At our residency, you will present your book review in a MS PowerPoint or Prezi presentation. You should include the following information:The title, and a brief introduction to the major theme of th
Busin ess A dven tu res
Tw elv e C la ssic T ale s f r o m t h e W orld o f W all S tr eet
Jo hn B ro oks
Con te n ts
1 The F lu ctu atio n
TH E L IT TLE C RA SH I N ’ 6 2
2 The F ate o f t h e E dse l
A C A UTIO NARY T A LE
3 The F ed era l I n co m e T ax
IT S H IS T O RY A ND P EC U LIA RIT IE S
4 A R ea so nable A m ount o f T im e
IN SID ER S A T T EX A S G U LF S U LPH UR
5 Xero x X ero x X ero x X ero x
6 Makin g t h e C usto m ers W hole
TH E D EA TH O F A P R ESID EN T
7 The I m pacte d P hilo so phers
NON-C O M MUNIC A TIO N A T G E
8 The L ast G re a t C orn er
A C O M PA NY C A LLED P IG GLY W IG GLY
9 A S eco nd S ort o f L ife
DAVID E . L IL IE N TH AL, B U SIN ESSM AN
10
Sto ckh old er S ea so n
ANNUAL M EETIN GS A ND C O RPO RA TE P O W ER
11
One F re e B ite
A M AN, H IS K NOW LED GE, A ND H IS J O B
12
In D efe n se o f S te rlin g
TH E B A NKER S, T H E P O UND, A ND T H E D OLLA R
In dex 1
The F lu ctu atio n
TH E S T O CK M ARK ET
—th e d ayti m e a d ventu re s e ria l o f th e w ell- to -d o— would n o t b e th e s to ck m ark et i f
it d id n o t h av e i ts u p s a nd d ow ns. A ny b oard -ro om s itte r w ith a ta ste f o r W all S tr e et l o re h as h eard o f
th e re to rt th at J . P . M org an th e E ld er is s u p pose d to h av e m ad e to a n aïv e a cq uain ta nce w ho h ad
ventu re d to a sk th e g re at m an w hat th e m ark et w as g o in g to d o. “ It w ill flu ctu ate ,” re p lie d M org an
dry ly . A nd it h as m any o th er d is ti n cti v e c hara cte ris ti c s. A part fr o m th e e co no m ic a d vanta ges a nd
dis a d vanta ges
o f s to ck e xchanges— th e a d vanta ge th at th ey p ro vid e a fr e e flo w o f c ap ita l to fin ance
in d ustr ia l e xp ansio n, fo r in sta nce, a nd th e d is a d vanta ge th at th ey p ro vid e a n a ll to o c o nv enie nt w ay
fo r th e u nlu cky, th e i m pru d ent, a nd th e g ullib le to l o se th eir m oney— th eir d ev elo pm ent h as c re ate d a
who le p atte rn o f so cia l b ehav io r, c o m ple te w ith c usto m s, la nguage, a nd p re d ic ta b le re sp onse s to
giv en e v ents . W hat is tr u ly e xtr a o rd in ary is th e s p eed w ith w hic h th is p atte rn e m erg ed fu ll b lo w n
fo llo w in g th e esta b lis h m ent, in 1 611 , o f th e w orld ’s fir s t im porta nt sto ck exchange— a ro ofle ss
co urty ard in A mste rd am — and th e d egre e to w hic h it p ers is ts ( w ith v aria ti o ns, it is tr u e) o n th e N ew
York S to ck E xchange in th e nin ete en-s ix ti e s. P re se nt- d ay sto ck tr a d in g in th e U nite d S ta te s— a
bew ild erin gly v ast e nte rp ris e , in v olv in g m illio ns o f m ile s o f p riv ate te le gra p h w ir e s, c o m pute rs th at
can re ad a nd c o py th e M anhatta n T ele p ho ne D ir e cto ry in th re e m in ute s, a nd o ver tw enty m illio n
sto ckho ld er p arti c ip ants — would s e em to b e a f a r c ry f r o m a h and fu l o f s e v ente enth -c entu ry D utc hm en
hagglin g in th e ra in . B ut th e fie ld m ark s are m uch th e sa m e. T he fir s t sto ck exchange w as,
in ad verte ntl y , a l a b ora to ry i n w hic h n ew h um an r e acti o ns w ere r e v eale d . B y th e s a m e to ken, th e N ew
York S to ck E xchange i s a ls o a s o cio lo gic al te st tu b e, f o re v er c o ntr ib uti n g to th e h um an s p ecie s’ s e lf-
und ers ta nd in g.
The behav io r of th e pio neerin g D utc h sto ck tr a d ers is ab ly docum ente d in a book enti tl e d
“C onfu sio n o f C onfu sio ns,” w ritte n b y a p lu nger o n th e A mste rd am m ark et n am ed J o se p h d e l a V ega;
orig in ally p ub lis h ed in 1 688, it w as r e p rin te d in E nglis h tr a nsla ti o n a fe w y ears a go b y th e H arv ard
Busin ess S cho ol. A s fo r th e b ehav io r o f p re se nt- d ay A meric an in v esto rs a nd b ro kers — who se tr a its ,
lik e th o se o f a ll s to ck tr a d ers , a re e xaggera te d i n ti m es o f c ris is — it m ay b e c le arly r e v eale d th ro ugh a
co nsid era ti o n o f th eir a cti v iti e s d urin g th e la st w eek o f M ay, 1 962, a ti m e w hen th e s to ck m ark et
flu ctu ate d in a sta rtl in g w ay. O n M ond ay, M ay 28th , th e D ow -J o nes av era ge of th ir ty le ad in g
in d ustr ia l s to cks, w hic h h as b een c o m pute d e v ery tr a d in g d ay s in ce 1 897, d ro pped 3 4.9 5 p oin ts , o r
more th an i t h ad d ro pped o n a ny o th er d ay e xcep t O cto ber 2 8, 1 929, w hen th e l o ss w as 3 8.3 3 p oin ts .
The v olu m e o f tr a d in g o n M ay 2 8th w as 9 ,3 50,0 00 s h are s— th e s e v enth -la rg est
o ne-d ay tu rn o ver in
Sto ck E xchange h is to ry . O n T uesd ay, M ay 2 9th , a fte r a n a la rm in g m orn in g w hen m ost s to cks s a nk f a r
belo w th eir M ond ay-a fte rn o on clo sin g pric es, th e m ark et su d denly changed dir e cti o n, charg ed
up w ard w ith a sto nis h in g v ig o r, a nd fin is h ed th e d ay w ith a la rg e, th o ugh n o t r e co rd -b re akin g, D ow -
Jo nes g ain o f 2 7.0 3 p oin ts . T uesd ay’s r e co rd , o r n ear r e co rd , w as i n tr a d in g v olu m e; th e 1 4,7 50,0 00 sh are s th at c hanged h and s a d ded u p to th e g re ate st o ne-d ay to ta l e v er e xcep t fo r O cto ber 2 9, 1 929,
when tr a d in g r a n j u st o ver s ix te en m illio n s h are s. ( L ate r i n th e s ix ti e s, te n, tw elv e, a nd e v en f o urte en-
millio n s h are d ays b ecam e c o m monp la ce; th e 1 929 v olu m e r e co rd w as fin ally b ro ken o n A pril 1 st,
1968, a nd fr e sh r e co rd s w ere s e t a gain a nd a gain in th e n ext fe w m onth s.) T hen, o n T hurs d ay, M ay
31st, a fte r a W ed nesd ay h o lid ay in o bse rv ance o f M em oria l D ay, th e c ycle w as c o m ple te d ; o n a
volu m e o f 1 0,7 10,0 00 s h are s, th e f ifth -g re ate st i n h is to ry , th e D ow -J o nes a v era ge g ain ed 9 .4 0 p oin ts ,
le av in g i t s lig htl y a b ove th e l e v el w here i t h ad b een b efo re a ll th e e xcite m ent b egan.
The c ris is r a n its c o urs e in th re e d ays, b ut, n eed le ss to s a y, th e p ost- m orte m s to ok lo nger. O ne o f
de l a V ega’s o bse rv ati o ns a b out th e A mste rd am tr a d ers w as th at th ey w ere “ v ery c le v er i n i n v enti n g
re aso ns” f o r a s u d den r is e o r f a ll i n s to ck p ric es, a nd th e W all S tr e et p und its c erta in ly n eed ed a ll th e
cle v ern ess th ey c o uld m uste r to e xp la in w hy, in th e m id dle o f a n e xcelle nt b usin ess y ear, th e m ark et
had s u d denly ta ken its s e co nd -w ors t n o se d iv e e v er u p to th at m om ent. B eyo nd th ese e xp la nati o ns—
am ong w hic h P re sid ent K enned y’s A pril c ra ckd ow n o n th e s te el in d ustr y ’s p la nned p ric e in cre ase
ra nked h ig h— it w as i n ev ita b le th at th e p ostm orte m s s h o uld o fte n c o m pare M ay, 1 962, w ith O cto ber,
1929. T he f ig ure s f o r p ric e m ovem ent a nd tr a d in g v olu m e a lo ne w ould h av e f o rc ed th e p ara lle l, e v en
if th e w ors t panic days of th e tw o m onth s— th e tw enty -e ig hth and th e tw enty -n in th — had no t
myste rio usly and , to so m e p eo ple , o m in o usly co in cid ed . B ut it w as genera lly co nced ed th at th e
co ntr a sts w ere m ore p ers u asiv e th an th e s im ila riti e s. B etw een 1 929 a nd 1 962, r e gula ti o n o f tr a d in g
pra cti c es a nd l im ita ti o ns o n th e a m ount o f c re d it e xte nd ed to c usto m ers f o r th e p urc hase o f s to ck h ad
mad e i t d iffic ult, i f n o t
a ctu ally i m possib le , f o r a m an to l o se
all
h is m oney o n th e E xchange. I n s h o rt,
de la V ega’s e p ith et fo r th e A mste rd am sto ck e xchange in th e six te en-e ig hti e s— he c alle d it “ th is
gam blin g h ell,” a lth o ugh h e o bvio usly l o ved i t— had b eco m e c o nsid era b ly l e ss a p plic ab le to th e N ew
York e xchange i n th e th ir ty -th re e y ears b etw een th e tw o c ra sh es.
TH E
1962 cra sh did no t co m e w ith o ut w arn in g, ev en th o ugh fe w obse rv ers re ad th e w arn in gs
co rre ctl y . S ho rtl y a fte r th e b egin nin g o f th e y ear, s to cks h ad b egun fa llin g a t a p re tty c o nsis te nt r a te ,
and th e p ace had accele ra te d to th e p oin t w here th e p re v io us b usin ess w eek— th at o f M ay 2 1st
th ro ugh M ay 2 5th — had b een th e w ors t o n th e S to ck E xchange s in ce J u ne, 1 950. O n th e m orn in g o f
Mond ay, M ay 2 8th , th en, b ro kers a nd d eale rs h ad r e aso n to b e in a th o ughtf u l m ood. H ad th e b otto m
been r e ached , o r w as i t s ti ll a head ? O pin io n a p pears , i n r e tr o sp ect, to h av e b een d iv id ed . T he D ow -
Jo nes n ew s s e rv ic e, w hic h s e nd s i ts s u b sc rib ers s p ot f in ancia l n ew s b y te le p rin te r, r e fle cte d a c erta in
ap pre hensiv eness b etw een th e ti m e i t s ta rte d i ts tr a nsm is sio ns, a t n in e o ’c lo ck, a nd th e o penin g o f th e
Sto ck E xchange, a t te n. D urin g th is h o ur, th e b ro ad ta p e ( a s th e D ow -J o nes s e rv ic e, w hic h i s p rin te d
on v erti c ally r u nnin g p ap er s ix a nd a q uarte r in ches w id e, is o fte n c alle d , to d is ti n guis h it fr o m th e
Sto ck E xchange p ric e ta p e, w hic h is p rin te d h o riz o nta lly a nd is o nly th re e-q uarte rs o f a n in ch h ig h)
co m mente d th at m any s e curiti e s d eale rs h ad b een b usy o ver th e w eekend s e nd in g o ut d em and s fo r
ad diti o nal c o lla te ra l to c re d it c usto m ers w ho se s to ck a sse ts w ere s h rin kin g in v alu e; re m ark ed th at
th e ty p e o f p re cip ita te liq uid ati o n s e en d urin g th e p re v io us w eek “ has b een a s tr a nger to W all S tr e et
fo r y ears ;” a nd w ent o n to g iv e s e v era l ite m s o f e nco ura gin g b usin ess n ew s, s u ch a s th e fa ct th at
Westi n gho use h ad ju st re ceiv ed a n ew N av y c o ntr a ct. In th e s to ck m ark et, h o w ev er, a s d e la V ega
poin ts o ut, “ th e n ew s [ a s s u ch] is o fte n o f littl e v alu e;” in th e s h o rt r u n, th e m ood o f th e in v esto rs is
what c o unts .
This m ood b ecam e m anife st w ith in a m atte r o f m in ute s a fte r th e S to ck E xchange o pened . A t 1 0:1 1 ,
th e b ro ad ta p e r e p orte d th at “ sto cks a t th e o penin g w ere m ix ed a nd o nly m odera te ly
a cti v e.” T his w as
re assu rin g in fo rm ati o n, b ecause “ m ix ed ” m eant th at s o m e w ere u p a nd s o m e w ere d ow n, a nd a ls o because a f a llin g m ark et i s u niv ers a lly r e gard ed a s f a r l e ss th re ate nin g w hen th e a m ount o f a cti v ity i n
it is m odera te ra th er th an g re at. B ut th e c o m fo rt w as s h o rt- liv ed , fo r b y 1 0:3 0 th e S to ck E xchange
ta p e, w hic h r e co rd s th e p ric e a nd th e s h are v olu m e o f e v ery tr a nsa cti o n m ad e o n th e flo or, n o t o nly
was c o nsis te ntl y r e co rd in g l o w er p ric es b ut, r u nnin g a t i ts m axim um s p eed o f f iv e h und re d c hara cte rs
per m in ute , w as s ix m in ute s l a te . T he l a te ness o f th e ta p e m eant th at th e m achin e w as s im ply u nab le to
keep a b re ast o f w hat w as g o in g o n, s o f a st w ere tr a d es b ein g m ad e. N orm ally , w hen a tr a nsa cti o n i s
co m ple te d o n th e flo or o f th e E xchange, a t 1 1 W all S tr e et, a n E xchange e m plo yee w rite s th e d eta ils
on a s lip o f p ap er a nd s e nd s it b y p neum ati c tu b e to a r o om o n th e fifth flo or o f th e b uild in g, w here
one o f a s ta ff o f g ir ls ty p es i t i n to th e ti c ker m achin e f o r tr a nsm is sio n. A l a p se o f tw o o r th re e m in ute s
betw een a f lo or tr a nsa cti o n a nd i ts a p peara nce o n th e ta p e i s n o rm al, th ere fo re , a nd i s n o t c o nsid ere d
by th e S to ck E xchange to b e “ la te ness;” th at w ord , in th e la nguage o f th e E xchange, is u se d o nly to
desc rib e a ny a d diti o nal l a p se b etw een th e ti m e a s a le s s lip a rriv es o n th e f ifth f lo or a nd th e ti m e th e
hard -p re sse d ti c ker is a b le to a cco m modate it. (“ T he te rm s u se d o n th e E xchange a re n o t c are fu lly
cho se n,” c o m pla in ed d e la V ega.) T ap e d ela ys o f a fe w m in ute s o ccur fa ir ly o fte n o n b usy tr a d in g
days, b ut sin ce 1 930, w hen th e ty p e o f ti c ker in u se in 1 962 w as in sta lle d , b ig d ela ys h ad b een
extr e m ely r a re . O n O cto ber 2 4, 1 929, w hen th e ta p e f e ll tw o h und re d a nd f o rty -s ix m in ute s b ehin d , i t
was b ein g p rin te d a t th e r a te o f tw o h und re d a nd e ig hty -fiv e c hara cte rs a m in ute ; b efo re M ay, 1 962,
th e g re ate st d ela y th at h ad e v er o ccurre d o n th e n ew m achin e w as th ir ty -fo ur m in ute s.
Unm is ta kab ly , p ric es w ere g o in g d ow n a nd a cti v ity w as g o in g u p , b ut th e s itu ati o n w as s ti ll n o t
desp era te . A ll th at h ad b een e sta b lis h ed b y e le v en o ’c lo ck w as th at th e p re v io us w eek’s d eclin e w as
co nti n uin g a t a m odera te ly a ccele ra te d ra te . B ut a s th e p ace o f tr a d in g in cre ase d , so d id th e ta p e
dela y. A t 1 0:5 5, i t w as th ir te en m in ute s l a te ; a t 1 1 :1 4, tw enty m in ute s; a t 1 1 :3 5, tw enty -e ig ht m in ute s;
at 1 1 :5 8, th ir ty -e ig ht m in ute s; a nd a t 1 2:1 4, f o rty -th re e
m in ute s. ( T o i n je ct a t l e ast a s e aso nin g o f u p -
to -d ate i n fo rm ati o n i n to th e ta p e w hen i t i s f iv e m in ute s o r m ore i n a rre ars , th e E xchange p erio dic ally
in te rru p te d i ts n o rm al p ro gre ss to i n se rt “ fla sh es,” o r c urre nt p ric es o f a f e w l e ad in g s to cks. T he ti m e
re q uir e d to d o th is , o f co urs e , ad ded to th e la te ness.) T he no on co m puta ti o n o f th e D ow -J o nes
in d ustr ia l a v era ge s h o w ed a l o ss f o r th e d ay s o f a r o f 9 .8 6 p oin ts .
Sig ns o f p ub lic h yste ria b egan to a p pear d urin g th e l u nch h o ur. O ne s ig n w as th e f a ct th at b etw een
tw elv e a nd tw o, w hen th e m ark et is tr a d iti o nally in th e d old ru m s, n o t o nly d id p ric es c o nti n ue to
declin e b ut v olu m e c o nti n ued to r is e , w ith a c o rre sp ond in g e ffe ct o n th e ta p e; j u st b efo re tw o o ’c lo ck,
th e ta p e d ela y s to od a t f ifty -tw o m in ute s. E vid ence th at p eo ple a re s e llin g s to cks a t a ti m e w hen th ey
ought to b e e ati n g lu nch is a lw ays r e gard ed a s a s e rio us m atte r. P erh ap s ju st a s c o nv in cin g a p orte nt
of a p pro achin g a gita ti o n w as to b e fo und in th e T im es S quare o ffic e ( a t 1 451 B ro ad w ay) o f M errill
Lynch, P ie rc e, F enner & S m ith , th e u nd is p ute d G arg antu a o f th e b ro kera ge tr a d e. T his o ffic e w as
pla gued b y a p eculia r p ro ble m : b ecause o f i ts e xcessiv ely c entr a l l o cati o n, i t w as v is ite d e v ery d ay a t
lu nchti m e b y a n u nusu al n um ber o f w hat a re k no w n i n b ro kera ge c ir c le s a s “ w alk -in s” — peo ple w ho
are s e curiti e s c usto m ers o nly i n a m in usc ule w ay, i f a t a ll, b ut w ho f in d th e a tm osp here o f a b ro kera ge
offic e a nd th e c hangin g p ric es o n i ts q uo ta ti o n b oard e nte rta in in g, e sp ecia lly i n ti m es o f s to ck-m ark et
cris is . ( “ T ho se p la yin g th e g am e m ere ly fo r th e s a ke o f e nte rta in m ent a nd n o t b ecause o f g re ed in ess
are e asily to b e d is ti n guis h ed .” — de la V ega.) F ro m lo ng e xp erie nce, th e o ffic e m anager, a c alm
Geo rg ia n n am ed S am uel M oth ner, h ad le arn ed to r e co gniz e a c lo se c o rre la ti o n b etw een th e c urre nt
degre e o f p ub lic c o ncern a b out th e m ark et a nd th e n um ber o f w alk -in s i n h is o ffic e, a nd a t m id day o n
May 2 8th th e m ob o f th em w as s o d ense a s to h av e, f o r h is tr a in ed s e nsib iliti e s, p ositi v ely a lb atr o ss-
lik e c o nno ta ti o ns o f d is a ste r a head .
Moth ner’s tr o ub le s, l ik e th o se o f b ro kers f r o m S an D ie go to B ango r, w ere b y n o m eans c o nfin ed to dis tu rb in g s ig ns a nd p orte nts . A n u nre str a in ed liq uid ati o n o f s to cks w as a lr e ad y w ell u nd er w ay; in
Moth ner’s o ffic e, o rd ers f r o m c usto m ers w ere
r u nnin g f iv e o r s ix ti m es a b ove a v era ge, a nd n early a ll
of th em w ere o rd ers to s e ll. B y a nd l a rg e, b ro kers w ere u rg in g th eir c usto m ers to k eep c o ol a nd h o ld
on to th eir sto cks, a t le ast fo r th e p re se nt, b ut m any o f th e c usto m ers c o uld n o t b e p ers u ad ed . In
ano th er m id to w n M errill L ynch o ffic e, a t 6 1 W est F orty -e ig hth S tr e et, a c ab le w as r e ceiv ed fr o m a
su b sta nti a l c lie nt l iv in g i n R io d e J a neir o th at s a id s im ply , “ P le ase s e ll o ut e v ery th in g i n m y a cco unt.”
Lackin g th e ti m e to c o nd uct a lo ng-d is ta nce a rg um ent in fa v or o f fo rb eara nce, M errill L ynch h ad n o
cho ic e b ut to c arry o ut th e o rd er. R ad io a nd te le v is io n s ta ti o ns, w hic h b y e arly a fte rn o on h ad c aught
th e s c ent o f n ew s, w ere n o w i n te rru p ti n g th eir r e gula r p ro gra m s w ith s p ot b ro ad casts o n th e s itu ati o n;
as a S to ck E xchange p ub lic ati o n h as s in ce c o m mente d , w ith s o m e a sp erity , “ T he d egre e o f a tte nti o n
dev ote d to th e s to ck m ark et in th ese n ew s b ro ad casts m ay h av e c o ntr ib ute d to th e u neasin ess a m ong
so m e in v esto rs .” A nd th e p ro ble m th at b ro kers fa ced in e xecuti n g th e flo od o f s e llin g o rd ers w as b y
th is ti m e v astl y c o m plic ate d b y te chnic al fa cto rs . T he ta p e d ela y, w hic h b y 2 :2 6 a m ounte d to fifty -
fiv e m in ute s, m eant th at f o r th e m ost p art th e ti c ker w as r e p orti n g th e p ric es o f a n h o ur b efo re , w hic h
in m any c ase s w ere a nyw here fr o m o ne to te n d olla rs a s h are h ig her th an th e c urre nt p ric es. It w as
alm ost im possib le fo r a b ro ker a ccep ti n g a s e llin g o rd er to te ll h is c usto m er w hat p ric e h e m ig ht
exp ect to g et. S om e b ro kera ge fir m s w ere tr y in g to c ir c um vent th e ta p e d ela y b y u sin g m akesh ift
re p orti n g sy ste m s of th eir ow n; am ong th ese w as M errill Lynch, w ho se flo or bro kers , afte r
co m ple ti n g a tr a d e, w ould — if th ey re m em bere d a nd h ad th e ti m e— sim ply sh o ut th e re su lt in to a
flo ors id e te le p ho ne co nnecte d to a “sq uaw k box” in th e fir m ’s head offic e, at 70 P in e S tr e et.
Obvio usly , h ap haza rd m eth o ds l ik e th is w ere s u b je ct to e rro r.
On th e S to ck E xchange f lo or i ts e lf, th ere w as n o q uesti o n o f a ny s o rt o f r a lly ; i t w as s im ply a c ase
of all sto cks’ declin in g ra p id ly and ste ad ily , on eno rm ous volu m e. A s de la V ega m ig ht hav e
desc rib ed th e s c ene— as, in fa ct, h e
did
ra th er fla m boyantl y d esc rib e a s im ila r s c ene— “T he b ears
[th at is , th e se lle rs ] a re c o m ple te ly ru le d b y fe ar, tr e p id ati o n, a nd n erv ousn ess. R ab bits b eco m e
ele p hants , b ra w ls in a ta v ern b eco m e re b ellio ns, fa in t
s h ad ow s a p pear to th em a s s ig ns o f c hao s.”
Not th e le ast w orris o m e asp ect of th e situ ati o n w as th e fa ct th at th e le ad in g blu echip sto cks,
re p re se nti n g sh are s in th e co untr y ’s la rg est co m panie s, w ere rig ht in th e m id dle o f th e d eclin e;
in d eed , A meric an T ele p ho ne & T ele gra p h, th e la rg est c o m pany o f th em a ll, a nd th e o ne w ith th e
la rg est n um ber o f s to ckho ld ers , w as l e ad in g th e e nti r e m ark et d ow nw ard . O n a s h are v olu m e g re ate r
th an th at o f a ny o f th e m ore th an f ifte en h und re d o th er s to cks tr a d ed o n th e E xchange ( m ost o f th em a t a
ti n y f r a cti o n o f T ele p ho ne’s p ric e), T ele p ho ne h ad b een b atte re d b y w av e a fte r w av e o f u rg ent s e llin g
all d ay, u nti l a t tw o o ’c lo ck it s to od a t 1 04¾ — dow n 6 ⅞ fo r th e d ay— and w as s ti ll in fu ll r e tr e at.
Alw ays s o m eth in g o f a b ellw eth er, T ele p ho ne w as n o w b ein g w atc hed m ore c lo se ly th an e v er, a nd
each lo ss o f a fr a cti o n o f a p oin t in its p ric e w as th e s ig nal fo r fu rth er d eclin es a ll a cro ss th e b oard .
Befo re th re e o ’c lo ck, I .B .M . w as d ow n 1 7½ p oin ts ; S ta nd ard O il o f N ew J e rs e y, o fte n e xcep ti o nally
re sis ta nt to g enera l d eclin es, w as o ff 3 ¼ ; a nd T ele p ho ne its e lf h ad tu m ble d a gain , to 1 01⅛ . N or d id
th e b otto m a p pear to b e i n s ig ht.
Yet th e a tm osp here o n th e flo or, a s it h as s in ce b een d esc rib ed b y m en w ho w ere th ere , w as n o t
hyste ric al— or, a t le ast, a ny h yste ria w as w ell c o ntr o lle d . W hile m any b ro kers w ere s tr a in in g to th e
utm ost th e E xchange’s r u le a gain st r u nnin g o n th e flo or, a nd s o m e fa ces w ore e xp re ssio ns th at h av e
been c hara cte riz e d b y a c o nse rv ati v e E xchange o ffic ia l a s “ stu d io us,” th ere w as th e u su al a m ount o f
jo sh in g, ho rs e p la y, and exchangin g of m ild in su lts . (“ Jo kes … fo rm a m ain attr a cti o n to th e
busin ess.” — de la V ega.) B ut th in gs w ere n o t e nti r e ly th e s a m e. “ W hat I p arti c ula rly re m em ber is
fe elin g p hysic ally e xhauste d ,” o ne f lo or b ro ker h as s a id . “ O n a c ris is d ay, y o u’re l ik ely to w alk te n o r ele v en m ile s o n th e flo or— th at’ s b een m easu re d w ith p ed om ete rs — but it is n ’t ju st th e d is ta nce th at
wears y o u d ow n. It’ s th e p hysic al c o nta ct. Y ou h av e to p ush a nd g et p ush ed . P eo ple c lim b a ll o ver
yo u. T hen, th ere w ere th e s o und s— th e te nse h um o f v oic es th at y o u a lw ays g et i n ti m es o f d eclin e. A s
th e ra te o f d eclin e in cre ase s, so d oes th e p itc h o f th e h um . In a ris in g m ark et, th ere ’s a n e nti r e ly
diffe re nt s o und . A fte r y o u g et u se d to th e d iffe re nce, y o u
c an te ll ju st a b out w hat th e m ark et is d oin g
with y o ur e yes s h ut. O f c o urs e , th e u su al h eav y j o kin g w ent o n, a nd m ayb e th e j o kes g o t a l ittl e m ore
fo rc ed th an u su al. E very b ody h as c o m mente d o n th e fa ct th at w hen th e c lo sin g b ell ra ng, a t th re e-
th ir ty , a c heer w ent u p f r o m th e f lo or. W ell, w e w ere n’t c heerin g b ecause th e m ark et w as d ow n. W e
were c heerin g b ecause i t w as o ver.”
BU T
w as it o ver? T his q uesti o n o ccup ie d W all S tr e et a nd th e n ati o nal in v esti n g c o m munity a ll th e
afte rn o on a nd e v enin g. D urin g th e a fte rn o on, th e la ggard E xchange ti c ker slo gged a lo ng, so le m nly
re co rd in g p ric es th at h ad l o ng s in ce b eco m e o bso le te . ( It w as a n h o ur a nd n in e m in ute s l a te a t c lo sin g
ti m e, and d id no t fin is h p rin ti n g th e d ay’s tr a nsa cti o ns unti l 5 :5 8.) M any b ro kers sta yed o n th e
Exchange flo or u nti l a fte r fiv e o ’c lo ck, s tr a ig hte nin g o ut th e d eta ils o f tr a d es, a nd th en w ent to th eir
offic es to w ork o n th eir a cco unts . W hat th e p ric e ta p e h ad to te ll, w hen i t f in ally g o t a ro und to te llin g
it, w as a u nifo rm ly s a d ta le . A meric an T ele p ho ne h ad c lo se d a t 1 00⅝ , d ow n 1 1 fo r th e d ay. P hilip
Morris h ad c lo se d a t 7 1½ , d ow n 8 ¼ C am pbell S oup h ad c lo se d a t 8 1, d ow n 1 0¾ . I .B .M . h ad c lo se d
at 3 61, d ow n 3 7½ . A nd s o it w ent. In b ro kera ge o ffic es, e m plo yees w ere k ep t b usy — many o f th em
fo r m ost o f th e n ig ht— at v ario us s p ecia l c ho re s, o f w hic h b y fa r th e m ost u rg ent w as s e nd in g o ut
marg in c alls . A m arg in c all i s a d em and f o r a d diti o nal c o lla te ra l f r o m a c usto m er w ho h as b orro w ed
money fr o m h is b ro ker to b uy s to cks a nd w ho se s to cks a re n o w w orth b are ly e no ugh to c o ver th e
lo an. I f a c usto m er i s u nw illin g o r u nab le to m eet a m arg in c all w ith m ore c o lla te ra l, h is b ro ker w ill
se ll th e m arg in ed s to ck a s s o on a s p ossib le ; s u ch s a le s m ay d ep re ss o th er s to cks fu rth er, le ad in g to
more m arg in c alls , le ad in g to m ore s to ck s a le s, a nd s o o n d ow n in to th e p it. T his p it h ad p ro ved
botto m le ss in 1 929, w hen th ere w ere n o fe d era l re str ic ti o ns o n sto ck-m ark et c re d it. S in ce th en, a
flo or h ad b een p ut i n i t, b ut th e f a ct r e m ain s th at c re d it r e q uir e m ents i n M ay o f 1 962 w ere s u ch th at a
custo m er c o uld e xp ect a c all w hen s to cks h e h ad b ought o n m arg in h ad d ro pped to b etw een f ifty a nd
six ty p er c ent o f th eir v alu e a t th e ti m e h e b ought th em . A nd a t th e c lo se o f tr a d in g o n M ay 2 8th n early
one s to ck i n f o ur h ad d ro pped a s f a r
a s th at f r o m i ts 1 961 h ig h. T he E xchange h as s in ce e sti m ate d th at
91,7 00 m arg in c alls w ere s e nt o ut, m ain ly b y te le gra m , b etw een M ay 2 5th a nd M ay 3 1st; it s e em s a
sa fe a ssu m pti o n th at th e lio n’s s h are o f th ese w ent o ut in th e a fte rn o on, in th e e v enin g, o r d urin g th e
nig ht o f M ay 2 8th — and n o t ju st th e e arly p art o f th e n ig ht, e ith er. M ore th an o ne c usto m er fir s t
le arn ed o f th e c ris is — or fir s t b ecam e a w are o f its a lm ost s p ooky in te nsity — on b ein g a w akened b y
th e a rriv al o f a m arg in c all i n th e p re -d aw n h o urs o f T uesd ay.
If th e d anger to th e m ark et fr o m th e c o nse q uences o f m arg in s e llin g w as m uch le ss in 1 962 th an it
had b een in 1 929, th e d anger fr o m a no th er q uarte r— se llin g b y m utu al fu nd s— was im measu ra b ly
gre ate r. In d eed , m any W all S tr e et p ro fe ssio nals n o w s a y th at a t th e h eig ht o f th e M ay e xcite m ent th e
mere th o ught o f th e m utu al- fu nd s itu ati o n w as e no ugh to m ake th em s h ud der. A s i s w ell k no w n to th e
millio ns o f A meric ans w ho h av e b ought s h are s i n m utu al f u nd s o ver th e p ast tw o d ecad es o r s o , th ey
pro vid e a w ay fo r sm all in v esto rs to p ool th eir re so urc es und er exp ert m anagem ent; th e sm all
in v esto r b uys s h are s i n a f u nd , a nd th e f u nd u se s th e m oney to b uy s to cks a nd s ta nd s r e ad y to r e d eem
th e in v esto r’s sh are s a t th eir c urre nt a sse t v alu e w henev er h e c ho ose s. In a se rio us sto ck-m ark et
declin e, th e r e aso nin g w ent, s m all i n v esto rs w ould w ant to g et th eir m oney o ut o f th e s to ck m ark et a nd
would th ere fo re a sk fo r r e d em pti o n o f th eir s h are s; in o rd er to r a is e th e c ash n ecessa ry to m eet th e re d em pti o n d em and s, th e m utu al f u nd s w ould h av e to s e ll s o m e o f th eir s to cks; th ese s a le s w ould l e ad
to a f u rth er s to ck-m ark et d eclin e, c ausin g m ore h o ld ers o f f u nd s h are s to d em and r e d em pti o n— and s o
on d ow n i n to a m ore u p -to -d ate v ers io n o f th e b otto m le ss p it. T he i n v estm ent c o m munity ’s c o lle cti v e
sh ud der a t th is p ossib ility w as i n te nsifie d b y th e f a ct th at th e m utu al f u nd s’ p ow er to m agnify a m ark et
declin e h ad n ev er b een s e rio usly te ste d ; p ra cti c ally n o nexis te nt in 1 929, th e fu nd s h ad b uilt u p th e
sta ggerin g to ta l o f tw enty -th re e b illio n d olla rs i n a sse ts b y th e s p rin g o f 1 962, a nd n ev er i n th e i n te rim
had th e m ark et d eclin ed w ith a nyth in g l ik e i ts p re se nt f o rc e. C le arly , i f tw enty -th re e b illio n d olla rs i n
asse ts , o r a ny su b sta nti a l fr a cti o n o f th at fig ure , w ere to b e to sse d o nto th e m ark et n o w , it c o uld
genera te
a c ra sh th at w ould m ake 1 929 s e em lik e a s tu m ble . A th o ughtf u l b ro ker n am ed C harle s J .
Rolo , w ho w as a b ook r e v ie w er f o r th e
Atla ntic
u nti l h e j o in ed W all S tr e et’ s l ite ra ry c o te rie i n 1 960,
has r e calle d th at th e th re at o f a fu nd -in d uced d ow nw ard s p ir a l, c o m bin ed w ith g enera l ig no ra nce a s
to w heth er o r n o t o ne w as a lr e ad y in p ro gre ss, w as “ so te rrify in g th at y o u d id n’t e v en m enti o n th e
su b je ct.” A s a m an w ho se lite ra ry s e nsib iliti e s h ad u p to th en s u rv iv ed th e w ell- k no w n c ra ssn ess o f
eco no m ic life , R olo w as p erh ap s a g o od w itn ess o n o th er a sp ects o f th e d ow nto w n m ood a t d usk o n
May 2 8th . “ T here w as a n a ir o f u nre ality ,” h e s a id la te r. “ N o o ne, a s fa r a s I k new , h ad th e s lig hte st
id ea w here th e b otto m w ould b e. T he c lo sin g D ow -J o nes a v era ge th at d ay w as d ow n a lm ost th ir ty -
fiv e p oin ts , to a b out fiv e h und re d a nd s e v enty -s e v en. It’ s n o w c o nsid ere d e le gant in W all S tr e et to
deny it, b ut m any le ad in g p eo ple w ere ta lk in g a b out a b otto m o f fo ur h und re d — whic h w ould , o f
co urs e , h av e b een a d is a ste r. O ne h eard th e w ord s ‘ fo ur h und re d ’ u tte re d a gain a nd a gain , a lth o ugh i f
yo u a sk p eo ple n o w , th ey te nd to te ll y o u th ey s a id ‘ fiv e h und re d .’ A nd a lo ng w ith th e a p pre hensio ns
th ere w as a p ro fo und f e elin g o f d ep re ssio n o f a v ery p ers o nal s o rt a m ong b ro kers . W e k new th at o ur
custo m ers — by n o m eans a ll o f th em r ic h— had s u ffe re d la rg e lo sse s a s a r e su lt o f o ur a cti o ns. S ay
what yo u w ill, it’ s extr e m ely dis a gre eab le to lo se oth er peo ple ’s m oney. R em em ber th at th is
hap pened a t th e e nd o f a b out tw elv e y ears o f g enera lly r is in g s to ck p ric es. A fte r m ore th an a d ecad e
of m ore o r le ss c o nsta nt p ro fits to y o urs e lf a nd y o ur c usto m ers , y o u g et to th in k y o u’re p re tty g o od.
You’re o n to p o f i t. Y ou c an m ake m oney, a nd th at’ s th at. T his b re ak e xp ose d a w eakness. I t s u b je cte d
one to a c erta in lo ss o f se lf- c o nfid ence, fr o m w hic h o ne w as n o t lik ely to re co ver q uic kly .” T he
who le th in g w as e no ugh, a p pare ntl y , to m ake a b ro ker w is h th at h e w ere i n a p ositi o n to a d here to d e
la V ega’s card in al ru le : “
Never g iv e a nyo ne th e a dvic e to b uy o r se ll sh are s
, b ecause , w here
pers p ic acity i s w eakened , th e m ost b enev ole nt p ie ce o f a d vic e c an tu rn o ut b ad ly .”
IT
w as o n T uesd ay m orn in g th at th e d im ensio ns o f M ond ay’s d eb acle b ecam e e v id ent. It h ad b y n o w
been calc ula te d th at th e
pap er lo ss in valu e of all sto cks lis te d on th e E xchange am ounte d to
$20,8 00,0 00,0 00. T his f ig ure w as a n a ll- ti m e r e co rd ; e v en o n O cto ber 2 8, 1 929, th e l o ss h ad b een a
mere $ 9,6 00,0 00,0 00, th e k ey to th e a p pare nt in co nsis te ncy b ein g th e fa ct th at th e to ta l v alu e o f th e
sto cks l is te d o n th e E xchange w as f a r s m alle r i n 1 929 th an i n 1 962. T he n ew r e co rd a ls o r e p re se nte d
a s ig nific ant s lic e o f o ur n ati o nal in co m e— sp ecific ally , a lm ost fo ur p er c ent. In e ffe ct, th e U nite d
Sta te s h ad l o st s o m eth in g l ik e tw o w eeks’ w orth o f p ro ducts a nd p ay i n o ne d ay. A nd , o f c o urs e , th ere
were r e p erc ussio ns a b ro ad . In E uro pe, w here r e acti o ns to W all S tr e et a re d ela yed a d ay b y th e ti m e
diffe re nce, T uesd ay w as th e d ay o f c ris is ; b y n in e o ’c lo ck th at m orn in g in N ew Y ork , w hic h w as
to w ard th e end o f th e tr a d in g d ay in E uro pe, alm ost all th e le ad in g E uro pean exchanges w ere
exp erie ncin g w ild s e llin g, w ith n o a p pare nt c ause o th er th an W all S tr e et’ s c ra sh . T he lo ss in M ila n
was th e w ors t i n e ig hte en m onth s. T hat i n B ru sse ls w as th e w ors t s in ce 1 946, w hen th e B ours e th ere
re o pened a fte r th e w ar. T hat i n L ond on w as th e w ors t i n a t l e ast tw enty -s e v en y ears . I n Z uric h, th ere
had b een a s ic kenin g th ir ty -p er-c ent s e llo ff e arlie r i n th e d ay, b ut s o m e o f th e l o sse s w ere n o w b ein g cut as barg ain hunte rs cam e in to th e m ark et. A nd ano th er so rt of backla sh — le ss dir e ct, but
und oub te d ly m ore se rio us in h um an te rm s— was b ein g fe lt in so m e o f th e p oore r c o untr ie s o f th e
world . F or e xam ple , th e p ric e o f c o pper fo r Ju ly d eliv ery d ro pped o n th e N ew Y ork c o m modity
mark et b y fo rty -fo ur o ne-h und re d th s o f a c ent p er p ound . In sig nific ant a s s u ch a lo ss m ay s o und , it
was a v ita l m atte r to a s m all c o untr y h eav ily d ep end ent o n i ts c o pper e xp orts . I n h is r e cent b ook “ T he
Gre at A sc ent,” R obert L . H eilb ro ner h ad c ite d a n e sti m ate th at f o r e v ery c ent b y w hic h c o pper p ric es
dro p o n th e N ew Y ork m ark et th e C hile an tr e asu ry l o st f o ur m illio n d olla rs ; b y th at s ta nd ard , C hile ’s
pote nti a l l o ss o n c o pper a lo ne w as $ 1,7 60,0 00.
Yet p erh ap s w ors e th an th e k no w le d ge o f w hat h ad h ap pened w as th e fe ar o f w hat m ig ht h ap pen
no w . The
Tim es
b egan a q ueasy le ad e d ito ria l w ith th e sta te m ent th at “ so m eth in g re se m blin g a n
earth q uake h it th e s to ck m ark et y este rd ay,” a nd th en to ok a lm ost h alf a c o lu m n to m ars h al its fo rc es
fo r th e r e aso nab ly
r in gin g a ffir m ati o n “ Ir re sp ecti v e o f th e u p s a nd d ow ns o f th e s to ck m ark et, w e a re
and w ill re m ain th e m aste rs o f o ur e co no m ic fa te .” T he D ow -J o nes n ew s ti c ker, a fte r o penin g u p
sh o p a t n in e o ’c lo ck w ith its c usto m ary c heery “ G ood m orn in g,” la p se d a lm ost im med ia te ly in to
dis tu rb in g r e p orts o f th e m ark et n ew s fr o m a b ro ad , a nd b y 9 :4 5, w ith th e E xchange’s o penin g s ti ll a
quarte r o f a n h o ur a w ay, w as a sk in g its e lf th e jitte ry q uesti o n “ W hen w ill th e d um pin g o f s to cks le t
up ?” N ot j u st y et, i t c o nclu d ed ; a ll th e s ig ns s e em ed to i n d ic ate th at th e s e llin g p re ssu re w as “ fa r f r o m
sa ti s fie d .” T hro ugho ut th e f in ancia l w orld , u gly r u m ors w ere c ir c ula ti n g a b out th e i m min ent f a ilu re o f
vario us s e curiti e s fir m s, in cre asin g th e a ura o f g lo om . ( “ T he e xp ecta ti o n o f a n e v ent c re ate s a m uch
deep er im pre ssio n … th an th e e v ent its e lf.” — de la V ega.) T he fa ct th at m ost o f th ese ru m ors la te r
pro ved fa ls e w as n o h elp a t th e ti m e. W ord o f th e c ris is h ad s p re ad o vern ig ht to e v ery to w n in th e
la nd , and th e sto ck m ark et had beco m e th e nati o nal pre o ccup ati o n. In bro kera ge offic es, th e
sw itc hb oard s w ere j a m med w ith i n co m in g c alls , a nd th e c usto m ers ’ a re as w ith w alk -in s a nd , i n m any
case s, te le v is io n c re w s. A s f o r th e S to ck E xchange i ts e lf, e v ery o ne w ho w ork ed o n th e f lo or h ad g o t
th ere e arly , to b atte n d ow n a gain st th e e xp ecte d s to rm , a nd a d diti o nal h and s h ad b een r e cru ite d fr o m
desk j o bs o n th e u p per f lo ors o f 1 1 W all to h elp s o rt o ut th e m ounta in s o f o rd ers . T he v is ito rs ’ g alle ry
was s o c ro w ded b y o penin g ti m e th at th e u su al g uid ed to urs h ad to b e s u sp end ed fo r th e d ay. O ne
gro up th at s q ueeze d i ts w ay o nto th e g alle ry th at m orn in g w as th e e ig hth -g ra d e c la ss o f C orp us C hris ti
Paro chia l S cho ol, o f W est 1 21st S tr e et; th e c la ss’s te acher, S is te r A quin , e xp la in ed to a r e p orte r th at
th e c hild re n h ad p re p are d fo r th eir v is it o ver th e p re v io us tw o w eeks b y m akin g h yp oth eti c al s to ck-
mark et in v estm ents w ith a n im agin ary te n th o usa nd d olla rs e ach. “ T hey lo st a ll th eir m oney,” s a id
Sis te r A quin .
The E xchange’s o penin g w as fo llo w ed b y th e b la ckest n in ety m in ute s in th e m em ory o f m any
vete ra n d eale rs , i n clu d in g s o m e s u rv iv ors o f 1 929. I n th e f ir s t f e w m in ute s, c o m para ti v ely f e w s to cks
were tr a d ed , b ut th is in acti v ity d id n o t r e fle ct c alm d elib era ti o n; o n th e c o ntr a ry , it r e fle cte d s e llin g
pre ssu re s o g re at th at i t
m om enta rily p ara ly ze d a cti o n. I n th e i n te re sts o f m in im iz in g s u d den j u m ps i n
sto ck p ric es, th e E xchange r e q uir e s th at o ne o f i ts f lo or o ffic ia ls m ust p ers o nally g ra nt h is p erm is sio n
befo re a ny s to ck c an c hange h and s a t a p ric e d iffe rin g fr o m th at o f th e p re v io us s a le b y o ne p oin t o r
more fo r a s to ck p ric ed u nd er tw enty d olla rs , o r b y tw o p oin ts o r m ore fo r a s to ck p ric ed a b ove
tw enty d olla rs . N ow s e lle rs w ere s o p le nti fu l a nd b uyers s o s c arc e th at h und re d s o f s to cks w ould
hav e to o pen a t p ric e c hanges a s g re at a s th at o r g re ate r, a nd th ere fo re n o tr a d in g in th em w as
possib le u nti l a flo or o ffic ia l c o uld b e fo und in th e s h o uti n g m ob. In th e c ase o f s o m e o f th e k ey
is su es, lik e I.B .M ., th e d is p arity b etw een s e lle rs a nd b uyers w as s o w id e th at tr a d in g in th em w as
im possib le ev en
with
th e p erm is sio n o f a n o ffic ia l, a nd th ere w as n o th in g to d o b ut w ait u nti l th e
pro sp ect o f g etti n g a b arg ain p ric e lu re d e no ugh b uyers in to th e m ark et. T he D ow -J o nes b ro ad ta p e, stu tte rin g o ut r a nd om p ric es a nd f r a gm ents o f i n fo rm ati o n a s i f i t w ere i n a s ta te o f s h o ck, r e p orte d a t
11 :3 0 th at “ at l e ast s e v en” B ig B oard s to cks h ad s ti ll n o t o pened ; a ctu ally , w hen th e d ust h ad c le are d
it a p peare d th at th e tr u e fig ure h ad b een m uch la rg er th an th at. M eanw hile , th e D ow -J o nes a v era ge
lo st 1 1 .0 9 m ore p oin ts i n th e f ir s t h o ur, M ond ay’s l o ss i n s to ck v alu es h ad b een i n cre ase d b y s e v era l
billio n d olla rs , a nd th e p anic w as i n f u ll c ry .
And a lo ng w ith p anic c am e n ear c hao s. W hate v er e ls e m ay b e s a id a b out T uesd ay, M ay 2 9th , it
will b e lo ng r e m em bere d a s th e d ay w hen th ere w as s o m eth in g v ery c lo se to a c o m ple te b re akd ow n
of th e re ti c ula te d , a uto m ate d , m in d -b ogglin g c o m ple x o f te chnic al fa ciliti e s th at m ad e n ati o nw id e
sto ck-tr a d in g p ossib le in a h uge c o untr y w here n early o ne o ut o f s ix a d ults w as a s to ckho ld er. M any
ord ers w ere e xecute d a t p ric es fa r d iffe re nt fr o m th e o nes a gre ed to b y th e c usto m ers p la cin g th e
ord ers ; m any o th ers w ere lo st in tr a nsm is sio n, o r in th e sn o w o f sc ra p p ap er th at co vere d th e
Exchange flo or, a nd w ere n ev er e xecute d a t a ll. S om eti m es b ro kera ge fir m s w ere p re v ente d fr o m
executi n g o rd ers b y sim ple in ab ility to g et in to uch w ith th eir flo or m en. A s th e d ay p ro gre sse d ,
Mond ay’s heav y-tr a ffic re co rd s w ere no t only bro ken but m ad e to se em paltr y ; as one in d ex,
Tuesd ay’s clo sin g-ti m e dela y in th e E xchange ta p e w as tw o ho urs and tw enty -th re e m in ute s,
co m pare d
to M ond ay’s h o ur a nd n in e m in ute s. B y a h eav en-s e nt s tr o ke o f p re sc ie nce, M errill L ynch,
whic h h and le d o ver th ir te en p er c ent o f a ll p ub lic tr a d in g o n th e E xchange, h ad ju st in sta lle d a n ew
7074 c o m pute r— th e d ev ic e th at c an c o py th e T ele p ho ne D ir e cto ry in th re e m in ute s— and , w ith its
help , m anaged to keep its acco unts fa ir ly str a ig ht. A no th er new M errill Lynch in sta lla ti o n— an
auto m ati c te le ty p e sw itc hin g sy ste m th at o ccup ie d alm ost half a city b lo ck and w as in te nd ed to
exp ed ite c o m munic ati o n b etw een th e fir m ’s v ario us o ffic es— als o r o se to th e o ccasio n, th o ugh it g o t
so h o t th at i t c o uld n o t b e to uched . O th er f ir m s w ere l e ss f o rtu nate , a nd i n a n um ber o f th em c o nfu sio n
gain ed th e up per hand so th o ro ughly th at so m e b ro kers , ti r e d o f tr y in g in v ain to get th e la te st
quo ta ti o ns o n s to cks o r to r e ach th eir p artn ers o n th e E xchange f lo or, a re s a id to h av e s im ply th ro w n
up th eir h and s a nd g o ne o ut f o r a d rin k. S uch u np ro fe ssio nal b ehav io r m ay h av e s a v ed th eir c usto m ers
a g re at d eal o f m oney.
But th e c ro w nin g i r o ny o f th e d ay w as s u re ly s u p plie d b y th e s itu ati o n o f th e ta p e d urin g th e l u nch
ho ur. J u st b efo re n o on, s to cks re ached th eir lo w est le v els — dow n tw enty -th re e p oin ts o n th e D ow -
Jo nes a v era ge. (A t its n ad ir, th e a v era ge re ached 5 53.7 5— a sa fe d is ta nce a b ove th e 5 00 th at th e
exp erts no w cla im w as th eir esti m ate of th e ab so lu te botto m .) T hen th ey ab ru p tl y began an
extr a o rd in arily v ig o ro us r e co very . A t 1 2:4 5, b y w hic h ti m e th e r e co very h ad b eco m e a m ad s c ra m ble
to b uy, th e ta p e w as f ifty -s ix m in ute s l a te ; th ere fo re , a p art f r o m f le eti n g i n ti m ati o ns s u p plie d b y a f e w
“fla sh ” p ric es, th e ti c ker w as e ngaged i n i n fo rm in g th e s to ck-m ark et c o m munity o f a s e llin g p anic a t a
mom ent w hen w hat w as a ctu ally i n p ro gre ss w as a b uyin g p anic .
TH E
g re at tu rn aro und la te in th e m orn in g to ok p la ce in a m anner th at w ould h av e a p peale d to d e la
Vega’s ro m anti c natu re — su d denly and ra th er m elo dra m ati c ally . The key sto ck in v olv ed w as
Americ an T ele p ho ne & T ele gra p h, w hic h, j u st a s o n th e p re v io us d ay, w as b ein g u niv ers a lly w atc hed
and w as u nm is ta kab ly in flu encin g th e w ho le m ark et. T he k ey m an, b y th e n atu re o f h is jo b, w as
Geo rg e M . L . L a B ra nche, J r., s e nio r p artn er i n L a B ra nche a nd W ood & C o., th e f ir m th at w as a cti n g
as flo or sp ecia lis t
in T ele p ho ne. (F lo or sp ecia lis ts are b ro ker-d eale rs w ho are re sp onsib le fo r
main ta in in g o rd erly m ark ets in th e p arti c ula r s to cks w ith w hic h th ey a re c harg ed . In th e c o urs e o f
meeti n g th eir r e sp onsib iliti e s, th ey o fte n h av e th e c urio us d uty o f ta kin g r is k s w ith th eir o w n m oney
again st th eir ow n bette r ju d gm ent. V ario us auth o riti e s, se ekin g to re d uce th e ele m ent of hum an
fa llib ility in th e m ark et, h av e la te ly b een tr y in g to fig ure o ut a w ay to re p la ce th e s p ecia lis ts w ith machin es, b ut so fa r w ith o ut su ccess. O ne b ig stu m blin g b lo ck se em s to b e th e q uesti o n: If th e
mechanic al s p ecia lis ts s h o uld lo se th eir s h ir ts , w ho w ould p ay th eir lo sse s? ) L a B ra nche, a t s ix ty -
fo ur, w as a s h o rt, s h arp -fe atu re d , d ap per, p ep pery m an w ho w as f o nd o f s p orti n g o ne o f th e E xchange
flo or’s c o m para ti v ely f e w P hi B eta K ap pa k eys; h e h ad b een a s p ecia lis t s in ce 1 924, a nd h is f ir m h ad
been th e sp ecia lis t in T ele p ho ne sin ce la te in 1 929. H is chara cte ris ti c hab ita t— in d eed , th e sp ot
where h e s p ent s o m e fiv e a nd a h alf h o urs a lm ost e v ery w eekd ay o f h is life — was im med ia te ly in
fr o nt o f P ost 1 5, i n th e p art o f th e E xchange th at i s n o t r e ad ily v is ib le f r o m th e v is ito rs ’ g alle ry a nd i s
co m monly c alle d th e G ara ge; th ere , f e et p la nte d f ir m ly a p art to f e nd o ff a ny s u d den s u rg es o f w ould -
be buyers or se lle rs , he custo m arily sto od w ith pencil pois e d in a th o ughtf u l w ay over an
unp re p osse ssin g l o ose -le af l e d ger, i n w hic h h e k ep t a r e co rd o f a ll o uts ta nd in g o rd ers to b uy a nd s e ll
Tele p ho ne s to ck a t v ario us p ric e le v els . N ot s u rp ris in gly , th e le d ger w as k no w n a s th e T ele p ho ne
book. L a B ra nche had , of co urs e , been at th e cente r of th e excite m ent all day M ond ay, w hen
Tele p ho ne w as l e ad in g th e m ark et d ow nw ard . A s s p ecia lis t, h e h ad b een r o llin g w ith th e p unch l ik e a
fig hte r— or to a d opt h is o w n m ore p ic tu re sq ue m eta p ho r, b obbin g lik e a c o rk o n o cean c o m bers .
“T ele p ho ne i s k in d o f l ik e th e s e a,” L a B ra nche s a id l a te r. “ G enera lly , i t i s c alm a nd k in d ly . T hen a ll
of a s u d den a g re at w in d c o m es a nd w hip s u p a g ia nt w av e. T he w av e s w eep s o ver a nd d elu ges
ev ery b ody; th en it s u cks b ack a gain . Y ou h av e to g iv e w ith it. Y ou c an’t fig ht it, a ny m ore th an K in g
Canute c o uld .” O n T uesd ay m orn in g, a fte r M ond ay’s d re nchin g e le v en-p oin t d ro p, th e g re at w av e
was s ti ll r o llin g; th e s h eer c le ric al ta sk o f s o rti n g a nd m atc hin g th e o rd ers th at h ad c o m e i n o vern ig ht
—no t to m enti o n fin d in g a S to ck E xchange o ffic ia l a nd o bta in in g h is p erm is sio n— to ok s o lo ng th at
th e fir s t
tr a d e in T ele p ho ne c o uld n o t b e m ad e u nti l a lm ost a n h o ur a fte r th e E xchange’s o penin g.
When T ele p ho ne d id e nte r th e l is ts , a t o ne m in ute b efo re e le v en, i ts p ric e w as 9 8½ — dow n 2 ⅛ f r o m
Mond ay’s c lo sin g. O ver th e n ext th re e-q uarte rs o f a n h o ur o r s o , w hile th e f in ancia l w orld w atc hed i t
th e w ay a s e a c ap ta in m ig ht w atc h th e b aro m ete r in a h urric ane, T ele p ho ne flu ctu ate d b etw een 9 9,
whic h i t r e ached o n m om enta ry m in o r r a llie s, a nd 9 8⅛ , w hic h p ro ved to b e i ts b otto m . I t to uched th e
lo w er f ig ure o n th re e s e p ara te o ccasio ns, w ith r a llie s b etw een— a f a ct th at L a B ra nche h as s p oken o f
as if it h ad a m agic al o r m ysti c al s ig nific ance. A nd p erh ap s it h ad ; a t a ny ra te , a fte r th e th ir d d ip
buyers o f T ele p ho ne b egan to tu rn u p a t P ost 1 5, s p ars e a nd ti m id a t fir s t, th en m ore n um ero us a nd
aggre ssiv e. A t 1 1 :4 5, th e s to ck s o ld a t 9 8¾ ; a f e w m in ute s l a te r, a t 9 9; a t 1 1 :5 0, a t 9 9⅜ ; a nd f in ally ,
at 1 1:5 5, i t s o ld a t 1 00.
Many c o m menta to rs h av e e xp re sse d th e o pin io n th at th at f ir s t s a le o f T ele p ho ne a t 1 00 m ark ed th e
exact p oin t a t w hic h th e w ho le m ark et c hanged d ir e cti o n. S in ce T ele p ho ne is a m ong th e s to cks o n
whic h th e ti c ker g iv es fla sh es d urin g p erio ds o f ta p e d ela y, th e fin ancia l c o m munity le arn ed o f th e
tr a nsa cti o n a lm ost i m med ia te ly , a nd a t a ti m e w hen e v ery th in g e ls e i t w as h earin g w as v ery b ad n ew s
in d eed ; th e th eo ry g o es th at th e h ard fa ct o f T ele p ho ne’s re co very o f a lm ost tw o p oin ts w ork ed
to geth er w ith a p ure ly fo rtu ito us c ir c um sta nce— th e p sy cho lo gic al im pact o f th e g o od, r o und n um ber
100— to ti p th e s c ale s. L a B ra nche, w hile a gre ein g th at th e r is e o f T ele p ho ne d id a l o t to b rin g a b out
th e g enera l u p tu rn , d iffe rs a s to p re cis e ly w hic h tr a nsa cti o n w as th e c ru cia l o ne. T o h im , th e f ir s t s a le
at 1 00 w as in su ffic ie nt p ro of o f la sti n g r e co very , b ecause it in v olv ed o nly a s m all n um ber o f s h are s
(a h und re d , a s fa r a s h e r e m em bers ). H e k new th at in h is b ook h e h ad o rd ers to s e ll a lm ost tw enty
th o usa nd s h are s o f T ele p ho ne a t 1 00. I f th e d em and f o r s h are s a t th at p ric e w ere to r u n o ut b efo re th is
tw o-m illio n-d olla r s u p ply w as e xhauste d , th en th e p ric e o f T ele p ho ne w ould d ro p a gain , p ossib ly
go in g a s l o w a s 9 8⅛ f o r a f o urth ti m e. A nd a m an l ik e L a B ra nche, g iv en to th in kin g i n n auti c al te rm s,
may h av e a sso cia te d a c erta in f in ality w ith th e n o ti o n o f g o in g d ow n f o r a f o urth ti m e.
It d id n o t h ap pen. S ev era l s m all tr a nsa cti o ns a t 1 00 w ere m ad e
in r a p id s u ccessio n, fo llo w ed b y se v era l m ore , i n v olv in g l a rg er v olu m e. A lto geth er, a b out h alf th e s u p ply o f th e s to ck a t th at p ric e w as
go ne w hen J o hn J . C ra nle y, flo or p artn er o f D re yfu s & C o., m oved u no btr u siv ely in to th e c ro w d a t
Post 1 5 a nd b id 1 00 fo r te n th o usa nd s h are s o f T ele p ho ne— ju st e no ugh to c le ar o ut th e s u p ply a nd
th us p av e th e w ay f o r a f u rth er r is e . C ra nle y d id n o t s a y w heth er h e w as b id din g o n b ehalf o f h is f ir m ,
one o f its c usto m ers , o r th e D re yfu s F und , a m utu al fu nd th at D re yfu s & C o. m anaged th ro ugh o ne o f
its s u b sid ia rie s; th e s iz e o f th e o rd er s u ggests th at th e p rin cip al w as th e D re yfu s F und . I n a ny c ase , L a
Bra nche need ed o nly to sa y “S old ,” and as so on as th e tw o m en had m ad e no ta ti o ns o f it, th e
tr a nsa cti o n w as c o m ple te d . W here -u p on T ele p ho ne c o uld n o l o nger b e b ought f o r 1 00.
There is his to ric al pre ced ent (th o ugh no t fr o m de la V ega’s day) fo r th e sin gle la rg e S to ck
Exchange tr a nsa cti o n th at tu rn s th e m ark et, o r is in te nd ed to tu rn it. A t h alf p ast o ne o n O cto ber 2 4,
1929— th e dre ad fu l day th at has go ne dow n in fin ancia l his to ry as B la ck T hurs d ay— Ric hard
Whitn ey, th en a cti n g p re sid ent o f th e E xchange a nd p ro bab ly th e b est- k no w n f ig ure o n i ts f lo or, s tr o de
co nsp ic uo usly (s o m e s a y “ ja unti ly ”) u p to th e p ost w here U .S . S te el w as tr a d ed , a nd b id 2 05, th e
pric e o f th e l a st s a le , f o r te n th o usa nd s h are s. B ut th ere a re tw o c ru cia l d iffe re nces b etw een th e 1 929
tr a d e a nd th e 1 962 o ne. In th e fir s t p la ce, W hitn ey’s s ta gy b id w as a c alc ula te d e ffo rt to c re ate a n
effe ct, w hile C ra nle y’s , d eliv ere d w ith o ut f a nfa re , w as a p pare ntl y j u st a m ove to g et a b arg ain f o r th e
Dre yfu s F und . S eco nd ly , o nly a n e v anesc ent ra lly fo llo w ed th e 1 929 d eal— th e n ext w eek’s lo sse s
mad e B la ck T hurs d ay l o ok n o w ors e th an g ra y— while a g enuin ely s o lid r e co very f o llo w ed th e o ne i n
1962. T he m ora l m ay b e th at p sy cho lo gic al g estu re s o n th e E xchange a re m ost e ffe cti v e w hen th ey a re
neith er in te nd ed n o r r e ally n eed ed . A t a ll e v ents , a g enera l r a lly b egan a lm ost im med ia te ly . H av in g
bro ken th ro ugh th e 1 00 b arrie r, T ele p ho ne l e ap ed w ild ly u p w ard : a t 1 2:1 8, i t w as tr a d ed a t 1 01¼ ; a t
12:4 1, a t 1 03½ ; a nd a t 1 :0 5, a t 1 06¼ . G enera l M oto rs w ent fr o m 4 5½ a t 1 1 :4 6 to 5 0 a t 1 :3 8.
Sta nd ard O il o f N ew J e rs e y w ent fr o m 4 6¾ a t 1 1 :4 6 to 5 1 a t 1 :2 8. U .S . S te el w ent fr o m 4 9½ a t
11 :4 0 to 5 2⅜ a t 1 :2 8. I .B .M . w as, i n i ts w ay,
th e m ost d ra m ati c c ase o f th e l o t. A ll m orn in g, i ts s to ck
had b een k ep t o ut o f tr a d in g b y a n o verw helm in g p re p ond era nce o f s e llin g o rd ers , a nd th e g uesse s a s
to i ts u lti m ate o penin g p ric e v arie d f r o m a l o ss o f te n p oin ts to a l o ss o f tw enty o r th ir ty ; n o w s u ch a n
av ala nche o f b uyin g o rd ers a p peare d th at w hen it w as a t la st te chnic ally p ossib le fo r th e s to ck to b e
tr a d ed , j u st b efo re tw o o ’c lo ck, i t o pened
up
f o ur p oin ts , o n a h uge b lo ck o f th ir ty th o usa nd s h are s. A t
12:2 8, le ss th an h alf a n h o ur a fte r th e b ig T ele p ho ne tr a d e, th e D ow -J o nes n ew s s e rv ic e w as s u re
eno ugh o f w hat w as h ap penin g to s ta te f la tl y , “ T he m ark et h as tu rn ed s tr o ng.”
And so it h ad , b ut th e sp eed o f th e tu rn aro und p ro duced m ore ir o ny. W hen th e b ro ad ta p e h as
occasio n to tr a nsm it an exte nd ed new s ite m , su ch as a re p ort o n a p ro m in ent m an’s sp eech, it
custo m arily b re aks th e ite m up in to a se rie s o f sh o rt se cti o ns, w hic h can th en b e tr a nsm itte d at
in te rv als , le av in g ti m e in th e in te rs ti c es fo r s u ch s p ot n ew s a s th e la te st p ric es fr o m th e E xchange
flo or. T his w as w hat it d id d urin g th e e arly a fte rn o on o f M ay 2 9th w ith a s p eech d eliv ere d to th e
Nati o nal P re ss C lu b b y H . L ad d P lu m le y, p re sid ent o f th e U nite d S ta te s C ham ber o f C om merc e,
whic h b egan to b e r e p orte d o n th e D ow -J o nes ta p e a t 1 2:2 5, o r a t a lm ost e xactl y th e s a m e ti m e th at
th e s a m e n ew s s o urc e d ecla re d th e m ark et to h av e tu rn ed s tr o ng. A s th e s p eech c am e o ut in s e cti o ns
on th e b ro ad ta p e, it c re ate d a n o dd e ffe ct in d eed . T he ta p e s ta rte d o ff b y s a yin g th at P lu m le y h ad
calle d fo r “ a th o ughtf u l a p pre cia ti o n o f th e p re se nt la ck o f b usin ess c o nfid ence.” A t th is p oin t, th ere
was a n i n te rru p ti o n f o r a f e w m in ute s’ w orth o f s to ck p ric es, a ll o f th em s h arp ly h ig her. T hen th e ta p e
re tu rn ed to P lu m le y, w ho w as n o w w arm in g to h is ta sk a nd b la m in g th e s to ck-m ark et p lu nge o n “ th e
co in cid enta l im pact of tw o co nfid ence-u p se tti n g fa cto rs — a dim min g of pro fit exp ecta ti o ns and
Pre sid ent K enned y’s q uash in g o f th e s te el p ric e in cre ase .” T hen c am e a lo nger in te rru p ti o n, c ho ck-
fu ll o f r e assu rin g f a cts a nd f ig ure s. A t i ts c o nclu sio n, P lu m le y w as b ack o n th e ta p e, h am merin g a w ay at h is th em e, w hic h h ad n o w ta ken o n o verto nes o f “ I to ld y o u so .” “ W e h av e h ad a n a w eso m e
dem onstr a ti o n th at th e ‘ rig ht b usin ess c lim ate ’ c anno t b e b ru sh ed o ff a s a M ad is o n A venue c lic hé b ut
is a re ality m uch to b e d esir e d ,” th e b ro ad ta p e q uo te d h im a s s a yin g. S o it w ent th ro ugh th e e arly
afte rn o on; it m ust h av e b een a h ead y ti m e fo r th e D ow -J o nes su b sc rib ers , w ho c o uld a lte rn ate ly
nib ble a t th e c av ia r o f h ig her s to ck p ric es a nd s ip th e c ham pagne o f P lu m le y’s ja b s a t th e K enned y
ad m in is tr a ti o n.
IT
w as d urin g th e l a st h o ur a nd a h alf o n T uesd ay th at th e p ace o f tr a d in g o n th e E xchange r e ached i ts
most fr a nti c . T he o ffic ia l c o unt o f tr a d es r e co rd ed a fte r th re e o ’c lo ck ( th at is , in th e la st h alf h o ur)
cam e to j u st o ver s e v en m illio n s h are s— in n o rm al ti m es a s th ey w ere r e cko ned i n 1 962, a n u nheard -
of f ig ure e v en f o r a w ho le d ay’s tr a d in g. W hen th e c lo sin g b ell s o und ed , a c heer a gain a ro se f r o m th e
flo or— th is o ne a g o od d eal m ore f u ll- th ro ate d th an M ond ay’s , b ecause th e d ay’s g ain o f 2 7.0 3 p oin ts
in th e D ow -J o nes a v era ge m eant th at a lm ost th re e-q uarte rs o f M ond ay’s l o sse s h ad b een r e co up ed ; o f
th e $ 20,8 00,0 00,0 00 th at h ad s u m marily v anis h ed o n M ond ay, $ 13,5 00,0 00,0 00 h ad n o w r e ap peare d .
(T hese h eart- w arm in g f ig ure s w ere n’t a v aila b le u nti l h o urs a fte r th e c lo se , b ut e xp erie nced s e curiti e s
men a re v ouchsa fe d v is c era l in tu iti o ns o f s u rp ris in g s ta ti s ti c al a ccura cy; s o m e o f th em c la im th at a t
Tuesd ay’s c lo sin g th ey c o uld f e el i n th eir g uts a D ow -J o nes g ain o f o ver tw enty -fiv e p oin ts , a nd th ere
is n o r e aso n to d is p ute th eir c la im .) T he m ood w as c heerfu l, th en, b ut th e h o urs w ere l o ng. B ecause o f
th e g re ate r tr a d in g v olu m e, ti c kers ti c ked a nd l ig hts b urn ed e v en f a rth er i n to th e n ig ht th an th ey h ad o n
Mond ay; th e E xchange ta p e d id n o t p rin t th e d ay’s l a st tr a nsa cti o n u nti l 8 :1 5— fo ur a nd th re e-q uarte rs
ho urs a fte r i t h ad a ctu ally o ccurre d . N or d id th e n ext d ay, M em oria l D ay, tu rn o ut to b e a d ay o ff f o r
th e s e curiti e s b usin ess. W is e o ld W all S tr e ete rs h ad e xp re sse d th e o pin io n th at th e h o lid ay, f a llin g b y
hap py chance in th e m id dle of th e cris is and th us pro vid in g an opportu nity fo r th e co olin g of
overh eate d e m oti o ns, m ay h av e b een th e b ig gest fa cto r in p re v enti n g th e c ris is fr o m b eco m in g a
dis a ste r. W hat it in d ub ita b ly d id p ro vid e w as a chance fo r th e S to ck E xchange and its m em ber
org aniz a ti o ns— all o f w ho m h ad b een d ir e cte d to r e m ain a t th eir b attl e s ta ti o ns o ver th e h o lid ay— to
begin p ic kin g u p th e p ie ces.
The in sid io us e ffe cts o f a la te ta p e h ad to b e e xp la in ed to th o usa nd s o f n aïv e c usto m ers w ho
th o ught th ey h ad b ought U .S . S te el a t, s a y, 5 0, o nly to fin d la te r th at th ey h ad p aid 5 4 o r 5 5. T he
co m pla in ts o f th o usa nd s o f o th er c usto m ers c o uld n o t b e s o e asily a nsw ere d . O ne b ro kera ge h o use
dis c o vere d th at tw o o rd ers i t h ad s e nt to th e f lo or a t p re cis e ly th e s a m e ti m e— one to b uy T ele p ho ne
at th e p re v ailin g p ric e, th e o th er to s e ll th e s a m e q uanti ty a t th e p re v ailin g p ric e— had r e su lte d i n th e
se lle r’s g etti n g 1 02 p er s h are fo r h is s to ck a nd th e b uyer’s p ayin g 1 08 fo r h is . B ad ly s h aken b y a
situ ati o n th at s e em ed to c ast d oub t o n th e v alid ity o f th e la w o f s u p ply a nd d em and , th e b ro kera ge
ho use m ad e in q uir ie s a nd fo und th at th e b uyin g o rd er h ad g o t te m pora rily lo st in th e c ru sh a nd h ad
fa ile d to re ach P ost 1 5 u nti l th e p ric e h ad g o ne u p s ix p oin ts . S in ce th e m is ta ke h ad n o t b een th e
custo m er’s , th e b ro kera ge fir m p aid h im th e d iffe re nce. A s fo r th e S to ck E xchange its e lf, it h ad a
varie ty o f p ro ble m s to d eal w ith o n W ed nesd ay, am ong th em th at o f keep in g hap py a te am o f
te le v is io n m en fr o m th e C anad ia n B ro ad casti n g C orp ora ti o n w ho , hav in g fo rg o tte n all ab out th e
Unite d S ta te s c usto m o f o bse rv in g a h o lid ay o n M ay 3 0th , h ad flo w n d ow n fr o m M ontr e al to ta ke
pic tu re s of W ed nesd ay’s acti o n on th e E xchange. A t th e sa m e ti m e, E xchange offic ia ls w ere
necessa rily p ond erin g th e p ro ble m o f M ond ay’s a nd T uesd ay’s s c and alo usly la ggard ti c ker, w hic h
ev ery o ne agre ed had been at th e very heart of— if no t, in d eed , th e cause of— th e m ost nearly
cata str o phic te chnic al sn arl in h is to ry . T he E xchange’s d efe nse o f its e lf, la te r se t d ow n in d eta il,
am ounts , in e ffe ct, to a c o m pla in t th at th e c ris is c am e tw o y ears to o s o on. “ It w ould b e in accura te to su ggest th at a ll in v esto rs w ere s e rv ed w ith n o rm al s p eed a nd e ffic ie ncy b y e xis ti n g fa ciliti e s,” th e
Exchange c o nced ed , w ith c hara cte ris ti c c o nse rv ati s m , a nd w ent o n to s a y th at a ti c ker w ith a lm ost
tw ic e th e s p eed o f th e p re se nt o ne w as e xp ecte d to b e r e ad y f o r i n sta lla ti o n i n 1 964. ( In f a ct, th e n ew
ti c ker a nd v ario us o th er a uto m ati o n d ev ic es, d uly in sta lle d m ore o r le ss o n ti m e, p ro ved to b e s o
hero ic ally e ffe cti v e th at th e fa nta sti c tr a d in g p ace o f A pril, 1 968 w as h and le d w ith o nly n eglig ib le
ta p e d ela ys.) T he fa ct th at th e 1 962 hurric ane hit w hile th e sh elte r w as und er co nstr u cti o n w as
chara cte riz e d b y th e E xchange a s “ p erh ap s i r o nic .”
There w as s ti ll p le nty o f c ause fo r c o ncern o n T hurs d ay m orn in g
. A fte r a p erio d o f p anic s e llin g,
th e m ark et h as a h ab it o f b ouncin g b ack d ra m ati c ally a nd th en re su m in g its slid e. M ore th an o ne
bro ker re calle d th at o n O cto ber 3 0, 1 929— im med ia te ly a fte r th e a ll- ti m e-re co rd tw o-d ay d eclin e,
and im med ia te ly b efo re th e sta rt o f th e tr u ly d is a str o us slid e th at w as to c o nti n ue fo r y ears a nd
pre cip ita te th e gre at dep re ssio n— th e D ow -J o nes gain had been 28.4 0, re p re se nti n g a re b ound
om in o usly c o m para b le to th is o ne. In o th er w ord s, th e m ark et s ti ll s u ffe rs a t ti m es fr o m w hat d e la
Vega c lin ic ally c alle d “ anti p eris ta sis ” — th e te nd ency to r e v ers e its e lf, th en r e v ers e th e r e v ers a l, a nd
so o n. A fo llo w er o f th e a nti p eris ta sis sy ste m o f se curity a naly sis m ig ht h av e c o nclu d ed th at th e
mark et w as n o w p ois e d fo r a no th er d iv e. A s th in gs tu rn ed o ut, o f c o urs e , it w asn ’t. T hurs d ay w as a
day o f s te ad y, o rd erly ris e s in s to ck p ric es. M in ute s a fte r th e te n-o ’c lo ck o penin g, th e b ro ad ta p e
sp re ad th e n ew s th at b ro kers e v ery w here w ere b ein g d elu ged w ith b uyin g o rd ers , m any o f th em
co m in g f r o m S outh A meric a, A sia , a nd th e W este rn E uro pean c o untr ie s th at a re n o rm ally a cti v e i n th e
New Y ork sto ck m ark et. “ O rd ers sti ll p ourin g in fr o m a ll d ir e cti o ns,” th e b ro ad ta p e a nno unced
exulta ntl y ju st b efo re e le v en. L ost m oney w as m agic ally re ap pearin g, a nd m ore w as o n th e w ay.
Sho rtl y b efo re tw o o ’c lo ck, th e D ow -J o nes ta p e, h av in g p ro ceed ed fr o m e up ho ria to in so ucia nce,
to ok ti m e o ff fr o m m ark et re p orts to in clu d e a n o te o n p la ns fo r a b oxin g m atc h b etw een F lo yd
Patte rs o n a nd S onny L is to n. M ark ets in E uro pe, r e acti n g to N ew Y ork o n th e u p tu rn ju st a s th ey h ad
on th e d ow ntu rn , h ad r is e n s h arp ly . N ew Y ork c o pper fu tu re s h ad r e co vere d o ver e ig hty p er c ent o f
th eir M ond ay a nd T uesd ay-m orn in g lo sse s, so C hile ’s tr e asu ry w as m ostl y b aile d o ut. A s fo r th e
Dow -J o nes i n d ustr ia l a v era ge a t c lo sin g, i t f ig ure d o ut to 6 13.3 6, m eanin g th at th e w eek’s l o sse s h ad
been w ip ed o ut
in t o to
, w ith a littl e b it to s p are . T he c ris is w as o ver. In M org an’s te rm s, th e m ark et
had f lu ctu ate d ; i n d e l a V ega’s te rm s, a nti p eris ta sis h ad b een d em onstr a te d .
ALL
th at s u m mer, a nd e v en in to th e fo llo w in g y ear, s e curity a naly sts a nd o th er e xp erts c ra nked o ut
th eir e xp la nati o ns o f w hat h ad h ap pened , a nd s o g re at w ere th e lo gic , s o le m nity , a nd d eta il
o f th ese
dia gno se s th at th ey lo st o nly a littl e o f th eir fo rc e th ro ugh th e fa ct th at h ard ly a ny o f th e a uth o rs h ad
had th e slig hte st id ea w hat w as
goin g
to hap pen b efo re th e cris is o ccurre d . P ro bab ly th e m ost
sc ho la rly a nd d eta ile d r e p ort o n w ho d id th e s e llin g th at c ause d th e c ris is w as f u rn is h ed b y th e N ew
York S to ck E xchange its e lf, w hic h b egan se nd in g ela b ora te q uesti o nnair e s to its in d iv id ual and
co rp ora te m em bers im med ia te ly a fte r th e c o m moti o n w as o ver. T he E xchange c alc ula te d th at d urin g
th e th re e d ays o f th e cris is ru ra l are as o f th e co untr y w ere m ore acti v e in th e m ark et th an th ey
custo m arily a re ; th at w om en i n v esto rs h ad s o ld tw o a nd a h alf ti m es a s m uch s to ck a s m en i n v esto rs ;
th at f o re ig n i n v esto rs w ere f a r m ore a cti v e th an u su al, a cco unti n g f o r 5 .5 p er c ent o f th e to ta l v olu m e,
and , o n b ala nce, w ere su b sta nti a l se lle rs ; a nd , m ost str ik in g o f a ll, th at w hat th e E xchange c alls
“p ub lic in d iv id uals ” — in d iv id ual in v esto rs , a s o ppose d to in sti tu ti o nal o nes, w hic h is to s a y p eo ple
who w ould be desc rib ed anyw here but on W all Str e et as
priv a te
in d iv id uals — pla yed an
asto nis h in gly l a rg e r o le i n th e w ho le a ffa ir, a cco unti n g f o r a n u np re ced ente d 5 6.8 p er c ent o f th e to ta l
volu m e. B re akin g d ow n th e p ub lic in d iv id uals in to in co m e c ate go rie s, th e E xchange c alc ula te d th at th o se w ith fa m ily in co m es o f o ver tw enty -fiv e th o usa nd d olla rs a y ear w ere th e h eav ie st a nd m ost
in sis te nt s e lle rs , w hile th o se w ith in co m es u nd er te n th o usa nd d olla rs , a fte r s e llin g o n M ond ay a nd
early o n T uesd ay, b ought s o m any s h are s o n T hurs d ay th at th ey a ctu ally b ecam e n et b uyers o ver th e
th re e-d ay p erio d. F urth erm ore , a cco rd in g to th e E xchange’s c alc ula ti o ns, a b out a m illio n s h are s— or
3.5 p er c ent o f th e to ta l v olu m e d urin g th e th re e d ays— were s o ld a s a r e su lt o f m arg in c alls . I n s u m , i f
th ere w as a v illa in , it a p peare d to h av e b een th e re la ti v ely ric h in v esto r n o t c o nnecte d w ith th e
se curiti e s b usin ess— and , m ore o fte n th an m ig ht h av e b een e xp ecte d , th e f e m ale , r u ra l, o r f o re ig n o ne,
in m any c ase s p la yin g th e m ark et p artl y o n b orro w ed m oney.
The r o le o f th e h ero w as f ille d , s u rp ris in gly , b y th e m ost f r ig hte nin g o f u nte ste d f o rc es i n th e m ark et
—th e m utu al fu nd s. T he E xchange’s s ta ti s ti c s s h o w ed th at o n M ond ay, w hen p ric es w ere p lu ngin g,
th e fu nd s b ought 5 30,0 00 m ore s h are s th an th ey s o ld , w hile o n T hurs d ay, w hen in v esto rs in g enera l
were s tu m blin g
o ver e ach o th er tr y in g to b uy s to ck, th e fu nd s, o n b ala nce,
so ld
3 75,0 00 s h are s; in
oth er w ord s, fa r fr o m in cre asin g th e m ark et’ s flu ctu ati o n, th e fu nd s a ctu ally s e rv ed a s a s ta b iliz in g
fo rc e. E xactl y h o w th is u nexp ecte d ly b enig n e ffe ct c am e a b out r e m ain s a m atte r o f d eb ate . S in ce n o
one h as b een h eard to s u ggest th at th e f u nd s a cte d o ut o f s h eer p ub lic -s p ir ite d ness d urin g th e c ris is , i t
se em s s a fe to a ssu m e th at th ey w ere b uyin g o n M ond ay b ecause th eir m anagers h ad s p otte d b arg ain s,
and w ere se llin g o n T hurs d ay b ecause o f chances to cash in o n p ro fits . A s fo r th e p ro ble m o f
re d em pti o ns, th ere w ere , as had b een fe are d , a la rg e num ber o f m utu al- fu nd sh are ho ld ers w ho
dem and ed m illio ns o f d olla rs o f th eir m oney in c ash w hen th e m ark et c ra sh ed , b ut a p pare ntl y th e
mutu al fu nd s h ad so m uch c ash o n h and th at in m ost c ase s th ey c o uld p ay o ff th eir sh are ho ld ers
with o ut s e llin g s u b sta nti a l a m ounts o f s to ck. T aken a s a g ro up , th e f u nd s p ro ved to b e s o r ic h a nd s o
co nse rv ati v ely m anaged th at th ey n o t o nly c o uld w eath er th e s to rm b ut, b y h ap py i n ad verte nce, c o uld
do s o m eth in g to d ecre ase i ts v io le nce. W heth er th e s a m e c o nd iti o ns w ould e xis t i n s o m e f u tu re s to rm
was a nd i s a no th er m atte r.
In th e la st a naly sis , th e c ause o f th e 1 962 c ris is re m ain s u nfa th o m ab le ; w hat is k no w n is th at it
occurre d , a nd th at s o m eth in g l ik e i t c o uld o ccur a gain . A s o ne o f W all S tr e et’ s a ged , e v er-a no nym ous
se ers p ut it r e centl y , “ I w as c o ncern ed , b ut a t n o ti m e d id I th in k it w ould b e a no th er 1 929. I n ev er
sa id th e D ow -J o nes w ould g o d ow n to fo ur h und re d . I s a id
fiv e
h und re d . T he p oin t is th at n o w , in
co ntr a st to 1 929, th e g o vern m ent, R ep ub lic an o r D em ocra ti c , r e aliz e s th at it m ust b e a tte nti v e to th e
need s o f b usin ess. T here w ill nev er b e ap ple -s e lle rs o n W all S tr e et again . A s to w heth er w hat
hap pened th at M ay c an h ap pen a gain — of c o urs e i t c an. I th in k th at p eo ple m ay b e m ore c are fu l f o r a
year o r tw o, a nd th en w e m ay s e e a no th er s p ecula ti v e b uild up fo llo w ed b y a no th er c ra sh , a nd s o o n
unti l G od m akes p eo ple l e ss g re ed y.”
Or, a s d e la V ega s a id , “ It is fo olis h to th in k th at y o u c an w ith d ra w fr o m th e E xchange a fte r y o u
hav e ta ste d th e s w eetn ess o f th e h o ney.” 2
The F ate o f t h e E dse l
RIS E A ND F L O W ER IN G
IN
th e cale nd ar of A meric an eco no m ic life , 1955 w as th e Y ear of th e A uto m obile . T hat year,
Americ an a uto m obile m akers s o ld o ver s e v en m illio n p asse nger c ars , o r o ver a m illio n m ore th an
th ey h ad s o ld in a ny p re v io us y ear. T hat y ear, G enera l M oto rs e asily s o ld th e p ub lic $ 325 m illio n
worth o f n ew c o m mon s to ck, a nd th e s to ck m ark et a s a w ho le , le d b y th e m oto rs , g yra te d u p w ard s o
fr a nti c ally
th at C ongre ss in v esti g ate d it. A nd th at y ear, to o, th e F ord M oto r C om pany d ecid ed to
pro duce a new auto m obile in w hat w as q uain tl y calle d th e m ed iu m -p ric e ra nge— ro ughly , fr o m
$2,4 00 to $ 4,0 00— and w ent a head a nd d esig ned i t m ore o r l e ss i n c o nfo rm ity w ith th e f a sh io n o f th e
day, w hic h w as fo r cars th at w ere lo ng, w id e, lo w , la v is h ly d eco ra te d w ith chro m e, lib era lly
su p plie d w ith g ad gets , a nd e q uip ped w ith e ngin es o f a p ow er j u st b are ly i n su ffic ie nt to s e nd th em i n to
orb it. T w o y ears la te r, in S ep te m ber, 1 957, th e F ord C om pany p ut its n ew c ar, th e E dse l, o n th e
mark et, to th e a cco m panim ent o f m ore f a nfa re th an h ad a tte nd ed th e a rriv al o f a ny o th er n ew c ar s in ce
th e s a m e c o m pany’s M odel A , b ro ught o ut th ir ty y ears e arlie r. T he to ta l a m ount s p ent o n th e E dse l
befo re th e fir s t s p ecim en w ent o n s a le w as a nno unced a s a q uarte r o f a b illio n d olla rs ; its la unchin g
—as
Busin ess W eek
d ecla re d a nd n o body c are d to d eny— was m ore c o stl y th an th at o f a ny o th er
co nsu m er p ro duct i n h is to ry . A s a s ta rte r to w ard g etti n g i ts i n v estm ent b ack, F ord c o unte d o n s e llin g
at l e ast 2 00,0 00 E dse ls th e f ir s t y ear.
There m ay b e a n a b orig in e s o m ew here in a re m ote ra in fo re st w ho h asn ’t y et h eard th at th in gs
fa ile d to tu rn o ut th at w ay. T o b e p re cis e , tw o y ears tw o m onth s a nd f ifte en d ays l a te r F ord h ad s o ld
only 1 09,4 66 E dse ls , a nd , b eyo nd a d oub t, m any h und re d s, if n o t s e v era l th o usa nd s, o f th o se w ere
bought b y F ord e xecuti v es, d eale rs , s a le sm en, a d verti s in g m en, a sse m bly -lin e w ork ers , a nd o th ers
who h ad a p ers o nal in te re st in s e ein g th e c ar s u cceed . T he 1 09,4 66 a m ounte d to c o nsid era b ly le ss
th an o ne p er c ent o f th e p asse nger c ars s o ld i n th e U nite d S ta te s d urin g th at p erio d, a nd o n N ovem ber
19, 1 959, h av in g lo st, a cco rd in g to s o m e o uts id e e sti m ate s, a ro und $ 350 m illio n o n th e E dse l, th e
Ford C om pany p erm anentl y d is c o nti n ued i ts p ro ducti o n.
How co uld th is hav e hap pened ? H ow co uld a co m pany so m ig hti ly end ow ed w ith m oney,
exp erie nce, a nd , p re su m ab ly , b ra in s h av e b een g uilty o f s u ch a m onum enta l m is ta ke? E ven b efo re th e
Edse l w as d ro pped , s o m e o f th e m ore a rti c ula te m em bers o f th e c ar-m in d ed p ub lic h ad c o m e f o rw ard
with a n a nsw er— an a nsw er s o s im ple a nd s o s e em in gly r e aso nab le th at, th o ugh it w as n o t th e o nly
one a d vanced , i t b ecam e w id ely a ccep te d a s th e
tr u th . T he E dse l, th ese p eo ple a rg ued , w as d esig ned ,
nam ed , a d verti s e d , a nd p ro m ote d w ith a s la v is h a d here nce to th e r e su lts o f p ub lic -o pin io n p olls a nd
of th eir y o unger c o usin , m oti v ati o nal r e se arc h, a nd th ey c o nclu d ed th at w hen th e p ub lic is w ooed in
an excessiv ely calc ula te d m anner, it te nd s to tu rn aw ay in fa v or of so m e gru ffe r but m ore sp onta neo usly a tte nti v e s u ito r. S ev era l y ears a go , in th e fa ce o f a n u nd ers ta nd ab le re ti c ence o n th e
part o f th e F ord M oto r C om pany, w hic h e njo ys d ocum enti n g i ts b oners n o m ore th an a nyo ne e ls e , I s e t
out to le arn w hat I c o uld a b out th e E dse l d eb acle , a nd m y in v esti g ati o ns h av e le d m e to b elie v e th at
what w e h av e h ere i s l e ss th an th e w ho le tr u th .
For, a lth o ugh th e E dse l w as
su ppose d
to b e a d verti s e d , a nd o th erw is e p ro m ote d , s tr ic tl y o n th e
basis o f p re fe re nces exp re sse d in p olls , so m e o ld -fa sh io ned sn ake-o il- s e llin g m eth o ds, in tu iti v e
ra th er th an s c ie nti fic , c re p t in . A lth o ugh it w as
su ppose d
to h av e b een n am ed in m uch th e s a m e w ay,
sc ie nce w as curtl y d is c ard ed at th e la st m in ute and th e E dse l w as nam ed fo r th e fa th er o f th e
co m pany’s p re sid ent, lik e a nin ete enth -c entu ry b ra nd o f co ugh d ro ps o r sa d dle so ap . A s fo r th e
desig n, it w as a rriv ed a t w ith o ut e v en a p re te nse o f c o nsu lti n g th e p olls , a nd b y th e m eth o d th at h as
been s ta nd ard f o r y ears i n th e d esig nin g o f a uto m obile s— th at o f s im ply p oolin g th e h unches o f s u nd ry
co m pany c o m mitte es. T he c o m mon e xp la nati o n o f th e E dse l’s d ow nfa ll, th en, u nd er s c ru ti n y, tu rn s o ut
to b e l a rg ely a m yth , i n th e c o llo quia l s e nse o f th at te rm . B ut th e f a cts o f th e c ase m ay l iv e to b eco m e
a m yth o f a s y m bolic s o rt— a m odern A meric an a nti s u ccess s to ry .
TH E
o rig in s o f th e E dse l g o b ack to th e fa ll o f 1 948, s e v en y ears b efo re th e y ear o f d ecis io n, w hen
Henry F ord II, w ho h ad b een p re sid ent a nd u nd is p ute d b oss o f th e c o m pany s in ce th e d eath o f h is
gra nd fa th er, th e o rig in al H enry , a year earlie r, p ro pose d to th e co m pany’s executi v e co m mitte e,
whic h i n clu d ed E rn est R . B re ech, th e e xecuti v e v ic e-p re sid ent, th at s tu d ie s b e u nd erta ken c o ncern in g
th e w is d om o f p utti n g o n th e m ark et a n ew a nd w ho lly d iffe re nt m ed iu m -p ric ed c ar. T he s tu d ie s w ere
und erta ken. T here a p peare d to b e g o od r e aso n f o r th em . I t w as a w ell- k no w n p ra cti c e a t th e ti m e f o r
lo w -in co m e o w ners o f F ord s, P ly m outh s, a nd
C hev ro le ts to tu rn in th eir s y m bols o f in fe rio r c aste a s
so on a s th eir e arn in gs ro se a b ove fiv e th o usa nd d olla rs a y ear, a nd “ tr a d e u p ” to a m ed iu m -p ric ed
car. F ro m F ord ’s p oin t o f v ie w , th is w ould h av e b een a ll w ell a nd g o od e xcep t th at, f o r s o m e r e aso n,
Ford o w ners u su ally tr a d ed u p n o t to M erc ury , th e c o m pany’s o nly m ed iu m -p ric ed c ar, b ut to o ne o r
ano th er o f th e m ed iu m -p ric ed c ars p ut o ut b y its b ig r iv als — Old sm obile , B uic k, a nd P onti a c, a m ong
th e G enera l M oto rs p ro ducts , a nd , to a le sse r e xte nt, D odge a nd D e S oto , th e C hry sle r c and id ate s.
Lew is D . C ru so e, th en a v ic e-p re sid ent o f th e F ord M oto r C om pany, w as n o t o vers ta ti n g th e c ase
when h e s a id , “ W e h av e b een g ro w in g c usto m ers f o r G enera l M oto rs .”
The o utb re ak o f th e K ore an W ar, in 1 950, m eant th at F ord h ad n o c ho ic e b ut to g o o n g ro w in g
custo m ers f o r i ts c o m peti to rs , s in ce i n tr o ducin g a n ew c ar a t s u ch a ti m e w as o ut o f th e q uesti o n. T he
co m pany’s e xecuti v e c o m mitte e p ut a sid e th e s tu d ie s p ro pose d b y P re sid ent F ord , a nd th ere m atte rs
re ste d f o r tw o y ears . L ate i n 1 952, h o w ev er, th e e nd o f th e w ar a p peare d s u ffic ie ntl y i m min ent f o r th e
co m pany to p ic k u p w here it h ad le ft o ff, a nd th e stu d ie s w ere e nerg eti c ally re su m ed b y a g ro up
calle d th e F orw ard P ro duct P la nnin g C om mitte e, w hic h tu rn ed o ver m uch o f th e d eta ile d w ork to th e
Lin co ln -M erc ury D iv is io n, u nd er th e d ir e cti o n o f R ic hard K ra fv e ( p ro no unced K ra ffy ), th e d iv is io n’s
assis ta nt g enera l m anager. K ra fv e, a fo rc efu l, ra th er s a tu rn in e m an w ith a h ab itu ally p uzzle d lo ok,
was th en i n h is m id dle f o rti e s. T he s o n o f a p rin te r o n a s m all f a rm j o urn al i n M in neso ta , h e h ad b een
a s a le s e ngin eer a nd m anagem ent c o nsu lta nt b efo re jo in in g F ord , in 1 947, a nd a lth o ugh h e c o uld n o t
hav e k no w n i t i n 1 952, h e w as to h av e r e aso n to l o ok p uzzle d . A s th e m an d ir e ctl y r e sp onsib le f o r th e
Edse l and its fo rtu nes, enjo yin g its b rie f glo ry and atte nd in g it in its m orta l ago nie s, he had a
re nd ezv ous w ith d esti n y.
IN
D ecem ber, 1 954, a fte r tw o y ears ’ w ork , th e F orw ard P ro duct P la nnin g C om mitte e s u b m itte d to th e
executi v e c o m mitte e a six -v olu m e b lo ckb uste r o f a re p ort su m mariz in g its fin d in gs. S up porte d b y co pio us s ta ti s ti c s, th e r e p ort p re d ic te d th e a rriv al o f th e A meric an m ille nniu m , o r s o m eth in g a l o t l ik e
it, in 1 965. B y th at
ti m e, th e F orw ard P ro duct P la nnin g C om mitte e e sti m ate d , th e g ro ss n ati o nal
pro duct w ould b e $ 535 b illio n a y ear— up m ore th an $ 135 b illio n in a d ecad e. ( A s a m atte r o f fa ct,
th is p art o f th e m ille nniu m a rriv ed m uch s o oner th an th e F orw ard P la nners e sti m ate d . T he G . N . P .
passe d $ 535 b illio n i n 1 962, a nd f o r 1 965 w as $ 681 b illio n.) T he n um ber o f c ars i n o pera ti o n w ould
be s e v enty m illio n— up tw enty m illio n. M ore th an h alf th e f a m ilie s i n th e n ati o n w ould h av e i n co m es
of o ver fiv e th o usa nd d olla rs a y ear, a nd m ore th an 4 0 p erc ent o f a ll th e c ars s o ld w ould b e in th e
med iu m -p ric e r a nge o r b ette r. T he r e p ort’ s p ic tu re o f A meric a in 1 965, p re se nte d in c ru sh in g d eta il,
was o f a c o untr y a fte r D etr o it’ s o w n h eart— its b anks o ozin g m oney, i ts s tr e ets a nd h ig hw ays c ho ked
with h uge, d azzlin g m ed iu m -p ric ed c ars , its n ew ly ric h, “ up w ard ly m obile ” c iti z e ns ra cked w ith
lo ngin gs f o r m ore o f th em . T he m ora l w as c le ar. I f b y th at ti m e F ord h ad n o t c o m e o ut w ith a s e co nd
med iu m -p ric ed c ar— no t ju st a n ew m odel, b ut a n ew m ake— and m ad e it a fa v orite in its fie ld , th e
co m pany w ould m is s o ut o n i ts s h are o f th e n ati o nal b oodle .
On th e o th er h and , th e F ord b osse s w ere w ell a w are o f th e e no rm ous r is k s c o nnecte d w ith p utti n g a
new c ar o n th e m ark et. T hey k new , fo r e xam ple , th at o f th e 2 ,9 00 A meric an m akes th at h ad b een
in tr o duced s in ce th e b egin nin g o f th e A uto m obile A ge— th e B la ck C ro w (1 905), th e A vera gem an’s
Car ( 1 906), th e B ug-m obile ( 1 907), th e D an P atc h ( 1 911 ), a nd th e L one S ta r ( 1 920) a m ong th em —
only a b out tw enty w ere s ti ll a ro und . T hey k new a ll a b out th e a uto m oti v e c asu alti e s th at h ad f o llo w ed
th e S eco nd W orld W ar— am ong th em C ro sle y, w hic h h ad g iv en u p a lto geth er, a nd K ais e r M oto rs ,
whic h, th o ugh sti ll a liv e in 1 954, w as b re ath in g its la st. (T he m em bers o f th e F orw ard P ro duct
Pla nnin g C om mitte e m ust h av e g la nced a t e ach o th er u neasily w hen, a y ear la te r, H enry J . K ais e r
wro te , in a v ale d ic ti o n to his car b usin ess, “W e exp ecte d to to ss fifty m illio n d olla rs in to th e
auto m obile p ond , b ut w e d id n’t e xp ect it to d is a p pear w ith o ut a r ip ple .” ) T he F ord m en a ls o k new
th at n eith er o f th e o th er m em bers o f th e in d ustr y ’s p ow erfu l a nd w ell- h eele d B ig T hre e— Genera l
Moto rs a nd C hry sle r— had v entu re d to b rin g o ut a n ew sta nd ard -s iz e m ake sin ce th e fo rm er’s L a
Salle in 1 927, a nd th e
la tte r’s P ly m outh , in 1 928, a nd th at F ord its e lf h ad n o t a tte m pte d to tu rn th e
tr ic k s in ce 1 938, w hen i t l a unched th e M erc ury .
Nev erth ele ss, th e F ord m en fe lt b ullis h — so r e m ark ab ly b ullis h th at th ey r e so lv ed to to ss in to th e
auto m obile p ond fiv e ti m es th e s u m th at K ais e r h ad . In A pril, 1 955, H enry F ord II, B re ech, a nd th e
oth er m em bers of th e executi v e co m mitte e offic ia lly ap pro ved th e Forw ard Pro duct Pla nnin g
Com mitte e’s fin d in gs, a nd , to im ple m ent th em , se t u p a no th er a gency, c alle d th e S pecia l P ro ducts
Div is io n, w ith th e s ta r-c ro sse d K ra fv e a s its h ead . T hus th e c o m pany g av e its fo rm al s a ncti o n to th e
effo rts o f its d esig ners , w ho , hav in g d iv in ed th e tr e nd o f ev ents , had alr e ad y b een d oodlin g fo r
se v era l m onth s o n p la ns f o r a n ew c ar. S in ce n eith er th ey n o r th e n ew ly o rg aniz e d K ra fv e o utf it, w hen
it to ok o ver, h ad a n in klin g o f w hat th e th in g o n th eir d ra w in g b oard s m ig ht b e c alle d , it b ecam e
kno w n to e v ery b ody a t F ord , a nd e v en i n th e c o m pany’s p re ss r e le ase s, a s th e E -C ar— th e “ E ,” i t w as
exp la in ed , s ta nd in g f o r “ E xp erim enta l.”
The m an d ir e ctl y i n c harg e o f th e E -C ar’s d esig n— or, to u se th e g ru eso m e tr a d e w ord , “ sty lin g”—
was a C anad ia n, th en n o t y et f o rty , n am ed R oy A . B ro w n, w ho , b efo re ta kin g o n th e E -C ar ( a nd a fte r
stu d yin g in d ustr ia l d esig n a t th e D etr o it A rt A cad em y), h ad h ad a h and in th e d esig nin g o f ra d io s,
moto r cru is e rs , co lo re d -g la ss pro ducts , C ad illa cs, O ld sm obile s, and L in co ln s.
* B ro w n re centl y
re calle d h is a sp ir a ti o ns a s h e w ent to w ork o n th e n ew p ro je ct. “ O ur g o al w as to c re ate a v ehic le
whic h w ould b e u niq ue in th e s e nse th at it w ould b e r e ad ily r e co gniz a b le in s ty lin g th em e fr o m th e
nin ete en o th er m akes o f c ars o n th e r o ad a t th at ti m e,” h e w ro te f r o m E ngla nd , w here a t th e ti m e o f h is
writi n g h e w as e m plo yed a s c hie f s ty lis t fo r th e F ord M oto r C om pany, L td ., m anufa ctu re rs o f tr u cks, tr a cto rs , a nd s m all c ars . “ W e w ent to th e e xte nt o f m akin g p ho to gra p hic s tu d ie s f r o m s o m e d is ta nce o f
all n in ete en o f th ese c ars , a nd i t b ecam e o bvio us th at a t a d is ta nce o f a f e w h und re d f e et th e s im ila rity
was s o g re at th at i t w as p ra cti c ally i m possib le to d is ti n guis h o ne m ake f r o m th e o th ers .… T hey w ere
all ‘ p eas i n a p od.’ W e d ecid ed to s e le ct [ a s ty le th at] w ould b e ‘ n ew ’ i n th e s e nse th at i t w as u niq ue,
and y et a t th e s a m e ti m e b e f a m ilia r.”
While th e E-C ar w as on th e dra w in g board s in Ford ’s sty lin g stu d io — situ ate d , lik e its
ad m in is tr a ti v e offic es, in th e co m pany’s baro ny of D earb orn , ju st outs id e D etr o it— work on it
pro gre sse d u nd er th e c o nd iti o ns o f m elo dra m ati c , if in effe ctu al, s e cre cy th at in v aria b ly a tte nd s u ch
opera ti o ns in th e a uto m obile b usin ess: lo cks o n th e stu d io d oors th at c o uld b e c hanged in fifte en
min ute s i f a k ey s h o uld f a ll i n to e nem y h and s; a s e curity f o rc e s ta nd in g r o und -th e-c lo ck g uard o ver th e
esta b lis h m ent; a nd a te le sc o pe to b e tr a in ed a t in te rv als o n n earb y h ig h p oin ts o f th e te rra in w here
peekers m ig ht b e r o osti n g. ( A ll s u ch p re cauti o ns, h o w ev er i n sp ir e d , a re d oom ed to f a il, b ecause n o ne
of th em p ro vid e a d efe nse a gain st D etr o it’ s v ers io n o f th e T ro ja n h o rs e — th e jo b-ju m pin g sty lis t,
who se c heerfu l tr e achery m akes it re la ti v ely e asy fo r th e riv al c o m panie s to k eep ta b s o n w hat th e
co m peti ti o n is u p to . N o o ne, o f c o urs e , is b ette r a w are o f th is th an th e riv als th em se lv es, b ut th e
clo ak-a nd -d agger s tu ff is th o ught to p ay fo r its e lf in p ub lic ity v alu e.) T w ic e a w eek o r s o , K ra fv e—
head d ow n, a nd sti c kin g to lo w g ro und — mad e th e jo urn ey to th e sty lin g stu d io , w here h e w ould
co nfe r w ith B ro w n, c heck u p o n th e w ork a s it p ro ceed ed , a nd o ffe r a d vic e a nd e nco ura gem ent.
Kra fv e w as n o t th e k in d o f m an to e nv is io n h is o bje cti v e in a s in gle re v ela to ry fla sh ; in ste ad , h e
anato m iz e d th e s ty lin g o f th e E -C ar in to a s e rie s o f la b orio usly m in ute d ecis io ns— ho w to s h ap e th e
fe nd ers , w hat p atte rn to u se w ith th e c hro m e, w hat k in d o f d oor h and le s to p ut o n, a nd s o o n a nd o n. I f
Mic hela ngelo e v er a d ded th e n um ber o f d ecis io ns th at w ent i n to th e e xecuti o n o f, s a y, h is “ D av id ,” h e
kep t i t to h im se lf, b ut K ra fv e, a n o rd erly -m in d ed m an i n a n e ra o f o rd erly -fu ncti o nin g c o m pute rs , l a te r
calc ula te d th at i n s ty lin g th e E -C ar h e a nd h is a sso cia te s h ad to m ake u p th eir m in d s o n n o f e w er th an
fo ur th o usa nd o ccasio ns. H e r e aso ned a t th e ti m e th at if th ey a rriv ed a t th e r ig ht y es-o r-n o c ho ic e o n
ev ery o ne o f th o se
o ccasio ns, th ey o ught, i n th e e nd , to c o m e u p w ith a s ty lis ti c ally p erfe ct c ar— or a t
le ast a c ar th at w ould b e u niq ue a nd a t th e s a m e ti m e fa m ilia r. B ut K ra fv e c o nced es to day th at h e
fo und i t d iffic ult th us to b end th e c re ati v e p ro cess to th e y o ke o f s y ste m , p rin cip ally b ecause m any o f
th e fo ur th o usa nd d ecis io ns h e m ad e w ould n’t s ta y p ut. “ O nce y o u g et a g enera l th em e, y o u b egin
narro w in g d ow n,” h e s a ys. “ Y ou k eep m odify in g, a nd th en m odify in g y o ur m odific ati o ns. F in ally , y o u
have
to s e ttl e o n s o m eth in g, b ecause th ere is n ’t a ny m ore ti m e. If it w ere n’t fo r th e d ead lin e y o u’d
pro bab ly g o o n m odify in g i n d efin ite ly .”
Excep t fo r la te r, m in o r m odific ati o ns o f th e m odifie d m odific ati o ns, th e E -C ar h ad b een fu lly
sty le d b y m id su m mer o f 1 955. A s th e w orld w as to l e arn tw o y ears l a te r, i ts m ost s tr ik in g a sp ect w as
a n o vel, h o rs e -c o lla r-s h ap ed r a d ia to r g rille , s e t v erti c ally i n th e c ente r o f a c o nv enti o nally l o w , w id e
fr o nt e nd — a b le nd o f th e u niq ue a nd th e f a m ilia r th at w as th ere f o r a ll to s e e, th o ugh c erta in ly n o t f o r
all to a d m ir e . I n tw o p ro m in ent r e sp ects , h o w ev er, B ro w n o r K ra fv e, o r b oth , l o st s ig ht e nti r e ly o f th e
fa m ilia r, sp ecify in g a u niq ue re ar e nd , m ark ed b y w id esp re ad h o riz o nta l w in gs th at w ere in b old
co ntr a st to th e huge lo ngitu d in al ta il fin s th en cap ti v ati n g th e m ark et, and a uniq ue clu ste r of
auto m ati c -tr a nsm is sio n p ush b utto ns o n th e hub o f th e ste erin g w heel. In a sp eech to th e p ub lic
deliv ere d a w hile b efo re th e p ub lic h ad i ts f ir s t l o ok a t th e c ar, K ra fv e l e t f a ll a h in t o r tw o a b out i ts
sty lin g, w hic h, h e s a id , m ad e it s o “ d is ti n cti v e” th at, e xte rn ally , it w as “ im med ia te ly re co gniz a b le
fr o m fr o nt, s id e, a nd r e ar,” a nd , in te rn ally , it w as “ th e e p ito m e o f th e p ush -b utto n e ra w ith o ut w ild -
blu e-y o nd er B uck R ogers c o ncep ts .” A t la st c am e th e d ay w hen th e m en in th e h ig hest s tr a tu m o f th e
Ford H ie ra rc hy w ere g iv en th eir f ir s t g lim pse o f th e c ar. I t p ro duced a n e ffe ct th at w as l ittl e s h o rt o f ap ocaly p ti c . O n A ugust 1 5, 1 955, in th e c ere m onia l se cre cy o f th e sty lin g c ente r, w hile K ra fv e,
Bro w n, a nd th eir a id es s to od b y s m ilin g n erv ously a nd w ash in g th eir h and s i n a ir, th e m em bers o f th e
Forw ard P ro duct P la nnin g C om mitte e, in clu d in g H enry F ord II a nd B re ech, w atc hed c riti c ally a s a
curta in w as l ifte d to r e v eal th e f ir s t f u ll- s iz e m odel o f th e E -C ar— a c la y o ne, w ith ti n fo il s im ula ti n g
alu m in um a nd c hro m e. A cco rd in g to e yew itn esse s, th e a ud ie nce s a t in u tte r s ile nce fo r w hat s e em ed
lik e a fu ll m in ute , a nd th en, a s o ne m an, b urs t in to a r o und o f a p pla use . N oth in g o f th e k in d h ad e v er
hap pened a t a n in tr a co m pany fir s t s h o w in g a t F ord s in ce 1 896, w hen o ld H enry h ad b olte d to geth er
his f ir s t h o rs e le ss c arria ge.
ONE
o f th e m ost p ers u asiv e a nd m ost f r e q uentl y c ite d e xp la nati o ns o f th e E dse l’s f a ilu re i s th at i t w as
a v ic ti m o f th e ti m e la g b etw een th e d ecis io n to p ro duce it a nd th e a ct o f p utti n g it o n th e m ark et. It
was e asy to se e a fe w y ears la te r, w hen sm alle r a nd le ss p ow erfu l c ars , e up hem is ti c ally c alle d
“co m pacts ,” h ad b eco m e s o p opula r a s to tu rn th e o ld a uto m obile s ta tu s-la d der u p sid e d ow n, th at th e
Edse l w as a g ia nt s te p in th e w ro ng d ir e cti o n, b ut it w as fa r fr o m e asy to s e e th at in fa t, ta il- fin ny
1955. A meric an in genuity — whic h h as p ro duced th e e le ctr ic lig ht, th e fly in g m achin e, th e ti n L iz zie ,
th e a to m ic b om b, a nd e v en a ta x s y ste m th at p erm its a m an, u nd er c erta in c ir c um sta nces, to c le ar a
pro fit b y m akin g a c harita b le d onati o n
* —has n o t y et fo und a w ay o f g etti n g a n a uto m obile o n th e
mark et w ith in a re aso nab le ti m e a fte r it c o m es o ff th e d ra w in g b oard ; th e m akin g o f s te el d ie s, th e
ale rti n g o f re ta il d eale rs , th e p re p ara ti o n o f a d verti s in g a nd p ro m oti o n c am paig ns, th e g ain in g o f
executi v e a p pro val fo r e ach su ccessiv e m ove, a nd th e v ario us o th er g av otte -lik e ro uti n es th at a re
co nsid ere d as vita l as bre ath in g in D etr o it and its env ir o ns usu ally co nsu m e ab out tw o years .
Guessin g f u tu re ta ste s i s h ard e no ugh f o r th o se c harg ed w ith p la nnin g th e c usto m ary a nnual c hanges i n
models o f e sta b lis h ed m akes; it is fa r h ard er to b rin g o ut a n a lto geth er n ew c re ati o n, lik e th e E -C ar,
fo r w hic h s e v era l in tr ic ate n ew s te p s m ust b e w ork ed in to th e d ance p atte rn , s u ch a s e nd ow in g th e
pro duct w ith a p ers o nality a nd s e le cti n g a s u ita b le n am e fo r it, to s a y n o th in g o f c o nsu lti n g v ario us
ora cle s in an effo rt to d ete rm in e w heth er, b y th e ti m e o f th e unv eilin g, th e sta te o f th e nati o nal
eco no m y w ill m ake b rin gin g o ut
any
n ew c ar s e em l ik e a g o od i d ea.
Faith fu lly e xecuti n g th e p re sc rib ed r o uti n e, th e S pecia l P ro ducts D iv is io n c alle d u p on its d ir e cto r
of pla nnin g fo r m ark et re se arc h,
Dav id W alla ce, to se e w hat he co uld do ab out im parti n g a
pers o nality to th e E -C ar a nd g iv in g i t a n am e. W alla ce, a l e an, c ra ggy-ja w ed p ip e p uffe r w ith a s o ft,
slo w , th o ughtf u l w ay o f sp eakin g, g av e th e im pre ssio n o f b ein g th e P la to nic id ea o f th e c o lle ge
pro fe sso r— th e v ery s te el d ie f r o m w hic h th e b re ed i s c ut— alth o ugh, i n p oin t o f f a ct, h is b ackgro und
was no t str o ngly acad em ic . B efo re go in g to Ford , in 1955, he had w ork ed his w ay th ro ugh
Westm in ste r C olle ge, in P ennsy lv ania , rid den o ut th e d ep re ssio n a s a c o nstr u cti o n la b ore r in N ew
York C ity , a nd th en s p ent te n y ears i n m ark et r e se arc h a t
Tim e
. S ti ll, i m pre ssio ns a re w hat c o unt, a nd
Walla ce h as a d m itte d th at d urin g h is te nure w ith F ord h e c o nsc io usly s tr e sse d h is p ro fe sso ria l a ir f o r
th e sa ke o f th e a d vanta ge it g av e h im in d ealin g w ith th e b lu ff, p ra cti c al m en o f D earb orn . “ O ur
dep artm ent c am e to b e re gard ed a s a se m i- B ra in T ru st,” h e sa ys, w ith a c erta in sa ti s fa cti o n. H e
in sis te d , ty p ic ally , o n l iv in g i n A nn A rb or, w here h e c o uld b ask i n th e s c ho la rly a ura o f th e U niv ers ity
of M ic hig an, ra th er th an in D earb orn o r D etr o it, b oth o f w hic h h e d ecla re d w ere in to le ra b le a fte r
busin ess h o urs . W hate v er th e d egre e o f h is s u ccess i n p ro je cti n g th e i m age o f th e E -C ar, h e s e em s, b y
his s m all e ccentr ic iti e s, to h av e d one s p le nd id ly a t p ro je cti n g th e im age o f W alla ce. “ I d on’t th in k
Dav e’s m oti v ati o n fo r b ein g a t F ord w as b asic ally e co no m ic ,” h is o ld b oss, K ra fv e, s a ys. “ D av e is
th e s c ho la rly ty p e, a nd I th in k h e c o nsid ere d th e j o b a n i n te re sti n g c halle nge.” O ne c o uld s c arc ely a sk
fo r b ette r e v id ence o f i m age p ro je cti o n th an th at. Walla ce c le arly r e calls th e r e aso nin g— cand id e no ugh— th at g uid ed h im a nd h is a ssis ta nts a s th ey
so ught j u st th e r ig ht p ers o nality f o r th e E -C ar. “ W e s a id to o urs e lv es, ‘ L et’ s f a ce i t— th ere i s n o g re at
diffe re nce in b asic m echanis m b etw een a tw o-th o usa nd -d olla r C hev ro le t a nd a s ix -th o usa nd -d olla r
Cad illa c,’ ” h e s a ys. “ ‘F org et a b out a ll th e b ally ho o,’ w e s a id , ‘a nd y o u’ll s e e th at th ey a re re ally
pre tty m uch th e sa m e th in g. N ev erth ele ss, th ere ’s so m eth in g— th ere ’s
got
to b e so m eth in g— in th e
makeup o f a c erta in n um ber o f p eo ple th at g iv es th em a y en fo r a C ad illa c, in s p ite o f its h ig h p ric e,
or m ayb e b ecause o f i t.’ W e c o nclu d ed th at c ars a re th e m eans to a s o rt o f d re am f u lfillm ent. T here ’s
so m e i r ra ti o nal f a cto r i n p eo ple th at m akes th em w ant o ne k in d o f c ar
r a th er th an a no th er— so m eth in g
th at h as n o th in g to d o w ith th e m echanis m a t a ll b ut w ith th e c ar’s p ers o nality , a s th e c usto m er
im agin es i t. W hat w e w ante d to d o, n atu ra lly , w as to g iv e th e E -C ar th e p ers o nality th at w ould m ake
th e gre ate st num ber of peo ple w ant it. W e fig ure d w e had a big ad vanta ge over th e oth er
manufa ctu re rs o f m ed iu m -p ric ed c ars , b ecause w e d id n’t h av e to w orry a b out c hangin g a p re -e xis te nt,
perh ap s s o m ew hat o bno xio us p ers o nality . A ll w e h ad to d o w as c re ate th e e xact o ne w e w ante d —
fr o m s c ra tc h.”
As th e fir s t s te p in d ete rm in in g w hat th e E -C ar’s e xact p ers o nality s h o uld b e, W alla ce d ecid ed to
asse ss th e p ers o naliti e s o f th e m ed iu m -p ric ed c ars a lr e ad y o n th e m ark et, a nd th o se o f th e s o -c alle d
lo w -p ric ed c ars a s w ell, s in ce th e c o st o f s o m e o f th e c heap c ars ’ 1 955 m odels h ad r is e n w ell u p i n to
th e m ed iu m -p ric e r a nge. T o th is e nd , h e e ngaged th e C olu m bia U niv ers ity B ure au o f A pplie d S ocia l
Rese arc h to i n te rv ie w e ig ht h und re d r e cent c ar b uyers i n P eo ria , I llin o is , a nd a no th er e ig ht h und re d i n
San B ern ard in o , C alifo rn ia , on th e m enta l im ages th ey had of th e vario us auto m obile m akes
co ncern ed . (In und erta kin g th is co m merc ia l ente rp ris e , Colu m bia main ta in ed its acad em ic
in d ep end ence b y re se rv in g th e rig ht to p ub lis h its fin d in gs.) “ O ur id ea w as to g et th e re acti o n in
citi e s, a m ong c lu ste rs o f p eo ple ,” W alla ce s a ys. “ W e d id n’t w ant a c ro ss s e cti o n. W hat w e w ante d
was so m eth in g th at w ould sh o w in te rp ers o nal fa cto rs . W e pic ked Peo ria as a pla ce th at is
Mid w este rn , s te re o ty p ed , a nd n o t l o ad ed w ith e xtr a neo us f a cto rs — lik e a G enera l M oto rs g la ss p la nt,
sa y. W e p ic ked S an B ern ard in o b ecause th e W est C oast i s v ery i m porta nt i n th e a uto m obile b usin ess,
and b ecause th e m ark et th ere i s q uite d iffe re nt— peo ple te nd to b uy f la sh ie r c ars .”
The q uesti o ns th at th e C olu m bia r e se arc hers f a re d f o rth to a sk i n P eo ria a nd S an B ern ard in o d ealt
exhausti v ely w ith p ra cti c ally e v ery th in g h av in g to d o w ith a uto m obile s e xcep t s u ch m atte rs a s h o w
much th ey c o st, h o w s a fe th ey w ere , a nd w heth er th ey r a n. I n p arti c ula r, W alla ce w ante d to k no w th e
re sp ond ents ’ i m pre ssio ns o f e ach o f th e e xis ti n g m akes. W ho , i n th eir o pin io n, w ould n atu ra lly o w n a
Chev ro le t o r a B uic k o r w hate v er? P eo ple o f w hat a ge? O f w hic h s e x? O f w hat s o cia l s ta tu s? F ro m
th e a nsw ers , W alla ce fo und it e asy to p ut to geth er a p ers o nality p ortr a it o f e ach m ake. T he im age o f
th e F ord cam e in to fo cus as th at o f a v ery fa st, str o ngly m asc ulin e car, o f no p arti c ula r so cia l
pre te nsio ns, th at m ig ht chara cte ris ti c ally b e d riv en b y a ra ncher o r an auto m obile m echanic . In
co ntr a st, C hev ro le t e m erg ed a s o ld er, w is e r, slo w er, a b it le ss ra m pantl y m asc ulin e, a nd slig htl y
more d is ti n gué— a c le rg ym an’s c ar. B uic k j e lle d i n to a m id dle -a ged l a d y— or, a t l e ast, m ore o f a l a d y
th an F ord , s e x in c ars h av in g p ro ved to b e r e la ti v e— with a b it o f th e d ev il s ti ll in h er, w ho se m ost
fe lic ito us m ate w ould b e a l a w yer, a d octo r, o r a d ance-b and l e ad er. A s f o r th e M erc ury , i t c am e o ut
as v ir tu ally a h o t r o d, b est s u ite d to a y o ung-b uck r a cin g d riv er; th us, d esp ite its h ig her p ric e ta g, it
was a sso cia te d w ith p ers o ns h av in g i n co m es n o h ig her th an th e a v era ge F ord o w ner’s , s o n o w ond er
Ford o w ners h ad n o t b een tr a d in g u p to it. T his o dd d is c re p ancy b etw een im age a nd fa ct, c o up le d
with th e c ir c um sta nce th at, in s o ber tr u th a ll fo ur m akes lo oked v ery m uch a lik e a nd h ad a lm ost th e
sa m e h o rs e p ow er u nd er th eir h o ods, o nly s e rv ed to b ear o ut W alla ce’s p re m is e th at th e a uto m obile
fa ncie r, lik e a y o ung m an in lo ve, is in cap ab le o f s iz in g u p th e o bje ct o f h is a ffe cti o ns in a nyth in g re se m blin g a r a ti o nal m anner.
By th e ti m e th e re se arc hers c lo se d th e b ooks o n P eo ria a nd S an B ern ard in o , th ey h ad e lic ite d
re p lie s n o t o nly to th ese q uesti o ns b ut to o th ers , s e v era l o f w hic h, it w ould a p pear, o nly th e m ost
ab str u se s o cio lo gic al th in ker c o uld re la te to m ed iu m -p ric ed c ars . “ F ra nkly , w e d ab ble d ,” W alla ce
sa ys. “ It w as a d ra gnet o pera ti o n.” A mong th e o dds a nd e nd s th at th e d ra gnet d re d ged u p w ere s o m e
th at, w hen p ie ced to geth er, l e d th e r e se arc hers to r e p ort:
By lo okin g a t th ose r e sp ondents w hose a nnual in com es r a nge f ro m $ 4,0 00 to $ 11 ,0 00, w e c an m ake a n … o bse rv atio n. A c onsid era ble
perc enta ge o f th ese re sp ondents [to a q uestio n a bout th eir a bilit y to m ix c ockta ils ] a re in th e “ so m ew hat” c ate gory o n a bilit y to m ix
cockta ils .… E vid ently , th ey d o n ot h ave m uch c onfid ence in th eir c ockta il- m ix in g a bilit y . W e m ay in fe r th at th ese r e sp ondents a re a w are
of th e f a ct th at th ey a re in th e le arn in g p ro cess. T hey m ay b e a ble to m ix M artin is o r M anhatta ns, b ut b eyond th ese p opula r d rin ks th ey
don’t h ave m uch o f a r e perto ir e .
Walla ce, d re am in g o f a n id eally lo vab le E -C ar, w as d elig hte d a s r e tu rn s lik e th ese c am e p ourin g
in to h is D earb orn o ffic e. B ut w hen th e ti m e f o r a f in al d ecis io n d re w n ear, i t b ecam e c le ar to h im th at
he m ust p ut a sid e p erip hera l is su es lik e c o ckta il- m ix in g p ro w ess a nd a d dre ss h im se lf o nce m ore to
th e o ld p ro ble m o f th e im age. A nd h ere , it s e em ed to h im , th e g re ate st p itf a ll w as th e te m pta ti o n to
aim , in a cco rd ance w ith w hat h e to ok to b e th e tr e nd o f th e ti m es, fo r e xtr e m es o f m asc ulin ity ,
yo uth fu ln ess, a nd sp eed ; in d eed , th e fo llo w in g p assa ge fr o m o ne o f th e C olu m bia re p orts , a s h e
in te rp re te d i t, c o nta in ed a s p ecific w arn in g a gain st s u ch f o lly .
Offh and w e m ig ht c onje ctu re th at w om en w ho d riv e c ars p ro bably w ork , a nd a re m ore m obile th an n on-o w ners , a nd g et g ra tif ic atio ns
out o f m aste rin g a tr a dit io nally m ale r o le . B ut … th ere is n o d oubt th at w hate ver g ra tif ic atio ns w om en g et o ut o f th eir c ars , a nd w hate ver
so cia l im agery th ey a tta ch to th eir a uto m obile s, th ey d o w ant to a ppear a s w om en. P erh aps m ore w orld ly w om en, b ut w om en.
Early in 1 956, W alla ce s e t a b out s u m min g u p a ll o f h is d ep artm ent’ s fin d in gs in a re p ort to h is
su p erio rs i n th e S pecia l P ro ducts D iv is io n. E nti tl e d “ T he M ark et a nd P ers o nality O bje cti v es o f th e E -
Car” a nd w eig hty w ith fa cts a nd sta ti s ti c s— th o ugh g enero usly in te rs p ers e d w ith te rs e se cti o ns in
ita lic s o r c ap ita ls fr o m w hic h a h ard -p re sse d e xecuti v e c o uld g et th e g is t o f th e th in g in a m atte r o f
se co nd s— th e re p ort fir s t in d ulg ed in so m e air y , sk ip pab le p hilo so phiz in g and th en go t d ow n to
co nclu sio ns:
What happens w hen an ow ner se es his m ake as a car w hic h a
wom an
m ig ht buy, but is him se lf a
man?
D oes th is appare nt
in consis te ncy o f c ar im age a nd th e b uyer’s o w n c hara cte ris tic s a ffe ct h is tr a din g p la ns? T he a nsw er q uit e d efin it e ly is
Yes
. W hen th ere
is a c onflic t b etw een o w ner c hara cte ris tic s a nd m ake im age, th ere is g re ate r p la nnin g to s w it c h to a noth er m ake. I n o th er w ord s, w hen
th e b uyer is a d if fe re nt k in d o f p ers o n fro m th e p ers o n h e th in ks w ould o w n h is m ake, h e w ants to c hange to a m ake in w hic h h e,
in w ard ly , w ill b e m ore c om fo rta ble .
It s h ould b e n ote d th at “ c onflic t,” a s u se d h ere , c an b e o f tw o k in ds. S hould a m ake h ave a s tr o ng a nd w ell- d efin ed im age, it is
obvio us th at a n o w ner w it h s tr o ng o pposin g c hara cte ris tic s w ould b e in c onflic t. B ut c onflic t a ls o c an o ccur w hen th e m ake im age is
dif fu se o r w eakly d efin ed. I n th is c ase , th e o w ner is in a n e qually f ru str a tin g p osit io n o f n ot b ein g a ble to g et a s a tis fa cto ry id entif ic atio n
fro m h is m ake.
The q uesti o n, th en, w as h o w to s te er b etw een th e S cylla o f a to o d efin ite c ar p ers o nality a nd th e
Chary b dis o f a to o w eak p ers o nality . T o th is th e r e p ort r e p lie d , “ C ap ita liz e o n im agery w eakness o f
co m peti ti o n,” a nd w ent o n to u rg e th at i n th e m atte r o f a ge th e E -C ar s h o uld ta ke a n i m agery p ositi o n
neith er to o y o ung n o r to o o ld b ut r ig ht a lo ngsid e th at o f th e m id dlin g O ld s-m obile ; th at i n th e m atte r o f
so cia l c la ss, n o t to m in ce m atte rs , “ th e E -C ar m ig ht w ell ta ke a s ta tu s p ositi o n ju st b elo w B uic k a nd
Old sm obile ”; a nd th at i n th e d elic ate m atte r o f s e x i t s h o uld tr y to s tr a d dle th e f e nce, a gain a lo ng w ith
th e p ro te an O ld s. I n s u m ( a nd i n W alla ce ty p ogra p hy): The m ost advanta geous pers o nalit y fo r th e E -C ar m ig ht w ell be
TH E S M ART C A R F O R T H E Y OUNGER E X EC U TIV E O R
PR O FE SSIO NAL F A M IL Y O N I T S W AY U P
.
Sm art c ar: r e cognit io n b y o th ers o f th e o w ner’s g ood s ty le a nd ta ste .
Younger: a ppealin g to s p ir it e d b ut r e sp onsib le a dventu re rs .
Executiv e o r p ro fe ssio nal: m illio ns p re te nd to th is s ta tu s, w heth er th ey c an a tta in it o r n ot.
Fam ily : n ot e xclu siv ely m asc ulin e; a w hole so m e “ g ood” r o le .
On I ts W ay U p: “ T he E -C ar h as f a it h in y ou, s o n; w e’ll h elp y ou m ake it ! ”
Befo re s p ir ite d b ut r e sp onsib le a d ventu re rs c o uld h av e f a ith i n th e E -C ar, h o w ev er, i t h ad to h av e
a n am e. V ery e arly i n i ts h is to ry , K ra fv e h ad s u ggeste d to m em bers o f th e F ord f a m ily th at th e n ew c ar
be n am ed fo r E dse l F ord , w ho w as th e o nly so n o f o ld H enry ; th e p re sid ent o f th e F ord M oto r
Com pany f r o m 1 918 u nti l h is d eath , i n 1 943; a nd th e f a th er o f th e n ew g enera ti o n o f F ord s— Henry I I,
Benso n, a nd W illia m C la y. T he th re e b ro th ers h ad le t K ra fv e k no w th at th eir fa th er m ig ht n o t h av e
care d to h av e h is n am e s p in nin g o n a m illio n h ub cap s, a nd th ey h ad c o nse q uentl y s u ggeste d th at th e
Specia l P ro ducts D iv is io n sta rt lo okin g aro und fo r a su b sti tu te . T his it d id , w ith a ze al no le ss
em phati c th an it d is p la yed in th e p ers o nality c ru sa d e. In th e la te su m mer a nd e arly fa ll o f 1 955,
Walla ce h ir e d th e s e rv ic es o f s e v era l r e se arc h o utf its , w hic h s e nt in te rv ie w ers , a rm ed w ith a lis t
o f
tw o th o usa nd p ossib le n am es, to c anv ass s id ew alk c ro w ds i n N ew Y ork , C hic ago , W illo w R un, a nd
Ann A rb or. T he in te rv ie w ers d id n o t a sk s im ply w hat th e r e sp ond ent th o ught o f s o m e s u ch n am e a s
Mars , J u p ite r, R over, A rie l, A rro w , D art, o r O vati o n. T hey a sk ed w hat fr e e a sso cia ti o ns e ach n am e
bro ught to m in d , and hav in g go t an answ er to th is one, th ey ask ed w hat w ord or w ord s w as
co nsid ere d th e o pposite o f e ach n am e, o n th e th eo ry th at, s u b lim in ally s p eakin g, th e o pposite is a s
much a p art o f a n am e a s th e ta il is o f a p enny. T he r e su lts o f a ll th is , th e S pecia l P ro ducts D iv is io n
ev entu ally d ecid ed , w ere in co nclu siv e. M eanw hile , K ra fv e a nd h is m en h eld r e p eate d s e ssio ns in a
dark ened ro om , s ta rin g, w ith th e a id o f a s p otl ig ht, a t a s e rie s o f c ard board s ig ns, e ach b earin g a
nam e, a s, o ne a fte r a no th er, th ey w ere flip ped o ver fo r th eir c o nsid era ti o n. O ne o f th e m en th us
engaged sp oke u p fo r th e n am e P ho enix , b ecause o f its c o nno ta ti o ns o f a sc end ancy, a nd a no th er
fa v ore d A lta ir, o n th e g ro und th at it w ould le ad p ra cti c ally a ll a lp hab eti c al lis ts o f c ars a nd th us
enjo y a n a d vanta ge a nalo go us to th at e njo yed in th e a nim al k in gd om b y th e a ard vark . A t a c erta in
dro w sy p oin t in o ne s e ssio n, s o m eb ody s u d denly c alle d a h alt to th e c ard -flip pin g a nd a sk ed , in a n
in cre d ulo us to ne, “D id n’t I se e ‘B uic k’ go b y tw o o r th re e card s b ack?” E very b ody lo oked at
Walla ce, th e im pre sa rio o f th e se ssio ns. H e p uffe d o n his p ip e, sm ile d an acad em ic sm ile , and
no dded .
TH E
c ard -flip pin g s e ssio ns p ro ved to b e a s fr u itl e ss a s th e s id ew alk in te rv ie w s, a nd it w as a t th is
sta ge o f th e g am e th at W alla ce, re so lv in g to tr y a nd w rin g fr o m g eniu s w hat th e c o m mon m in d h ad
fa ile d to y ie ld , e nte re d i n to th e c ele b ra te d c ar-n am in g c o rre sp ond ence w ith th e p oet M aria nne M oore ,
whic h w as la te r p ub lis h ed in
The N ew Y o rk er
a nd s ti ll la te r, in b ook fo rm , b y th e M org an L ib ra ry .
“W e sh o uld lik e th is n am e … to c o nv ey, th ro ugh a sso cia ti o n o r o th er c o nju ra ti o n, so m e v is c era l
fe elin g of ele gance, fle etn ess, ad vanced fe atu re s and desig n,” W alla ce w ro te to M is s M oore ,
achie v in g a c erta in f e elin g o f e le gance h im se lf. I f i t i s a sk ed w ho a m ong th e g o ds o f D earb orn h ad th e
in sp ir e d a nd in sp ir iti n g id ea o f e nlis ti n g M is s M oore ’s s e rv ic es in th is c ause , th e
a nsw er, a cco rd in g
to W alla ce, is th at it w as n o g o d b ut th e w ife o f o ne o f h is ju nio r a ssis ta nts — a y o ung la d y w ho h ad
re centl y gra d uate d fr o m M ount H oly o ke, w here sh e had heard M is s M oore le ctu re . H ad her
husb and ’s s u p erio rs g o ne a s te p fu rth er a nd a ctu ally a d opte d o ne o f M is s M oore ’s m any s u ggesti o ns
—In te llig ent B ulle t, fo r in sta nce, o r U to pia n T urtl e to p, o r B ulle t C lo is o nné, o r P aste lo gra m , o r
Mongo ose C iv iq ue, o r A nd ante c o n M oto ( “ D esc rip ti o n o f a g o od m oto r? ” M is s M oore q uerie d in re gard to th is l a st) — th ere i s n o te llin g to w hat h eig hts th e E -C ar m ig ht h av e r is e n, b ut th e f a ct i s th at
th ey d id n’t. D is sa ti s fie d w ith b oth th e p oet’ s id eas a nd th eir o w n, th e e xecuti v es in th e S pecia l
Pro ducts D iv is io n n ext c alle d in F oote , C one & B eld in g, th e a d verti s in g a gency th at h ad la te ly b een
sig ned u p to h and le th e E -C ar a cco unt. W ith c hara cte ris ti c M ad is o n A venue v ig o r, F oote , C one &
Beld in g o rg aniz e d a c o m peti ti o n a m ong th e e m plo yees o f i ts N ew Y ork , L ond on, a nd C hic ago o ffic es,
offe rin g n o th in g le ss th an o ne o f th e b ra nd -n ew c ars a s a p riz e to w ho ev er th o ught u p a n a ccep ta b le
nam e. I n n o ti m e a t a ll, F oote , C one & B eld in g h ad e ig hte en th o usa nd n am es i n h and , i n clu d in g Z oom ,
Zip , B enso n, H enry , a nd D ro f (if in d oub t, sp ell it b ackw ard ). S usp ecti n g th at th e b osse s o f th e
Specia l P ro ducts D iv is io n m ig ht r e gard th is l is t a s a tr ifle u nw ie ld y, th e a gency g o t to w ork a nd c ut i t
dow n to s ix th o usa nd n am es, w hic h it p re se nte d to th em in e xecuti v e s e ssio n. “ T here y o u a re ,” a
Foote , C one m an s a id tr iu m phantl y , f lo ppin g a s h eaf o f p ap ers o n th e ta b le . “ S ix th o usa nd n am es, a ll
alp hab eti z e d a nd c ro ss-re fe re nced .”
A g asp e sc ap ed K ra fv e. “ B ut w e d on’t w ant s ix th o usa nd n am es,” h e s a id . “ W e o nly w ant o ne.”
The s itu ati o n w as c riti c al, b ecause th e m akin g o f d ie s f o r th e n ew c ar w as a b out to b egin a nd s o m e
of th em w ould h av e to b ear i ts n am e. O n a T hurs d ay, F oote , C one & B eld in g c ancele d a ll l e av es a nd
in sti tu te d w hat is c alle d a c ra sh p ro gra m , in str u cti n g its N ew Y ork a nd C hic ago o ffic es to s e t a b out
in d ep end entl y c utti n g d ow n th e l is t o f s ix th o usa nd n am es to te n a nd to h av e th e j o b d one b y th e e nd o f
th e w eekend . B efo re th e w eekend w as o ver, th e tw o F oote , C one o ffic es p re se nte d th eir s e p ara te l is ts
of te n to th e S pecia l P ro ducts D iv is io n, a nd b y a n a lm ost in cre d ib le
c o in cid ence, w hic h a ll h and s
in sis t
was
a c o in cid ence, fo ur o f th e n am es o n th e tw o lis ts w ere th e s a m e; C ors a ir, C ita ti o n, P acer,
and R anger h ad m ir a culo usly s u rv iv ed th e d ual s c ru ti n y. “ C ors a ir s e em ed to b e h ead a nd s h o uld ers
ab ove e v ery th in g e ls e ,” W alla ce s a ys. “ A lo ng w ith o th er f a cto rs i n i ts f a v or, i t h ad d one s p le nd id ly i n
th e sid ew alk in te rv ie w s. The fr e e asso cia ti o ns w ith C ors a ir w ere ra th er ro m anti c — ‘p ir a te ,’
‘s w ash b uckle r,’ th in gs lik e th at. F or its o pposite , w e g o t ‘ p rin cess,’ o r s o m eth in g e ls e a ttr a cti v e o n
th at o rd er. J u st w hat w e w ante d .”
Cors a ir o r n o C ors a ir, th e E -C ar w as n am ed th e E dse l in th e e arly sp rin g o f 1 956, th o ugh th e
pub lic w as n o t in fo rm ed u nti l th e fo llo w in g a utu m n. T he e p ochal d ecis io n w as r e ached a t a m eeti n g
of th e F ord e xecuti v e c o m mitte e h eld a t a ti m e w hen, a s it h ap pened , a ll th re e F ord b ro th ers w ere
aw ay. I n P re sid ent F ord ’s a b se nce, th e m eeti n g w as c o nd ucte d b y B re ech, w ho h ad b eco m e c hair m an
of th e board in 1955, and his m ood th at day w as bru sq ue, and no t one to lin ger lo ng over
sw ash b uckle rs a nd p rin cesse s. A fte r h earin g th e f in al c ho ic es, h e s a id , “ I d on’t l ik e a ny o f th em . L et’ s
ta ke a no th er l o ok a t s o m e o f th e o th ers .” S o th ey to ok a no th er l o ok a t th e f a v ore d r e je cts , a m ong th em
th e n am e E dse l, w hic h, in s p ite o f th e th re e F ord b ro th ers ’ e xp re sse d in te rp re ta ti o n o f th eir fa th er’s
pro bab le w is h es, h ad b een r e ta in ed a s a s o rt o f a ncho r to w in d w ard . B re ech le d h is a sso cia te s in a
pati e nt sc ru ti n y o f th e lis t u nti l th ey c am e to “ E dse l.” “ L et’ s c all it th at,” B re ech sa id w ith c alm
fin ality . T here w ere to b e fo ur m ain m odels o f th e E -C ar, w ith v aria ti o ns o n e ach o ne, a nd B re ech
so oth ed s o m e o f h is c o lle agues b y a d din g th at th e m agic fo ur— Cors a ir, C ita ti o n, P acer, a nd R anger
—mig ht b e u se d , if a nyb ody fe lt s o in clin ed , a s th e s u b nam es fo r th e m odels . A te le p ho ne c all w as
put th ro ugh to H enry II, w ho w as v acati o nin g in N assa u. H e s a id th at if E dse l w as th e c ho ic e o f th e
executi v e c o m mitte e, h e w ould a b id e b y i ts d ecis io n, p ro vid ed h e c o uld g et th e a p pro val o f th e r e st o f
his f a m ily . W ith in a f e w d ays, h e g o t i t.
As W alla ce w ro te to M is s M oore a w hile la te r: “ W e h av e c ho se n a n am e.… It fa ils s o m ew hat o f
th e r e so nance, g aie ty , a nd z e st w e w ere s e ekin g. B ut i t h as a p ers o nal d ig nity a nd m eanin g
to m any o f
us h ere . O ur n am e, d ear M is s M oore , i s — Edse l. I h o pe y o u w ill u nd ers ta nd .” IT
m ay b e a ssu m ed th at w ord o f th e n am in g o f th e E -C ar s p re ad a c erta in a m ount o f d esp air a m ong th e
Foote , C one & B eld in g b ackers o f m ore m eta p ho ric al n am es, n o ne o f w ho m w on a fr e e c ar— a
desp air h eig hte ned b y th e fa ct th at th e n am e “ E dse l” h ad b een r u le d o ut o f th e c o m peti ti o n fr o m th e
fir s t. B ut th eir s e nse o f d is a p poin tm ent w as a s n o th in g c o m pare d to th e g lo om th at e nv elo ped m any
em plo yees o f th e S pecia l P ro ducts D iv is io n. S om e fe lt th at th e n am e o f a fo rm er p re sid ent o f th e
co m pany, w ho had sir e d its curre nt p re sid ent, b ore d ynasti c co nno ta ti o ns th at w ere alie n to th e
Americ an te m per; o th ers , w ho , w ith W alla ce, h ad p ut th eir tr u st i n th e q uir k s o f th e m ass u nco nsc io us,
belie v ed th at “ E dse l” w as a d is a str o usly u nfo rtu nate c o m bin ati o n o f s y lla b le s. W hat w ere its fr e e
asso cia ti o ns? P re tz e l, d ie se l, h ard s e ll. W hat w as its o pposite ? It d id n’t s e em to h av e a ny. S ti ll, th e
matte r w as se ttl e d , a nd th ere w as n o th in g to d o b ut p ut th e b est p ossib le fa ce o n it. B esid es, th e
anguis h i n th e S pecia l P ro ducts D iv is io n w as b y n o m eans u nanim ous, a nd K ra fv e h im se lf, o f c o urs e ,
was a m ong th o se w ho h ad n o o bje cti o n to th e n am e. H e s ti ll h as n o ne, d eclin in g to g o a lo ng w ith
th o se w ho co nte nd th at th e d eclin e and fa ll o f th e E dse l m ay b e d ate d fr o m th e m om ent o f its
chris te nin g.
Kra fv e, in fa ct, w as so w ell p le ase d w ith th e w ay m atte rs h ad tu rn ed o ut th at w hen, a t e le v en
o’c lo ck o n th e m orn in g o f N ovem ber 1 9, 1 956, a fte r a lo ng s u m mer o f th o ughtf u l s ile nce, th e F ord
Com pany re le ase d to th e w orld th e gla d ti d in gs th at th e E -C ar had been nam ed th e E dse l, he
acco m panie d th e a nno uncem ent w ith a f e w d ra m ati c f lo uris h es o f h is o w n. O n th e v ery s tr o ke o f th at
ho ur o n th at d ay, th e te le p ho ne o pera to rs in K ra fv e’s d om ain b egan g re eti n g c alle rs w ith “ E dse l
Div is io n” i n ste ad o f “ S pecia l P ro ducts D iv is io n”; a ll s ta ti o nery b earin g th e o bso le te l e tte rh ead o f th e
div is io n v anis h ed a nd w as r e p la ced b y s h eav es o f p ap er h ead ed “ E dse l D iv is io n”; a nd o uts id e th e
build in g a huge sta in le ss-s te el sig n re ad in g
“E D SE L D IV IS IO N”
ro se cere m onio usly to th e ro ofto p.
Kra fv e h im se lf m anaged to r e m ain e arth b ound , th o ugh h e h ad h is o w n r e aso ns f o r f e elin g b uo yant;
in
re co gniti o n o f h is le ad ers h ip o f th e E -C ar p ro je ct u p to th at p oin t, h e w as g iv en th e a ugust ti tl e o f
Vic e-P re sid ent o f th e F ord M oto r C om pany a nd G enera l M anager, E dse l D iv is io n.
Fro m th e a d m in is tr a ti v e p oin t o f v ie w , th is o ff- w ith -th e-o ld -o n-w ith -th e-n ew e ffe ct w as m ere ly
harm le ss w in d ow d re ssin g. In th e str ic t se cre cy o f th e D earb orn te st tr a ck, v ib ra nt, alm ost fu ll-
fle d ged E dse ls , w ith th eir n am e g ra v en o n th eir su p ers tr u ctu re s, w ere a lr e ad y b ein g ro ad -te ste d ;
Bro w n a nd h is fe llo w s ty lis ts w ere a lr e ad y w ell a lo ng w ith th eir d esig ns fo r th e
next
y ear’s E dse l;
re cru its w ere a lr e ad y b ein g s ig ned u p fo r a n e nti r e ly n ew o rg aniz a ti o n o f re ta il d eale rs to s e ll th e
Edse l to th e p ub lic ; a nd F oote , C one & B eld in g, h av in g b een r e lie v ed o f th e b urd en o f s ta gin g c ra sh
pro gra m s to c o lle ct n am es a nd c ra sh p ro gra m s to g et r id o f th em a gain , w as a lr e ad y d eep i n s c hem es
fo r a d verti s in g th e E dse l, u nd er th e p ers o nal d ir e cti o n o f a n o l e ss s u b sta nti a l p illa r o f h is tr a d e th an
Fair fa x M . C one, th e a gency’s h ead m an. In p la nnin g h is c am paig n, C one r e lie d h eav ily o n w hat h ad
co m e to b e c alle d th e “ W alla ce p re sc rip ti o n”; th at is , th e fo rm ula fo r th e E dse l’s p ers o nality a s s e t
fo rth b y W alla ce b ack in th e d ays b efo re th e b ig nam in g b ee— “T he sm art car fo r th e yo unger
executi v e o r p ro fe ssio nal f a m ily o n i ts w ay u p .” S o e nth usia sti c w as C one a b out th e p re sc rip ti o n th at
he accep te d it w ith o nly o ne re v is io n— th e su b sti tu ti o n o f “m id dle -in co m e” fa m ily fo r “yo unger
executi v e,” his hunch bein g th at th ere w ere m ore m id dle -in co m e fa m ilie s aro und th an yo ung
executi v es, o r e v en p eo ple w ho
th ought
th ey w ere y o ung e xecuti v es. I n a n e xp ansiv e m ood, p ossib ly
in d uced b y h is h av in g la nd ed a n a cco unt th at w as e xp ecte d to b rin g b illin gs o f w ell o ver te n m illio n
dolla rs a y ear, C one d esc rib ed to r e p orte rs o n s e v era l o ccasio ns th e k in d o f c am paig n h e w as p lo tti n g
fo r th e E dse l— quie t, s e lf- a ssu re d , a nd a v oid in g a s m uch a s p ossib le th e u se o f th e a d je cti v e “ new ,”
whic h, th o ugh it h ad a n o bvio us a p plic ati o n to th e p ro duct, h e c o nsid ere d ra th er la ckin g in c achet.
Above a ll, th e c am paig n w as to b e c la ssic in its c alm ness. “ W e th in k it w ould b e a w fu l fo r th e ad verti s in g to c o m pete w ith th e c ar,” C one to ld th e p re ss. “ W e h o pe th at n o o ne w ill e v er a sk , ‘ S ay,
did y o u s e e th at E dse l a d ?’ i n a ny n ew sp ap er o r m agazin e o r o n te le v is io n, b ut, i n ste ad , th at h und re d s
of th o usa nd s
o f p eo ple w ill s a y, a nd s a y a gain , ‘ M an, d id y o u r e ad a b out th at E dse l? ’ o r ‘ D id y o u s e e
th at car? ’ T his is th e diffe re nce betw een ad verti s in g and se llin g.” E vid entl y eno ugh, C one fe lt
co nfid ent a b out th e c am paig n a nd th e E dse l. L ik e a c hess m aste r w ho h as n o d oub t th at h e w ill w in ,
he c o uld a ffo rd to e xp lic ate th e b rillia nce o f h is m oves e v en a s h e m ad e th em .
Auto m obile m en s ti ll ta lk , w ith a d m ir a ti o n f o r th e v ir tu o sity d is p la yed a nd a s h ud der a t th e u lti m ate
outc o m e, of th e E dse l D iv is io n’s driv e to ro und up re ta il deale rs . O rd in arily , an esta b lis h ed
manufa ctu re r l a unches a n ew c ar th ro ugh d eale rs w ho a re a lr e ad y h and lin g h is o th er m akes a nd w ho ,
to b egin w ith , ta ke o n th e u p sta rt a s a s o rt o f s id elin e. N ot s o i n th e c ase o f th e E dse l; K ra fv e r e ceiv ed
auth o riz a ti o n fr o m o n h ig h to g o a ll o ut a nd b uild u p a r e ta il- d eale r o rg aniz a ti o n b y m akin g r a id s o n
deale rs w ho h ad c o ntr a cts w ith o th er m anufa ctu re rs , o r e v en w ith th e o th er F ord C om pany d iv is io ns
—Ford a nd L in co ln -M erc ury . ( A lth o ugh th e F ord d eale rs th us c o rra lle d w ere n o t o blig ed to c ancel
th eir o ld c o ntr a cts , a ll th e e m phasis w as o n sig nin g u p re ta il o utl e ts e xclu siv ely d ed ic ate d to th e
se llin g o f E dse ls .) T he g o al s e t fo r In tr o ducti o n D ay— whic h, a fte r a g re at d eal o f s o ul- s e arc hin g,
was fin ally e sta b lis h ed a s S ep te m ber 4 , 1 957— was tw elv e h und re d E dse l d eale rs fr o m c o ast to
co ast. T hey w ere n o t to b e j u st a ny d eale rs , e ith er; K ra fv e m ad e i t c le ar th at E dse l w as i n te re ste d i n
sig nin g u p o nly d eale rs w ho se re co rd s s h o w ed th at th ey h ad a m ark ed a b ility to s e ll c ars w ith o ut
re so rti n g to th e h ig h-p re ssu re tr ic ks o f b ord erlin e le gality th at h ad la te ly b een g iv in g th e a uto m obile
busin ess a b ad n am e. “ W e s im ply h av e to h av e q uality d eale rs w ith q uality s e rv ic e f a ciliti e s,” K ra fv e
sa id . “ A c usto m er w ho g ets p oor s e rv ic e o n a n e sta b lis h ed b ra nd b la m es th e d eale r. O n a n E dse l, h e
will b la m e th e c ar.” T he g o al o f tw elv e h und re d w as a h ig h o ne, fo r n o d eale r, q uality o r n o t, c an
affo rd to s w itc h m akes lig htl y . T he a v era ge d eale r h as a t le ast a h und re d th o usa nd d olla rs ti e d u p in
his a gency, a nd in la rg e c iti e s th e in v estm ent is m uch h ig her. H e m ust h ir e s a le sm en, m echanic s, a nd
offic e h elp ; b uy h is o w n to ols , te chnic al lite ra tu re , a nd sig ns, th e la tte r c o sti n g a s m uch a s fiv e
th o usa nd d olla rs a s e t; a nd p ay th e f a cto ry s p ot c ash f o r th e c ars h e r e ceiv es f r o m i t.
The m an c harg ed w ith m obiliz in g a n E dse l s a le s f o rc e a lo ng th ese e xacti n g l in es w as J . C . ( L arry )
Doyle , w ho , as genera l sa le s-a nd -m ark eti n g m anager of th e div is io n, ra nked se co nd to K ra fv e
him se lf. A v ete ra n o f f o rty y ears w ith th e F ord C om pany, w ho h ad s ta rte d w ith i t a s a n o ffic e b oy i n
Kansa s C ity a nd h ad s p ent th e i n te rv enin g ti m e m ain ly s e llin g, D oyle w as a m av eric k i n h is f ie ld . O n
th e o ne h and , h e h ad a n a ir o f k in d ness a nd c o nsid era ti o n th at m ad e h im th e v ery a nti th esis o f th e g lib ,
bra sh d eniz e ns o f a th o usa nd a uto m obile ro w s a cro ss th e c o nti n ent, a nd , o n th e o th er, h e d id n o t
tr o ub le to c o nceal a n o ld -ti m e s a le sm an’s s k ep ti c is m a b out s u ch th in gs a s a naly zin g th e s e x a nd s ta tu s
of a uto m obile s, a p urs u it h e c hara cte riz e d b y s a yin g, “ W hen I p la y p ool, I l ik e to k eep o ne f o ot o n th e
flo or.” S ti ll, h e k new h o w to s e ll c ars , a nd th at w as w hat th e E dse l D iv is io n n eed ed . R ecallin g h o w
he a nd h is s a le s s ta ff b ro ught o ff th e u nlik ely tr ic k o f p ers u ad in g s u b sta nti a l a nd r e p uta b le m en w ho
had a lr e ad y a chie v ed s u ccess in o ne o f th e to ughest o f a ll b usin esse s to te ar u p p ro fita b le fr a nchis e s
in fa v or o f a ris k y n ew o ne, D oyle s a id n o t lo ng a go , “ A s s o on a s th e fir s t fe w n ew E dse ls c am e
th ro ugh, e arly i n 1 957, w e p ut a c o up le o f th em i n e ach o f o ur f iv e r e gio nal s a le s o ffic es. N eed le ss to
sa y, w e k ep t th o se o ffic es lo cked a nd th e b lin d s d ra w n. D eale rs in e v ery m ake fo r m ile s a ro und
wante d to s e e th e c ar, if o nly o ut o f c urio sity , a nd th at g av e u s th e le v era ge w e n eed ed . W e le t it b e
kno w n th at w e w ould s h o w th e c ar o nly to d eale rs w ho w ere r e ally i n te re ste d i n c o m in g w ith u s, a nd
th en w e s e nt o ur r e gio nal f ie ld m anagers o ut to s u rro und in g to w ns to tr y to l in e u p th e N o. 1 d eale r i n
each to s e e th e c ars . I f w e c o uld n’t g et N o. 1 , w e’d tr y f o r N o. 2 . A nyw ay, w e s e t th in gs u p s o th at n o
one g o t i n to s e e th e E dse l w ith o ut l is te nin g to a c o m ple te o ne-h o ur p itc h o n th e w ho le s itu ati o n b y a mem ber o f o ur s a le s f o rc e. I t w ork ed v ery w ell.” I t w ork ed s o w ell th at b y m id su m mer, 1 957, i t w as
cle ar th at E dse l w as g o in g to h av e a l o t o f q uality d eale rs o n I n tr o ducti o n D ay. ( In f a ct, i t m is se d th e
go al o f tw elv e h und re d b y a c o up le o f d oze n.) In d eed , s o m e d eale rs in o th er m akes w ere a p pare ntl y
so c o nfid ent o f th e E dse l’s s u ccess, o r s o b em use d b y th e D oyle s ta ff ’s p itc h, th at th ey w ere e nti r e ly
willin g to s ig n u p a fte r h ard ly m ore th an a g la nce a t th e E dse l its e lf. D oyle ’s p eo ple
u rg ed th em to
stu d y th e c ar c lo se ly , a nd k ep t re citi n g th e lita ny o f its v ir tu es, b ut th e p ro sp ecti v e E dse l d eale rs
would w av e su ch p ro te sta ti o ns a sid e a nd d em and a c o ntr a ct w ith o ut fu rth er a d o. In re tr o sp ect, it
would s e em th at D oyle c o uld h av e g iv en l e sso ns to th e P ie d P ip er.
Now th at th e E dse l w as n o lo nger th e e xclu siv e c o ncern o f D earb orn , th e F ord C om pany w as
ir re v ocab ly c o m mitte d to g o in g a head . “ U nti l D oyle w ent in to a cti o n, th e w ho le p ro gra m c o uld h av e
been q uie tl y d ro pped a t a ny ti m e a t a w ord fr o m to p m anagem ent, b ut o nce th e d eale rs h ad b een
sig ned u p , th ere w as th e m atte r o f h o no rin g y o ur c o ntr a ct to p ut o ut a c ar,” K ra fv e h as e xp la in ed . T he
matte r w as a tte nd ed to w ith d is p atc h. E arly in J u ne, 1 957, th e c o m pany a nno unced th at o f th e $ 250
millio n it h ad s e t a sid e to d efr a y th e a d vance c o sts o f th e E dse l, $ 150 m illio n w as b ein g s p ent o n
basic fa ciliti e s, in clu d in g th e co nv ers io n of vario us F ord and M erc ury pla nts to th e need s of
pro ducin g th e n ew c ars ; $ 50 m illio n o n s p ecia l E dse l to olin g; a nd $ 50 m illio n o n in iti a l a d verti s in g
and p ro m oti o n. In J u ne, to o, a n E dse l d esti n ed to b e th e s ta r o f a te le v is io n c o m merc ia l fo r fu tu re
re le ase w as s te alth ily tr a nsp orte d in a c lo se d v an to H olly w ood, w here , o n a lo cked s o und s ta ge
patr o lle d b y se curity guard s, it w as exp ose d to th e cam era s in th e ad m ir in g p re se nce o f a fe w
care fu lly c ho se n a cto rs w ho h ad s w orn th at th eir lip s w ould b e s e ale d fr o m th en u nti l In tr o ducti o n
Day. F or th is d elic ate p ho to gra p hic o pera ti o n th e E dse l D iv is io n c annily e nlis te d th e se rv ic es o f
Casc ad e P ic tu re s, w hic h a ls o w ork ed fo r th e A to m ic E nerg y C om mis sio n, a nd , a s fa r a s is k no w n,
th ere w ere n o u nin te nti o nal l e aks. “ W e to ok a ll th e s a m e p re cauti o ns w e ta ke f o r o ur A .E .C . f ilm s,” a
grim C asc ad e o ffic ia l h as s in ce s a id .
With in a f e w w eeks, th e E dse l D iv is io n h ad e ig hte en h und re d s a la rie d e m plo yees a nd w as r a p id ly
fillin g s o m e fifte en th o usa nd fa cto ry jo bs in th e n ew ly c o nv erte d p la nts . O n J u ly 1 5th , E dse ls b egan
ro llin g o ff a sse m bly l in es a t S om erv ille , M assa chuse tts ; M ahw ah, N ew J e rs e y; L ouis v ille , K entu cky;
and S an Jo se , C alifo rn ia . T he sa m e d ay, D oyle sc o re d a n im porta nt c o up b y sig nin g u p C harle s
Kre is le r, a M anhatta n d eale r r e gard ed a s o ne o f th e c o untr y ’s f o re m ost p ra cti ti o ners i n h is f ie ld , w ho
had re p re se nte d
O ld sm obile — one o f E dse l’s s e lf- d esig nate d riv als — befo re h eed in g th e s ir e n s o ng
fr o m D earb orn . O n J u ly 2 2nd , th e fir s t a d verti s e m ent fo r th e E dse l a p peare d — in
Life
. A tw o-p age
sp re ad i n p la in b la ck-a nd -w hite , i t w as i m peccab ly c la ssic a nd c alm , s h o w in g a c ar w ho osh in g d ow n
a c o untr y h ig hw ay a t s u ch h ig h s p eed th at it w as a n in d is ti n guis h ab le b lu r. “ L ate ly , s o m e m yste rio us
auto m obile s h av e b een s e en o n th e r o ad s,” th e a cco m panyin g te xt w as h ead ed . It w ent o n to s a y th at
th e b lu r w as a n E dse l b ein g r o ad -te ste d , a nd c o nclu d ed w ith th e a ssu ra nce “ T he E dse l i s o n i ts w ay.”
Tw o w eeks l a te r, a s e co nd a d a p peare d i n
Life
, th is o ne s h o w in g a g ho stl y -lo okin g c ar, c o vere d w ith
a w hite s h eet, s ta nd in g a t th e e ntr a nce to th e F ord s ty lin g c ente r. T his ti m e th e h ead lin e r e ad , “ A m an
in y o ur to w n r e centl y m ad e a d ecis io n th at w ill c hange h is l ife .” T he d ecis io n, i t w as e xp la in ed , w as
to b eco m e a n E dse l d eale r. W ho ev er w ro te th e a d c anno t h av e k no w n h o w tr u ly h e s p oke.
DURIN G
th e te nse s u m mer o f 1 957, th e m an o f th e h o ur a t E dse l w as C . G ayle W arn o ck, d ir e cto r o f
pub lic r e la ti o ns, w ho se d uty w as n o t s o m uch to g enera te p ub lic in te re st in th e fo rth co m in g p ro duct,
th ere b ein g a n a b und ance o f th at, a s to k eep th e in te re st a t w hite h eat, a nd r e ad ily c o nv erti b le in to a
desir e to b uy o ne o f th e n ew c ars o n o r a fte r In tr o ducti o n D ay— or, a s th e c o m pany c am e to c all it,
Edse l D ay. W arn o ck, a d ap per, a ffa b le m an w ith a ti n y m usta che, is a n ati v e o f C onv ers e , In d ia na, who , l o ng b efo re K ra fv e d ra fte d h im f r o m th e F ord o ffic e i n C hic ago , d id a s p ot o f p ub lic ity w ork f o r
co unty fa ir s — a b ackgro und th at h as e nab le d h im to sp ic e th e h o neyed sm ooth ness o f th e m odern
pub lic -re la ti o ns m an w ith a to uch o f th e o ld c arn iv al p itc hm an’s u nin hib ite d sp ir it. R ecallin g h is
su m mons to D earb orn , W arn o ck s a ys, “ W hen D ic k K ra fv e h ir e d m e, b ack i n th e f a ll o f 1 955, h e to ld
me, ‘ I w ant y o u to p ro gra m th e E -C ar p ub lic ity f r o m n o w to I n tr o ducti o n D ay.’ I s a id , ‘ F ra nkly , D ic k,
what d o y o u m ean b y “ p ro gra m ”?’ H e s a id h e m eant to s o rt o f s p ace it o ut, s ta rti n g a t th e e nd a nd
work in g b ackw ard . T his w as s o m eth in g n ew to m e— I w as u se d to ta kin g w hat b re aks I c o uld g et
when I c o uld g et th em — but I so on fo und o ut h o w rig ht D ic k w as. It w as a lm ost
to o e asy to g et
pub lic ity fo r th e E dse l. E arly in 1 956, w hen it w as s ti ll c alle d th e E -C ar, K ra fv e g av e a littl e ta lk
ab out i t o ut i n P ortl a nd , O re go n. W e d id n’t tr y f o r a nyth in g m ore th an a p la y i n th e l o cal p re ss, b ut th e
wir e se rv ic es p ic ked th e sto ry u p a nd it w ent o ut a ll o ver th e c o untr y . C lip pin gs c am e in b y th e
bush el. R ig ht th en I re aliz e d th e tr o ub le w e m ig ht b e head ed fo r. T he p ub lic w as getti n g to b e
hyste ric al to s e e o ur c ar, f ig urin g i t w as g o in g to b e s o m e k in d o f d re am c ar— lik e n o th in g th ey’d e v er
se en. I s a id to K ra fv e, ‘ W hen th ey f in d o ut i t’ s g o t f o ur w heels a nd o ne e ngin e, j u st l ik e th e n ext c ar,
th ey’re l ia b le to b e d is a p poin te d .’ ”
It w as a gre ed th at th e s a fe st w ay to tr e ad th e ti g htr o pe b etw een o verp la yin g a nd u nd erp la yin g th e
Edse l w ould b e to s a y n o th in g a b out th e c ar a s a w ho le b ut to r e v eal i ts i n d iv id ual c harm s a l ittl e a t a
ti m e— a so rt o f auto m oti v e str ip te ase (a p hra se th at W arn o ck co uld n’t w ith p ro per d ig nity use
him se lf b ut w as h ap py to s e e th e
New Y o rk T im es
u se fo r h im ). T he p olic y w as la te r v io la te d n o w
and th en, p urp ose ly o r i n ad verte ntl y . F or o ne th in g, a s th e p re -E dse l D ay s u m mer w ore o n, r e p orte rs
pre v aile d u p on K ra fv e to a uth o riz e W arn o ck to sh o w th e E dse l to th em , o ne a t a ti m e, o n w hat
Warn o ck c alle d a “ p eekab oo,” o r “ yo u’v e-s e en-it- n o w -fo rg et- it,” b asis . A nd , fo r a no th er, E dse ls
lo ad ed o n v ans fo r d eliv ery to d eale rs w ere a p pearin g o n th e h ig hw ays in e v er-in cre asin g n um bers ,
co vere d fo re a nd a ft w ith c anv as fla p s th at, a s if to w het th e d esir e o f th e m oto rin g p ub lic , w ere
fo re v er blo w in g lo ose . T hat su m mer, to o, w as a ti m e of sp eechm akin g by an E dse l fo urs o m e
co nsis ti n g o f K ra fv e, D oyle , J . E m met J u d ge, w ho w as E dse l’s d ir e cto r o f m erc hand is e a nd p ro duct
pla nnin g, and R obert F. G . C opela nd , its assis ta nt genera l sa le s m anager fo r ad verti s in g, sa le s
pro m oti o n, a nd tr a in in g. R angin g se p ara te ly u p a nd d ow n a nd a cro ss th e n ati o n, th e fo ur o ra to rs
moved a ro und s o fa st a nd s o ti r e le ssly th at W arn o ck, le st h e lo se tr a ck o f th em , to ok to in d ic ati n g
th eir w here ab outs w ith c o lo re d p in s o n a m ap in h is o ffic e. “ L et’ s s e e, K ra fv e g o es fr o m A tl a nta to
New O rle ans, D oyle fr o m C ouncil B lu ffs to S alt L ake C ity ,” W arn o ck w ould m use o f a m orn in g in
Dearb orn , s ip pin g h is s e co nd c up o f c o ffe e a nd th en g etti n g u p to y ank th e p in s o ut a nd ja b th em in
again .
Alth o ugh m ost of K ra fv e’s aud ie nces co nsis te d of bankers and re p re se nta ti v es of fin ance
co m panie s w ho i t w as h o ped w ould l e nd m oney to E dse l d eale rs , h is s p eeches th at s u m mer, f a r f r o m
echo in g th e g enera l h o opla , w ere a lm ost s ta te sm anlik e i n th eir c auti o us— ev en s o m ber— re fe re nces to
th e n ew c ar’s p ro sp ects . A nd w ell th ey m ig ht h av e b een, fo r d ev elo pm ents in th e g enera l e co no m ic
outl o ok o f th e n ati o n w ere m akin g m ore s a nguin e m en th an K ra fv e lo ok p uzzle d . In J u ly , 1 957, th e
sto ck m ark et w ent in to a n o se d iv e, m ark in g th e b egin nin g o f w hat is re calle d a s th e re cessio n o f
1958. T hen, e arly in A ugust, a d eclin e in th e s a le s o f m ed iu m -p ric ed 1 957 c ars o f a ll m akes s e t in ,
and th e genera l situ ati o n w ors e ned so ra p id ly th at, b efo re th e m onth w as o ut,
Auto m otiv e N ew s
re p orte d th at d eale rs i n a ll m akes w ere e nd in g th eir s e aso n w ith th e s e co nd -la rg est n um ber o f u nso ld
new c ars in h is to ry . If K ra fv e, o n h is lo nely ro und s, e v er c o nsid ere d re tr e ati n g to D earb orn fo r
co nso la ti o n, h e w as fo rc ed to p ut th at n o ti o n o ut o f h is m in d w hen, a ls o in A ugust, M erc ury , E dse l’s
ow n s ta b le m ate , s e rv ed n o ti c e th at i t w as g o in g to m ake th in gs a s to ugh a s p ossib le f o r th e n ew co m er by u nd erta kin g a m illio n-d olla r, th ir ty -d ay a d verti s in g d riv e a im ed e sp ecia lly a t “ p ric e-c o nsc io us
buyers ” — a c le ar r e fe re nce to th e f a ct th at th e 1 957 M erc ury , w hic h w as th en b ein g s o ld a t a d is c o unt
by m ost d eale rs , c o st le ss th an th e n ew E dse l w as e xp ecte d to . M eanw hile , s a le s o f th e R am ble r,
whic h w as th e o nly A meric an-m ad e s m all c ar th en in p ro ducti o n, w ere b egin nin g to r is e o m in o usly .
In th e fa ce o f a ll th ese e v il p orte nts , K ra fv e fe ll in to th e h ab it o f e nd in g h is s p eeches w ith a r a th er
dow nb eat a necd ote a b out th e b oard c hair m an o f a n u nsu ccessfu l d og-fo od c o m pany w ho s a id to h is
fe llo w d ir e cto rs , “G entl e m en, le t’ s fa ce fa cts — dogs d on’t lik e o ur p ro duct.” “A s fa r as w e’re
co ncern ed ,” K ra fv e a d ded o n a t l e ast o ne o ccasio n, d riv in g h o m e th e m ora l w ith a d m ir a b le c la rity , “ a
lo t w ill d ep end o n w heth er p eo ple l ik e o ur c ar o r n o t.”
But m ost o f th e o th er E dse l m en w ere u nim pre sse d b y K ra fv e’s m is g iv in gs. P erh ap s th e le ast
im pre sse d of all w as Ju d ge, w ho , w hile doin g his bit as an iti n era nt sp eaker, sp ecia liz e d in
co m munity and civ ic gro up s. U nd is m ayed by th e lim ita ti o ns of th e str ip -te ase polic y, Ju d ge
brig hte ned u p h is l e ctu re s b y s h o w in g
s u ch a b ew ild erin g a rra y o f a nim ate d g ra p hs, c arto ons, c harts ,
and p ic tu re s o f p arts o f th e c ar— all f la sh ed o n a C in em aS co pe s c re en— th at h is l is te ners u su ally g o t
halfw ay h o m e b efo re th ey re aliz e d th at h e h ad n’t sh o w n th em a n E dse l. H e w and ere d re stl e ssly
aro und th e a ud ito riu m a s h e s p oke, s h ifti n g th e k ale id osc o pic i m ages o n th e s c re en a t w ill w ith th e a id
of a n a uto m ati c s lid e c hanger— a tr ic k m ad e p ossib le b y a c re w o f e le ctr ic ia ns w ho l a ced th e p la ce i n
ad vance w ith a m aze o f w ir e s lin kin g th e d ev ic e to d oze ns o f flo or s w itc hes, w hic h, s c atte re d a b out
th e h all, re sp ond ed w hen h e k ic ked th em . E ach o f th e “ Ju d ge s p ecta cula rs ,” a s th ese p erfo rm ances
cam e to b e k no w n, c o st th e E dse l D iv is io n fiv e th o usa nd d olla rs — a s u m th at in clu d ed th e p ay a nd
exp ense s o f th e te chnic al c re w , w ho w ould a rriv e o n th e s c ene a d ay o r s o a head o f ti m e to s e t u p th e
ele ctr ic al rig . A t th e la st m om ent, Ju d ge w ould d esc end m elo dra m ati c ally o n th e to w n b y p la ne,
haste n to th e h all, a nd g o i n to h is a ct. “ O ne o f th e g re ate st a sp ects o f th is w ho le E dse l p ro gra m i s th e
philo so phy o f p ro duct a nd m erc hand is in g b ehin d it,” J u d ge m ig ht s ta rt o ff, w ith a d esu lto ry k ic k a t a
sw itc h h ere , a s w itc h th ere . “ A ll o f u s w ho h av e b een a p art o f it a re r e al p ro ud o f th is b ackgro und
and w e a re a nxio usly a w aiti n g i ts s u ccess w hen th e c ar i s i n tr o duced th is f a ll.… N ev er a gain w ill w e
be a sso cia te d w ith a nyth in g a s g ig anti c a nd fu ll o f m eanin g a s th is p arti c ula r p ro gra m .… H ere is a
glim pse o f th e c ar w hic h w ill b e b efo re th e A meric an p ub lic o n S ep te m ber 4 , 1 957 [a t th is p oin t,
Ju d ge w ould s h o w a p ro vocati v e s lid e o f a h ub cap o r s e cti o n o f fe nd er].… It is a d iffe re nt c ar in
ev ery re sp ect, y et it h as a n e le m ent o f c o nse rv ati s m w hic h w ill g iv e it m axim um a p peal.… T he
dis ti n cti v eness o f th e fr o nta l s ty lin g in te gra te s w ith th e s c ulp tu re d p atte rn s o f th e s id e tr e atm ent.… ”
And o n a nd o n Ju d ge w ould rh ap so diz e , ro llin g o ut su ch a w eso m e p hra se s a s “ sc ulp tu re d sh eet
meta l,” “hig hlig ht chara cte r,” and “gra cefu l, flo w in g lin es.” A t la st w ould co m e th e rin gin g
pero ra ti o n. “ W e a re p ro ud o f th e E dse l!” h e w ould c ry , k ic kin g s w itc hes r ig ht a nd le ft. “ W hen it is
in tr o duced th is fa ll, it w ill ta ke its p la ce o n th e str e ets a nd h ig hw ays o f A meric a, b rin gin g n ew
gre atn ess to th e F ord M oto r C om pany. T his i s th e E dse l s to ry .”
TH E
d ru m -ro ll c lim ax o f th e s tr ip te ase w as a th re e-d ay p re ss p re v ie w o f th e E dse l, u nd ra p ed fr o m
pin ched -in s n o ut to f la rin g r e ar, th at w as h eld i n D etr o it a nd D earb orn o n A ugust 2 6th , 2 7th , a nd 2 8th ,
with 2 50 re p orte rs fr o m a ll o ver th e c o untr y in a tte nd ance. It d iffe re d fr o m p re v io us a uto m oti v e
ja m bore es o f its k in d in th at th e jo urn alis ts w ere in v ite d to b rin g th eir w iv es a lo ng— and m any o f
th em d id . B efo re i t w as o ver, i t h ad c o st th e F ord C om pany n in ety th o usa nd d olla rs . G ra nd a s i t w as,
th e c o nv enti o nality o f its se tti n g w as a d is a p poin tm ent to W arn o ck, w ho h ad p ro pose d , a nd se en
re je cte d , th re e lo cale s th at h e th o ught w ould p ro vid e a m ore o ffb eat
am bia nce
—a ste am er o n th e
Detr o it R iv er (“ w ro ng sy m bolis m ”); E dse l, K entu cky (“ in accessib le b y ro ad ”); and H aiti (“ ju st tu rn ed d ow n f la t” ). T hus h o bble d , W arn o ck c o uld d o n o b ette r f o r th e r e p orte rs a nd th eir w iv es w hen
th ey c o nv erg ed o n th e D etr o it sc ene o n S und ay e v enin g, A ugust 2 5th , th an to p ut th em u p a t th e
dis c o ura gin gly n am ed S hera to n-C ad illa c H ote l a nd to a rra nge fo r th em to s p end M ond ay a fte rn o on
hearin g a nd re ad in g a b out th e lo ng-a w aite d d eta ils o f th e e nti r e c ro p o f E dse ls — eig hte en v arie ti e s
av aila b le , in fo ur m ain lin es (C ors a ir, C ita ti o n, P acer, a nd R anger), d iffe rin g m ain ly in th eir s iz e ,
pow er, and tr im . T he next m orn in g, sp ecim ens o f th e m odels th em se lv es w ere re v eale d to th e
re p orte rs in th e s ty lin g c ente r’s ro tu nd a, a nd H enry II o ffe re d a fe w w ord s o f tr ib ute to h is fa th er.
“T he w iv es w ere n o t a sk ed to th e u nv eilin g,” a F oote , C one m an w ho h elp ed p la n th e a ffa ir r e calls .
“It w as to o s o le m n a nd b usin esslik e a n e v ent fo r th at. It w ent o ver fin e. T here w as e xcite m ent e v en
am ong th e hard ened new sp ap erm en.” (T he im port of th e sto rie s th at most of th e excite d
new sp ap erm en file d w as th at th e E dse l s e em ed to b e a g o od c ar, th o ugh n o t s o r a d ic al a s its b illin g
had s u ggeste d .)
In th e a fte rn o on, th e r e p orte rs w ere w his k ed o ut to th e te st tr a ck to s e e a te am o f s tu nt d riv ers p ut
th e E dse l th ro ugh its p aces. T his e v ent, c alc ula te d to b e th rillin g, tu rn ed o ut to b e h air -ra is in g, a nd
ev en, f o r s o m e, a l ittl e u nstr in gin g. E njo in ed n o t to ta lk to o m uch a b out s p eed a nd h o rs e p ow er, s in ce
only a fe w m onth s p re v io usly th e w ho le a uto m obile in d ustr y h ad n o bly re so lv ed to c o ncentr a te o n
makin g cars in ste ad of dela yed -a cti o n
bom bs, W arn o ck had decid ed to em phasiz e th e E dse l’s
liv elin ess th ro ugh d eed s ra th er th an w ord s, a nd to a cco m plis h th is h e h ad h ir e d a te am o f stu nt
driv ers . E dse ls ra n o ver tw o-fo ot ra m ps o n tw o w heels , b ounced fr o m h ig her ra m ps o n a ll fo ur
wheels , w ere d riv en i n c ris sc ro ss p atte rn s, g ra zin g e ach o th er, a t s ix ty o r s e v enty m ile s p er h o ur, a nd
sk id ded in to co m ple te tu rn s at fifty . F or co m ic re lie f, th ere w as a clo w n d riv er p aro dyin g th e
dare d ev il s tu ff. A ll th e w hile , th e v oic e o f N eil L . B lu m e, E dse l’s e ngin eerin g c hie f, c o uld b e h eard
on a l o ud sp eaker, p urrin g a b out “ th e c ap ab iliti e s, th e s a fe ty , th e r u gged ness, th e m aneuv era b ility a nd
perfo rm ance o f th ese n ew c ars ,” a nd s k ir ti n g th e w ord s “ sp eed ” a nd “ ho rs e p ow er” a s d elic ate ly a s a
sa nd pip er s k ir ts a w av e. A t o ne p oin t, w hen a n E dse l le ap in g a h ig h r a m p ju st m is se d tu rn in g o ver,
Kra fv e’s fa ce to ok o n a g hastl y p allo r; h e la te r r e p orte d th at h e h ad n o t k no w n th e d are d ev il s tu nts
were g o in g to b e s o e xtr e m e, a nd w as c o ncern ed b oth f o r th e g o od n am e o f th e E dse l a nd th e l iv es o f
th e d riv ers . W arn o ck, n o ti c in g h is b oss’s d is tr e ss, w ent o ver a nd a sk ed K ra fv e i f h e w as e njo yin g th e
sh o w . K ra fv e r e p lie d te rs e ly th at h e w ould a nsw er w hen i t w as o ver a nd a ll h and s s a fe . B ut e v ery o ne
els e se em ed to b e h av in g a g ra nd ti m e. T he F oote , C one m an sa id , “ Y ou lo oked o ver th is g re en
Mic hig an h ill, a nd th ere w ere th o se g lo rio us E dse ls , p erfo rm in g g lo rio usly i n u nis o n. I t w as b eauti fu l.
It w as l ik e th e R ockette s. I t w as e xciti n g. M ora le w as h ig h.”
Warn o ck’s h ig h s p ir its h ad c arrie d h im to e v en w ild er e xtr e m es o f f a ncy. T he s tu nt d riv in g, l ik e th e
unv eilin g, w as c o nsid ere d to o r ic h f o r th e b lo od o f th e w iv es, b ut th e r e so urc efu l W arn o ck w as r e ad y
fo r th em w ith a fa sh io n s h o w th at h e h o ped th ey w ould fin d a t le ast e q ually d iv erti n g. H e n eed n o t
hav e w orrie d . T he sta r o f th e sh o w , w ho w as in tr o duced b y B ro w n, th e E dse l sty lis t, a s a P aris
co utu riè re
, b oth b eauti fu l a nd ta le nte d , tu rn ed o ut a t th e f in al c urta in to b e a f e m ale i m pers o nato r— a
fa ct o f w hic h W arn o ck, to heig hte n th e v eris im ilitu d e o f th e act, had giv en B ro w n no ad vance
warn in g. T hin gs w ere n ev er a gain q uite th e s a m e s in ce b etw een B ro w n a nd W arn o ck, b ut th e w iv es
were a b le to g iv e th eir h usb and s a n e xtr a p ara gra p h o r tw o f o r th eir s to rie s.
That e v enin g, th ere w as a b ig g ala f o r o ne a nd a ll a t th e s ty lin g
c ente r, w hic h w as i ts e lf s ty le d a s a
nig ht c lu b fo r th e o ccasio n, c o m ple te w ith a fo unta in th at d anced in ti m e w ith th e m usic o f R ay
McK in le y’s b and , w ho se e m ble m , th e l e tte rs “ G M ”— a h o ld over f r o m th e d ays o f i ts f o und er, th e l a te
Gle nn M ille r— was e m bla zo ned , a s u su al, o n th e m usic s ta nd o f e ach m usic ia n, v ery n early r u in in g
th e e v enin g fo r W arn o ck. T he n ext m orn in g, a t a w in d up p re ss c o nfe re nce h eld b y F ord o ffic ia ls . Bre ech d ecla re d o f th e E dse l, “ It’ s a h usk y y o ungste r, a nd , l ik e m ost o th er n ew p are nts , w e’re p ro ud
eno ugh to p op o ur b utto ns.” T hen s e v enty -o ne o f th e r e p orte rs to ok th e w heels o f a s m any E dse ls a nd
se t o ut f o r h o m e— no t to d riv e th e c ars i n to th eir g ara ges b ut to d eliv er th em to th e s h o w ro om s o f th eir
lo cal E dse l d eale rs . L et W arn o ck d esc rib e th e h ig hlig hts o f th is fin al flo uris h : “ T here w ere s e v era l
unfo rtu nate o ccurre nces. O ne g uy s im ply m is c alc ula te d a nd c ra cked u p h is c ar r u nnin g i n to s o m eth in g.
No f a ult o f th e E dse l
th ere
. O ne c ar l o st i ts o il p an, s o n atu ra lly th e m oto r f r o ze . I t c an h ap pen to th e
best o f c ars . F ortu nate ly , a t th e ti m e o f th is m alfu ncti o n th e d riv er w as g o in g th ro ugh a b eauti fu l-
so und in g to w n— Para d is e , K ansa s, I th in k i t w as— and th at g av e th e n ew s r e p orts a b out i t a n ic e l ittl e
positi v e to uch. T he n eare st d eale r g av e th e re p orte r a n ew E dse l, a nd h e d ro ve o n h o m e, c lim bin g
Pik es P eak o n th e w ay. T hen o ne c ar c ra sh ed th ro ugh a to llg ate w hen th e b ra kes f a ile d . T hat w as b ad .
It’ s f u nny, b ut th e th in g w e w ere m ost w orrie d a b out— oth er d riv ers b ein g s o e ager to g et a l o ok a t th e
Edse ls th at th ey’d c ro w d o ur c ars o ff th e r o ad — hap pened o nly o nce. T hat w as o n th e P ennsy lv ania
Turn p ik e. O ne o f o ur r e p orte rs w as to olin g a lo ng— no p ro ble m s— when a P ly m outh d riv er p ulle d u p
alo ngsid e to r u b bern eck, a nd e d ged s o c lo se th at th e E dse l g o t s id esw ip ed . M in o r d am age.”
LA TE
in 1 959, im med ia te ly a fte r th e d em is e o f th e E dse l,
Busin ess W eek
s ta te d th at a t th e b ig p re ss
pre v ie w a F ord e xecuti v e h ad s a id to a r e p orte r, “ If th e c o m pany w ere n’t i n s o d eep , w e n ev er w ould
hav e bro ught it out no w .” H ow ev er, sin ce
Busin ess W eek
negle cte d to pub lis h th is pate ntl y
se nsa ti o nal s ta te m ent f o r o ver tw o y ears , a nd s in ce to th is d ay a ll th e f o rm er r a nkin g E dse l e xecuti v es
(K ra fv e in clu d ed , no tw ith sta nd in g his p re o ccup ati o n w ith
th e lu ckle ss d og-fo od co m pany) fir m ly
main ta in ed th at r ig ht u p to E dse l D ay a nd e v en fo r a s h o rt ti m e th ere afte r th ey e xp ecte d th e E dse l to
su cceed , i t w ould s e em th at th e q uo ta ti o n s h o uld b e r e gard ed a s a h ig hly s u sp ect a rc haeo lo gic al f in d .
In d eed , durin g th e perio d betw een th e pre ss pre v ie w and E dse l D ay th e sp ir it of ev ery b ody
asso cia te d w ith th e v entu re s e em s to h av e b een o ne o f w ild o pti m is m . “ O ld sm obile , G oodbye!” r a n
th e h ead lin e o n a n a d , i n th e D etr o it
Fre e P re ss
, f o r a n a gency th at w as s w itc hin g f r o m O ld s to E dse l.
A d eale r in P ortl a nd , O re go n, r e p orte d th at h e h ad a lr e ad y s o ld tw o E dse ls , s ig ht u nse en. W arn o ck
dug u p a fir e w ork s c o m pany in Ja p an w illin g to m ake h im , a t n in e d olla rs a p ie ce, fiv e th o usa nd
ro ckets th at, e xp lo din g in m id -a ir, w ould re le ase n in e-fo ot s c ale -m odel E dse ls m ad e o f ric e p ap er
th at w ould in fla te a nd d esc end lik e p ara chute s; h is h ead re elin g w ith v is io ns o f fillin g A meric a’s
sk ie s a s w ell a s its h ig hw ays w ith E dse ls o n E dse l D ay, W arn o ck w as a b out to d ash o ff a n o rd er
when K ra fv e, l o okin g s o m eth in g m ore th an p uzzle d , s h o ok h is h ead .
On S ep te m ber 3 rd — E D ay-m in us-o ne— th e p ric es o f th e v ario us E dse l m odels w ere a nno unced ;
fo r c ars d eliv ere d to N ew Y ork th ey r a n fr o m ju st u nd er $ 2,8 00 to ju st o ver $ 4,1 00. O n E D ay, th e
Edse l a rriv ed . In C am brid ge, a b and le d a g le am in g m oto rc ad e o f th e n ew c ars u p M assa chuse tts
Avenue; fly in g o ut o f R ic hm ond , C alifo rn ia , a h elic o pte r h ir e d b y o ne o f th e m ost ju b ila nt o f th e
deale rs l a sso ed b y D oyle s p re ad a g ia nt E dse l s ig n a b ove S an F ra ncis c o B ay; a nd a ll o ver th e n ati o n,
fr o m th e L ouis ia na b ayo us to th e p eak o f M ount R ain ie r to th e M ain e w oods, o ne n eed ed o nly a r a d io
or a te le v is io n s e t to k no w th at th e v ery a ir, d esp ite W arn o ck’s s e tb ack o n th e r o ckets , w as q uiv erin g
with th e p re se nce o f th e E dse l. T he to ne fo r E dse l D ay’s b liz za rd o f p ub lic ity w as s e t b y a n a d ,
pub lis h ed in n ew sp ap ers a ll o ver th e c o untr y , in w hic h th e E dse l s h are d th e s p otl ig ht w ith th e F ord
Com pany’s P re sid ent F ord a nd C hair m an B re ech. I n th e a d , F ord l o oked l ik e a d ig nifie d y o ung f a th er,
Bre ech lik e a d ig nifie d g entl e m an h o ld in g a fu ll h o use a gain st a p ossib le str a ig ht, th e E dse l ju st
lo oked lik e a n E dse l. T he a cco m panyin g te xt d ecla re d th at th e d ecis io n to p ro duce th e c ar h ad b een
“b ase d o n w hat w e k new , g uesse d , fe lt, b elie v ed , s u sp ecte d — ab out y o u,” a nd a d ded , “ Y OU a re th e
re aso n b ehin d th e E dse l.” T he to ne w as c alm a nd c o nfid ent. T here d id n o t s e em to b e m uch r o om f o r doub t a b out th e r e ality o f th at f u ll h o use .
Befo re s u nd ow n, i t w as e sti m ate d , 2 ,8 50,0 00 p eo ple h ad s e en th e n ew c ar i n d eale rs ’ s h o w ro om s.
Thre e d ays la te r, in N orth P hila d elp hia , a n E dse l w as s to le n. It c an re aso nab ly b e a rg ued th at th e
crim e m ark ed th e h ig h-w ate r m ark o f p ub lic a ccep ta nce o f th e E dse l; o nly a f e w m onth s l a te r, a ny b ut
th e l e ast f a sti d io us o f c ar th ie v es m ig ht n o t h av e b oth ere d .
DEC LIN E A ND F A LL
TH E
m ost str ik in g p hysic al c hara cte ris ti c o f th e E dse l w as, o f c o urs e , its ra d ia to r g rille . T his , in
co ntr a st to th e w id e a nd h o riz o nta l g rille s o f a ll n in ete en o th er A meric an m akes o f th e ti m e, w as
sle nd er a nd v erti c al. O f c hro m iu m -p la te d s te el, a nd s h ap ed s o m eth in g l ik e a n e gg, i t s a t i n th e m id dle
of th e c ar’s f r o nt e nd , a nd w as e m bellis h ed b y th e w ord
“E D SE L”
i n a lu m in um l e tte rs r u nnin g d ow n i ts
le ngth . I t w as i n te nd ed to s u ggest th e f r o nt e nd o f p ra cti c ally a ny c ar o f tw enty o r th ir ty y ears a go a nd
of m ost co nte m pora ry E uro pean cars , and th us to lo ok at o nce se aso ned and so phis ti c ate d . T he
tr o ub le w as th at w here as th e fr o nt e nd s o f th e a nti q ues a nd th e E uro pean c ars w ere th em se lv es h ig h
and n arro w — co nsis ti n g, in d eed , o f littl e m ore th an th e ra d ia to r g rille s— th e fr o nt e nd o f th e E dse l
was b ro ad a nd l o w , j u st l ik e th e f r o nt e nd s o f a ll i ts A meric an c o m peti to rs . C onse q uentl y , th ere w ere
wid e a re as o n e ith er s id e o f th e g rille th at h ad to b e f ille d i n w ith s o m eth in g, a nd f ille d i n th ey w ere
—with tw in p anels o f e nti r e ly c o nv enti o nal h o riz o nta l c hro m e g rillw ork . T he e ffe ct w as th at o f a n
Old sm obile w ith th e p ro w o f a P ie rc e-A rro w im pla nte d in its fr o nt e nd , o r, m ore m eta p ho ric ally , o f
th e c harw om an tr y in g o n th e d uchess’ n eckla ce. T he a tte m pt a t s o phis ti c ati o n w as s o tr a nsp are nt a s to
be e nd earin g.
But i f th e g rille o f th e E dse l a p peale d th ro ugh g uile le ssn ess, th e r e ar e nd w as a no th er m atte r. H ere ,
to o, th ere w as a m ark ed d ep artu re
fr o m th e c o nv enti o nal d esig n o f th e d ay. In ste ad o f th e n o to rio us
ta il fin , th e c ar h ad w hat lo oked to its fa ncie rs lik e w in gs a nd to o th ers , le ss e th ere al- m in d ed , lik e
eyeb ro w s. T he lin es o f th e tr u nk lid and th e re ar fe nd ers , sw oopin g up w ard and o utw ard , d id
so m ew hat r e se m ble th e w in gs o f a g ull i n f lig ht, b ut th e r e se m bla nce w as m arre d b y tw o l o ng, n arro w
ta il l ig hts , s e t p artl y i n th e tr u nk l id a nd p artl y i n th e f e nd ers , w hic h f o llo w ed th o se l in es a nd c re ate d
th e s ta rtl in g i llu sio n, e sp ecia lly a t n ig ht, o f a s la nt- e yed g rin . F ro m th e f r o nt, th e E dse l s e em ed , a b ove
all, a nxio us to p le ase , e v en a t th e c o st o f b ein g c lo w nis h ; fr o m th e re ar it lo oked c ra fty , O rie nta l,
sm ug, o ne-u p — mayb e a littl e c ynic al a nd c o nte m ptu o us, to o. It w as a s if, s o m ew here b etw een g rille
and r e ar f e nd ers , a s in is te r p ers o nality c hange h ad ta ken p la ce.
In o th er r e sp ects , th e e xte rio r s ty lin g o f th e E dse l w as n o t fa r o ut o f th e o rd in ary . Its s id es w ere
fe sto oned w ith a b it l e ss th an th e a v era ge a m ount o f c hro m e, a nd d is ti n guis h ed b y a g o uged -o ut b ulle t-
sh ap ed g ro ove e xte nd in g fo rw ard fr o m th e r e ar fe nd er fo r a b out h alf th e le ngth o f th e c ar. M id w ay
alo ng th is g ro ove, th e w ord
“E D SE L”
w as d is p la yed i n c hro m e l e tte rs , a nd j u st b elo w th e r e ar w in d ow
was a sm all g rille -lik e d eco ra ti o n, o n w hic h w as sp elle d o ut— of a ll th in gs—
“E D SE L.”
(A fte r a ll,
had n’t S ty lis t B ro w n d ecla re d h is i n te nti o n to c re ate a v ehic le th at w ould b e “ re ad ily r e co gniz a b le ”?)
In its in te rio r, th e E dse l s tr o ve m ig hti ly to liv e u p to th e p re d ic ti o n o f G enera l M anager K ra fv e th at
th e c ar w ould b e “ th e e p ito m e o f th e p ush -b utto n e ra .” T he p ush -b utto n e ra in m ed iu m -p ric ed c ars
bein g w hat i t w as, K ra fv e’s h ad b een a r a sh p ro phecy i n d eed , b ut th e E dse l r o se to i t w ith a d ev ilis h
asse m bla ge o f gad gets su ch as had se ld om , if ev er, b een se en b efo re . O n o r near th e E dse l’s
dash b oard w ere a p ush b utto n th at p opped th e tr u nk lid o pen; a le v er th at p opped th e h o od o pen; a le v er th at r e le ase d th e p ark in g b ra ke; a s p eed om ete r th at g lo w ed r e d w hen th e d riv er e xceed ed h is
cho se n m axim um s p eed ; a s in gle -d ia l c o ntr o l fo r b oth h eati n g a nd c o olin g; a ta cho m ete r, in th e b est
ra cin g-c ar s ty le ; b utto ns to o pera te o r r e gula te th e lig hts , th e h eig ht o f th e r a d io a nte nna, th e h eate r-
blo w er, th e w in d sh ie ld w ip er, a nd th e c ig are tte l ig hte r; a nd a r o w o f e ig ht r e d l ig hts to
w in k w arn in gs
th at th e e ngin e w as to o h o t, th at it w asn ’t h o t e no ugh, th at th e g enera to r w as o n th e b lin k, th at th e
park in g b ra ke w as o n, th at a d oor w as o pen, th at th e o il p re ssu re w as l o w , th at th e o il l e v el w as l o w ,
and th at th e g aso lin e l e v el w as l o w , th e l a st o f w hic h th e s k ep ti c al d riv er c o uld c o nfir m b y c o nsu lti n g
th e g as g auge, m ounte d a fe w in ches a w ay. E pito m iz in g th is e p ito m e, th e a uto m ati c -tr a nsm is sio n
co ntr o l b ox— arre sti n gly s itu ate d o n to p o f th e s te erin g p ost, in th e c ente r o f th e w heel— sp ro ute d a
gala xy o f fiv e p ush b utto ns s o lig ht to th e to uch th at, a s E dse l m en c o uld h ard ly b e r e str a in ed fr o m
dem onstr a ti n g, th ey c o uld b e d ep re sse d w ith a to oth p ic k.
Of th e fo ur lin es o f E dse ls , b oth o f th e tw o la rg er a nd m ore e xp ensiv e o nes— th e C ors a ir a nd th e
Cita ti o n— were 2 19 i n ches l o ng, o r tw o i n ches l o nger th an th e b ig gest o f th e O ld sm obile s; b oth w ere
eig hty i n ches w id e, o r a b out a s w id e a s p asse nger c ars e v er g et; a nd th e h eig ht o f b oth w as o nly f ifty -
se v en i n ches, a s l o w a s a ny o th er m ed iu m -p ric ed c ar. T he R anger a nd th e P acer, th e s m alle r E dse ls ,
were s ix in ches s h o rte r, a n in ch n arro w er, a nd a n in ch lo w er th an th e C ors a ir a nd th e C ita ti o n. T he
Cors a ir a nd th e C ita ti o n w ere e q uip ped w ith 3 45-h o rs e p ow er e ngin es, m akin g th em m ore p ow erfu l
th an a ny o th er A meric an c ar a t th e ti m e o f th eir d eb ut, a nd th e R anger a nd th e P acer w ere g o od fo r
303 h o rs e p ow er, n ear th e to p i n th eir c la ss. A t th e to uch o f a to oth p ic k to th e “ D riv e” b utto n, a n i d lin g
Cors a ir o r C ita ti o n s e d an ( m ore th an tw o to ns o f c ar, i n e ith er c ase ) c o uld , i f p ro perly s k ip pere d , ta ke
off w ith s u ch a b ru p tn ess th at i n te n a nd th re e-te nth s s e co nd s i t w ould b e d oin g a m ile a m in ute , a nd i n
se v ente en a nd a h alf s e co nd s it w ould b e a q uarte r o f a m ile d ow n th e r o ad . If a nyth in g o r a nyb ody
hap pened to b e i n th e w ay w hen th e to oth p ic k to uched th e p ush b utto n, s o m uch th e w ors e .
WHEN
th e w ra p s w ere ta ken o ff th e E dse l, it r e ceiv ed w hat is k no w n in th e th eatr ic al b usin ess a s a
mix ed p re ss. T he a uto m oti v e e d ito rs o f th e d aily n ew sp ap ers s tu ck m ostl y to s tr a ig ht d esc rip ti o ns o f
th e c ar, w ith o nly h ere a nd th ere a p hra se o r tw o o f a p pra is a l, s o m e o f i t a m big uo us ( “ T he d iffe re nce
in sty le is sp ecta cula r,” n o te d Jo se p h C . In gra ham in th e
New Y o rk T im es
) a nd
so m e o f it o penly
fa v ora b le (“ A h and so m e a nd h ard -p unchin g n ew co m er,” sa id F re d O lm ste ad , in th e D etr o it
Fre e
Pre ss
). M agazin e criti c is m w as genera lly m ore exhausti v e and o ccasio nally m ore se v ere .
Moto r
Tre n d
, th e la rg est m onth ly d ev ote d to o rd in ary a uto m obile s, a s d is ti n ct fr o m h o t r o ds, d ev ote d e ig ht
pages o f i ts O cto ber, 1 957, i s su e to a n a naly sis a nd c riti q ue o f th e E dse l b y J o e H . W herry , i ts D etr o it
ed ito r. W herry lik ed th e c ar’s a p peara nce, its in te rio r c o m fo rt, a nd its g ad gets , a lth o ugh h e d id n o t
alw ays m ake i t c le ar j u st w hy; i n p ayin g h is r e sp ects to th e tr a nsm is sio n b utto ns o n th e s te erin g p ost,
he w ro te , “ Y ou n eed n o t ta ke y o ur e yes o ff th e ro ad fo r a n in sta nt.” H e c o nced ed th at th ere w ere
“unto ld o pportu niti e s fo r m ore … u niq ue a p pro aches,” b ut h e s u m med u p h is o pin io n in a s e nte nce
th at fa ir ly p ep pere d th e E dse l w ith h o no rific a d verb s: “ T he E dse l p erfo rm s fin e, rid es w ell, a nd
hand le s go od.” T om M cC ahill, o f
Mech anix Illu str a te d
, g enera lly a d m ir e d th e “ b olt b ag,” a s h e
affe cti o nate ly calle d th e E dse l, but he had so m e re se rv ati o ns, w hic h, in cid enta lly , th ro w so m e
in te re sti n g lig ht o n an auto m obile criti c ’s eq uiv ale nt o f an ais le se at. “O n rib bed co ncre te ,” he
re p orte d , “ ev ery ti m e I s h o t th e th ro ttl e to th e f lo or q uic kly , th e w heels s p un l ik e a g o ne-w ild W arin g
Ble nd or.… A t hig h sp eed s, esp ecia lly th ro ugh ro ugh co rn ers , I fo und th e su sp ensio n a littl e to o
ho rs e b acky.… I c o uld n’t h elp b ut w ond er w hat th is s a la m i w ould re ally d o if it h ad e no ugh ro ad
ad hesio n.”
By fa r th e m ost d ow nrig ht— and v ery lik ely th e m ost d am agin g— pannin g th at th e E dse l g o t d urin g its fir s t m onth s a p peare d in th e Ja nuary , 1 958, is su e o f th e C onsu m ers U nio n m onth ly ,
Consu m er
Rep orts
, w ho se 8 00,0 00 s u b sc rib ers p ro bab ly in clu d ed m ore p ote nti a l E dse l b uyers th an h av e e v er
tu rn ed th e p ages o f
Moto r T re n d
o r
Mech anix I llu str a te d
. A fte r h av in g p ut a C ors a ir th ro ugh a s e rie s
of r o ad te sts ,
Consu m er R ep orts
d ecla re d :
The E dse l h as n o im porta nt b asic a dvanta ges o ver o th er b ra nds. T he c ar is a lm ost e ntir e ly c onventio nal in c onstr u ctio n.… T he a m ount o f
sh ake p re se nt in th is C ors a ir b ody o n r o ugh r o ads— whic h w asn ’t lo ng in m akin g it s e lf h eard a s s q ueaks a nd r a ttle s— went w ell b eyond
any a ccepta ble lim it .… T he C ors a ir ’s h andlin g q ualit ie s— slu ggis h , o ver-s lo w s te erin g, s w ay a nd le an o n tu rn s, a nd a g enera l d eta ched-
fro m -th e-ro ad
f e el— are , to p ut it m ild ly , w it h out d is tin ctio n. A s a m atte r o f, s im ple f a ct, c om bin ed w it h th e c ar’s te ndency to s h ake lik e
je lly , E dse l h andlin g r e pre se nts r e tr o gre ssio n r a th er th an p ro gre ss.… S te ppin g o n th e g as in tr a ffic , o r in p assin g c ars , o r ju st to f e el th e
ple asu ra ble s u rg e o f p ow er, w ill c ause th ose b ig c ylin ders r e ally to la p u p f u el. … T he c ente r o f th e s te erin g w heel is n ot, in C U ’s o pin io n,
a g ood p ush butto n lo catio n.… T o lo ok a t th e E dse l b utto ns p ulls th e d riv er’s e yes c le ar d ow n o ff th e ro ad. [
Pace
M r. W herry .] T he
“lu xury -lo aded” E dse l— as o ne m agazin e c over d esc rib ed it — will c erta in ly p le ase a nyone w ho c onfu se s g adgetr y w it h tr u e lu xury .
Thre e m onth s l a te r, i n a r o und up o f a ll th e 1 958-m odel c ars ,
Consu m er R ep orts
w ent a t th e E dse l
again , c allin g it “ m ore u se le ssly o verp ow ere d … m ore g ad get b ed ecked , m ore h ung w ith e xp ensiv e
accesso rie s th an any car in its p ric e cla ss,” and giv in g th e C ors a ir and th e C ita ti o n th e b otto m
positi o n i n i ts c o m peti ti v e r a ti n gs. L ik e K ra fv e,
Consu m er R ep orts
c o nsid ere d th e E dse l a n e p ito m e;
unlik e K ra fv e, th e m agazin e c o nclu d ed th at th e c ar s e em ed to “ ep ito m iz e th e m any e xcesse s” w ith
whic h D etr o it m anufa ctu re rs w ere “ re p uls in g m ore a nd m ore p ote nti a l c ar b uyers .”
AND
y et, i n a w ay, th e E dse l w asn ’t s o b ad . I t e m bodie d m uch o f th e s p ir it o f i ts ti m e— or a t l e ast o f
th e ti m e w hen i t w as d esig ned , e arly i n 1 955. I t w as c lu m sy, p ow erfu l, d ow dy, g auche, w ell- m eanin g
—a d e K oonin g w om an. F ew p eo ple , a p art fr o m e m plo yees o f F oote , C one & B eld in g, w ho w ere
paid to d o s o , h av e a d eq uate ly h ym ned i ts a b ility , a t i ts b est, to c o ax a nd j o lly th e h arrie d o w ner i n to
a s e nse o f w ell- b ein g. F urth erm ore , th e d esig ners o f s e v era l r iv al m akes, i n clu d in g C hev ro le t, B uic k,
and F ord , E dse l’s o w n s ta b le m ate , l a te r f la tte re d B ro w n’s s ty lin g b y i m ita ti n g a t l e ast o ne f e atu re o f
th e c ar’s m uch r e v ile d lin es— th e r e ar-e nd w in g th em e. T he E dse l w as o bvio usly jin xed , b ut to s a y
th at i t w as j in xed b y i ts d esig n a lo ne w ould b e a n o vers im plific ati o n, a s i t w ould b e to s a y th at i t w as
jin xed b y a n e xcess o f m oti v ati o nal r e se arc h. T he f a ct i s th at i n th e s h o rt, u nhap py l ife o f th e E dse l a
num ber o f o th er fa cto rs co ntr ib ute d to its co m merc ia l d ow nfa ll. O ne o f th ese w as th e sc arc ely
belie v ab le c ir c um sta nce
th at m any o f th e v ery fir s t E dse ls — th o se o bvio usly d esti n ed fo r th e m ost
gla rin g p ub lic l im elig ht— were d ra m ati c ally i m perfe ct. B y i ts p re lim in ary p ro gra m o f p ro m oti o n a nd
ad verti s in g, th e F ord C om pany h ad b uilt u p a n o verw helm in g h ead o f p ub lic in te re st in th e E dse l,
causin g its a rriv al to b e a nti c ip ate d a nd th e c ar its e lf to b e g aw ked a t w ith m ore e agern ess th an h ad
ev er g re ete d a ny a uto m obile b efo re it. A fte r a ll th at, it s e em ed , th e c ar d id n’t q uite w ork . W ith in a
fe w w eeks afte r th e E dse l w as in tr o duced , its p ra tf a lls w ere th e ta lk o f th e la nd . E dse ls w ere
deliv ere d w ith o il le aks, s ti c kin g h o ods, tr u nks th at w ould n’t o pen, a nd p ush b utto ns th at, fa r fr o m
yie ld in g to a to oth p ic k, c o uld n’t b e b ud ged w ith a h am mer. A n o bvio usly d is tr a ught m an s ta ggere d
in to a b ar u p th e H ud so n R iv er, d em and in g a d oub le sh o t w ith o ut d ela y a nd e xcla im in g th at th e
dash b oard o f h is n ew E dse l h ad ju st b urs t in to fla m e.
Auto m otiv e N ew s
r e p orte d th at in g enera l th e
earlie st E dse ls s u ffe re d fr o m p oor p ain t, in fe rio r s h eet m eta l, a nd fa ulty a ccesso rie s, a nd q uo te d th e
la m ent o f a d eale r a b out o ne o f th e fir s t E dse l c o nv erti b le s h e re ceiv ed : “ T he to p w as b ad ly s e t,
doors c o ckeyed , th e h ead er b ar tr im med a t th e w ro ng a ngle , a nd th e fr o nt s p rin gs s a gged .” T he F ord
Com pany h ad th e p arti c ula r b ad l u ck to s e ll to C onsu m ers U nio n— whic h b uys i ts te st c ars i n th e o pen
mark et, a s a p re cauti o n a gain st b ein g fa v ore d w ith s p ecia lly d octo re d s a m ple s— an E dse l in w hic h
th e a xle r a ti o w as w ro ng, a n e xp ansio n p lu g i n th e c o olin g s y ste m b le w o ut, th e p ow er-s te erin g p um p le aked , th e r e ar-a xle g ears w ere n o is y, a nd th e h eate r e m itte d b la sts o f h o t a ir w hen i t w as tu rn ed o ff.
A fo rm er e xecuti v e o f th e E dse l D iv is io n h as e sti m ate d th at o nly a b out h alf o f th e fir s t E dse ls r e ally
perfo rm ed p ro perly .
A la ym an c anno t h elp w ond erin g h o w th e F ord C om pany, in a ll its p ow er a nd g lo ry , c o uld h av e
been g uilty o f s u ch a M ack S ennett r o uti n e o f b uild up a nd a nti c lim ax. T he w an, h ard -w ork in g K ra fv e
exp la in s g am ely th at w hen a c o m pany b rin gs o ut a n ew m odel o f a ny m ake— ev en a n o ld a nd te ste d
one— th e fir s t c ars o fte n h av e b ugs in th em . A m ore s ta rtl in g th eo ry — th o ugh o nly a th eo ry — is th at
th ere m ay h av e b een s a b ota ge in s o m e o f th e fo ur p la nts th at a sse m ble d th e E dse l, a ll b ut o ne o f
whic h h ad p re v io usly b een, a nd c urre ntl y a ls o w ere , a sse m blin g F ord s o r
M erc ury s. I n m ark eti n g th e
Edse l, th e F ord C om pany to ok a le af o ut o f th e b ook o f G enera l M oto rs , w hic h fo r years had
su ccessfu lly b een p erm itti n g, and ev en enco ura gin g, th e m akers and se lle rs o f its O ld sm obile s,
Buic ks, P onti a cs, a nd th e h ig her-p ric ed m odels o f i ts C hev ro le t to f ig ht f o r c usto m ers w ith n o q uarte r
giv en; fa ced w ith th e s a m e s o rt o f in tr a m ura l c o m peti ti o n, s o m e m em bers o f th e F ord a nd L in co ln -
Merc ury D iv is io ns o f th e F ord C om pany o penly ho ped fr o m th e sta rt fo r th e E dse l’s d ow nfa ll.
(K ra fv e, r e aliz in g w hat m ig ht h ap pen, h ad a sk ed th at th e E dse l b e a sse m ble d i n p la nts o f i ts o w n, b ut
his su p erio rs tu rn ed h im d ow n.) H ow ev er, D oyle , sp eakin g w ith th e a uth o rity o f a v ete ra n o f th e
auto m obile b usin ess a s w ell a s w ith th at o f K ra fv e’s s e co nd -in -c o m mand , p ooh-p oohs th e n o ti o n th at
th e E dse l w as th e v ic ti m o f d ir ty w ork a t th e p la nts . “ O f c o urs e th e F ord a nd L in co ln -M erc ury
Div is io ns d id n’t w ant to s e e a no th er F ord C om pany c ar in th e fie ld ,” h e s a ys, “ b ut a s fa r a s I k no w ,
anyth in g th ey d id a t th e e xecuti v e a nd p la nt l e v els w as i n c o m peti ti v e g o od ta ste . O n th e o th er h and , a t
th e dis tr ib uti o n and deale r le v el, yo u go t so m e ro ugh in fig hti n g in te rm s of w his p erin g and
pro pagand a. If I’ d b een in o ne o f th e o th er d iv is io ns, I’ d h av e d one th e sa m e th in g.” N o p ro ud
defe ate d g enera l o f th e o ld s c ho ol e v er s p oke m ore n o bly .
It is a tr ib ute o f s o rts to th e m en w ho g av e th e E dse l its b ig b uild up th at a lth o ugh c ars te nd in g to
ra ttl e , b alk , a nd f a ll a p art i n to s h in y h eap s o f j u nk k ep t c o m in g o ff th e a sse m bly l in es, th in gs d id n’t g o
bad ly a t fir s t. D oyle sa ys th at o n E dse l D ay m ore th an 6 ,5 00 E dse ls w ere e ith er o rd ere d b y o r
actu ally deliv ere d to custo m ers . T hat w as a go od sh o w in g, but th ere w ere is o la te d sig ns of
re sis ta nce. F or in sta nce, a N ew E ngla nd d eale r se llin g E dse ls in o ne sh o w ro om and B uic ks in
ano th er r e p orte d th at tw o p ro sp ects w alk ed in to th e E dse l s h o w ro om , to ok a lo ok a t th e E dse l, a nd
pla ced o rd ers f o r B uic ks o n th e s p ot.
In th e n ext fe w d ays, s a le s d ro pped s h arp ly , b ut th at w as to b e e xp ecte d o nce th e b lo om w as o ff.
Auto m obile d eliv erie s to d eale rs — one o f th e im porta nt in d ic ato rs in th e tr a d e— are custo m arily
measu re d in te n-d ay p erio ds, a nd d urin g th e fir s t te n d ays o f S ep te m ber, o n o nly s ix o f w hic h th e
Edse l w as o n s a le , it r a cked
u p 4 ,0 95; th is w as lo w er th an D oyle ’s fir s t- d ay fig ure b ecause m any o f
th e in iti a l p urc hase s w ere o f m odels a nd c o lo r c o m bin ati o ns n o t in s to ck, w hic h h ad to b e fa cto ry -
asse m ble d to o rd er. T he d eliv ery to ta l f o r th e s e co nd te n-d ay p erio d w as o ff s lig htl y , a nd th at f o r th e
th ir d w as d ow n to ju st u nd er 3 ,6 00. F or th e fir s t te n d ays o f O cto ber, n in e o f w hic h w ere b usin ess
days, th ere w ere o nly 2 ,7 51 d eliv erie s— an a v era ge o f j u st o ver th re e h und re d c ars a d ay. I n o rd er to
se ll th e 2 00,0 00 c ars p er y ear th at w ould m ake th e E dse l o pera ti o n p ro fita b le th e F ord C om pany
would h av e to m ove a n a v era ge o f b etw een s ix a nd s e v en h und re d e ach b usin ess d ay— a g o od m any
more th an th re e hund re d a d ay. O n th e nig ht o f S und ay, O cto ber 1 3th , F ord p ut o n a m am moth
te le v is io n s p ecta cula r f o r E dse l, p re -e m pti n g th e ti m e o rd in arily a llo tte d to th e E d S ulliv an s h o w , b ut
th o ugh th e p ro gra m c o st $ 400,0 00 a nd s ta rre d B in g C ro sb y a nd F ra nk S in atr a , it fa ile d to c ause a ny
sh arp s p urt i n s a le s. N ow i t w as o bvio us th at th in gs w ere n o t g o in g a t a ll w ell.
Among th e fo rm er e xecuti v es o f th e E dse l D iv is io n, o pin io ns d iffe r a s to th e e xact m om ent w hen th e p orte nts o f d oom b ecam e u nm is ta kab le . K ra fv e f e els th at th e m om ent d id n o t a rriv e u nti l s o m eti m e
la te in O cto ber. W alla ce, in h is c ap acity a s E dse l’s p ip e-s m okin g s e m i- B ra in T ru ste r, g o es a s te p
fu rth er b y p in nin g th e s ta rt o f th e d is a ste r to a s p ecific d ate — Octo ber 4 th , th e d ay th e fir s t S ovie t
sp utn ik w ent in to o rb it, s h atte rin g th e m yth o f A meric an te chnic al p re -e m in ence a nd p re cip ita ti n g a
pub lic r e v uls io n a gain st D etr o it’ s f a ncie r b aub le s. P ub lic R ela ti o ns D ir e cto r W arn o ck m ain ta in s th at
his b aro m etr ic s e nsiti v ity to th e p ub lic te m per e nab le d h im to c all th e tu rn a s e arly a s m id -S ep te m ber;
co ntr a riw is e , D oyle sa ys h e m ain ta in ed h is o pti m is m u nti l m id -N ovem ber, b y w hic h ti m e h e w as
ab out th e o nly m an in th e d iv is io n w ho h ad n o t c o nclu d ed it w ould ta ke a m ir a cle to s a v e th e E dse l.
“In N ovem ber,” s a ys W alla ce, s o cio lo gic ally , “ th ere w as p anic , a nd its c o nco m ita nt— mob a cti o n.”
The m ob a cti o n to ok th e fo rm o f a c o ncerte d te nd ency to b la m e th e d esig n o f th e c ar fo r th e w ho le
deb acle ; E dse l m en w ho h ad p re v io usly h ad n o th in g b ut l a v is h p ra is e f o r th e r a d ia to r g rille a nd r e ar
end n o w w ent a ro und m utte rin g th at a ny fo ol c o uld s e e th ey w ere lu d ic ro us. T he
o bvio us s a crific ia l
vic ti m w as B ro w n, w ho se s to ck h ad g o ne th ro ugh th e r o of a t th e ti m e o f th e r e gally a cco la d ed d eb ut
of h is d esig n, i n A ugust, 1 955. N ow , w ith o ut h av in g d one a nyth in g f u rth er, f o r e ith er b ette r o r w ors e ,
th e p oor fe llo w b ecam e th e c o m pany s c ap ego at. “ B egin nin g in N ovem ber, n o body ta lk ed to R oy,”
Walla ce s a ys. O n N ovem ber 2 7th , a s i f th in gs w ere n’t b ad e no ugh, C harle s K re is le r, w ho a s th e o nly
Edse l deale r in M anhatta n pro vid ed its priz e sh o w case , anno unced th at he w as tu rn in g in his
fr a nchis e b ecause o f p oor s a le s, a nd it w as r u m ore d th at h e a d ded , “ T he F ord M oto r C om pany h as
la id a n e gg.” H e th ere up on s ig ned u p w ith A meric an M oto rs to s e ll its R am ble r, w hic h, a s th e o nly
dom esti c s m all c ar th en o n th e m ark et, w as a lr e ad y th e p osse sso r o f a z o om in g s a le s c urv e. D oyle
grim ly c o m mente d th at th e E dse l D iv is io n w as “ no t c o ncern ed ” a b out K re is le r’s d efe cti o n.
By D ecem ber, th e p anic a t E dse l h ad a b ate d to th e p oin t w here i ts s p onso rs c o uld p ull th em se lv es
to geth er a nd b egin c asti n g a b out fo r w ays to g et sa le s m ovin g a gain . H enry F ord II, m anife sti n g
him se lf to E dse l d eale rs o n c lo se d -c ir c uit te le v is io n, u rg ed th em to r e m ain c alm , p ro m is e d th at th e
co m pany w ould b ack th em to th e lim it, a nd s a id fla tl y , “ T he E dse l is h ere to s ta y.” A m illio n a nd a
half le tte rs w ent o ut o ver K ra fv e’s s ig natu re to o w ners o f m ed iu m -p ric ed c ars , a sk in g th em to d ro p
aro und a t th eir lo cal d eale rs a nd te st- rid e th e E dse l; e v ery o ne d oin g s o , K ra fv e p ro m is e d , w ould b e
giv en a n e ig ht- in ch p la sti c s c ale m odel o f th e c ar, w heth er h e b ought a f u ll- s iz e o ne o r n o t. T he E dse l
Div is io n p ic ked u p th e c heck fo r th e sc ale m odels — a sy m pto m o f d esp era ti o n in d eed , fo r u nd er
no rm al c ir c um sta nces n o a uto m obile m anufa ctu re r w ould m ake e v en a m ove to o utf u m ble its d eale rs
fo r s u ch a ta b . ( U p to th at ti m e, th e d eale rs h ad p aid fo r e v ery th in g, a s is c usto m ary .) T he d iv is io n
als o b egan o ffe rin g its d eale rs w hat it c alle d “ sa le s b onuse s,” w hic h m eant th at th e d eale rs c o uld
kno ck a nyth in g fr o m o ne h und re d to th re e h und re d d olla rs o ff th e p ric e o f e ach c ar w ith o ut r e d ucin g
th eir p ro fit m arg in . K ra fv e to ld a r e p orte r th at s a le s u p to th en w ere a b out w hat h e h ad e xp ecte d th em
to b e, a lth o ugh n o t w hat h e h ad h o ped th ey w ould b e; in h is z e al n o t to s e em u np le asa ntl y s u rp ris e d ,
he
a p peare d to b e s a yin g th at h e h ad e xp ecte d th e E dse l to fa il. T he E dse l’s a d verti s in g c am paig n,
whic h h ad s ta rte d w ith s tu d ie d d ig nity , b egan to s o und a n o te o f s tr id ency. “ E very o ne w ho h as s e en i t
kno w s— with u s— th at th e E dse l is a s u ccess,” a m agazin e a d d ecla re d , a nd in a la te r a d th is p hra se
was tw ic e r e p eate d , lik e a n in canta ti o n: “ T he E dse l is a s u ccess. It is a n ew id ea— a
YOU
id ea— on
th e A meric an R oad .… T he E dse l is a s u ccess.” S oon th e e v en le ss h ig h-to ned b ut m ore d ep end ab le
ad verti s in g th em es o f p ric e a nd s o cia l s ta tu s b egan to in tr u d e, in s u ch s e nte nces a s “ T hey’ll k no w
yo u’v e
arriv ed
w hen y o u d riv e u p in a n E dse l” a nd “ T he o ne th at’ s r e ally n ew is th e lo w est- p ric ed ,
to o!” I n th e m ore r a re fie d s e cto rs o f M ad is o n A venue, a r e so rt to r h ym ed s lo gans i s u su ally r e gard ed
as a n i n d ic ati o n o f a rti s ti c d ep ra v ity i n d uced b y c o m merc ia l n ecessity .
Fro m th e fr a nti c a nd c o stl y m easu re s th e E dse l D iv is io n to ok in D ecem ber, it g arn ere d o ne ti n y cru m b: fo r th e fir s t te n-d ay p erio d o f 1 958, it w as a b le to re p ort, s a le s w ere u p 1 8.6 p erc ent o ver
th o se o f th e la st te n d ays o f 1 957. T he c atc h, a s th e
Wall S tr e et J o urn al
a le rtl y n o te d , w as th at th e
la tte r p erio d e m bra ced o ne m ore s e llin g d ay th an th e e arlie r o ne, s o , f o r p ra cti c al p urp ose s, th ere h ad
sc arc ely b een a g ain a t a ll. I n a ny c ase , th at e arly -J a nuary w ord o f m ere tr ic io us c heer tu rn ed o ut to b e
th e E dse l D iv is io n’s la st g estu re . O n J a nuary 1 4, 1 958, th e F ord M oto r C om pany a nno unced th at it
was c o nso lid ati n g th e E dse l D iv is io n w ith th e L in co ln -M erc ury D iv is io n to fo rm a M erc ury -E dse l-
Lin co ln D iv is io n, u nd er th e m anagem ent o f J a m es J . N ance, w ho h ad b een r u nnin g L in co ln -M erc ury .
It w as th e fir s t ti m e th at o ne o f th e m ajo r a uto m obile c o m panie s h ad lu m ped th re e d iv is io ns in to o ne
sin ce G enera l M oto rs ’ m erg er o f B uic k, O ld sm obile , a nd P onti a c b ack in th e d ep re ssio n, a nd to th e
peo ple o f th e e xp unged E dse l D iv is io n th e m eanin g o f th e a d m in is tr a ti v e m ove w as a ll to o c le ar.
“W ith th at m uch c o m peti ti o n i n a d iv is io n, th e E dse l w asn ’t g o in g a nyw here ,” D oyle s a ys. “ It b ecam e
a s te p child .”
FO R
th e la st y ear a nd te n m onth s o f its e xis te nce, th e E dse l w as v ery m uch a s te p child — genera lly
negle cte d , l ittl e a d verti s e d , a nd k ep t a liv e o nly to a v oid p ub lic iz in g a b oner a ny m ore th an n ecessa ry
and in th e fo rlo rn ho pe th at it
mig ht
g o so m ew here a fte r a ll. W hat a d verti s in g it d id g et str o ve
quix o ti c ally to a ssu re th e a uto m obile tr a d e th at e v ery th in g w as d and y; in m id -F eb ru ary a n a d in
Auto m otiv e N ew s
h ad N ance s a yin g,
Sin ce th e f o rm atio n o f th e n ew M -E -L D iv is io n a t F ord M oto r C om pany, w e h ave a naly ze d w it h k een in te re st th e s a le s p ro gre ss o f th e
Edse l. W e th in k it is q uit e s ig nif ic ant th at d urin g th e f iv e m onth s s in ce th e E dse l w as in tr o duced, E dse l s a le s h ave b een g re ate r th an th e
fir s t fiv e m onth s’ s a le s fo r a ny o th er n ew m ake o f c ar e ver in tr o duced o n th e A meric an R oad.… E dse l’ s s te ady p ro gre ss c an b e a
so urc e o f s a tis fa ctio n a nd a g re at in centiv e to a ll o f u s.
Nance’s c o m paris o n, h o w ev er, w as a lm ost m eanin gle ss, n o n ew m ake e v er h av in g b een in tr o duced
anyth in g l ik e s o g ra nd io se ly , a nd th e n o te o f c o nfid ence c o uld n o t h elp r in gin g h o llo w .
It is q uite p ossib le th at N ance’s a tte nti o n w as n ev er c alle d to a n a rti c le b y S . I. H ayakaw a, th e
se m anti c is t, th at w as p ub lis h ed in th e sp rin g o f 1 958 in
ETC : A R evie w o f G en era l S em antic s
, a
quarte rly m agazin e, u nd er th e ti tl e , “ W hy th e E dse l L aid a n E gg.” H ayakaw a, w ho w as b oth th e
fo und er a nd th e e d ito r o f
ETC
, e xp la in ed i n a n i n tr o ducto ry n o te th at h e c o nsid ere d th e s u b je ct w ith in
th e p urv ie w o f g enera l se m anti c s b ecause a uto m obile s, lik e w ord s, a re “ im porta nt … sy m bols in
Americ an c ultu re ,” a nd w ent o n to a rg ue th at th e E dse l’s flo p c o uld b e a ttr ib ute d to F ord C om pany
executi v es w ho h ad b een “ lis te nin g to o lo ng to th e m oti v ati o n-re se arc h p eo ple ” a nd w ho , in th eir
effo rts to tu rn o ut a c ar th at w ould sa ti s fy c usto m ers ’ se xual fa nta sie s a nd th e lik e, h ad fa ile d to
su p ply r e aso nab le a nd p ra cti c al tr a nsp orta ti o n, th ere b y n egle cti n g “ th e r e ality p rin cip le .” “ W hat th e
moti v ati o n r e se arc hers f a ile d to te ll th eir c lie nts … i s th at
only
th e p sy cho ti c a nd th e g ra v ely n euro ti c
act o ut
th eir i r ra ti o naliti e s a nd th eir c o m pensa to ry f a nta sie s,” H ayakaw a a d m onis h ed D etr o it b ris k ly ,
and a d ded , “ T he tr o ub le w ith s e llin g s y m bolic g ra ti fic ati o n v ia s u ch e xp ensiv e i te m s a s … th e E dse l
Herm ap hro dite … is th e c o m peti ti o n o ffe re d b y m uch c heap er fo rm s o f s y m bolic g ra ti fic ati o n, s u ch
as
Pla yb oy
( fifty c ents a c o py),
Asto undin g S cie n ce F ic tio n
( th ir ty -fiv e c ents a c o py), a nd te le v is io n
(fr e e).”
Notw ith sta nd in g th e c o m peti ti o n fr o m
Pla yb oy
, o r p ossib ly b ecause th e s y m bol- m oti v ate d p ub lic
in clu d ed p eo ple w ho c o uld a ffo rd b oth , th e E dse l k ep t ro llin g— but ju st b are ly . T he c ar m oved , a s
sa le sm en s a y, th o ugh h ard ly a t th e to uch o f a to oth p ic k. I n f a ct, a s a s te p child i t s o ld a b out a s w ell a s
it h ad s o ld a s a fa v orite s o n, s u ggesti n g th at a ll th e h o opla , w heth er a b out s y m bolic g ra ti fic ati o n o r
mere h o rs e p ow er, h ad h ad littl e e ffe ct o ne w ay o r th e o th er. T he n ew E dse ls th at w ere re gis te re d with th e m oto r-v ehic le b ure aus o f th e v ario us s ta te s d urin g 1 958 n um bere d 3 4,4 81— co nsid era b ly
fe w er th an n ew c ars o f a ny c o m peti n g m ake, a nd l e ss th an o ne-fifth o f th e 2 00,0 00 a y ear n ecessa ry i f
th e E dse l w as to s h o w a p ro fit, b ut s ti ll r e p re se nti n g a n in v estm ent b y m oto ris ts o f o ver a h und re d
millio n d olla rs . T he p ic tu re a ctu ally b rig hte ned in N ovem ber, 1 958, w ith th e a d vent o f th e E dse l’s
se co nd -y ear m odels . S ho rte r b y u p to e ig ht in ches, lig hte r b y u p to fiv e h und re d p ound s, a nd w ith
engin es l e ss p ote nt b y a s m uch a s 1 58 h o rs e p ow er, th ey h ad a p ric e r a nge r u nnin g f r o m f iv e h und re d
to e ig ht h und re d d olla rs l e ss th an th at o f th eir p re d ecesso rs . T he v erti c al g rille a nd th e s la nt- e yed r e ar
end w ere s ti ll th ere , b ut th e m odest p ow er a nd p ro porti o ns p ers u ad ed
Consu m er R ep orts
to re le nt
and s a y, “ T he F ord M oto r C om pany, a fte r g iv in g la st y ear’s in iti a l E dse l m odel a b la ck e ye, h as
mad e a r e sp ecta b le a nd e v en l ik ab le a uto m obile o f i t.” Q uite a n um ber o f m oto ris ts s e em ed to a gre e;
ab out tw o th o usa nd m ore E dse ls w ere s o ld i n th e f ir s t h alf o f 1 959 th an h ad b een s o ld i n th e f ir s t h alf
of 1 958, a nd b y th e e arly s u m mer o f 1 959 th e c ar w as m ovin g a t th e r a te o f a ro und fo ur th o usa nd a
month . H ere , a t la st, w as p ro gre ss; s a le s w ere a t a lm ost a q uarte r o f th e m in im um p ro fita b le ra te ,
in ste ad o f a m ere f ifth .
On J u ly 1 , 1 959, th ere w ere 8 3,8 49 E dse ls o n th e c o untr y ’s ro ad s. T he la rg est n um ber (8 ,3 44)
were in C alifo rn ia , w hic h is p ere nnia lly b ese t w ith fa r and aw ay th e la rg est num ber o f cars o f
pra cti c ally a ll m akes, a nd th e s m alle st n um ber w ere in A la sk a, V erm ont, a nd H aw aii ( 1 22, 1 1 9, a nd
11 0, re sp ecti v ely ). A ll in a ll, th e E dse l se em ed to h av e fo und a n ic he fo r its e lf a s a n a m usin gly
eccentr ic curio sity . A lth o ugh th e F ord C om pany, w ith its sto ckho ld ers ’ m oney sti ll d is a p pearin g
week a fte r w eek i n to th e E dse l, a nd
w ith s m all c ars n o w c le arly th e o rd er o f th e d ay, c o uld s c arc ely
affe ct a s e nti m enta l a p pro ach to th e s u b je ct, i t n o neth ele ss to ok a n o uts id e c hance a nd , i n m id -O cto ber
of 1 959, b ro ught o ut a th ir d s e rie s o f a nnual m odels . T he 1 960 E dse l a p peare d a littl e m ore th an a
month a fte r th e F alc o n, F ord ’s fir s t— and in sta ntl y s u ccessfu l— ventu re in to th e s m all- c ar fie ld , a nd
was s c arc ely a n E dse l a t a ll; g o ne w ere b oth th e v erti c al g rille a nd th e h o riz o nta l r e ar e nd , a nd w hat
re m ain ed lo oked lik e a c ro ss b etw een a F ord F air la ne a nd a P onti a c. Its in iti a l s a le s w ere a b ysm al;
by th e m id dle o f N ovem ber o nly o ne p la nt— in L ouis v ille , K entu cky— was s ti ll tu rn in g o ut E dse ls ,
and it w as tu rn in g o ut o nly a b out tw enty a d ay. O n N ovem ber 1 9th , th e F ord F ound ati o n, w hic h w as
pla nnin g to se ll a blo ck of its vast ho ld in gs of sto ck in th e F ord M oto r C om pany, is su ed th e
pro sp ectu s th at is re q uir e d b y la w u nd er s u ch c ir c um sta nces, a nd s ta te d th ere in , in a fo otn o te to a
se cti o n d esc rib in g th e c o m pany’s p ro ducts , th at th e E dse l h ad b een “ in tr o duced in S ep te m ber 1 957
and d is c o nti n ued in N ovem ber 1 959.” T he s a m e d ay, th is m um ble d a d m is sio n w as c o nfir m ed a nd
am plifie d b y a F ord C om pany sp okesm an, w ho d id so m e m um blin g o f h is o w n. “ If w e k new th e
re aso n p eo ple a re n’t b uyin g th e E dse l, w e’d p ro bab ly h av e d one s o m eth in g a b out i t,” h e s a id .
The f in al q uanti ta ti v e b ox s c o re s h o w s th at f r o m th e b egin nin g r ig ht u p to N ovem ber 1 9th , 1 1 0,8 10
Edse ls w ere p ro duced and 1 09,4 66 w ere so ld . (T he re m ain in g 1 ,3 44, alm ost all o f th em 1 960
models , w ere d is p ose d o f in s h o rt o rd er w ith th e h elp o f d ra sti c p ric e c uts .) A ll to ld , o nly 2 ,8 46 o f
th e 1 960 E dse ls w ere e v er p ro duced , m akin g m odels o f th at y ear a p ote nti a l c o lle cto r’s ite m . T o b e
su re , it w ill b e g enera ti o ns b efo re 1 960 E dse ls a re a s s c arc e a s th e T yp e 4 1 B ugatti , o f w hic h n o
more th an e le v en s p ecim ens w ere m ad e, b ack i n th e l a te tw enti e s, to b e s o ld o nly to b ona-fid e k in gs,
and th e 1960 Edse l’s re aso ns fo r bein g a ra rity are no t exactl y as accep ta b le , so cia lly or
co m merc ia lly , a s th e T yp e 4 1 B ugatti ’ s . S ti ll, a 1 960-E dse l O w ners ’ C lu b m ay y et a p pear.
The fin al fis c al b ox s c o re o n th e E dse l fia sc o w ill p ro bab ly n ev er b e k no w n, b ecause th e F ord
Moto r C om pany’s p ub lic r e p orts d o n o t i n clu d e b re akd ow ns o f g ain s a nd l o sse s w ith in th e i n d iv id ual
div is io ns. F in ancia l b uffs e sti m ate , h o w ev er, th at th e c o m pany l o st s o m eth in g l ik e $ 200 m illio n o n th e
Edse l a fte r it a p peare d ; a d d to th is th e o ffic ia lly a nno unced e xp end itu re o f $ 250 m illio n b efo re it ap peare d , s u b tr a ct a b out a h und re d m illio n i n v este d i n p la nt a nd e q uip m ent th at w ere s a lv ageab le f o r
oth er u se s, a nd th e n et lo ss is $ 350 m illio n. If th ese e sti m ate s a re rig ht, e v ery E dse l th e c o m pany
manufa ctu re d c o st it in lo st m oney a b out $ 3,2 00, o r a b out th e p ric e o f a no th er o ne. In o th er, h ars h er
word s, th e c o m pany w ould h av e s a v ed its e lf m oney if, b ack in 1 955, it h ad d ecid ed n o t to p ro duce
th e E dse l at all b ut sim ply to giv e aw ay 11 0,8 10 sp ecim ens o f its co m para b ly p ric ed car, th e
Merc ury .
TH E
e nd o f th e E dse l se t o ff a n o rg y o f h in d sig ht in th e p re ss.
Tim e
d ecla re d , “ T he E dse l w as a
cla ssic c ase o f th e w ro ng c ar f o r th e w ro ng m ark et a t th e w ro ng ti m e. I t w as a ls o a p rim e e xam ple o f
th e lim ita ti o ns o f m ark et re se arc h, w ith its ‘d ep th in te rv ie w s’ a nd ‘m oti v ati o nal’ m um bo-ju m bo.”
Busin ess W eek
, w hic h s h o rtl y b efo re th e E dse l m ad e its b ow h ad d esc rib ed it w ith p ate nt s o le m nity
and a p pare nt a p pro val, n o w p ro no unced it “ a n ig htm are ” a nd a p pend ed a fe w p oin te d ly c riti c al
re m ark s a b out W alla ce’s re se arc h, w hic h w as ra p id ly a chie v in g a s c ap ego at s ta tu s e q ual to th at o f
Bro w n’s d esig n. ( J u m pin g u p a nd d ow n o n m oti v ati o nal r e se arc h w as, a nd i s , s p le nd id s p ort, b ut, o f
co urs e , th e im plic ati o n th at it d ic ta te d , o r e v en in flu enced , th e E dse l’s d esig n is e nti r e ly fa ls e , s in ce
th e re se arc h, bein g in te nd ed only to pro vid e a th em e fo r ad verti s in g and pro m oti o n, w as no t
und erta ken u nti l a fte r B ro w n h ad c o m ple te d h is d esig n.) T he
Wall S tr e et J o urn al’s
o bitu ary o f th e
Edse l m ad e a p oin t th at w as p ro bab ly s o und er, a nd c erta in ly m ore o rig in al.
Larg e c orp ora tio ns a re o fte n a ccuse d o f rig gin g m ark ets , a dm in is te rin g p ric es, a nd o th erw is e d ic ta tin g to th e c onsu m er [it o bse rv ed].
And y este rd ay F ord M oto r C om pany a nnounced it s tw o-y ear e xperim ent w it h th e m ediu m -p ric ed E dse l h as c om e to a n e nd … f o r w ant
of b uyers . A ll th is is q uit e a w ays f ro m a uto m akers b ein g a ble to r ig m ark ets o r f o rc e c onsu m ers to ta ke w hat th ey w ant th em to ta ke.
… A nd th e r e aso n, s im ply , is th at th ere is n o a ccountin g f o r ta ste s.… W hen it c om es to d ic ta tin g, th e c onsu m er is th e d ic ta to r w it h out
peer.
The to ne o f th e p ie ce w as f r ie nd ly a nd s y m path eti c ; th e F ord C om pany, i t s e em ed , h ad e nd eare d i ts e lf
to th e
Jo urn al
b y p la yin g th e g re at A meric an s itu ati o n-c o m ed y r o le o f D ad dy th e B ungle r.
As fo r th e post- m orte m exp la nati o ns of th e deb acle th at hav e been offe re d by fo rm er E dse l
executi v es, th ey a re n o ta b le fo r th eir re fle cti v e to ne— so m eth in g lik e th at o f a k no cked -o ut p riz e
fig hte r o penin g h is e yes to f in d a n a nno uncer’s m ic ro pho ne p ush ed i n to h is f a ce. I n f a ct, K ra fv e, l ik e
many a fla tte ned p ugilis t, b la m es h is o w n b ad ti m in g; h e c o nte nd s th at if h e h ad b een a b le to th w art
th e a p pare ntl y im muta b le m echanic s a nd e co no m ic s o f D etr o it, a nd h ad s o m eho w b een a b le to b rin g
out th e E dse l in 1 955, o r e v en 1 956, w hen th e s to ck m ark et a nd th e m ed iu m -p ric ed -c ar m ark et w ere
rid in g h ig h, th e c ar w ould h av e d one w ell a nd w ould s ti ll b e d oin g w ell. T hat i s to s a y, i f h e h ad s e en
th e p unch c o m in g, h e w ould h av e d ucked . K ra fv e r e fu se s to g o a lo ng w ith a s iz a b le g ro up o f l a ym en
who te nd to a ttr ib ute th e c o lla p se to th e c o m pany’s d ecis io n to c all th e c ar th e E dse l i n ste ad o f g iv in g
it a b ris k er, m ore sin gab le nam e, re d ucib le to a nic knam e o th er th an “E d” o r “E ddie ,” and no t
fr e ig hte d w ith d ynasti c c o nno ta ti o ns. A s f a r a s h e c an s e e, K ra fv e s ti ll s a ys, th e E dse l’s n am e d id n o t
affe ct i ts f o rtu nes o ne w ay o r th e o th er.
Bro w n a gre es w ith K ra fv e th at b ad ti m in g w as th e c hie f m is ta ke. “ I fr a nkly fe el th at th e s ty lin g o f
th e a uto m obile h ad v ery l ittl e , i f a nyth in g, to d o w ith i ts f a ilu re ,” h e s a id l a te r, a nd h is f r a nkness m ay
pre tty sa fe ly b e le ft u nchalle nged . “ T he E dse l p ro gra m , lik e a ny o th er p ro je ct p la nned fo r fu tu re
mark ets , w as b ase d o n th e b est i n fo rm ati o n a v aila b le a t th e ti m e i n w hic h d ecis io ns w ere m ad e. T he
ro ad to H ell i s p av ed w ith g o od i n te nti o ns!”
Doyle , w ith th e b orn s a le sm an’s in te nse ly p ers o nal fe elin g a b out h is c usto m ers , ta lk s lik e a m an
betr a yed b y a f r ie nd — th e A meric an p ub lic . “ It w as a b uyers ’ s tr ik e,” h e s a ys. “ P eo ple w ere n’t i n th e mood fo r th e E dse l. W hy no t is a m yste ry to m e. W hat th ey’d been buyin g fo r se v era l years
enco ura ged th e i n d ustr y to b uild e xactl y th is k in d o f c ar. W e g av e i t to th em , a nd th ey w ould n’t ta ke i t.
Well, th ey s h o uld n’t h av e a cte d l ik e th at. Y ou c an’t j u st w ake u p s o m eb ody o ne d ay a nd s a y, ‘ T hat’ s
eno ugh, y o u’v e b een ru nnin g in th e w ro ng d ir e cti o n.’ A nyw ay,
why
d id th ey d o it? G olly , h o w th e
in d ustr y w ork ed a nd w ork ed o ver th e y ears — getti n g r id o f g ear-s h ifti n g, p ro vid in g in te rio r c o m fo rt,
pro vid in g p lu s p erfo rm ance fo r u se in e m erg encie s! A nd n o w th e p ub lic w ants th ese littl e b eetl e s. I
don’t g et i t! ”
Walla ce’s s p utn ik th eo ry p ro vid es a n a nsw er to D oyle ’s q uesti o n a b out w hy p eo ple w ere n’t i n th e
mood, a nd , f u rth erm ore , i t i s s u ffic ie ntl y c o sm ic to b efit a s e m i- B ra in T ru ste r. I t a ls o l e av es W alla ce
fr e e to d efe nd th e v alid ity o f his m oti v ati o nal- re se arc h stu d ie s as o f th e ti m e w hen th ey w ere
co nd ucte d . “ I d on’t th in k w e y et k no w th e d ep th s o f th e p sy cho lo gic al e ffe ct th at th at f ir s t o rb iti n g h ad
on u s a ll,” h e s a ys. “ S om eb ody h ad b eate n u s to a n im porta nt g ain in te chno lo gy, a nd im med ia te ly
peo ple sta rte d w riti n g a rti c le s a b out h o w c ru m my D etr o it p ro ducts w ere , p arti c ula rly th e h eav ily
orn am ente d a nd s ta tu s-s y m bolic m ed iu m -p ric ed c ars . In 1 958, w hen n o ne o f th e s m all c ars w ere o ut
excep t th e R am ble r, C hev y a lm ost ra n a w ay w ith th e m ark et, b ecause it h ad th e s im ple st c ar. T he
Americ an p eo ple h ad p ut th em se lv es o n a s e lf- im pose d a uste rity p ro gra m . N ot b uyin g E dse ls w as
th eir h air s h ir t.”
TO
a ny r e lic s o f th e s in k-o r-s w im n in ete enth -c entu ry d ays o f A meric an i n d ustr y , i t m ust s e em s tr a nge
th at W alla ce c an a ffo rd to p uff o n h is p ip e a nd a naly ze th e h o lo caust s o a m ia b ly . T he o bvio us p oin t o f
th e E dse l’s s to ry i s th e d efe at o f a g ia nt m oto r c o m pany, b ut w hat i s j u st a s s u rp ris in g i s th at th e g ia nt
did n o t c o m e a p art, o r e v en g et s e rio usly h urt in th e fa ll, a nd n eith er d id th e m ajo rity o f th e p eo ple
who w ent d ow n w ith h im . O w in g la rg ely to th e su ccess o f fo ur o f its o th er c ars — th e F ord , th e
Thund erb ir d , a nd , l a te r o n th e s m all F alc o n a nd C om et a nd th en th e M usta ng— th e F ord C om pany, a s
an i n v estm ent, s u rv iv ed g lo rio usly . T ru e, i t h ad a b ad ti m e o f i t i n 1 958, w hen, p artl y b ecause o f th e
Edse l, n et in co m e p er s h are o f its s to ck fe ll fr o m $ 5.4 0 to $ 2.1 2, d iv id end s p er s h are fr o m $ 2.4 0 to
$2.0 0, a nd th e m ark et p ric e o f its s to ck fr o m a 1 957 h ig h o f a b out $ 60 to a 1 958 lo w o f u nd er $ 40.
But all th ese lo sse s w ere m ore th an re co up ed in 1 959, w hen net in co m e p er sh are w as $ 8.2 4,
div id end s p er s h are
w ere $ 2.8 0, a nd th e p ric e o f th e s to ck r e ached a h ig h o f a ro und $ 90. I n 1 960 a nd
1961, th in gs w ent e v en b ette r. S o th e 2 80,0 00 F ord s to ckho ld ers l is te d o n th e b ooks i n 1 957 h ad h ad
littl e to c o m pla in a b out u nle ss th ey h ad s o ld a t th e h eig ht o f th e p anic . O n th e o th er h and , s ix th o usa nd
white -c o lla r w ork ers w ere sq ueeze d o ut o f th eir jo bs as a re su lt o f th e M erc ury -E dse l- L in co ln
co nso lid ati o n, a nd th e a v era ge n um ber o f F ord e m plo yees fe ll fr o m 1 91,7 59 in 1 957 to 1 42,0 76 th e
fo llo w in g year, clim bin g b ack to o nly 1 59,5 41 in 1 959. A nd , o f co urs e , d eale rs w ho gav e up
pro fita b le fr a nchis e s in o th er m akes a nd th en w ent b ro ke tr y in g to s e ll E dse ls w ere n’t lik ely to b e
very c heerfu l a b out th e e xp erie nce. U nd er th e te rm s o f th e c o nso lid ati o n o f th e L in co ln -M erc ury a nd
Edse l D iv is io ns, m ost of th e agencie s fo r th e th re e m akes w ere co nso lid ate d , to o. In th e
co nso lid ati o n, s o m e E dse l d eale rs w ere s q ueeze d o ut, a nd i t c an h av e b een s m all c o m fo rt to th o se o f
th em w ho w ent b ankru p t to le arn la te r th at w hen th e F ord C om pany fin ally d is c o nti n ued m akin g th e
car, it a gre ed to p ay th o se o f th eir fo rm er c o lle agues w ho h ad w eath ere d th e c ris is o ne-h alf o f th e
orig in al c o st o f th eir E dse l s ig ns, a nd w as g ra nti n g th em s u b sta nti a l r e b ate s o n a ll E dse ls in s to ck a t
th e ti m e o f d is c o nti n uance. S ti ll, a uto m obile d eale rs , s o m e o f w ho m w ork o n c re d it m arg in s a s s lim
as th o se o f M ia m i h o te l o pera to rs , o ccasio nally g o b ro ke w ith e v en th e m ost p opula r c ars . A nd
am ong th o se w ho e arn th eir liv in g in th e r o ugh-a nd -tu m ble w orld o f a uto m obile s a le sro om s, w here
Detr o it i s n o t a lw ays s p oken o f w ith a ffe cti o n, m any w ill c o nced e th at th e F ord C om pany, o nce i t h ad fo und its e lf s tu ck w ith a le m on, d id a s m uch a s it r e aso nab ly c o uld to b ols te r d eale rs w ho h ad c ast
th eir l o t w ith E dse l. A s p okesm an f o r th e N ati o nal A uto m obile D eale rs A sso cia ti o n h as s in ce s ta te d ,
“S o f a r a s w e k no w , th e E dse l d eale rs w ere g enera lly s a ti s fie d w ith th e w ay th ey w ere tr e ate d .”
Foote , C one & B eld in g a ls o e nd ed u p lo sin g m oney o n th e E dse l a cco unt, s in ce its a d verti s in g
co m mis sio ns d id n o t e nti r e ly c o m pensa te fo r th e e xtr a o rd in ary e xp ense it h ad g o ne to o f h ir in g s ix ty
new p eo ple a nd o penin g u p a p osh o ffic e i n D etr o it. B ut i ts l o sse s w ere h ard ly i r re p ara b le ; th e m in ute
th ere w ere no m ore E dse ls to ad verti s e , it w as hir e d to ad verti s e L in co ln s, and
alth o ugh th at
arra ngem ent d id n o t l a st v ery l o ng, th e f ir m h as h ap pily s u rv iv ed to s in g th e p ra is e s o f s u ch c lie nts a s
Genera l F oods, L ev er B ro th ers , a nd T ra ns W orld A ir w ays. A r a th er to uchin g s y m bol o f th e lo yalty
th at th e a gency’s e m plo yees h av e f o r i ts f o rm er c lie nt i s th e f a ct th at f o r s e v era l y ears a fte r 1 959, o n
ev ery w ork d ay i ts p riv ate p ark in g l o t i n C hic ago w as s ti ll d otte d w ith E dse ls . T hese f a ith fu l d riv ers ,
in cid enta lly , a re n o t u niq ue. If E dse l o w ners h av e n o t fo und th e m eans to a d re am fu lfillm ent, a nd if
so m e o f th em f o r a w hile h ad to p ut u p w ith h arro w in g m echanic al d is o rd ers , m any o f th em m ore th an
a d ecad e l a te r c heris h th eir c ars a s i f th ey w ere C onfe d era te b ills , a nd o n U se d C ar R ow th e E dse l i s
a h ig h-p re m iu m i te m , w ith f e w c ars b ein g o ffe re d .
By a nd la rg e, th e fo rm er E dse l e xecuti v es d id n o t ju st la nd o n th eir fe et, th ey la nd ed in c lo ver.
Certa in ly n o o ne c an a ccuse th e F ord C om pany o f g iv in g v ent to i ts c hagrin i n th e o ld -fa sh io ned w ay,
by v ulg arly c ausin g h ead s to r o ll. K ra fv e w as a ssig ned to a ssis t R obert S . M cN am ara , a t th at ti m e a
Ford d iv is io nal v ic e-p re sid ent ( a nd la te r, o f c o urs e , S ecre ta ry o f D efe nse ), fo r a c o up le o f m onth s,
and th en h e m oved to a s ta ff jo b in c o m pany h ead quarte rs , s ta yed th ere fo r a b out a y ear, a nd le ft to
beco m e a v ic e-p re sid ent o f th e R ayth eo n C om pany, o f W alth am , M assa chuse tts , a l e ad in g e le ctr o nic s
fir m . I n A pril, 1 960, h e w as m ad e i ts p re sid ent. I n th e m id dle s ix ti e s h e l e ft to b eco m e a h ig h-p ric ed
managem ent c o nsu lta nt o n th e W est C oast. D oyle , to o, w as o ffe re d a s ta ff jo b w ith F ord , b ut a fte r
ta kin g a tr ip a b ro ad to th in k it o ver h e d ecid ed to r e ti r e . “ It w as a q uesti o n o f m y r e la ti o nsh ip to m y
deale rs ,” h e e xp la in s. “ I h ad a ssu re d th em th at th e c o m pany w as f u lly b ehin d th e E dse l f o r k eep s, a nd
I d id n’t fe el th at I w as th e fe llo w to te ll th em no w th at it w asn ’t.” A fte r his re ti r e m ent, D oyle
re m ain ed a b out a s b usy a s e v er, k eep in g a n e ye o n v ario us b usin esse s i n w hic h h e h as s e t u p v ario us
fr ie nd s a nd re la ti v es, a nd c o nd ucti n g a c o nsu lti n g b usin ess o f h is o w n in D etr o it. A bout a m onth
befo re E dse l’s c o nso lid ati o n w ith M erc ury a nd L in co ln , W arn o ck, th e p ub lic ity m an, l e ft th e d iv is io n
to b eco m e d ir e cto r o f n ew s s e rv ic es f o r th e I n te rn ati o nal T ele p ho ne & T ele gra p h C orp ., i n N ew Y ork
—a p ositi o n he le ft in Ju ne,
1960, to b eco m e v ic e-p re sid ent o f C om munic ati o ns C ounse lo rs , th e
pub lic -re la ti o ns a rm o f M cC ann-E ric kso n. F ro m th ere h e w ent b ack to F ord , a s E aste rn p ro m oti o n
chie f fo r L in co ln -M erc ury — a case o f a head th at had no t ro lle d b ut had in ste ad b een ano in te d .
Bro w n, th e e m battl e d s ty lis t, s ta yed o n in D etr o it fo r a w hile a s c hie f s ty lis t o f F ord c o m merc ia l
vehic le s a nd th en w ent w ith th e F ord M oto r C om pany, L td ., o f E ngla nd , w here , a gain a s c hie f s ty lis t,
he w as a ssig ned to d ir e ct th e d esig n o f C onsu ls , A nglia s, tr u cks, a nd tr a cto rs . H e in sis te d th at th is
post d id n’t r e p re se nt th e F ord v ers io n o f S ib eria . “ I h av e f o und i t to b e a m ost s a ti s fy in g e xp erie nce,
and o ne o f th e b est s te p s I h av e e v er ta ken i n m y … c are er,” h e s ta te d f ir m ly i n a l e tte r f r o m E ngla nd .
“W e a re b uild in g a s ty lin g o ffic e a nd a s ty lin g te am s e co nd to n o ne in E uro pe.” W alla ce, th e s e m i-
Bra in T ru ste r, w as a sk ed to c o nti n ue se m i- B ra in T ru sti n g fo r F ord , a nd , sin ce h e sti ll d id n’t lik e
liv in g i n D etr o it, o r n ear i t, w as p erm itte d to m ove to N ew Y ork a nd to s p end o nly tw o d ays a w eek
at h ead quarte rs . ( “ T hey d id n’t s e em to c are a ny m ore w here I o pera te d fr o m ,” h e s a ys m odestl y .) A t
th e e nd o f 1 958, h e l e ft F ord , a nd h e h as s in ce f in ally a chie v ed h is h eart’ s d esir e — to b eco m e a f u ll-
ti m e s c ho la r a nd te acher. H e s e t a b out g etti n g a d octo ra te i n s o cio lo gy a t C olu m bia , w riti n g h is th esis
on s o cia l c hange in W estp ort, C onnecti c ut, w hic h h e in v esti g ate d b y b usily q uiz zin g its in hab ita nts ; meanw hile , h e ta ught a c o urs e o n “ T he D ynam ic s o f S ocia l B ehav io r” a t th e N ew S cho ol fo r S ocia l
Rese arc h, in G re enw ic h V illa ge. “ I’ m th ro ugh w ith in d ustr y ,” h e w as h eard to d ecla re o ne d ay, w ith
ev id ent s a ti s fa cti o n, a s h e b oard ed a tr a in fo r W estp ort, a b und le o f q uesti o nnair e s u nd er h is a rm .
Early i n 1 962, h e b ecam e D r. W alla ce.
The s u b se q uent e up ho ria o f th ese fo rm er E dse l m en d id n o t s te m e nti r e ly fr o m th e fa ct o f th eir
eco no m ic s u rv iv al; th ey a p pear to h av e b een e nric hed s p ir itu ally . T hey a re i n clin ed to s p eak o f th eir
Edse l exp erie nce— excep t fo r th o se sti ll w ith F ord , w ho are in clin ed to sp eak o f it as littl e as
possib le — with th e v erv e a nd g arru lity o f o ld c o m ra d es-in -a rm s h ash in g o ver th eir m ost th rillin g
cam paig n. D oyle is p erh ap s th e m ost p assio nate r e m in is c er in th e g ro up . “ It w as m ore fu n th an I’ v e
ev er h ad b efo re o r s in ce,” h e to ld a c alle r in 1 960. “ I s u p pose th at’ s
b ecause I w ork ed th e h ard est
ev er. W e a ll d id . It w as a g o od c re w . T he p eo ple w ho c am e w ith E dse l k new th ey w ere ta kin g a
chance, a nd I lik e p eo ple w ho ’ll ta ke c hances. Y es, it w as a w ond erfu l e xp erie nce, in s p ite o f th e
unfo rtu nate th in g th at h ap pened . A nd w e w ere o n th e rig ht tr a ck, to o! W hen I w ent to E uro pe ju st
befo re r e ti r in g, I s a w h o w i t i s th ere — no th in g b ut c o m pact c ars , y et th ey’v e s ti ll g o t tr a ffic j a m s o ver
th ere , th ey’v e s ti ll g o t p ark in g p ro ble m s, th ey’v e s ti ll g o t a ccid ents . J u st tr y g etti n g i n a nd o ut o f th o se
lo w ta xic ab s w ith o ut h itti n g y o ur h ead , o r tr y n o t to g et c lip ped w hile y o u’re w alk in g a ro und th e A rc
de T rio m phe. T his s m all- c ar th in g w on’t l a st f o re v er. I c an’t s e e A meric an d riv ers b ein g s a ti s fie d f o r
lo ng w ith m anual g ear-s h ifti n g a nd l im ite d p erfo rm ance. T he p end ulu m w ill s w in g b ack.”
Warn o ck, l ik e m any a p ub lic -re la ti o ns m an b efo re h im , c la im s th at h is j o b g av e h im a n u lc er— his
se co nd . “ B ut I g o t o ver it,” h e s a ys. “ T hat g re at E dse l te am — I’ d ju st lik e to s e e w hat it c o uld h av e
done if it h ad h ad th e rig ht p ro duct a t th e rig ht ti m e. It c o uld h av e m ad e m illio ns, th at’ s w hat! T he
who le th in g w as tw o y ears o ut o f m y l ife th at I ’ ll n ev er f o rg et. I t w as h is to ry i n th e m akin g. D oesn ’t i t
all te ll y o u s o m eth in g a b out A meric a i n th e f ifti e s— hig h h o pes, a nd l e ss th an c o m ple te f u lfillm ent o f
th em ?”
Kra fv e, th e b oss o f th e g re at te am
manqué
, is e nti r e ly p re p are d to te sti fy th at th ere is m ore to h is
fo rm er s u b ord in ate s’ ta lk th an j u st th e r o m anti c v ap orin gs o f o ld s o ld ie rs . “ It w as a w ond erfu l g ro up
to w ork w ith ,” h e s a id n o t l o ng a go . “ T hey r e ally p ut th eir h earts a nd g uts i n to th e j o b. I ’ m i n te re ste d
in a c re w th at’ s s tr o ngly m oti v ate d , a nd th at o ne w as. W hen th in gs w ent b ad , th e E dse l b oys c o uld
hav e c rie d a b out h o w th ey’d g iv en u p w ond erfu l o pportu niti e s to c o m e w ith u s, b ut i f a nyb ody d id , I
nev er h eard a b out it. I’ m n o t s u rp ris e d th at th ey’v e m ostl y c o m e o ut a ll r ig ht. In in d ustr y , y o u ta ke a
bum p n o w a nd th en, b ut y o u b ounce b ack a s lo ng a s y o u d on’t g et d efe ate d in sid e. I lik e to g et
to geth er w ith so m eb ody o nce in a w hile — Gayle W arn o ck o r o ne o f th e o th ers — and g o o ver th e
hum oro us i n cid ents , th e tr a gic i n cid ents .… ”
Wheth er th e n o sta lg ia o f th e E dse l b oys fo r th e E dse l r u ns to th e h um oro us o r to th e tr a gic , it is a
th o ught- p ro vokin g p heno m eno n. M ayb e it m eans m ere ly th at th ey m is s th e lim elig ht th ey fir s t b ask ed
in a nd l a te r s q uir m ed i n , o r m ayb e i t m eans th at a ti m e h as c o m e w hen— as i n E liz a b eth an d ra m a b ut
se ld om b efo re i n A meric an b usin ess— fa ilu re c an h av e a c erta in g ra nd eur th at s u ccess n ev er k no w s.
* T he w ord “ sty lin g” is a w eed d eeply e m bedded in th e g ard en o f a uto m obilia . I n it s p re fe rre d s e nse , th e v erb “ to s ty le ” m eans to
nam e; th us th e S pecia l P ro ducts D iv is io n’s e pic e ffo rts to c hoose a n am e f o r th e E -C ar, w hic h w ill b e c hro nic le d p re se ntly , w ere r e ally
th e s ty lin g p ro gra m , a nd w hat B ro w n a nd h is a sso cia te s w ere u p to w as s o m eth in g e ls e a gain . In it s s e cond s e nse , s a ys W ebste r, “ to
sty le ” m eans “ to f a sh io n in … th e a ccepte d s ty le ”; th is w as ju st w hat B ro w n, w ho h oped to a chie ve o rig in alit y , w as tr y in g n ot to d o, s o
Bro w n’s m ust h ave b een th e a ntis ty lin g p ro gra m .
* F or d eta ils o n th is p ro duct o f th e n atio nal c re ativ it y , s e e C hapte r 3 . 3
The F ed era l I n co m e T ax
I
BEY OND A D OUBT,
m any p ro sp ero us a nd o ste nsib ly in te llig ent A meric ans h av e in re cent y ears d one
th in gs th at to a n aïv e o bse rv er m ig ht a p pear o utl a nd is h , if n o t a ctu ally lu nati c . M en o f in herite d
wealth , s o m e o f th em g iv en to th e d enuncia ti o n o f g o vern m ent i n a ll i ts f o rm s a nd m anife sta ti o ns, h av e
sh o w n th em se lv es to b e p assio nate ly in te re ste d in th e fin ancin g o f s ta te a nd m unic ip al g o vern m ents ,
and h av e c o ntr ib ute d h uge s u m s to th is e nd . W ed din gs b etw een p ers o ns w ith v ery h ig h in co m es a nd
pers o ns w ith n o t s o h ig h i n co m es h av e te nd ed to ta ke p la ce m ost o fte n n ear th e e nd o f D ecem ber a nd
le ast o fte n d urin g J a nuary . S om e e xcep ti o nally s u ccessfu l p eo ple , e sp ecia lly in th e a rts , h av e b een
ab ru p tl y a nd u rg entl y in str u cte d b y th eir fin ancia l a d vis e rs to d o n o m ore g ain fu l w ork u nd er a ny
cir c um sta nces f o r th e r e st o f th e c urre nt c ale nd ar y ear, a nd h av e f o llo w ed th is a d vic e, e v en th o ugh i t
so m eti m es c am e a s e arly a s M ay o r J u ne. A cto rs a nd o th er p eo ple w ith h ig h in co m es fr o m p ers o nal
se rv ic es h av e a gain a nd a gain b eco m e th e p ro prie to rs o f s a nd -a nd -g ra v el b usin esse s, b ow lin g a lle ys,
and te le p ho ne-a nsw erin g s e rv ic es, d oub tl e ss a d din g a c erta in
éla n
to th e c o nd uct o f th o se h um dru m
esta b lis h m ents . M oti o n-p ic tu re p eo ple , as if fu lfillin g a clo ckw ork sc hed ule o f re nuncia ti o n and
re co ncilia ti o n, h av e r e p eate d ly a b ju re d th eir n ati v e s o il in fa v or o f fo re ig n c o untr ie s fo r p erio ds o f
eig hte en m onth s— only to e m bra ce it a gain in th e n in ete enth . P etr o le um in v esto rs h av e p ep pere d th e
earth o f T exas w ith s p ecula ti v e o il w ells , ta kin g r is k s fa r b eyo nd w hat w ould b e d ic ta te d b y n o rm al
busin ess ju d gm ent. B usin essm en tr a v ellin g o n p la nes, rid in g in ta xis , o r d in in g in re sta ura nts h av e
again and again been se en co m puls iv ely m akin g entr ie s in littl e no te b ooks th at, if th ey w ere
questi o ned , th ey w ould d esc rib e as “d ia rie s;” ho w ev er, fa r fr o m b ein g sp ir itu al d esc end ants o f
Sam uel P ep ys o r P hilip H one, th ey w ere w riti n g d ow n o nly w hat e v ery th in g c o st. A nd o w ners a nd
part o w ners o f b usin esse s h av e a rra nged to s h are th eir o w ners h ip w ith m in o r c hild re n, n o m atte r h o w
yo ung; i n d eed , i n a t l e ast o ne c ase o f p artn ers h ip a gre em ent h as b een d ela yed p end in g th e b ir th o f o ne
partn er.
As hard ly anyo ne need s to be to ld , all th ese odd acti o ns are dir e ctl y tr a ceab le to vario us
pro vis io ns o f th e fe d era l in co m e-ta x la w . S in ce th ey d eal w ith b ir th , m arria ge, w ork , a nd s ty le s a nd
pla ces o f liv in g, th ey g iv e so m e id ea o f th e sc o pe o f th e la w ’s so cia l e ffe cts , b ut sin ce th ey a re
co nfin ed to th e a ffa ir s o f th e w ell- to -d o, th ey g iv e n o id ea o f th e b re ad th o f its e co no m ic im pact.
In asm uch a s a lm ost s ix ty -th re e m illio n i n d iv id ual r e tu rn s w ere f ile d i n a ty p ic al r e cent y ear— 1964—
it i s n o t s u rp ris in g th at th e
i n co m e-ta x l a w i s o fte n s p oken o f a s th e l a w o f th e l a nd th at m ost d ir e ctl y
affe cts th e m ost i n d iv id uals , a nd i n asm uch a s i n co m e-ta x c o lle cti o ns a cco unt f o r a lm ost th re e-q uarte rs of o ur g o vern m ent’ s g ro ss r e ceip ts , i t i s u nd ers ta nd ab le th at i t i s c o nsid ere d o ur m ost i m porta nt s in gle
fis c al m easu re . ( O ut o f a g ro ss f r o m a ll s o urc es o f a h und re d a nd tw elv e b illio n d olla rs f o r th e f is c al
year th at e nd ed J u ne 3 0th , 1 964, ro ughly fifty -fo ur a nd a h alf b illio n c am e fr o m in d iv id ual in co m e
ta xes a nd tw enty -th re e a nd a th ir d b illio n f r o m c o rp ora ti o n i n co m e ta xes.) “ In th e p opula r m in d , i t i s
TH E T A X,” th e e co no m ic s p ro fe sso rs W illia m J . S hultz a nd C . L ow ell H arris s d ecla re i n th eir b ook
“A meric an P ub lic F in ance,” a nd th e w rite r D av id T . B aze lo n h as s u ggeste d th at th e e co no m ic e ffe ct
of th e ta x h as b een s o s w eep in g a s to c re ate tw o q uite s e p ara te k in d s o f U nite d S ta te s c urre ncy—
befo re -ta x m oney and afte r-ta x m oney. A t any ra te , no co rp ora ti o n is ev er fo rm ed , no r are any
co rp ora ti o n’s affa ir s co nd ucte d fo r as m uch as a sin gle day, w ith o ut th e la v is h in g of earn est
co nsid era ti o n u p on th e i n co m e ta x, a nd h ard ly a nyo ne i n a ny i n co m e g ro up c an g et b y w ith o ut th in kin g
of i t o ccasio nally , w hile s o m e p eo ple , o f c o urs e , h av e h ad th eir f o rtu nes o r th eir r e p uta ti o ns, o r b oth ,
ru in ed a s a r e su lt o f th eir f a ilu re to c o m ply w ith i t. A s f a r a fie ld a s V enic e, a n A meric an v is ito r a f e w
years ago w as jo lte d to fin d on a bra ss pla q ue affix ed to a co in box fo r co ntr ib uti o ns to th e
main te nance fu nd of th e B asilic a of San M arc o th e w ord s “D ed ucti b le fo r U .S . In co m e-T ax
Purp ose s.”
A g o od d eal o f th e a tte nti o n g iv en to th e in co m e ta x is b ase d o n th e p ro positi o n th at th e ta x is
neith er l o gic al n o r e q uita b le . P ro bab ly th e b ro ad est a nd m ost s e rio us c harg e i s th at th e l a w h as c lo se
to its heart so m eth in g very m uch lik e a lie ; th at is , it pro vid es fo r ta xin g in co m es at ste ep ly
pro gre ssiv e ra te s, a nd th en g o es o n to s u p ply a n a rra y o f e sc ap e h atc hes s o c o nv enie nt th at h ard ly
anyo ne, n o m atte r h o w r ic h, n eed p ay th e to p r a te s o r a nyth in g lik e th em . F or 1 960, ta xp ayers w ith
re p orta b le i n co m es o f b etw een tw o h und re d th o usa nd a nd f iv e h und re d th o usa nd d olla rs p aid , o n th e
av era ge, a b out 4 4 p er c ent, a nd e v en th o se f e w w ho r e p orte d i n co m es o f o ver a m illio n d olla rs p aid
well u nd er 5 0 p er c ent— whic h h ap pened to b e ju st a b out th e p erc enta ge th at
a s in gle ta xp ayer w as
su p pose d to p ay, a nd o fte n d id p ay, i f h is i n co m e w as f o rty -tw o th o usa nd d olla rs . A no th er f r e q uentl y
heard c harg e is th at th e in co m e ta x is a se rp ent in th e A meric an G ard en o f E den, o ffe rin g su ch
te m pti n g o pportu niti e s fo r p etty e v asio n th at it in d uces a n ati o nal fa ll fr o m g ra ce e v ery A pril. S ti ll
ano th er sc ho ol o f criti c s co nte nd s th at b ecause o f its la b yrin th in e q uality (th e b asic sta tu te , th e
In te rn al R ev enue C ode o f 1 954, r u ns to m ore th an a th o usa nd p ages, a nd th e c o urt r u lin gs a nd I n te rn al
Rev enue S erv ic e re gula ti o ns th at e la b ora te it c o m e to s e v ente en th o usa nd ) th e in co m e ta x n o t o nly
re su lts in s u ch id io cie s a s g ra v el- p ro ducin g a cto rs a nd u nb orn p artn ers b ut is in fa ct th at a no m aly , a
la w th at a c iti z e n m ay b e u nab le to c o m ply w ith b y h im se lf. T his s itu ati o n, th e c riti c s d ecla re , l e ad s to
an und em ocra ti c sta te o f affa ir s , fo r o nly th e ric h can affo rd th e exp ensiv e p ro fe ssio nal ad vic e
necessa ry to m in im iz e th eir ta xes l e gally .
The in co m e-ta x la w
in to to
h as v ir tu ally n o d efe nd ers , e v en th o ugh m ost fa ir -m in d ed s tu d ents o f
th e s u b je ct a gre e th at i ts e ffe ct o ver th e h alf c entu ry th at i t h as b een i n f o rc e h as b een to b rin g a b out a
huge a nd h ealth y re d is tr ib uti o n o f w ealth . W hen it c o m es to th e in co m e ta x, w e a lm ost a ll w ant
re fo rm . A s re fo rm ers , h o w ev er, w e a re la rg ely p ow erle ss, th e c hie f re aso ns b ein g th e sta ggerin g
co m ple xity o f th e w ho le s u b je ct, w hic h c ause s m any p eo ple ’s m in d s to g o b la nk a t th e v ery m enti o n
of it, a nd th e sp ecific , k no w le d geab le , a nd e nerg eti c a d vocacy b y sm all g ro up s o f th e p arti c ula r
pro vis io ns th ey b enefit f r o m . L ik e a ny ta x l a w , o urs h ad a k in d o f i m munity to r e fo rm ; th e v ery r ic hes
th at p eo ple a ccum ula te th ro ugh th e u se o f ta x-a v oid ance d ev ic es c an b e— and c o nsta ntl y a re — ap plie d
to f ig hti n g th e e lim in ati o n o f th o se d ev ic es. S uch i n flu ences, c o m bin ed w ith th e f ie rc e d em and s m ad e
on th e T re asu ry b y d efe nse s p end in g a nd o th er ris in g c o sts o f g o vern m ent (e v en le av in g a sid e h o t
wars lik e th e o ne in V ie tn am ), h av e b ro ught a b out tw o te nd encie s s o m ark ed th at th ey h av e a ssu m ed
th e s h ap e o f a n atu ra l p oliti c al l a w : I n th e U nite d S ta te s i t i s c o m para ti v ely e asy to r a is e ta x r a te s a nd to in tr o duce ta x-a v oid ance d ev ic es, a nd it is c o m para ti v ely h ard to lo w er ta x r a te s a nd to e lim in ate
ta x-a v oid ance d ev ic es. O r s o it s e em ed u nti l 1 964, w hen h alf o f th is n atu ra l la w w as s p ecta cula rly
challe nged
by le gis la ti o n, orig in ally pro pose d by Pre sid ent K enned y and push ed fo rw ard by
Pre sid ent J o hnso n, th at r e d uced th e b asic r a te s o n in d iv id uals in tw o s ta ges fr o m a b otto m o f 2 0 p er
cent to a b otto m o f 1 4 p er c ent a nd f r o m a to p o f 9 1 p er c ent to a to p o f 7 0 p er c ent, a nd r e d uced th e
to p ta x o n c o rp ora ti o ns fr o m 5 2 p er c ent to 4 8 p er c ent— all in a ll, b y fa r th e la rg est ta x c ut in o ur
his to ry . M eanw hile , h o w ev er, th e o th er h alf o f th e n atu ra l la w r e m ain s im macula te . T o b e s u re , th e
pro pose d ta x c hanges a d vanced b y P re sid ent K enned y in clu d ed a p ro gra m o f s u b sta nti a l r e fo rm s to
elim in ate ta x-a v oid ance d ev ic es, b ut s o g re at w as th e o utc ry a gain st th e r e fo rm s th at K enned y h im se lf
so on a b and oned m ost o f th em , a nd v ir tu ally n o ne o f th em w ere e nacte d ; o n th e c o ntr a ry , th e n ew l a w
actu ally e xte nd ed o r e nla rg ed o ne o r tw o o f th e d ev ic es.
“L et’ s f a ce i t, C litu s, w e l iv e i n a ta x e ra . E very th in g’s ta xes,” o ne l a w yer s a ys to a no th er i n L ouis
Auchin clo ss’s book of sh o rt sto rie s calle d “P ow ers of A tto rn ey,” and th e se co nd la w yer, a
tr a d iti o nalis t, c an e nte r o nly a to ken d em urre r. C onsid erin g th e o m nip re se nce o f th e in co m e ta x in
Americ an l ife , h o w ev er, i t i s o dd h o w r a re ly o ne e nco unte rs r e fe re nces to i t i n A meric an f ic ti o n. T his
om is sio n p ro bab ly r e fle cts th e s u b je ct’ s la ck o f lite ra ry e le gance, b ut it m ay a ls o r e fle ct a n ati o nal
uneasin ess a b out th e in co m e ta x— a s e nse th at w e h av e w ille d in to e xis te nce, a nd c anno t w ill o ut o f
exis te nce, a p re se nce n o t w ho lly g o od o r w ho lly b ad b ut, r a th er, s o i m mense , o utr a geo us, a nd m ora lly
am big uo us th at it c anno t b e e nco m passe d b y th e im agin ati o n. H ow in th e w orld , o ne m ay a sk , d id it
all h ap pen?
AN
in co m e ta x c an b e tr u ly e ffe cti v e o nly in a n in d ustr ia l c o untr y w here th ere a re m any w age a nd
sa la ry e arn ers , a nd th e a nnals o f i n co m e ta xati o n u p to th e p re se nt c entu ry a re c o m para ti v ely s h o rt a nd
sim ple . T he u niv ers a l ta xes o f a ncie nt ti m es, l ik e th e o ne th at b ro ught M ary a nd J o se p h to B eth le hem
ju st befo re th e bir th of Je su s, w ere in v aria b ly head ta xes, w ith one fix ed su m to be paid by
ev ery b ody, r a th er th an in co m e ta xes. B efo re a b out 1 800, o nly tw o im porta nt a tte m pts w ere m ad e to
esta b lis h in co m e ta xes— one in F lo re nce d urin g th e fifte enth c entu ry , a nd th e o th er in F ra nce
d urin g
th e e ig hte enth . G enera lly s p eakin g, b oth r e p re se nte d e ffo rts b y g ra sp in g r u le rs to m ulc t th eir s u b je cts .
Acco rd in g to th e fo re m ost h is to ria n o f th e in co m e ta x, th e la te E dw in R . A . S elig m an, th e F lo re nti n e
effo rt w ith ere d a w ay a s a re su lt o f c o rru p t a nd in effic ie nt a d m in is tr a ti o n. T he e ig hte enth -c entu ry
Fre nch ta x, in th e w ord s of th e sa m e auth o rity , “so on becam e ho neyco m bed w ith ab use s” and
degenera te d i n to “ a c o m ple te ly u neq ual a nd th o ro ughly a rb itr a ry i m positi o n u p on th e l e ss w ell- to -d o
cla sse s,” a nd , a s s u ch, it u nd oub te d ly p la yed its p art in w hip pin g u p th e m urd ero us fe rv or th at w ent
in to th e F re nch R ev olu ti o n. T he ra te o f th e
ancie n -r é g im e
ta x, w hic h w as e nacte d b y L ouis X IV in
1710, w as 1 0 p er c ent, a fig ure th at w as c ut in h alf la te r, b ut n o t in ti m e; th e re v olu ti o nary re gim e
elim in ate d th e ta x a lo ng w ith its p erp etr a to rs . In th e fa ce o f th is c auti o nary e xam ple , B rita in e nacte d
an in co m e ta x in 1 798 to h elp fin ance h er p arti c ip ati o n in th e F re nch re v olu ti o nary w ars , a nd th is
was, in se v era l re sp ects , th e fir s t m odern in co m e ta x; fo r one th in g, it had gra d uate d ra te s,
pro gre ssin g fr o m ze ro , o n a nnual in co m es u nd er six ty p ound s, to 1 0 p er c ent, o n in co m es o f tw o
hund re d p ound s o r m ore , a nd , fo r a no th er, it w as c o m plic ate d , c o nta in in g a h und re d a nd tw enty -fo ur
se cti o ns, w hic h to ok up a hund re d and fifty -tw o pages. Its unp opula rity w as genera l and
in sta nta neo us, and a sp ate of pam phle ts deno uncin g it so on ap peare d ; one pam phle te er, w ho
purp orte d to b e lo okin g b ack a t a ncie nt b arb ariti e s fr o m th e y ear 2 000, sp oke o f th e in co m e-ta x
co lle cto rs o f o ld a s “ m erc ile ss m erc enarie s” a nd “ b ru te s … w ith a ll th e r u d eness th at in so le nce a nd
se lf- im porta nt i g no ra nce c o uld s u ggest.” A fte r y ie ld in g o nly a b out s ix m illio n p ound s a y ear f o r th re e years — in la rg e p art b ecause o f w id esp re ad e v asio n— it w as re p eale d in 1 802, a fte r th e T re aty o f
Amie ns, but th e fo llo w in g year, w hen th e Briti s h tr e asu ry again fo und its e lf in str a ite ned
cir c um sta nces, P arlia m ent e nacte d a n ew in co m e-ta x la w . T his o ne w as e xtr a o rd in arily fa r a head o f
its ti m e, in th at it in clu d ed a p ro vis io n fo r th e w ith ho ld in g o f in co m e a t th e s o urc e, a nd , p erh ap s fo r
th at r e aso n, it w as h ate d e v en m ore th an th e e arlie r ta x h ad b een, e v en th o ugh its to p r a te w as o nly
half a s h ig h. A t a p ro te st m eeti n g h eld in th e C ity o f L ond on in J u ly , 1 803, s e v era l s p eakers m ad e
what, f o r B rito ns, m ust s u re ly h av e b een th e u lti m ate c o m mitm ent o f e nm ity to w ard th e i n co m e ta x. I f
su ch a m easu re w ere n ecessa ry to s a v e th e c o untr y , th ey s a id , th en th ey w ould re lu cta ntl y h av e to
cho ose to l e t th e c o untr y g o .
Yet g ra d ually , d esp ite r e p eate d s e tb acks, a nd e v en e xte nd ed p erio ds o f to ta l o bliv io n, th e B riti s h
in co m e ta x b egan to flo uris h . T his m ay h av e b een, a s m uch a s a nyth in g e ls e , a m atte r o f sim ple
hab itu ati o n, f o r a c o m mon th re ad r u ns th ro ugh th e h is to ry o f i n co m e ta xes e v ery w here : O ppositi o n i s
alw ays a t i ts m ost r e ckle ss a nd s tr id ent a t th e v ery o uts e t; w ith e v ery y ear th at p asse s, th e ta x te nd s to
beco m e s tr o nger a nd th e v oic es o f its e nem ie s m ore m ute d . B rita in ’s in co m e ta x w as re p eale d th e
year a fte r th e v ic to ry a t W ate rlo o, w as re v iv ed in a h alfh earte d w ay in 1 832, w as s p onso re d w ith
enth usia sm b y S ir R obert P eel a d ecad e l a te r, a nd r e m ain ed i n e ffe ct th ere afte r. T he b asic r a te d urin g
th e s e co nd h alf o f th e n in ete enth c entu ry v arie d b etw een 5 p er c ent a nd l e ss th an 1 p er c ent, a nd i t w as
only 2 ½ p er c ent, w ith a m odest s u rta x o n h ig h i n co m es, a s l a te a s 1 913. T he A meric an i d ea o f v ery
hig h r a te s o n h ig h in co m es e v entu ally c aught o n in B rita in , th o ugh, a nd b y th e m id dle 1 960’s th e to p
Briti s h b ra cket w as o ver 9 0 p er c ent.
Els e w here in th e w orld — or a t le ast in th e e co no m ic ally d ev elo ped w orld — co untr y a fte r c o untr y
to ok th e c ue fr o m B rita in a nd in sti tu te d a n in co m e ta x a t o ne ti m e o r a no th er d urin g th e n in ete enth
centu ry . P ost- re v olu ti o nary F ra nce s o on e nacte d a n in co m e ta x, b ut th en r e p eale d it a nd m anaged to
get a lo ng w ith o ut o ne fo r a n um ber o f y ears in th e s e co nd h alf o f th e c entu ry ; e v entu ally , th o ugh, th e
lo ss o f re v enue p ro ved to b e in to le ra b le , a nd th e ta x re tu rn ed , to b eco m e a fix tu re o f th e F re nch
eco no m y. A n in co m e ta x w as o ne o f th e fir s t, if n o t o ne o f th e s w eete st, fr u its o f Ita lia n u nity , w hile
se v era l o f th e s e p ara te s ta te s th at w ere to c o m bin e in to th e G erm an n ati o n h ad in co m e ta xes e v en
befo re th ey w ere u nite d . B y 1 911 , in co m e ta xes a ls o e xis te d in A ustr ia , S pain , B elg iu m , S w ed en,
Norw ay, D enm ark , S w itz e rla nd , H olla nd , G re ece, L uxem bourg , F in la nd , A ustr a lia , N ew Z eala nd ,
Ja p an, a nd I n d ia .
As fo r th e U nite d S ta te s, th e e no rm ous siz e o f w ho se in co m e-ta x
c o lle cti o ns a nd th e a p pare nt
docility o f w ho se ta xp ayers a re n o w th e e nv y o f g o vern m ents e v ery w here , it w as a la ggard in th e
matte r o f i n sti tu ti n g a n i n co m e ta x a nd f o r y ears w as a n i n v ete ra te b ackslid er i n th e m atte r o f k eep in g
one o n its s ta tu te b ooks. It is tr u e th at in C olo nia l ti m es th ere w ere v ario us r e v enue s y ste m s b earin g
so m e s lig ht re se m bla nce to in co m e ta xes— in R ho de Is la nd a t o ne p oin t, fo r e xam ple , e ach c iti z e n
was su p pose d to g uess th e fin ancia l sta tu s o f te n o f h is n eig hb ors , in re gard to b oth in co m e a nd
pro perty , in o rd er to p ro vid e a b asis fo r ta x a sse ssm ents — but s u ch s c hem es, b ein g in effic ie nt a nd
su b je ct to o bvio us o pportu niti e s fo r a b use , w ere sh o rt- liv ed . T he fir s t m an to p ro pose a fe d era l
in co m e ta x w as P re sid ent M ad is o n’s S ecre ta ry o f th e T re asu ry , A le xand er J . D alla s; h e d id s o in
1814, b ut a f e w m onth s l a te r th e W ar o f 1 812 e nd ed , th e d em and f o r g o vern m ent r e v enue e ase d , a nd
th e S ecre ta ry w as h o ote d d ow n s o d ecis iv ely th at th e s u b je ct w as n o t re v iv ed u nti l th e ti m e o f th e
Civ il W ar, w hen b oth th e U nio n a nd th e C onfe d era cy e nacte d in co m e-ta x b ills . B efo re 1 900, v ery
fe w n ew i n co m e ta xes a p pear to h av e b een e nacte d a nyw here w ith o ut th e s ti m ulu s o f a w ar. N ati o nal
in co m e ta xes w ere — and u nti l q uite r e centl y l a rg ely r e m ain ed — war a nd d efe nse m easu re s. I n J u ne o f
1862, p ro dded b y p ub lic c o ncern o ver a p ub lic d eb t th at w as in cre asin g a t th e ra te o f tw o m illio n dolla rs a d ay, C ongre ss r e lu cta ntl y p asse d a l a w p ro vid in g f o r a n i n co m e ta x a t p ro gre ssiv e r a te s u p
to a m axim um o f 1 0 p er c ent, a nd o n J u ly 1 st P re sid ent L in co ln s ig ned i t i n to l a w , a lo ng w ith a b ill to
punis h th e p ra cti c e o f p oly gam y. ( T he n ext d ay, s to cks o n th e N ew Y ork E xchange to ok a d iv e, w hic h
was p ro bab ly n o t a ttr ib uta b le to th e p oly gam y b ill.)
“I a m ta xed o n m y i n co m e! T his i s p erfe ctl y g o rg eo us! I n ev er f e lt s o i m porta nt i n m y l ife b efo re ,”
Mark T w ain w ro te in th e V ir g in ia C ity , N ev ad a,
Territo ria l E nte rp ris e
a fte r h e h ad p aid h is fir s t
in co m e-ta x b ill, f o r th e y ear 1 864— $36.8 2, i n clu d in g a p enalty o f $ 3.1 2 f o r b ein g l a te . A lth o ugh f e w
oth er ta xp ayers w ere so enth usia sti c , th e la w re m ain ed in fo rc e unti l 1872. It w as, ho w ev er,
su b je cte d to a s u ccessio n o f ra te re d ucti o ns a nd a m end m ents , o ne o f th em b ein g th e e lim in ati o n, in
1865, o f i ts p ro gre ssiv e r a te s, o n th e a rre sti n g g ro und th at c o lle cti n g 1 0 p er c ent o n
h ig h i n co m es a nd
lo w er ra te s on lo w er in co m es co nsti tu te d und ue dis c rim in ati o n again st w ealth . A nnual re v enue
co lle cti o ns m ounte d fr o m tw o m illio n d olla rs in 1 863 to se v enty -th re e m illio n in 1 866, a nd th en
desc end ed s h arp ly . F or tw o d ecad es, b egin nin g i n th e e arly e ig hte en-s e v enti e s, th e v ery th o ught o f a n
in co m e ta x d id no t ente r th e A meric an m in d , ap art fr o m ra re o ccasio ns w hen so m e P opulis t o r
Socia lis t a gita to r w ould p ro pose th e e sta b lis h m ent o f s u ch a ta x d esig ned s p ecific ally to s o ak th e
urb an ric h. T hen, in 1 893, w hen it h ad b eco m e c le ar th at th e c o untr y w as re ly in g o n a n o bso le te
re v enue s y ste m th at p ut to o littl e b urd en o n b usin essm en a nd m em bers o f th e p ro fe ssio ns, P re sid ent
Cle v ela nd p ro pose d a n in co m e ta x. T he o utc ry th at fo llo w ed w as s h rill. S enato r J o hn S herm an, o f
Ohio , th e fa th er o f th e S herm an A nti tr u st A ct, calle d th e p ro posa l “so cia lis m , co m munis m , and
dev ilis m ,” a nd a no th er s e nato r s p oke d ark ly o f “ th e p ro fe sso rs w ith th eir b ooks, th e s o cia lis ts w ith
th eir s c hem es … [ a nd ] th e a narc his ts w ith th eir b om bs,” w hile o ver i n th e H ouse a c o ngre ssm an f r o m
Pennsy lv ania l a id h is c ard s o n th e ta b le i n th e f o llo w in g te rm s:
An in com e ta x! A ta x s o o dio us th at n o a dm in is tr a tio n e ver d are d to im pose it e xcept in tim e o f w ar.… I t is u nutte ra bly d is ta ste fu l b oth in
it s m ora l a nd m ate ria l a sp ects . I t d oes n ot b elo ng to a f re e c ountr y . I t is c la ss le gis la tio n.… D o y ou d esir e to o ffe r a r e w ard to d is h onesty
and to e ncoura ge p erju ry ? T he im posit io n o f th e ta x w ill c orru pt th e p eople . It w ill b rin g in it s tr a in th e s p y a nd th e in fo rm er. It w ill
necessit a te a sw arm o f o ffic ia ls w it h in quis it o ria l p ow ers .… M r. C hair m an, p ass th is b ill a nd th e D em ocra tic P arty sig ns it s d eath
warra nt.
The p ro posa l th at g av e ris e to th ese fu lm in ati o ns w as fo r a ta x a t a u nifo rm ra te o f 2 p er c ent o n
in co m e i n e xcess o f f o ur th o usa nd d olla rs , a nd i t w as e nacte d i n to l a w i n 1 894. T he D em ocra ti c P arty
su rv iv ed , b ut th e n ew l a w d id n o t. B efo re i t c o uld b e p ut i n to f o rc e, i t w as th ro w n o ut b y th e S up re m e
Court, o n th e g ro und th at i t v io la te d th e C onsti tu ti o nal p ro vis io n f o rb id din g “ d ir e ct” ta xes u nle ss th ey
were a p porti o ned a m ong th e s ta te s a cco rd in g to p opula ti o n ( c urio usly , th is p oin t h ad n o t b een r a is e d
in c o nnecti o n w ith th e C iv il W ar i n co m e ta x), a nd th e i n co m e-ta x
i s su e w as d ead a gain , th is ti m e f o r
a d ecad e a nd a h alf. I n 1 909, b y w hat a ta x a uth o rity n am ed J e ro m e H elle rs te in h as c alle d “ o ne o f th e
most ir o nic tw is ts of politi c al ev ents in A meric an his to ry ,” th e C onsti tu ti o nal am end m ent (th e
six te enth ) th at e v entu ally g av e C ongre ss th e p ow er to le v y ta xes w ith o ut a p porti o nm ent a m ong th e
sta te s w as p ut f o rw ard b y th e i m pla cab le o pponents o f th e i n co m e ta x, th e R ep ub lic ans, w ho to ok th e
ste p a s a p oliti c al m ove, c o nfid entl y b elie v in g th at th e a m end m ent w ould n ev er b e ra ti fie d b y th e
sta te s. T o th eir d is m ay, it w as r a ti fie d in 1 913, a nd la te r th at y ear C ongre ss e nacte d a g ra d uate d ta x
on i n d iv id uals a t r a te s r a ngin g f r o m 1 p er c ent to 7 p er c ent, a nd a ls o a f la t ta x o f 1 p er c ent o n th e n et
pro fits o f c o rp ora ti o ns. T he i n co m e ta x h as b een w ith u s e v er s in ce.
By a nd l a rg e, i ts h is to ry s in ce 1 913 h as b een o ne o f r is in g r a te s a nd o f th e s e aso nab le a p peara nce
of s p ecia l p ro vis io ns to s a v e p eo ple in th e u p per b ra ckets fr o m th e in co nv enie nce o f h av in g to p ay
th o se r a te s. T he fir s t s h arp r is e to ok p la ce d urin g th e F ir s t W orld W ar, a nd b y 1 918 th e b otto m r a te was 6 p er c ent a nd th e to p o ne, a p plic ab le to ta xab le in co m e in e xcess o f a m illio n d olla rs , w as 7 7
per c ent, o r f a r m ore th an a ny g o vern m ent h ad p re v io usly v entu re d to e xact o n i n co m e o f a ny a m ount.
But th e e nd o f th e w ar a nd th e “ re tu rn to n o rm alc y” b ro ught a r e v ers a l o f th e tr e nd , a nd th ere f o llo w ed
an e ra o f lo w ta xes fo r ric h a nd p oor a lik e. R ate s w ere re d uced b y d egre es u nti l 1 925, w hen th e
sta nd ard r a te s c ale r a n fr o m 1 ½ p er c ent to a n a b so lu te to p o f 2 5 p er c ent, a nd , fu rth erm ore , a g re at
majo rity o f th e c o untr y ’s w age e arn ers w ere re lie v ed o f p ayin g a ny ta x a t a ll b y b ein g a llo w ed
pers o nal e xem pti o ns o f fifte en h und re d d olla rs fo r a s in gle p ers o n, th ir ty -fiv e h und re d d olla rs fo r a
marrie d c o up le , a nd f o ur h und re d d olla rs f o r e ach d ep end ent. T his w as n o t th e w ho le s to ry , f o r i t w as
durin g th e tw enti e s th at sp ecia l- in te re st p ro vis io ns b egan to a p pear, sti m ula te d in to b ein g b y th e
co m ple x o f p oliti c al fo rc es th at h as a cco unte d fo r th eir in cre ase a t in te rv als e v er sin ce. T he fir s t
im porta nt o ne, a d opte d in 1 922, e sta b lis h ed th e p rin cip le o f fa v ore d tr e atm ent fo r c ap ita l g ain s; th is
meant th at m oney a cq uir e d th ro ugh a r is e i n th e v alu e o f i n v estm ents w as, f o r th e f ir s t ti m e, ta xed a t a
lo w er r a te th an m oney e arn ed i n w ages o r f o r
s e rv ic es— as, o f c o urs e , i t s ti ll i s to day. T hen, i n 1 926,
cam e th e l o opho le th at h as u nd oub te d ly c ause d m ore g nash in g o f te eth a m ong th o se n o t i n a p ositi o n to
pro fit b y it th an a ny o th er— th e p erc enta ge d ep le ti o n a llo w ance o n p etr o le um , w hic h p erm its th e
ow ner o f a p ro ducin g o il w ell to d ed uct fr o m h is ta xab le in co m e u p to 2 7½ p er c ent o f h is g ro ss
annual in co m e fr o m th e w ell a nd to k eep d ed ucti n g th at m uch y ear a fte r y ear, e v en th o ugh h e h as
ded ucte d th e o rig in al c o st o f th e w ell m any ti m es o ver. W heth er o r n o t th e tw enti e s w ere a g o ld en a ge
fo r th e A meric an p eo ple i n g enera l, th ey w ere a ssu re d ly a g o ld en a ge f o r th e A meric an ta xp ayer.
The d ep re ssio n a nd th e N ew D eal b ro ught w ith th em a tr e nd to w ard h ig her ta x ra te s a nd lo w er
exem pti o ns, w hic h le d u p to a tr u ly r e v olu ti o nary e ra in fe d era l in co m e ta xati o n— th at o f th e S eco nd
World W ar. B y 1 936, la rg ely b ecause o f gre atl y in cre ase d p ub lic sp end in g, ra te s in th e hig her
bra ckets w ere r o ughly d oub le w hat th ey h ad b een i n th e l a te tw enti e s, a nd th e v ery to p b ra cket w as 7 9
per c ent, w hile , a t th e l o w e nd o f th e s c ale , p ers o nal e xem pti o ns h ad b een r e d uced to th e p oin t w here
a s in gle p ers o n w as r e q uir e d to p ay a s m all ta x e v en i f h is i n co m e w as o nly tw elv e h und re d d olla rs .
(A s a m atte r o f fa ct, a t th at ti m e m ost in d ustr ia l w ork ers ’ in co m es d id n o t e xceed tw elv e h und re d
dolla rs .) I n 1 944 a nd 1 945, th e r a te s c ale f o r i n d iv id uals r e ached i ts h is to ric p eak— 23 p er c ent a t th e
lo w e nd a nd 9 4 p er c ent a t th e h ig h o ne— while in co m e ta xes o n c o rp ora ti o ns, w hic h h ad b een
cre ep in g up gra d ually fr o m th e o rig in al 1 913 ra te o f 1 p er cent, re ached th e p oin t w here so m e
co m panie s w ere l ia b le f o r 8 0 p er c ent. B ut th e r e v olu ti o nary th in g a b out w arti m e ta xati o n w as n o t th e
very h ig h r a te s o n h ig h i n co m es; i n d eed , i n 1 942, w hen th is u p w ard s u rg e w as a p pro achin g f u ll f lo od,
a n ew m eans o f e sc ap e fo r h ig h-b ra cket ta xp ayers a p peare d , o r a n o ld o ne w id ened , fo r th e p erio d
durin g w hic h s to cks o r o th er a sse ts m ust b e h eld in o rd er to b enefit fr o m th e c ap ita l- g ain s p ro vis io n
was r e d uced fr o m e ig hte en m onth s to s ix . W hat w as r e v olu ti o nary w as th e r is e o f in d ustr ia l w ages
and th e exte nsio n o f su b sta nti a l ta x ra te s to th e w age earn er, m akin g him , fo r th e fir s t ti m e, an
im porta nt c o ntr ib uto r to g o vern m ent r e v enue. A bru p tl y , th e i n co m e ta x b ecam e a m ass ta x.
And s o it h as r e m ain ed . A lth o ugh ta xes o n b ig a nd m id dle -s iz e d b usin esse s s e ttl e d d ow n to a fla t
ra te o f 5 2 p er c ent, r a te s o n in d iv id ual in co m e d id n o t c hange s ig nific antl y b etw een 1 945 a nd 1 964.
(T hat is to sa y, th e basic ra te s did no t change sig nific antl y ; th ere w ere te m pora ry re m is sio ns,
am ounti n g to a nyw here f r o m 5 p er c ent to 1 7 p er c ent o f th e s u m s d ue u nd er th e b asic r a te s, d urin g th e
years 1 946 th ro ugh 1 950.) T he ra nge w as fr o m 2 0 p er c ent to 9 1 p er c ent u nti l 1 950; th ere w as a
sm all ris e d urin g th e K ore an W ar, b ut it w ent rig ht b ack th ere in 1 954. In 1 950, a no th er im porta nt
esc ap e r o ute , th e s o -c alle d “ re str ic te d s to ck o pti o n,” o pened u p , e nab lin g s o m e c o rp ora te e xecuti v es
to b e ta xed o n p art o f th eir c o m pensa ti o n a t l o w c ap ita l- g ain s r a te s. T he s ig nific ant c hange, i n v is ib le
in th e r a te s c hed ule , h as b een a c o nti n uati o n o f th e o ne b egun i n w arti m e; n am ely , th e i n cre ase i n th e pro porti o nate ta x b urd en c arrie d b y th e m id dle a nd l o w er i n co m e g ro up s. P ara d oxic al a s i t m ay s e em ,
th e e v olu ti o n o f o ur in co m e ta x h as b een fr o m a lo w -ra te ta x r e ly in g fo r r e v enue o n th e h ig h in co m e
gro up to a h ig h-ra te ta x r e ly in g o n th e m id dle a nd l o w er-m id dle i n co m e g ro up s. T he C iv il W ar l e v y,
whic h a ffe cte d o nly o ne p er c ent o f th e p opula ti o n, w as u nm is ta kab ly a r ic h m an’s ta x, a nd th e s a m e
was tr u e o f th e 1 913 le v y. E ven in 1 918, a t th e h eig ht o f th e b ud get s q ueeze p ro duced b y th e F ir s t
World W ar, l e ss th an f o ur a nd a h alf m illio n A meric ans, o f a to ta l p opula ti o n o f m ore th an a h und re d
millio n, h ad to file in co m e-ta x r e tu rn s a t a ll. In 1 933, in th e d ep th s o f th e d ep re ssio n, o nly th re e a nd
th re e-q uarte rs m illio n r e tu rn s w ere file d , a nd in 1 939 a n é lite c o nsis ti n g o f s e v en h und re d th o usa nd
ta xp ayers , o f a p opula ti o n o f a h und re d a nd th ir ty m illio n, a cco unte d f o r n in e-te nth s o f a ll i n co m e-ta x
co lle cti o ns, w hile i n 1 960 i t to ok s o m e th ir ty -tw o m illio n ta xp ayers — so m eth in g o ver o ne-s ix th o f th e
popula ti o n— to a cco unt fo r n in e-te nth s o f a ll c o lle cti o ns, a nd a w ho ppin g b ig n in e-te nth s it w as,
to ta llin g s o m e th ir ty -fiv e a nd a h alf b illio n d olla rs , c o m pare d to l e ss th an a b illio n i n 1 939.
The h is to ria n S elig m an w ro te i n 1 911 th at th e h is to ry o f i n co m e ta xati o n th e w orld o ver c o nsis te d
esse nti a lly o f “ ev olu ti o n to w ard b asin g it o n a b ility to p ay.” O ne w ond ers w hat q ualific ati o ns h e
mig ht a d d, o n th e b asis o f th e A meric an e xp erie nce s in ce
th en, if h e w ere s ti ll a liv e. O f c o urs e , o ne
re aso n p eo ple w ith m id dle in co m es p ay fa r m ore in ta xes th an th ey u se d to is th at th ere a re fa r m ore
of th em . C hanges i n th e c o untr y ’s s o cia l a nd e co no m ic s tr u ctu re h av e b een a s b ig a f a cto r i n th e s h ift
as th e str u ctu re o f th e in co m e ta x has. It re m ain s p ro bab le , th o ugh, th at, in actu al p ra cti c e, th e
ab orig in al in co m e ta x o f 1 913 e xtr a cte d m oney fr o m c iti z e ns w ith s tr ic te r re gard to th eir a b ility to
pay th an th e p re se nt i n co m e ta x d oes.
WHATEV ER
th e fa ults o f o ur in co m e-ta x la w , it is b eyo nd q uesti o n th e b est- o beyed in co m e-ta x la w in
th e w orld , a nd in co m e ta xes a re n o w u b iq uito us, fr o m th e O rie nt to th e O ccid ent a nd fr o m p ole to
pole . ( P ra cti c ally a ll o f th e d oze ns o f n ew n ati o ns th at h av e c o m e in to b ein g o ver th e p ast fe w y ears
hav e a d opte d in co m e-ta x m easu re s. W alte r H . D ia m ond , th e e d ito r o f a p ub lic ati o n c alle d
Fore ig n
Ta x & T ra de B rie fs
, h as n o te d th at a s re centl y a s 1 955 h e c o uld ra ttl e o ff th e n am es o f tw o d oze n
co untr ie s, la rg e a nd s m all, th at d id n o t ta x th e in d iv id ual, b ut th at in 1 965 th e o nly n am es h e c o uld
ra ttl e o ff w ere th o se o f a c o up le o f B riti s h c o lo nie s, B erm ud a a nd th e B aham as; a c o up le o f ti n y
re p ub lic s, S an M arin o a nd A nd orra ; th re e o il- ric h M id dle E aste rn c o untr ie s, th e S ulta nate o f M usc at
and O man, K uw ait, a nd Q ata r; a nd tw o ra th er in ho sp ita b le c o untr ie s, M onaco a nd S aud i A ra b ia ,
whic h ta xed th e in co m es o f r e sid ent fo re ig ners b ut n o t th o se o f n ati o nals . E ven C om munis t c o untr ie s
hav e in co m e ta xes, th o ugh th ey c o unt o n th em fo r o nly a sm all p erc enta ge o f th eir to ta l re v enue;
Russia a p plie s d iffe re nt r a te s to d iffe re nt o ccup ati o ns, s h o pkeep ers a nd e ccle sia sti c s b ein g i n th e h ig h
ta x b ra cket, a rti s ts a nd w rite rs n ear th e m id dle , a nd l a b ore rs a nd a rti s a ns a t th e b otto m .) E vid ence o f
th e s u p erio r e ffic ie ncy o f ta x c o lle cti n g in th e U nite d S ta te s is p le nti fu l; fo r in sta nce, o ur c o sts fo r
ad m in is tr a ti o n and enfo rc em ent co m e to only ab out fo rty -fo ur cents fo r ev ery hund re d dolla rs
co lle cte d , a s a gain st a ra te m ore th an tw ic e a s h ig h in C anad a, m ore th an th re e ti m es a s h ig h in
Engla nd , F ra nce, and B elg iu m , and m any ti m es as hig h in o th er p la ces. T his kin d o f A meric an
effic ie ncy is th e d esp air o f fo re ig n ta x c o lle cto rs . T ow ard th e e nd o f h is te rm in o ffic e M orti m er M .
Cap lin , w ho w as co m mis sio ner o f In te rn al R ev enue fr o m Ja nuary , 1 961, unti l Ju ly , 1 964, held
co nsu lta ti o ns w ith th e l e ad in g ta x a d m in is tr a to rs o f s ix W este rn E uro pean c o untr ie s, a nd th e q uesti o n
heard a gain a nd a gain w as “ H ow d o y o u d o i t? D o th ey
lik e
to p ay ta xes o ver th ere ?” O f c o urs e , th ey
do n o t, b ut, a s C ap lin s a id a t th e ti m e, “ w e h av e a lo t g o in g fo r u s th at th e E uro peans h av en’t.” O ne
th in g w e h av e g o in g fo r u s is tr a d iti o n. A meric an in co m e ta xes o rig in ate d a nd d ev elo ped n o t a s a
re su lt o f th e e ffo rts o f m onarc hs to fill th eir c o ffe rs a t th e e xp ense o f th eir s u b je cts b ut a s a r e su lt o f th e e ffo rts o f a n e le cte d g o vern m ent to se rv e th e g enera l in te re st. A w id ely tr a v elle d ta x la w yer
obse rv ed n o t l o ng a go , “ In m ost c o untr ie s, i t’ s i m possib le to e ngage i n a s e rio us d is c ussio n o f i n co m e
ta xes, b ecause th ey a re n’t ta ken s e rio usly .” T hey a re ta ken s e rio usly h ere , a nd p art o f th e r e aso n i s th e
pow er a nd s k ill o f o ur i n co m e-ta x p olic e f o rc e, th e I n te rn al R ev enue S erv ic e.
Unq uesti o nab ly , th e “ sw arm o f o ffic ia ls ” fe are d b y th e P ennsy lv ania c o ngre ssm an in 1 894 h as
co m e in to b ein g— and th ere are th o se w ho w ould ad d th at th e o ffic ia ls hav e th e “in q uis ito ria l
pow ers ” h e a ls o f e are d . A s o f th e b egin nin g o f 1 965, th e I n te rn al R ev enue S erv ic e h ad a p pro xim ate ly
six ty th o usa nd e m plo yees, in clu d in g m ore th an s ix th o usa nd re v enue o ffic ers a nd m ore th an tw elv e
th o usa nd r e v enue a gents , a nd th ese e ig hte en th o usa nd m en, p osse ssin g th e r ig ht to in q uir e in to e v ery
penny o f e v ery o ne’s in co m e a nd in to m atte rs lik e e xactl y w hat w as d is c usse d a t a n e xp ense -a cco unt
meal, a nd a rm ed w ith th e th re at o f h eav y p unis h m ents , h av e p ow ers th at m ig ht r e aso nab ly b e c alle d
in q uis ito ria l. B ut th e I .R .S . e ngages i n m any a cti v iti e s b esid es a ctu al ta x c o lle cti n g, a nd s o m e o f th ese
su ggest th at it e xerc is e s its d esp oti c p ow ers in a n e q uita b le w ay, if n o t a ctu ally in a b enev ole nt o ne.
Nota b le a m ong th e a d diti o nal a cti v iti e s i s a ta xp ayer-e d ucati o n p ro gra m o n a s c ale th at o ccasio nally
in sp ir e s a n o ffic ia l to b oast th at th e I.R .S . ru ns th e la rg est u niv ers ity in th e w orld . A s p art o f th is
pro gra m , it p uts o ut d oze ns o f p ub lic ati o ns e xp lic ati n g v ario us a sp ects o f th e la w , a nd it is p ro ud o f
th e f a ct th at th e m ost g enera l o f th ese — a b lu e-c o vere d p am phle t e nti tl e d “ Y our F ed era l I n co m e T ax,”
whic h i s i s su ed a nnually a nd i n 1 965 c o uld b e
b ought f o r f o rty c ents a t a ny D is tr ic t D ir e cto r’s o ffic e
—is s o p opula r th at it is o fte n r e p rin te d b y p riv ate p ub lis h ers , w ho s e ll it to th e u nw ary fo r a d olla r
or m ore , p oin ti n g o ut, w ith tr iu m phant a ccura cy, th at it is a n o ffic ia l g o vern m ent p ub lic ati o n. ( S in ce
go vern m ent pub lic ati o ns are no t co pyrig hte d , th is is perfe ctl y le gal.) T he I.R .S . als o co nd ucts
“in sti tu te s” o n te chnic al q uesti o ns e v ery D ecem ber fo r th e e nlig hte nm ent o f th e v ast c o rp s o f “ ta x
pra cti ti o ners ” — acco unta nts a nd la w yers — who w ill s h o rtl y b e p re p arin g th e re tu rn s o f in d iv id uals
and c o rp ora ti o ns. It p uts o ut e le m enta ry ta x m anuals d esig ned s p ecia lly fo r fr e e d is tr ib uti o n to a ny
hig h s c ho ols th at a sk fo r th em — and , a cco rd in g to o ne I.R .S . o ffic ia l, s o m e e ig hty -fiv e p er c ent o f
Americ an h ig h s c ho ols d id a sk fo r th em in o ne r e cent y ear. ( T he q uesti o n o f w heth er s c ho olc hild re n
ought to b e s p end in g th eir ti m e b onin g u p o n th e ta x l a w s i s o ne th at th e I .R .S . c o nsid ers to b e o uts id e
its sc o pe.) F urth erm ore , ju st befo re th e ta x dead lin e each year, th e I.R .S . custo m arily go es on
te le v is io n w ith s p ot a d verti s e m ents o ffe rin g ta x p oin te rs a nd r e m in d ers . I t i s p ro ud to s a y th at, o f th e
vario us s p ots , a c le ar m ajo rity h av e b een i n th e i n te re sts o f p ro te cti n g ta xp ayers f r o m o verp ayin g.
In th e f a ll o f 1 963, th e I .R .S . to ok a b ig s te p to w ard i n cre asin g th e e ffic ie ncy o f i ts c o lle cti o ns s ti ll
fu rth er, a nd , b y a f e at w orth y o f th e w olf i n “ L ittl e R ed R id in g H ood,” i t m anaged to p re se nt th e s te p
to th e p ub lic a s a g ra nd m oth erly m ove to h elp e v ery b ody o ut. T he s te p w as th e e sta b lis h m ent o f a s o -
calle d n ati o nal- id enti ty f ile , i n v olv in g th e a ssig nm ent to e v ery ta xp ayer o f a n a cco unt n um ber ( u su ally
his S ocia l S ecurity n um ber), a nd its in te nti o n w as to p ra cti c ally e lim in ate th e p ro ble m c re ate d b y
peo ple w ho fa il to d ecla re th eir in co m e fr o m c o rp ora te d iv id end s o r fr o m in te re st o n b ank a cco unts
or b ond s— a f o rm o f e v asio n th at w as th o ught to h av e b een c o sti n g th e T re asu ry h und re d s o f m illio ns
a y ear. B ut th at i s n o t a ll. W hen th e n um ber i s e nte re d i n th e p ro per p la ce o n a r e tu rn , “ th is w ill m ake
certa in th at y o u a re g iv en im med ia te c re d it fo r ta xes re p orte d a nd p aid b y y o u, a nd th at a ny re fu nd
will b e p ro m ptl y r e co rd ed i n y o ur f a v or” — so C om mis sio ner C ap lin c o m mente d b rig htl y o n th e f r o nt
co ver o f th e 1 964 ta x-re tu rn f o rm s. T he I .R .S . th en b egan ta kin g a no th er
g ia nt s te p — th e a d opti o n o f a
sy ste m fo r a uto m ati n g a la rg e p art o f th e ta x-c heckin g p ro cess, in w hic h s e v en re gio nal c o m pute rs
would c o lle ct a nd c o lla te d ata th at w ould b e f e d i n to a m aste r d ata -p ro cessin g c ente r a t M arti n sb urg ,
West V ir g in ia . T his in sta lla ti o n, d esig ned to m ake a q uarte r o f a m illio n n um ber c o m paris o ns p er
se co nd , b egan to b e c alle d th e M arti n sb urg M onste r e v en b efo re it w as in fu ll o pera ti o n. In 1 965, betw een fo ur a nd fiv e m illio n re tu rn s a y ear w ere g iv en a c o m ple te a ud it, a nd a ll re tu rn s w ere
checked fo r m ath em ati c al e rro rs . S om e o f th is m ath em ati c al w ork w as b ein g d one b y c o m pute rs a nd
so m e b y p eo ple , b ut b y 1 967, w hen th e c o m pute r s y ste m w as g o in g fu ll b la st,
all
th e m ath em ati c al
work w as d one b y m achin e, th us fr e ein g m any I.R .S . e m plo yees to su b je ct e v en m ore re tu rn s to
deta ile d aud its . A cco rd in g to a p ub lic ati o n auth o riz e d b y th e I.R .S . b ack in 1 963, th o ugh, “th e
cap acity a nd m em ory o f th e [ c o m pute r] s y ste m w ill h elp ta xp ayers w ho fo rg et p rio r y ear c re d its o r
who d o n o t ta ke fu ll a d vanta ge o f th eir r ig hts u nd er th e la w s.” In s h o rt, it w as g o in g to b e a
fr ie n dly
monste r.
IF
th e m ask th at th e I.R .S . h ad p re se nte d to th e c o untr y in re cent y ears h as w orn a ra th er g hastl y
exp re ssio n o f b enig nity , p art o f th e e xp la nati o n is p ro bab ly n o th in g m ore s in is te r th an th e fa ct th at
Cap lin , th e m an w ho d om in ate d it in th o se y ears , is a c heerfu l e xtr o vert a nd a n atu ra l p oliti c ia n, a nd
th at his in flu ence co nti n ued to be fe lt und er th e m an w ho w as ap poin te d to su cceed him as
Com mis sio ner in D ecem ber 1 964— a y o ung W ash in gto n la w yer n am ed S held on S . C ohen, w ho to ok
over th e j o b a fte r a s ix -m onth i n te rim d urin g w hic h a n I .R .S . c are er m an n am ed B ertr a nd M . H ard in g
se rv ed a s A cti n g C om mis sio ner. ( W hen C ap lin r e sig ned a s C om mis sio ner, h e s te p ped o ut o f p oliti c s,
at le ast te m pora rily , r e tu rn in g to h is W ash in gto n la w p ra cti c e a s a s p ecia lis t in , a m ong o th er th in gs,
th e ta x pro ble m s of busin essm en.) C ap lin is w id ely co nsid ere d to hav e been one of th e best
Com mis sio ners o f I n te rn al R ev enue i n h is to ry , a nd , a t th e v ery l e ast, h e w as c erta in ly a n i m pro vem ent
on tw o fa ir ly r e cent o ccup ants o f th e p ost, o ne o f w ho m , s o m e ti m e a fte r le av in g it, w as c o nv ic te d
and se nte nced to tw o y ears in p ris o n fo r e v ad in g h is
o w n in co m e ta xes, a nd th e o th er o f w ho m
su b se q uentl y r a n f o r p ub lic o ffic e o n a p la tf o rm o f o ppositi o n to a ny f e d era l i n co m e ta x— as a f o rm er
um pir e m ig ht s tu m p th e c o untr y a gain st b ase b all. A mong th e a cco m plis h m ents th at M orti m er C ap lin , a
sm all, q uic k-s p oken, d ynam ic m an w ho g re w u p in N ew Y ork C ity a nd u se d to b e a U niv ers ity o f
Vir g in ia la w p ro fe sso r, is c re d ite d w ith a s C om mis sio ner is th e a b oliti o n o f th e p ra cti c e th at h ad
pre v io usly b een a lle ged to e xis t o f a ssig nin g c o lle cti o n q uo ta s to I.R .S . a gents . H e g av e th e to p
echelo ns o f I .R .S . a n a ir o f i n te grity b eyo nd c av il, a nd , w hat w as p erh ap s m ost s tr ik in g, m anaged th e
str a nge fe at o f p ro je cti n g to th e n ati o n a s o rt o f e nth usia sm fo r ta xes, c o nsid ere d a b str a ctl y . T hus h e
managed to c o lle ct th em w ith a c erta in s ty le — a s o rt o f s u b sid ia ry N ew F ro nti e r, w hic h h e c alle d th e
New D ir e cti o n. T he c hie f th ru st o f th e N ew D ir e cti o n w as to p ut in cre ase d e m phasis o n e d ucati o n
le ad in g to w ard in cre ase d v olu nta ry c o m plia nce w ith th e ta x la w , in ste ad o f c o ncentr a ti n g o n th e
se arc h fo r a nd p ro se cuti o n o f c o nsc io us o ffe nd ers . In a m anife sto th at C ap lin is su ed to h is s w arm o f
offic ia ls in th e s p rin g o f 1 961, h e w ro te , “ W e a ll s h o uld u nd ers ta nd th at th e S erv ic e is n o t s im ply
ru nnin g a dir e ct enfo rc em ent busin ess aim ed at m akin g $2 billio n in ad diti o nal asse ssm ents ,
co lle cti n g a no th er b illio n f r o m d elin q uent a cco unts , a nd p ro se cuti n g a f e w h und re d e v ad ers . R ath er, i t
is c harg ed w ith a d m in is te rin g a n e no rm ous s e lf- a sse ssm ent ta x s y ste m w hic h r a is e s o ver $ 90 b illio n
fr o m w hat p eo ple th em se lv es p ut d ow n o n th eir ta x r e tu rn s a nd v olu nta rily p ay, w ith a no th er $ 2 o r $ 3
billio n c o m in g fr o m d ir e ct e nfo rc em ent a cti v iti e s. In s h o rt, w e c anno t fo rg et th at 9 7 p er c ent o f o ur
to ta l r e v enue c o m es fr o m s e lf- a sse ssm ent o r v olu nta ry c o m plia nce, w ith o nly th re e p er c ent c o m in g
dir e ctl y fr o m e nfo rc em ent.
Our c h ie f m is sio n i s t o e n co ura ge a nd a ch ie ve m ore e ffe ctiv e v o lu nta ry
co m plia nce.…
T he N ew D ir e cti o n is r e ally a s h ift in e m phasis .
But it is a v ery im porta nt s h ift
.” It
may b e, th o ugh, th at th e tr u e s p ir it o f th e N ew D ir e cti o n is b ette r e p ito m iz e d o n th e ja cket o f a b ook
enti tl e d “ T he A meric an W ay i n T axati o n,” e d ite d b y L illia n D oris , w hic h w as p ub lis h ed i n 1 963 w ith
th e b le ssin g o f C ap lin , w ho w ro te th e fo re w ord . “ H ere is th e e xciti n g s to ry o f th e la rg est a nd m ost
effic ie nt ta x c o lle cti n g o rg aniz a ti o n th e w orld h as e v er k no w n— th e U nite d S ta te s In te rn al R ev enue Serv ic e!” th e ja cket a nno unced , in p art. “ H ere a re th e s ti r rin g e v ents , th e b itte rly -fo ught le gis la ti v e
battl e s, th e d ed ic ate d c iv il s e rv ants th at h av e m arc hed th ro ugh th e p ast c entu ry a nd le ft a n in d elib le
im prin t o n o ur n ati o n. Y ou’ll th rill to th e e p ic le gal b attl e to k ill th e in co m e ta x … a nd y o u’ll b e
asto nis h ed a t th e fu tu re p la ns o f th e I.R .S . Y ou’ll se e h o w g ia nt c o m pute rs , n o w o n th e d ra w in g
board s, a re g o in g to a ffe ct th e ta x c o lle cti o n s y ste m a nd in flu ence th e liv es o f m any A meric an m en
and w om en in new and unusu al w ays!” It so und ed a b it lik e a cir c us b ark er haw kin g a p ub lic
executi o n.
It is d eb ata b le w heth er th e N ew D ir e cti o n w atc hw ord o f “ v olu nta ry c o m plia nce” c o uld p ro perly
be u se d to d esc rib e a s y ste m o f ta x c o lle cti o n u nd er w hic h s o m e th re e-q uarte rs o f a ll c o lle cti o ns f r o m
in d iv id uals a re o bta in ed th ro ugh w ith ho ld in g a t th e s o urc e, u nd er w hic h th e I .R .S . a nd i ts M arti n sb urg
Monste r l u rk to c atc h th e u nw ary e v ad er, a nd u nd er w hic h th e p unis h m ent f o r e v asio n r u ns u p to f iv e
years in p ris o n p er o ffe nse in a d diti o n to e xtr e m ely h eav y fin ancia l p enalti e s. C ap lin , h o w ev er, d id
no t s e em to f e el a b it o f c o ncern o ver th is p oin t. W ith ti r e le ss g o od h um or, h e m ad e th e r o und s o f th e
nati o n’s o rg aniz a ti o ns o f b usin essm en, a cco unta nts , a nd la w yers , g iv in g lu ncheo n ta lk s in w hic h h e
pra is e d th em f o r th eir v olu nta ry c o m plia nce i n th e p ast, e xho rte d th em to g re ate r e ffo rts i n th e f u tu re ,
and a ssu re d th em th at it w as a ll in a g o od c ause . “ W e’re s ti ll s tr iv in g fo r th e h um an to uch in o ur ta x
ad m in is tr a ti o n,” d ecla re d th e e ssa y o n th e c o ver o f th e 1 964 ta x-re tu rn fo rm s, w hic h C ap lin s ig ned ,
and w hic h h e s a ys h e c o m pose d in c o lla b ora ti o n w ith h is w ife . “ I s e e a lo t o f h um or in th is jo b,” h e
to ld a c alle r a f e w h o urs a fte r r e m ark in g to a l u ncheo n m eeti n g o f th e K iw anis C lu b o f W ash in gto n a t
th e M ayflo w er H ote l, “ L ast y ear w as th e fifti e th a nniv ers a ry o f th e in co m e-ta x a m end m ent to th e
Consti tu ti o n, b ut th e In te rn al R ev enue S erv ic e so m eho w o r o th er d id n’t se em to g et a ny b ir th d ay
cakes.” T his m ig ht p erh ap s b e c o nsid ere d a fo rm o f g allo w s h um or, e xcep t th at th e h angm an is n o t
su p pose d to b e th e o ne w ho m akes th e j o kes.
Cohen, th e C om mis sio ner w ho s u cceed ed C ap lin a nd w as s ti ll in
o ffic e in m id -1 968, is a b orn -
and -b re d W ash in gto nia n w ho , i n 1 952, g ra d uate d f r o m G eo rg e W ash in gto n U niv ers ity L aw S cho ol a t
th e to p o f h is c la ss; s e rv ed i n a j u nio r c ap acity w ith th e I .R .S . f o r th e n ext f o ur y ears ; p ra cti c ed l a w i n
Wash in gto n f o r s e v en y ears a fte r th at, e v entu ally b eco m in g a p artn er i n th e c ele b ra te d f ir m o f A rn o ld ,
Forta s & P orte r; a t th e b egin nin g o f 1 964 r e tu rn ed to th e I .R .S ., a s i ts c hie f c o unse l; a nd a y ear l a te r,
at th e a ge o f th ir ty -s e v en, b ecam e th e y o ungest C om mis sio ner o f In te rn al R ev enue in h is to ry . A m an
with clo se -c ro pped b ro w n hair, cand id eyes, and a guile le ss m anner th at m akes him se em ev en
yo unger th an h e i s , C ohen c am e f r o m th e c hie f c o unse l’s o ffic e w ith th e r e p uta ti o n o f h av in g u p lifte d
it b oth p ra cti c ally a nd p hilo so phic ally ; h e w as r e sp onsib le fo r a n a d m in is tr a ti v e r e o rg aniz a ti o n th at
has b een w id ely p ra is e d a s m akin g fa ste r d ecis io ns p ossib le , a nd fo r a d em and th at th e I.R .S . b e
co nsis te nt i n i ts l e gal s ta nd i n c ase s a gain st ta xp ayers ( th at i t r e fr a in f r o m ta kin g o ne p ositi o n o n a f in e
poin t o f C ode in te rp re ta ti o n in P hila d elp hia , sa y, a nd th e o pposite p ositi o n o n th e sa m e p oin t in
Omaha), w hic h i s c o nsid ere d a tr iu m ph o f h ig h p rin cip le o ver g o vern m enta l g re ed . I n g enera l, C ohen
sa id up on assu m in g offic e, he in te nd ed to co nti n ue C ap lin ’s polic ie s— to em phasiz e “v olu nta ry
co m plia nce,” to s tr iv e f o r a gre eab le , o r a t l e ast n o t
dis
agre eab le , r e la ti o ns w ith th e ta xp ayin g p ub lic ,
and so o n. H e is a le ss gre gario us and a m ore re fle cti v e m an th an C ap lin , ho w ev er, and th is
diffe re nce h as h ad i ts e ffe ct o n th e I .R .S . a s a w ho le . H e h as s tu ck r e la ti v ely c lo se to h is d esk , l e av in g
th e l u ncheo n-c ir c uit p ep ta lk s to s u b ord in ate s. “ M ort w as w ond erfu l a t th at s o rt o f th in g,” C ohen s a id
in 1 965. “ P ub lic o pin io n o f th e S erv ic e is h ig h n o w a s a r e su lt o f h is b ig p ush in th at d ir e cti o n. W e
want to k eep it h ig h w ith o ut m ore p ush in g o n m y p art. A nyho w , I c o uld n’t d o it w ell— I’ m n o t m ad e
th at w ay.”
A c harg e th at h as o fte n b een m ad e, a nd c o nti n ues to b e m ad e, is th at th e o ffic e o f C om mis sio ner carrie s w ith i t f a r to o m uch p ow er. T he C om mis sio ner h as n o a uth o rity to p ro pose c hanges i n r a te s o r
in iti a te o th er n ew ta x le gis la ti o n— th e a uth o rity to p ro pose r a te c hanges b elo ngs to th e S ecre ta ry o f
th e T re asu ry , w ho m ay o r m ay n o t s e ek th e C om mis sio ner’s a d vic e i n th e m atte r, a nd
th e e nactm ent o f
new ta x l a w s i s , o f c o urs e , th e j o b o f C ongre ss a nd th e P re sid ent— but ta x l a w s, s in ce th ey m ust c o ver
so m any d iffe re nt s itu ati o ns, a re n ecessa rily w ritte n i n r a th er g enera l te rm s, a nd th e C om mis sio ner i s
so le ly r e sp onsib le ( s u b je ct to r e v ers a l in th e c o urts ) fo r w riti n g th e r e gula ti o ns th at a re s u p pose d to
exp la in th e la w s in d eta il. A nd s o m eti m es th e re gula ti o ns a re a b it c lo ud y th em se lv es, a nd in s u ch
case s w ho is b ette r q ualifie d to e xp la in
th em
th an th eir a uth o r, th e C om mis sio ner? T hus it c o m es
ab out th at a lm ost e v ery w ord th at d ro ps fr o m th e C om mis sio ner’s m outh , w heth er a t h is d esk o r a t
lu ncheo n m eeti n gs, is im med ia te ly dis tr ib ute d by th e vario us ta x pub lis h in g se rv ic es to ta x
acco unta nts a nd la w yers a ll o ver th e c o untr y a nd is g o bble d u p b y th em w ith a n a v id ity n o t a lw ays
acco rd ed th e r e m ark s o f a n a p poin te d o ffic ia l. B ecause o f th is , s o m e p eo ple s e e th e C om mis sio ner a s
a vir tu al ty ra nt. O th ers , in clu d in g both th eo re ti c al and pra cti c al ta x exp erts , dis a gre e. Je ro m e
Helle rs te in , w ho is a la w p ro fe sso r a t N ew Y ork U niv ers ity L aw S cho ol a s w ell a s a ta x a d vis e r,
sa ys, “ T he la ti tu d e o f a cti o n g iv en th e C om mis sio ner is g re at, a nd it’ s tr u e th at h e c an d o th in gs th at
may affe ct th e eco no m ic d ev elo pm ent o f th e co untr y as w ell as th e fo rtu nes o f in d iv id uals and
co rp ora ti o ns. B ut if he had sm all fr e ed om o f acti o n, it w ould re su lt in rig id ity and certa in ty o f
in te rp re ta ti o n, a nd w ould m ake it m uch e asie r fo r ta x p ra cti ti o ners lik e m e to m anip ula te th e la w to
th eir c lie nts ’ a d vanta ge. T he C om mis sio ner’s l a ti tu d e g iv es h im a h ealth y u np re d ic ta b ility .”
CER TA IN LY
C ap lin d id n o t k no w in gly a b use h is p ow er, n o r h as C ohen d one s o . U pon v is iti n g f ir s t o ne
man a nd th en th e o th er in th e C om mis sio ner’s o ffic e, I fo und th at b oth c o nv eyed th e im pre ssio n o f
bein g m en o f h ig h i n te llig ence w ho w ere l iv in g— as A rth ur M . S chle sin ger, J r., h as s a id th at T ho re au
liv ed — at a h ig h d egre e o f m ora l te nsio n. A nd th e c ause o f th e m ora l te nsio n is n o t h ard to fin d ; it
alm ost s u re ly s te m med fr o m th e d iffic ulty o f p re sid in g o ver c o m plia nce, v olu nta ry o r in v olu nta ry ,
with a la w o f w hic h o ne d oes n o t v ery h earti ly a p pro ve. In 1 958, w hen C ap lin a p peare d — as a
witn ess v ers e d in ta x m atte rs , ra th er th an a s C om mis sio ner o f In te rn al R ev enue— befo re th e H ouse
Ways a nd
M eans C om mitte e, h e p ro pose d a n a cro ss-th e-b oard p ro gra m o f r e fo rm s, i n clu d in g, a m ong
oth er th in gs, e ith er th e to ta l e lim in ati o n o r a d ra sti c c urb in g o f f a v ore d tr e atm ent f o r c ap ita l g ain s; th e
lo w erin g o f p erc enta ge d ep le ti o n r a te s o n p etr o le um a nd o th er m in era ls ; th e w ith ho ld in g o f ta xes o n
div id end s a nd in te re st; a nd th e e v entu al d ra fti n g o f a n e nti r e ly n ew in co m e-ta x la w to re p la ce th e
1954 C ode, w hic h he decla re d had le d to “hard sh ip s, co m ple xiti e s, and opportu niti e s fo r ta x
av oid ance.” S ho rtl y a fte r C ap lin le ft o ffic e, h e e xp la in ed in d eta il w hat h is id eal ta x la w w ould b e
lik e. C om pare d to th e p re se nt ta x l a w , i t w ould b e h ero ic ally s im ple , w ith l o opho le s e lim in ate d , a nd
most p ers o nal d ed ucti o ns a nd e xem pti o ns e lim in ate d , to o, a nd w ith a r a te s c ale r a ngin g f r o m 1 0 to 5 0
per c ent.
In C ap lin ’s c ase , th e re so lu ti o n o f m ora l te nsio n, in so fa r a s h e a chie v ed it, w as n o t e nti r e ly th e
re su lt o f r a ti o nal a naly sis . “ S om e c riti c s ta ke a c o m ple te ly c ynic al v ie w o f th e i n co m e ta x,” h e m use d
one d ay d urin g h is s ti n t a s C om mis sio ner. “ T hey s a y, i n e ffe ct, ‘ It’ s a m ess, a nd n o th in g c an b e d one
ab out i t.’ I c an’t g o a lo ng w ith th at. T ru e, m any c o m pro m is e s a re n ecessa ry , a nd w ill c o nti n ue to b e.
But I re fu se to a ccep t a d efe ati s t a tti tu d e. T here ’s a m ysti c q uality a b out o ur ta x s y ste m . N o m atte r
ho w b ad it m ay b e fr o m th e te chnic al s ta nd poin t, it h as a v ita lity b ecause o f th e v ery h ig h le v el o f
co m plia nce.” H e p ause d f o r q uite a l o ng ti m e, p erh ap s f in d in g a f la w i n h is o w n a rg um ent; i n th e p ast,
afte r a ll, u niv ers a l c o m plia nce w ith a l a w h as n o t a lw ays b een a s ig n th at i t w as e ith er i n te llig ent o r
ju st. T hen h e w ent o n, “ L ookin g o ver th e s w eep o f y ears , I th in k w e’ll c o m e o ut w ell. P ro bab ly a poin t o f c ris is o f s o m e k in d w ill m ake u s b egin to s e e b eyo nd s e lfis h i n te re sts . I ’ m o pti m is ti c th at f ifty
years f r o m n o w w e’ll h av e a p re tty g o od ta x.”
As f o r C ohen, h e w as w ork in g i n th e l e gis la ti o n-d ra fti n g s e cti o n o f th e I .R .S . a t th e ti m e th e p re se nt
Code w as w ritte n, a nd h e h ad a h and i n i ts c o m positi o n. O ne m ig ht s u p pose th at th is f a ct w ould c ause
him to h av e a c erta in p ro prie ta ry fe elin g to w ard it, b ut a p pare ntl y th at is n o t s o . “ R em em ber th at w e
had a R ep ub lic an a d m in is tr a ti o n th en, a nd I ’ m a D em ocra t,” h e s a id o ne d ay i n 1 965. “ W hen y o u a re
dra fti n g a s ta tu te , y o u o pera te a s a te chnic ia n. A ny p rid e y o u m ay f e el a fte rw ard i s p rid e i n te chnic al
co m pete nce.” S o C ohen c an re re ad h is o ld p ro se , n o w e nsh rin ed a s la w , w ith n eith er e la ti o n n o r
re m ors e , a nd h e h as n o t th e s lig hte st h esita ti o n a b out e nd ors in g C ap lin ’s o pin io n th at th e C ode le ad s
to “ hard sh ip s, c o m ple xiti e s, a nd o pportu niti e s f o r ta x a v oid ance.” H e i s m ore p essim is ti c th an C ap lin
ab out f in d in g th e a nsw er i n s im plific ati o n. “ P erh ap s w e c an m ove th e r a te s d ow n a nd g et r id o f s o m e
ded ucti o ns,” h e s a ys, “ b ut th en w e m ay fin d w e n eed n ew d ed ucti o ns, in th e in te re sts o f fa ir n ess. I
su sp ect th at a c o m ple x s o cie ty re q uir e s a c o m ple x ta x la w . If w e p ut in a s im ple r c o de, it w ould
pro bab ly b e c o m ple x a gain i n a f e w y ears .”
II
“E V ER Y
n ati o n h as th e g o vern m ent it d ese rv es,” th e F re nch w rite r a nd d ip lo m at J o se p h d e M ais tr e
decla re d in 1 811 . S in ce th e p rim ary fu ncti o n o f g o vern m ent is to m ake la w s, th e s ta te m ent im plie s
th at e v ery n ati o n h as th e l a w s i t d ese rv es, a nd i f th e d octr in e m ay b e c o nsid ere d a t b est a h alf tr u th i n
th e c ase o f g o vern m ents th at e xis t b y fo rc e, it d oes s e em p ers u asiv e in th e c ase o f g o vern m ents th at
exis t b y p opula r c o nse nt. If th e s in gle m ost im porta nt la w n o w o n th e s ta tu te b ooks o f th e U nite d
Sta te s is th e in co m e-ta x la w , it w ould fo llo w th at w e m ust h av e th e in co m e-ta x la w w e d ese rv e.
Much o f th e v olu m in o us d is c ussio n o f th e in co m e-ta x la w in re cent y ears h as c ente re d o n p la in
vio la ti o ns o f it, a m ong th em th e d elib era te p ad din g o f ta x-d ed ucti b le b usin ess-e xp ense a cco unts , th e
matte r o f ta xab le in co m e th at is le ft u nd ecla re d o n ta x re tu rn s, fr a ud ule ntl y o r o th erw is e — a su m
esti m ate d a t a s h ig h a s tw enty -fiv e b illio n d olla rs a y ear— and th e m atte r o f c o rru p ti o n w ith in th e
ra nks o f th e I n te rn al R ev enue S erv ic e, w hic h s o m e a uth o riti e s b elie v e to b e f a ir ly c o m mon, a t l e ast i n
la rg e c iti e s. S uch fo rm s o f o utl a w ry , o f c o urs e , r e fle ct ti m ele ss a nd w orld w id e h um an fr a ilti e s. T he
la w its e lf, h o w ev er, h as c erta in c hara cte ris ti c s th at a re m ore c lo se ly r e la te d to a p arti c ula r ti m e a nd
pla ce, a nd if d e M ais tr e w as r ig ht, th ese s h o uld r e fle ct n ati o nal c hara cte ris ti c s; th e in co m e-ta x la w ,
th at i s , s h o uld
b e to s o m e e xte nt a n ati o nal m ir ro r. H ow d oes th e r e fle cti o n l o ok?
TO
re p eat, th en, th e b asic la w u nd er w hic h in co m e ta xes a re n o w im pose d is th e In te rn al R ev enue
Code o f 1 954, as am plifie d b y in num era b le re gula ti o ns is su ed b y th e In te rn al R ev enue S erv ic e,
in te rp re te d b y in num era b le ju d ic ia l d ecis io ns, a nd a m end ed b y s e v era l A cts o f C ongre ss, in clu d in g
th e R ev enue A ct o f 1 964, w hic h e m bodie d th e b ig gest ta x c ut in o ur h is to ry . T he C ode, a d ocum ent
lo nger th an “ W ar a nd P eace,” is p hra se d — in ev ita b ly , p erh ap s— in th e s o rt o f ja rg o n th at s tu ns th e
min d a nd d is h earte ns th e sp ir it; a fa ir ly ty p ic al se nte nce, d ealin g w ith th e d efin iti o n o f th e w ord
“em plo ym ent,” s ta rts n ear th e b otto m o f p age 5 64, in clu d es m ore th an a th o usa nd w ord s, n in ete en
se m ic o lo ns, fo rty -tw o sim ple pare nth ese s, th re e pare nth ese s w ith in pare nth ese s, and ev en one
unacco unta b le i n te rs ti ti a l p erio d, a nd c o m es to a g asp in g e nd , w ith a d efin iti v e p erio d, n ear th e to p o f
page 5 67. N ot u nti l o ne h as p enetr a te d to th e p art o f th e C ode d ealin g w ith e xp ort- im port ta xes (w hic h fa ll w ith in its p ro vin ce, a lo ng w ith e sta te ta xes a nd v ario us o th er fe d era l im posts ) d oes o ne
co m e up on a co m pre hensib le and div erti n g se nte nce lik e “E very pers o n w ho sh all exp ort
ole o m arg arin e s h all b ra nd u p on e v ery tu b , fir k in , o r o th er p ackage c o nta in in g s u ch a rti c le th e w ord
‘O le o m arg arin e,’ i n p la in R om an l e tte rs n o t l e ss th an o ne-h alf i n ch s q uare .” Y et a c la use o n p age 2 o f
th e C ode, th o ugh it is n o t a s e nte nce a t a ll, is a s c le ar a nd fo rth rig ht a s o ne c o uld w is h ; it s e ts fo rth
with o ut a d o th e ra te s a t w hic h th e in co m es o f sin gle in d iv id uals a re to b e ta xed : 2 0 p er c ent o n
ta xab le i n co m e o f n o t o ver $ 2,0 00; 2 2 p er c ent o n ta xab le i n co m e o f o ver $ 2,0 00 b ut n o t o ver $ 4,0 00;
and s o o n u p to a to p r a te o f 9 1 p er c ent o n ta xab le i n co m e o f o ver $ 200,0 00. ( A s w e h av e s e en, th e
ra te s w ere a m end ed d ow nw ard in 1 964 to a to p o f 7 0 p er c ent.) R ig ht a t th e s ta rt, th en, th e C ode
makes its d ecla ra ti o n o f p rin cip le , a nd , to ju d ge b y th e r a te ta b le , it is im pla cab ly e galita ria n, ta xin g
th e p oor re la ti v ely lig htl y , th e w ell- to -d o m odera te ly , a nd th e v ery ric h a t le v els th at v erg e o n th e
co nfis c ato ry .
But, to re p eat a p oin t th at h as b eco m e s o w ell k no w n th at it s c arc ely n eed s re p eati n g, th e C ode
does n o t liv e u p to its p rin cip le s
v ery w ell. F or p ro of o f th is , o ne n eed lo ok n o fu rth er th an s o m e o f
th e r e cent s c o re s h eets o f th e in co m e ta x— a s e t o f v olu m es e nti tl e d
Sta tis tic s o f I n co m e
, w hic h a re
pub lis h ed a nnually b y th e In te rn al R ev enue S erv ic e. F or 1 960, in d iv id uals w ith g ro ss in co m es o f
betw een $ 4,0 00 a nd $ 5,0 00, a fte r ta kin g a d vanta ge o f a ll th eir d ed ucti o ns a nd p ers o nal e xem pti o ns,
and a v ailin g th em se lv es o f th e p ro vis io n th at a llo w s m arrie d c o up le s a nd th e h ead s o f h o use ho ld s to
be ta xed a t r a te s g enera lly l o w er th an th o se f o r s in gle p ers o ns, e nd ed u p p ayin g a n a v era ge ta x b ill o f
ab out o ne-te nth o f th eir r e p orta b le r e ceip ts , w hile th o se in th e $ 10,0 00–$15,0 00 r a nge p aid a b ill o f
ab out o ne-s e v enth , th o se i n th e $ 25,0 00–$50,0 00 r a nge p aid a b ill o f n o t q uite a q uarte r, a nd th o se i n
th e $50,0 00–$100,0 00 ra nge paid a bill of ab out a th ir d . U p to th is poin t, cle arly , w e fin d a
pro gre ssio n a cco rd in g to a b ility to p ay, m uch a s th e r a te ta b le p re sc rib es. H ow ev er, th e p ro gre ssio n
sto ps a b ru p tl y w hen w e r e ach th e to p i n co m e b ra ckets — th at i s , a t j u st th e p oin t w here i t i s s u p pose d
to beco m e m ost m ark ed . For 1960, th e $150,0 00–$200,0 00, $200,0 00–$500,0 00, $500,0 00$
1,0 00,0 00 a nd m illio n-p lu s g ro up s e ach p aid , o n th e a v era ge, l e ss th an 5 0 p er c ent o f th eir r e p orta b le
in co m es, a nd w hen o ne ta kes i n to c o nsid era ti o n th e f a ct th at th e r ic her a m an i s , th e l ik elie r i t i s th at a
huge p ro porti o n o f h is m oney n eed n o t e v en b e r e p orte d a s g ro ss ta xab le in co m e— all in co m e fr o m
certa in b ond s, fo r e xam ple , a nd h alf o f a ll in co m e fr o m lo ng-te rm c ap ita l g ain s— it b eco m es e v id ent
th at a t th e v ery to p o f th e in co m e s c ale th e p erc enta ge ra te o f a ctu al ta xati o n tu rn s d ow nw ard . T he
ev id ence is c o nfir m ed b y th e
Sta tis tic s o f I n co m e
fo r 1 961, w hic h b re aks d ow n fig ure s o n p aym ents
acco rd in g to b ra cket, a nd w hic h sh o w s th at a lth o ugh 7 ,4 87 ta xp ayers d ecla re d g ro ss in co m es o f
$200,0 00 o r m ore , f e w er th an f iv e h und re d o f th em h ad n et i n co m e th at w as ta xed a t th e r a te o f 9 1 p er
cent. T hro ugho ut its life , th e ra te o f 9 1 p er c ent w as a p ub lic tr a nq uiliz e r, m akin g e v ery o ne in th e
lo w er b ra cket f e el f o rtu nate n o t to b e r ic h, a nd n o t h urti n g th e r ic h v ery m uch. A nd th en, to to p o ff th e
jo ke, if th at is w hat it is , th ere a re th e p eo ple w ith m ore in co m e th an a nyo ne e ls e w ho p ay le ss ta x
th an a nyo ne e ls e — th at i s , th o se w ith a nnual i n co m es o f a m illio n d olla rs o r m ore w ho m anage to f in d
perfe ctl y le gal w ays o f p ayin g n o in co m e ta x a t a ll. A cco rd in g to
Sta tis tic s o f In co m e
, th ere w ere
ele v en o f th em in 1 960, o ut o f a n ati o nal to ta l o f th re e h und re d a nd six m illio n-a -y ear m en, a nd
se v ente en in 1 961, o ut o f a to ta l o f th re e h und re d a nd n in ety -e ig ht. In p la in fa ct, th e in co m e ta x is
hard ly p ro gre ssiv e a t a ll.
The e xp la nati o n o f th is d is p arity b etw een a p peara nce a nd r e ality , s o h uge th at i t l a ys th e C ode o pen
to a b ro ad a ccusa ti o n o f h yp ocris y, is to b e fo und in th e d eta ile d e xcep ti o ns to th e s ta nd ard ra te s
whic h lu rk in its d im d ep th s— excep ti o ns th at a re u su ally c alle d s p ecia l- in te re st p ro vis io ns o r, m ore
blu ntl y , lo opho le s. (“ L oopho le ,” as all fa ir -m in d ed use rs o f th e w ord are re ad y to ad m it, is a so m ew hat s u b je cti v e d esig nati o n, f o r o ne m an’s l o opho le m ay b e a no th er m an’s l ife lin e— or p erh ap s
at so m e o th er ti m e, th e sa m e m an’s life lin e.) L oopho le s w ere n o ti c eab ly a b se nt fr o m th e o rig in al
1913 in co m e-ta x la w . H ow th ey c am e to b e la w a nd w hy th ey re m ain la w a re q uesti o ns in v olv in g
politi c s and possib ly m eta p hysic s, but th eir actu al w ork in gs are re la ti v ely sim ple , and are
illu m in ati n g to w atc h. B y fa r th e s im ple st m eth o d o f a v oid in g in co m e ta xes— at le ast fo r s o m eo ne
who h as a l a rg e a m ount o f c ap ita l a t h is d is p osa l— is to i n v est i n th e b ond s o f s ta te s, m unic ip aliti e s,
port a uth o riti e s, a nd to ll r o ad s; th e i n te re st p aid o n a ll s u ch b ond s i s u neq uiv ocally ta x-e xem pt. S in ce
th e i n te re st o n h ig h-g ra d e ta x-e xem pt b ond s i n r e cent y ears h as r u n f r o m th re e to f iv e p er c ent, a m an
who in v ests te n m illio n d olla rs in th em c an c o lle ct $ 300,0 00 to $ 500,0 00 a y ear ta x-fr e e w ith o ut
putti n g h im se lf o r h is ta x la w yer to th e s lig hte st tr o ub le ; if h e h ad b een fo olis h e no ugh to s in k th e
money in o rd in ary in v estm ents y ie ld in g, s a y, fiv e p er c ent, h e w ould h av e h ad a ta xab le in co m e o f
$500,0 00, a nd a t th e 1 964 r a te , a ssu m in g th at h e w as s in gle , h ad n o o th er in co m e, a nd d id n o t a v ail
him se lf o f a ny d odges, h e w ould h av e to p ay ta xes o f a lm ost $ 367,0 00. T he e xem pti o n o n s ta te a nd
munic ip al b ond s h as b een p art o f o ur i n co m e-ta x l a w s in ce i ts b egin nin gs; i t w as b ase d o rig in ally o n
Consti tu ti o nal g ro und s a nd is n o w d efe nd ed o n th e g ro und th at th e s ta te s a nd to w ns n eed th e m oney.
Most S ecre ta rie s o f th e T re asu ry h av e lo oked o n th e e xem pti o n w ith d is fa v or, b ut n o t o ne h as b een
ab le to a cco m plis h i ts r e p eal.
Pro bab ly th e m ost i m porta nt s p ecia l- in te re st p ro vis io n i n th e
C ode i s th e o ne th at c o ncern s c ap ita l
gain s. T he sta ff o f th e Jo in t E co no m ic C om mitte e o f C ongre ss w ro te in a re p ort is su ed in 1 961,
“C ap ita l g ain s tr e atm ent h as b eco m e o ne o f th e m ost im pre ssiv e lo opho le s in th e fe d era l re v enue
str u ctu re .” W hat th e p ro vis io n s a ys, i n e sse nce, i s th at a ta xp ayer w ho m akes a c ap ita l i n v estm ent ( in
re al e sta te , a c o rp ora ti o n, a b lo ck o f s to ck, o r w hate v er), h o ld s o n to it fo r a t le ast s ix m onth s, a nd
th en se lls it a t a p ro fit is e nti tl e d to b e ta xed o n th e p ro fit a t a ra te m uch lo w er th an th e ra te o n
ord in ary i n co m e; to b e s p ecific , th e r a te i s h alf o f th at ta xp ayer’s o rd in ary to p ta x r a te o r tw enty -fiv e
per c ent w hic hev er is le ss. W hat th is m eans to a nyo ne w ho se in co m e w ould n o rm ally p ut h im in a
very h ig h ta x b ra cket i s o bvio us: h e m ust f in d a w ay o f g etti n g a s m uch a s p ossib le o f th at i n co m e i n
th e f o rm o f c ap ita l g ain s. C onse q uentl y , th e g am e o f f in d in g w ays o f c o nv erti n g o rd in ary i n co m e i n to
cap ita l g ain s h as b eco m e v ery p opula r in th e p ast d ecad e o r tw o. T he g am e is o fte n w on w ith o ut
much o f a str u ggle . O n te le v is io n o ne ev enin g in th e m id dle 1 960s, D av id S ussk in d ask ed six
asse m ble d m ulti m illio nair e s w heth er any o f th em co nsid ere d ta x ra te s a stu m blin g b lo ck o n th e
hig hro ad to w ealth in A meric a. T here w as a lo ng s ile nce, a lm ost a s if th e n o ti o n w ere n ew to th e
multi m illio nair e s, a nd th en o ne o f th em , in th e to ne o f so m e o ne e xp la in in g so m eth in g to a c hild ,
menti o ned th e c ap ita l- g ain s p ro vis io n a nd s a id th at h e d id n’t c o nsid er ta xes m uch o f a p ro ble m . T here
was n o m ore d is c ussio n o f h ig h ta x r a te s th at n ig ht.
If th e c ap ita l- g ain s p ro vis io n re se m ble s th e e xem pti o n o n c erta in b ond s in th at th e a d vanta ges it
affo rd s a re o f b enefit c hie fly to th e r ic h, i t d iffe rs i n o th er w ays. I t i s b y f a r th e m ore a cco m modati n g
of th e tw o l o opho le s; i n d eed , i t i s a s o rt o f m oth er l o opho le c ap ab le o f s p aw nin g o th er l o opho le s. F or
exam ple , o ne m ig ht th in k th at a ta xp ayer w ould n eed to h av e c ap ita l b efo re h e c o uld h av e a c ap ita l
gain . Y et a w ay w as d is c o vere d — and w as p asse d i n to l a w i n 1 950— fo r h im to g et th e g ain b efo re h e
has th e cap ita l. T his is th e sto ck-o pti o n p ro vis io n. U nd er its te rm s, a co rp ora ti o n m ay giv e its
executi v es th e r ig ht to b uy its s h are s a t a ny ti m e w ith in a s ti p ula te d p erio d— sa y, fiv e y ears — at o r
near th e o pen-m ark et p ric e a t th e ti m e o f th e g ra nti n g o f th e o pti o n;
la te r o n, if, a s h as h ap pened s o
ofte n, th e m ark et p ric e o f th e s to ck g o es s k y-h ig h, th e e xecuti v es m ay e xerc is e th eir o pti o ns to b uy th e
sto ck a t th e o ld p ric e, m ay s e ll it o n th e o pen m ark et s o m e ti m e la te r a t th e n ew p ric e, a nd m ay p ay
only cap ita l- g ain s ra te s on th e diffe re nce, pro vid ed th at th ey go th ro ugh th ese m oti o ns w ith o ut unse em ly h aste . T he b eauty o f i t a ll f r o m a n e xecuti v e’s p oin t o f v ie w i s th at o nce th e s to ck h as g o ne
up su b sta nti a lly in v alu e, h is o pti o n its e lf b eco m es a v alu ab le c o m modity , a gain st w hic h h e c an
borro w th e c ash h e n eed s in o rd er to e xerc is e it; th en, h av in g b ought th e s to ck a nd s o ld it a gain , h e
can p ay o ff h is d eb t a nd h av e a c ap ita l g ain th at h as a ris e n fr o m th e in v estm ent o f n o c ap ita l. T he
beauty o f it a ll fr o m th e c o rp ora ti o ns’ p oin t o f v ie w is th at th ey c an c o m pensa te th eir e xecuti v es
partl y in m oney ta xab le a t r e la ti v ely lo w r a te s. O f c o urs e , th e w ho le s c hem e c o m es to n o th in g if th e
co m pany’s s to ck g o es d ow n, w hic h d oes h ap pen o ccasio nally , o r i f i t s im ply d oesn ’t g o u p , b ut e v en
th en th e e xecuti v e h as h ad a fr e e p la y o n th e ro ule tte w heel o f th e s to ck m ark et, w ith a c hance o f
win nin g a g re at d eal a nd p ra cti c ally n o d anger o f lo sin g a nyth in g— so m eth in g th at th e ta x la w o ffe rs
no o th er g ro up .
By fa v orin g c ap ita l g ain s o ver o rd in ary in co m e, th e C ode s e em s to b e p utti n g fo rw ard tw o v ery
dub io us no ti o ns— th at o ne fo rm o f unearn ed in co m e is m ore d ese rv in g th an any fo rm o f earn ed
in co m e, a nd th at p eo ple w ith m oney to in v est a re m ore d ese rv in g th an p eo ple w ith o ut it. H ard ly
anyo ne c o nte nd s th at th e f a v ore d tr e atm ent o f c ap ita l g ain s c an b e j u sti fie d o n th e g ro und o f f a ir n ess;
th o se w ho c o nsid er th is a sp ect o f th e m atte r a re a p t to a gre e w ith H elle rs te in , w ho h as w ritte n, “ F ro m
a s o cio lo gic al v ie w poin t, th ere is a g o od d eal to b e s a id fo r m ore s e v ere ta xati o n o f p ro fit fr o m
ap pre cia ti o n i n th e v alu e o f p ro perty th an f r o m p ers o nal- s e rv ic e i n co m e.” T he d efe nse , th en, i s b ase d
on o th er g ro und s. F or o ne, th ere i s a r e sp ecta b le e co no m ic th eo ry th at s u p ports a c o m ple te e xem pti o n
of c ap ita l g ain s fr o m in co m e ta x, th e a rg um ent b ein g th at w here as w ages a nd d iv id end s o r in te re st
fr o m in v estm ents are fr u its of th e cap ita l tr e e, and are th ere fo re ta xab le in co m e, cap ita l gain s
re p re se nt th e g ro w th o f th e tr e e i ts e lf, a nd a re th ere fo re n o t i n co m e a t a ll. T his d is ti n cti o n i s a ctu ally
em bed ded
in th e ta x la w s o f so m e co untr ie s— most no ta b ly in th e ta x la w o f B rita in , w hic h in
prin cip le d id n o t ta x c ap ita l g ain s u nti l 1 964. A no th er a rg um ent— th is o ne p ure ly p ra gm ati c — has it
th at th e c ap ita l- g ain s p ro vis io n is n ecessa ry to e nco ura ge p eo ple to ta ke ris k s w ith th eir c ap ita l.
(S im ila rly , th e ad vocate s of sto ck opti o ns sa y th at co rp ora ti o ns need th em to attr a ct and ho ld
executi v e ta le nt.) F in ally , n early a ll ta x a uth o riti e s a re a gre ed th at ta xin g c ap ita l g ain s o n e xactl y th e
sa m e b asis a s o th er in co m e, w hic h is w hat m ost re fo rm ers sa y o ught to b e d one, w ould in v olv e
fo rm id ab le te chnic al d iffic ulti e s.
Parti c ula r su b cate go rie s o f th e ric h and th e w ell- p aid can av ail th em se lv es o f v ario us o th er
av enues o f e sc ap e, in clu d in g c o rp ora te p ensio n p la ns, w hic h, lik e sto ck o pti o ns, c o ntr ib ute to th e
so lu ti o n o f th e ta x p ro ble m s o f e xecuti v es; ta x-fr e e fo und ati o ns s e t u p o ste nsib ly fo r c harita b le a nd
ed ucati o nal p urp ose s, o f w hic h o ver f ifte en th o usa nd h elp to e ase th e ta x b urd ens o f th eir b enefa cto rs ,
th o ugh th e c harita b le a nd e d ucati o nal a cti v iti e s o f so m e o f th em a re m ore o r le ss in v is ib le ; a nd
pers o nal h o ld in g c o m panie s, w hic h, s u b je ct to r a th er s tr ic t r e gula ti o ns, e nab le p ers o ns w ith v ery h ig h
in co m es fr o m p ers o nal se rv ic es lik e w riti n g a nd a cti n g to re d uce th eir ta xes b y w hat a m ounts to
in co rp ora ti n g th em se lv es. O f th e w ho le a rra y o f lo opho le s in th e C ode, h o w ev er, p ro bab ly th e m ost
wid ely lo ath ed is th e p erc enta ge d ep le ti o n a llo w ance o n o il. A s th e w ord “ d ep le ti o n” is u se d in th e
Code, it re fe rs to th e p ro gre ssiv e exhausti o n o f ir re p la ceab le natu ra l re so urc es, b ut as use d o n
oilm en’s ta x re tu rn s, it p ro ves to m ean a m ir a culo usly g lo rifie d fo rm o f w hat is o rd in arily c alle d
dep re cia ti o n. W here as a m anufa ctu re r m ay cla im d ep re cia ti o n o n a p ie ce o f m achin ery as a ta x
ded ucti o n o nly u nti l h e h as d ed ucte d th e o rig in al c o st o f th e m achin e— unti l, th at is , th e m achin e is
th eo re ti c ally w orth le ss fr o m w ear— an in d iv id ual o r c o rp ora te o il in v esto r, fo r re aso ns th at d efy
lo gic al e xp la nati o n, m ay g o o n c la im in g p erc enta ge d ep le ti o n o n a p ro ducin g w ell in d efin ite ly , e v en
if th is m eans th at th e o rig in al c o st o f th e w ell h as b een r e co vere d m any ti m es o ver. T he o il- d ep le ti o n
allo w ance i s 2 7.5 p er c ent a y ear u p to a m axim um o f h alf o f th e o il i n v esto r’s n et i n co m e ( th ere a re sm alle r a llo w ances o n o th er n atu ra l r e so urc es, s u ch
a s 2 3 p er c ent o n u ra niu m , 1 0 p er c ent o n c o al,
and 5 p er c ent o n o yste r a nd c la m sh ells ), a nd th e e ffe ct it h as o n th e ta xab le in co m e o f a n o il
in v esto r, e sp ecia lly w hen it is c o m bin ed w ith th e e ffe cts o f o th er ta x-a v oid ance d ev ic es, is tr u ly
asto nis h in g; f o r i n sta nce, o ver a r e cent f iv e-y ear p erio d o ne o ilm an h ad a n et i n co m e o f f o urte en a nd a
th ir d m illio n d olla rs , o n w hic h h e p aid ta xes o f $ 80,0 00, o r s ix -te nth s o f o ne p er c ent. U nsu rp ris in gly ,
th e p erc enta ge-d ep le ti o n a llo w ance is a lw ays u nd er a tta ck, b ut, a ls o u nsu rp ris in gly , it is d efe nd ed
with ti g eris h ze al— so ti g eris h th at ev en P re sid ent K enned y’s 1 961 and 1 963 p ro posa ls fo r ta x
re v is io n, w hic h, ta ken to geth er, a re g enera lly c o nsid ere d th e b ro ad est p ro gra m o f ta x r e fo rm e v er p ut
fo rw ard b y a c hie f e xecuti v e, d id n o t v entu re to s u ggest its re p eal. T he u su al a rg um ent is th at th e
perc enta ge-d ep le ti o n a llo w ance is n eed ed in o rd er to c o m pensa te o ilm en fo r th e ris k s in v olv ed in
sp ecula ti v e d rillin g, a nd th us in su re a n a d eq uate s u p ply o f o il fo r n ati o nal u se , b ut m any p eo ple fe el
th at th is a rg um ent a m ounts to s a yin g, “ T he d ep le ti o n a llo w ance is a n ecessa ry a nd d esir a b le fe d era l
su b sid y to th e oil in d ustr y ,” and th ere b y sc uttl e s its e lf, sin ce gra nti n g su b sid ie s to in d iv id ual
in d ustr ie s i s h ard ly th e p ro per ta sk o f th e i n co m e ta x.
TH E
1964 R ev enue A ct does pra cti c ally no th in g to plu g th e lo opho le s, but it does m ake th em
so m ew hat l e ss u se fu l, i n th at th e d ra sti c r e d ucti o n o f th e b asic r a te s o n h ig h i n co m es h as p ro bab ly l e d
so m e h ig h-b ra cket ta xp ayers sim ply to q uit b oth erin g w ith th e le ss c o nv enie nt o r e ffe cti v e o f th e
dodges. In so fa r as th e new bill re d uces th e dis p arity betw een th e C ode’s pro m is e s and its
perfo rm ance, th at is , it re p re se nts a k in d o f a d venti ti o us re fo rm . (O ne w ay to c ure
all
in co m e-ta x
ev asio n w ould b e to re p eal th e in co m e ta x.) H ow ev er, q uite a p art fr o m th e s o phis tr y — sin ce 1 964
hap pily so m ew hat le sse ned — th at th e C ode em bodie s, it has certa in dis c ern ib le and dis tu rb in g
chara cte ris ti c s th at h av e n o t b een c hanged a nd m ay b e p arti c ula rly h ard to c hange i n th e f u tu re . S om e
of th em hav e to do w ith its m eth o ds of allo w in g and dis a llo w in g ded ucti o ns fo r tr a v el and
ente rta in m ent exp ense s b y p ers o ns w ho are in b usin ess fo r th em se lv es, o r b y p ers o ns w ho are
em plo yed b ut a re n o t r e im burs e d fo r th eir b usin ess e xp ense s—
ded ucti o ns th at w ere e sti m ate d fa ir ly
re centl y a t b etw een f iv e a nd te n b illio n d olla rs a y ear, w ith a r e su lti n g r e d ucti o n i n f e d era l r e v enue o f
betw een o ne a nd tw o b illio n. T he tr a v el- a nd -e nte rta in m ent p ro ble m — or th e T & E p ro ble m , a s it is
custo m arily c alle d — has b een a ro und a lo ng ti m e, a nd h as stu b born ly re sis te d v ario us a tte m pts to
so lv e it. O ne o f th e c ru cia l p oin ts in T & E h is to ry o ccurre d in 1 930, w hen th e c o urts r u le d th at th e
acto r and so ngw rite r G eo rg e M . C ohan— and th ere fo re anyo ne els e — was enti tl e d to d ed uct his
busin ess e xp ense s o n th e b asis o f a re aso nab le e sti m ate e v en if h e c o uld n o t p ro duce a ny p ro of o f
hav in g p aid th at s u m o r e v en p ro duce a d eta ile d a cco unti n g. T he C ohan r u le , a s i t c am e to b e c alle d ,
re m ain ed in effe ct fo r m ore th an th re e decad es, durin g w hic h it w as in v oked ev ery sp rin g by
th o usa nd s o f b usin essm en a s r itu ally a s M osle m s tu rn to w ard M ecca. O ver th o se d ecad es, e sti m ate d
busin ess d ed ucti o ns g re w lik e k ud zu v in es a s th e e sti m ato rs b ecam e b old er, w ith th e r e su lt th at th e
Cohan r u le a nd o th er fle xib le p arts o f th e T & E r e gula ti o ns w ere s u b je cte d to a s e rie s o f a tta cks b y
would -b e re fo rm ers . B ills th at w ould hav e v ir tu ally o r enti r e ly elim in ate d th e C ohan ru le w ere
in tr o duced in C ongre ss in 1 951 a nd a gain in 1 959, o nly to b e d efe ate d — in o ne c ase , a fte r a n o utc ry
th at T & E re fo rm w ould m ean th e e nd o f th e K entu cky D erb y— and in 1 961 P re sid ent K enned y
pro pose d l e gis la ti o n th at n o t o nly w ould h av e s w ep t a sid e th e C ohan r u le b ut, b y r e d ucin g to b etw een
fo ur a nd s e v en d olla rs a d ay th e a m ount th at a m an c o uld d ed uct f o r f o od a nd b ev era ges, w ould h av e
all b ut p ut a n e nd to th e e ra o f d ed ucti b ility i n A meric an l ife . N o s u ch f u nd am enta l s o cia l c hange to ok
pla ce. L oud and lo ng w ails o f anguis h in sta ntl y aro se , fr o m b usin essm en and als o fr o m ho te ls ,
re sta ura nts , a nd n ig ht c lu b s, a nd m any o f th e K enned y p ro posa ls w ere s o on a b and oned . N ev erth ele ss, th ro ugh a s e rie s o f a m end m ents to th e C ode p asse d b y C ongre ss i n 1 962 a nd p ut i n to e ffe ct b y a s e t o f
re gula ti o ns is su ed b y th e In te rn al R ev enue S erv ic e in 1 963, th ey d id le ad to th e a b ro gati o n o f th e
Cohan r u le , a nd th e s ti p ula ti o n th at, g enera lly s p eakin g, a ll b usin ess d ed ucti o ns, n o m atte r h o w s m all,
would th encefo rw ard h av e to b e s u b sta nti a te d b y r e co rd s, i f n o t b y a ctu al r e ceip ts .
Yet e v en a c urs o ry lo ok a t th e la w a s it h as s to od s in ce th en
s h o w s th at th e n ew , r e fo rm ed T & E
ru le s fa ll so m ew hat sh o rt o f th e id eal— th at, in fa ct, th ey are sh o t th ro ugh w ith ab su rd iti e s and
und erla id b y a k in d o f p hilis ti n is m . F or tr a v el to b e d ed ucti b le , it m ust b e u nd erta ken p rim arily fo r
busin ess ra th er th an fo r p le asu re and it m ust b e “aw ay fr o m ho m e”— th at is to sa y, no t m ere ly
co m muti n g. T he “ aw ay-fr o m -h o m e” s ti p ula ti o n r a is e s th e q uesti o n o f w here h o m e i s , a nd l e ad s to th e
co ncep t o f a “ ta x h o m e,” th e p la ce o ne m ust b e a w ay f r o m i n o rd er to q ualify f o r tr a v el d ed ucti o ns; a
busin essm an’s ta x h o m e, n o m atte r h o w m any c o untr y h o use s, h unti n g lo dges, a nd b ra nch o ffic es h e
may h av e, is th e g enera l a re a— no t ju st th e p arti c ula r b uild in g, th at is — of h is p rin cip al p la ce o f
em plo ym ent. A s a re su lt, m arria ge p artn ers w ho co m mute to w ork in tw o d iffe re nt citi e s hav e
se p ara te ta x h o m es, b ut, fo rtu nate ly , th e C ode c o nti n ues to re co gniz e th eir u nio n to th e e xte nt o f
allo w in g th em th e ta x a d vanta ges a v aila b le to o th er m arrie d p eo ple ; a lth o ugh th ere h av e b een ta x
marria ges, th e ta x d iv orc e s ti ll b elo ngs to th e f u tu re .
As fo r e nte rta in m ent, n o w th at th e w rite rs o f I.R .S . re gula ti o ns h av e b een d ep riv ed o f th e fa r-
re achin g C ohan r u le , th ey a re f o rc ed to m ake d is ti n cti o ns o f a lm ost th eo lo gic al n ic ety , a nd th e u p sh o t
of th e d is ti n cti o ns is to p ut a d ir e ct p re m iu m o n th e h ab it— whic h s o m e p eo ple h av e c o nsid ere d a ll
to o p re v ale nt f o r m any y ears a nyho w — of ta lk in g b usin ess a t a ll h o urs o f th e d ay a nd n ig ht, a nd i n a ll
kin d s o f c o m pany. F or e xam ple , d ed ucti o ns a re g ra nte d f o r th e e nte rta in m ent o f b usin ess a sso cia te s a t
nig ht c lu b s, th eatr e s, o r c o ncerts o nly i f a “ su b sta nti a l a nd b ona f id e b usin ess d is c ussio n” ta kes p la ce
befo re , d urin g, o r a fte r th e e nte rta in m ent. ( O ne i s r e lu cta nt to p ic tu re th e r e su lts i f b usin essm en ta ke to
carry in g o n b usin ess d is c ussio ns in g re at n um bers d urin g p la ys o r c o ncerts .) O n th e o th er h and , a
busin essm an w ho e nte rta in s a no th er in a “ q uie t b usin ess s e tti n g,” s u ch a s a r e sta ura nt w ith n o flo or
sh o w , m ay c la im a d ed ucti o n e v en i f l ittl e o r n o b usin ess i s a ctu ally d is c usse d , a s l o ng a s th e m eeti n g
has a b usin ess p urp ose . G enera lly s p eakin g, th e n o is ie r a nd m ore c o nfu sin g o r d is tr a cti n g th e s e tti n g,
th e m ore b usin ess ta lk th ere m ust b e; th e r e gula ti o ns s p ecific ally i n clu d e c o ckta il p arti e s i n th e n o is y -
and -d is tr a cti n g cate go ry , and , acco rd in gly , re q uir e co nsp ic uo us
am ounts of busin ess dis c ussio n
befo re , d urin g, o r a fte r th em , th o ugh a m eal s e rv ed to a b usin ess a sso cia te a t th e h o st’ s h o m e m ay b e
ded ucti b le w ith n o s u ch d is c ussio n a t a ll. I n th e l a tte r c ase , h o w ev er, a s th e J . K . L asse r T ax I n sti tu te
cauti o ns in its p opula r g uid e “ Y our In co m e T ax,” y o u m ust “ b e r e ad y to p ro ve th at y o ur m oti v e …
was c o m merc ia l ra th er th an s o cia l.” In o th er w ord s, to b e o n th e s a fe s id e, ta lk b usin ess a nyho w .
Helle rs te in h as w ritte n, “ H encefo rth , ta x m en w ill d oub tl e ss u rg e th eir c lie nts to ta lk b usin ess a t
ev ery tu rn , a nd w ill a sk th em to a d m onis h th eir w iv es n o t to o bje ct to sh o p ta lk if th ey w ant to
co nti n ue th eir a ccusto m ed s ty le o f l iv in g.”
Ente rta in m ent o n an ela b ora te sc ale is d is c o ura ged in th e p ost- 1 963 ru le s, b ut, as th e L asse r
bookle t n o te s, p erh ap s a littl e ju b ila ntl y , “ C ongre ss d id n o t sp ecific ally p ut in to la w a p ro vis io n
barrin g la v is h o r extr a v agant ente rta in m ent.” In ste ad , it d ecre ed th at a b usin essm an m ay d ed uct
dep re cia ti o n and o pera ti n g exp ense s o n an “ente rta in m ent fa cility ”— a yacht, a hunti n g lo dge, a
sw im min g p ool, a b ow lin g a lle y, o r a n a ir p la ne, f o r i n sta nce— pro vid ed h e u se s i t m ore th an h alf th e
ti m e f o r b usin ess. I n a b ookle t e nti tl e d “ E xp ense A cco unts 1 963,” w hic h i s o ne o f m any p ub lic ati o ns
fo r th e g uid ance o f ta x a d vis e rs th at a re is su ed p erio dic ally b y C om merc e C le arin g H ouse , In c., th e
ru le w as e xp la in ed b y m eans o f th e f o llo w in g e xam ple : A y acht is m ain ta in ed … f o r th e e nte rta in m ent o f c usto m ers . I t is u se d 2 5% o f th e tim e f o r r e la xatio n.… S in ce th e y acht is u se d 7 5% o f
th e tim e f o r b usin ess p urp ose s, it is u se d p rim arily f o r th e f u rth era nce o f th e ta xpayer’s b usin ess a nd 7 5% o f th e m ain te nance e xpense s
… a re d eductib le e nte rta in m ent f a cilit y e xpense s. I f th e y acht h ad b een u se d o nly 4 0% f o r b usin ess, n o d eductio n w ould b e a llo w ed.
The m eth o d by w hic h th e yachts m an is to m easu re busin ess ti m e and ple asu re ti m e is no t
pre sc rib ed . P re su m ab ly , ti m e w hen th e y acht is in d ry d ock o r is in th e w ate r w ith o nly h er c re w
ab oard w ould c o unt a s n eith er, th o ugh it m ig ht b e a rg ued th at th e o w ner s o m eti m es d eriv es p le asu re
sim ply f r o m w atc hin g h er s w in g a t a ncho r. T he ti m e to b e a p porti o ned , th en, m ust b e th e ti m e w hen h e
and s o m e g uests a re a b oard h er, a nd p erh ap s h is m ost e ffic ie nt w ay o f c o m ply in g w ith th e l a w w ould
be to i n sta ll tw o
s to pw atc hes, p ort a nd s ta rb oard , o ne to b e k ep t r u nnin g d urin g b usin ess c ru is in g a nd
th e o th er d urin g p le asu re c ru is in g. P erh ap s a fa v orin g w este rly m ig ht s p eed a s o cia l c ru is e h o m e a n
ho ur e arly , o r a S ep te m ber b lo w d ela y th e la st le g o f a b usin ess c ru is e , a nd th us ti p th e s e aso n’s
busin ess ti m e a b ove th e c ru cia l fifty -p erc ent fig ure . W ell m ig ht th e sk ip per p ra y fo r su ch ti m ely
win d s, s in ce th e d ed ucti b ility o f h is y acht c o uld e asily d oub le h is a fte r-ta x in co m e fo r th e y ear. In
sh o rt, th e l a w i s n o nse nse .
Som e e xp erts fe el th at th e c hange in T & E r e gula ti o ns r e p re se nts a g ain fo r o ur s o cie ty b ecause
quite a fe w ta xp ayers w ho m ay h av e b een in clin ed to fu d ge a b it u nd er g enera l p ro vis io ns lik e th e
Cohan r u le d o n o t h av e th e s to m ach o r th e h eart to p ut d ow n s p ecific fr a ud ule nt ite m s. B ut w hat h as
been g ain ed i n th e w ay o f c o m plia nce m ay h av e b een l o st i n a c erta in d eb ase m ent o f o ur n ati o nal l ife .
Scarc ely e v er h as a ny p art o f th e ta x l a w te nd ed s o e nerg eti c ally to c o m pel th e c o m merc ia liz a ti o n o f
so cia l i n te rc o urs e , o r p enaliz e d s o p arti c ula rly th e a m ate ur s p ir it, w hic h, R ic hard H ofs ta d te r d ecla re s
in his b ook “A nti - In te lle ctu alis m in A meric an L ife ,” chara cte riz e d th e fo und ers o f th e re p ub lic .
Perh ap s th e g re ate st d anger o f a ll is th at, b y c la im in g d ed ucti o ns fo r a cti v iti e s th at a re te chnic ally
busin ess b ut a ctu ally s o cia l— th at i s , b y c o m ply in g w ith th e l e tte r o f th e l a w — a m an m ay c heap en h is
life in h is o w n e yes. O ne m ig ht a rg ue th at th e fo und ers , if th ey w ere a liv e to day, w ould s c o rn fu lly
declin e to m in gle th e s o cia l a nd th e c o m merc ia l, th e a m ate ur a nd th e p ro fe ssio nal, a nd w ould d is d ain
to c la im a ny b ut th e m ost u nm is ta kab le e xp ense s. B ut, u nd er th e p re se nt ta x l a w s, th e q uesti o n w ould
be w heth er th ey c o uld a ffo rd s u ch a l o rd ly o verp aym ent o f ta xes, o r s h o uld e v en b e a sk ed to m ake th e
cho ic e.
IT
h as b een m ain ta in ed th at th e C ode d is c rim in ate s a gain st in te lle ctu al w ork , th e p rin cip al e v id ence
bein g th at w hile d ep re cia ti o n m ay b e cla im ed o n all kin d s o f exhausti b le p hysic al p ro perty and
dep le ti o n m ay b e cla im ed o n natu ra l re so urc es, no su ch d ed ucti o ns are allo w ed in th e case o f
exhausti o n o f th e m enta l o r im agin ati v e c ap aciti e s o f c re ati v e a rti s ts a nd in v ento rs — ev en th o ugh th e
effe cts o f b ra in f a g a re s o m eti m es a ll to o a p pare nt i n th e l a te r
w ork a nd i n co m es o f s u ch p ers o ns. ( It
has a ls o b een a rg ued th at p ro fe ssio nal a th le te s a re d is c rim in ate d a gain st, in th at th e C ode d oes n o t
allo w fo r d ep re cia ti o n o f th eir b odie s.) O rg aniz a ti o ns lik e th e A uth o rs L eague o f A meric a hav e
co nte nd ed , fu rth er, th at th e C ode is unfa ir to auth o rs and o th er cre ati v e p eo ple w ho se in co m e,
because o f th e n atu re o f th eir w ork a nd th e e co no m ic s o f i ts m ark eti n g, i s a p t to f lu ctu ate w ild ly f r o m
year to y ear, s o th at th ey a re ta xed e xo rb ita ntl y in g o od y ears a nd a re le ft w ith to o littl e to ti d e th em
over b ad y ears . A p ro vis io n o f th e 1 964 b ill i n te nd ed to ta ke c are o f th is s itu ati o n p ro vid ed c re ati v e
arti s ts , in v ento rs , a nd o th er r e ceiv ers o f s u d den la rg e in co m e w ith a fo ur-y ear a v era gin g fo rm ula to
ease th e ta x b ite o f a w in d fa ll y ear.
But if th e C ode
is
a nti - in te lle ctu al, it is p ro bab ly s o o nly in ad verte ntl y — and is c erta in ly s o o nly
in co nsis te ntl y . B y g ra nti n g ta x-e xem pt sta tu s to c harita b le fo und ati o ns, it fa cilita te s th e a w ard o f
millio ns o f d olla rs a y ear— most o f w hic h w ould o th erw is e g o in to th e g o vern m ent’ s c o ffe rs — to sc ho la rs fo r tr a v el a nd liv in g e xp ense s w hile th ey c arry o ut re se arc h p ro je cts o f a ll k in d s. A nd b y
makin g sp ecia l p ro vis io ns in re sp ect to gifts o f p ro perty th at has ap pre cia te d in v alu e, it has—
wheth er ad verte ntl y or in ad verte ntl y — te nd ed no t only to fo rc e up th e pric es th at pain te rs and
sc ulp to rs r e ceiv e f o r th eir w ork b ut to c hannel th o usa nd s o f w ork s o ut o f p riv ate c o lle cti o ns a nd i n to
pub lic m use um s. T he m echanic s o f th is p ro cess a re b y n o w s o w ell k no w n th at th ey n eed b e m ere ly
outl in ed : a c o lle cto r w ho d onate s a w ork o f a rt to a m use um m ay d ed uct o n h is i n co m e-ta x r e tu rn th e
fa ir v alu e o f th e w ork a t th e ti m e o f th e d onati o n, a nd n eed p ay n o c ap ita l- g ain s ta x o n a ny i n cre ase i n
its v alu e s in ce th e ti m e h e b ought it. If th e in cre ase in v alu e h as b een g re at a nd th e c o lle cto r’s ta x
bra cket is v ery h ig h, h e m ay a ctu ally c o m e o ut a head o n th e d eal. B esid es b ury in g s o m e m use um s
und er su ch an av ala nche o f b ounty th at th eir sta ffs are kep t b usy d ig gin g th em se lv es o ut, th ese
pro vis io ns h av e te nd ed to b rin g b ack in to e xis te nce th at lo vab le o ld fig ure fr o m th e p re -ta x p ast, th e
ric h d ile tta nte . In r e cent y ears , s o m e h ig h-b ra cket p eo ple h av e fa lle n in to th e h ab it o f m akin g s e ria l
co lle cti o ns— Post- Im pre ssio nis ts fo r a fe w y ears , p erh ap s, fo llo w ed b y C hin ese ja d e, a nd th en b y
modern A meric an
p ain ti n g. A t th e e nd o f e ach p erio d, th e c o lle cto r g iv es a w ay h is e nti r e c o lle cti o n,
and w hen th e ta xes h e w ould o th erw is e h av e p aid a re c alc ula te d , th e a d ventu re i s f o und to h av e c o st
him p ra cti c ally n o th in g.
The l o w c o st o f h ig h-in co m e p eo ple ’s c harita b le c o ntr ib uti o ns, w heth er i n th e f o rm o f w ork s o f a rt
or sim ply in th e fo rm o f m oney and o th er p ro perty , is o ne o f th e o ddest fr u its o f th e C ode. O f
ap pro xim ate ly fiv e b illio n d olla rs c la im ed a nnually a s d ed ucti b le c o ntr ib uti o ns o n p ers o nal in co m e-
ta x r e tu rn s, b y f a r th e g re ate r p art i s i n th e f o rm o f a sse ts o f o ne s o rt o r a no th er th at h av e a p pre cia te d
in v alu e, a nd c o m es f r o m p ers o ns w ith v ery h ig h i n co m es. T he r e aso ns c an b e m ad e c le ar b y a s im ple
exam ple : A m an w ith a to p b ra cket o f 2 0 p er c ent w ho g iv es a w ay $ 1,0 00 i n c ash i n curs a n et c o st o f
$800. A m an w ith a to p b ra cket o f 6 0 p er c ent w ho g iv es a w ay th e s a m e s u m i n c ash i n curs a n et c o st
of $ 400. If, in ste ad , th is s a m e h ig h-b ra cket m an g iv es $ 1,0 00 in th e fo rm o f s to ck th at h e o rig in ally
bought fo r $ 200, h e in curs a n et c o st o f o nly $ 200. It is th e C ode’s e nth usia sti c e nco ura gem ent o f
la rg e-s c ale c harity th at h as le d to m ost o f th e c ase s o f m illio n-d olla r-a -y ear m en w ho p ay n o ta x a t
all; u nd er o ne o f its m ost p eculia r p ro vis io ns, a nyo ne w ho se in co m e ta x a nd c o ntr ib uti o ns c o m bin ed
hav e a m ounte d to n in e-te nth s o r m ore o f h is ta xab le i n co m e f o r e ig ht o ut o f th e te n p re ced in g y ears i s
enti tl e d b y w ay o f re w ard to d is re gard in th e c urre nt y ear th e u su al re str ic ti o ns o n th e a m ount o f
ded ucti b le c o ntr ib uti o ns, a nd c an e sc ap e th e ta x e nti r e ly .
Thus th e C ode’s pro vis io ns ofte n enab le m ere fis c al m anip ula ti o n to m asq uera d e as charity ,
su b sta nti a ti n g a fr e q uent c harg e th at th e C ode is m ora lly m ud dle head ed , o r w ors e . T he p ro vis io ns
als o g iv e r is e to m ud dle head ed ness i n o th ers . T he a p peal m ad e b y l a rg e f u nd -ra is in g d riv es i n r e cent
years , f o r e xam ple , h as b een u neasily d iv id ed b etw een a c all to g o od w ork s a nd a n e xp la nati o n o f th e
ta x a d vanta ges to th e d ono r. A n in str u cti v e e xam ple is a c o m mend ab ly th o ro ugh b ookle t e nti tl e d
“G re ate r T ax S av in gs … A C onstr u cti v e A ppro ach,” w hic h w as u se d b y P rin ceto n i n a l a rg e c ap ita l-
fu nd s d riv e. (S im ila r, n o t to s a y n early id enti c al, b ookle ts h av e b een u se d b y H arv ard , Y ale , a nd
many o th er in sti tu ti o ns
.) “ T he re sp onsib iliti e s o f le ad ers h ip a re g re at, p arti c ula rly in a n a ge w hen
sta te sm en, s c ie nti s ts , a nd e co no m is ts m ust m ake d ecis io ns w hic h w ill a lm ost c erta in ly a ffe ct m ankin d
fo r g enera ti o ns to c o m e,” th e p am phle t’ s fo re w ord s ta rts o ut, lo fti ly , a nd g o es o n to e xp la in , “ T he
chie f p urp ose o f th is b ookle t is to u rg e a ll p ro sp ecti v e d ono rs to g iv e m ore s e rio us th o ught to th e
manner i n w hic h th ey m ake th eir g ifts .… T here a re m any d iffe re nt w ays i n w hic h s u b sta nti a l g ifts c an
be m ad e a t c o m para ti v ely lo w c o st to th e d ono r. It is im porta nt th at p ro sp ecti v e d ono rs a cq uain t
th em se lv es w ith th ese o pportu niti e s.” T he o pportu niti e s e xp ound ed in th e s u b se q uent p ages in clu d e
ways o f s a v in g o n ta xes th ro ugh g ifts o f a p pre cia te d s e curiti e s, in d ustr ia l p ro perty , le ase s, r o yalti e s, je w elr y , a nti q ues, s to ck o pti o ns, r e sid ences, life in su ra nce, a nd in v ento ry ite m s, a nd th ro ugh th e u se
of tr u sts ( “ T he tr u st a p pro ach h as g re at v ers a ti lity ”). A t o ne p oin t, th e s u ggesti o n i s p ut f o rw ard th at,
in ste ad o f a ctu ally g iv in g a nyth in g a w ay, th e o w ner o f a p pre cia te d s e curiti e s m ay w is h to
se ll
th em to
Prin ceto n, f o r c ash , a t th e p ric e h e o rig in ally p aid f o r th em ; th is m ig ht a p pear to th e s im ple -m in d ed to
be a c o m merc ia l tr a nsa cti o n, b ut th e b ookle t p oin ts o ut, a ccura te ly , th at in th e e yes o f th e C ode th e
diffe re nce b etw een th e s e curiti e s’ c urre nt m ark et v alu e a nd th e l o w er p ric e a t w hic h th ey a re s o ld to
Prin ceto n re p re se nts pure charity , and is fu lly ded ucti b le as su ch. “W hile w e hav e la id heav y
em phasis o n th e i m porta nce o f c are fu l ta x p la nnin g,” th e f in al p ara gra p h g o es, “ w e h o pe n o i n fe re nce
will be dra w n th at th e th o ught and sp ir it of giv in g sh o uld in any w ay be su b ord in ate d to ta x
co nsid era ti o ns.” In d eed it s h o uld n o t, n o r n eed it b e; w ith th e h eav y s u b sta nce o f g iv in g s o d eftl y
min im iz e d , o r a ctu ally r e m oved , i ts s p ir it c an s u re ly f ly u nre str a in ed .
ONE
o f th e m ost m ark ed tr a its o f th e C ode— to b rin g th is r a nsa ckin g o f i ts c hara cte r to a c lo se — is i ts
co m ple xity , a nd th is c o m ple xity i s r e sp onsib le f o r s o m e o f i ts m ost f a r-re achin g s o cia l e ffe cts ; i t i s a
vir tu al n ecessity fo r m any ta xp ayers to s e ek p ro fe ssio nal h elp if th ey w ant to m in im iz e th eir ta xes
le gally , a nd s in ce fir s t- ra te a d vic e is e xp ensiv e a nd in s h o rt s u p ply , th e r ic h a re th ere b y g iv en s ti ll
ano th er a d vanta ge o ver th e p oor, a nd th e C ode b eco m es m ore
u nd em ocra ti c in its a cti o n th an it is in
its p ro vis io ns. ( A nd th e fa ct th at fe es fo r ta x a d vic e a re th em se lv es d ed ucti b le m eans th at ta x a d vic e
is o ne m ore ite m o n th e lo ng lis t o f th in gs th at c o st le ss a nd le ss to th o se w ho h av e m ore a nd m ore .)
All th e fr e e p ro je cts o f ta xp ayer e d ucati o n a nd ta xp ayer a ssis ta nce o ffe re d b y th e In te rn al R ev enue
Serv ic e— and th ey a re e xte nsiv e a nd w ell m eant— canno t b egin to c o m pete w ith th e p aid s e rv ic es o f
a g o od in d ep end ent ta x e xp ert, if o nly b ecause th e I.R .S ., w ho se fir s t d uty is to c o lle ct re v enue, is
in v olv ed i n a n o bvio us c o nflic t o f i n te re st w hen i t s e ts a b out e xp la in in g to p eo ple h o w to a v oid ta xes.
The fa ct th at ab out half o f all th e re v enue d eriv ed fr o m in d iv id ual re tu rn s fo r 1 960 cam e fr o m
ad ju ste d g ro ss i n co m es o f $ 9,0 00 o r l e ss i s n o t a ttr ib uta b le e nti r e ly to p ro vis io ns o f th e C ode; i n p art,
it r e su lts f r o m th e f a ct th at l o w -in co m e ta xp ayers c anno t a ffo rd to b e s h o w n h o w to p ay l e ss.
The h uge a rm y o f p eo ple w ho g iv e ta x a d vic e— “p ra cti ti o ners ,” th ey a re c alle d in th e tr a d e— is a
str a nge a nd d is tu rb in g s id e e ffe ct o f th e C ode’s c o m ple xity . T he e xact s iz e o f th is a rm y is u nkno w n,
but th ere a re a f e w g uid ep osts . B y a r e cent c o unt s o m e e ig hty th o usa nd p ers o ns, m ost o f th em l a w yers ,
acco unta nts , and fo rm er I.R .S . em plo yees, held card s, gra nte d b y th e T re asu ry D ep artm ent, th at
offic ia lly e nti tl e th em to p ra cti c e th e tr a d e o f ta x a d vis e r a nd to a p pear a s s u ch b efo re th e I.R .S .; in
ad diti o n, th ere is a n u nco unte d h o st o f u nlic ense d , a nd o fte n u nq ualifie d , p ers o ns w ho p re p are ta x
re tu rn s fo r a fe e— a se rv ic e th at anyo ne m ay le gally perfo rm . A s fo r la w yers , th e und is p ute d
plu to cra ts , if n o t th e u nd is p ute d a ris to cra ts , o f th e ta x-a d vic e in d ustr y , th ere is s c arc ely a la w yer in
th e c o untr y w ho i s n o t c o ncern ed w ith ta xes a t o ne ti m e o r a no th er d urin g a y ear’s p ra cti c e, a nd e v ery
year th ere a re m ore la w yers w ho a re c o ncern ed w ith n o th in g e ls e . T he A meric an B ar A sso cia ti o n’s
ta xati o n s e cti o n, c o m pose d m ostl y o f n o th in g-b ut- ta x la w yers , h as s o m e n in e th o usa nd m em bers ; in
th e ty p ic al l a rg e N ew Y ork l a w f ir m o ne o ut o f f iv e l a w yers d ev ote s a ll o f h is ti m e to ta x m atte rs ; a nd
th e N ew Y ork U niv ers ity L aw S cho ol’s ta x d ep artm ent, a n e no rm ous b ro od h en f o r th e h atc hin g o f ta x
la w yers , is la rg er th an th e w ho le o f a n a v era ge la w s c ho ol. T he b ra in s th at g o in to ta x a v oid ance,
whic h a re g enera lly r e co gniz e d a s in clu d in g s o m e o f th e b est le gal b ra in s e xta nt, c o nsti tu te
a w aste d
nati o nal r e so urc e, it is w id ely c o nte nd ed — and th is c o nte nti o n is c heerfu lly u p held b y s o m e le ad in g
ta x la w yers , w ho se em only to o gla d to affir m , fir s t, th at th eir m enta l cap aciti e s are in d eed
excep ti o nal, a nd , s e co nd , th at th ese c ap aciti e s a re in d eed b ein g s q uand ere d o n tr iv ia . “ T he la w h as
its c ycle s,” o ne o f th em e xp la in ed r e centl y . “ In th e U nite d S ta te s, th e b ig th in g u nti l a b out 1 890 w as pro perty l a w . T hen c am e a p erio d w hen i t w as c o rp ora ti o n l a w , a nd n o w i t’ s v ario us s p ecia lti e s, o f
whic h th e m ost im porta nt is ta xes. I’ m p erfe ctl y w illin g to a d m it th at I’ m e ngaged in w ork th at h as a
lim ite d s o cia l v alu e. A fte r a ll, w hat a re w e ta lk in g a b out w hen w e ta lk a b out ta x la w ? A t b est, o nly
th e q uesti o n o f w hat a n i n d iv id ual o r a c o rp ora ti o n s h o uld f a ir ly p ay i n s u p port o f th e g o vern m ent. A ll
rig ht, w hy d o I d o ta x w ork ? In th e fir s t p la ce, it’ s a fa sc in ati n g in te lle ctu al gam e— alo ng w ith
liti g ati o n, p ro bab ly th e m ost i n te lle ctu ally c halle ngin g b ra nch o f th e l a w a s i t i s n o w p ra cti c ed . I n th e
se co nd p la ce, a lth o ugh it’ s s p ecia liz e d in o ne s e nse , in a no th er s e nse it is n ’t. It c uts th ro ugh e v ery
fie ld o f l a w . O ne d ay y o u m ay b e w ork in g w ith a H olly w ood p ro ducer, th e n ext d ay w ith a b ig r e al-
esta te m an, th e n ext w ith a c o rp ora ti o n e xecuti v e. I n th e th ir d p la ce, i t’ s a h ig hly l u cra ti v e f ie ld .”
HYPO CRIT IC A LLY
e galita ria n o n th e s u rfa ce a nd s y ste m ati c ally o lig arc hic u nd ern eath , u nco nsc io nab ly
co m plic ate d , w him sic ally d is c rim in ato ry , sp ecio us in its re aso nin g, p etti fo ggin g in its la nguage,
dem ora liz in g to c harity , a n e nem y o f d is c o urs e , a p ro m ote r o f s h o p ta lk , a s q uand ere r o f ta le nt, a r o ck
of s u p port to th e p ro perty o w ner b ut a w eig hty o nus to th e u nd erp aid , a n i n co nsta nt f r ie nd to th e a rti s t
and s c ho la r— if th e n ati o nal m ir ro r-im age i s a ll th ese th in gs, i t h as i ts g o od p oin ts a s w ell. C erta in ly
no c o nceiv ab le i n co m e-ta x l a w c o uld p le ase e v ery b ody, a nd p ro bab ly n o e q uita b le o ne c o uld e nti r e ly
ple ase anyb ody; L ouis E is e nste in no te s in his b ook “T he Id eo lo gie s o f T axati o n,” “T axes are a
changin g p ro duct o f th e e arn est e ffo rt to h av e o th ers p ay th em .” W ith th e e xcep ti o n o f i ts m ore f la gra nt
sp ecia l- in te re st p ro vis io ns, th e C ode s e em s to b e a s in cere ly w ritte n d ocum ent— at w ors t m is g uid ed
—th at is a im ed a t c o lle cti n g u np re ced ente d a m ounts o f m oney fr o m a n u np re ced ente d ly c o m ple x
so cie ty in th e fa ir e st
p ossib le w ay, a t e nco ura gin g th e n ati o nal e co no m y, a nd a t p ro m oti n g w orth y
und erta kin gs. W hen it is in te llig entl y a nd c o nsc ie nti o usly a d m in is te re d , a s it h as b een o f la te , o ur
nati o nal i n co m e-ta x l a w i s q uite p ossib ly a s e q uita b le a s a ny i n th e w orld .
But to enact an unsa ti s fa cto ry la w and th en tr y to co m pensa te fo r its sh o rtc o m in gs by go od
ad m in is tr a ti o n is , c le arly , a n a b su rd p ro ced ure . O ne so lu ti o n th at is m ore lo gic al— to a b olis h th e
in co m e ta x— is p ro pose d c hie fly b y s o m e m em bers o f th e r a d ic al r ig ht, w ho c o nsid er a ny i n co m e ta x
Socia lis ti c o r C om munis ti c , and w ho w ould hav e th e fe d era l go vern m ent sim ply sto p sp end in g
money, th o ugh a b oliti o n i s a ls o a d vanced , a s a th eo re ti c al i d eal r a th er th an a s a p ra cti c al p ossib ility ,
by c erta in e co no m is ts w ho a re lo okin g a ro und fo r a lte rn ati v e w ays o f ra is in g a t le ast a s ig nific ant
fr a cti o n o f th e s u m s n o w p ro duced b y th e i n co m e ta x. O ne s u ch a lte rn ati v e i s a v alu e-a d ded ta x, u nd er
whic h m anufa ctu re rs , w ho le sa le rs , a nd r e ta ile rs w ould b e ta xed o n th e d iffe re nce b etw een th e v alu e
of th e g o ods th ey b ought a nd th at o f th e g o ods th ey s o ld ; a m ong th e a d vanta ges c la im ed f o r i t a re th at
it w ould s p re ad th e ta x b urd en m ore e v enly th ro ugh th e p ro ducti v e p ro cess th an a b usin ess-in co m e ta x
does, a nd th at it w ould e nab le th e g o vern m ent to g et its m oney s o oner. S ev era l c o untr ie s, in clu d in g
Fra nce and G erm any, hav e v alu e-a d ded ta xes, th o ugh as su p ple m ents ra th er th an alte rn ati v es to
in co m e ta xes, b ut n o fe d era l ta x o f th e s o rt is m ore th an r e m ote ly in p ro sp ect in th is c o untr y . O th er
su ggeste d m eans o f l ig hte nin g th e b urd en o f th e i n co m e ta x a re to i n cre ase th e n um ber o f i te m s s u b je ct
to e xcis e ta xes, a nd a p ply a u nifo rm r a te to th em , s o a s to c re ate w hat w ould a m ount to a f e d era l s a le s
ta x; to in cre ase u se r ta xes, s u ch a s to lls o n fe d era lly o w ned b rid ges a nd r e cre ati o n fa ciliti e s; a nd to
enact a la w p erm itti n g fe d era l lo tte rie s, lik e th e lo tte rie s th at w ere p erm itte d fr o m c o lo nia l ti m es u p
to 1895, w hic h help ed fin ance su ch pro je cts as th e build in g of H arv ard , th e fig hti n g of th e
Rev olu ti o nary W ar, and th e b uild in g o f m any sc ho ols , b rid ges, canals , and ro ad s. O ne o bvio us
dis a d vanta ge o f a ll th ese s c hem es is th at th ey w ould c o lle ct r e v enue w ith r e la ti v ely littl e r e gard to
ab ility to p ay, a nd fo r th is re aso n o r o th ers n o ne o f th em sta nd a c hance o f b ein g e nacte d in th e
fo re se eab le f u tu re . A s p ecia l fa v orite o f th eo re ti c ia ns, b ut o f h ard ly a nyo ne e ls e , is
s o m eth in g c alle d th e e xp end itu re
ta x— th e ta xin g o f in d iv id uals o n th e b asis o f th eir to ta l a nnual e xp end itu re s ra th er th an o n th eir
in co m e. T he p ro ponents o f th is ta x— die hard a d here nts o f th e e co no m ic s o f s c arc ity — arg ue th at it
would h av e th e p rim ary v ir tu e o f s im plic ity ; th at it w ould h av e th e b enefic ia l e ffe ct o f e nco ura gin g
sa v in gs; th at i t w ould b e f a ir e r th an th e i n co m e ta x, b ecause i t w ould ta x w hat p eo ple to ok o ut o f th e
eco no m y r a th er th an w hat th ey p ut in to it; a nd th at it w ould g iv e th e g o vern m ent a p arti c ula rly h and y
co ntr o l in str u m ent w ith w hic h to k eep th e n ati o nal e co no m y o n a n e v en k eel. Its o pponents c o nte nd
th at it w ould n’t r e ally b e s im ple a t a ll, a nd w ould b e r id ic ulo usly e asy to e v ad e; th at it w ould c ause
th e ric h to b eco m e ric her, a nd d oub tl e ss s ti n gie r a s w ell; a nd , fin ally , th at b y p utti n g a p enalty o n
sp end in g it w ould p ro m ote d ep re ssio n. In a ny e v ent, b oth sid es c o nced e th at its e nactm ent in th e
Unite d S ta te s is n o t n o w p oliti c ally p ra cti c ab le . A n e xp end itu re ta x w as s e rio usly p ro pose d fo r th e
Unite d S ta te s b y S ecre ta ry o f th e T re asu ry H enry M org enth au, Jr., in 1 942, a nd fo r B rita in b y a
Cam brid ge e co no m is t ( la te r a s p ecia l a d vis e r to th e N ati o nal T re asu ry ) n am ed N ic ho la s K ald or, in
1951, th o ugh n eith er p ro ponent a sk ed fo r re p eal o f th e in co m e ta x. B oth p ro posa ls w ere a ll b ut
unanim ously ho ote d d ow n. “T he exp end itu re ta x is a b eauti fu l th in g to co nte m pla te ,” o ne o f its
ad m ir e rs s a id r e centl y . “ It w ould a v oid a lm ost a ll th e p itf a lls o f th e in co m e ta x. B ut it’ s a d re am .”
And s o i t i s , i n th e W este rn w orld ; s u ch a ta x h as b een p ut i n e ffe ct o nly i n I n d ia a nd C eylo n.
With n o f e asib le s u b sti tu te i n s ig ht, th en, th e i n co m e ta x s e em s to b e h ere to s ta y, a nd a ny h o pe f o r
bette r ta xati o n s e em s to l ie i n i ts r e fo rm . S in ce o ne o f th e C ode’s c hie f f la w s i s i ts c o m ple xity , r e fo rm
mig ht w ell s ta rt w ith th at. E ffo rts a t s im plific ati o n h av e b een m ad e w ith r e gula rity s in ce 1 943, w hen
Secre ta ry M org enth au s e t u p a c o m mitte e to s tu d y th e s u b je ct, a nd th ere h av e b een o ccasio nal s m all
su ccesse s; sim plifie d in str u cti o ns, fo r e xam ple , a nd a sh o rte ned fo rm fo r ta xp ayers w ho w is h to
ite m iz e d ed ucti o ns b ut w ho se a ffa ir s a re re la ti v ely u nco m plic ate d w ere b oth in tr o duced d urin g th e
Kenned y ad m in is tr a ti o n. O bvio usly , th o ugh, th ese w ere m ere guerrilla -s k ir m is h vic to rie s. O ne
obsta cle to any vic to ry m ore sw eep in g is th e fa ct th at m any of th e C ode’s co m ple xiti e s w ere
in tr o duced
in n o in te re st o th er th an th at o f fa ir n ess to a ll, a nd a p pare ntl y c anno t b e r e m oved w ith o ut
sa crific in g fa ir n ess. T he ev olu ti o n of th e sp ecia l fa m ily -s u p port pro vis io ns pro vid es a str ik in g
exam ple o f h o w th e q uest f o r e q uity s o m eti m es l e ad s s tr a ig ht to c o m ple xity . U p to 1 948, th e f a ct th at
so m e s ta te s h ad a nd s o m e d id n’t h av e c o m munity -p ro perty la w s r e su lte d in a n a d vanta ge to m arrie d
co up le s i n th e c o m munity -p ro perty s ta te s; th o se c o up le s, a nd th o se c o up le s o nly , w ere a llo w ed to b e
ta xed a s if th eir to ta l in co m e w ere d iv id ed e q ually b etw een th em , e v en th o ugh o ne sp ouse m ig ht
actu ally h av e a h ig h in co m e a nd th e o th er n o ne a t a ll. T o c o rre ct th is c le ar-c ut in eq uity , th e fe d era l
Code w as m odifie d to e xte nd th e in co m e-d iv id in g p riv ile ge to a ll m arrie d p ers o ns. E ven a p art fr o m
th e r e su lti n g d is c rim in ati o n a gain st s in gle p ers o ns w ith o ut d ep end ents — whic h r e m ain s e nsh rin ed a nd
unchalle nged in th e C ode to day— th is c o rre cti o n o f o ne in eq uity le d to th e c re ati o n o f a no th er, th e
co rre cti o n o f w hic h l e d to s ti ll a no th er; b efo re th e C hin ese -b ox s e q uence w as p la yed o ut, a cco unt h ad
been ta ken o f th e le giti m ate s p ecia l p ro ble m s o f p ers o ns w ho h ad fa m ily re sp onsib iliti e s a lth o ugh
th ey w ere n o t m arrie d , th en o f w ork in g w iv es w ith e xp ense s f o r c hild c are d urin g b usin ess h o urs , a nd
th en o f w id ow s a nd w id ow ers . A nd e ach c hange m ad e th e C ode m ore c o m ple x.
The lo opho le s a re a no th er m atte r. In th eir c ase , c o m ple xity s e rv es n o t e q uity b ut its o pposite , a nd
th eir pers is te nt su rv iv al co nsti tu te s a puzzlin g para d ox; in a sy ste m und er w hic h th e m ajo rity
pre su m ab ly m akes th e la w s, ta x p ro vis io ns th at b la ta ntl y fa v or ti n y m in o riti e s o ver e v ery b ody e ls e
would s e em to re p re se nt th e c iv il- rig hts p rin cip le ru n w ild — a k in d o f a nti - d is c rim in ati o n p ro gra m
fo r th e p ro te cti o n o f m illio nair e s. T he p ro cess b y w hic h n ew ta x le gis la ti o n c o m es in to b ein g— an
orig in al p ro posa l fr o m th e T re asu ry D ep artm ent o r s o m e o th er s o urc e, p assa ge in tu rn b y th e H ouse Ways a nd M eans C om mitte e, th e w ho le H ouse , th e S enate F in ance C om mitte e, a nd th e w ho le S enate ,
fo llo w ed b y th e w ork in g o ut o f a H ouse -S enate c o m pro m is e b y a c o nfe re nce c o m mitte e, f o llo w ed b y
re p assa ge b y th e H ouse a nd th e S enate a nd , f in ally , f o llo w ed b y s ig nin g b y th e P re sid ent— is i n d eed a
to rtu o us o ne, a t a ny s ta ge o f w hic h a b ill m ay b e k ille d o r s h elv ed .
H ow ev er, th o ugh th e p ub lic h as
ple nty o f o pportu nity to p ro te st s p ecia l- in te re st p ro vis io ns, w hat p ub lic p re ssu re th ere i s i s a p t to b e
gre ate r in fa v or o f th em th an a gain st th em . In th e b ook o n ta x lo opho le s c alle d “ T he G re at T re asu ry
Raid ,” P hilip M . S te rn p oin ts o ut s e v era l f o rc es th at s e em to h im to w ork a gain st th e e nactm ent o f ta x-
re fo rm m easu re s, am ong th em th e sk ill, p ow er, and o rg aniz a ti o n o f th e anti - re fo rm lo bbie s; th e
diffu se ness and politi c al im pote nce of th e pro -re fo rm fo rc es w ith in th e go vern m ent; and th e
in d iffe re nce o f th e g enera l p ub lic , w hic h e xp re sse s p ra cti c ally n o e nth usia sm fo r ta x r e fo rm th ro ugh
le tte rs to co ngre ssm en o r b y any o th er m eans, p erh ap s in la rg e p art b ecause it is stu nned in to
in co m pre hensio n a nd c o nse q uent s ile nce b y th e m in d -b ogglin g te chnic ality o f th e w ho le s u b je ct. In
th is s e nse , th e C ode’s c o m ple xity is its im penetr a b le e le p hant h id e. T hus th e T re asu ry D ep artm ent,
whic h, a s th e a gency c harg ed w ith c o lle cti n g f e d era l r e v enues, h as a n atu ra l i n te re st i n ta x r e fo rm , i s
ofte n le ft, alo ng w ith a hand fu l o f re fo rm -m in d ed le gis la to rs , lik e S enato rs P aul H . D ougla s o f
Illin o is , A lb ert G ore of Tennesse e, and E ugene J. M cC arth y of M in neso ta , on a lo nely and
in d efe nsib le s a lie nt.
OPTIM IS T S
b elie v e th at s o m e “ p oin t o f c ris is ” w ill e v entu ally c ause s p ecia lly fa v ore d g ro up s to lo ok
beyo nd th eir s e lfis h in te re sts , a nd th e r e st o f th e c o untr y to o verc o m e its p assiv ity , to s u ch a n e xte nt
th at th e in co m e ta x w ill c o m e to g iv e b ack a m ore fla tte rin g p ic tu re o f th e c o untr y th an it d oes n o w .
When th is w ill h ap pen, i f e v er, th ey d o n o t s p ecify . B ut th e g enera l s h ap e o f th e p ic tu re h o ped f o r b y
so m e o f th o se w ho c are m ost a b out i t i s k no w n. T he i d eal i n co m e ta x e nv is io ned f o r th e f a r f u tu re b y
many r e fo rm ers w ould b e c hara cte riz e d b y a s h o rt a nd s im ple C ode w ith c o m para ti v ely l o w r a te s a nd
with a m in im um o f e xcep ti o ns to th em . In its m ain s tr u ctu ra l fe atu re s, th is id eal ta x w ould b ear a
mark ed r e se m bla nce to th e 1 913 in co m e ta x— th e fir s t e v er to b e p ut in e ffe ct in th e U nite d S ta te s in
peaceti m e. S o i f th e u natta in ab le v is io ns o f to day s h o uld e v entu ally m ate ria liz e , th e i n co m e ta x w ould
be j u st a b out b ack w here i t s ta rte d . 4
A R ea so n able A m ou nt o f T im e
PR IV ATE IN FO RM ATIO N,
w heth er o f d is ta nt p ub lic e v ents , im pend in g b usin ess d ev elo pm ents , o r e v en
th e h ealth o f p oliti c al fig ure s, h as a lw ays b een a v alu ab le c o m modity to tr a d ers in s e curiti e s— so
valu ab le th at so m e co m menta to rs hav e su ggeste d th at sto ck exchanges are m ark ets fo r su ch
in fo rm ati o n ju st a s m uch a s fo r s to cks. T he m oney v alu e th at a m ark et p uts o n in fo rm ati o n is o fte n
pre cis e ly m easu ra b le i n te rm s o f th e c hange i n s to ck p ric es th at i t b rin gs a b out, a nd th e i n fo rm ati o n i s
alm ost a s r e ad ily
c o nv erti b le i n to m oney a s a ny o th er c o m modity ; i n d eed , to th e e xte nt th at i t i s u se d
fo r b arte r b etw een tr a d ers , it
is
a k in d o f m oney. M ore o ver, u nti l q uite r e centl y , th e p ro prie ty o f th e
use o f in sid e d ope fo r th eir o w n e nric hm ent b y th o se fo rtu nate e no ugh to p osse ss it w ent la rg ely
unq uesti o ned . N ath an R oth sc hild ’s ju d ic io us use of ad vance new s of W ellin gto n’s vic to ry at
Wate rlo o w as th e c hie f b asis o f th e R oth sc hild fo rtu ne in E ngla nd , a nd n o R oyal c o m mis sio n o r
enra ged p ub lic r o se to p ro te st; s im ila rly , a nd a lm ost s im ulta neo usly , o n th is s id e o f th e A tl a nti c J o hn
Ja co b A sto r m ad e a n u nchalle nged b und le o n a d vance n ew s o f th e G hent tr e aty e nd in g th e W ar o f
1812. In th e p ost- C iv il W ar e ra in th e U nite d S ta te s th e m em bers o f th e in v esti n g p ub lic , s u ch a s it
was, s ti ll d ocile ly a ccep te d th e r ig ht o f th e in sid er to tr a d e o n h is p riv ile ged k no w le d ge, a nd w ere
co nte nt to p ic k u p a ny c ru m bs th at h e m ig ht d ro p a lo ng th e w ay. (D anie l D re w , a v in ta ge in sid er,
cru elly d enie d th em e v en th is c o nso la ti o n b y d ro ppin g p ois o ned c ru m bs in th e fo rm o f m is le ad in g
mem ora nd a a s to h is in v estm ent p la ns, w hic h h e w ould e la b ora te ly s tr e w in p ub lic p la ces.) M ost
nin ete enth -c entu ry A meric an fo rtu nes w ere e nla rg ed b y, if th ey w ere n o t a ctu ally fo und ed o n, th e
pra cti c e o f i n sid er tr a d in g, a nd j u st h o w d iffe re nt o ur p re se nt s o cia l a nd e co no m ic o rd er w ould b e i f
su ch tr a d in g had b een effe cti v ely fo rb id den in th o se d ays p ro vid es a su b je ct fo r fa sc in ati n g, if
bootl e ss, s p ecula ti o n. N ot u nti l 1 910 d id a nyo ne p ub lic ly q uesti o n th e m ora lity o f c o rp ora te o ffic ers ,
dir e cto rs , a nd e m plo yees tr a d in g i n th e s h are s o f th eir o w n c o m panie s, n o t u nti l th e n in ete en tw enti e s
did it c o m e to b e w id ely th o ught o f a s o utr a geo us th at s u ch p ers o ns s h o uld b e p erm itte d to p la y th e
mark et g am e w ith w hat a m ounts to a s ta cked d eck, a nd n o t u nti l 1 934 d id C ongre ss p ass le gis la ti o n
in te nd ed to r e sto re e q uity . T he l e gis la ti o n, th e S ecuriti e s E xchange A ct, r e q uir e s c o rp ora te i n sid ers to
fo rfe it to th eir c o rp ora ti o ns a ny p ro fits th ey m ay re aliz e o n sh o rt- te rm tr a d es in th eir o w n fir m s’
sto ck, a nd p ro vid es f u rth er, i n a s e cti o n th at w as i m ple m ente d i n 1 942 b y a r u le d esig nate d a s 1 0B -5 ,
th at n o s to ck tr a d er m ay u se a ny s c hem e to d efr a ud o r “ m ake a ny u ntr u e s ta te m ent o f a m ate ria l f a ct o r
… o m it to s ta te a m ate ria l f a ct.”
Sin ce o m itti n g to s ta te m ate ria l fa cts is th e e sse nce o f u sin g in sid e in fo rm ati o n, th e la w — while it
does n o t fo rb id in sid ers to b uy th eir o w n s to ck, n o r to k eep th e p ro fits p ro vid ed th ey h o ld o nto th e
sto ck m ore th an s ix m onth s— would s e em to o utl a w th e s ta cked d eck. In p ra cti c e, th o ugh, u nti l v ery
re centl y th e 1 942 r u le w as tr e ate d a lm ost a s if it d id n’t e xis t; it w as in v oked b y th e S ecuriti e s a nd
Exchange C om mis sio n, th e fe d era l e nfo rc em ent b ody s e t u p u nd er th e S ecuriti e s E xchange A ct, o nly ra re ly a nd in c ase s s o fla gra nt a s to b e p ro bab ly p ro se cuta b le e v en w ith o ut it, u nd er c o m mon la w .
And th ere w ere a p pare nt re aso ns fo r th is la xity . F or o ne th in g, it h as b een w id ely a rg ued th at th e
priv ile ge o f c ash in g in o n th eir c o rp ora te s e cre ts is a n ecessa ry in centi v e to b usin ess e xecuti v es to
go ad th em to th eir b est e ffo rts , a nd it is c o olly c o nte nd ed b y a fe w a uth o riti e s th at th e u nin hib ite d
pre se nce o f in sid ers in th e m ark et, h o w ev er o ffe nsiv e to th e sp ir it o f fa ir p la y, is e sse nti a l to a
sm ooth , o rd erly flo w o f tr a d in g. M ore o ver, it is c o nte nd ed th at th e m ajo rity o f a ll sto ck tr a d ers ,
wheth er o r n o t th ey a re te chnic ally in sid ers , p osse ss a nd c o nceal in sid e in fo rm ati o n o f o ne s o rt o r
ano th er, o r a t le ast h o pe a nd b elie v e th at th ey d o, a nd th at th ere fo re a n e v en-h and ed a p plic ati o n o f
Rule 1 0B -5 w ould r e su lt in n o th in g le ss th an c hao s o n W all S tr e et. S o in le tti n g th e r u le r e st la rg ely
untr o ub le d in th e ru le b ook fo r tw enty y ears , th e S .E .C . se em ed to b e c o nsc io usly re fr a in in g fr o m
hitti n g W all S tr e et i n o ne o f i ts m ost v uln era b le s p ots . B ut th en, a fte r a c o up le o f p re lim in ary j a b s, i t
went fo r th e s p ot w ith a v engeance. T he la w su it in w hic h it d id s o w as a c iv il c o m pla in t a gain st th e
Texas G ulf S ulp hur C om pany a nd th ir te en m en w ho w ere d ir e cto rs o r e m plo yees o f th at c o m pany; it
was tr ie d w ith o ut a ju ry in th e U nite d S ta te s D is tr ic t C ourt in F ole y S quare o n M ay 9 th th ro ugh J u ne
21st, 1 966, a nd a s th e p re sid in g ju d ge, D ud le y J . B onsa l, re m ark ed m ild ly a t o ne p oin t d urin g th e
tr ia l, “ I g uess w e a ll a gre e th at w e a re p lo w in g n ew g ro und h ere to so m e e xte nt.” P lo w in g, a nd
perh ap s so w in g to o; H enry G . M anne, in a re cent b ook enti tl e d “In sid er T ra d in g and th e S to ck
Mark et,” s a ys th at th e c ase p re se nts i n a lm ost c la ssic te rm s th e w ho le p ro ble m o f i n sid er tr a d in g, a nd
exp re sse s th e o pin io n th at i ts r e so lu ti o n “ m ay d ete rm in e th e l a w i n th is f ie ld f o r m any y ears to c o m e.”
TH E
e v ents th at l e d to th e S .E .C .’ s a cti o n b egan i n M arc h, 1 959, w hen T exas G ulf, a N ew Y ork C ity -
base d co m pany th at w as th e w orld ’s le ad in g pro ducer of su lp hur, began co nd ucti n g aeria l
geo physic al s u rv eys o ver th e C anad ia n S hie ld , a v ast, b arre n, f o rb id din g a re a o f e aste rn C anad a th at
in th e d is ta nt b ut n o t fo rg o tte n p ast h ad p ro ved to b e a fe rti le s o urc e o f g o ld . W hat th e T exas G ulf
air m en w ere l o okin g f o r w as n eith er s u lp hur n o r g o ld . R ath er, i t w as s u lp hid es— dep osits o f s u lp hur
occurrin g i n c hem ic al c o m bin ati o n w ith o th er u se fu l m in era ls , s u ch a s z in c a nd c o pper. W hat th ey h ad
in m in d w as d is c o verin g m in eab le v ein s o f su ch m in era ls so th at T exas G ulf c o uld d iv ers ify its
acti v iti e s a nd b e l e ss d ep end ent u p on s u lp hur, th e m ark et p ric e o f w hic h h ad b een s lip pin g. F ro m ti m e
to ti m e d urin g th e tw o y ears th at th e s u rv eys w ent o n i n te rm itte ntl y , th e g eo physic al i n str u m ents i n th e
sc annin g p la nes w ould b ehav e str a ngely , th eir need le s jig glin g in su ch a w ay as to in d ic ate th e
pre se nce o f e le ctr ic ally c o nd ucti v e m ate ria l in th e e arth . T he a re as w here su ch th in gs h ap pened ,
calle d “ano m alie s” b y geo physic is ts , w ere d uly lo gged and m ap ped b y th e su rv eyo rs . A ll to ld ,
se v era l th o usa nd a no m alie s w ere f o und . I t’ s a l o ng w ay f r o m a n a no m aly to a w ork ab le m in e, a s m ust
be e v id ent to a nyo ne w ho k no w s th at w hile m ost s u lp hid es a re e le ctr ic ally c o nd ucti v e, s o a re m any
oth er th in gs, in clu d in g gra p hite , th e w orth le ss pyrite s calle d fo ol’s go ld , and ev en w ate r;
nev erth ele ss, s e v era l h und re d o f th e a no m alie s th at th e T exas G ulf m en h ad f o und w ere c o nsid ere d to
be w orth y o f g ro und i n v esti g ati o n, a nd a m ong th e m ost p ro m is in g-lo okin g o f a ll w as o ne s itu ate d a t a
pla ce d esig nate d o n th eir m ap s a s th e K id d-5 5 s e gm ent— one s q uare m ile o f m usk eg m ars h , lig htl y
wooded a nd a lm ost d ev oid o f o utc ro ppin g r o cks, a b out fifte en m ile s n o rth o f T im min s, O nta rio , a n
old g o ld -m in in g to w n th at is its e lf s o m e th re e h und re d a nd fifty m ile s n o rth w est o f T oro nto . S in ce
Kid d-5 5 w as p riv ate ly o w ned , th e c o m pany’s f ir s t p ro ble m w as to g et ti tl e to i t, o r to e no ugh o f i t to
make p ossib le e xp lo ra to ry g ro und o pera ti o ns; f o r a l a rg e c o m pany to a cq uir e l a nd i n a n a re a w here i t
is k no w n to b e e ngaged i n m in in g e xp lo ra ti o n o bvio usly i n v olv es d elic acy i n th e e xtr e m e, a nd i t w as
no t u nti l J u ne, 1 963, th at T exas G ulf w as a b le to g et a n o pti o n p erm itti n g it to d rill o n th e n o rth east
quarte r s e cti o n o f K id d-5 5. O n O cto ber 2 9th a nd 3 0th
o f th at y ear a T exas G ulf e ngin eer, R ic hard H . Cla yto n, c o nd ucte d a g ro und e le ctr o m agneti c s u rv ey o f th e n o rth east q uarte r, a nd w as s a ti s fie d w ith
what h e fo und . A d rill r ig w as m oved to th e s ite , a nd o n N ovem ber 8 th , th e fir s t te st d rill h o le w as
begun.
There fo llo w ed a th rillin g, if u nco m fo rta b le , s e v era l d ays a t K id d-5 5. T he m an in c harg e o f th e
drillin g c re w w as a y o ung T exas G ulf g eo lo gis t n am ed K enneth D ark e, a c ig ar s m oker w ith a r a kis h
gle am i n h is e ye, w ho l o oked a g o od d eal m ore l ik e th e tr a d iti o nal n o ti o n o f a m in in g p ro sp ecto r th an
th at o f th e o rg aniz a ti o n m an h e w as. F or th re e d ays th e d rillin g w ent o n, b rin gin g o ut o f th e e arth a
cylin d ric al c o re o f m ate ria l a n i n ch a nd a q uarte r i n d ia m ete r, w hic h s e rv ed a s th e f ir s t a ctu al s a m ple
of w hat th e r o ck u nd er K id d-5 5 c o nta in ed . A s th e c o re c am e u p , D ark e s tu d ie d it c riti c ally , in ch b y
in ch a nd fo ot b y fo ot, u sin g n o in str u m ents b ut o nly h is e yes a nd h is k no w le d ge o f w hat v ario us
min era l d ep osits l o ok l ik e i n th eir n atu ra l s ta te . O n th e e v enin g o f S und ay, N ovem ber 1 0th , b y w hic h
ti m e th e d rill w as d ow n o ne h und re d a nd f ifty f e et, D ark e te le p ho ned h is i m med ia te s u p erio r, W alte r
Holy k, T exas G ulf ’s c hie f g eo lo gis t, a t h is h o m e in S ta m fo rd , C onn. to r e p ort o n h is fin d in gs s o fa r.
(H e m ad e th e c all fr o m T im min s, sin ce th ere w as n o te le p ho ne a t th e K id d-5 5 d rill site .) D ark e,
Holy k h as s in ce s a id , w as “ excite d .” A nd s o , a p pare ntl y , w as H oly k a fte r h e h ad h eard w hat D ark e
had to s a y, b ecause h e i m med ia te ly s e t i n m oti o n q uite a c o rp ora te f la p f o r a S und ay n ig ht. T hat s a m e
ev enin g, H oly k c alle d h is s u p erio r, R ic hard D . M ollis o n, a T exas G ulf v ic e p re sid ent w ho l iv ed n ear
Holy k in G re enw ic h, a nd — sti ll th e sa m e e v enin g— Mollis o n c alle d
his
b oss, C harle s F . F ogarty ,
executi v e v ic e p re sid ent a nd th e c o m pany’s N o. 2 m an, in n earb y R ye, to p ass D ark e’s r e p ort o n u p
th e lin e. F urth er r e p orts w ere m ad e th e n ext d ay th ro ugh th e s a m e la b yrin th o f c o m mand — Dark e to
Holy k to M ollis o n to F ogarty . A s a r e su lt o f th em , H oly k, M ollis o n, a nd F ogarty a ll d ecid ed to g o to
Kid d-5 5 to s e e f o r th em se lv es.
Holy k g o t th ere fir s t; h e a rriv ed a t T im min s o n N ovem ber 1 2th , c hecked in a t th e B on A ir M ote l,
and g o t o ut to K id d-5 5 b y j e ep a nd m usk eg tr a cto r i n ti m e to s e e th e c o m ple ti o n o f th e d rill h o le a nd
to h elp D ark e v is u ally e sti m ate a nd lo g th e c o re . B y th is
ti m e th e w eath er, w hic h h ad h ith erto b een
passa b le f o r T im min s i n m id -N ovem ber, h ad tu rn ed n asty . I n f a ct, i t w as “ q uite i n cle m ent,” H oly k, a
Canad ia n in h is fo rti e s w ith a d octo ra te in g eo lo gy fr o m M assa chuse tts In sti tu te o f T echno lo gy, h as
sin ce s a id . “ It w as c o ld , w in d y, th re ate nin g s n o w a nd ra in , a nd … w e w ere m uch m ore c o ncern ed
with p ers o nal c o m fo rt th an w e w ere w ith th e d eta ils o f th e c o re h o le . K en D ark e w as w riti n g, a nd I
was lo okin g a t th e c o re , tr y in g to m ake e sti m ate s o f th e m in era l c o nte nt.” T o a d d to th e d iffic ulty o f
work in g o utd oors u nd er s u ch c o nd iti o ns, s o m e o f th e c o re h ad c o m e o ut o f th e g ro und c o vere d w ith
dir t a nd g re ase , a nd h ad to b e w ash ed w ith g aso lin e b efo re its c o nte nts c o uld e v en b e g uesse d a t.
Desp ite a ll d iffic ulti e s, H oly k s u cceed ed i n m akin g a n a p pra is a l o f th e c o re th at w as, to s a y th e l e ast,
sta rtl in g. O ver th e s ix h und re d o r s o fe et o f its fin al le ngth , h e e sti m ate d , th ere a p peare d to b e a n
av era ge c o pper c o nte nt o f 1 .1 5% a nd a n a v era ge z in c c o nte nt o f 8 .6 4% . A C anad ia n s to ckb ro ker w ith
sp ecia l k no w le d ge o f th e m in in g in d ustr y w as to s a y la te r th at a d rill c o re o f s u ch le ngth a nd s u ch
min era l c o nte nt “ is j u st b eyo nd y o ur w ild est i m agin ati o n.”
TEX A S
G ulf d id n’t h av e a s u re fir e m in e y et; th ere w as a lw ays th e p ossib ility th at th e m in era l v ein w as
a lo ng, th in o ne, to o lim ite d to b e c o m merc ia lly e xp lo ita b le , a nd th at b y a fa nta sti c c hance th e d rill
had h ap pened to g o “ d ow n d ip ”— th at is , s tr a ig ht in to th e v ein lik e a s w ord in to a s h eath . W hat w as
need ed w as a p atte rn o f s e v era l d rill h o le s, b egin nin g a t d iffe re nt s p ots o n th e s u rfa ce a nd e nte rin g th e
earth a t d iffe re nt a ngle s, to e sta b lis h th e s h ap e a nd l im its o f th e d ep osit. A nd s u ch a p atte rn c o uld n o t
be m ad e u nti l T exas G ulf h ad ti tl e to th e o th er th re e q uarte r-s e gm ents o f K id d-5 5. G etti n g ti tl e w ould
ta ke ti m e if it w ere p ossib le a t a ll, b ut m eanw hile , th ere w ere s e v era l s te p s th at th e c o m pany c o uld and d id ta ke. T he d rill r ig w as m oved a w ay f r o m th e s ite o f th e te st h o le . C ut s a p lin gs w ere s tu ck i n
th e g ro und a ro und th e h o le , to r e sto re th e a p peara nce o f th e p la ce to a s e m bla nce o f its n atu ra l s ta te .
A s e co nd te st h o le w as d rille d , a s o ste nta ti o usly a s p ossib le , s o m e d is ta nce a w ay, a t a p la ce w here a
barre n c o re w as e xp ecte d — and fo und . A ll o f th ese c am oufla ge m easu re s, w hic h w ere in
c o nfo rm ity
with lo ng-e sta b lis h ed pra cti c e am ong m in ers w ho su sp ect th at th ey hav e m ad e a str ik e, w ere
su p ple m ente d b y a n o rd er fr o m T exas G ulf ’s p re sid ent, C la ud e O . S te p hens, th at n o o ne o uts id e th e
actu al e xp lo ra ti o n g ro up , e v en w ith in th e c o m pany, sh o uld b e to ld w hat h ad b een fo und . L ate in
Novem ber, th e c o re w as s h ip ped o ff, in s e cti o ns, to th e U nio n A ssa y O ffic e in S alt L ake C ity fo r
sc ie nti fic a naly sis o f i ts c o nte nts . A nd m eanw hile , o f c o urs e , T exas G ulf b egan d is c re etl y p utti n g o ut
fe ele rs f o r th e p urc hase o f th e r e st o f K id d-5 5.
And m eanw hile o th er m easu re s, w hic h m ay o r m ay n o t h av e b een re la te d to th e e v ents n o rth o f
Tim min s, w ere b ein g ta ken. O n N ovem ber 1 2th , F ogarty b ought th re e h und re d s h are s o f T exas G ulf
sto ck; o n th e 1 5th h e a d ded s e v en h und re d m ore s h are s, o n N ovem ber 1 9th f iv e h und re d m ore , a nd o n
Novem ber 2 6th tw o h und re d m ore . C la yto n b ought tw o h und re d o n th e 1 5th , M ollis o n o ne h und re d o n
th e s a m e d ay; a nd
Mrs
. H oly k b ought fifty o n th e 2 9th a nd o ne h und re d m ore o n D ecem ber 1 0th . B ut
th ese p urc hase s, a s th in gs tu rn ed o ut, w ere o nly th e h arb in gers o f a p erio d o f a p pare ntl y in te nse
affe cti o n fo r T exas G ulf s to ck a m ong c erta in o f its o ffic ers a nd e m plo yees, a nd e v en s o m e o f th eir
fr ie nd s. In m id -D ecem ber, th e r e p ort o n th e c o re c am e b ack fr o m S alt L ake C ity , a nd it s h o w ed th at
Holy k’s ro ugh-a nd -re ad y e sti m ate h ad b een a m azin gly a ccura te ; th e c o pper a nd z in c c o nte nts w ere
fo und to b e a lm ost e xactl y w hat h e h ad s a id , a nd th ere w ere 3 .9 4 o unces o f s ilv er p er to n th ro w n i n a s
a s o rt o f b onus. L ate in D ecem ber, D ark e m ad e a tr ip to W ash in gto n, D .C . a nd v ic in ity , w here h e
re co m mend ed T exas G ulf s to ck to a g ir l h e k new th ere a nd h er m oth er; th ese tw o, w ho c am e to b e
desig nate d in th e tr ia l a s th e “ ti p pees,” s u b se q uentl y p asse d a lo ng th e r e co m mend ati o n to tw o o th er
pers o ns w ho , lo gic ally e no ugh, th ere b y b ecam e th e “ su b -ti p pees.” B etw een D ecem ber 3 0th a nd th e
fo llo w in g F eb ru ary 1 7th , D ark e’s ti p pees a nd s u b -ti p pees p urc hase d a ll to ld 2 ,1 00 s h are s o f T exas
Gulf s to ck, a nd i n a d diti o n th ey p urc hase d w hat a re k no w n i n th e b ro kera ge tr a d e a s “ calls ” o n 1 ,5 00
ad diti o nal s h are s. A c all is a n o pti o n to b uy a s ta te d a m ount o f a c erta in s to ck a t a fix ed p ric e—
genera lly n ear th e c urre nt m ark et p ric e— at a ny ti m e d urin g a sta te d p erio d. C alls o n m ost lis te d
sto cks a re a lw ays o n s a le b y d eale rs w ho s p ecia liz e in th em . T he p urc hase r p ays a g enera lly r a th er
modera te s u m f o r h is o pti o n; i f th e s to ck th en g o es u p d urin g th e s ta te d p erio d, th e r is e c an e asily b e
co nv erte d in to a lm ost p ure p ro fit fo r h im , w hile if th e s to ck s ta ys p ut o r g o es d ow n, h e s im ply te ars
up h is c all th e w ay a h o rs e p la yer te ars u p a lo sin g ti c ket, a nd lo se s n o th in g b ut th e c o st o f th e c all.
There fo re c alls p ro vid e th e c heap est p ossib le w ay o f g am blin g o n th e s to ck m ark et, a nd th e m ost
co nv enie nt w ay o f c o nv erti n g i n sid e i n fo rm ati o n i n to c ash .
Back i n T im min s, D ark e, p ut te m pora rily o ut o f b usin ess a s a g eo lo gis t b y th e w in te r f r e eze