Quiz: Bank of America was originally founded in 1904 in San Francisco. What was the bank called at that time? (Answer at the bottom of this article, in case you're curious to peek now.)

Want to know the history of the "1 percent" meme? I'll answer that one right now.

I've been reading Lords of Creation, by Frederick Lewis Allen, originally published in 1936, and re-printed a few years back as part of Mark Crispin Miller's Forbidden Bookshelf. The subtitle was "The History of America's 1 Percent". The book is full of stories from the lives of J. P. Morgan, Andrew Carnegie, John D. Rockefeller and many robber-barons of the Gilded Age who are less well-remembered today. But what makes this book fascinating reading is that the themes are so evocative of the 21st Century.

(Image by Wikigallery.org)

Corporate welfare--huge bonuses for people at the top and layoffs for people at the bottom--growing income disparities--real estate speculation--trickle-down economics--all these things are déja vu all over again.

Like the present era, the early decades of the 20th Century was a time of cascading advances in technology. In their case, railroads and cars, electrification and telephones; in ours, computerization and biotech. And just as in the present era, there were financiers who were not directly engaged in the technology boom, but who made far greater profits than the industrialists they financed.

There was a real estate boom and a real estate crash. As in the present day, there were financial pyramids constructed for the sole purpose of obfuscating which owns which and who owes what to whom. It sounds a lot like today's hypothecation of loan security , and collateralized mortgage obligations . The Federal Reserve , invented by the Guilded Agers, is a shell game that continues to this day. A theme running through the book is conflict of interest: the trustees who are pledged to guard the interest of small stockholders are trading in these stocks to their own advantage, escaping with profits for themselves before the panic selling that wipes out the family savings of their fiduciaries.

Today, everyone from economists to Black Swan statisticians agrees that market excesses are driven by mob psychology of fear and greed. That is to say, the boom/bust cycle is not created by the insiders who profit from it, but is just something that happens when you have a lot of independent buyers and sellers, all trying to second-guess one another. But Lewis makes clear that the market manipulation for profit of the few at the expense of the many was already a mature science in 1929. "It is preposterous to regard a bull market so stimulated and so financed as the product of the spontaneous speculative madness of the entire American population." To say the same today is to relegate yourself to the margins of the conspiracy theorists .

The root problem with capitalism is that power begets power. It all starts with the notion of "free competition", but inevitably, size confers an advantage, and the competition becomes one-sided. There is a tendency for the biggest companies to continue their inexorable growth, steamrollering the smaller companies in their path. This was the story of Standard Oil and U.S. Steel, and the same story continues with Microsoft and Amazon.

The Sherman Antitrust Act of 1890 was designed to curb monopolistic power in the marketplace, but any company big enough to be subject to its strictions had enough clout to dominate the Department of Commerce. "The ingenuity of corporate lawyers is usually two or three steps ahead of that of legislators." In practice, I learned, the primary application of the Sherman Act was to bust labor unions !

Then as now, wealth bought influence over government, and the very agencies that were charged with maintaining a fair playing field were in thrall to the biggest and the baddest corporate giants. Government regulation was derided as not just unnecessary, but an impediment to progress and efficiency.

Then as now, Capitalism was like a religion, and freedom to profiteer was conflated with the Constitutional freedoms guaranteed in our Bill of Rights.

We might laugh at the Christian piety of those who compiled huge fortunes at a time when factory men worked 12 hours a day, 7 days a week, and considered themselves lucky to have a job--we could laugh if it didn't remin us so exquisitely of G.W. Bush quoting Jesus in his call to war, or Congressmen Todd Akin and Paul Broun thumping for creationism. An excerpt from J.P. Morgan's will:

I commit my soul Into the hands of my Savior, in full confidence that having redeemed It and washed it in His most precious blood he will present it faultless before the throne of my heavenly father; and I entreat my children to maintain and defend, at all hazard, and at any cost of personal sacrifice, the blessed doctrine of the "complete atonement" for sin through the blood of Jesus Christ, once offered, and through that alone.

Despite the contempt with which the country regarded "profiteering" and despite the efforts of the government to set prices at fair levels, it must be admitted that the vast volume of war orders, the increasing efficiency of production, and the fallibility of governmental officials combined to permit some very high profits...The Calumet and Hecla Mining Company made 800% on its capital stock in 1917; the Utah Copper Company, 200%...Perhaps this had best be forgotten by those who write inscriptions for soldiers' monuments.

Banks have a special role to play in wars, because governments see so much at stake that they convince their constituents to go into hock for decades to come, trying to advance their chance of prevailing. In every war, both sides lose, while the bankers win. There is a venerable history of banks maximizing their profits by their even-handedness, happily financing both sides at usurous interest rates. At the launch of World War I, Pres Woodrow Wilson solemnly declared a policy of strict neutrality, but our bankers had different ideas. Their loans to the British, the French and the Russians kept the Allies in the running. The stakes kept escalating, until, after three years, it was clear that Wall St would be in deep doo-doo if the Allies did not come out in a position to repay their debts. In Allen's account, J.P. Morgan and the Banksters of the last century had a great deal to do with America's entry into The War.

(Image by Looney Toons

I find myself wondering how it is that we have learned so little in a hundred years. Part of the answer is that "It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" [ Upton Sinclair ]. The science of Propaganda was invented precisely to solve the PR problem of the 1 percent. At its philosophic core, capitalism is not distinguishable from a Ponzi scheme, and the fact that a rapacious, unsustainable, ecocidal expansion has continued a hundred years past the cliff's edge has placed us all in the shadow of a coming day of reckoning.

Answer to the Quiz: The Bank of America was originally founded by Amadeo Peter Giannini under the name, Bank of Italy.


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