errors in American Foreign policy and set about correcting them. This, in itself, became "acts of war" against the conspirators Kennedy had identified. Among those errors was the war in Viet Nam. Soon after taking office he had been confronted with a crisis in Laos where the Communists were fighting against a CIA supported opposition force. As in the Bay of Pigs situation, the Joint Chiefs of Staff advised him to "send more troops."
It was becoming clearer and clearer that John Kennedy did not take the loss of American lives as lightly as did those who ran the wars and the corporations that profited and the conspirators that pulled the strings behind the scenes.
Just prior to his death, John Kennedy signed National Security Memorandum 263 which effectively called for the return of all U.S. troops from Viet Nam by the end of 1965. His order to bring back the troops was countermanded only days after his assassination by National Security Memorandum 273, authorized by Lyndon B. Johnson. What is most peculiar is that the initial draft of this order signed by Johnson was dated November 21st, 1963 - the day before John Kennedy met his fate in Dallas. If nothing else, that is almost smoking gun evidence that LBJ was privy to the conspiracy.
So, not only were things getting tight for the CIA and the Mafia under John Kennedy, things were getting uncomfortable for the Military-Industrial Complex whose main business was war and death.
The question is: who was Kennedy really talking about when he said: "a "monolithic and ruthless conspiracy that relies primarily on covert means for expanding its sphere of influence." Today, we want to look at one face of that beast in another chapter from Farewell America.
"There is little in the education, training or experience of most military officers to equip them with the balance of judgment necessary to put their own ultimate solutions . . . into proper perspective in the President's total strategy for the nuclear age." Senator J. William Fulbright
Three days before Kennedy entered the White House, on January 17, 1961, President Eisenhower, in his farewell address to the nation, issued a warning to the American people:
"Threats, new in kind or degree, constantly arise . . . Our military establishment today bears little relation to that known by any of my predecessors in peacetime . . . Until the latest of our world conflicts, the United States had no armaments industry. American makers of plowshares could, with time and as required, make swords as well. But now we can no longer risk emergency improvisation of national defense; we have been compelled to create a permanent armaments industry of vast proportions. Added to this, three and a half million men and women are directly engaged in the defense establishment. We annually spend on military security more than the net income of all United States corporations.(1)
"This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence -- economical, political, even spiritual -- is felt in every city, every State House, every office of the Federal government . . .
"In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist . . .
"We must never let the weight of this combination endanger our liberties or democratic processes . . ."
During Eisenhower's two terms in office, federal military expenditures reached a high of $350 billion, $182 billion more than defense expenditures under Truman, despite the fact that his term coincided with the end the Second World War and the Korean conflict.(2) If the cost of veterans' benefits and the portion of the national debt attributable to military expenses are added to this figure, it can be said that 77% of the United States budget in 1960 was devoted to paying for the wars of the past and preparing those of the future.
The Pentagon was not only the most important buyer of arms in the world, but also the world's largest corporation. In 1960, the Pentagon had assets totaling $60 billion.(3) It owned more than 32 million acres of land in the United States, and 2.5 million overseas. Its holdings were twice as large as those of General Motors, US Steel, AT and T, Metropolitan Life, and Standard Oil of New Jersey combined. Few states in the union -- and few countries in the world -- have a budget as large as that of the Defense Department, and one-third have a smaller population.(4)
In 1941, Secretary of Defense Charles Wilson had declared that the war economy should be a permanent institution, and not the result of an emergency situation. Defense industries, he said, should not have their activities restricted by political witch-hunts, nor sacrificed to the handful of isolationists who had dubbed them "dealers in death." With the return of peace in 1945, James W. Forrestal, Secretary of the Navy in 1944, founded the "Association of Industry for National Security."
The 1960 military budget included $21 billion for the purchase of goods. Three-fourths of this amount went to less than one hundred corporations. The Pentagon's largest contractors at that time were General Dynamics ($1.26 billion in 1960),(5) Lockheed and Boeing ($1 billion each), General Electric and North Aviation ($900 million each). Eighty-six percent of these defense contracts were not awarded on bids. The Boards of Directors of the most favored contractors included several high-ranking retired military officers. General Dynamics, the Army's top contractor, counted 187 retired military officers, including 27 Generals and Admirals, among its personnel.
The public relations activities of the arms manufacturers were particularly agreeable to the Pentagon. In 1959, the Public Relations Department of Martin Aviation of Baltimore offered a "long weekend of relaxation" with appropriate recreational activities (known as Operation 3B, for Bathing, Blondes and Bars) to 27 high-ranking officers, including General Nathan F. Twining, Chairman of the Joint Chiefs of Staff. In 1960, Martin Aviation was awarded $800 million worth of defense contracts. Companies like Hughes Aircraft, Sperry Gyroscope, and Chesapeake and Potomac Telephone employed similar techniques.
Since the end of the Korean War, the existence and the expansion of the arms industry in general and the aeronautical industry in particular had been closely connected with the continuation of the Cold War, which was vital to numerous industrial concerns.(6) Vice-President Nixon had declared: "Rather than allow the Communists to nibble us to death in little wars all over the world, in the future we shall rely on our power of massive and mobile retaliation "The Pentagon was prepared for all contingencies. It had even made a detailed study on "how to preserve a viable society after a nuclear conflict"
In the course of his electoral campaign, John Kennedy had promised an increase in military expenditures. The Democratic candidate declared after his election to the Presidency that he had been ill-informed at the time about the actual ratio of American and Soviet forces. He had believed the fanciful information put out by the Air Force and the Pentagon and reprinted in the newspapers that the Soviet Union possessed 500 to 1,000 intercontinental nuclear missiles (in actual fact, it had 50). Once he was in the White House and had access to the more accurate (but still inflated) estimates of the Central Intelligence Agency, he discovered that Soviet strength had been exaggerated, but that this exaggeration was part of the strategy of the Pentagon.
On March 28, 1961, Kennedy declared before Congress,
"In January, while ordering certain immediately-needed changes, I instructed the Secretary of Defense to reappraise our entire defense strategy, capacity, commitments and needs in the light of present and future dangers. The Secretary of State and others have been consulted in this reappraisal, and I have myself carefully reviewed their reports and advice."
This new policy required the cooperation and control of the men responsible for carrying it out. Kennedy's new Defense Secretary, Robert McNamara, had just completed a successful reorganization of the Ford Motor Company. "America produces few men of McNamara's caliber . . . A man of diamond-hard will and titanium physique," Time wrote about him. McNamara was 45, seldom socialized, took an interest in racial problems and urbanism, and enjoyed mountain climbing and poetry (Yates, Frost and Yevtochenko). He arrived at his office at 7:15 am and worked until after 8 in the evening. At the Pentagon he had "an almost Calvinist horror of emotion, an almost mystical reverence for reason. He was the first Secretary of Defense with the ability, experience, and just plain guts to bring the vast, sprawling, hideously bureaucratic US Defense establishment under effective civilian control."(7)
As early as January 21, 1961, the Joint Chiefs of Staff understood that henceforth they were to be ruled. In his first week at the Pentagon he asked 96 basic questions. He let it be clearly understood that from that time forward, basic strategy would be defined by the President and himself. He abolished 500 committees (out of 4,000) and coordinated the activities of those that he maintained. He overcame inertia and incompetence with the aid of computers, contingency planners, and coordinators. His aim was to relieve the military men of the need to be intelligent. He and his deputies would provide the intelligence, at the necessary times and places. "War is a simple art, and everything is in the execution," Napoleon had said. The military officers and even the high-ranking civilians in the Pentagon were obliged to learn a new three-dimensional language for which they were not at all prepared.
The new Defense Secretary substituted revolution for evolution. The concept and practice of systems analysis was introduced. The goal: scientific evaluation of major weapons developments and other expensive projects to determine as objectively as possible the return on a proposed investment, a compared with its alternative. McNamara wasn't interested in the opinions, the recommendations, or the conclusions of the officers in the Pentagon. He demanded written answers to specific questions. Concerning any administrative problem with political or financial repercussions, he asked only one thing: "What is the alternative? What are the choices?" He forbade the Generals to attend meetings in uniform (a two-star General is somewhat cowed before a three-star General, especially when he is wearing his stars). In 1961 he drew up a list of 131 urgent measures and presented it to his subordinates. By the end of the year, 112 of his suggestions had been carried out. Never before had the Generals been called upon to answer so many questions. The Pentagon stood behind the Air Force postulate, "The extermination of the Soviet system must be our primary national objective, our obligation to the free people of the world. We must begin the battle at once."
After the Bay of Pigs disaster, McNamara let it be known that the Pentagon would no longer play the role of passive accomplice of the CIA and the State Department. He had appointed Charles J. Hitch and Paul H. Nitze as his deputies. In 1960, Hitch had written a book entitled The Economics of Defense in the Nuclear Age, which introduced a new concept of military strategy. He suggested that the army and defense requirements should be subordinated to the national economy on a long and short-term basis. Paul H. Nitze, former director of the Policy Planning Staff at the Department of State, felt that the President should consider his Secretary of State as the managing director of a foreign policy "where diplomatic, military, economic, and psychological aspects need to be pulled together under a basically political concept."
This theory became the basis of Kennedy's policy. He intended to replace John Foster Dulles' strategy of massive retaliation with a strategy of flexible response. He ordered a review of all existing plans and all the sacrosanct strategic concepts. Kennedy felt that the strategy of nuclear warfare should be based on something more than intuition. He told Congress:
"Our arms must be subject to ultimate civilian control and command at all times, in war as well as peace. The basic decisions on our participation in any conflict and our response to any threat -- indeed all decisions relating to the use of nuclear weapons, or the escalation of a small war into a large one -- will be made by the regularly constituted civilian authorities. This requires effective and protected organization, procedures, facilities and communications in the event of attack directed toward this objective, as well as defensive measures designed to insure thoughtful and selective decisions by the civilian authorities. This message and budget also reflect this basic principle . . .
"The primary purpose of our arms is peace, not war -- to make certain that they will never have to be used -- to deter all wars, general or limited, nuclear or conventional, large or small - to convince all potential aggressors that any attack would be futile -- to provide backing for diplomatic settlement of disputes -- to insure the adequacy of our bargaining power for an end to the arms race. The basic problems facing the world today are not susceptible to a military solution. Neither our strategy nor our psychology as a nation -- and certainly not our economy -- must become dependent upon the permanent maintenance of a large military establishment. Our military posture must be sufficiently flexible and under control to be consistent with our efforts to explore all possibilities and take every step to lessen tensions, to obtain peaceful solutions and to secure arms limitations. Diplomacy and defense are no longer distinct alternatives, one must be used where the other fails -- both must complement each other . . .
"Our arms will never be used to strike the first blow in any attack. This is not a confession of weakness but a statement of strength. It is our national tradition. We must offset whatever advantage this may appear to hand an aggressor by so increasing the capability of our forces to respond swiftly and effectively to any aggressive move as to convince any would-be aggressor that such a movement would be too futile and costly to undertake."
Kennedy proposed an increase of $650 million in military expenditures, but his new budget was tailored to eliminate "waste, duplication, and outmoded or unjustifiable expenditure items." The President justified his thinking in the following words:
"This is a long and arduous undertaking, resisted by special arguments and by interests from economic, military, technical and other special groups. There are hundreds of ways, most of them with some merit, for spending billions of dollars on defense, and it is understandable that every critic of this Budget will have a strong preference for economy on some expenditure other than those that affect his branch of the service, or his plant, or his community.
"But hard decisions must de made. Unneeded facilities or projects must be phased out. The defense establishment must be lean and fit, efficient and effective, always adjusting to new opportunities and advances, and planning for the future. The national interest must be weighed against special or local interests."(8)
Nevertheless, Kennedy asked Congress to approve the construction of ten more nuclear submarines, and he requested considerable expansion of the Polaris program, which he described as "a wise investment for the future." He also recommended the development of the Minuteman strategic missile, the continuation of the Skybolt airborne missile, an increase in the budget of the Strategic Air Command, the expansion of military research projects and aerial transportation to abolish obsolete equipment (the Titan, the B 47, the Snark), and he requested the cancellation of the projects for the B70 intercontinental bomber and the Eagle naval missile. Both programs were already out-of-date, but their manufacturers as well as the Pentagon had reasons for wanting them continued.(9)
The Pentagon was in favor of the Nike-Zeus anti-missile missile program, which was to be carried out by Western Electric. The Eisenhower administration had already ordered a freeze on the funds voted by Congress, and when they were voted again the Kennedy administration did the same. He also froze the funds for the B70 bomber.(10) But the Pentagon had already spent $1 billion on this project, and the most cautious estimates at the time placed the total cost at something close to $10 billion.(11)
These Presidential policies, and the intelligence and efficiency with which McNamara and his team intended to carry them out, constituted a revolution at the Pentagon. "In establishing civilian control of the Pentagon as a fact of life as well as a theory, McNamara perhaps went too far in alienating service officers. He not only out-thought and outmaneuvered such potentates as General Curtis LeMay, but he sometimes humiliated them as well," wrote Time.
"With a computer's mind and a martinet's will power, McNamara remolded the US war machine from the spasmic rigidity of massive nuclear retaliation to the exquisite calibration of flexible response. He cut costs, knocked heads beneath brass hats, bullied allies into line, cowed Congressional satraps, made enemies nearly everywhere," added Newsweek.
The days and the months passed feverishly. Faced with imperious orders from the top, the Generals and the Admirals yielded at first, then revolted. A sort of guerrilla warfare broke out among the 7,000 offices, 18 miles of corridors and 150 staircases of the Pentagon. Anti-administration declarations by high-ranking officers multiplied in the spring of 1961. General Edwin Walker declared, "We must throw out the traitors, and if that is not possible, we must organize armed resistance to defeat the designs of the usurpers and contribute to the return of a constitutional government."(12) He was backed by General P. A. del Valle and Admiral Arthur Radford.
"Some of the advisers now surrounding the President have philosophies regarding foreign affairs which would chill the average American," declared Admiral Chester Ward (retired). "World War III has already begun and we are deeply engaged in it," stated Admiral Felix B. Stunny. Admiral Ward accused the White House advisers of giving priority "not to freedom, but to peace " and added, "I am not in favor of preventive warfare, but I am in favor of a preventive strike" (sic).
General White, chairman of the Air Force Chiefs of Staff, declared,
"I am profoundly apprehensive of the pipe-smoking, tree-full-of-owls type of so-called professional defense intellectuals who have been brought into this Nation's capital. I don't believe a lot of these over-confident, sometimes arrogant young professors, mathematicians and other theorists have sufficient worldliness or motivation to stand up to the kind of enemy we face."
The New York Times(13) wrote,
"The Pentagon is having its troubles with right-wingers in uniform. A number of officers of high and middle rank are indoctrinating their commands and the civilian population near their bases with political theories resembling those of the John Birch Society. They are also holding up to criticism and ridicule some official policies of the US Government. The most conspicuous example of some of these officers is Maj. Gen. Edwin A. Walker . . ."
Senator Stuart Symington of Missouri rose in the Senate to condemn the extra-curricular activities of certain military officers, and Senator J. William Fulbright of Arkansas declared that by proclaiming that the United States was engaged in a desperate struggle and that its sole objective in the Cold War should be not peaceful coexistence, but total victory, the military leaders were giving support to the most irresponsible elements of the Far Right. As a result of these denunciations, General Walker was relieved of his duties for extremism and propaganda in the Army.
McNamara was strong enough to resist the combined pressures of his military advisers and Congress. With Kennedy's approval, he opted for the expansion of the intercontinental ballistic missile program at the expense of the conventional bombers so dear to military and industrial circles.
The Pentagon had been its own master for twenty years -- in the aftermath of World War II, during the Korean Conflict, and finally under the sympathetic administration of General Ike. The warriors realized now that the good years were gone. Not only did they fear for their privileges, but they considered it their duty to try and "save the nation."
During the Korean War, the Army had been shaken by the success of the brainwashing techniques applied to American prisoners of war. With Eisenhower's benediction, the National Security Council had set up a civilian education program to arouse the public to "the menace of the Cold War" and the necessity for nuclear survival. Feeling persecuted by the President and his Secretary of Defense, the warriors decided to avail themselves of this forum to inform the civilian public about the anti-American conspiracy of the men of the New Frontier.
In the spring of 1961, the "public alerts," the "freedom forums," the "strategy for survival conferences" and the "fourth dimensional warfare seminars" proliferated. The stated aims of these programs were "to alert all in attendance to the specific objectives of international communism," "to reveal areas of Communist influence upon American youth," "to re-orient American thinking toward un-American ideas," and to "identify public officials and policies displaying a 'softness' toward communism." The featured addresses bore titles like "What You Can Do in the Fight Against Communism," and "No Wonder We Are Losing." In short, Psy-ops.
Admiral Ward was the featured speaker at a fourth dimensional warfare seminar held on April 15 in Pittsburgh. On April 14 and 15, "Strategy for Survival" conferences sponsored by Major General William C. Bullock, the area commander, were held in several cities in Arkansas. The invitations to an "Education for American Security" seminar in Illinois were sent out in officially franked envelopes! "Project Alert" in Pensacola, Florida was endorsed by local Navy headquarters, and out-of-town participants in "Project Action," held on April 28-29 in Minneapolis, were offered overnight accommodation at the Naval Air Station. A seminar organized by anti-Communist crusader Dr. Fred Schwarz was sponsored in New Orleans by Rear Admiral W. S. Schindler, and at Corpus Christi Admiral Louis J. Kirn, Chief of Naval Air Advanced Training, sat on the platform.
Senator Fulbright charged that
"the content no doubt has varied from program to program, but running through all of them is a central theme that the primary, if not exclusive, danger to this country is internal Communist infiltration. The thesis of the nature of the Communist threat often is developed by equating social legislation with socialism, and the latter with communism. Much of the administration's domestic legislative program, including continuation of the graduated income tax, expansion of social security (particularly medical care under social security), Federal aid to education, etc., under this philosophy would be characterized as steps toward Communism.
"This view of the communist menace renders foreign aid, cultural exchanges, disarmament negotiations, and other international programs, as extremely wasteful, if not actually subversive . . .
There are many indications that the philosophy of the programs is representative of a substantial element of military thought, and has great appeal to the military mind ...
There is little in the education, training, or experience of most military officers to equip them with the balance of judgment necessary to put their own ultimate solutions . . . into proper perspective in the President's total strategy for a nuclear age . . ."
And he concluded with a warning:
"The radicalism of the right can be expected to have great mass appeal. It offers the simple solution, easily understood, scourging of the devils within the body politic, or, in the extreme, lashing out at the enemy.
"If the military is infected with this virus of right-wing radicalism, the danger is worthy of attention. If it believes the public is, the danger is enhanced. If, by the process of the military educating the public, the fevers of both groups are raised, the danger is great indeed.
"Perhaps it is farfetched to call forth the revolt of the French Generals(14) as an example of the ultimate danger. Nevertheless, military officers, French or American, have some common characteristics arising from their profession and there are numerous military 'fingers on the trigger' throughout the world."
In July, a Defense Department order went out restricting the right of military officers to express their political opinions in public and participate in such information programs.(15) There was a violent reaction from the conservatives. Senator J. Strom Thurmond, a North Carolina Republican and General in the Army Reserve, attacked the move as an "infamous attempt to intimidate the leaders of the United States Armed Force: and prevent them from informing their troops about the exact nature of the communist menace."(16)
On July 8, Khrushchev announced that the government of the USSR was obliged to postpone the reduction of its armed forces. Kennedy was sufficiently concerned by the information he received from the CIA to make a televised address on July 25, 1961 asking the country to be prepared to defend freedom in Berlin and elsewhere. He announced a supplementary defense build-up that included doubling and tripling the draft calls and calling up reservists to active duty. Finally, he recommended the construction of atomic shelters.
These pessimistic declarations raised the spirits of the military men, but frightened the American people.
The federal government printed pamphlets describing how to build a family-sized atomic shelter. The newspapers and television discussed the consequences of a nuclear attack. Atomic scientist Dr. Edward Teller stated, "If we don't prepare, 100 million Americans could die in the first days of an all-out nuclear war. Thirty to 40 million more could die from starvation and disease. The United States would cease to exist . . ." A Jesuit priest, Father McHugh, declared for his part that shelter owners had the moral right to keep out their panicked neighbors. A brochure published by the Office of Civil Defense advised all boat owners to head for the open sea as soon as the alert was sounded.
Congress demanded an expanded arms program, the money for which was to come from the aberrant projects of the welfare state. Senators Jackson and Keating declared that Congress would grant the President and the armed forces all the money they requested, and in particular $500 million for the Boeing B 70. The Pentagon was once again optimistic. The Generals and the Admirals multiplied their inflammatory statements. But on August 2, Senator Fulbright again spoke out:
"Military officers are not elected by the people and they have no responsibility for the formulation of policies other than military policies. Their function is to carry out policies formulated by officials who are responsible to the electorate. This tradition is rooted in the constitutional principle that the President is the Commander in Chief of the Armed Forces and that, therefore, military personnel are not to participate in activities which undermine his policies."
On November 16, 1961 in Seattle, President Kennedy declared,
"We must face the fact that the United States is neither omnipotent nor omniscient -- that we cannot impose our will upon the other 94 percent of mankind -- that we cannot right every wrong or reverse each adversity -- and that therefore there cannot be an American solution to every world problem."
For the first time in the history of the United States, a President had dared to attack the myth of the national infallibility. Three days later, at a Democratic Party banquet in Los Angeles, Kennedy continued,
"Let us concentrate more on keeping enemy bombers and missiles away from our shores, and concentrate less on keeping neighbors away from our shelters. Let us devote more energy to organizing the free and friendly nations of the world . . . and devote less energy to organizing armed bands of civilian guerrillas that are more likely to supply local vigilantes than national vigilance."
This remark was aimed at the paramilitary organizations such as the John Birch Society, the Minutemen and the Ku Klux Klan.(17) At the time that Kennedy spoke, these extremist groups were made up largely of visionaries, profiteers, and fanatics. But General Walker and other high-ranking officers began training new leaders in 1962. The organizations gained strength, and by 1963 they and other groups such as the Friends of General Walker and the Patrick Henry Association had become forces to reckon with.
The Far Rightists dreamed of a world without communism, without foreign imbroglios, without the United Nations, without the federal government, without trade unions, and without Negroes. Their goal was an America with no Supreme Court which would invade or destroy Cuba, abolish the graduated income tax and stop importing Polish hams. For these people, even Eisenhower was an active agent of the Marxist conspiracy. When Kennedy moved into the White House, they were certain the Russians had landed. "God, I miss Ike. I even miss Harry," one man from Cincinnati told US News and World Report in 1962.
The rightist movements not only had the benefit of military leadership, but also of important private funds. Harding University in Arkansas(18) furnished most of the speakers for the extremist forums. Its President, Dr. George S. Benson,(19) had the financial backing of companies like Lockheed, Boeing, US Steel, Lone Star Cement, Olin Mathison Chemical, American Iron and Steel Institute, and Acme Steel. In 1961, these companies contributed more than $6 million to Harding. General Electric and the CIA were among its most important benefactors.
Nevertheless, the international situation continued to deteriorate. In August, the Berlin Wall was constructed, and in September, the Soviets first, and then the United States began nuclear testing again. On October 28, the very day the UN General Assembly requested it not to, the Soviet Union exploded a 50-megaton bomb. On October 31, Senator Jackson criticized Kennedy for taking risks in national defense by delaying construction of the Boeing B 70, rebaptized the RS 70 to enhance its image. That same month, the Army sponsored a "Project Alert" in San Francisco, and in December the Navy did the same.
Kennedy attempted to thaw the Cold War by diplomacy,(20) but the exaggerated statements of the warriors of the Pentagon were hardly calculated to help him. McNamara, who was now "constantly scrapping" and who was loathed by Congress, which found him "arrogant and even supercilious," continued to wield his authoritarian power, to demonstrate his aversion to favoritism,(21) and to construct a rational system of defense. He declared,
"Technology has now circumscribed us all with a conceivable horizon of horror that could dwarf any catastrophe that has befallen man in his more than a million years on earth.
"Man has lived for more than 20 years in what we have come to call the atomic age. What we sometimes overlook is that every future age of man will be an atomic age.
"If, then, man is to have a future at all, it will have to be a future overshadowed with the permanent possibility of thermonuclear holocaust. About that fact, we are no longer free.
"Our freedom in this question consists rather in facing the matter rationally and realistically and discussing action to minimize the danger. No sane citizen; no sane political leader; no sane nation wants thermonuclear war. But merely not wanting it is not enough.
"We must understand the difference between actions which increase its risk, those which reduce it, and those which, while costly, have little influence one way or another. Nuclear strategy is exceptionally complex in its technical aspects. Unless these complexities are well understood, rational discussion and decision-making are simply not possible."
The Cuban missile crisis of October 1962 was the turning point in the Cold War. On October 22, Kennedy declared,
"I call upon Chairman Khrushchev to halt and eliminate this clandestine, reckless and provocative threat to world peace and to stable relations between our two nations. I call upon him further to abandon this course of world domination, and to join in an historic effort to end the perilous arms race and to transform the history of man . . .
"We will not prematurely or unnecessarily risk the costs of worldwide nuclear war in which even the fruits of victory would be ashes in our mouth -- but neither will we shrink from that risk at any time it must be faced . . .
"The path we have chosen for the present is full of hazards, as all paths are -- but it is the one most consistent with our character and courage as a nation and our commitments around the world. The cost of freedom is always high -- but Americans have always paid it. And one path we shall never choose, and that is the path of surrender or submission.
"Our goal is not the victory of might, but the vindication of right -- not peace at the expense of freedom, but both peace and freedom here in this hemisphere, and, we hope, around the world. God willing, that goal will be achieved."
The Soviets backed down.
By 1963 the detente had become a reality, and the Pentagon knew it had lost the game. That spring, the Navy Chief of Staff, Admiral George W. Anderson, handed in his resignation.(22) President Kennedy declared on March 1 that the Admiral would continue to serve the country in an important post.(23) On July 26, 1963, the President announced the imminent signature of the Treaty of Moscow:
"This treaty is not the millennium. It will not resolve all conflicts, or cause the Communists to forego their ambitions, or eliminate the danger of war. It will not reduce our need for arms or allies or programs of assistance to others. But it is an important first step -- a step towards reason -- a step away from war."
Noting the public's satisfaction, the Pentagon switched its tactics. It employed retired Generals such as ex-Major General Johnson to express its point of view in new and softer terms. General Johnson foresaw no other issue than "retreat or defeat" until the leaders of the administration had "determined their goals."
He noted that the United States had treaty obligations to defend 45 nations(24) around the world, and that the country needed not only to continue the Cold War, but to "win the hot war" if it should occur. He expressed his regret that at no spot in the world was the nation taking the initiative, not even in Cuba, where every month that passed saw Castro more deeply entrenched in power. He remarked that the size of the army had decreased by more than a million men since the end of the Korean War. He estimated that an invasion of Cuba alone would require 22 divisions, more than there were stationed on US soil, and concluded that the United States was not prepared for either a very limited (such as Vietnam) (25) or a limited war (such as Cuba or Berlin). He acknowledged that the United States was relatively well "covered" for a total war, with stocks of 40,000 nuclear weapons of 30 different types which were very costly to maintain, but that as the "civilians in government continue to place their faith in talk," the utility of this atomic arsenal was yet to be proved. The ex-Major General frankly admitted that he was afraid the industrialists "would not be satisfied with the indefinite maintenance of this atomic stockpile."
To the latter, the Kennedy administration replied that disarmament would be limited and progressive, and that the reductions would be partially compensated by civilian uses for the atom and the space programs of NASA. It added that it planned to fight the consequences of too rapid a conversion of the economy by reinforcing unemployment insurance, increasing information about new employment opportunities, organizing vocational retraining programs, establishing new industries, and re-orienting research programs towards chemistry, space exploration, illness, urban transportation, construction, education, water purification, population control, tropical diseases and the exploitation of ocean resources.
But this program would be long in getting started, and it would not be enough. The critics of the administration predicted a recession: consumers were burdened by their credit obligations, international competition was becoming tougher, and the dollar remained weak. Peace brought with it the risk of serious perturbations, if not a reversal, of the economy.(26) Already in 1962, when Republic Aviation threatened to close its Long Island plant, putting 20,000 people out of work, the President had released $1.3 billion of the defense funds voted by Congress, although the Air Force and the House Armed Forces Committee had requested $10 billion.
On March 30, 1963, McNamara decided to close 52 military installations located in 25 different states, plus 21 bases overseas. This reorganization was to be spread over a three- year period. His announcement had important repercussions throughout the country. The merchants of Del Rio, Texas contributed $50 apiece to send a delegation to Washington to protest the closure of Laughlin Air Force Base. The delegates pointed out that the base was the only important industry in Del Rio (18,612 inhabitants), that the military and civilian salaries paid by the base totaled $10.5 million per year, and that 1,700 families from the base did their shopping in Del Rio.
At Benecia, California (6000 inhabitants), the town council learned that the military depot there was to be closed. It estimated that the town stood to lose more than $200 000 a year in sales taxes, gasoline and liquor sales, as well as the business of the 2,400 employees of the depot, while the sewage system had just been renovated at a cost of $1.6 million. Representative John Baldwin (Republican) protested to Washington, pointing out that the Benecia depot was the very type of military installation that the country needed if it was to have (as Kennedy had promised) a trained army capable of facing up to any situation.
At Tacoma, Washington, a shoe salesman had just sold a pair of shoes. The customer handed him a $20 bill and a leaflet that stated, "You have just made a sale to an employee of the Mount Rainier depot. How much money will you lose when the $14 million in salaries paid by the depot is transferred to Utah? Write to your Congressman, to your Senator, to your Governor." And America wrote.
In addition to the three and a half million people directly employed by the Defense Department,(27) seven and a half million others owed their jobs to defense contracts. The consequences of disarmament would affect the entire country. Studies made by the US Disarmament Control Commission revealed that national defense industries accounted for more than 10% of the total national product, and employed nearly 10% of all the workers in the country. An annual reduction of $5 billion in the military program might slow down the national economy by $10 or $12 billion a year.(28)
The President of Standard Oil of California, the company most directly concerned by the Korean War, had declared in 1953:
"Two kinds of peace can be envisaged. One would enable the United States to continue its rearmament and to maintain important military forces in the Far East; it would have very little effect on industry, since the maintenance of a peace-time army requires almost as much oil as in time of war. But if there should be a great improvement in the relations between the United States and the Soviet Union, and in particular a disarmament agreement, the blow to the oil industry and the rest of the economy would be terrific."
Neither the industrialists nor the military were prepared in 1963 to bow before political, or simple reasonable, decisions. The Generals realized that the test ban treaty constituted a step towards general disarmament.
General Thomas D. White, former head of the Army chiefs of Staff, remarked,
"True security lies in unlimited nuclear superiority."
Admiral Lewis Strauss added,
"I'm not sure it's necessarily a good thing to cut down on tensions."
Admiral Radford, former head of the Joint Chiefs of Staff, declared,
"I join with all my former colleagues in expressing my anxiety concerning our future security."
General Thomas Power, Commander of the Strategic Air Command, even attacked the test ban treaty before the Senate Armed Services Committee.
On April 4, 1962, General Walker testified before the committee. As he left the hearing room, journalist Tom Kelly of the Washington Daily News asked if he had any comment. The General's reply was a punch in the nose.
1. In 1957, Fortune wrote: "We must obtain a reduction in the amount spent on highways, aid to the Negro community, and other non-military extravagances."
2. On July 1, 1944, the United States military budget totaled $81.3 billion. Three years later it had dropped $11.8 billion, but private industry was expanding rapidly to supply the needs of the civilian sector of the economy -- automobiles, home, household appliances, and all sorts of gadgets. The Korean War took up the slack, and in 1953 the military budget swelled to $50.4 billion. By 1954, this figure had dropped to $40.7 billion, but tax cuts provided another boom in 1955, which marked a record demand for new cars and a record high in buying. Since the beginning of the recession in 1960, the military budget had risen from $47.5 billion (1960-1961) to $51.1 (1961-1962) and $52.7 (1962-1963).
3. General Motors' assets in 1966 totaled $12.9 billion.
4. In December 1967, the Defense Department controlled a budget of $76 billion, and employed 4,500,000 people.
5. In the first nine months of 1967, General Dynamics did $1.57 billion worth of business, an increase of 24% over 1966. This rise is indicative of the boom in the aviation industry resulting from the Vietnamese War.
6. After the failure of the Kennedy-Khrushchev meeting in Vienna in the spring of 1961, the Los Angeles Mirror News ran a full-page advertisement that began, "The summit meeting has failed. What does that mean for you? A fantastic electronics boom. Billions of dollars, a healthy industry in Southern California employing 110,000 people."
7. Stewart Alsop.
8. March 29, 1961.
9. In 1967, 17 top military experts estimated that the nuclear forces of the United States and the Soviet Union would evolve in the following manner in the coming decade:
|United States||Soviet Union|
|1962: 25 to 50,000 megatons||1962: 6 to 12,000 megatons|
|1971: 6 to 15,000 megatons||1971: 30 to 50,000 megatons|
The experts used these figures to back up their plea for an increase in the American nuclear potential, but they also noted that under Kennedy American nuclear superiority was on the order of 4 to 1.
10. On February 25, 1962, the Air Force and the Boeing Corporation presented the B 70 bomber to the press once again, although Kennedy persisted in his refusal to release the blocked funds.
11. This system would be obsolete before it was operational, as has been the case up to now with all the anti-missile missile programs.
In 1967, identical arguments and industrial pressure led the Pentagon to reinstate a project for the construction of ABM antiballistic missiles. McNamara tried to reduce this program, knowing that the Russians themselves admitted that their Tallin system of Galosh and Griffon antiballistic missiles was already obsolete. Due to progress in electronics and the techniques of ultra-miniaturized microcircuits, the American system, which will not be operational until 1974, and which the Pentagon considers insufficient, is also already obsolete. The new LSI (for large-scale integrated circuits) technique makes possible an assemblage ten times more dense and multiplies the sensitivity (reaction speed) of missiles by five. Electronics writes that "the radars and computers that will guide our anti-missile missiles will be as old-fashioned as a Ford next to the latest Ferrari."
12. General Walker began his political career in the Arie Crown Theatre in Chicago on February 9, 1962 before a crowd of 5,000 people. He had spent three decades in uniform, and had been decorated as a hero of the Korean War. In 1959 he joined the John Birch Society. Walker liked to say, "In patriotism, loyalty and combat, there are no moderates." He advised his audience to "attack on all fronts" and to "man your weapons and speak boldly."
13. June 18, 1961.
14. A reference to the French Generals' putsch of April 1961 in Algiers.
15. McNamara was called before the Senate Armed Services Committee to explain his action. When he arrived at the Capitol, he was greeted by 70 housewives wearing John Birch Society buttons.
16. Senator Barry Goldwater wrote:
"There exists today a new literature of military strategy which is in no manner the work of career officers, but of nuclear philosophers, as they have recently begun to call themselves, and who expose their humanitarian dislike for the bomb in all their writings.
"Today's Generals and Admirals are not bloodthirsty pirates with black patches over their eyes and cutlasses between their teeth. They are intelligent, competent, well-educated men who are trying as hard as our diplomats to find peaceful solutions to international problems. Our Generals and our Admirals are strategists of peace as well as experts on military questions.
"I believe that something both new and old is happening in our country, and that the great traditions of American history will find their true place.
17. The John Birch Society, founded by Robert Henry Winborne Welch, Jr., born in 1899, an alumnus of the Annapolis Naval Academy and Harvard Law School, vice-president of a candy factory in Belmont, Mass., favors, among other things, the immediate liberation of Cuba, the abolition of foreign aid, and the reinstitution of generalized segregation. In 1961, the society claimed a membership of 100,000. It kept files on "Comsymps" (anyone whose ideas were considered too liberal) and attempted to infiltrate universities and the government. It had genuine influence in the army.
The society is named after Captain John Morrison Birch, a young missionary who was killed at the age of 27 by the Chinese Communists while on a mission in Northern China 10 days after the end of World War II. According to Welch, Birch was the first victim of World War III.
The Minutemen, a clandestine combat militia, is headed by Robert Bolivar DePugh, who runs a $400,000 a year pharmaceutical business. Its 25,000 members hold daily drills with everything from pistols to antitank guns to be ready to check a Communist invasion, and organize guerrilla warfare seminars throughout the country. Although it is loosely organized, several hundred of its groups are armed and dangerous and capable of doing anything in support of their ideology or the interests of their leaders. Their motto is "Action Now" and their program calls for the assassination of dangerous Communists.
The KKK, headed by Robert Shelton, a former air-conditioner salesman, accepts as members only "loyal citizens born in the United States, Christian, white, with high morals, of the Protestant faith, believing in Americanism and the supremacy of the white race." But behind this relatively moderate creed lies a plethora of folklore and a group of savage people.
18. Which received its first gift, $300,000 from General Motors, in 1949. The decision was made by Alfred P. Sloan, who was President of GMC at the time.
19. Dr. Benson once declared, "If you want to force Washington to do what needs to be done, you must first reach public opinion. My goal is to strike it deep down in the roots so as to orient it towards piety and patriotism."
He also proclaimed that "Any American who loves freedom and is willing to work, work, work to protect it can find intelligent direction and companionship in a John Birch Society group."
20. On November 25, Kennedy granted an interview to Aleksei Adzhubei, editor in-chief of Izvestia, who told him, "Your election brought great hope to the people of our country." On November 28, the nuclear test ban conference, which had been adjourned since September 9, re-opened in Geneva. On December 21, Kennedy met with MacMillan at Bermuda to examine Western relations with the USSR.
21. In October 1963, Secretary of the Navy Fred Korth was asked to resign by McNamara. He was accused of showing favoritism towards the Continental National Bank of Fort Worth, of which he had been President prior to his appointment in 1961. (The Continental National Bank was one of 20 banks that had lent $200 million to General Dynamics to enable it to begin construction of the TFX, now the F 111.)
22. Mainly because McNamara had gone over his head to enter into direct communication with the commanders of US naval units during the Cuban crisis. In addition, the Admiral disapproved of the fact that the Defense Secretary had gone against the advice of the Navy and Air Force and awarded the TFX contract to General Dynamics rather than Hoeing. The Air Force was also highly displeased with the cancellation of the Skybolt project in May 1962. Eisenhower had signed an agreement to supply 100 Skybolt air-to-air missiles to Great Britain, but as a result of the NATO crisis, Kennedy decided to cancel this project, which he considered too costly and superfluous.
23. On July 30, Admiral Anderson was named Ambassador to Portugal, "a maritime country, a country of great importance in the year 1963 and the years to come," in the words of the President. Before he took up his post, the Admiral made the headlines again by declaring that things were going badly at the Pentagon and recommending that the members of the Joint Chiefs of Staff be appointed for a period of 4 years rather than 2. Kennedy refused, and the Admiral departed for Lisbon, where Lyndon Johnson left him.
24. Canada, Iceland, Denmark, Norway, West Germany, Belgium, Netherlands, Luxembourg, United Kingdom, France, Portugal, Italy, Greece, Turkey, Iran, Pakistan, Haiti, Costa Rica; Dominican Republic, Panama, Venezuela, Ecuador, Colombia, Peru, Bolivia, Paraguay, Brazil, Chile, Argentina, Uruguay, Nicaragua, El Salvador, Guatemala, Mexico, Honduras, Australia, New Zealand, Philippines, Thailand, Formosa, Japan, South Korea, Cambodia, Laos, South Vietnam, etc.
25. This, of course, was in 1962. At that time General Harkins was predicting that the Vietnam war would be won by the end of the following year and described the local opposition as made up of "neutralist intellectuals and a few members of the Vietcong."
26. Eight months earlier, the US Arms Control and Disarmament Agency had published its predictions of what would happen to the economy if the Cold War should end. It forecast an increase in military expenditures until 1965, followed by a progressive but important reduction until 1977:
1962-63: $52.7 1963-64: $54.0 1964-65: $56.1 1968-69: $38.9 1971-72: $27.0 1974-75: $17.3 1977-78: $10.2
(in billions of dollars per fiscal year)
In 17 years, the share of the budget devoted to airplane construction would drop from $6.9 to $0.5 billion. The amount spent for missiles would drop from $5.1 to $0.1 billion, the military space program would be reduced from $0.5 to $0.0 billion, naval construction would drop from $1.9 to $0.2 billion, and the amount spent on various other equipment would decrease from $3.6 to $0.7 billion (Economic Impact of Disarmament, 1962).
In February 1962, the magazine US News and World Report published a chart showing the percentage of military contracts in industrial sales. For aviation and aeronautical equipment, this percentage was 94% , for naval construction 61% , for radio and telecommunications equipment 38% , for electrical equipment 21%, for iron and steel 10%, and for oil 10%.
27. 4,600,000 in 1968.
28. California, Texas, Florida, Alaska, Hawaii, the District of Columbia, New Mexico, New Hampshire, Georgia, Alabama, Oklahoma, Maryland, New York State, Ohio, New Jersey and Massachusetts would not be the only states to suffer. Defense manufacturing accounted for 30% of all factory jobs in Kansas, 28% in the District of Columbia, 24% in New Mexico, 23% in California, 21% in Connecticut and Arizona, 20% in Utah, 18% in Colorado, 14% in Florida, 12% in Maryland, and 10% in Missouri and Texas. Ten states accounted for two-thirds of all military contracts (for a total of $17 billion): California $5.8 billion, New York $2.5 billion, Ohio $1.3 billion, New Jersey $1.2 billion, Massachusetts, Texas, Washington and Connecticut $1.1 billion each, Pennsylvania $0.9 billion, and Missouri $0.7 billion.And a thank you to Marianne K. for the link to the Kennedy speech of April 1961.
On November 19, 1963, 43 years ago today, at a ceremony in the White House Flower Garden, John F. Kennedy welcomed officers of state education associations of the National Education Association. he remarked: "I realize once again in a very personal way what a tremendous flood of children are coming into our schools..."
He was always concerned about children, his own as well as the children of all Americans and the world.
Later that same day, President Kennedy sent a message to the rededication ceremonies of the national cemetery at Gettysburg, Pennsylvania writing:
"The goals of liberty and freedom, the obligations of keeping ours a government of and for the people are never-ending."
Still later, President Kennedy signed into law a bill (HR1989) allowing the legislature of the Virgin Islands to issue general obligation bonds. (PL88-180). He then pocket vetoed a bill (S1201) for the relief of James T. Maddux.
Between 4:30 and 5:00 p.m. Kennedy met with Dean Rusk and Phillips Talbott
It was John F. Kennedy's 1,033rd day in office.
There were three days left for the world to hope for peace in our lifetime; a hope that was snuffed out in 6 seconds on a Sunny afternoon in Dallas Texas by the very Consortium that now holds the world hostage in an iron grip of terror and degradation of humanity: Corporate Government otherwise known as Fascism; totalitarianism by any name, but conducted under the guise of "Democracy."
Allow me to divert for a few moments to talk about ideologies and how easy it is for something that is begun as a great and noble cause to be subverted and turned to its opposite purpose under the very noses of those who still believe in the ideal.
In the history of humanity, there have always been social commentators, pundits, and philosophers of a certain type - as distinct from true philosophers - who have a certain personality that induces them to become fascinated by their own "great ideas", which might, sometimes, even be true or partially true, but more often are merely doctrinaire and simplistic answers to very complex social problems. Careful examination of these ideas based on a healthy awareness of human nature and history would quickly reveal that such ideas are constricted or contain the taint of pathological thought processes. Nevertheless, such people have always tried to impose pedagogical methods - essentially brainwashing - which twist and deform the normal development of human beings in psychological and social ways. These types of theorists inflict permanent harm upon societies, depriving them of universally tried and tested values by claiming to act in the name of high ideal. The American public education system - based, supposedly, on "democracy" and the theories of John Dewey - is just such a case in point.
Where are the Copernicus', Brunos, Kants, DeCartes, Spinozas, Goethes, Newtons, Beethovens, Chopins and Mozarts of the modern day? (And that's just the short list!) Why does it seem that the great talents, the great geniuses, the great thoughts and revelations belong to another time? (Excepting, of course, Einstein who essentially gave us nuclear war.) Have we nothing left but mediocre technical extrapolations or, worse, cultural and spiritual regression? What did the years of the Renaissance have that we haven't got? Better to ask what we have that they hadn't! The answer cannot long elude an astute mind --we have Dewey and compulsory American education.
"I believe that ... the school is primarily a social institution. Education, therefore, is a process of living and not a preparation for future living. Education is the fundamental method of social progress and reform. All education proceeds by the participation of the individual in the social consciousness of the race ... education is a regulation of the process of coming to share in the social consciousness ... "
In short, to Dewey, education was a process of brain-washing children so that they would be fodder for his ideas of "social reform.". We know this because Dewey also said:
"Every thinker puts some portion of an apparently stable world in peril."
In other words, Dewey - and many other "theorists" just like him - actually end up undermining the values they claim and open the door for destructive ideologies to take hold across societies.
At the same time, as I have already mentioned, each society contains a small but very active minority of persons with various deviant worldviews, especially in the areas treated above, which are caused either by psychological anomalies and pathologies, or by the long-term influence of such mental distortions upon their personalities, especially during childhood. Such people exert a particularly strong and pernicious influence upon the formative process of the psychological world view in society, whether by direct activity or by means of written or spoken words, especially if they are engaged in the service of some ideology or other.
Ideologies are generally created by groups that have joined together to right a wrong - perceived or actual - and because such conditions are generally those of oppression, there is a great deal of emotion imbued into the ideology. This emotion can blind the theorists to the realities of human nature.
For example, the ideology of the proletariat, the class of wage laborers, which aimed at revolutionary restructuring of the world, was contaminated at the beginning by pathological deficits in the understanding of, and trust for, human nature and therefore, was easily taken over by totalitarians with a lust for power as the Communist experiment in Russia has demonstrated.
It is also clear from observation of socialist and capitalist systems that, again, they do not take into account the true range and variety of human natures, as well as those elements of the instinctive substratum that are common to all normal humans.
Nevertheless, the fact that one ideology or another was taken over and co-opted, along with its corollary social movement, later serving goals which the originators of the ideology would have abhorred, does not prove that the idea was worthless, false, and fallacious from the start. The fact is, under certain historical conditions, the ideology of any social movement or religion, can be taken over and subverted. Just look at the Republican Party in the U.S. for another prime example!
An ideology is taken over and co-opted by gradual adaptation of the primary ideology to functions and goals other than the original formative ones. A kind of layering takes place with the outer layer remaining closest to the original content. This continues to be used for the group's propaganda purposes, especially in their relations to the outside world, although it is also used inside with regard to older members. But gradually, the second layer forms and the controllers of the organization are, by now, in control, gradually steering the ship of ideology to a different destination. At this level, the use of "doubletalk" is clearly understood by the top members: it is more hermetic, generally composed by slipping a different meaning into the same names. Since identical names signify different contents depending on the layer of the organization in question, understanding this "doubletalk" requires simultaneous fluency in both languages.
Average people succumb to the first layer's suggestive insinuations for a long time before they learn to understand the second one as well. Anyone with certain psychological deviations immediately perceives the second layer to be attractive and significant; after all, it was built by people like him.
Comprehending this doubletalk provokes in normal people a quite understandable psychological resistance; this very duality of language, however, is a pathognomonic symptom indicating that the group in question is already co-opted to an advanced degree.
The ideology of unions affected by such degeneration has certain constant factors regardless of their quality, quantity, or scope of action: namely, the motivations of a wronged group toward radical righting of the wrong, and the proclaimed higher values of the "cause" are used by individuals who have joined the organization who consciously understand that it is to be a vehicle to power. For some of them with active pathologies, there is no conscious intent to do ill, however the self-declared idealistic motivations help them to sublimate their personal feelings of being wronged and different, caused by their own psychological failings. More damaging still is the fact that this sublimation then allows them to liberate themselves from the need to abide by uncomfortable moral principles. We see clear examples of this in the present day where Christianity is being used to promote hatred and war.
In a world full of real injustice, the formation of such groups is quite common. And, in the same world, it is also quite common for its membership to be soon packed with social elements that are damaged and twisted or genetic deviants. Such a group easily succumbs to degradation and reversal of intentions under the old ideological names. When this happens, those people with a tendency to accept the original version of the ideology will tend to justify such ideological duality.
A given ideology may have contained original weaknesses that are due, as mentioned above, to errors of human thought and emotion; or it may, during the course of its history, become infiltrated by more primitive foreign material which can contain pathological factors. The source of such infection by foreign ideological material may be the ruling social system with its laws and customs based on a more primitive tradition, or an imperialistic system of rule. It may be, of course, simply another philosophical movement often contaminated by the eccentricities of its founder, who considers that reality must be blamed for not conforming to his theories.
One important thing to note is that just because an ideology is great and true, it is not therefore better able to withstand co-opting and degradation. The fact is, the greater and truer the original ideology, the longer it may be capable of nourishing and hiding from view the fact that it has been completely co-opted to the core. In a great and valuable ideology, the danger lies in the fact that the external ideology is still intact, as the first layer, and weaker minds become the tools of the corrupt inner layer all the while believing that they are acting in the true spirit of the original ideals.
Thus, if we intend to understand how a group of psychological deviants could assassinate a sitting president of the United States and get away with it, and subsequently bring the U.S. to the point where it is teetering at the abyss of total destruction, we must take great care to separate the original ideology of Democracy from its counterpart, or even caricature, created by the co-opting and degradation conceived and promoted by the monolithic and ruthless conspiracy identified by John F. Kennedy in those hours between the time he authorized the Bay of Pigs Invasion and then rescinded the order. Remember that he told us that this conspiracy "relies primarily on covert means for expanding its sphere of influence; in infiltration instead of invasion; on subversion instead of elections, on intimidation instead of free choice; on guerillas by night instead of armies by day. It is a system which has conscripted vast human and material resources into the building of a tightly knit, highly efficient machine that combines military, diplomatic, intelligence, economic, scientific, and political operations. Its preparations are concealed not published. Its mistakes are buried, not headlined, its dissenters are silenced, not praised; no expenditure is questioned, no rumor is printed, no secret is revealed. It conducts the cold war, in short, with a wartime discipline no democracy would ever hope to wish to match."
And so, today, in our excerpt from Farewell America, we take a closer look at Capitalism which has come to be equated with Democracy.
. . . the President's action points inevitably to a federal dictatorship over business.
David Lawrence, US News and World Report
The American people will find it hard, as I do, to accept a situation in which a tiny handful of steel executives whose pursuit of private power and profit exceeds their sense of public responsibility can show such utter contempt for the interests of 185 million Americans.
John F. Kennedy, April 11, 1962
Engraved over the entrance to the Business School of Columbia University is a motto which exhorts the nation's businessmen to a "high sense of duty." Since the death of Roosevelt, whose very name they reviled,(1) the businessmen had been left to their own devices. Truman and Eisenhower had been modest petty bourgeois, and Nixon would certainly have followed in their footsteps. The businessmen were wary of President Kennedy, who as a young Senator from Massachusetts had opposed the Taft-Hartley law and neglected the industrialists of his state. Kennedy did not regard profit-making as the most esteemed of vocations. Brought up in a family of millionaires and a millionaire himself, he was not impressed by other millionaires, nor did he consider the successful businessman the most admirable of beings. He liked to quote from Dr. Johnson:
"A merchant's desire is not of glory but of gain; not of public wealth, but of private emolument; he is therefore rarely to be consulted on questions of war or peace, or any designs of wide extent and distant consequence."
He was well aware of their power, but he did not trust the Titans. When he became President he declared,
"Taken individually, labor leaders are often mediocre and egotistical, but labor as a whole generally adopts intelligent positions on important problems. On the other hand, businessmen are often individually enlightened but collectively hopeless in the field of national policy."
Eisenhower sought out the Titans, respected their advice, and treated them as they thought they deserved to be treated -- in other words, as representatives of the most influential body in the nation. Kennedy kept his distance. Prior to his election he had had little contact with industrial circles, and once he was in the White House he saw even less of them. Businessmen were generally excluded from the Kennedys' private parties. Not only did he "snub" them (in the words of Ralph Cordiner, President of General Electric), he also attacked them. Kennedy did not consult the business world before making his appointments. The men he placed at the head of the federal regulatory agencies were entirely new.(2) Since the end of the war, the businessmen had become accustomed to considering these bodies as adjuncts of their own professional associations. They were more indignant than surprised. They attempted to intervene, but in vain. The President had a mind of his own.
In January 1961, the nation seemed stable and prosperous. The economy was suffering from a slight recession, but the level of unemployment was considered acceptable.(3) But in his first State of the Union Message on January 30, Kennedy spoke of the changes needed in terms that seemed to echo the words of Franklin D. Roosevelt as he inaugurated the New Deal, at a time when the economy of the United States had struck bottom and the Titans were nearly asphyxiated. "The present state of our national economy is disturbing," he began. He called for "urgent increases in federal expenditures in the fields of housing, urban renewal, school construction, medical research, and juvenile delinquency." He proposed a new plan for the economic, social and cultural development of foreign countries.
The President's policy towards Latin America alarmed the businessmen even more than it worried the Pentagon and the diplomatists. The business world foresaw the economic consequences of the President's foreign policies. In Strategy of Peace, he had written:
"Just as we must recall our own revolutionary past in order to understand the spirit and the significance of the anti-colonialist uprisings in Asia and Africa, we should now reread the life of Simon Bolivar, the great 'Liberator' of South America . . . in order to comprehend the new contagion for liberty and reform now spreading south of our borders . . .
"Fidel Castro is part of the legacy of Bolivar, who led his men over the Andes Mountains, vowing 'war to the death' against Spanish rule, saying, 'Where a goat can pass, so can an army.' Castro is also part of the frustration of that earlier revolution which won its war against Spain but left largely untouched the indigenous feudal order . .
"But Cuba is not an isolated case. We can still show our concern for liberty and our opposition to the status quo in our relations with the other Latin American dictators who now, or in the future, try to suppress their people's aspirations."
Later he added, "Our differences with Cuba do not concern the impulse that drives the people of this country toward a better life. The economic and social reforms undertaken in Cuba must be encouraged."
One of his closest advisers, historian Arthur Schlesinger, wrote:
"All across Latin America the ancient oligarchies -- landholders, Church and Army -- are losing their grip. There is a groundswell of inarticulate mass dissatisfaction on the part of peons, Indians, miners, plantation workers, factory hands, classes held down past all endurance and now approaching a state of revolt."
Near Recife, Schlesinger had seen poverty-stricken villages full of starving children covered with scabs. He recalled that before Castro came to power Havana had been nothing but a giant casino and brothel for American businessmen over for a big weekend. "My fellow countrymen reeled through the streets, picking up fourteen-year-old Cuban girls and tossing coins to make men scramble in the gutter,"(4) he wrote.
The policies of the President and his advisers were certain to have economic repercussions. In April 1962, a year after the inauguration of the Alliance for Progress, Latin America, in the eyes of the conservatives, appeared headed for chaos. In Argentina, President Frondizi had just been overthrown by a military coup, and rioting had broken out in Guatemala and Ecuador. There was no country to the South that could be considered politically and economically stable.(5) Capital flowed back into the United States, frightened by the specter of Castroist revolution.
But the effect on the American economy threatened to be even worse. The businessmen could not accept concepts like those of Schlesinger, who declared that the essential thing was not, as Nixon had suggested, to stimulate the cosmetics industry,(6) but to build hospitals and to invest in sectors that affected the strength of the nation and the welfare of the people.
Kennedy and his team called themselves "liberals," but the most intelligent of their adversaries, like economist Milton Friedman, questioned their right to use this term. "As a supreme, if unintended compliment, the enemies of the system of private enterprise have thought it wise to appropriate its label," Friedman wrote.
To his adversaries, President Kennedy's economic policies appeared to be inspired entirely by a concern for public welfare to which they were fundamentally opposed. They quoted the words of Jefferson, "The government is best which governs least." Many of them preferred the freedom to make a million or go bankrupt to the governmental planning and regulation that diminished the range of these alternatives. Senator Barry Goldwater was a good example of this mentality. The little people considered the cowboy-grocer as one of their own, and the big men knew that, regardless of his political destiny, they had nothing to fear from him. For Goldwater, a General in the Air Force Reserve, intelligence was nothing but the "extremism of imbeciles." Turning his back on this kind of extremism, Goldwater expressed himself in vague definitions of the great problems of the day, asserting that unemployment was but "an excuse for the lazy," and the government "the end of individualism." But he turned serious when he wrote:
"Welfare is a private concern . . . The current instrument of collectivism is the Welfare State. The collectivists have finally realized that it is possible to institute socialism through a policy of welfare as well as by nationalization. Welfare socialism is much more difficult to combat. It takes an individual and changes him from a spiritual creature, proud, hardworking and independent, into a dependent and animal creature.
"We must reject this false notion that Communism is brought about by poverty, illness, and other similar social or economic conditions. Communism is brought about by the communists, and by them alone. Communism is international conspiracy, and its goal is to re-establish slavery throughout the earth.
"The advent of a reign of freedom, justice, peace and prosperity is impossible until Communism has been defeated. The victory over Communism must be the principal and immediate goal of American policy. All other objectives are secondary. We must take the offensive. American civilization is man's greatest achievement in the history of the world . . .
"In Strategy of Peace, Kennedy actually described Fidel Castro as the 'heir of Bolivar, the great liberator of South America' . .. the same Bolivar who led his men across the Andes after declaring all-out war on Spain. We must fight Communist subversion throughout the Western Hemisphere, within our borders as well as in Central and South America, with all the weapons at our disposal. It is inconceivable that Castro, that show-off puppet, that lackey of Kennedy be allowed to make fun of us and jeer at our freedom only a few minutes' flying time from our closest city . . . Financial circles have been deeply disturbed by the recent events in Guatemala, Bolivia, and particularly in Cuba . . .
"In the last analysis, the choice is not between surrender or nuclear war. It is between winning or fighting a nuclear war. We must cut out extravagant and useless domestic programs and stop wasting our money on utopian foreign aid projects."
It never seems to have occurred to Goldwater that the system of screwing the governed public out of their tax money in order to hand it over to the rich who kept getting richer, including the industrialists that benefited from congressional favoritism, was, itself, a form of welfare. For if Welfare can be defined as giving money or help to those that do not earn it, what then is the system of paying Congressmen who do not actually represent the interests of their people?
As if in answer, Kennedy declared on March 13:
"For the first time we have the capacity to strike off the remaining bonds of poverty and ignorance -- to free our people for the spiritual and intellectual fulfillment which has always been the goal of our civilization . . .
"This political freedom must be accompanied by social change. For unless necessary social reforms, including land and tax reform, are freely made -unless we broaden the opportunities for all our people -- unless the great mass of Americans share in increasing prosperity -- then our alliance, our revolution, our dream, and our freedom will fail. But we call for social change by free men -- change in the spirit of Washington and Jefferson, of Bolivar and San Martin and Martin -- not change which seeks to impose on men tyrannies which we cast out a century and a half ago. Our motto is what it has always been -- progress yes, tyranny no -- progreso si, tirania no!"
Caracas(7) and then Bogota gave the President of the United States a warm welcome. In Mexico in June 1962, he paid tribute to the Mexican revolution, and in March 1963 in Costa Rica he defended the rights of the peasants to land and an education and called for an end to "the ancient institutions that perpetuate privileges." His enemies saw the Kennedy Administration as the ally of the "agitating popular forces" of the continent south of the border, "working towards progress and a better life for the masses by evolution if possible, or by revolution if that is the price that must be paid.(8)
Revolution! Many people thought that it had already invested the White House, despite the reassurances of the President. On February 13, 1961, he told the National Industrial Conference Board:
"There is no inevitable clash between the public and private sectors -- or between investment and consumption -- nor, as I have said, between Government and business. All elements in our national economic growth are interdependent. Each must play its proper role -- and that is the hope and the aim of this administration . . .
"We will not discriminate for or against any segment of our society, or any segment of the business community. We are vigorously opposed to corruption and monopoly and human exploitation -- but we are not opposed to business. We know that your success and ours are intertwined -- that you have facts and knowledge that we need. Whatever past differences may have existed, we seek more than an attitude of truce, more than a treaty -- we seek the spirit of a full- fledged alliance."
His tone annoyed his business audience, who thought they perceived a hint of paternalism, and who were somewhat less than eager to cooperate with the federal government. The Business Advisory Council discontinued its meetings and decided to break off relations with the Commerce Department. The members of the Council noted uneasily that the Kennedy virus had spread to Commerce Secretary Luther Hodges, a man they had thought they could count on.
The Democrats had inherited a rather mediocre economic situation from the Eisenhower Administration. 1961 was not a very good year. True, the national income had increased 19.6% between 1958-1961 as compared with its 1954-1957 level, corporate sales had risen 18.7%, and salaries had climbed 18.9%. But the prosperity of an economy is written in the balance sheet, and during the same period business profits had risen only 3.3% after taxes.(9) Critics also noted that the federal and state governments were steadily expanding, and that their expenditures equaled one-third of the gross national product.(10) Retail prices had remained stable, and wholesale prices had dropped 1%,(11) but the personal incomes of some of the Titans had also dropped.(12)
Things looked better at the beginning of 1962. The automobile industry, the economic thermometer of the nation, predicted an annual sales figure of 7 million cars, an increase of 1,500,000 over the previous year.(13) 1962 promised more than a recovery and less than a boom. In January Bradford B. Smith, an economist for US Steel, told the National Industrial Conference Board, "I have said to this group many times that as the nation goes, so goes the steel industry, only twice as fast. I would say the steel production in the first half of 1962 could look pretty good."
A month later, however, Roger Blough, Chairman of US Steel,(14) noted that overall industrial profits, which should have reached the figure of $35 billion in 1961,(15) were only $23 billion, and added that over the past three years hourly salaries in the steel industry had increased 40 cents (between 12 and 13%), while profits had been the poorest ever recorded in the history of steel. In 1961, 85% of these profits, he claimed, had been used to pay dividends. He declared that an economy should not be judged solely by its prices, which always depend on costs, but rather by the comparative level of costs and profits. Blough told US News and World Report that the President might understand businessmen, but that he certainly didn't like them. He recalled that President Kennedy had sent a letter to steel industry leaders in September 1961 warning them against any increase in prices. "The steel industry, in short, can look forward to good profits, without an increase in prices. Since 1947, iron and steel common stock prices have risen 397%; this is much better performance than common stock prices in general," the President had written.
On April 6, 1962, the Steelworkers Union agreed, at the request of the federal government, to limit its wage demands to a 10-cent-an-hour increase beginning on July 1, 1962.(16) On April 10, the steel industry announced a price increase of $6 a ton,(17) placing the President, the consumers, and the unions before the fait accompli. In the course of its history, the steel industry had often defied American Presidents, but it had forgotten what it was like to be thwarted. The following day at his press conference, the President declared:
". . . the American people will find it hard, as I do, to accept a situation in which a tiny handful of steel executives whose pursuit of private power and profit exceeds their sense of public responsibility can show such utter contempt for the interests of 185 million Americans."
This denunciation of the Titans stunned the nation. It marked the birth of a legend. The President's remarks made headlines throughout the world and were even quoted in Pravda, which expressed its surprise and satisfaction. The businessmen were disconcerted by the violence of his reaction and by the apparent extent of his public support, but Roger Blough maintained that his decision had been made "in the interest of the stockholders" and that the profits of the largest steel producers were 33% lower in the first quarter of 1962 than they had been in 1959.(18)
The administration replied that the dividends paid to the stockholders of the steel corporations in 1958-61 were 17% higher than those paid in 1954-57. The steel industry rejoined that profits had exceeded $1 billion in 1959, but that they had fallen to $807 million in 1961, endangering investment possibilities, the future of the steel corporations, and consequently the future of American industry. But, faced with FBI investigations, the pressure of public opinion, and the cancellation of government contracts, it yielded and revoked the increase.(19)
On May 7, 1962, US News and World Report wrote: "What happened is frightening not only to steel people but to industry generally . . . President Kennedy had the public interest at heart in acting as he did, but the results may not in the long run be what he intended them to be."
The following day at Atlantic City, speaking before the United Auto Workers Convention, Kennedy declared:
"This administration has not undertaken and will not undertake to fix prices and wages in this economy. We have no intention of intervening in every labor dispute. We can suggest guidelines for the economy, but we cannot fix a single pattern for every plant and every industry . . . This is a competitive economy. We believe it has served us well, the free enterprise system."
The preceding day, May 7, Roger Blough had told the stockholders of US Steel: "this concept is as incomprehensible to me as the belief that Government can ever serve the national interest in peacetime by seeking to control prices in competitive American business, directly or: indirectly through force of law or otherwise." And he added that since 1950 wages had doubled, revenues from taxes on business had increased by 68%, the profits of store owners and farmers had risen by 70% , while corporation profits had only increased by 2%. He remarked that in recent years the prices of many industrial products had increased, and that he did not see why there should be any discrimination against steel.
Replying to President Kennedy's remarks at Atlantic City on May 1, Walter Reuther, President of the United Auto Workers, declared that what the economy needed was "to increase demand, and therefore salaries." That same day Dr . Charles E. Walker, Executive Vice President of the American Bankers Association, made a speech at New Brunswick attacking increased federal expenditures and the concepts of the President's economic advisers.
May 28, 1962 was the blackest day on Wall Street since the 1929 crash. Steel holdings fell to 50% of their 1960 level. "This could become total war," declared Avery C. Adams, Chairman of Jones and Laughlin Steel, to the stockholders of his company. The unions began to wonder whether the consequences of the President's intervention might not prove more serious for them than for the corporations.(20) Allan Sproul, ex-President of the Federal Reserve Bank of New York, declared that "although there was no panic by stock-holders after the stock market crash of May 28, 1962, another May 28 might have different consequences. (21)
In July 1962, the steel industry at Pittsburgh was working at only 55% of capacity, as compared to 70% in April. The steel companies noted that this crisis hit them just when they were faced with competition from foreign producers favored by lower costs and cheaper labor, and from related industries (plastics, aluminum, cement, glass, wood) that were becoming more and more diversified and more and more powerful. One of the paradoxes in the arguments of certain businessmen was the fact that, while rejecting any notion of federal intervention in their affairs, they called for greater protection against foreign competition.(22)
Business reaction was unanimous. Ralph Cordiner, President of General Electric, declared that Kennedy ought to reread his Lincoln,(23) and David Lawrence(24) wrote:
"The heavy hand of government has just won a pyrrhic victory . . . Economic facts cannot be changed merely because politicians dislike them. Nor can America's private enterprise system survive very long if the Federal Government itself engages in the mudslinging of class warfare and, in effect, tells an industry it must disregard profits, disregard dividends, and pay labor whatever the Administration says shall be paid even if, as in this case, it costs the industry an additional $100 million a year.
"Apparently (Mr. Kennedy) believed that the Administration could coerce the industry into submission. For what else was meant by Mr. Kennedy's statement that the 'Department of Justice and the Federal Trade Commission are examining the significance of this action in a free, competitive economy? . . . This implied a threat of criminal prosecution. It was a move designed to terrorize those who disagreed with the Administration . . . While denying any inclination toward state socialism, the President's action on steel prices points inevitably to a federal dictatorship over business."
And he concluded, "Socialism (is) often a forerunner of Communism."
Analyzing the battle underway, Richard E. Neustadt(25) wrote,
"As far as I can observe it from abroad, the steel case was a classic demonstration of two things: of the tenuousness and uncertainty of presidential power -- one might almost say the weakness of the President's position -- coupled with almost incredible political naivete on the part of the US Steel Corporation."
Some months later, Kennedy explained his reaction:
"I think it would have been a serious situation if I had not attempted with all my influence to try to get a rollback, because there was an issue of good faith involved. The steel union had accepted the most limited settlement that they had since the end of the second war . . . in part, I think, because I said that we could not afford another inflationary spiral, that it would affect our competitive position abroad, so they signed up. Then, when their last contract was signed . . . steel put its prices up immediately. It seemed to me that the question of good faith was involved, and that if I had not attempted . . . to use my influence to have the companies hold their prices stable, I think the union could have rightfully felt that they had been misled. In my opinion it would have endangered the whole bargaining between labor and management, which would have made it impossible for us to exert any influence from the public point of view in the future on these great labor-management disputes which do affect the public interest."
In June 1962, at the height of the crisis, business circles in the United States were much more concerned about the President's style and personality than by the decline in the stock market, which it knew to be artificial, or the state of the economy, which it considered hopeful.(26) Kennedy's speech at Yale(27) on June 11 confirmed the worst fears of the businessmen:
"The great enemy of the truth is very often not the lie -- deliberate, contrived, and dishonest -- but the myth -- persistent, persuasive, and unrealistic. Too often we hold fast to the cliches of our forebears. We subject all facts to a prefabricated set of interpretations. We enjoy the comfort of opinion without the discomfort of thought . . .
"We cannot understand and attack our contemporary problems in 1962 if we are touched by traditional labels and worn-out slogans of an earlier era. But the unfortunate fact of the matter is that our rhetoric has not kept pace with the speed of social and economic change. Our political debates, our public discourse - on current domestic and economic issues -- too often bear little or no relation to the actual problems the United States faces . . .
"(These problems) cannot be solved by incantations from the forgotten past. But the example of Western Europe(28) shows that they are capable of solution -- that governments, and many of them conservative governments, prepared to face technical problems without ideological preconceptions, can coordinate the elements of a national economy and bring about growth and prosperity . . .
"Some conversations I have heard in our own country sound like old records, long-playing, left over from the middle thirties. The debate of the thirties had its great significance and produced great results, but it took place in a different world with different needs and different tasks. It is our responsibility to live in our own world, and to identify the needs and discharge the tasks of the 1960's . . .
"Nearly 150 years ago, Thomas Jefferson wrote, 'The new circumstances under which we are placed call for new words, new phrases, and for the transfer of old words to new objects.' New words, new phrases, and for the transfer of old words to new objects -- it is truer today than it was in the time of Jefferson, because the role of this country is so vastly more significant . . . As we work in consonance to meet the authentic problems of our times, we will generate a vision and an energy which will demonstrate anew to the world the superior vitality and the strength of the free society."
This was a serious speech. Not only did he attack the Titans, but also those of his fellow-citizens who took pride in their traditional stereotypes, their worn-out slogans, their old records, their ancestral cliches, their imaginary problems, and their prefabricated interpretations, and of whom Kennedy said that they were 150 years behind and understood nothing of the real problems of their times.
It was already late when he announced on television on August 13 that since he had entered the White House the gross national product had increased by 10%, industrial production had risen 16%, disposable personal income had gone up 8% ($30 billion), the unemployment rate had dropped by 1 million, and that in Carbon County, Pennsylvania, George Demart, aged 52, was finally able to support his family. He added that corporate profits had risen 26%, but those concerned were probably no longer listening when he concluded:
"We have to move ahead, and I know that there are those who oppose all these moves as they opposed moves in other days much as they opposed a ban on child labor and, more recently in the Senate, medical care for the elderly.
"This country would still be in the dark ages economically if we permitted these opponents of progress and defenders of special privileges to veto every forward move. But the president of the United States, I believe, and the Congress and all of us must be committed to action in our time."
The fever fell somewhat in the fall. Business was good, and 1963 looked better still. The increase in federal expenditures, defense contracts, and urban renewal projects acted as a stimulus on the economy. But businessmen remained pessimistic and distrustful. At the American Bankers Association Convention at Atlantic City on September 23-26, 1962, it was predicted that automobile production would drop by 500,000 units in 1963.(29) Most financial experts in New York and Chicago warned of a new recession.
There was no recession. On the contrary, the United States was in the midst of an industrial expansion.(30) But the federal government remained vigilant. In July 1962, it had protested to the banks, which were predicting inflation and deforming the financial market. In November it denounced unjustified price increases in the pharmaceutical industry. In 1963, its antitrust suits multiplied.
The tendency towards corporate mergers was accentuating.(31) Pursuing its traditional anti-trust role, the Justice Department opened investigations into price-fixing conspiracies and other illegal activities. This action brought positive results (prices of electrical equipment dropped 30%), but it infuriated industry." Mergers arouse acute suspicion of the Government's trustbusters," wrote US News and World Report.(32)
In January, the Justice Department asked a federal court to force the General Motors Corporation to dispose of its locomotive business and break up its merger with the Euclid Road Machinery Company. In a third case, it charged General Motors with monopolizing the manufacture and sale of inter-city buses.
In the face of such attacks, businessmen began to ask themselves what would happen when large companies attempted to grow or diversify through mergers. Was this the end of all corporate mergers? The Federal Trade Commission opened an inquiry into the relationships between 1,000 of the nation's largest companies. It was particularly curious about "joint ventures" and "reciprocity," or the extent to which big companies bought from their own best customers. To what extent did a steel company order its machinery from the machinery manufacturer who regularly bought its steel? How far did a truck manufacturer go in favoring a steel company that purchased its trucks?
General Dynamics was ordered to dispose of a division dealing in industrial gases that it had acquired five years before, and a merger of Consolidated Foods with a firm producing dehydrated onions and garlic was broken up after the FTC charged that the food firm had required some of its suppliers to buy the products of its new division. The FTC suggested that any merger might be judged illegal if it tended to promote reciprocal business.
The government brought price-fixing charges against a long list of industries, including milk, baked goods, silver products, copper tubing, pulpwood, brass-mill products, macaroni, sewing machines, etc., and in many instances won easy victories. In 1963, the Justice Department's Antitrust Division won 45 out of 46 cases.
Big business grew more and more concerned about the tendencies of the Kennedy administration, and industrialists aren't the type of people to sit around and chew their fingernails. Employers complained that they were continually placed at a disadvantage in their relations with the labor unions, which were backed by Washington. They felt that the National Labor Relations Board had abandoned the neutral position it had occupied under Eisenhower. "The NLRB is also affected by the spirit of crusade," declared Joseph L. Block, Chairman of Inland Steel. J. Mack Swigert added, "The financial power of the unions is so great that many employers can't risk a strike."(33)
Kennedy stated over and over again that he was opposed to government control of salaries and prices, but his administration intervened more and more often in labor disputes. Washington appointed mediators who stressed the "public interest," which was generally interpreted as favoring the unions. Federal pressure was exerted on numerous corporations, especially in the missile and space industry, which had not yet adopted the union shop. The regulatory commissions available to the President wielded considerable power.(34) The National Labor Relations Board ordered that workers fired for union activities, or who had lost their jobs because their employer refused to negotiate with their union, be reinstated with their back pay plus 6% interest.
The businessmen feared that the federal government would somehow take control of wages, (35) and their fears were voiced at the gatherings of the American Management Association, the National Association of State Labor Relations Boards, and the American Mining Congress. The Vice President for Labor Relations of the Ford Motor Company declared that the Kennedy administration appears to be "seeking some sort of halfway house between private bargaining and Government compulsion that will give it the degree of influence or control over the results that it conceives to be needed . . . it is prepared to go past the point of relying simply on reason and persuasion."
Others went much further. US News and World Report charged that "the machinery for a true socialist economy already exists," and quoted one financier who added, "The pension funds give considerable room for maneuver. By acting in a certain direction, they could be used to destroy the capitalist framework."
1963 could be considered a good year for business. But the businessmen didn't think so. The gross national product, wages, taxes, and prices had progressed satisfactorily, but the steel industry was still working at only 50% of capacity, and profits were lower than what businessmen thought they ought to be, and proportionally lower than what they had been in 1950.(36)
Speaking at the University of Chicago, Henry Ford declared, "How high are profits? By any relative measure, profits are now at about the same level as they were during the 1954 recession. Today, after 3 full years of rising prosperity for the rest of the economy, profits have finally climbed back up until they are as high as they were at their lowest point in the decade after the end of World War II. The reduction of federal income taxes is an important step in the right direction."(37)
Industrialists noted that the growth rate of the American economy in 1963 would be the lowest of all the industrialized countries, and emphasized that this lag could have "dramatic" consequences. They forecast that the Soviet Union would have caught up with the United States in terms of industrial production by 1975-80.
Kennedy responded to these predictions by pointing out that the exceptional growth rate of the Soviet Union was due in large part to its huge crop -three times larger than that of the United States -- of students in all branches of learning, future researchers, and future technicians, and he cited this as one more reason for assuring equal educational opportunities for all students and breaking down the financial barriers surrounding the universities.(38) He was especially concerned about unemployment: in 1963 there were 4,166,000 people out of work, as compared to 4,007,000 in 1962.(39) The businessmen were more concerned about federal deficits and expenditures.(40)
In 1962, Kennedy had elected to pursue a new economic and financial policy based on the potential gross national product.(41) To bring this potential into being, it was necessary to create "fiscal drag" -- in other words, to reduce taxes on individuals and corporations. On December 14, 1962, speaking to the members of the Economic Club at the Waldorf Astoria Hotel in New York, the President upset the traditional economic thinking not only of the businessmen, but also of the members of Congress. Many Congressmen were violently opposed to any increase in federal spending, which they blamed for weakening the dollar, and considered the budget deficit as an evil in itself which should be reduced by all possible means. But Kennedy felt differently.(42) He began by reassuring them: "To increase demand and lift the economy, the Federal Government's most useful role is not to rush into a program of excessive increases in public expenditures, but to expand the incentives and opportunities for private expenditures."
But he went on to declare, "Our practical choice is not between a tax-cut deficit and a budgetary surplus. It is between two kinds of deficits: a chronic deficit of inertia . . . or a temporary deficit of transition, resulting from a tax cut designed to boost the economy, increase tax revenues, and achieve . . . a budget surplus."
The President planned to apply PPBS, which had been used so successfully at the Defense Department, to the federal budget,(43) but in 1963 the primary problem was that of balancing the budget. Kennedy proposed a Keynesian program of budgetary deficit designed to encourage economic expansion.(44) This classic plan consisted of alleviating fiscal pressure without a corresponding decrease in public expenditures. A tax cut, investment tax credit, and a simultaneous increase in public spending would increase demand and stimulate consumption.
On January 17, 1963, President Kennedy presented both his 1963 budget and his proposals for a tax cut and tax reform to Congress. Senator Harry F. Byrd and Representative Wilbur D. Mills, respectively chairman of the Senate Finance Committee and the House Ways and Means Committee, voiced their opposition to the plan. "Power feeds on power. Big government is too big,"(45) said Senator Byrd, who added that in his opinion confidence was not reassured by expanding federal domination and control, or judicial usurpation of power, or excessive federal spending, and that he was feeling the oppression of all three.
What Kennedy wanted was not simply a temporary tax cut, but a thorough revision of the American fiscal system. The tax reform sealed his fate.
Some Americans were opposed to it on principal, like the Florida businessman who found himself in the same plane with Douglas Dillon one day in 1962. The Treasury Secretary spent some time explaining the tax reform in terms of this man's corporate outlook and income, and the businessman was most impressed. Finally, as the plane landed at Miami, he turned to Secretary Dillon and said, "I am grateful to you for explaining the bill. Now tell me just once more: why is it I am against it?"(46)
The answer came from Barry Goldwater:
"We have been persuaded that the government has an unlimited right to appropriate the wealth of the people. The government has the right to demand an equal percentage of the wealth of every man, and no more. This is as valid for incomes as it is for gifts and inheritances. Taxes should be the same for everyone, as they are for cigarettes. Progressive taxation is a confiscation.
"It is scandalous that a man who earns $100,000 a year contributes 90% of his revenue to the national budget, while a man who earns only $10,000 contributes only 20% . It is a penalty for success."
But taxes weren't the same for everyone. The President was astounded to learn that of the 19 Americans whose income exceeded $5 million a year, 5 paid no income tax at all in 1959, and none of the 14 others had been taxed in the $5 million a year bracket, and that in 1954 one American with an income of $20 million a year had not paid a cent of taxes. Similar examples abounded. In most cases, these scandalous exemptions were the result of the multiple deductions and loopholes that the tax system offered to certain corporations, notably in the oil industry.(47)
Kennedy was determined to put an end to these abuses. Already, on April 20, 1961, the day he learned of the failure of the Bay of Pigs invasion, he declared before Congress:
"A strong and sound Federal tax system is essential to America's future . . . The elimination of certain defects and inequities as proposed below will provide revenue gains to offset the tax reductions offered to stimulate the economy . . . Special provisions have developed into an increasing source of preferential treatment to various groups. Whenever one taxpayer is permitted to pay less, someone else must be asked to pay more. The uniform distribution of the tax burden is thereby disturbed and higher rates are made necessary by the narrowing of the tax base. Of course: some departures from uniformity are needed to promote desirable social or economic objectives. But many of the preferences which have developed do not meet such a test and need to be reevaluated in our tax reform program."
And he added, "The war on poverty is not over. It has just begun."
The 1963 tax reform was aimed at: 1) relieving the hardships of low-income taxpayers and older people, and encouraging economic growth; 2) revising the tax treatment of capital gains to provide a freer and fuller flow of capital funds; and 3) broadening the base of individual and corporate income taxes so as to remove special privileges, correct defects in the tax law, and provide more equal treatment of taxpayers.
But the most important aspect of this reform focused on the tax provisions which "artificially distort the use of resources." The President declared that "no one industry should be permitted to obtain an undue tax advantage over all others" and called for the correction of defects in the tax privileges granted the mineral industries, the oil industry first of all.
As they read through the 24 pages of Document No. 43, the President's Tax Message to Congress, certain businessmen had good reason to be against it.(48) They were far less interested in the health of the American economy(49) than in the rate of their profits.
On November 18, 1963, three days before his death, President Kennedy presented his economic report to the Florida Chamber of Commerce:
"For the first time in many years, in the last 18 months, our growth rate exceeds that of France and Germany. It is because, as Fortune magazine recently pointed out, corporate profits in America are now rising much faster than corporate profits overseas . . .
"By next April, with the indispensable help of the pending tax cut bill, the United States will be sailing with the winds of the longest and strongest peacetime economic expansion in our Nation's entire history."
And he concluded:
"I realize that there are some businessmen who feel they only want to be left alone, that government and politics are none of their affairs, that the balance sheet and profit rate of their own Corporation are of more importance than the worldwide balance of power or the nationwide rate of unemployment. But I hope it is not rushing the season to recall to you the passage from Dickens' 'Christmas Carol' in which Ebenezer Scrooge is terrified by the ghost of his former partner, Jacob Marley, and Scrooge, appalled by Marley's story of ceaseless wandering, cries out, 'But you were always a good man of business, Jacob.' And the ghost of Marley, his legs bound by a chain of ledger books and cash boxes, replies, 'Business? Mankind was my business. The common welfare was my business. Charity, mercy, forbearance and benevolence were all my business. The dealings of my trade were but a drop of water in the comprehensive ocean of my business.'
"Members and guests of the Florida Chamber of Commerce, whether we work in the White House or the State House or in a house of industry or commerce, mankind is our business. And if we work in harmony, if we understand the problems of each other, and the responsibilities that each of us bears, then surely the business of mankind will prosper. And your children and mine will move ahead in a securer world, and one in which there is opportunity for them all . . ."
But many businessmen were indifferent to harmony, the problems of mankind, the future of their children, and Charles Dickens. Four days later, President Kennedy landed at Dallas. There is no stronger hate than that of the robber barons.
On February 26, 1964, under President Lyndon Johnson, Congress approved Public Law 88- 272, which amended the Internal Revenue Code of 1954. Nowhere in the 128 pages of this act, however, will you find the provisions concerning the "removal of certain inequities" requested by President Kennedy.
In April, 1964, now that they had a President "who understands business," in the words of W. B. Murphy, President of the Campbell Soup Company, the businessmen interviewed by US News and World Report declared, "All the business news is good -- profits up, sales climbing, output rising. Everything is breaking out on the upside."
The Great Society had begun.
It was at the height of its glory when, on July 4, 1967, President Johnson told a cheering crowd:
"We own almost a third of the world's railroad tracks, almost two-thirds of the world's automobiles, half the trucks, half of all its radios, a third of all the electricity, a fourth of all the steel . . . half of its wealth."
"And bear in mind," continued the President (who had forgotten to include half the world's oil) "that the rest of the world would like to exchange places with us."
1. In 1902, Teddy Roosevelt had designated the Administration (later to become the Pentagon), the lobbyists, and organized finance as "public enemies of the nation." Franklin D. Roosevelt declared that "Private enterprise is a public service."
2. William Cary was appointed to head the Securities and Exchange Commission, Newton Minow as Chairman of the Federal Communications Commission, Frank McGulloch to the National Labor Relations Board, Joseph Swidler to the Federal Power Commission, and Paul R. Dixon as Chairman of the Federal Trade Commission.
3. 3.9 million unemployed in 1960; 4 million in 1961.
4. On August 16. 1961, Richard Goodwin, another of Kennedy's advisers, met at Montevideo with Ernest "Che" Guevara, then "czar" of the Cuban economy.
The late journalist Lisa Howard was in the process of arranging a meeting between Bob Kennedy and Guevara at the time of President Kennedy's assassination.
5. In April of 1962, US News and World Report published a round-up of the Latin American situation which concluded, "Clearly, after one year of the Alliance for Progress, Latin America is in worse trouble than it was before the program started. Experts warn that the situation will get worse before it gets better.
6. Since 1964, the cosmetics industry has expanded rapidly. Between 1964 and 1967, Avon Products, with 190 different branches, tripled its international sales. In 1966, the combined profits of its American and International Divisions totaled $55.5 million, or 13.5% of its turnover ($408 million).
7. Where rocks and tomatoes had been thrown at Nixon in 1958.
8. On November 16, 1963, Argentinean President Illia canceled the agreements signed with foreign oil companies in 1958 and 1959.
9. In 1961 the gross national product, which had grown by 4% in 1960, increased by only 3.3%, but rose to 68% in 1962.
10. In 1963, one out of every six workers was employed by Washington or the state governments. These governments absorbed 35% of the gross national product (but Kennedy's critics forgot to add that there were 2,548,000 federal employees, as compared to 7,889,000 in the state and local governments).
11. Retail Price Index:
1963 : 100.3
12. A comparison between the earnings of 515 top businessmen in 1960 and 1961 revealed an increase in income for 243 and a decrease for 161. 71 reported no change. Frederick G . Donner, Chairman of General Motors, with gross earnings of $557.725 (including $405.324 in taxes) earned $16,300 less (before taxes). J. W. Schwab, Chairman of United Merchants and Manufacturers Textile, earned $384,505 in 1960 and $324,400 in 1961. In the steel industry, Thomas E. Millsop, President (later Chairman) of National Steel, earned $285, 100 in 1960 and $260,100 in 1961. Roger W. Blough, Chairman of US Steel, earned $283,333 in 1960 and $300,000 in 1961. (All of these figures indicate income before taxes. Mr. Blough received $3,000 of his 1960-1 increase; the remaining $13,000 went for taxes.
13. Automobile sales:
1962: 6,933, 000
14. The largest steel corporation in the world. In 1966 it produced 29 million tons of steel.
15. Mr. Blough based this figure on 1947 statistics, a questionable procedure at best. He might also have noted that profits during the Eisenhower administration had hardly moved at all: $22.8 billion in 1950, $23.0 billion in 1955, $22.7 billion in 1960, $23.3 billion in 1961, and that they had climbed to $25.9 billion the first year the results of the Kennedy administration were felt.
16. David McDonald, President of the Steelworkers Union, declared that the cost of steel production had decreased by 1% since 1958.
17. This represented an increase of 3.5%, while the 10-cent-an-hour wage increase represented a rise of only 2.4% .The administration claimed that the price increase would cost the Pentagon $1 billion. (Mr. Blough lowered this figure to $20 million.) Blough added that profits per ton of steel had dropped from $12.19 in 1958 to $79.70 in 1961.
18. Effects of the crisis on the revenue and the number of persons employed by US Steel from 1960 to 1965:
|Industry as a whole||15.1%||15%||12.3%||10.2%||8.7%|
20. In 1961, there had already been 64,500 job cuts in the steel industry.
21. On December 26, 1962, the stock market situation was as follows (as compared with the preceding year):
international oil (up 13.2%)
shipping (up 12.3%)
vending machines (down 50.6%)
cigarettes (down 43.3%)
specialty machinery (down [figure omitted due to typographical error]) steel (down 35.9%)
Other notable drops
motion pictures (down 33.0%)
food chains (down 30.9%)
publishing (down 0.8%)
tires, rubber goods (down 27.3%)
electronics (down 25.7%)
22. A true market economy, as defined by Milton Friedman, suffers as much from the interior and exterior protectionism of many industrial leaders as from governmental controls and restrictions. But, as Galbraith notes, Friedman is a romantic, and his concepts are far removed from those of the true conservatives.
23. Lincoln had declared before Congress on December 3, 1861:
"Labor is prior to and independent of capital. Capital is only the fruit of labor and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration. Capital has its rights, which are as worthy of protection as any other rights."
24. Editor of US News and World Report, April 23, 1962.
25. Columbia University professor and author of the book Presidential Power, the Politics of Leadership.
26. The expansion had resumed in March 1962, then slowed down in the second quarter and stopped in the third, but a new expansion was forecast for the month of October, and the forecasts proved correct.
27. When Kennedy returned to New Haven on October 19, 1962, at the height of the Cuban crisis, a group of Yale students greeted him with a sign that read, "Be more courageous and less photogenic."
28. Here, the President was praising the interventionism and even the state socialism of European countries such as Great Britain, France, Italy and Sweden.
29. Instead, it rose by 705,000.
30. In 1960, the gross national product was $502.6 billion. In 1961 it rose to $518.7 billion, in 1962 to $556.2 billion, and by 1963 it had reached $583.9 billion.
The incomes of most of the nation's top businessmen rose in 1962: F. G. Donner climbed to $643.975 a year and J. W. Schwab to $367,613, but steel industry leaders weren't so fortunate. Roger Blough remained at $300,000, and Thomas E. Millsop dropped from the list of those earning more than 250,000 a year.
31. There were 1,400 mergers in the first half of 1967.
John Kenneth Galbraith believes that anti-trust procedures should be invoked not only against General Motors (which controls 54.5% of the market), but also against the Ford Motor Company, the big oil companies, U.S. Steel, General Electric, and several other large corporations.
32. April 1, 1963.
33. The percentage of working time lost during the three years of the Kennedy administration was the lowest in a decade:
|1958: 0.22%||1961: 0.14%||1964: 0.18%|
|1959: 0.61%||1962: 0.16%||1965: 0.18%|
|1960: 0.17%||1963: 0.13%||1966: 0.19%|
|1967: 0.30%, or 41|
|million man days|
34. The Interstate Commerce Commission is the oldest of these bodies, followed by the Atomic Energy Commission, the Federal Reserve System, the Export-Import Bank, the Federal Housing Administration, the Securities and Exchange Commission, the National Labor Relations Board, the Federal Trade Commission, the Federal Power Commission, the Federal Communications Commission, etc.
The Securities and Exchange Commission, which regulates the stock exchange and overseas stock market transactions, went into action on the day of President Kennedy's death. That afternoon, 6 million shares changed hands on Wall Street, In 30 minutes, the Dow Jones average fell 21.16 points (on May 28, 1962, it had fallen 35.95 points). At 2:09 pm the Stock Exchange was closed (which didn't prevent some people from making a killing).
35. When, in December 1967, US Steel, followed by other producers, announced a price increase of $5 a ton, President Johnson stated simply that steel industry leaders had been informed of "his feelings" on the matter, and that he did not exclude the idea of government control of prices and salaries in the future. Industrial circles took this threat calmly.
At the end of July 1968, he again permitted the steel industry to raise its prices.
36. Between 1950 and 1955, profits averaged 3.6% of sales. From 1955 to 1959, they averaged only 3.1% (a drop of 14%), and between 1960 and 1963, 2.6% (a further drop of 16%).
Since 1950, while the gross national product had increased 106% , employees' and workers' wages 70%, investments 90%, taxes 56%, prices 33% and federal expenditures 179% , profits (which totaled $23 billion in 1950) were only $27 billion in 1963, or $20.5 billion in terms of 1950 values, 10% less than in 1950.
The dividends paid by American industrial corporations had averaged 11.4% from 1955 to 1959. Between 1960 and 1963, they averaged only 9.4% (a decline of 18%).
37. The Ford Motor Company had been prosecuted in November 1961 under the Clayton Antitrust Act for having absorbed the Electric Autolite Co. in April. The Justice Department claimed that this merger would reduce competition in the production and sales of spark plugs, noting that in 1960 Electric Autolite and General Motors had produced 90% of the spark plugs sold in the United States.
Ford expressed its surprise and retorted that its principal competitor, General Motors, manufactured spark plugs and batteries through its subsidiary company, AC Sparkplugs.
38. In 1967, there were 4,000 universities or higher technical institutes in the USSR. Four million Soviet citizens attended college. Five million young workers and farmers took university correspondence courses. There were approximately 400,000 young researchers working in Soviet research centers, and the nation had nearly ten million engineers, five times more than the United States.
39. The Council of Economic Advisers (Walter Heller, John P. Lewis and Gardner Ackley) did not believe that unemployment was structural (the result of technological advances), and could therefore be cured by adapting the workers to changing job conditions. Instead, they felt that it was necessary to increase the level of demand.
40. Since 1950, federal expenditures had increased by 179%. The 1960 budget (the last of the Eisenhower administration) included a deficit of $1.2 billion. In 1961 (in the first year of the Kennedy administration), the budget deficit was $3.9 billion. In 1962, it was $6.4 billion. The 1963 deficit was estimated at $6.8 billion in July 1963.
41. This formula has been employed in Europe for many years, but the term often covers unorthodox financial manipulations.
42. David Brinkley reported on September 9: "Harry Truman was out for his walk this morning and he said he did not think we should have a tax cut until we get the budget balanced, and the other day Senator Humphrey was saying in the Senate that what the American people think is true is very often more important than what is actually true."
43. In 1968, the increasing use of the Planning, Programming, Budgeting System, or PPBS, has proved President Kennedy's foresight correct. This system, which has already been instituted in New York State and Wisconsin, and which is under study by Colorado, Michigan and Vermont, was developed by the Defense Department in 1961.
PPBS, which constitutes a first step in public planning, is an overall examination (on the national, state or local level) of the objectives, the available resources and the basic principles of public spending, which were formerly dealt with in separate studies.
44. Milton Friedman claims that Keynes is as out-of-date as Marx, and that his doctrine is based on the situation in Great Britain after the 1929 crash, when the nation was faced with falling prices and underemployment. Friedman does not believe that the Keynesian serum can be applied to an expanding economy, as it speeds up inflation.
45. The budget for fiscal year 1960 will be around $150 billion ($190 billion using the new method of calculation). In President Johnson's defense, however, it should be noted that around $40 billion of this is accounted for by exceptional Defense costs.
46. Quoted by Kennedy at Tampa on November 18, 1963.
47. See Chapter 10, "Oilmen."
48. The tax reform favored the 450,000 businesses (out of 585,000 in the country) with a net revenue of $25,000 per year, and which benefited from a 27% reduction in their taxes.
Other proposals favored: child care deductions, older people, contributions to charity and medical facilities, and research and development activities. An amendment defining certain medical and drug expenses was designed to prevent abuses in tax deductions.
49. On January 21, 1963, President Kennedy informed Congress that during the 1961-62 expansion:
1) Private income had increased by $46 billion to reach a high of $450 billion, or 12% more than the maximum attained during the previous expansion. The net revenue per farm had increased by $330, while the net income of the farmers from agricultural activities had increased overall by $800 million. The total income of American consumers, after taxes, had risen by 8%, which represented an annual increase of $400 in the standard of living (in terms of 1962 prices) for a family of four;
2) The number of civilian non-agricultural jobs had increased by 2 million, while the average work week in the factories had risen from 39.3 to 40.3 hours;
3) Company profits had attained a record high of $51 billion in 1962;
4) Wholesale prices had remained remarkably stable, while consumer prices had risen by only 1.1% a year (the best record of price stability attained by any important industrial nation with the exception of Canada);
5) The improving competitive situation had led to a marked improvement in the balance of payments deficit, which had dropped from $3.9 billion in 1960 to $2.5 billion in 1961, and to around $2 billion in 1962.
The President added that prospects for continued moderate expansion in 1963 were favorable.
On November 20th, 1963, between 11:30 - 11:40 a.m., President John F. Kennedy met with Lena Horne, Carol Lawrence, DNC chairman John M. Bailey, and others.
Later that day, he issued a statement on the Extraordinary Administrative Radio Conference to Allocate Frequency Bands for Space Radio Communication Purposes, held in Geneva, Switzerland from October 7 to November 8, 1963. He invited other nations to participate in setting up a global communication satellite system. He spoke of "a peace system worldwide in scope."
Following that, John Kennedy sent to the Congress the 17th annual report on U.S. participation in the United Nations, and then he signed into law bill (HR2073) to allow the conveyance of submerged and tidal lands to Guam, the Virgin Islands, and American Samoa if they are needed for economic development or other compelling reason. The John F. Kennedy Presidential Library Archives
At the end of the day, he had less than two days left...
Early today, 43 years later, a member of our forum posted a link to an article carried by the U.K. Guardian:
War on terror 'could last 30 years'
There is "every prospect" of the "War on Terror" lasting for 30 years or more, a global security think tank has said.
The Oxford Research Group report said recent political changes in the US would make "very little difference" to the conflicts in Iraq and Afghanistan.
In the US midterm elections, the Democrats seized control of both house of Congress from the Republicans. The report said the United States was now faced with a dilemma. If it withdraws from Iraq, jihadist groups could operate "without restraint" in this "important oil-bearing region".
But if it decided to stay, US soldiers could become an increasing "magnet" for radical groups, with Iraq turning into a training ground for new generations of paramilitaries.
Written by Professor Paul Rogers, ORG's global security consultant and professor of Peace Studies at the University of Bradford, the report analysed the past year of events in Iraq and the Middle East, looking at how the war on terror had transformed into what has been called the "Long War" by the Bush Administration. [...]
What was needed was a complete reassessment of current policies, the report said. However, Prof Rogers' said this was unlikely to happen, because even with the Democrats now controlling both houses, there was virtually no commitment to full withdrawal from Iraq.
Instead, Prof Rogers' report found that while there were various moves to modify policy, such as withdrawing from the cities and maintaining a presence in a few bases, nothing amounted to substantial change.
Commenting on the changes needed, Prof Rogers said: "Most people believe that the recent elections mark the beginning of the end of the Bush era, but that does not apply to the war on terror. In reality there will be little change until the United States faces up to the need for a fundamental rethink of its policies. So far, even with the election results, there is no real sign of that."
In short, what I wrote several days ago in my article Post Election Reality Check, seems to be right on target: "Meet the New Boss, same as the Old Boss."
But it didn't have to be this way. As the reader is probably thinking by now, having read this present series of articles on John Kennedy and his plans to steer the ship of American State into peaceful waters, "Oh, what a different world we would be living in today if John F. Kennedy had lived and had finished his work!"
And it's true. Because the same cabal that was responsible for his death is the cabal that that is running the planet today via the puppet regime in the United States, and with hooked tentacles in nearly every other government on the planet. We are, indeed, facing 30 years of War Without End from which few of us will emerge alive. We are living in a virtual police state planet, with terror around every corner, a terror that is not due to some mad Muslim hating us because of our "freedoms" - what a joke - but is due to all of the machinations and manipulations of evil people in high places whose greed for money and power knows no bounds.
And that is what the monied elite wanted: War and more war to make money and more money. And their controllers - those pulling the strings behind the scenes only wanted power and more power and used the greed of the Business Titans, the Mob and the Oil Empire to achieve their ends. But, we will come to that soon enough.
It seems to be a certainty that if John F. Kennedy's life had not been brutally ended 43 years ago, there would be no so-called terrorists (of either the Islamic or Monied Elite variety), now would there be a War on Terror. What a tragedy that we don't see another John F. Kennedy on the horizon with the brains and savvy to haul our buns out of the fire now.
Nowadays, just about everyone knows that it is about oil. But what a lot of people don't know is exactly how it all got started. So, today's excerpt from Farewell America is going to take us back to the beginnings of the Oil Issue.
"The American Beauty Rose can only be coaxed to that degree of splendor and fragrance that enchants us by sacrificing the other buds growing around it. In the business world, the same operation is the result not of an unhealthy trend, but simply of a law of nature and of God." John D. Rockefeller, Jr.
Oil is the lifeblood of modern civilization. It provides the fuel for our planes, our ships, our trucks, and our 180 million automobiles, and it is the source of some 300,000 petro-chemical products. Oil accounts for more than half of the maritime freight tonnage, and furnishes more than 60% of the world's energy. It is the number one industry in the world today.
The budget of the oil industry is larger than the budget of the United States government. The annual revenue of the largest oil company in the world, Standard Oil of New Jersey, is greater than the revenue of the government of Canada. Directly or indirectly, through American domestic production (1) as well as overseas holdings, the American oil industry controls 80% of the world market. (2)
Through their overseas domination and the steady growth of the oil market in the past fifty years, the big companies have grown increasingly bigger.(3) Their interests, however, do not always coincide with those of the continents and the peoples they control. Europe, which consumes 25% of the oil produced in the world today, accounts for only 0.7% of world reserves, and for only 1.4% of world production. In the coming decade and probably until the end of the century, Western Europe's major problem will be how to obtain enough oil.(4)
Oil is no longer an exclusive capitalist commodity. The International (mainly American) Consortium that dominates the world market, after attempting unsuccessfully following World War I to gain control of Russian resources, saw them pass under Soviet control. In 1962 the Soviet Union (with an annual production of 1.3 billion barrels) had little surplus oil to export, but since then the situation has changed. Soviet production in 1968 is estimated at more than 2.1 billion barrels. Simultaneously with its ideological and political transformation, the USSR is converting its coal-burning industry (including its armaments industry) into an oil-burning consumer industry. In a few years it will have the same proportion of consumer to heavy industry as the countries of Western Europe. Its desire for international commercial expansion and its need for foreign currency have led the Soviet Union to abandon its socialistic oil policy. The consequences of this change are these:
- an increase in production, in order to export more oil;
- the creation of a distribution network which, because the USSR has relatively few tankers, is largely dependent on the COMECOM pipeline which runs to the heart of Western Europe;(5)
- the adjustment, with certain exceptions (barters such as that practiced with Italy, or agreements based on political considerations, as with Cuba) of Soviet prices to bring them into line with the prices of the Consortium.
At the present time, the USSR is feeling its way into the world petroleum market. This has led to a change in its Middle East policy following a series of instructive failures in the area. The neo-Soviets have come to understand the ground rules of the petroleum industry, and Soviet influence in the Middle East is steadily rising. By 1980, Soviet oil production is expected to exceed 3.5 billion barrels. Through the pipeline, it will provide an increasing percentage of Western European consumption. But before that date the conflict of interests between the Soviet Union and the International Consortium will either be resolved or will come to a head. In the latter event, there will be economic warfare; in the former, the United States and the Soviet Union will set revolutionary principles aside to carve up the world oil market among themselves.
If Soviet expansion continues at its present rate, the oil market in the 1980's will be dominated by a Communist-capitalist cartel that will swallow up Western Europe while continuing to juggle with the Middle East. For beneath the golden sands of the Persian Gulf lie the most important oil reserves on the globe, $300 billion worth (in terms of current prices), on which the Consortium hopes to earn $75 billion at its usual rate of commission.
About one-fourth of the price of refined oil goes to the companies of the Consortium in the form of clear profits. In the Middle East, another fourth goes to the countries that own the concessions. The remaining half not only covers the cost of production, transportation and refining, but provides profits comparable to those earned in other industries.
Oil as an industry is in a class by itself. No other economic activity offers such high profits, to the detriment of the consumers and the producing countries. In the Middle East, the people gain nothing from the riches extracted from their soil. The royalties paid by the Consortium go to the rulers and their relatives, the ruling classes, high government officials, and a few local businessmen. By supporting the emirates of the Persian Gulf and protecting their rulers, Great Britain, now supplanted by the United States, has contributed to the preservation of archaic social structures and paved the way for revolution.(6)
In 1968, the overseas investments of American oil companies total more than $30 billion (nearly 40% of all American investments abroad.(7) The giants of the oil industry not only control the world market, but governments and foreign and military policy as well. In the United States, the Republican and a portion of the Democratic Party get much of their financial backing from the oil industry. The State Department and the White House and a substantial portion of the press give systematic support to the industry. Even college graduates in quest of jobs are warned of the danger of opposing it.(8)
Four oil companies were classed in 1966 among the ten largest American corporations: Standard Oil of New Jersey, which ranked third (after General Motors and Ford), Socony Mobil, fourth, Texaco, seventh, and Gulf Oil. which ranked tenth. But this list is open to question. It fails to take account of the most important factor in economics, profits.
Although the combined personnel of these four oil companies totaled only 346,846 (388,016 persons are employed by General Motors alone), their net profits, $2,661,684,000, exceeded those of the entire automobile industry ($2,603,638,000) -- in other words, the combined profits of General Motors, Ford, and Chrysler, which together employ four times as many people. But General Motors, Chrysler, and Ford, together with deficit-ridden American Motors, comprise almost the entire American automobile industry . The fourteenth, fifteenth, and sixteenth places on the list of the top 500 companies are held by Shell Oil, Standard Oil of Indiana, and Standard Oil of California, whose combined net profits exceed $1 billion, and further down the list are 15 other oil companies whose profits add another million to industry profits. It can be said that the combined profits of the American oil industry (which in addition to these 22 top companies include several thousand smaller ones) are greater than the annual turnover of General Motors.(9)
Standard Oil of New Jersey is symbolic of the oil industry. It is also its moral leader. At first glance, it looks like just another corporation. In theory, it is what is left of the empire created by John D. Rockefeller, which was broken up by anti-trust legislation in 1911.(10) But half a century later Jersey Standard, which theoretically neither produces nor refines nor transports nor sells any oil, controls one-fifth of the world market. It owns the largest private tanker fleet in the world (126 ships totaling 5,096,000 tons), ranking 12th in 1967 on the world list of fleets, along with the national fleets of Panama, Sweden, Denmark and Spain. It has a security department eight times larger than the security department of General Electric, employing about 30 special agents who are graduates of the CIA or the FBI. Its 14 top executives control more than 300 subsidiary companies, one-third of which rank among the largest corporations in the world.(11)
The history of Standard Oil is the history of the oil industry, which was born a little more than a century ago at Titusville, Pennsylvania in 1859.(12) Oil, however, has always existed. In ancient times it was used for eternal flames and torches, but no one ever thought of commercializing it. Until the 19th Century commerce was based on grain, and it was there that personal fortunes were made and power won.
Standard Oil was founded in 1860, and for nearly half a century the oil industry and the life story of John D. Rockefeller were one. During 51 years Standard eliminated its competitors by every means at its disposal, corrupting public officials and violating or getting around the laws, until it was dissolved in 1911.
Around 1890, its world monopoly began to slip. The Russo-Swedish Nobel group inaugurated operations in the Caucasus, and between 1891 and 1901 Russian production actually exceeded that of the United States. The British Rothschilds, realizing the future possibilities of oil, in particular with regard to modern shipping, aided the Royal Dutch Company to escape the control of Standard and conquer some of Rockefeller's markets in the Far East.(13) In 1907 Royal Dutch merged with the Shell Transport and Trade Company, which until then had specialized in mother-of-pearl. With the backing of the Foreign Office and the privileges it enjoyed in the British and Dutch colonies overseas, the Anglo-Dutch company, headed by Henry Deterding, expanded rapidly. Contrary to Standard, which had patterned its commercial policies after the isolationist principles of Theodore Roosevelt and Taft and sought only markets abroad, Royal Dutch Shell carried out explorations and extended its operations throughout the world.(14) In 1912 it began operating in the United States and soon controlled half of American production. It also forced its way into Mexico, where it bought out the Pearson group that owned the No. 4 well at Potrero del Llano, with a production of 91 million barrels. By 1921 Mexican production equaled 40% of United States production, but foreign companies (British and American) sacrificed everything to the present and devastated the Mexican reserves. Gas pressure was wasted and the Golden Way oil field near Tampico was invaded by salt water. By 1930 Mexican production had dropped far behind, and she was soon eclipsed by her neighbor to the south, Venezuela. In 1963, Mexican production equaled only 4% of American and 20% of Iranian production.
In the Middle East, where oil reserves are at least 100 times greater than those of the United States, a British adventurer, William Knox d'Arcy , obtained a concession from the Shah of Persia in 1901 covering five-sixth of his lands. In 1908 the Anglo-Persian Oil Company (later the Anglo-Iranian Oil Company, and later still British Petroleum or BP) was founded. The British Navy had just switched to oil-burning ships, and Winston Churchill, First Lord of the Admiralty, persuaded His Majesty's government to purchase a majority share in the new company.(15) At that very moment, America and Europe discovered the automobile. In 1908 Henry Ford began producing his famous Model T. The rush was on. In 1911 there were 619,000 automobiles. By 1914 there were 2 million, and by 1924 there were 18 million cars on the road, 16 million of them in the United States. That year the United States alone consumed more oil than Europe consumed in 1960.
The war revealed the strategic importance of oil. Not only did it contribute heavily to the allied victory, but it became part of the stakes of the game. Wilhelm II wished to destroy British oil domination and give Germany a share in Mesopotamian oil. He built the Berlin-Bassorah railway (via Constantinople and Baghdad) to compete with the route of the Indies. Once Germany had been defeated, the British and the French divided up the oil of the former Turkish Empire.(16) In 1920, Royal Dutch Shell circled the globe. It had subsidiaries in the United States, Mexico, Venezuela, Trinidad, the Dutch East Indies, Ceylon, Romania, Egypt, the Malay Peninsula, North and South China, Siam, the Philippines, and Burma. In association with other British companies it acquired concessions in Colombia and Central America, and it was trying to establish itself along the Panama Canal. Soon it would extend its activities to Honduras, Nicaragua, and Costa Rica. It also bought out the Rothschild holdings in Russia for far less than they were worth. Banker Sir Edward Mackay declared that "..all of the known, probable or possible oil fields outside the territory of the United States were either British property, under British direction or control, or financed by British capital," and added that "the world was solidly barricaded against an attack from American interests."(17)
Jersey Standard realized that Woodrow Wilson's policy of isolationism and pacifism represented a threat to its future. A. C. Bedford, President of Jersey Standard, declared, "What we need is an aggressive foreign policy," and the Interstate Commerce Commission recommended that the United States give diplomatic support to the acquisition and exploitation by American companies of oil properties overseas. The State Department dispatched a series of diplomatic notes, the tone of which grew more and more violent, demanding that the United States be given a share in the Turkish and German holdings.
In 1922 talks opened between Bedford and Sir Charles Greenway, President of Anglo-Iranian. They dragged on for six long years, but Gulf in the meanwhile had obtained a concession on the island of Bahrain (which it later ceded to Standard of California) which the British geologists had somehow overlooked. At the same time Socony Mobil (which when Standard Oil was dissolved in 1911 had inherited most of its Asian interests) and Shell were engaged in a struggle to the death in India. Their price war brought prices down all over the world. In 1928 Sir Henry Deterding (founder and promoter of Royal Dutch Shell) invited Sir John Cadman of Anglo-Iranian and Walter C. Teagle, new President of Jersey Standard, to his home in Scotland. At the conclusion of what has since been known as the Achnacarry Conference, it was agreed that outright competition had resulted in excessive overproduction. The Big Three decided:
1. to maintain the status quo of 1928 (in other words their respective positions) on the world market;
2. to fight overproduction and the waste of new, non-competitive installations;
3. to fix uniform production prices;
4. to supply markets from their closest source of supply through a series of reciprocal agreements between companies;
5. to avoid producing in excess of demand.
The companies signing the agreement explained that these measures were designed to protect the consumers from price hikes resulting from a multiplicity of separate operations. In actual fact, they laid the foundations for an arrangement by which the members of the international cartel would cooperate in the most profitable exploitation of world oil reserves. They brought the war between Shell and Socony to an end by making it possible to fix prices in India, and prevented a new price war in Mexico. A sort of line of demarcation was drawn between the British and American zones of influence. It was nothing short of a monopoly.
American anti-trust legislation was no problem. It was expressly stipulated that the Achnaccary Agreement did not apply within the United States. But in 1929, 17 companies joined to form the Oil Exporters Association, which set quotas and established prices, which were aligned with the highest costs in the country, those prevailing in Texas and the Gulf of Mexico. The British had no objection to this arrangement, as it enabled them to make high profits on their low-cost crude from Iran and Iraq. As for the American companies, which were already making good profits from domestic production, they intensified their overseas explorations, which would earn them even higher profits.
The "Red Line" agreement concluded in 1929 consecrated America's entry into the Middle East. The holdings of Turkish Petroleum were divided up again, this time between four partners which joined to form the Iraq Petroleum Company: Anglo-Iranian (still controlled by the British government), Royal Dutch Shell, the Compagnie Francaise des Petroles, and Standard Oil of New Jersey (in association with Socony Mobil). Each was given a 23.75% share in the venture.(18) The Red Line agreement stipulated that the four associates undertook to maintain the same percentages in all of the countries that lay within a red line on the map. The red line ran all the way around the Middle East.
At the time that the Iraq Petroleum Company was founded, Iraq was the only oil-producing country in the region. But Standard of California discovered oil at the edge of the sea on the concession it had acquired from Gulf at Bahrain. As it had no distribution network in the Orient, it signed an agreement with the Texas Company (becoming Caltex in 1936). Standard of California also began operating in Saudi Arabia, on the territory of El Hasa which King Saud had seized from the bedouin princes. With Texaco it formed the Arabian American Oil Company (Aramco).
Caltex and Aramco soon proved to Standard and Socony that the reserves on their concessions far exceeded those of Iraq. The latter two companies regretted having signed an agreement to share their future discoveries with the French and the British. But American solidarity and Jersey's power soon overcame that obstacle. Jersey Standard, Caltex and Socony joined with Aramco, excluding Royal Dutch Shell, Anglo-Iranian and the Compagnie Francaise des petroles. Great Britain already controlled sufficient resources in Iran, Venezuela, the Malay Peninsula, and Burma. France was traditionally a non-commercial country, and she had no petroleum policy. Like Gulbenkian, she was given an indemnity.
The Iraq Petroleum Company faced the difficult problem of income taxes. In order to benefit to the maximum from American and British tax provisions that favored the overseas activities of their companies, it was decided that any profits earned would not go to IPC, but would appear instead on the balance sheets of the constituent companies. Obviously, this was contrary to the interests of the government of Iraq. IPC sold oil to Iraqi consumers at its usual Texas-based prices, and the company was not eager (or perhaps unable) to calculate its actual net cost, which would have brought its excessive profits to the attention of the Iraqi government.(19)
By the time of the Second World War, the world had been divided up between the Big Seven (Jersey Standard, Royal Dutch Shell, Socony, Texaco, Gulf Oil, Standard of California, and BP). The war caused a few minor annoyances, and there was concern as the Germans neared the Caucasus and Egypt, but the oil business was booming.(20)
The requirements of the war nevertheless led the Allies to impose quotas on raw commodities throughout the world, and even the distribution of oil was controlled. The experts on the War Production Board demanded that the United Nations be given the power to administer world stocks of raw materials, and in Britain the Labour Party proposed a similar plan. In 1945 at the Washington Conference, Sir Anthony Eden and Secretary of State Cordell Hull legalized and completed the old Achnacarry Agreement that divided up the world's oil reserves between Great Britain and the United States. Highly displeased, the Soviet Union that same year signed the Moscow Agreement with France.
In 1947 the International Cooperative Alliance proposed that the petroleum industry in the Middle East be nationalized in order to eliminate the nascent rivalry between Russia and the West, raise the living standards of the Arabs, and diminish the price of oil to the consumer. It proposed that the United Nations create a special agency to control the petroleum resources of the Middle East and admit all buyers on an equal footing, in accordance with the Atlantic Charter. But when the United Nations Economic and Social Council voted on the measure on August 12, 1949, only Norway and Colombia supported it. Eight member countries abstained (including the Communist states), and eight others voted against it, including the United States, Great Britain and the Netherlands.(21)
The international oil cartel was in greater danger when, in December 1952, the Economic and Financial Commission of the UN approved a joint Iranian-Bolivian resolution in favor of the right of nationalization. The United States was the only country to vote against it.
Iran was Britain's private preserve. Sinclair (42nd largest American corporation in 1966, with $1,377 billion in sales) and Standard had carried out some explorations there, but had withdrawn at London's insistence. In 1959 Iranian Prime Minister Mossadegh demanded an increase in royalties, the rate of which had remained unchanged since before the war, as well as a 50-50 split in profits. Anglo-Iranian refused, whereupon Mossadegh nationalized the company,(22) and the crisis was on. The American firms profited from the operation. Aramco's production rose from 196 to 280 barrels, that of Kuwait from 126 to 266 million. In 1955 Iran began to export oil in small quantities and at reduced prices to non-producing countries such as Italy and Japan. But the Consortium regarded Iran as an ominous sign. To its great relief, the CIA went into action, and Mossadegh was replaced by Zahedi.(23)
The American intervention aroused a storm of ill-feeling against the United States that has not yet been dissipated. The Iranians claimed they had been exploited by Anglo-Iranian for forty years.(24) John Foster Dulles turned the Iranian problem over to Herbert Hoover, Jr., who formed an alliance of five big companies (Jersey Standard, Socony, Texaco, Gulf, and Standard of California) which formed a common front in the interminable negotiations with the British and demanded that the Iranian holdings be divided equally between Anglo-Iranian and themselves. The new company was called Iranian Oil Participants, Ltd. The British (who received an indemnity of $510 million) kept their majority with 54% of the shares (40% went to Anglo-Iranian, now BP, and 14% to Shell), while the five American concerns got 8% each.(25) The new agreement was signed on October 21, 1954 and ratified by the Iranian Parliament, which recognized the validity of the new Consortium for a period of 40 years.(26)
But the American independent companies were annoyed. They felt the Big Five were deliberately shutting them out from their overseas treasure chests, while continuing to benefit from domestic sales prices for their low-cost crude from the Middle East and Venezuela.(27) The Consortium, however, was more concerned about the reaction of the other oil-rich states, which were carefully scrutinizing every clause of the agreement signed with Iran. The latter country had obtained nothing more than a 50% share of the profits, the same accorded the other producing states, plus the promise of a gradual increase in production. This new agreement raised the American share in the oil production of the Persian Gulf to 55% in 1955 (as compared to 14% in 1938). The British and the Dutch were declining in power.
In 1956 came the Suez crisis. On July 26, Egypt nationalized the canal. Since that date, the Middle East has become a battleground of vested interests(28) where the member countries of the Consortium, the United States, Britain and France, struggle for predominance under the interested gaze of the Russians, whose problems are simpler because, unlike the French, they have enough oil for their own needs, unlike the British their power does not depend on their position in the Persian Gulf, and unlike the United States they are not subjected to private industrial pressures.
The USSR is content to sit back and watch as the cracks grow wider between the Western powers, between the Western powers and the Arab states, and between the Arab states themselves. In 1956 half the oil consumed in Europe was imported from the Persian Gulf, and 60% of it was shipped through the Suez Canal.(29) Britain and France risked a war to ensure control of their oil supplies, and only the intervention of the United States stopped them. During the winter of 1956- 1957, American companies took advantage of the European shortage to raise the price of fuel oil $1.50 a ton, and the price of crude $2 a ton. The price hikes affected American consumers as well. They cost the Americans $1.25 billion and the Europeans $500 million. Suez brought Jersey standard $100 million in additional profits. The Big Five beat all records for profits during the first quarter of 1957. Jersey Standard's profits rose 16% (compared to the last quarter of 1956), Texaco's 24% and Gulf Oil's 30%.(30)
The Persian Gulf brought the Consortium more than $1 billion a year. Continuing the policy followed by the Department of State since 1920, John Foster Dulles lent his support to the big American oil companies, and when necessary the intelligence services and the military backed him up. The Middle East was almost completely encircled, and Britain was losing her foothold. In 1957 the King of Jordan, hitherto subsidized by the British, switched his allegiance to the Americans. Saudi Arabia's King Saud renewed his country's agreement with the US Air Force and the Strategic Air Command in exchange for $10 million in weapons. The London Times wrote, somewhat maliciously, that "The bizarre combination of a large American company (Aramco) and an ancient feudal kingdom constitutes a real threat to Anglo-American cooperation in the Middle East."
The growing demands of the Saudi Arabian King were not the only problem the Consortium had to face. It had managed to gain a foothold in the Sahara,(31) but it was deeply concerned when the Italian firm ENI (Ente Nazionale Idrocarburi) proposed an agreement giving the government of Iran a 75% share of profits (at a time when a 50-50 split was still the rule in the Middle East).(32) ENI's President, Enrico Mattei, had the courage to defy the Consortium. He declared: "The oil companies have built their power by concentrating control of production and distribution in a few hands, by maintaining a relationship of supplier to client with the consumers in a closed and rigid market, by refusing to grant compensation other than tax revenues to the countries owning the reserves, by excluding all agreements and arrangements between states for a more rational organization of the market, but they have also created the conditions for a breaking up of the system or its transformation under the pressure of new forces and new problems . . . The price of crude oil is based not on production costs in the Middle East, but on the much higher costs in the United States . . . As a result of the rivalry between the various nations and the Western oil companies, oil has become an element of disorder and instability that gives rise to nationalist demands in the oil-rich countries and arouses the jealousy of those states that have none.
"Italy, France, Belgium, Germany and Japan are anxious to free themselves from their subservience and that of the consumers to the traditional organization of the oil industry . . . For the first time in a century we have the possibility of substituting a buyers' market for a sellers' market. An orderly market is necessary if we are to change the order established by the big international companies. The supremacy of what is known as the international cartel is not 'taboo,' and Italy is not obliged to respect it when this supremacy is breached on all sides by public and private initiatives.
"Oil is a political resource par excellence. What must be done now is to see that it is made to serve a good policy which is free, in so far as possible, from all imperialist and colonialist reminiscences, devoted to the preservation of peace, to the welfare of those whom nature has provided with this resource, and of those who make use of it in their industry." A short time later, in 1962, Enrico Mattei was killed in the crash of his private plane.(33)
At the beginning of the Sixties, the Consortium's problems multiplied. The evolution of the market revealed growing competition,(34) but what was even more serious was the wave of popular revolts. Fortunately, for every Mexico(35) there were two or three Venezuelas,(36) but nations all over the world were suddenly becoming conscious of the importance of the minerals in their soil. Those that had been bypassed by nature realized that the balance of their economy depended on the security of their supplies. The Consortium knew that the Italian ENI, the French ERAP, the Mexican Pemex, and the Argentinean YFP could easily be copied elsewhere. It began to pay special attention to its sources of supply in the Middle East and to its principal clients in Western Europe.(37) Their hatred of the foreigners who depleted their soil, however, was not strong enough to forge the peoples of the Middle East into a powerful and united community.
In January, 1968, the principal oil-exporting countries of the Middle East -- Saudi Arabia, Kuwait, Iran, Iraq, Qatar, Syria and Libya -- joined with Indonesia and Venezuela to form an organization to commercialize the oil of its member states, to defend their economic and commercial interests, and to examine ways to develop the oil industry and its derivatives. The principal object of this agreement was to raise prices and create a fleet of tankers and a petrochemical industry under the control of the producing countries themselves.
The Consortium is fighting every foot of the way, but it is beginning to realize that its days in the Middle East are numbered. On the other hand, it has sufficient political power to maintain its position for the moment in Venezuela. Caution, however, has led it to concentrate its exploration efforts in South America and Africa, where the oil fields of Libya, the Sahara, Nigeria, and Gabon produce more than 700 million barrels. For Jersey Standard, the future lies in Africa.
The Consortium also had problems in Europe. In 1966 Western Europe consumed 2.9 billion barrels of oil, only 126 million of which came from her own soil. Britain is a member of the Consortium. Her oil policy is patterned after that of the United States, and despite the promise of important oil discoveries in the North Sea, she remains dependent on her concessions in the Persian Gulf and has not yet resolved her coal problem.(38) The Common Market is a bigger headache for the Consortium. Germany produces only 56 million barrels of oil a year, plus an additional 14 million barrels in Libya, but the distribution networks in Germany are almost entirely controlled by American concerns. (Texaco was able to buyout DEA, an important Germany company, with only one-fourth of its annual profits.)
Italy is less aggressive but just as realistic as France. Her oil policy is that defined by Enrico Mattei, and she is linked to the Soviet COMECOM pipeline at Trieste. The Italians have undertaken explorations in the Adriatic, Somalia, the Sinai, the Gulf of Suez, Tunisia, and the Persian Gulf. In December, 1967 they obtained a 12,000 square kilometer concession at Rub El Khali in Saudi Arabia, together with permission to construct a petrochemical complex.
In France the present Minister of Agriculture and former Prime Minister, Edgar Faure, wrote in 1939 that "If the government has an oil policy, the leaders of the oil industry will have a policy in the government." Until 1939 France too was dominated by the Consortium. Since De Gaulle's accession to power in 1958, and in particular since 1963, France has stood in direct opposition to the interests of the American oil industry. The French government already controlled a portion of the third-largest non-American company in the world, the Compagnie Francaise des Petroles, and it spent several billion dollars drilling for oil in the Sahara. When political considerations forced De Gaulle to give the Sahara back to the Algerians, the government, desirous of obtaining oil independence, began looking in other directions. A state oil company, ERAP, was created which today ranks 17th in the world, and whose activities and policies in the Middle East (notably in Iraq and Iran) run contrary to the methods and interests of the International Consortium.(39) Today, France is the most active supporter of the idea of a Common Market oil organization. Such a body is indispensable to Europe, but it is contrary to the interests of the Consortium in other words, to the interests of the big American companies.(40)
In November 1966, Walter J. Levy, an American expert, submitted a 52-page confidential report to the European Economic Community (Common Market). Levy noted that "eighteen percent of the oil importations of the Common Market are controlled by the companies of the Common Market.(41) As things stand now, this figure is destined to drop." Levy recommended the adoption throughout the Common Market of fiscal measures of the type already existing in France, which are aimed at stimulating oil explorations. These measures are specifically directed at the oil industry and are nearly as favorable as the tax privileges granted oil companies in the United States, with the difference that in France any amount deductible from taxes must be reinvested within five years in explorations or related activities. Levy suggested that this provision be included in any fiscal measures adopted by the Common Market countries.
This report, which was submitted to Dr. Walter Hallstein, was an indication of the Common Market's preoccupation with the development of the oil industry of its member states in order to be able to compete with the Consortium.(42)
This orientation of the oil policy of the Common Market was hardly welcomed by the Consortium. The battle was on.(43) The measures proposed by France and Walter J. Levy to enable the Common Market to regain its oil independence were identical to those that had enabled the United States to gain control of the market.
The oil industry has dominated the American economy formerly 40 years.(44) The 1930 crisis enabled it to eliminate the independent prospectors and made possible the establishment of federal and especially state controls the likes of which existed in no other industry, and which had the effect of maintaining artificially high prices for petroleum products. You will find no mention of price fluctuations for crude oil and gas in any financial publication. Almost all of the world's raw commodities are quoted on the stock exchange, with the exception of oil.(45)
The oil market is no freer in the United States than it is in the rest of the world.(46) The rules that govern the activities of the Oil Empire within the United States are particularly advantageous for prospectors and land owners,(47) which explains why there are more than a million oil wells on US territory, and why 400,000 of them produce, or are permitted to produce, only 10 barrels a day (while one well in Mexico has an annual production of 7 million barrels, and several wells in Iraq produce more than 500,000 barrels a year).
Mackay, the British oilman, once remarked, "The Americans are plundering their natural resources." Under the rules that have governed the American oil industry for nearly 40 years, two-thirds of the United States reserves have been wasted. Henry M. Bates, Dean of the University of Michigan Law School, remarked in 1935 that "the losses resulting from the rule that any oil discovered belongs to the property owner can be evaluated at several billion dollars and constitute the most ruthless and the most unjustifiable destruction of our natural resources ever perpetrated by the American people."
Nevertheless, the oil industry justifies its privileged position by pointing to the need to conserve American oil reserves, a major part of the wealth of the nation and a strategic necessity in time of war. But, as Harvey O'Connor remarks, the word "conservation" must be taken with a grain of salt. When oilmen talk about conservation, they are speaking of the conservation of their profits.
The problem emerged for the first time in 1930, when the immense reserves of the East Texas oil fields upset the balance of the market. It was decided that production quotas would be established each month in accordance with the demand. A national quota was set, and in each oil-producing state a special body was established to see that it was respected.(48) In Texas, this task was assigned to the Texas Railroad commission, which had been created in 1891 to regulate the railroads. In 1919 its authority was extended to the oil industry. Given the dominant position of the state of Texas in the Oil Empire, the Texas Railroad Commission serves as a model for the other state regulatory bodies. The annual variations in the quota bear no relation to scientific conservation techniques.(49) Nor are the consumers represented on these commissions. The system is, in effect, a monopoly, and it enables the oil industry to top all other American industries in sales per employee(50) and to maintain a steady rate of profits regardless of the national economic situation and international events.(51)
The system of "posted prices" is one of the pillars of the industry. These prices do not represent the net cost increased by a normal margin of profit. Instead, they are fixed by the Consortium. While it is difficult to determine the actual net cost of crude oil, it can be estimated at one-tenth the wholesale sales price. The companies of the Consortium and the company-backed local rulers (in Venezuela as in the Middle East) pocket most of the difference.(52) The Consortium's profits were and are excessive when calculated on production costs in Texas, but the latter, which already include profits for the local operators, are four or five times higher than net costs in the Middle East, and three times higher than net costs in Venezuela.
The American independent producers are constantly urging higher production quotas for themselves. In 1954 twenty-nine companies were forced to lower production as a result of competition from foreign oil. Even Standard of Indiana complained that imports had increased by 35% between 1951 and 1954, while at the same time its Texas production had been ordered cut by 35%. (It was as a result of these complaints that the members of the Consortium agreed to sell the independents 5% of the shares in their Iranian operations}. But the independents' protests had little effect. The big corporations had friends in Washington. In 1952 a commercial treaty concluded with Venezuela set the import duty for Venezuela oil at 2% of its value, rather than the 20% requested by the American producers. The National Security Resources Board, backed by the Mutual Security Agency, recommended that import duties be abolished altogether "if necessary."
In 1955 the government considered limiting oil imports to 10% of national production, but the big corporations promised not to exceed their importation level of the preceding year, and this apparently satisfied Eisenhower. Actually, Jersey Standard and the other members of the Consortium had little to fear from any restrictions imposed by Congress. Their foreign market was growing steadily, and they had diversified interests within the United States. Their importations of foreign oil brought them super-profits, but they made money from their integrated operations in Texas, Oklahoma, and Louisiana as well.
Conflicting interests can rarely be reconciled. Texas and Venezuela seemed destined to clash, but the men from Jersey Standard were well versed in the art of the most profitable compromise. The big integrated corporations make profits on all four sectors of their activities: extraction, transportation, refining, and retail sales. Distribution is sometimes run at a loss and pipeline profits are largely fictitious. Refining is an indispensable intermediate operation of which the independents are purposely deprived. Extraction is the main source of revenue, but it is the interlocking operations as a whole that provide the profits.(53)
The profit margins of small, strictly producing companies are extremely precarious, particularly in the case of the independent refineries, which are at the mercy of a slight increase in the cost of crude or a slight drop in the price of gasoline.(54)
The independent, integrated producers and the small producers of crude are in a somewhat better position. They benefit not only from the posted prices, but also from the special tax privileges accorded the oil industry as a whole. These fiscal privileges enable the Big Five to earn colossal profits while guaranteeing super-profits to the big independent and integrated companies. They also provide large profits for the medium-sized concerns, particularly the producers, and it is to them that the small producers, which in any other sector of the American economy would have been swallowed up long ago, owe their survival.(55)
A booklet entitled "An Appraisal of the Petroleum Industry of the United States," published in 1965 by the Office of Oil and Gas (headed by Rear Admiral Onnie P. Lattu) devotes only one line in 96 pages to the depletion allowance.(56) But Milton Friedman, who can hardly be accused of being a socialist, wrote a whole article on the subject in the June 26, 1967 issue of Newsweek:
"Few US industries sing the praises of free enterprise more loudly than the oil industry. Yet few industries rely so heavily on special governmental favors. These favors are defended in the name of national security. A strong domestic oil industry, it is said, is needed because international disturbances can so readily interfere with the supply of foreign oil. The Israeli-Arab war has produced just such a disturbance, and the oil industry is certain to point to it as confirmation of the need for special favors. Are they right? I believe not.
"The main special favors are:
"1. Percentage depletion. This is a special provision of the Federal income tax under which oil producers can treat up to 27.5% of their income as exempt from income tax -- supposedly to compensate for the depletion of oil reserves. This name is a misnomer. In effect, this provision simply gives the oil industry (and a few others to which similar treatment has been extended) a lower tax rate than other industries.
"2. Limitation of oil production. Texas, Oklahoma, and some other oil-producing states limit the number of days a month that oil wells may operate or the amount that they may produce. The purpose of these limitations is said to be 'conservation.' In practice, they have led to the wasteful drilling of multiple wells draining the same field. And the amount of production permitted has been determined primarily by estimates of market demand, not by the needs of conservation. The state regulatory authorities have simply been running a producers' cartel to keep up the price of oil.
"3. Oil import quotas. The high domestic prices enforced by restriction of production were threatened by imports from abroad. So, in 1959, President Eisenhower imposed a quota on imports by sea. This quota is still in effect. Currently it is slightly more than 1 million barrels a day (under one-fifth of our total consumption).
"Foreign oil can be landed at East Coast refineries for about $1 to $1.50 a barrel less than the cost of domestic oil. The companies fortunate enough to be granted import permits are therefore in effect getting a Federal subsidy of this amount per barrel -- or a total of about $400 million a year .
"These special favors cost US consumers of oil products something over $3.5 billion a year. (Gibert Burck, Fortune, April, 1965). This staggering cost cannot be justified by its contribution to national security.
"The following points indicate the basis for this judgment:
"1. Restricting imports may promote the domestic industry, but why pay a $400 million subsidy to oil importers? A tariff of $1.25 a barrel would restrict imports just as much -- and the US Government rather than the oil importers would get the revenue. (I do not favor such a tariff but it would be less bad than a quota).
"2. Oil from Venezuela -- after the U.S., the largest oil producer in the world -- is most unlikely to be cut off by international disturbances threatening our national security. Yet it too is covered by the import quota.
"3. Restrictions on domestic oil production at least have the virtue that domestic production could be expanded rapidly in case of need. But such restrictions are an incredibly expensive way to achieve flexibility.
"4. The world oil industry is highly competitive and far-flung and getting more so. The Mideast crisis has let large oil-producing areas undisturbed. Moreover, the Arabian countries themselves cannot afford to refuse to sell for long. Only World War III is likely to produce severe disruptions of supply -- and then the emergency is likely to be brief.
"5. If all the special favors to the oil industry were abandoned, prices to the consumer would decline sharply. Domestic production also might decline -- but then again, if the industry were freed of all the artificial props that raise costs and stifle initiative, production might rise rather than decline. In either event, a vigorous and extensive domestic industry would remain, protected by the natural barrier of transportation costs.
"If domestic production did decline, we might want to insure against an emergency by stockpiling oil, paying for holding reserve wells in readiness, making plans for sharp reductions in nonessential consumption, or in other ways. Measures such as these could provide insurance at a small fraction of the $3.5 billion a year the US consumer is now paying.
"The political power of the oil industry, not national security, is the reason for the present subsidies to the industry. International disturbances simply offer a convenient excuse.(57) Indeed, the American oil industry enjoys extraordinary political power.
When Kennedy entered the White House, the American fiscal system, and in particular the system of the depletion allowance, had enabled a few operators in the oil industry like H. L. Hunt to amass in only a few years the kind of fortune it had taken Rockefeller a half-century and a great deal of patience to accumulate.
If a person had enough capital, speculation in oil operations carried virtually no risk. He could take capital which normally would have been taxed at the rate of 90% and invest it in new oil wells. A speculator with $900,000 in this tax bracket could drill nine wells (at an average cost of $10,000). The odds were that one well out of nine would be productive. The eight dry wells would have cost him $10,000 each, all tax-free, and the ninth would earn him a fortune. With a little perseverance, any speculator could make a million.
Pools or joint ventures enabled citizens with more modest revenues, but whose income was still partly taxed in the 90% bracket, to do the same thing. These persons would purchase fractional interests in an oil well. Some of them never even got to see "their" well, but every tax dollar they invested represented a gain of approximately 25% on their capital. In the war and immediate post-war period, investment in the petroleum industry was one of the most obvious and attractive ways of reducing personal income tax liability. For the non-professionals this system was still, to a certain extent, a speculation, but the same was not true of the big companies, which employed experienced geologists and commanded unlimited capital.(58)
These special privileges constituted an international anomaly, and they cost the nation several billion dollars every year.(59) It has been estimated that the abolition of these favors would have enabled the government to avoid the 1951 tax increase that applied to taxpayers earning as little as $4,000 a year. The oilmen, conscious of the importance of these privileges, have always claimed that their abolition would hinder new explorations. But the fantastic number of wells drilled in the United States represents a waste of natural resources.
In 1963, the oilmen advanced other arguments.(60) They noted that the market for American crude had grown from 1 billion barrels in 1930 to nearly 2 billion in 1950 and almost 3 billion in 1963, and they made known their "concern" about a future shortage. Their cautious and seemingly pessimistic prognostics, however, were not confirmed by more independent-minded experts. Professor A. I. Levorsen of Stanford University had declared in 1949 that world oil reserves were sufficient to cover the world's needs for the next five centuries, and other scientists estimated that only l/1,000th of the surface of the earth and sea had been explored thus far.(61)
The oilmen also complained that it was becoming harder and harder to find oil in sufficient quantity to make it as easily extractable and as profitable as in the past. Between 1956 and 1967, it took twice the number of new field wildcats to make one profitable discovery compared with 10 years earlier.
These arguments became the theme song of the National Petroleum Council, the only lobby representing private interests that enjoys official standing. The NPC was founded in 1946 and is composed of representatives of the front offices of the big companies. It elects its own President. In reality, it is the NPC that defines the oil policy of the federal government, in the spirit of John Jay's maxim: "The country should be governed by those who own it."(62) The President of the United States has no business interfering.
A half-century ago, the oilmen lacked the influence in the White House that they had over Congress. They regarded the President with suspicion. For them, the country had been going to the dogs since McKinley. The power of the oil lobby was a concern to every President who entered the White House after the accession to power of Jersey Standard and its little brothers and sisters. In 1920 President Harding was elected with the massive backing of the oil industry. Two members of his Cabinet were oilmen (Hughes of Standard and Fall, an associate of Sinclair). Coolidge, and after him Hoover, did nothing to displease the oil magnates. On the day of Franklin D. Roosevelt's death, a San Antonio oilman threw a huge party to celebrate. Roosevelt, nevertheless, had not been particularly aggressive towards the oil industry. The pre-war climate was hardly favorable, and the war, which was still going on at the time of his death, had brought a boom in the oil business.
In 1950 President Truman examined the depletion allowance system, and the oilmen learned that the President felt that an exoneration that withheld such amounts from the Treasury was not equitable. That same year Hubert H. Humphrey, then a political neophyte and regarded as a liberal, introduced an amendment to the tax bill that would reduce the depletion allowance. The amendment was rejected. It was re-introduced in 1951 but rejected again by a margin of 71 to 9. In 1952 President Truman turned again to the problem, but any decision he might make was at the mercy of Congress, and Harry Truman liked the quiet life. Nevertheless, during his last days in office he adopted one of Roosevelt's ideas and declared that the continental shelf (an extension of the American coastline) was part of the national reserves and should be placed under the control of the Department of Defense. The value of the oil beneath the sea had been estimated at $250 billion, and Truman felt it would be madness to let this oil, which was vital for national defense, fall into private hands, obliging the government to buy it back at high prices.
In 1952 Eisenhower received heavy financial backing from the oil industry in his campaign against Adlai Stevenson. Ike knew how say thanks. When Truman's bill came up before Congress, the House rejected it in favor of a measure recognizing the property rights of the states over any oil discovered within ten and a half miles (twelve for Texas and Florida) of their coastline. The federal government was left with only a right of preemption over the resources of its former territory. The bill was later voted into law by the Senate.(63)
In 1954 Senator Humphrey's timid offensive was taken up by Senators Douglas (Illinois) and Williams (Delaware), both of whom introduced amendments concerning the depletion allowance. Senator Douglas noted that in 1953 one company with a net income of $4 million had paid only $404 in taxes, that another had paid nothing on a revenue of $5 million, and that a third company with profits of $12 million had received a $500,000 subsidy. The amendments were rejected.
On March 27, 1957, Senator Williams again introduced an amendment that would reduce the depletion allowance from 27.5% to 20%. He explained to Congress that this privilege had been instated during the First World War, when it amounted to only 5%. Later it had been increased to 12.5%, then to 25%, and finally to 27.5%. Originally it had been a discovery depletion, permitting the recovery of the investment, "but the present 27.5% oil depletion rate obviously gives a special tax advantage to the oil industry above that enjoyed by other taxpayers." He added that when the present rate of 27.5% had been adopted in 1926, the corporate tax rate had been approximately 14% .The depletion allowance therefore did not represent a huge sum of money. But in 1957, "with our present corporation rate, this 27.5% gross sales deduction, or depletion allowance, represents a tremendous tax-free bonanza.(64)
"The importance of percentage depletion is more glaringly emphasized in connection with the operations of foreign companies," he continued. "The Treasury Department has submitted three examples as to how this works. Corporation A with total earnings of approximately $200 million reported a United States tax liability of $103,887,000. They paid foreign taxes which are deductible from United States taxes in the amount of $103,323,000, leaving a United States tax liability of $564,000. This company has a total allowable depletion allowance of $91,879,000.
"Corporation B reported an income of approximately $150 million. Their total allowable depletion was $123,977,000, and they reported a United States tax liability of $78,961,000. The taxes reported as paid to foreign countries by Company B amounted to $98,319,000, and the credit allowed for foreign taxes paid was $77,087,000, leaving a United States tax liability after foreign tax credit of $1,874,000. Corporation C reported an income of approximately $33 million. The total allowable depletion of Corporation C was $44,895,000. The United States tax liability of this company was $17,325,000, and foreign taxes paid were of the same amount, with credit being given for the full total, leaving Company C with no United States tax liability."
Senator Williams cited and inserted in the Congressional Record the testimony of Mr. Paul E. Hadlick, general counsel of the National Oil Marketers Association, to the Senate Finance Committee. Mr. Hadlick had prepared a list of the incomes and taxes paid by the 23 largest oil companies. His figures indicated that Humble Oil had paid $30 million in federal income taxes on a net income of $145 million, that Socony Vaccuum Oil had paid $51 million on a net income of $171 million, that Standard Oil of California had paid $40 million on an income of $174 million, and that the Texas Company had paid $47 million in taxes on an income of $181 million.
Senator Barrett (Wyoming) retorted that "the depletion allowance is based upon the great risk involved in drilling and discovering oil," and he drew Senator Williams' attention to the fact that "our first line of defense will rest in air power, but the planes will not be able to deliver the bombs without high octane gasoline and plenty of it, I might say."(65) Senator Carlson (Kansas) declared: "Those of us who are familiar with the reserves in the stripper well are in a position to know that the producers must have the 27.5% depletion allowance and any other encouragement they can get, or the United States will lose millions of barrels of oil, which will never come out of the ground." Senators Monroney (Oklahoma) and Martin (Pennsylvania) joined in the chorus. Senator Williams quoted a statement by the Secretary of the Treasury in 1937: "This is the most glaring loophole in our present revenue law." Nevertheless, he noted, depletion had not been discussed during the 1937 hearings, and the committee had made no recommendation in its report on the subject "because of lack of time."
"Mr. President," Senator Williams continued, "today we hear the same argument: lack of time." Senator Williams spoke for another 15 minutes and then called for a vote. Senator Johnson (Texas) suggested the absence of a quorum. But there was a quorum, the vote was held, and the amendment was rejected.
Senator Douglas of Illinois then introduced his amendment, which maintained the percentage of 27.5% on revenues not exceeding $1 million, but lowered it to 21% for revenues of between $1 and $5 million, and to 15% for revenues exceeding $5 million. Senator Aiken (Vermont) supported the Douglas amendment. "I believe that when these enormous depletion allowances are given to one segment of our economy, it means that other people must dig into their pockets to make up for them," he said, adding that in 1955, "the total depletion deductions were approximately $2,800,000,000. Since the corporate tax would have been 52%, this resulted in a tax saving of $1,500,000,000 to the oil companies. "My amendment," he continued, "would save approximately $700 million for the Treasury. I wish to emphasize again that it would not hit the small driller. The weight would fall almost entirely upon the big companies." He went on to cite examples of oil companies that didn't pay a cent of taxes (on $7 million in income), or 1% of taxes (on $1,800,000 in income), or 6% (on $95 million in income), while in other industries companies were taxed at the rate of 52%.
The parade of lobbyists for the oil industry began. Senator Long (Louisiana) declared: "I must oppose this amendment. I submit that in many respects it works out to be the absolute epitome of unfairness and injustice. This is an amendment which proposes to say: Oilman Rich can earn and receive $1 million a year and still retain the 27.5% depletion allowance. On the other hand, Grandma Jones who does not have the importance or prominence of an independent oil and gas man owns $200 worth of stock in an oil company, and she receives an income of $20 a year from that ownership . . . I would like to protect Grandma Jones' little $20 dividend."
Senator Johnson (Texas) again suggested the absence of a quorum. The legislative clerk called the roll. Eighty-seven Senators were present. There was a quorum. Senator Douglas then asked for the yeas and nays, but his request was not sufficiently seconded. The yeas and the nays were not ordered, and the amendment was rejected. The Senate turned to the examination of an amendment concerning transportation taxes, which were considered too high for the Western states.
The following year, on August 11, 1958, Senator Williams introduced his amendment once again. He was obliged to wait for four hours until there were enough Senators present. He reminded them of what Senator La Follette had said in 1942: "In my opinion this percentage depletion is one of the worst features of the bill, and now it is being extended. We are vesting interests which will come back to plague us. If we are to include all these things, why do we not put in sand and gravel; why do we not provide for the depletion the farmer suffers through erosion of the soil of his farm?"
Senator Taft had followed up Senator La Follette's remark with one of his own: "I think with the Senator from Wisconsin that the percentage depletion is to a large extent a gift . . . a special privilege beyond what anyone else can get." Senator Dirksen (Illinois) made a long speech declaring that the problem of national defense needs and the precarity of oil supplies in the Middle East "is worth infinitely more than a question of whether the oil companies get a few million dollars more or a few million dollars less . . . the oil companies," he added, "which have given their best to the country."
Senator Williams acknowledged that "it is always popular to defend the little fellow, but what is small about a man with a million dollar income?" He noted that in 1955 depletion deductions for all corporations had totaled $2,805,500,000, and that 67% of these deductions had benefited companies with net assets of more than $100 million. He asked why the deduction for oil depletion wasn't the same as that for metal (15%) or coal (5%). He concluded: "One of the really major loopholes in the tax code is the method by which capital gains may be applied to oil and gas properties," and he produced a document which explained exactly why the leaders of the oil and natural gas industry were opposed to a reduction in the tax rate for the highest income brackets.(66) Such a reduction, which was supported by the majority of the nation's corporations and taxpayers, would mean a decrease in the incomes of the oilmen.
Senator Williams' amendment was put to a vote and defeated by a margin of 63 to 26. A similar but less liberal amendment introduced by Senator Proxmire (Wisconsin) was also defeated, this time by a majority of 58 to 43. Senator John Kennedy (Massachusetts) voted against the Williams amendment and in favor of Senator Proxmire's amendment. When the vote on the second amendment was announced, Senator Johnson (Texas) remarked, "Mr. President, I do not think we should ask the Senate to stay any later this evening."
The oilmen and their representatives in the Senate were all the more concerned about these amendments because 1957 had been a record year for oil production in the Middle East, and everything indicated that the expansion would continue. (In fact, Middle East production rose from 6 billion barrels in 1958 to 9.7 billion barrels in 1963.) In 1959 President Eisenhower imposed import quotas on foreign oil. The sales price of domestic American oil, which had been steadily rising since the end of the Depression and had dropped in 1959, held steady in 1960.(67)
On June 18, 1960 Senator Douglas re-introduced his amendment. He noted that the total depletion allowances taken could amount to $4 billion that year. He presented his Congressional colleagues with 20 pages of documents, remarking that if the other Senators were unable to hear him (for there were only three other people on the floor), they could perhaps read them. The following day, June 20, his audience was larger. Senator Douglas described his amendment as "a very moderate attempt to reduce the greatest tax racket in the entire American revenue system. It is probably safe to say," he continued, "that the depletion allowances given to the gas and oil industry now amount to well over $2.5 billion a year. I have put into the Record time and time again the records of 28 oil companies -- which I do not name, and which I identify only by letter, but which I could name -- that show that there was one company which in 5 years had net profits of $65 million and not only paid no taxes, but received $145,000 back from the Government. There are many other corporations which have a similar favored record.
"My proposal is a modest one. I do not propose to abolish the depletion allowance. I do not propose to reduce it across the board. I merely propose to introduce a moderate, graduated reduction. On the first $1 million of gross revenue there would be no reduction whatsoever. That would remain at 27.5%. On gross income from $1 million to $5 million, the depletion allowance would be 21 percent. On gross income in excess of $5 million, the depletion allowance would be 15 percent. This is a very moderate proposal.
"Mr. President, this issue has faced the Senate and the Nation for at least a decade. It is now before us again. We must make our decision as to what we shall do. It is time that we put our fiscal system in order. In our fiscal system some people pay too much because others pay too little. The time has come when we should deal with this issue. The depletion allowance can continue without any time limit. It occurs after depreciation has been allowed and fully taken account of. As long as the oil and the gas run, the depletion allowance can continue to be taken. There are cases in which the amount of the depletion is many, many times the total original cost, which bear in mind has already been deducted under the depreciation practice. I think the Senators are aware of the issues at stake. I wish to say to the gas and oil industry, which has been fighting this amendment for years, that if they are once again successful in beating this amendment, as they may well be, there is likely to arise in the country a storm of indignation."
But indignation is not a common emotion in the Senate. Senator Douglas' amendment would have resulted in a $350,000,000 loss to the oil industry. A vote was held, and the amendment was defeated by 56 to 30.(68) Senator John Kennedy (Massachusetts) voted in favor of it.(69)
At the 1960 Democratic Convention, the representatives of the oil states, headed by Sam Rayburn, supported the candidacy of Lyndon Johnson, but Kennedy won the nomination. In the spring of 1961, Mr. Morgan Davis(70) remarked during a private luncheon, "It's impossible to get along with that man."
As a Senator, John Kennedy had not been popular with the oilmen, but they weren't afraid of him. They knew that his father Joseph had invested a large part of his fortune in the oil business, and they couldn't conceive that his son, even if he were to become President, would dare take a position that would go against his own and his family's financial interests.(71) H. L. Hunt expressed the same opinion when he confided to Playboy in 1966, "Catholics are known for being anti-Communist, and I had never seen any evidence of fiscal irresponsibility in the Kennedy family."
The oilmen were wrong. The new President decided to broach the issue. Although he didn't go as far as John Ise,(72) he felt, like Roosevelt, that the control of the national economy should not be allowed to continue in the hands of the few, but should be enlarged to include millions of citizens or be taken over by the government, which in a democracy is responsible to the people. But he knew also that any re-examination of the principles of profit-making and free enterprise from the moral, social or even national point of view would be rejected not only by the oilmen, but also by a good many other citizens as an attack on the American way of life. In the past, such attacks by the administration and the Justice Department had been defeated.(73)
The only chance for a modification of the structures of the Oil Empire lay in a major crisis, internal or external -- an economic crisis or a war. But President Kennedy was working for peace and economic expansion, and he knew that his objectives could not be attained unless the principles of the American autarchy were re-examined and their destructive action brought progressively to a halt.
A year after he entered the White House, in 1962, the new President studied the reports of his advisers and decided to act. He had reacted with violence to the dictates of the steel industry; in the case of oil, he laid his plans more cautiously. On October 16, 1962, a law known as the Kennedy Act removed the distinction between repatriated profits and profits re-invested abroad in the case of American companies with overseas operations. Both were henceforth subject to American taxation. The law also sought to distinguish between "good" earnings resulting from normal commercial operations, and "suspicious" revenues siphoned off at some point in the commercial circuit by subsidiary companies located in tax havens abroad.
This measure was aimed at American industry as a whole, but it particularly affected the oil companies, which had the largest and most diversified overseas activities.(74) At the end of 1962, the oilmen were estimating that their earnings on foreign invested capital, which in 1955 had equaled 30%, would fall to 15% as result of these measures.
But Kennedy's second measure was far more important and infinitely more dangerous. It affected not only the companies with overseas investments, but all companies which, in one way or another, benefited from the privileged status of the oil industry. It called into question both the principle and the rates of the fiscal privileges, the improper use of tax dollars, and the depletion allowance. If adopted, it would undermine the entire system upon which the Oil Empire was based.
On January 24, 1963, in presenting his bill to Congress, President Kennedy declared, "Now is the time to act. We cannot afford to be timid or slow." For him, the fact that it was going to be difficult made it all the more necessary to act. But the Oil Empire wasn't the steel industry. Its leaders were of a different mettle. Ludwell Denny had said, "We fight for oil." By tangling with the oilmen, Kennedy was commencing the last year of his life. He considered his fiscal measures as the first step in a vast national reform.
As George Washington said to Henry Lee on October 31, 1786, "Precedents are dangerous things." The oilmen thought so too. "Think" is the motto of the businessman. Once they had determined what had to be done, they set about choosing their battleground and meticulously laying their plans.
1. The evolution of world oil production between 1860 and 1966 was as follows:
|USA||476,000 b||861 million b||2.9 billion b|
|USSR||135 million b||1.9 billion b|
|Venezuela||140 million b||1.2 billion b|
|Middle East||42 million b||3.3 billion b|
|Rest of the world||21,000 b||2.2 billion b|
2. Of the 20 largest oil companies in the world with an annual turnover in the neighborhood of $57 billion, 14 are American ($42 billion), one is Anglo-Dutch and another British ($1 billion), and one is Belgian ($700 million). But American influence extends even to these foreign companies.
|(in millions of dollars)|
|Standard Oil (NJ)||USA||$12, 191|
|Royal Dutch Shell||GB-Holland||7,711|
|Standard Oil (Ind.)||USA||2,708|
|Standard Oil (Calif.)||USA||2,698|
|Union Oil California||USA||1,364|
|Signal Oil and Gas||USA||847|
|Ashled Oil and Refining||USA||699|
3. In the period between 1930 and 1966, energy consumption doubled every 15 years, and oil consumption rose from 19 to 60%.
In 1938, the world consumed only 2.1 billion barrels of petroleum products. By 1971 it will be consuming 14 billion barrels per year, and by 1980 28 billion barrels.
4. In Europe, despite the increasing use of natural gas (which in 1965 provided 4% of all the energy consumed, as compared with 0% in 1950) and the advent of atomic energy (0.4% in 1966), oil consumption has risen steadily (from 10% in 1945 to 45% in 1965), while coal consumption has steadily dropped (38% in 1965, as compared with 75% in 1945).
5. The temporary outlets of the COMECOM pipeline are located at Neutspils and Klaipeda in the Baltic states, East Berlin, Most (Czechoslovakia), Vienna, Budapest, and Trieste (Italy).
6. 95% of the population of Saudi Arabia is still illiterate. The country has 750,000 slaves. Trade unions are prohibited by law, and the death penalty is inflicted with the bastinado.
If the royalties paid to the Sultan of Kuwait were divided equally among his people, each Kuwaiti citizen would have an annual income of more than $1,500, giving Kuwait one of the highest standards of living of any underdeveloped country. Instead, the average annual income in Kuwait is $100. 98% of the population is illiterate, and 85% suffers from tuberculosis.
An exception to this rule is the Sultan of Bahrain, who contributes a large portion of his royalties to the state treasury. In his territory, most dwellings have running water, sanitary conditions are satisfactory, and public education is developing rapidly. Nevertheless, the Sultan of Bahrain is the poorest of the Middle East rulers. In 1955 he received only $8.5 million in royalties, as compared to $36 million paid to Qatar, $84 million to Iran, $223 to Iraq, and $280 each to Saudi Arabia and Kuwait. Iran is relatively prosperous, but Iraq is continually shaken by corruption, political intrigue and assassinations.
7. American investments abroad rose from $1.4 billion in 1943 to $10 billion in 1958 ($5.1 billion of which was reported) and to $28 billion in 1967 ($15 billion of which was reported). In 1967, American investments in Europe totaled $10 million in the mining industry, $290 million in miscellaneous industries, $640 million in the chemical industry, $795 million in the machinery industry, and $1,200 million in the oil industry.
8. Frank W. Abrams, past President of Jersey Standard, jointed with General Motors, US Steel and several other corporations to form a committee for economic aid to education in an effort to stave off what he considered a future threat to industrial investments.
In 1955 Senator Fulbright cited a brochure edited by Socony Mobil for job-hunting students which warned them that their "personal opinions" could cause them difficulties in their career. His criticism, together with a protest from the Princeton Alumni magazine, caused the brochure to be withdrawn, but the paternalistic and totalitarian attitude of the oil companies continued unchanged.
9. Figures released by the Chase Manhattan Bank show that between 1934 and 1950, the 30 largest oil companies moved more than $121 billion, with net profits of $12 billion and taxes of $4 billion. These companies had taken out so few loans that only $700 was paid out in interest. $12 billion appeared on the balance sheets in the form of stock depreciations, amortizations, and reserves. Of the $12 billion in profits, $7 billion was reinvested and $5 distributed to stockholders.
10. The Rockefeller family's holdings are now limited to 15%, but the 100 most important stockholders (out of a total of 300,000), most of whom are descendants of John D. Rockefeller and his partners, own more than 40% of the shares.
11. One of its "little sisters," Socony Mobil (actually Standard Oil of New York) has assets of nearly $5 billion, and Standard Oil of Indiana has nearly $4 billion in assets. In 1966 Jersey Standard earned $1,090,944,000 in profits, two-thirds of which came from its overseas subsidiaries. Of the latter, Creole of Venezuela, for example, generally earns profits of around 30% . Creole and Lago, Standard's second Venezuelan subsidiary, together with Imperial of Canada, Imperial Petroleum in Latin America, Esso Standard, and its other foreign subsidiaries, earned more than $800 million in profits in 1966.
12. The first oil well was drilled by Edwin Laurentine Drake. better known as Colonel Drake, who discovered oil at 69 feet at Titusville on September 8, 1859. Nevertheless, he was fired in 1864 by his employer, Seneca Oil, and given the paltry sum of $731 in compensation. The state of Pennsylvania showed its gratitude by granting him an annual pension of $1,500.
13. Today, Royal Dutch Shell is the most important private industrial concern in Western Europe, and perhaps in the world (with the exception of the United States).
14. Shell has a policy of forming a national company in every country where it operates.
15. The British government invested approximately two and a half million pounds, and got back several billion pounds on its investment. It was represented on the Board by two administrators and exercised its veto only on political and naval questions, never interfering with commercial policies.
16. The Turkish Petroleum Company (which wasn't Turkish at all) owned oil fields in Mesopotamia. Before World War I it was divided up between Anglo-Iranian (50%), Royal Dutch (20%), and the Deutsche Bank, whose share of 25% was seized by the British at the start of the war. For having allied itself with Germany, Turkey was dismembered in 1918, and Britain appointed the rulers of the former Ottoman colonies. But the war booty was divided up under the cover of the League of Nations mandates. Germany's share of 25% was handed over to the Compagnie Francaise des Petroles in exchange for an indemnity and French permission to install a pipeline across its Syrian and Lebanese mandates.
17. It is difficult for us today to imagine a time when United States foreign policy was based on the rivalry between Shell and Standard, when Shell was refused the right to participate in bids for federally-owned concessions, and when writers prophesied war between Great Britain and the Union.
18. The remaining 5% went to the broker, Gulbenkian.
19. Moreover, the companies mixed the Iraqi oil with oil from Iran and Saudi Arabia, making it difficult to determine the actual cost.
In 1939 Jersey Standard felt that it had gotten back all of its original Iraqi investment. Nevertheless, Iraqi production was held back in favor of production in Saudi Arabia and Iran, where the royalties paid were very low (4 shillings per ton of crude in Iran, plus 20% of the profits).
20. At the beginning of the war, the difficult position of the Allies in the Middle East led Roosevelt to consider government participation in Aramco, in the same way that the British government had held a majority in Anglo-Iranian since 1914. But Standard of California and Texaco kept delaying the talks, and once Rommel was defeated, the two companies even refused to consider admitting the government as a minority stockholder. They felt, and there was little evidence to contradict them, that they already enjoyed government protection.
The companies of the Aramco-Caltex group managed to avoid American taxes on their wartime profits by founding new companies in the Bahamas and Canada.
21. Dutch Shell is richer and more influential than the l of the Netherlands. Two other Dutch companies, Phillips and Unilever, have international standing. These three it difficult for the government of the Netherlands to independent economic policy.
22. Iranian assets of Anglo-Iranian have been estimated at $1 billion.
23. The CIA's action is accounted for not only by the singular nature of the American intelligence agency (see Chapter 15, Spies), but also by the fact that the Pentagon and the ion in Washington feared that with the Abadan refinery closed down, the Air Force might run short of fuel in the event of World War III. Such a shortage had already occurred during the Korean War.
24. They estimated Anglo-Iranian's gross profits since 1914 at $5 billion, $500 million of which had gone to the Admiralty in the form of low-cost fuel oil, $350 million to the stockholders, $1.5 million to the British treasury, and $2.7 million to the corporation for depreciations and new investments.
To these sums they compared the royalties paid to Iran: before 1920, none; from 1921 to 1930, $60 million; between 1931 and 1941, $125 million, mainly in the form of military equipment which was later used against them by the British and the Russians.
In 1951, Iran received 18 cents on every barrel of oil (a barrel equals 42 gallons and weighs an average of 306.6 pounds). In comparison, Bahrain received 35 cents, Saudi Arabia 36 cents, and Iraq 60 cents.
The Iranians also complained that nearly all the gas from their wells was burned by Anglo-Iranian, when it could have been put to the benefit of the population.
25. The Compagnie Francaise des Petroles, which by the terms of the Red Line agreement had a right to its share, was granted 6%.
26. In 1966 the Consortium was forced to yield to new demands from the government of Iran and surrender one-fourth of its concessions (the 1954 agreement provided for the surrender of one-fifth in 1979). It was also obliged to increase production by 13% in 1967 and 1968. The Arab blockade in June, 1967 enabled it to go well over this figure.
27. The Big Five managed to pacify the most voracious of the independents by each sacrificing 1% of their shares. The 5% distributed was sold in April 1955 to the following companies: Atlantic Richfield, Tidewater Oil, Aminoil, Atlantic Refining, Getty Oil, Continental Oil, Signal Oil and Gas, Standard Oil (Ohio), and American Independent Oil. Harvey O'Connor states that each company paid $1 million for its shares, which few years later were earning them $850,000 a year. Such a good investment was also a kind of indemnity, but the independents continued to demand a share for themselves in the Middle East.
In 1947 Aminoil (American Independent Oil Company), an association of independents made up of Phillips Petroleum, Hancock, Signal, Ashland, Deep Rock, Sunray, Globe, J. S. Abercrombie and the promoter, Ralph K. Davies, had been given a bone to gnaw in the form of a neutral zone between Arabia and Kuwait theoretically reserved for the nomads. But the Sultan demanded high royalties, and 10 years later the reserves were estimated at only 50 million tons. It looked like the independents were stuck with the leftovers, but in 1966 the neutral zone was producing 133 million barrels.
28. Biafra is the latest battleground of the oil companies -- American, British and French.
29. Twelve years later, giant tankers of up to 1 million tons designed to detour around the Cape have apparently condemned the Suez Canal to a position of minor importance.
30. Gulf and Jersey Standard increased their Venezuelan production, while Texaco expanded its operations in Indonesia and Canada. In this way, they were able to sell their oil at higher prices while maintaining stable production costs.
31. Jersey Standard was admitted to the Sahara, then French territory, following a request from French Premier Guy Mollet for a $100 million loan from Washington which was eventually granted by the Chase Manhattan Bank. (Jersey Standard is a member of the Chase group.)
32. On the surface, ENI continued to respect the 50-50 rule, but by associating with an Iranian company, INOC, it actually granted 75% of the profits to Iran. In the midst of the negotiations concerning ENI's concession in the rich Koum basin, the Iranian Prime Minister was overthrown.
33. In 1932 Andre Maginot, a French Minister who had founded the Union Petroliere Latine, was poisoned. His death was also the death of the UPL.
34. Between 1950 and 1962, the American share in world production dropped from 69.8% to 57.9%, and its share in refining from 65% to 52.1%. Jersey Standard, which in 1958 accounted for 10.8% of all production, had dropped to 10.3% in 1961.
35. In 1938 Mexico expropriated Royal Dutch Shell, Standard Oil, and several other foreign companies which refused to grant wage increases demanded by the oil workers union (which amounted to $1.7 million per year). Mexican President Cardenas founded Pemex, a state company which was boycotted at first by its powerful neighbors. The British government even broke diplomatic relations with Mexico. It was not until the Second World War that the Consortium forgave the Mexicans. Today Pemex pays the Mexican government nearly a billion pesos a year in taxes, while before the nationalization the amount paid by private companies operating in Mexico never exceeded 44 million.
In 1963 Mexico, once considered incapable of exploiting her own resources, was producing 115 million barrels (16 million tons), and oil was her most important source of revenue. These expropriations ensured her prosperity if not her economic independence for the Mexican economy is still closely bound to that of the United States.
36. Shell was the first oil company to operate in Venezuela. In 1922 it was joined by Standard of Indiana, followed by Gulf. In 1932 Standard of New Jersey took over Standard of Indiana's operations at Maracaibo and began offshore drilling. In 1937 Venezuela accounted for 40% of world production. Gulf was obliged to make concessions to Jersey, whose local subsidiary Creole became the giant of Venezuela. In 1938 Jersey, Gulf and Shell formed a pool to exploit their reserves and naturally applied Texas prices. In 1943 the companies were obliged to split their profits 50-50 with the Venezuelan government. In 1948 the "Democratic Action" government that had come to power in 1945 demanded a revision of this agreement, but was overthrown by a military junta backed by the United States. Between 1949 and 1954, Creole reduced its personnel from 20,500 to 14,400 persons while increasing its production by 35%. In 1949 the company earned net profits of $336 million.
The revenue paid by the oil companies covered three-quarters of the Venezuelan national budget (the government's revenues from other sources were lower in 1956 than Creole's profits). But Venezuela produces only half the grain, milk and meat, and only one-third of the vegetables, that she consumes. The wide plains of Orinico support fewer cattle today than during the revolution of 1812. From their mountain conucos or their huts on the latifundia, nine-tenths of the Venezuelan population can watch the distant lights of fabulous Caracas.
37. In January, 1957, Anthony Nutting, a member of the British Cabinet, suggested a form of internationalization -- a kind of "Schuman plan" for Middle East oil.
In March, 1957, Walter J. Levy wrote in Foreign Affairs:
". . . The demands and responsibilities which have devolved on our international oil companies go far beyond the normal concerns of commercial operations. Public and private responsibilities become increasingly intertwined. Our existing arrangements for government-industry relationships in this new uncharted area appear to be inadequate to cope with the broad range of new problems."
On April 10, 1957, Lord Henderson suggested before the House of Lords that her Majesty's Government "take the initiative, through the United Nations, to get an International Oil Convention for the Middle East which would ensure a just distribution of oil to consumer countries, as well as a fair deal for the oil-producing countries. 'Oil politics' have been a disturbing factor in the Middle East situation over many years," the British peer added.
And Walter Lippman wrote in November of the same year:
"We should, it seems to me, have it clearly in mind that we are on the threshold of a new situation in regard to the oil in the Middle East. This is often taken to mean that the Arab countries, infiltrated by the Soviet Union, may attempt to ruin Western Europe by depriving it of access to the oil.
"Theoretically, that could happen if we take the simple view that Russia may conquer and occupy the oil countries. But in fact, this is not likely to happen, since it would precipitate a world war. What is likely to happen is that the Arab countries, using Soviet influence as a lever, will attempt to force the Western oil companies to a radical revision of the existing contracts. The Middle Eastern countries have no interest in cutting off the export of oil to Europe. On the contrary, it is their vital interest that the trade should continue. What they will seek, both the oil-bearing countries around the Persian Gulf and the transit countries like Syria and Egypt, is a bigger share of the profits of the oil business.
38. The British continue to work the unprofitable coal mines of Wales, the Midlands, Yorkshire, Nottinghamshire, and Lancashire, immobilizing some 700,000 workers, and British explorations in the North Sea area are carried out in collaboration with the big American firms.
British fiscal legislation is far less favorable to the oil industry than American legislation. Britain's energy policy consist of penalizing the use of oil in order to protect her coal industry. British tax legislation does not appear to have contributed significantly to the overseas expansion of British oil companies, and it offers no special privileges designed to stimulate new explorations by British firms.
39. On February 4, 1968, ERAP signed an agreement with the Iraq National Oil Company (INOC) giving the French company onshore and offshore exploration rights on a 10,000 square kilometer concession along the Persian Gulf. Mr. Jean Blancard, Vice-President of ERAP, declared that the agreement "follows in the footsteps of history. The era of traditional concessions, when the oil power established their hegemony over huge areas, is a thing of the past."
At the same time. another French company. the Societe Nationaledes petroles d'Aquitaine, was competing with the Freeport Co. for the right to work an Iraqi sulfur deposit which would make it the second largest producer of sulfur in the world.
Also in Iraq, the Compagnie Francaise des Petroles was negotiating for the North Rumeila concession which the Iraqi government had seized from the Iraq Petroleum Company.
The economic and political differences between France and the United States are partly the result of French oil policy.
40. The only company producing any significant quantity of oil in France thus far has been an American firm, Esso Rep, which is 90% controlled by Jersey Standard (Esso Standard 89%; Finarep 1%). Esso Rep has an annual production of 21 million barrels.
The most important French oil company, the Compagnie Francaise des Petroles, founded by Raymond Poincare, is not a state concern. Mr. Jeanneney, French Minister of Industry, declared in 1960 that "state control of the CFP is extremely theoretical" and that "the interests of the 'oil franc' are not always given priority." In actual fact, according to well-informed sources, control is held by a number of different companies acting for Royal Dutch Shell.
ERAP, the state-owned company, has not quite caught up with the CFP, but it already holds first place among the state-owned companies in continental Europe, and it is evident that the French government is anxious to see it expand.
41. The European companies concerned by this report were: Ente Nazionale Idrocarburi (ENI, Rome), Entreprise de Recherches et d'Activite Petrolieres (ERAP, Paris), and several German companies belonging to the Deutsche Mineraloel-Explorations-gesellschaft MBH (DEMINEX).
42. Ten European companies (ERAP, ENI, C. Deilman Bergbau GmbH, Preussag AG, Deutsche Schachtbau und Tiefbohr GmbH, Saarbergwerke AG, Schlolven Chemie AG, Union Rheinische Braunkohlen Kraftstoff AG, Wintershall AG and Gelsen- kirchener Bergwerks AG) followed up this report with one of their own that was nothing less than a declaration of war on the Consortium. It concluded:
"If the Common Market is to have an energy policy, the oil and natural gas sector, which constitutes the most important element in this policy, must not escape the action of the Common Market. To prevent this from happening, the Common Market must create conditions which enable this policy to exist through legislation and regulations adapted to the circumstances, and it must safeguard the instruments of this policy, in other words the companies of the Common Market."
43. A German, firm, Saarwerke, and an Italian company, ENI, have received permission from the French government to install a distribution network in France. Other measures and agreements are currently under discussion.
This new European energy policy explains a great deal, and in particular De Gaulle's position with regard to the Israeli-Arab conflict of 1967. De Gaulle is neither pro-Arab nor pro-Zionist; he is merely a realist.
44. Twenty-two companies account for 65% of all the oil produced and 87% of all the oil refined in the United States. Nine thousand other companies account for the rest.
In 1963, oil and natural gas provided 75% of all the power consumed in the United States (as compared with 60% in 1950). Their combined value was eight times that of all the ferrous and non-ferrous metals (iron, copper, lead, zinc, gold, silver, bauxite, manganese, tungsten, titanium, and uranium) mined in the United States.
45. An Oil Exchange did exist in the 19th Century, but in 1895 Standard Oil of New Jersey announced that henceforth it would set its prices itself. At that time, Jersey Standard was buying 80% of all the oil produced in Pennsylvania and controlled all of the pipelines (which enabled the companies to enforce their production quotas and the quotas set by the states).
46. There are 200,000 sales outlets for petroleum products in the United States, mainly service stations. To all appearances there is open competition, but actually the big oil corporations control 85% of the market. Service station managers are bound by contract to the big companies, which supply their gasoline and cover their operating and advertising expenses.
47. Contrary to what is true in Europe, in the United States any oil discovered belongs to the owner of the land on which it is found. Generally, the owners lease their rights to the companies. In 1963 the oil companies paid nearly $2 billion in leasing rights to property owners spread over one-tenth of the area of the United States, principally in Texas. Since 1859 these leases have cost the companies an estimated $40 billion.
48. Ninety percent of the American Oil Empire is concentrated in only seven states: Texas, Louisiana, California, Oklahoma, Wyoming, New Mexico, and Kansas. The combined production of Texas and Louisiana alone accounted for 55% of American domestic production in 1963. Most of the oil companies based in Texas have important investments in Louisiana, which is closer to the Eastern market: Louisiana, where the most important oil fields since Spraberry Fields in the 1930s were discovered in 1956, is also favored by a larger "acreage-to-well" ratio than Texas. The average well in Louisiana is currently allowed 79% more oil daily than the average well in Texas.
Most of these oil wells produce only two or three weeks per month. In Texas, the number of production days was reduced from 171 in 1957 to 104 in 1960. During the second quarter of 1960, the oil wells in Texas were worked an average of only 9 days per month, and during these 9 days they were limited to two-thirds of their maximum output. The producers estimated their losses at $6 million per year, but prices remained stable. On the other hand, the number of people employed was reduced by 25% (from 164,904 in 1958 to 124,922 in 1963) and the corresponding expenses dropped from $967 million to $880 million Nevertheless, despite this reduction in output, nearly 200 new wells are drilled every day (43,300 in 1950, 58,200 in 1956, and 43,600 in 1963).
49. Petroleum engineers have their own techniques of conservation, which can be resumed as follows:
1) the elimination of gushers and uncontrolled flows that waste gas pressure
2) the limitation of the number of wells to the minimum required by the geological structure of the oil field. Too many wells reduce the gas and water pressure, while too few result in the loss of a certain amount of oil
3) the regulation of the output of each well so as to maintain a uniform pressure throughout the oil field
4) the maintenance in each well of a sufficient proportion of gas to oil to ensure a continuous flow (Harvey O'Connor, The Empire of Oil)
50. The figures given by Fortune for the year 1967 are:
51. Standard Oil of New Jersey earned $758 million in 1961 and $840 million in 1962; Gulf Oil earned $338 million in 1961 and $340 million in 1962; Socony Mobil earned $210 million in 1961 and $242 million in 1962; Standard Oil of Indiana earned $153 million in 1961 and $162 million in 1962.
52. The net cost of oil as it comes out of the well in the Middle East is around 20 to 30 cents per barrel. The same oil is sold by the Consortium at between $2 and $3 a barrel.
Oil in Kuwait costs approximately 5 cents a barrel (0.12 cents a gallon); oil in Saudi Arabia costs 10 cents a barrel (0.24 cents a gallon); and oil in Libya costs 40 cents a barrel (1 cent a gallon). In March, 1965, Consortium prices for oil leaving these countries was as follows:
Kuwait: $1.59 a barrel
Iran: $1.78 a barrel
Saudi Arabia: $1.80 a barrel
Iraq: $1.95 a barrel
Sidon: $2.17 a barrel
Libya: $2.21 a barrel
Sahara: $2.30 a barrel
The companies charge 60 to 70 cents a barrel for transportation. The considerable increase in the tonnage of today's oil tankers (100,000 and 200,000 tons, and soon even more) ensure even greater profits than those earned by the oilmen in the Fifties and Sixties (a 100,000 ton tanker earns approximately $500,000 gross per cargo).
Excluding these transportation charges (the companies generally use their own fleets of tankers), the profits per barrel of oil are 3 to 4 times higher for overseas than for domestic production.
The net cost to the companies of the Consortium has remained relatively stable since 1954. The retail sales price for gasoline in American service stations in November, 1967 was $9.51 a barrel (plus tax). This gasoline was sold at an average price of 33.33 cents a gallon (which included 10.68 cents in taxes). The break-down of this final price was as follows:
Retails profits: approximately 20%
Taxes: approximately 30%
Transportation, refining, refinery labor, miscellaneous costs and refining costs, transportation from the Gulf to the refinery, delivery to the retailer, storage, and wholesale profits: 20%
Price of the crude: 20%
(But the latter price already included the company's profits on production and transportation.)
The United States is the only important industrial nation in the world where the oil industry makes more on a gallon of gasoline than the government (70% as opposed to 30%). In Europe in particular , these proportions are generally the reverse, to the benefit of the countries concerned.
53. Beneath the Big Five and the twenty-odd large companies are a multitude of independent producers. Concentration has been the rule in the oil industry for the past ten years. Between 1959 and 1963, the big corporations of the Chase Manhattan Group increased their production by 526,000 barrels per day, while the production of other companies dropped by 37,000 barrels.
In 1956 the ten largest companies in Texas produced 41% of all the oil in the state; by 1963 they were producing 51%. The decline of the small producers was due in part to the quota system (proration) imposed by the States (actually by the big companies). In addition, a number of independent producers were bought out by larger companies.
The independents still accounted for half of national production, but pipeline fees considerably reduced their independence.
54. Oil cooperatives are virtually unknown in the United States. The first was the Consumers Cooperative Association of Kansas City, Missouri, founded in 1929 with a capital of $3,000. In 1962, however, the total production of the cooperatives equaled only 200,000 barrels, while a single unit at Baytown, Texas belonging to Humble Oil produced 300,000. The cooperatives own less than 1% of the wells in the United States, and their refiners can handle only a fifth of the oil they produce. Nor do they have a pipeline or other organized means of transportation.
Cooperatives do not aspire to control the market, but in countries where they are sufficiently powerful (such as Sweden, where they account for 12% of the market), they serve as a restraint on the conduct of the other companies.
55. As Walter J. Levy notes: "The companies which are integrated from the well to the service station have obvious competitive advantages over the strictly producing companies, for they can temporarily do without their profits from one sector of their operations."
Standard Oil of New Jersey, for example, is apparently content with a profit rate of approximately 17% which, taking into account its super-profits from its foreign operations, necessarily reduces its profits from its domestic operations and, given its nearly complete control of the market, the profit margins of the independent producers as well.
But the big oil companies conceal some of their profits in companies incorporated in privileged territories. Jersey Standard, for example, uses the International Corporation registered in Liechtenstein. (In the United States, the tax haven for H. L. Hunt and many other oilmen is the state of Delaware.)
56. The depletion allowance is based on the notion that the more oil has been extracted from a well, the less there is left. This, of course, is nothing more than a special version of what is known in industry as depreciation.
If a $100,000 factory operates for ten years, its owner is entitled to deduct $10,000 a year from his gross profits for plant depreciation. In the oil industry, on the contrary, the rate of depreciation applied has nothing to do with the cost of running a well. A well which costs $100,000 and produces $500,000 worth of oil each year for ten years until it runs dry would normally justify a depreciation of $10,000 a year.
An oil company, however, is entitled to deduct 27.5% per year from its gross income, which amounts, in the case cited above, to $137,500 per year, or to $1,375,000 in ten years, on an investment of only $100,000.
The Common Market has considered applying this system to its own industry, but with certain basic differences. Europe, contrary to the United States, needs first to find oil in her own soil. As a result, the Common Market measures would grant a tax reduction to companies carrying out explorations, on the condition that the amount of this deduction be re-invested within five years in new explorations (French PRG system).
57. Not only did the activities of the Consortium hurt the American consumer and the American taxpayer; they also had serious repercussions in underdeveloped countries and affected the international monetary situation.
The Consortium sold its oil from Venezuela, Colombia, Kuwait, Saudi Arabia, Iraq, Iran, etc. exclusively in dollars and pounds sterling. (Even the internal operations of the members of the Consortium were carried out in dollars or in pounds.) As a result, the sales made in "oil dollars" and "oil sterling" swelled the treasuries of the United States and Great Britain, to the detriment of the currencies of the producing and consumer countries, in particular, and to the world financial situation in general.
This system contributed to the disequilibrium in the British balance of payments which led to the November, 1967 devaluation, and has forced the United States to take measures to protect the dollar. The financial difficulties besetting both countries today are symptoms of 20 years of abusive business practices, particularly. in the marketing of raw commodities.
58. The Humble Oil and Refining Co. declared that in 40 years it had sunk $500 million (a figure which represents less than half of its present capital) in deep, dry wells. But although these dry wells cost it $62 million in 1957, the same wells cost the federal government more than half a million in lost revenues, and Humble Oil that year earned $175 million in profits.
59. In Britain, oil companies are not permitted to deduct their losses from unsuccessful explorations from their income from sources other than oil production. If the explorations are successful, the entire cost of the original installation can be written off, but may not be deducted as expenses, and there is no provision for a percentage depletion allowance deductible from revenue from current production.
60. In 1965 the oil industry claimed that American reserves were no more than 31 billion barrels. The Office of Oil and Gas of the Department of the Interior commented, however, that "Reserves so defined are probably on the conservative side" and added:
>"A study compiled in late 1964 by the US Geological Survey puts the amount of crude oil originally in place in known deposits as of January 1, 1964, at over 400 billion barrels. The study goes further to conclude that an additional 2 billion feet of exploratory drilling in favorable but as yet unexplored areas would yield an additional 600 billion barrels of crude oil in place. Of this, 73 billion had actually been withdrawn as of the end of 1963. On the basis of these cold figures, it would appear that the US is in no danger of running out of oil for many years."
Additionally, it is now possible to extract oil from deposits of bituminous shale (a ton of bituminous shale yields 30 gallons of oil). The bituminous shale reserves of the United States have been estimated by the UN at 320 billion tons.
61. The average depth of the wells drilled increased from 3.900 ft. in 1950 to 5,000 ft. in 1963 (an increase of 29%).
62. In 1948, the oil shortage revealed the need for a national oil policy. The Secretary of the Interior, J .A. Krug, and his successor, Chapman, wanted to preclude a future shortage by the development of synthetic motor fuels, if necessary with government backing. The N PC opposed this plan. It assured the government that private industry would produce substitutes if the need arose, but insisted that there was no need to constitute stocks of synthetics for the present. The plan was dropped, and protests about the waste engendered by industry production method were stifled.
63. The states of Rhode Island and Alabama contested the validity of this law in the Supreme Court, claiming that Congress had no right to hand over a part of the national wealth to a few privileged states without their consent. They lost the case.
In the meantime, Senator Butler (Nebraska) was already preparing a bill that would recognize state ownership of the bituminous shale deposits in the Rockies.
64. "The tax laws since 1926 have authorized an oil or gas company to deduct 27.5% from the gross income from any property producing oil or gas. This 27.5% depletion allowance or deduction is computed as a percentage of the investment or of the amount of prior depletion deductions. One saving condition was attached, namely: In no case may the deduction exceed 50% of the net income from the property -- something that 1 do not believe happens very often.
"Obviously, over the life of an oil or gas-producing property the depletion allowance will not only exceed the investment or cost, but it will go on and on and possibly exceed the value on date of discovery.
"The committee can, no doubt, secure accurate up-to-date figures from the Treasury Department on what the 27.5% depletion allowance means to every company or individual taking this on tax returns. However, there is in existence some few pieces of information denoting its tremendous size. Recently I tried to secure from Standard & Poor's Corp. reports the amount of Federal income-tax paid by Amerada Petroleum Corp., but I find this item is buried in a classification reading: ' Operational, general expenses, taxes, etc. It is quite obvious that Amerada pays little, if any, Federal income taxes, though in the year 1952 this company made net profits of $16,296,652. In the January 1946 issue of Fortune magazine there appeared a long article on Amerada Petroleum Corp., which is a crude-oil producing company. The article stated in part, 'Amerada's tax situation is a businessman's dream. The corporation quite literally does not have to pay any Federal income tax it does not want to. This is due to the highly reasonable provisions of the internal revenue law designed for producers of crude oil. Amerada pays so little in Federal income taxes that it does not even segregate the tax item in its annual reports. In wartime, though Amerada's profits soared, it made no provision for excess-profits taxes, and from 1943 until 1944 its normal Federal income tax actually declined. In 1944, on a gross of $26 million, a gross profit of $17 million, and a net after all charges of $5 million, Amerada's allowance for its Federal income tax was only $200,000.'
"It is among these strictly producing companies that one can get an idea of the magnitude of the twin subsidy of depletion and write-off of drilling and development costs. The major integrated companies benefit to the degree that they produce oil and gas, though they have other operations upon which taxes are paid.
"In addition to Amerada Petroleum Corp. referred to above, here are a few other examples of companies producing oil and gas:
"Argo Oil Corp. for the year 1952 made net profits after taxes of $3,496,477 and paid Federal income taxes of $91,660.
"Kerr-McGee Oil Industries, Inc. for the year ended June 30, 1952 had net income after taxes of $2,234,688 and paid Federal income taxes of $78,032. For that same period the 27.5% depletion allowance for this one company amounted to $607,611. For the year ended June 30, 1953, this company had net income after taxes of $3,072,723. But in Standard & Poor's there is just a line where the amount of tax is usually indicated, so I do not know what Federal income taxes this company paid for that period. During this latter year its depletion allowance was $858,795.
"The Superior Oil Co. (California) for the year ended August 31.1952 had net income of $11,900,165 and paid Federal income taxes of $200,000."
65. In 1963 the Department of Defense purchased 278 million barrels of oil (1963 production equaled 2.75 billion barrels).
66. This was a paper written by Paul Haber, JD, Ph. D, entitled, "Write-offs, Cost Depletion and Percentage Depletion -- An Appraisal." It said in part:
"Our Federal tax system is supposed to be based on the principle of progressive taxation or 'ability to pay' -- the higher the net income, the higher the rate of tax. In the case of taxpayers who engage in the business of crude oil, however, this principle is made to work in reverse -- the higher the net income from the production and sale of crude oil, the lower the rate of tax . . .
"Drilling for oil is like playing dice with the Treasury: 'Heads I win, tails you lose,' with the Treasury always on the losing end. As a matter of fact, high tax rates are a boon to the crude oil industry rather than a burden, because the higher the rate of tax the lower the net cost (the after-tax cost) of the drilling operation. This explains why the American Petroleum Institute does not support the National Association of Manufacturers in its fight to reduce the top tax bracket from 90 percent to 40 percent. If the rate were reduced to 40 percent, the search for crude oil would falloff tremendously, because the taxpayer's share of the cost of the search would have been increased from 10 percent (100 percent less 90 percent) to 60 percent (100 percent less 40 percent). As a matter of fact, the phenomenal growth of the crude oil industry dates back to the year 1940, the year in which the wartime rates were first brought into the statute."
67. It dropped again during President Kennedy's last year in office. The evolution of domestic prices (per barrel) was as follows:
|1959, 1960, 1961 and 1962:||$2.97|
(A barrel of oil cost $1.02 in 1939, $1.37 in 1946, $1.90 in 1947, and $2.57 in 1948.)
68. The vote was as follows:
Yeas -- 30
Aiken Carroll Case (NJ) Clark Dodd Douglas Ervin Gore Hart Jackson Javits Keating Kennedy Lausche Long (Hawaii) McCarthy McNamara Morse Muskie Pastore Proxmire Russell Smathers Smith Symington Wiley Williams (Del.) Young (Ohio)
Nays -- 56
Allott Anderson Bartlett Beall Bennett Bible Brunsdale Bush Butler Byrd (W. Va.) Byrd (Va.) Cannon Capehart Carlson Case (S. Dak.) Chavez Cooper Cotton Curtis Dirksen Dworshak Ellender Engle Fong Frear Fulbright Gruening Hayden Hickenlooper Hill Holland Hruska Johnson (Tex.) Johnson (SC) Jordan Kerr Kuchel Long (La.) McClellan McGee Mansfield Martin Monroney Morton Mundt Randolph Robertson Saltonstall Schoeppel Scott Stennis Talmadge Thurmond Williams (NJ) Yarborough Young (N. Dak.)
Not Voting -- 14
Bridges Church Eastland Goldwater Green Hartke Hennings Kefauver Lusk Magnuson Murray O'Mahoney Sparkman
69. In 1964, the depletion allowance issue came up before the Senate again. On February 3 Senator Lausche (Ohio) offered an amendment that would diminish the depletion allowance privileges by $850 million, which sum could be used to compensate the revenues lost to the government by a tax credit granted to needy families with children in college proposed by Senator Ribicoff (New York). But Senator Lausche's amendment was considered not germane.
On February 6, Senator Williams re-introduced his traditional amendment and was defeated again (by 61 to 33). As Senator Javits was to remark, "This is the sacred cow of sacred cows."
70. Chairman of the Board of Directors of Humble Oil and Refining Co. (1961-63), Director of the First National City Bank of Houston, member of the National Petroleum Council and the American Petroleum Institute.
71. In January 1968, Senators Robert F. Kennedy (New York) and Edward M. Kennedy (Massachusetts) joined with several other Congressmen in urging that import limits be eased for home-heating oil. They were concerned about a threatened shortage and high prices.
72. John Ise, a professor of economics at the University of Kansas and author of The United States Oil Policy, recommended in 1929 the nationalization of all natural resources, including oil. "Private property has undoubtedly brought about more unfortunate consequences in the case of oil and natural gas than in any other domain. It has resulted in overproduction, instability, incessant price fluctuations, a waste of natural resources, capital, and labor, speculation, fraud, foolish extravagances and flagrant social injustice, and, finally, in the establishment of a monopoly," he wrote.
73. Since the Clayton Antitrust Act of 1914 (which outlawed Drice discrimination and exclusive contracts between wholesaler and retailer) and the National Recovery Act of 1933 (which eliminated unfair trade practices and destructive price cutting and established fair codes of competition), the Justice Department had tried unsuccessfully on several occasions to break down the oil monopoly by halting mergers and opposing exclusive contracts, price, fixing, and production restrictions. Congress, and on occasion the Supreme Court, had defeated all its attempts.
74. Previously, while the profits earned abroad by American firms were subject to American taxation, the profits of subsidiary companies which were subject to local taxation (except in the tax havens) were only taxed in the United States when their dividends were distributed to the head companies in the United States. The Kennedy Act abolished this regime for the subsidiaries registered in tax haven countries, which were henceforth subject to American taxation whether or not their dividends were distributed to the head companies in the United States.
Comment on this Editorial
Gold closed at 622.20 dollars an ounce on Friday, down 1.1% from $628.90 at the close of the previous Friday's trading. The dollar closed at 0.7794 euros Friday, up 0.1% from 0.7785 euros for the week. The euro closed at 1.2830 dollars Friday, down from 1.2846 at the end of the week before. Gold in euros would be 484.96 euros an ounce, down 1.0% from 489.57 for the week. Oil closed at 58.92 dollars a barrel Friday, down 1.2% from $59.62 at the close of the previous week. Oil in euros would be 45.92 euros a barrel, down 1.1% from 46.41 for the week. The gold/oil ratio closed at 10.56, up slightly from 10.55 at the end of the week before. In U.S. stocks, the Dow closed at 12,342.56 Friday, up 1.9% from 12,108.43 at the close of the Friday before. The NASDAQ closed at 2,445.86, up 2.3% from 2,389.72 for the week. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 4.60%, up one basis point from 4.59 at the end of the week before.
More bad news on the housing front in the United States:
Housing construction plummets in October
By MARTIN CRUTSINGER
AP Economics Writer
Housing construction plunged to the lowest level in more than six years in October as the nation's once-booming housing market slowed further.
The Commerce Department reported on Friday that construction of new single-family homes and apartments dropped to an annual rate of 1.486 million units last month, down a sharp 14.6 percent from the September level.
The decline, bigger than had been expected, was the largest percentage decline in 19 months and pushed total activity down to the lowest level since July 2000.
Applications for new building permits, seen as a good sign of future plans, fell for a ninth consecutive month, the longest stretch on record. The October drop was 6.3 percent, pushing permits down to an annual rate of 1.535 million units, the slowest pace in nine years.
David Seiders, chief economist for the National Association of Home Builders, said he believed construction would fall by about 13 percent this year as builders scramble to deal with plunging sales.
"We had an unsustainable boom in housing in both 2004 and 2005 and now we have a correction on hour hands," he said.
The sharp slowdown in housing this year stands in stark contrast to the past five years, when the lowest mortgage rates in four decades had powered sales of both new and exiting homes to five consecutive records.
The housing weakness trimmed a full percentage point off economic growth in the July-September quarter, when the economy expanded at a tepid 1.6 percent rate.
Housing is expected to continue acting as a drag over the next year but analysts believe the adverse effects of falling sales and construction cutbacks will not be enough to pull the country into a recession.
There were signs that the steep plunge in housing was beginning to level off. The monthly survey of builder sentiment edged up slightly in early November following another small increase in October. It marked the first back-to-back improvements in builder sentiment since June 2005.
The level of building activity in October was 27.4 percent below activity in October 2005, the biggest year-over-year decline since March 1991.
Construction of single-family homes fell by 15.9 percent in October from the seasonally adjusted September level, dropping to an annual rate of 1.177 million units. Construction of multi-family units dropped by 9.1 percent to an annual rate of 309,000 units.
The drop in construction was led by a 26.4 percent decline in the South. Construction fell by 11.7 percent in the Midwest and was down 2.1 percent in the West.
The only region showing strength was the Northeast, where construction jumped by 31 percent.
As usual there has been a lot of talk about "soft landings" and "corrections." Richard Russell is not buying it:
The verdict is in
Dow Theory Letters
November 9, 2006
Extracted from the Nov 8, 2006 edition of Richard's Remarks
Russell Comment -- November 8, 2006 -- The verdict is in. The majority of the American people by their vote have said "enough" to Bush and the neo-cons. The House went to the Democrats and as I write the Senate is in doubt. Was it Iraq, was it the economy, was it the lies, was it the sleaze, was it the incompetence? It was probably all of these. The vote has rendered President Bush a "lame duck." The nation now faces gridlock. But Iraq will continue, and the deficits will continue.
Much power has now been transferred to the Democrats. They don't deserve it. They went along passively, cowardly, and cluelessly with the Bush caravan. Their real claim to power is not courage or intelligence, their real claim to their new power is simply that they are not Bushies or neo-cons. In all, it's a sad story. But it's a story, less sad than it was a day ago.
...Economically, the big picture will now boil down to four phenomena: (1) Iraq, (2) the continuing massive US deficits, (3) the longer-term effects of the deteriorating housing picture, (4) the incredible disparity between Wall Street and the rich -- and the great mass of struggling Americans.
Iraq will be a continuing cancer. I have no idea how it will be resolved.
The deficits will probably be ignored despite much hand-wringing.
The housing situation (in my opinion) will deteriorate and become a huge problem.
The disparity between the rich and the poor will remain an unsolved cancer -- it will also be a source of anger on the part of most Americans.
The consensus continues to be that housing is due for a "soft landing." In my opinion, the soft landing is a fantasy. I think it will be well into next year before we know what kind of landing housing is headed for. I think it's going to be a very hard landing, one that will work a hardship on the entire nation.
But even the market bears and gold bugs don't seem to be able to grasp the true scale of the calamity. David North just published the text of a two part address entitled "War, Social Inequality and the Crisis of American Democracy" in which he uses history to give proper scale to the calamity, a calamity whose outward expression is the crime that was the invasion of Iraq. According to North, the war, the crime, was the consequence of the takeover of the United States by a two-party dictatorship designed to concentrate wealth and power in the hands of a very few.
...In 1815, two veteran politicians, somewhat past the political wars of their earlier lives, engaged in a lengthy correspondence. One of the pieces of that correspondence was a letter written by one of the parties, John Adams, the second president of the United States and one of the major leaders of the American Revolution. He was writing to an old adversary who, in the last years of the two men, became his closest friend - Thomas Jefferson.
Jefferson had posed the question in an earlier letter: what was the revolution in which we both participated and to which we had dedicated our lives and our sacred honor? Adams said something very interesting. He said the revolution was not the war. The war was a consequence of the revolution.
The real revolution did not take place after 1775. It took place before 1775 - between 1760 and 1775, a period of 15 years marked by an extraordinary growth of political consciousness among the masses of colonials. The revolution took place in the minds of the people. And it was that which made possible the extraordinary development of consciousness which found its most sublime expression in Jefferson's Declaration of Independence and, later on, in the drafting of the Constitution and the Bill of Rights.
Adams actually said that if you want to trace the development of consciousness, read the newspapers, read the pamphlets, read the leaflets which were being circulated by the tens of thousands in the old colonies, and there you will see the real development of revolution.
At a somewhat later period of history, on the eve of the Civil War, the great debates between Lincoln and Douglas took place. Lincoln's contributions remain to this day an extraordinary summation of the issues that led to the abolition of slavery in the United States.
As a matter of fact, Lincoln himself was a candidate whose political life was, to a major extent, dependent upon his ability to articulate and explain the great issues of his age. The turning point in Lincoln's candidacy actually came in February of 1860. The candidate from Illinois was invited to participate in a speaking tour. He went to Massachusetts, Pennsylvania and Connecticut, but the big meeting was to be held in New York, where the lions of the new Republican Party were going to take the measure of the provincial from Illinois.
When Lincoln appeared on stage in an ill-fitting suit - he was hardly the most handsome man in the world and wouldn't pass muster with our media today - there was something of a chuckle. Then he began to speak. He laid out in the next 90 minutes an extraordinarily comprehensive assessment of the constitutional issues posed by the slavery question.
He reviewed the position of all the founders. This was a detailed, concise, brilliant analysis, which almost overnight made it clear to everyone that Lincoln was a major force. And it transformed his candidacy into something that was credible. He became the Republican candidate and, fortunately, the president of the United States.
Look at the situation today. What issues have been discussed? What questions have been raised? Let us put it somewhat differently? What has been suppressed? What can't be discussed?
The bloodbath in Iraq
This morning the media was full of reports of the conviction of Saddam Hussein and the decision that he is to be hanged. He was convicted for putting to death hundreds of Iraqis.
Let us consider another fact that has not been widely reported or discussed. It was briefly mentioned in the press but that was about it. It was a study put out by Johns Hopkins University in October. Johns Hopkins is a major institution, and it presented a study which established, based on the most advanced statistical methods, that the number of Iraqis who have died since March 2003 as a result of the American intervention and occupation is 655,000.
Six hundred fifty-five thousand human beings have perished as a result of this country's invasion of Iraq. Six hundred fifty-five thousand!
I have heard various reports of the crimes committed by Saddam Hussein and the number of people killed. Even if one accepts the highest figure that I've seen, in the area of 150,000 to 200,000, that's less than a third of the number of people who have died in just three years as a result of the American invasion.
Six hundred fifty-five thousand people represent approximately 2.5 percent of the population of Iraq. Two-and-a-half percent of the population! Apply that percentage to the United States. A cataclysm of that scale would have cost the lives of 7.5 million Americans out of a population of 300 million.
Saddam Hussein is to be held accountable for his crimes, though I must make the point that no one can accept, if one is serious about democratic rights, the procedures that were adopted by that court. But he's been given the death penalty - a penalty that we oppose. But what shall be the punishment for those who have carried out a war, based on a violation of international law, resulting in the deaths of 655,000 people? What level of accountability shall there be?
One has an indication in the way the media responded. One would think that the report that 655,000 people had died would produce a massive shock throughout the country. Well, there were brief reports in the press. The day after the report appeared, Bush was asked at a press conference what his response was, and he simply said that the report was not credible. There was no follow-up question, and I haven't seen a single article in the mainstream press - the New York Times, Washington Post, Los Angeles Times - in which the statement by Bush that the Johns Hopkins University report was not credible was subjected to critical investigation.
The editor of the New York Times, Bill Keller, came to the University of Michigan, and one of our reporters asked him to explain the silence of his newspaper. He just brushed it off. The story has been simply dismissed. Yet it should be the subject of the most intense discussion and debate within the United States, especially when one asks oneself: what will be the consequences? What must follow from a nation being implicated in so great a crime? Does one really think that the United States could wipe out two-and-a-half percent of a population of another country and not suffer consequences, not just in Iraq, but in our own country?
During the constitutional debates of 1787 in Philadelphia, one of the delegates, George Mason from Virginia, addressed the question of slavery. He was a slave owner, but an opponent of slavery. He said, in words that sent a chill down the spine of every delegate, "Unlike individuals, the crimes of nations are not punishable in another world, in the hereafter. The crimes of nations are punished in this world, and the form of that punishment is a national calamity."
Seventy-five years later, the nature of that calamity was revealed: the American Civil War. And Lincoln, in his great second inaugural address, invoked the words of Mason when he said that the scourge of the war was the punishment for the crime of slavery, in which both North and South had participated.
The bloodbath orchestrated by the government of the United States, with the full collaboration of the Democratic Party and the media, has definite implications. The state of American democracy, its visible disintegration before our eyes, is one of the forms being taken by the developing national calamity.
Social inequality in the United States
How did a situation arise where such massive and undemocratic violations of rights take place, and they go unchallenged and even un-discussed in any serious way? Life-and-death questions of democratic rights that resound through our history have emerged, yet an election campaign is conducted where they are not discussed and cannot be examined.
In order to understand this, one has to look at the nature of the society in which we live. What is the real source of these diseases - of war, of dictatorship? They must be symptoms of a deep social ill that exists within the United States.
...What has been the cause of this profound deterioration of the democratic immune system of the United States? We have to look at the nature of our society, and here we see that the most significant feature is the extraordinary level of social polarization, the extraordinary degree of wealth concentration in a very small section of American society.
A study was recently done by two economists from UCLA, Piketty and Saez, entitled "Income Inequality in the United States, 1913-1998." It is based on federal income taxes, and it shows that in 1929, economic inequality, wealth inequality, and income inequality were at their highest levels.
Then came the Great Depression, and there was a sharp decline because of the enormous losses experienced by sections of the elite itself when Wall Street crashed. Later, particularly after World War II when the GIs came home and there was an enormous wave of labor struggles and social struggles, inequality declined and the level of social equality increased. That persisted into the 1970s, and then the process reversed itself. Social inequality accelerated during the Reagan administration. It accelerated with extraordinary rapidity during the Clinton administration, and now it is back at its highest levels since 1929.
If one looks at income distribution in America, one sees certain extraordinary features. First of all there, is a very, very sharp differential between the top 10 percent and the bottom 90 percent. People often use the phrase, "The rich get richer and the poor get poorer." When we talk about the poor getting poorer, we are talking about the lower 90 percent of the American people. That embraces a very substantial population - 270 million out of 300 million, i.e., the vast majority of the American people.
Then, if one examines the top 10 percent, one is struck by the very sharp differential there as well. The social position of those in the top 5 percent is dramatically different than those in the bottom 95 percent. And there is an extraordinary degree of differentiation between the top one percent and the bottom 99 percent. The top one percent receives approximately 19 percent of the entire income paid out every year in the US. The top 0.1 percent, one in a thousand, receives approximately 9 percent. We are dealing with astonishing levels of social inequality.
Similar figures present themselves if one measures not just income, but control of wealth, in the form of share ownership. We live in a society that has become incredibly stratified.
If history teaches us anything, going back to the days of the Roman Republic, it is that the higher the level of wealth concentration, the more eroded and unsustainable the previous democratic forms of rule. If democracy means anything, it embodies the rule of the people. But the people in their broad masses represent a great threat, a danger, to those who control the vast aggregates of wealth.
How would the democratic interests of the masses express themselves? In social policy, in a progressive income tax, in taxes on wealth, in health care programs, educational programs, programs of public works. From the standpoint of the ruling elite, all of these demands of the "grubby masses" subtract from the revenue flowing into their pockets.
What is the secret of political life in America? What is the aim of both parties of corporate America? To remove all constraints - political, economic, legal, moral - on the accumulation of personal wealth. Every social demand is seen as a threat. That is domestic policy.
What is its international expression? Militarism and war.
The ruling elite has global interests. It is striving to establish the supremacy of the United States over all other countries - to control oil, to control raw materials. The United States has a military budget that is a multiple of the combined military budgets of all other country in the world. That only tells you that the American ruling elite, arming itself like Chicago gangsters, is waging its international turf wars to make sure it has its hands on the levers of power - whether in Asia, Africa or South America.
And the American people have to pay for it - in Iraq, billions every month. Immense sums of money are squandered. That is why, when the Iraqi military budget came up last time for a vote in the Senate, it was passed 100-0, without any questions asked. That was less than a month ago.
But these problems are bigger than just American problems. Capitalism itself, that system whose assumptions we simply take for granted now, can be seen as a trick that enables concentration of wealth and power. It did it by separating the accumulation of wealth from any moral or social consideration, from conscience. It is no accident that capitalism has paved the way for a takeover of society by psychopaths.
What seems normal to us can be seen as sick and perverted if we look at it from the point of view of the past, of tribal type organization, or from the point of view of a healthy future. Tribal societies have as their hallmark the deep, systematic prevention of concentration of power. Tribal societies, in a kind of reverse causality, organized themselves toward the prevention of something that hadn't taken place yet but what is taking place now. According to Ran Prieur, one of the ways this is done is by forbidding purely utilitarian relationships, or those we would call economic:
In a tribe, purely utilitarian relationships are forbidden! The economic is a subset of the social, and in a land-based tribe, the fundamental social relationship is between the people and the land. But in civilization, the social and the economic are carefully separated. It's uncool to accept money from your family -- you're supposed to "earn" it through a utilitarian deal with strangers. We don't want to chat with the person behind the counter -- we just want our coffee. We love people we don't depend on, and we depend on people we don't love, or even know.
This is what enables a large-scale domination system! Tribes can be repressive, abusive, even ecologically destructive, but they can't be big, or grow past a certain size, because everyone has to know everyone for them to work. And for a tribe to be mean, everyone in it has to be mean. But you can build a global hell-world out of nice people with just one trick: the purely utilitarian relationship. It's the basic chemical bond of Empire. And we can dissolve Empire, one cell at a time, by befriending the people we exchange money with, and building gift economies on our friendships.
Laura Knight-Jadczyk, in her fascinating series on John Kennedy published in her blog and in the Signs of the Times, approached the subject this way:
Monday's SOTT carried a couple of articles that caught my eye. The first one was The harmless people, an interview with Elizabeth Marshall Thomas.
In 1950, a 19-year-old girl left the elite Smith College in Massachusetts to join her family on an expedition that would change their lives. Prompted by her father's desire to visit unexplored places, the family set off for the Kalahari desert in search of Bushmen living out the "old ways" of hunter-gatherers. The girl, Elizabeth Marshall Thomas, went on to celebrate them in her 1959 book The Harmless People, which became a classic of popular anthropology. Nearly 50 years on, Marshall Thomas's latest book The Old Way revisits the story - and finds that the Bushmen's fate is more complex than it seems.
Marshall Thomas returned to her English degree at Smith College, Massachusetts...
The interviewer asks Marshall Thomas: Westerners mourn the loss of this hunter-gatherer society, but you take a rather different view...
Marshall Thomas responds : Yes, for me they are living in somewhat the same way, but with different economics. The idea that you help your own is still present. This is what kept the human race alive for 150,000 years.
The hunter-gatherers told anthropologists they don't define themselves by how they get food but by how they relate to each other. We saw that. They tried to keep jealousy at a minimum, with nobody more important or owning more things than anyone else. You gave things away rather than keep them. You wanted other people to think of you with a good feeling.
Q: Is that the "old way" of your book title?
There was a time when the playing field was level and all species lived in this way. How people and their domestic animals live now is profoundly different. [...]
Q: What do you make of the accusations by some academics that your writing is too sentimental?
A: My mother Lorna also wrote about the Bushman culture and we were both accused of overemphasizing the lack of violence in Bushman culture, but we were only reporting what we had seen. In the Bushmen groups we visited, we observed that there was much emphasis on cooperation and on avoiding jealousy. The reason was that life was pretty marginal and one way to get through was to have others who help you in your hour of need. Everything in their culture was oriented to this.
So it isn't that they have a natural "niceness" - I never said that they did. They're just like everybody else. What they have done is recognise the damage one person can do to another and try to put a limit on it.
The second article relates directly to what Marshall Thomas has remarked above about how societies that live on the edge manage to survive: Survival of the nicest
ALTRUISM - helping others at a cost to oneself - has been a stubborn thorn in the side of evolutionary biologists. If natural selection favours genes that produce traits which increase the reproductive success of the individuals in which they reside, then altruism is precisely the sort of behaviour that should disappear.
Darwin was acutely aware of the problem that altruism posed for his theory of natural selection. He was particularly worried about the self-sacrificial behaviour that social insects display: how could natural selection explain why a worker bee will defend its hive by stinging an intruder and dying in the process? In On the Origin of Species, he summarised the topic of social insect altruism as "one special difficulty, which at first appeared to me to be insuperable, and actually fatal to the whole theory". But then he came up with an explanation.
Since worker bees were helping blood relatives - especially their queen - Darwin hypothesised that natural selection might favour altruism at the level of blood kin. [...]
Huxley, also known as "Darwin's bulldog", outlined his thoughts on this topic in an 1888 essay entitled "The struggle for existence":
"From the point of view of the moralist, the animal world is on about the same level as the gladiator's show... Life [for prehistoric people] was a continuous free fight, and beyond the limited and temporary relations of the family, the Hobbesian war of each against all was the normal state of existence."
For Huxley, altruism was rare, but when it occurred, it should be between blood relatives.
Kropotkin, once a page to the tsar of Russia and later a naturalist who spent five years studying natural history in Siberia, thought otherwise. In Siberia he thought that he saw altruism divorced from kinship in every species he came across.
"Don't compete!" Kropotkin wrote in his influential book Mutual Aid: A factor of evolution (1902). "That is the watchword which comes to us from the bush, the forest, the river, the ocean. Therefore combine - practice mutual aid!"
How could two respected scientists come to such radically different conclusions? In addition to being a naturalist, Kropotkin was also the world's most famous anarchist. He believed that if animals could partake in altruism in the absence of government, then civilised society needed no government either, and could live in peace, behaving altruistically. Kropotkin was following what he saw as "the course traced by the modern philosophy of evolution... society as an aggregation of organisms trying to find out the best ways of combining the wants of the individuals with those of co-operation". He saw anarchism as the next phase of evolution.
Huxley was no less affected by events around him. Shortly before he published "The struggle for existence", his daughter, Mady, died of complications related to a mental illness. In his despair over Mady's passing he wrote, "You see a meadow rich in flower... and your memory rests upon it as an image of peaceful beauty. It is a delusion... not a bird twitters but is either slayer or slain... murder and sudden death are the order of the day." It was in the light of nature as the embodiment of struggle and destruction - the antithesis of altruism - that Huxley saw the death of his daughter and it was in that mindset that he penned his essay [...]
A mathematical theory for the evolution of altruism and its relation to blood kinship would come a generation later with Bill Hamilton, who was both a passionate naturalist and a gifted mathematician. While working on his PhD in the early 1960s, he built a complex mathematical model to describe blood kinship and the evolution of altruism. Fortunately, the model boiled down to a simple equation, now known as Hamilton's rule. The equation has only three variables: the cost of altruism to the altruist (c), the benefit that a recipient of altruism receives (b) and their genetic relatedness (r). Hamilton's rule states that natural selection favours altruism when r × b > c.
Hamilton's equation amounts to this: if a gene for altruism is to evolve, then the cost of altruism must be balanced by compensating benefits. In his model, the benefits can be accrued by blood relatives of the altruist because there's a chance (the probability r) that such relatives may also carry that gene for altruism. In other words, a gene for altruism can spread if it helps copies of itself residing in blood kin. [...]
While working with Hamilton on kinship and altruism, the atheist Price underwent a religious epiphany. In an irony that turns the debate about religion and evolution on its head, Price believed that his findings on altruism were the result of divine inspiration. He became a devout Christian, donating most of his money to helping the poor. [...]
Since Hamilton published his model, thousands of experiments have directly or indirectly tested predictions emerging from his rule, and the results are encouraging. Hamilton's rule doesn't explain all the altruism we see but it explains a sizeable chunk of it.
...I don't think I have to spell out the connections between all of the above and the probable forces behind the assassination of John F. Kennedy to my regular readers. But for the sake of those who are not regular readers, let me suggest that you check out my article on Ponerology which tells us that there is a statistical minority of human type beings on our planet that are quite simply not really human. As Professor Robert Hare says, they are an "intraspecies predator." Are they "alien/human" hybrids as might be inferred from the remarks of Padre Freixedo? Anything is possible. But what is important is to remember the above stated rules of Altruism; and to remember that they can apply to genetic pathological deviants as well as normal human beings. That is to say, that networks of deviants, as described by psychologist Andrzej Lobaczewski, can and do act "altruistically" toward each other to some extent, and have done for millennia. Of course, that is only so long as those "others" continue to exist that they can "gang up" against. When they finally achieve dominance, it can be seen that they are quite likely to turn against each other as the recent Neocon abandonment of George W. Bush has shown us. But even with their infighting, they still work to keep a solid front of secrecy imposed between themselves and the majority of humanity, the masses of people whose energy, blood, sweat and tears, keep them on the top of the heap. In short, more than anything else, genetic deviants survive due to their ability to induce altruistic behavior from others - self-sacrifice - by deceiving the others into believing that they are conspecific; they are parasites. And thus it is absolutely crucial for all of us to begin to learn about these matters because the very survival of humanity may depend on it. As Lobaczewski points out, the very fact that there are more normal people than deviants suggests to us that normality, having a conscience and empathy and altruism, are those things that helped humanity to evolve and survive over hundreds of thousands of years. It is going to take a lot of altruism and empathy to get us through the next few years!
Maybe the "altruism" among psychopaths led them, at crucial points in history, to encourage the development of capitalism, a system that, by freeing energies, enabled sufficient concentration of wealth to eliminate freedom for the non-psychopathic.
"Nothing that has ever happened should be regarded as lost for history. To be sure, only a redeemed mankind receives the fullness of its past--which is to say, only for a redeemed mankind has its past become citable in all its moments"
--Walter Benjamin, Theses on the Philosophy of History
- There is the "Carry on with the occupation regardless" of Binyamin Netanyahu and Likud;
- There is the "Seal the Palestinians into ghettoes and hope eventually they will leave of their own accord," in its Kadima (hard) and Labor (soft) incarnations;
- And there is the "Expel them all" of Avigdor Lieberman, Olmert's new Minister of Strategic Threats.