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 a nd th e
la nd -o w ners h ip p ro ble m a t K id d-5 5, s e em s to h av e m anaged to k eep ti m e f r o m h angin g h eav y o n h is
hand s. In Ja nuary , h e e nte re d in to a p riv ate p artn ers h ip w ith a no th er T im min s m an w ho w asn ’t a
Texas G ulf e m plo yee to sta ke a nd c la im C ro w n la nd s a ro und T im min s fo r th eir o w n b enefit. In
Feb ru ary , h e to ld H oly k o f a b arro om c o nv ers a ti o n th at h ad o ccurre d in T im min s o ne g elid w in te r
ev enin g, in w hic h a n a cq uain ta nce o f h is h ad le t fa ll th at h e’d h eard ru m ors o f a T exas G ulf s tr ik e
nearb y a nd w as th ere fo re g o in g to s ta ke a fe w c la im s o f h is o w n. H orrifie d , H oly k, a s h e re calle d
la te r, to ld D ark e to r e v ers e th e p re v io us p olic y o f a v oid in g K id d-5 5 l ik e th e p la gue, a nd to “ go r ig ht
in to th e … a re a a nd s ta ke a ll th e c la im s w e n eed ;” a ls o to “ ste er a w ay th is a cq uain ta nce. G iv e h im a
helic o pte r r id e o r a nyth in g, j u st g et h im o ut o f th e w ay.” D ark e p re su m ab ly c o m plie d w ith th is o rd er.
More o ver, d urin g th e fir s t th re e m onth s o f 1 964 he b ought th re e hund re d sh are s o f T exas G ulf outr ig ht, b ought c alls o n th re e th o usa nd m ore s h are s, a nd a d ded s e v era l m ore p ers o ns, o ne o f th em h is
bro th er, to h is g ro w in g lis t o f ti p pees. H oly k a nd C la yto n w ere so m ew hat le ss fin ancia lly a cti v e
durin g th e s a m e p erio d, b ut th ey d id a d d s u b sta nti a lly to th eir T exas G ulf h o ld in gs— in th e c ase o f
Holy k a nd h is w ife , p arti c ula rly th ro ugh th e u se o f c alls , w hic h th ey’d s c arc ely e v en h eard o f b efo re ,
but w hic h w ere g etti n g to b e q uite th e r a ge i n T exas G ulf c ir c le s.
Sig ns of sp rin g began to co m e at la st, and w ith th em cam e a tr iu m phant co nclu sio n to th e
co m pany’s l a nd a cq uis iti o n p ro gra m . B y M arc h 2 7th , T exas G ulf h ad p re tty m uch w hat i t n eed ed ; th at
is , i t h ad e ith er c le ar ti tl e o r m in era l r ig hts to th e th re e r e m ain in g s e gm ents o f K id d-5 5, e xcep t f o r te n-
per-c ent p ro fit c o ncessio ns o n tw o o f th e s e gm ents , th e s tu b born o w ner o f th e c o ncessio n i n o ne c ase
bein g th e C urti s P ub lis h in g C om pany. A fte r a fin al b urs t o f p urc hase s b y D ark e, h is ti p pees, a nd h is
su b -ti p pees o n M arc h 3 0th a nd 3 1st (a m ong th em a ll, s ix h und re d s h are s a nd c alls o n 5 ,1 00 m ore
sh are s f o r th e tw o d ays), d rillin g w as r e su m ed i n th e s ti ll- fr o ze n m usk eg a t K id d-5 5, w ith H oly k a nd
Dark e b oth o n th e s ite th is ti m e. T he n ew h o le — th e th ir d i n a ll, b ut o nly th e s e co nd o pera ti o nal o ne,
sin ce o ne o f th e tw o d rille d in N ovem ber h ad b een th e d um my in te nd ed to c re ate a d iv ers io n— was
begun a t a p oin t s o m e d is ta nce fr o m th e fir s t a nd a t a n o bliq ue a ngle to it, to a d vance th e b ra cketi n g
pro cess. O bse rv in g a nd lo ggin g th e c o re a s it c am e o ut o f th e g ro und , H oly k fo und th at h e c o uld
sc arc ely h o ld a p encil b ecause o f th e c o ld ; b ut h e m ust h av e b een w arm ed in w ard ly b y th e fa ct th at
pro m is in g m in era liz a ti o n b egan to a p pear a fte r th e fir s t h und re d fe et. H e m ad e h is fir s t p ro gre ss
re p ort to F ogarty b y te le p ho ne o n A pril 1 st. N ow a g ru ellin g d aily r o uti n e w as a d opte d a t T im min s
and K id d-5 5. T he a ctu al d rillin g c re w s ta yed a t th e s ite c o nti n uo usly , w hile th e g eo lo gis ts , i n o rd er to
keep th eir s u p erio rs in N ew Y ork p oste d , h ad to m ake fr e q uent tr ip s to te le p ho nes in T im min s, a nd
what w ith th e s e v en-fo ot s n o w drifts a lo ng th e w ay th e fifte en-m ile tr e k b etw een th e to w n a nd th e
drillin g c am p c usto m arily to ok th re e a nd a h alf to fo ur h o urs . O ne a fte r a no th er, n ew d rill h o le s,
begun a t d iffe re nt p la ces a ro und th e a no m aly a nd p itc hed a t d iffe re nt a ngle s to it, w ere p lu nged in to
th e e arth . A t f ir s t, o nly o ne d rill r ig c o uld b e u se d a t a ti m e b ecause o f a s h o rta ge o f w ate r, w hic h w as
necessa ry to th e o pera ti o n; th e g ro und w as f r o ze n s o lid a nd c o vere d b y d eep s n o w , a nd w ate r h ad to
be la b orio usly p um ped fr o m u nd er th e ic e o n a p ond a b out a h alf m ile fr o m K id d-5 5. T he th ir d h o le
was fin is h ed o n A pril 7 th , a nd a fo urth im med ia te ly b egun w ith th e s a m e r ig ; th e fo llo w in g d ay, th e
wate r s h o rta ge h av in g e ase d s o m ew hat, a f ifth h o le w as i n augura te d w ith a s e co nd d rill r ig , a nd tw o
days a fte r th at— on th e 1 0th — a th ir d r ig w as p re sse d i n to s e rv ic e to d rill s ti ll a no th er h o le . A ll i n a ll,
durin g th e fir s t d ays o f A pril th e p rin cip als in th e a ffa ir w ere k ep t b usy ; in fa ct, d urin g th at p erio d
th eir b uyin g o f c alls o n T exas G ulf s e em s to h av e c o m e to a s ta nd sti ll.
Bit b y b it th e d rillin g r e v eale d th e l in eam ents o f a h uge o re d ep osit; th e th ir d h o le e sta b lis h ed th at
th e o rig in al o ne h ad n o t g o ne “ d ow n d ip ” a s h ad b een fe are d , th e fo urth e sta b lis h ed th at th e m in era l
vein w as a s a ti s fa cto rily d eep o ne, a nd s o o n. A t s o m e p oin t— th e e xact p oin t w as to b eco m e a m atte r
of d is p ute — Texas G ulf c am e to k no w th at i t h ad a w ork ab le m in e o f c o nsid era b le p ro porti o ns, a nd a s
th is p oin t a p pro ached , th e fo cus o f a tte nti o n sh ifte d fr o m d rille rs a nd g eo lo gis ts to sta ff m en a nd
fin ancie rs , w ho w ere to b e th e p rin cip al o bje ct o f th e S .E .C .’ s d is a p pro val la te r o n. A t T im min s,
sn o w fe ll s o h eav ily o n A pril 8 th a nd m ost o f th e 9 th th at n o t e v en th e g eo lo gis ts c o uld g et fr o m th e
to w n to K id d-5 5, b ut to w ard e v enin g o n th e 9 th , w hen th ey f in ally m ad e i t a fte r a h air -ra is in g j o urn ey
of s e v en a nd a h alf h o urs , w ith th em w as n o l e sse r l ig ht th an V ic e P re sid ent M ollis o n, w ho h ad tu rn ed
up in T im min s th e p re v io us d ay. M ollis o n s p ent th e n ig ht a t th e d rill s ite a nd le ft a t a b out n o on th e
next d ay— in o rd er, h e e xp la in ed la te r, to a v oid th e o utd oors m en’s lu nch th ey se rv ed a t K id d-5 5
whic h w as to o h earty fo r a d esk b ound m an lik e h im . B ut b efo re g o in g h e is su ed in str u cti o ns fo r th e
drillin g o f a m ill te st ho le , w hic h w ould p ro duce a re la ti v ely la rg e co re th at co uld b e use d to dete rm in e th e a m enab ility o f th e m in era l m ate ria l to ro uti n e m ill p ro cessin g. N orm ally , a m ill te st
ho le is n o t d rille d u nti l a w ork ab le m in e is b elie v ed to e xis t. A nd s o it m ay h av e b een in th is c ase ;
tw o S .E .C . m in in g e xp erts w ere to in sis t la te r, a gain st c o ntr a ry o pin io ns o f e xp erts fo r th e d efe nse ,
th at b y th e ti m e M ollis o n g av e h is o rd er, T exas G ulf h ad in fo rm ati o n o n th e b asis o f w hic h it c o uld
hav e c alc ula te d th at th e o re re se rv es a t K id d-5 5 h ad a g ro ss a ssa y v alu e o f a t le ast tw o h und re d
millio n d olla rs .
TH E
f a m ous C anad ia n m in in g g ra p ev in e w as h um min g b y n o w , a nd i n r e tr o sp ect th e w ond er i s th at i t
had b een r e la ti v ely q uie t f o r s o l o ng. ( A T oro nto b ro ker w as to r e m ark d urin g th e tr ia l, “ I h av e s e en
drille rs d ro p th e g o ddam d rill a nd b eat it fo r a b ro kera ge o ffic e a s fa st a s th ey c an … [ o r e ls e ] th ey
pic k u p th e
te le p ho ne a nd c all T oro nto .” A fte r s u ch a c all, th e b ro ker w ent o n, th e s ta tu s o f e v ery B ay
Str e et p enny-s to ck to ut d ep end s, f o r a ti m e, o n h o w c lo se a p ers o nal a cq uain ta nce h e c an c la im w ith
th e d rille r w ho m ad e th e s tr ik e, ju st a s a r a cetr a ck to ut’ s s ta tu s d ep end s s o m eti m es o n th e d egre e o f
in ti m acy h e c an c la im w ith a jo ckey o r a h o rs e .) “ T he m occasin te le gra p h h as T exas G ulf ’s a cti v ity
cente re d in K id d T ow nsh ip . A b atte ry o f d rills a re re p orte d to b e a t w ork ,” sa id
The N orth ern
Min er
, a T oro nto w eekly o f im mense in flu ence in th e m in in g-s to ck s e t, o n th e 9 th , a nd th e s a m e d ay
th e T oro nto
Daily S ta r
d ecla re d th at T im min s w as “ b ug-e yed w ith e xcite m ent” a nd th at “ th e m agic
word o n e v ery s tr e et c o rn er a nd in e v ery b arb er s h o p is ‘ T exas G ulf.’ ” T he p ho nes in T exas G ulf ’s
New Y ork h ead quarte rs w ere b uzzin g w ith fr e nzie d q uerie s, w hic h th e o ffic ers c o ld ly tu rn ed a sid e.
On th e 1 0th , P re sid ent S te p hens w as c o ncern ed e no ugh a b out th e r u m ors to s e ek c o unse l f r o m o ne o f
his m ost tr u ste d a sso cia te s— Tho m as S . L am ont, s e nio r m em ber o f th e T exas G ulf b oard o f d ir e cto rs ,
fo rm er s e co nd -g enera ti o n M org an p artn er, h o ld er o f v ario us lo fty o ffic es, p ast a nd p re se nt, in th e
Morg an G uara nty T ru st C om pany, a nd b eare r o f a n am e th at h ad lo ng b een o ne to c o nju re w ith in
Wall S tr e et. S te p hens to ld L am ont w hat h ad b een g o in g o n n o rth o f T im min s ( it w as th e f ir s t L am ont
had h eard o f i t) , m ad e i t c le ar th at h e h im se lf d id n o t y et f e el th at th e e v id ence j u sti fie d b ug e yes, a nd
ask ed w hat L am ont th o ught o ught to b e d one a b out th e e xaggera te d r e p orts . A s l o ng a s th ey s ta yed i n
th e C anad ia n p re ss, L am ont re p lie d , “ I th in k y o u m ig ht b e a b le to liv e w ith th em .” H ow ev er, h e
ad ded , if th ey s h o uld g et in to th e p ap ers in th e U nite d S ta te s, it m ig ht b e w ell to g iv e th e p re ss a n
anno uncem ent th at w ould s e t th e r e co rd s tr a ig ht a nd a v oid u nd ue g yra ti o ns i n th e s to ck m ark et.
The f o llo w in g d ay, S atu rd ay th e 1 1th , th e r e p orts r e ached th e U nite d S ta te s p ap ers w ith a b ang. T he
Tim es
a nd
Hera ld T rib une
b oth r a n a cco unts o n th e T exas G ulf d is c o very , a nd th e la tte r, p utti n g its
sto ry o n th e fr o nt p age, s p oke o f “ th e b ig gest o re s tr ik e s in ce g o ld w as d is c o vere d m ore th an s ix ty
years ago in C anad a.” A fte r re ad in g th ese sto rie s, p erh ap s w ith eyes b uggin g slig htl y , S te p hens
no ti fie d F ogarty th at a p re ss re le ase sh o uld b e
is su ed in ti m e fo r M ond ay’s p ap ers , a nd o ver th e
weekend F ogarty , w ith th e h elp o f se v era l o th er c o m pany o ffic ia ls , w ork ed o ne u p . M eanw hile ,
th in gs w ere n o t s ta nd in g s ti ll a t K id d-5 5; o n th e c o ntr a ry , la te r te sti m ony h eld th at o n S atu rd ay a nd
Sund ay, as m ore and m ore co re cam e up fr o m th e d rill ho le s fu ll o f co pper and zin c o re , th e
calc ula b le valu e of th e m in e w as in cre asin g alm ost ho ur by ho ur. H ow ev er, F ogarty did no t
co m munic ate w ith T im min s a fte r F rid ay n ig ht, s o th e s ta te m ent th at h e a nd h is c o lle agues i s su ed to th e
pre ss o n S und ay a fte rn o on w as n o t b ase d o n th e m ost u p -to -th e-m in ute i n fo rm ati o n. W heth er b ecause
of th at o r f o r s o m e o th er r e aso n, th e s ta te m ent d id n o t c o nv ey th e i d ea th at T exas G ulf th o ught i t h ad a
new C om sto ck L ode. C hara cte riz in g th e p ub lis h ed r e p orts a s e xaggera te d a nd u nre lia b le , it a d m itte d
only th at r e cent d rillin g o n “ o ne p ro perty n ear T im min s” h ad l e d to “ p re lim in ary i n d ic ati o ns th at m ore
drillin g w ould b e re q uir e d fo r p ro per e v alu ati o n o f th e p ro sp ect;” w ent o n to s a y th at “ th e d rillin g
done to d ate h as n o t b een c o nclu siv e;” a nd th en, p utti n g th e s a m e th o ught i n w hat c an h ard ly b e c alle d ano th er w ay, a d ded th at “ th e w ork d one to d ate h as n o t b een s u ffic ie nt to r e ach d efin ite c o nclu sio ns.”
The id ea th us c o uched , o r p erh ap s o ne sh o uld sa y b ed ded d ow n, e v id entl y c am e a cro ss to th e
pub lic w hen i t a p peare d i n M ond ay m orn in g’s n ew sp ap ers , b ecause T exas G ulf s to ck w as n o t n early
so b uo yant e arly th at w eek a s i t m ig ht h av e b een e xp ecte d to b e i f th e e nth usia sti c
Tim es
a nd
Hera ld
Trib une
s to rie s h ad g o ne u nchalle nged . T he s to ck, w hic h h ad b een s e llin g a t a ro und 1 7 o r 1 8 th e
pre v io us N ovem ber a nd h ad c re p t u p o ver th e in te rv enin g m onth s to a ro und 3 0, o pened M ond ay o n
th e N ew Y ork S to ck E xchange a t 3 2— a ris e o f n early tw o p oin ts o ver F rid ay’s c lo sin g— only to
re v ers e d ir e cti o n a nd s in k to 3 0⅞ b efo re th e d ay’s tr a d in g, w as o ver, a nd to s lip o ff s ti ll fu rth er o n
th e f o llo w in g tw o d ays a nd a t o ne p oin t o n W ed nesd ay to uch a l o w o f 2 8⅞ . E vid entl y , i n v esto rs a nd
tr a d ers h ad b een c o nsid era b ly i m pre sse d b y T exas G ulf ’s S und ay m ood o f d ep re cati o n. B ut o n th o se
sa m e th re e d ays, T exas G ulf p eo ple i n b oth C anad a a nd N ew Y ork s e em to h av e b een i n q uite a no th er
mood. A t K id d-5 5 on M ond ay th e 13th , th e day th e lo w -k eyed pre ss re le ase w as re p orte d in
new sp ap ers , th e m ill te st h o le w as c o m ple te d , d rills c o nti n ued to g rin d a w ay o n th re e re gula r te st
ho le s, and a re p orte r fo r
The N orth ern M in er
w as sh o w n a ro und a nd b rie fe d o n th e fin d in gs b y
Mollis o n, H oly k, and D ark e. T he th in gs th ey to ld th e re p orte r m ake it cle ar, in re tr o sp ect, th at
whate v er th e d ra fte rs o f th e re le ase m ay h av e b elie v ed o n S und ay, th e m en a t K id d-5 5 k new o n
Mond ay th at th ey h ad a m in e a nd a b ig o ne. H ow ev er, th e w orld w as n o t to k no w it, o r a t le ast n o t
fr o m th at so urc e, unti l T hurs d ay m orn in g, w hen th e next is su e of th e
Min er
w ould ap pear in
su b sc rib ers ’ m ail a nd o n n ew ssta nd s.
Tuesd ay e v enin g, M ollis o n a nd H oly k fle w to M ontr e al, w here th ey w ere p la nnin g to a tte nd th e
annual c o nv enti o n o f th e C anad ia n I n sti tu te o f M in in g a nd M eta llu rg y, a g ath erin g o f s e v era l h und re d
le ad in g m in in g and in v estm ent peo ple . U pon arriv in g at th e Q ueen E liz a b eth H ote l w here th e
co nv enti o n w as in p ro gre ss, M ollis o n a nd H oly k w ere s ta rtl e d to fin d th em se lv es g re ete d lik e film
sta rs . T he p la ce h ad e v id entl y b een h um min g a ll d ay w ith ru m ors o f a T exas G ulf d is c o very a nd
ev ery o ne w ante d to b e th e fir s t to g et th e fir s th and lo w dow n o n it; in fa ct, a b atte ry o f te le v is io n
cam era s h ad b een s e t u p fo r th e e xp re ss p urp ose o f c o verin g s u ch re m ark s a s th e e m is sa rie s fr o m
Tim min s m ig ht w ant to m ake. N ot b ein g a uth o riz e d to m ake
any
r e m ark s, M ollis o n a nd H oly k tu rn ed
ab ru p tl y o n th eir h eels a nd fle d th e Q ueen E liz a b eth , h o lin g u p fo r th e n ig ht in a M ontr e al a ir p ort
mote l. T he fo llo w in g d ay, W ed nesd ay th e 1 5th , th ey fle w fr o m M ontr e al to T oro nto in th e c o m pany,
by p re arra ngem ent, o f th e M in is te r o f M in es o f th e P ro vin ce o f O nta rio a nd h is d ep uty ; e n r o ute th ey
brie fe d th e m in is te r o n th e K id d-5 5 s itu ati o n, w here up on th e m in is te r d ecla re d th at h e w ante d to c le ar
th e a ir b y m akin g a p ub lic a nno uncem ent o n th e m atte r a s s o on a s p ossib le , a nd th en, w ith M ollis o n’s
help , he d ra fte d su ch an anno uncem ent. A cco rd in g to a co py th at M ollis o n m ad e and kep t, th e
anno uncem ent s ta te d , in p art, th at “ th e in fo rm ati o n n o w in h and … g iv es th e c o m pany c o nfid ence to
allo w m e to a nno unce th at T exas G ulf S ulp hur h as a m in eab le b ody o f z in c, c o pper, a nd s ilv er o re o f
su b sta nti a l d im ensio ns th at w ill b e d ev elo ped and b ro ught to p ro ducti o n as so on as p ossib le .”
Mollis o n a nd H oly k w ere g iv en to
b elie v e th at th e m in is te r w ould m ake h is s ta te m ent in T oro nto a t
ele v en o ’c lo ck th at e v enin g, o ver r a d io a nd te le v is io n, a nd th at th us T exas G ulf ’s g o od n ew s w ould
beco m e p ub lic p ro perty a f e w h o urs b efo re
The N orth ern M in er
a p peare d e arly th e n ext d ay. B ut f o r
re aso ns th at h av e n ev er b een g iv en, th e m in is te r d id n’t m ake th e a nno uncem ent th at e v enin g.
At T exas G ulf h ead quarte rs , a t 2 00 P ark A venue, th ere w as a s im ila r a ir o f m ounti n g c ris is . T he
co m pany h ap pened to h av e a re gula r m onth ly b oard -o f- d ir e cto rs m eeti n g sc hed ule d fo r T hurs d ay
morn in g, a nd o n M ond ay F ra ncis G . C oate s, a d ir e cto r w ho l iv ed i n H ousto n, T exas, a nd w ho h ad n’t
heard o f th e K id d-5 5 str ik e, te le p ho ned S te p hens to in q uir e w heth er h e o ught to b oth er to c o m e.
Ste p hens s a id h e o ught, b ut d id n’t e xp la in w hy. B ette r a nd b ette r n ew s k ep t f ilte rin g i n f r o m th e d rill site , a nd s o m e ti m e o n W ed nesd ay, th e T exas G ulf o ffic ers d ecid ed th at it w as ti m e to w rite a n ew
pre ss r e le ase , to b e is su ed a t a p re ss c o nfe re nce th at w ould fo llo w th e T hurs d ay-m orn in g d ir e cto rs ’
meeti n g. S te p hens, F ogarty , a nd D av id M . C ra w fo rd , th e c o m pany’s s e cre ta ry , c o m pose d th e r e le ase
th at a fte rn o on. T his ti m e a ro und , th e r e le ase w as b ase d o n th e v ery l a te st i n fo rm ati o n, a nd m ore o ver,
its la nguage w as h ap pily d ev oid o f b oth re p eti ti o n a nd e q uiv ocati o n. It re ad , in p art, “ T exas G ulf
Sulp hur C om pany h as m ad e a m ajo r s tr ik e o f z in c, c o pper, a nd s ilv er in th e T im min s a re a … S ev en
drill h o le s a re n o w e sse nti a lly c o m ple te a nd in d ic ate a n o re b ody o f a t le ast 8 00 fe et in le ngth , 3 00
fe et in w id th , a nd h av in g a v erti c al d ep th o f m ore th an 8 00 fe et. T his is a m ajo r d is c o very . T he
pre lim in ary d ata i n d ic ate a r e se rv e o f m ore th an 2 5 m illio n to ns o f o re .” A s to th e s tr ik in g d iffe re nce
betw een th is re le ase a nd th e o ne o f th re e d ays e arlie r, th e n ew o ne s ta te d th at “ co nsid era b ly m ore
data h as b een a ccum ula te d ” i n th e i n te rim . A nd n o o ne c o uld d eny th is ; a r e se rv e o f m ore th an tw enty -
fiv e m illio n to ns o f o re m eant th at th e v alu e o f th e o re w as n o t th e tw o h und re d m illio n d olla rs th at
was a lle ged to h av e b een c alc ula b le a w eek e arlie r, b ut m any ti m es th at m uch.
In th e c o urs e o f th e s a m e h ecti c d ay i n N ew Y ork , th e e ngin eer C la yto n a nd th e c o m pany s e cre ta ry
Cra w fo rd f o und ti m e to c all th eir b ro kers a nd o rd er th em se lv es s o m e T exas G ulf s to ck— tw o
h und re d
sh are s in C la yto n’s c ase , th re e h und re d in C ra w fo rd ’s . A nd C ra w fo rd s o on d ecid ed th at h e h ad n’t
plu nged d eep ly e no ugh; s h o rtl y a fte r e ig ht o ’c lo ck th e n ext m orn in g, a fte r a n a p pare ntl y p re o ccup ie d
nig ht a t th e P ark L ane H ote l, h e a w akened h is b ro ker w ith a s e co nd c all a nd d oub le d h is o rd er.
ON
T hurs d ay m orn in g, th e fir s t h ard n ew s o f th e T im min s s tr ik e s p re ad th ro ugh th e N orth A meric an
in v estm ent w orld , r a p id ly b ut e rra ti c ally . B etw een s e v en a nd e ig ht o ’c lo ck, m ailm en a nd n ew ssta nd s
in T oro nto b egan d is tr ib uti n g c o pie s o f
The N orth ern -M in er
c o nta in in g th e p ie ce b y th e r e p orte r w ho
had v is ite d K id d55, in w hic h h e d esc rib ed th e s tr ik e w ith a g o od d eal o f m in in g ja rg o n b ut d id n o t
om it to c all it, in la nguage c o m pre hensib le e no ugh fo r a nyo ne, “ a b rillia nt e xp lo ra ti o n s u ccess” a nd
“a m ajo r n ew z in c-c o pper-s ilv er m in e.” A t a b out th e s a m e ti m e, th e
Min er
w as o n its w ay o ut to
su b sc rib ers s o uth o f th e b ord er i n D etr o it a nd B uffa lo , a nd a f e w h und re d n ew ssta nd c o pie s a p pear to
hav e a rriv ed in N ew Y ork b etw een n in e a nd te n o ’c lo ck. T he p ap er’s p hysic al a p peara nce h ere ,
ho w ev er, w as p re ced ed b y te le p ho ne re p orts o n its c o nte nts fr o m T oro nto , a nd b y a b out 9 :1 5 th e
new s th at T exas G ulf h ad h it i t b ig f o r s u re w as th e ta lk o f N ew Y ork b ro kera ge o ffic es. A c usto m er’s
man in th e S ix ti e th S tr e et o ffic e o f E . F . H utto n & C om pany c o m pla in ed la te r th at h is b ro ker c ro nie s
had b een s o e ager to n atte r o n th e te le p ho ne a b out T exas G ulf e arly th at m orn in g a s to s u b sta nti a lly
pre v ent h im f r o m c o m munic ati n g w ith h is c usto m ers ; h o w ev er, h e d id m anage to s q ueeze i n a c all to
tw o o f th em , a h usb and a nd w ife f o r w ho m h e w as a b le to tu rn a r a th er q uic k p ro fit i n T exas G ulf— to
be e xact, a p ro fit o f $ 10,5 00 i n l e ss th an a n h o ur. ( “ It i s c le ar th at w e a re a ll i n th e w ro ng b usin ess,”
Ju d ge B onsa l w as to c o m ment w hen h e h eard th is . O r a s th e la te W ie la nd W agner o nce r e m ark ed in
ano th er c o nte xt, “ I s h all b e q uite e xp lic it. V alh alla i s W all S tr e et.” ) A t th e S to ck E xchange i ts e lf e arly
th at d ay, th e tr a d ers i n th e L uncheo n C lu b , w hic h b efo re th e te n-o ’c lo ck o penin g s e rv es a s a b re akfa st
clu b , w ere a ll m unchin g o n th e T exas G ulf s itu ati o n a lo ng w ith th eir to ast a nd e ggs.
At th e d ir e cto rs ’ m eeti n g a t 2 00 P ark , w hic h b egan p ro m ptl y a t
n in e, th e d ir e cto rs w ere s h o w n th e
new sta te m ent th at w as sh o rtl y to b e re le ase d to th e p re ss, and S te p hens, F ogarty , H oly k, and
Mollis o n, a s r e p re se nta ti v es o f th e e xp lo ra ti o n g ro up , c o m mente d in tu rn o n th e T im min s d is c o very .
Ste p hens a ls o sta te d th at th e O nta rio M in is te r o f M in es h ad a nno unced it p ub lic ly in T oro nto th e
pre v io us e v enin g ( a m is sta te m ent, o f c o urs e , a lth o ugh a n u nin te nti o nal o ne; a ctu ally , th e m in is te r w as
makin g his anno uncem ent to th e O nta rio P arlia m ent p re ss galle ry in T oro nto at alm ost th e sa m e
mom ent S te p hens w as s p eakin g). T he d ir e cto rs ’ m eeti n g e nd ed a t a b out te n o ’c lo ck, w here up on a clu tc h o f re p orte rs — tw enty -tw o o f th em , re p re se nti n g m any o f th e m ajo r U nite d S ta te s n ew sp ap ers
and m agazin es, g enera l a nd fin ancia l— tr o oped in to th e b oard ro om fo r th e p re ss c o nfe re nce, th e
Texas G ulf d ir e cto rs a ll r e m ain in g i n th eir p la ces. S te p hens d is tr ib ute d c o pie s o f th e p re ss r e le ase to
th e r e p orte rs a nd th en, i n f u lfillm ent o f a c urio us r itu al th at g o vern s s u ch a ffa ir s , r e ad i t a lo ud . W hile
he w as e ngaged in th is r e d und ant r e cita l v ario us r e p orte rs b egan to d rift a w ay ( “ th ey b egan s o rt o f
le akin g o ut o f th e r o om ” w as th e w ay L am ont p ut it la te r) to te le p ho ne th e s e nsa ti o nal n ew s to th eir
pub lic ati o ns; sti ll m ore o f th em slip ped a w ay d urin g th e e v ents th at su b se q uentl y ro und ed o ut th e
pre ss c o nfe re nce— th e s h o w in g o f s o m e i n no cuo us c o lo re d s lid es o f th e c o untr y sid e a ro und T im min s,
and a n e xhib iti o n a nd e xp la nati o n b y H oly k o f s o m e d rill c o re s— and b y th e ti m e it e nd ed , a t a ro und
10:1 5, o nly a h and fu l o f r e p orte rs w ere l e ft. T his c erta in ly d id n’t m ean th at th e a ffa ir h ad b een a f lo p.
On th e c o ntr a ry , a p re ss c o nfe re nce is p erh ap s th e o nly k in d o f sh o w w ho se su ccess is in d ir e ct
pro porti o n to th e n um ber o f p eo ple w ho l e av e b efo re i t i s o ver.
The a cti o ns o f tw o o f th e T exas G ulf d ir e cto rs , C oate s a nd L am ont, d urin g th e n ext h alf h o ur o r s o
were to g iv e r is e to th e m ost c o ntr o vers ia l p art o f th e S .E .C .’ s c o m pla in t, a nd , s in ce th e c o ntr o vers y
has n o w b een in sc rib ed in th e la w , th o se a cti o ns a re lik ely to b e s tu d ie d fo r a t le ast a g enera ti o n b y
in sid e s to ck tr a d ers s e ekin g g uid ance a s to w hat th ey m ust d o to b e s a v ed , o r a t le ast to a v oid b ein g
dam ned . T he e sse nce o f th e c o ntr o vers y w as ti m in g, a nd in p arti c ula r, th e ti m in g o f C oate s’ a nd
Lam ont’ s m aneuv ers i n r e la ti o n to th at o f th e d is se m in ati o n o f th e T exas
G ulf n ew s b y th e D ow J o nes
New s S erv ic e, th e fa m ilia r sp ot- n ew s fa cility fo r in v esto rs . F ew in v estm ent o ffic es in th e U nite d
Sta te s a re w ith o ut th e s e rv ic e, a nd its p re sti g e is s u ch th at in s o m e in v estm ent c ir c le s th e m om ent a
pie ce o f n ew s b eco m es p ub lic is c o nsid ere d to b e d ete rm in ed b y th e m om ent it c ro sse s th e b ro ad
ta p e. A s to th e m orn in g o f A pril 1 6th , 1 964, a D ow J o nes r e p orte r w as n o t o nly a m ong th o se a t th e
Texas G ulf p re ss c o nfe re nce b ut w as a m ong th o se w ho l e ft e arly to te le p ho ne th e n ew s to h is o ffic e.
Acco rd in g to h is r e co lle cti o n, th e r e p orte r m ad e h is c all b etw een 1 0:1 0 a nd 1 0:1 5, a nd n o rm ally a n
ite m o f s u ch im porta nce a s th e o ne h e s e nt w ould b egin to b e p rin te d o ut b y D ow J o nes m achin es in
offic es fr o m c o ast to c o ast w ith in tw o o r th re e m in ute s a fte r b ein g te le p ho ned in . In fa ct, th o ugh, th e
Texas G ulf s to ry d id n o t b egin to a p pear u nti l 1 0:5 4, a n e nti r e ly i n exp lic ab le f o rty -o dd m in ute s l a te r.
The m yste ry o f th e b ro ad ta p e m essa ge, l ik e th e m yste ry o f th e M in is te r o f M in es’ a nno uncem ent, w as
le ft u nra v ele d in th e tr ia l o n g ro und s o f ir re le v ance; a n e ngagin g a sp ect o f th e ru le s o f e v id ence is
th eir te nd ency to l e av e a f e w th in gs to th e i m agin ati o n.
Coate s, th e T exan, w as th e fir s t d ir e cto r to e m bark u p on w hat h e c an h ard ly h av e th o ught o f a t th e
ti m e a s a h is to ric ally sig nific ant c o urs e . E ith er b efo re o r im med ia te ly a fte r th e e nd o f th e p re ss
co nfe re nce h e w ent in to a n o ffic e a d jo in in g th e b oard ro om , w here h e b orro w ed a te le p ho ne a nd
calle d h is s o n-in -la w , H . F re d H aem is e gger, w ho is a s to ckb ro ker in H ousto n. C oate s, a s h e r e la te d
la te r, to ld H aem is e gger o f th e T exas G ulf d is c o very a nd a d ded th at h e h ad w aite d to c all u nti l “ afte r
th e p ub lic a nno uncem ent” b ecause h e w as “ to o o ld to g et i n to tr o ub le w ith th e S .E .C .” H e th en p la ced
an o rd er f o r tw o th o usa nd s h are s o f T exas G ulf s to ck f o r f o ur f a m ily tr u sts o f w hic h h e w as a tr u ste e,
th o ugh n o t p ers o nally a b enefic ia ry . T he s to ck, w hic h h ad o pened o n th e S to ck E xchange s o m e tw enty
min ute s e arlie r a t a f r a cti o n a b ove 3 0 i n v ery a cti v e b ut b y n o m eans d ecis iv ely b ullis h tr a d in g, w as
no w r a p id ly o n i ts w ay u p , b ut b y a cti n g q uic kly H aem is e gger m anaged to b uy th e b lo ck f o r C oate s a t
betw een 3 1 a nd 3 1⅝ , g etti n g h is o rd ers in to h is fir m ’s flo or b ro ker w ell b efo re th e u nacco unta b ly
dela yed n ew s b egan to c o m e o ut o n th e b ro ad ta p e.
Lam ont, in th e W all S tr e et tr a d iti o n o f p lu ngers ra th er th an th e T exas o ne, m ad e h is m ove w ith
decis io n b ut w ith a n e le gant, a lm ost l a nguo ro us l a ck o f h urry . I n ste ad o f l e av in g th e b oard r o om a t th e
co nclu sio n o f th e p re ss c o nfe re nce, h e sta yed th ere fo r so m e tw enty m in ute s, n o t d oin g m uch o f anyth in g. “ I m ille d a ro und … a nd lis te ned to so m e o f th em c hatte r a nd ta lk w ith e ach o th er, a nd
sla p ped p eo ple o n th e b ack,” h e r e co unte d l a te r. T hen, a t 1 0:3 9 o r 1 0:4 0, h e w ent to a n earb y o ffic e
and te le p ho ned a c o lle ague a nd fr ie nd o f h is a t th e M org an G uara nty T ru st C om pany— Longstr e et
Hin to n, th e b ank’s e xecuti v e v ic e p re sid ent a nd th e h ead o f its tr u st d ep artm ent. E arlie r in th e w eek
Hin to n h ad a sk ed L am ont i f h e, a s a T exas G ulf d ir e cto r, c o uld s h ed a ny l ig ht o n th e r u m ors o f a n o re
dis c o very th at w ere a p pearin g i n th e p re ss, a nd L am ont h ad r e p lie d th at h e c o uld n’t. N ow L am ont, a s
he r e calle d l a te r, to ld H in to n “ th at th ere w as n ew s w hic h h ad c o m e o ut, o r w as s h o rtl y c o m in g o ut, o n
th e ti c ker, w hic h w ould b e o f in te re st to h im , re gard in g T exas G ulf S ulp hur.” “ Is it g o od?” H in to n
ask ed , a nd L am ont r e p lie d th at it w as “ p re tty g o od” o r “ v ery g o od.” ( N eith er m an is s u re w hic h h e
sa id , b ut it d oesn ’t m atte r, s in ce in N ew Y ork b ankere se “ p re tty g o od”
mea ns
“ v ery g o od.” ) In a ny
case , H in to n d id n o t fo llo w th e a d vic e to lo ok a t th e D ow J o nes ti c ker, e v en th o ugh a m achin e w as
ti c kin g tw enty fe et fr o m h is o ffic e; in ste ad , h e im med ia te ly c alle d th e b ank’s tr a d in g d ep artm ent a nd
ask ed fo r a m ark et q uo ta ti o n o n T exas G ulf. A fte r g etti n g it, h e p la ced a n o rd er to b uy 3 ,0 00 s h are s
fo r th e a cco unt o f th e N assa u H osp ita l, o f w hic h h e w as tr e asu re r. A ll th is o ccup ie d n o m ore th an tw o
min ute s fr o m th e ti m e L am ont h ad le ft th e p re ss c o nfe re nce. T he o rd er h ad b een tr a nsm itte d fr o m th e
bank to th e S to ck E xchange a nd e xecute d , a nd N assa u H osp ita l h ad its s to ck, b efo re H in to n w ould
hav e s e en a nyth in g a b out T exas G ulf o n th e b ro ad ta p e if h e h ad b een lo okin g a t it. B ut h e w as n o t
lo okin g a t it; h e w as o th erw is e o ccup ie d . A fte r p la cin g th e N assa u H osp ita l o rd er, h e w ent to th e
offic e o f th e M org an G uara nty o ffic er in c harg e o f p ensio n tr u sts a nd su ggeste d th at
he
b uy so m e
Texas G ulf f o r th e tr u sts . I n a m atte r o f l e ss th an a h alf a n h o ur, th e b ank h ad o rd ere d 7 ,0 00 s h are s f o r
its p ensio n fu nd and p ro fit- s h arin g acco unt— tw o th o usa nd o f th em b efo re th e anno uncem ent had
begun to a p pear o n
th e b ro ad ta p e, a nd th e r e st e ith er w hile i t w as a p pearin g o r w ith in a f e w m in ute s
afte rw ard . A b it m ore th an a n h o ur a fte r th at— at 1 2:3 3 p .m .— Lam ont b ought 3 ,0 00 s h are s f o r h im se lf
and m em bers o f h is fa m ily , th is ti m e h av in g to p ay 3 4½ fo r th em , s in ce T exas G ulf b y th at ti m e w as
on i ts w ay u p f o r f a ir. A s i t w as to c o nti n ue to b e f o r d ays, m onth s, a nd y ears . I t c lo se d th at a fte rn o on
at 3 6⅜ , it re ached a hig h o f 5 8⅜ la te r th at m onth , and b y th e end o f 1 966, w hen co m merc ia l
pro ducti o n o f o re w as a t la st u nd er w ay a t K id d-5 5 a nd th e e no rm ous n ew m in e w as e xp ecte d to
acco unt f o r o ne-te nth o f C anad a’s to ta l a nnual p ro ducti o n o f c o pper a nd o ne-q uarte r o f i ts to ta l a nnual
pro ducti o n o f z in c, th e s to ck w as s e llin g a t o ver 1 00. A nyo ne w ho h ad b ought T exas G ulf b etw een
Novem ber 1 2th , 1 963 a nd th e m orn in g ( o r e v en th e lu nch h o ur) o f A pril 1 6th , 1 964 h ad th ere fo re a t
le ast tr ip le d h is m oney.
PER H APS
th e m ost a rre sti n g a sp ect o f th e T exas G ulf tr ia l— ap art fr o m th e fa ct th at a tr ia l w as ta kin g
pla ce a t a ll— was th e v iv id ness a nd v arie ty o f th e d efe nd ants w ho c am e b efo re J u d ge B onsa l, r a ngin g
as th ey d id fr o m a h o t- e yed m in in g p ro sp ecto r lik e C la yto n (a g enuin e W elc hm an w ith a d egre e in
min in g fr o m th e U niv ers ity o f C ard iff) th ro ugh v ig o ro us a nd h arrie d c o rp ora te n ab obs lik e F ogarty
and S te p hens to a T exas w heele r-d eale r lik e C oate s a nd a p olis h ed B ra hm in o f fin ance lik e L am ont.
(D ark e, w ho h ad le ft T exas G ulf ’s e m plo y s o on a fte r A pril, 1 964 to b eco m e a p riv ate in v esto r—
whic h m ay o r m ay n o t i n d ic ate th at h e h ad b eco m e a m an o f i n d ep end ent m eans— declin ed to a p pear
at th e tr ia l o n th e g ro und th at h is C anad ia n n ati o nality p ut h im b eyo nd th e re ach o f s u b poena b y a
Unite d S ta te s co urt, and th e S .E .C . grie v ed lo ud ly o ver th is re fu sa l; d efe nse co unse l, ho w ev er,
sc o rn fu lly i n sis te d th at th e S .E .C . w as r e ally d elig hte d to h av e D ark e a b se nt, th us a llo w in g p la in ti ff to
pain t h im a s M ep his to phele s h id in g in th e w in gs.) T he S .E .C , a fte r its c o unse l, F ra nk E . K ennam er
Jr., h ad a nno unced h is in te nti o n to “ d ra g to lig ht a nd p illo ry th e m is c o nd uct o f th ese d efe nd ants ,”
ask ed th e c o urt to i s su e a p erm anent i n ju ncti o n f o rb id din g F ogarty , M ollis o n, C la yto n, H oly k, D ark e, Cra w fo rd , a nd s e v era l o th er c o rp ora te in sid ers w ho h ad b ought s to ck o r c alls b etw een N ovem ber
8th , 1 963 a nd A pril 1 5th , 1 964, fr o m e v er a gain “ engagin g in a ny a ct … w hic h o pera te s o r w ould
opera te a s a fr a ud o r d eceit u p on a ny p ers o n in c o nnecti o n w ith p urc hase o r sa le o f se curiti e s” ;
fu rth er— and h ere i t w as b re akin g e nti r e ly n ew g ro und — it p ra yed th at th e C ourt o rd er th e d efe nd ants
to m ake r e sti tu ti o n to th e p ers o ns th ey h ad a lle ged ly d efr a ud ed b y b uyin g s to ck o r c alls f r o m th em o n
th e b asis o f i n sid e i n fo rm ati o n. T he S .E .C . a ls o c harg ed th at th e p essim is ti c A pril 1 2th p re ss r e le ase
was d elib era te ly d ecep ti v e, a nd a sk ed th at b ecause o f it T exas G ulf b e e njo in ed fr o m “ m akin g a ny
untr u e s ta te m ent o f m ate ria l f a ct o r o m itti n g to s ta te a m ate ria l f a ct.” A part f r o m a ny q uesti o n o f l o ss
of c o rp ora te f a ce, th e n ub o f th e m atte r h ere l a y i n th e f a ct th at s u ch a j u d gm ent, i f g ra nte d , m ig ht w ell
open th e w ay fo r le gal a cti o n a gain st th e c o m pany b y
any
s to ckho ld er w ho h ad s o ld h is T exas G ulf
sto ck to
anyb ody
in th e in te rim b etw een th e fir s t p re ss re le ase a nd th e s e co nd o ne, a nd s in ce th e
sh are s th at h ad c hanged h and s d urin g th at p erio d h ad r u n i n to th e m illio ns, i t w as a n ub i n d eed .
Apart fr o m le gal te chnic aliti e s, c o unse l b ase d its d efe nse o f th e e arly in sid er sto ck p urc hase s
chie fly o n th e a rg um ent th at th e i n fo rm ati o n y ie ld ed b y th e f ir s t d rill h o le i n N ovem ber h ad m ad e th e
pro sp ect o f a w ork ab le m in e n o t a s u re th in g b ut o nly a s p orti n g p ro positi o n, a nd to b uttr e ss th is
arg um ent, it p ara d ed b efo re th e ju d ge a p la to on o f m in in g e xp erts w ho te sti fie d a s to th e n o to rio us
fic kle ness o f fir s t d rill h o le s, s o m e o f th e w itn esse s g o in g s o fa r a s to s a y th at th e h o le m ig ht v ery
well h av e tu rn ed o ut to b e n o t a n a sse t b ut a l ia b ility to T exas G ulf. T he p eo ple w ho h ad b ought s to ck
or c alls d urin g th e w in te r i n sis te d th at th e d rill h o le h ad h ad l ittl e o r n o th in g to d o w ith th eir d ecis io n
—th ey h ad b een m oti v ate d sim ply b y th e fe elin g th at T exas G ulf w as a g o od in v estm ent a t th at
ju nctu re o n g enera l p rin cip le s; a nd C la yto n a ttr ib ute d h is a b ru p t a p peara nce a s a s u b sta nti a l i n v esto r
to th e fa ct th at h e h ad ju st m arrie d a w ell- to -d o w ife . T he S .E .C . c o unte re d w ith its o w n p ara d e o f
exp erts , m ain ta in in g th at th e n atu re o f th e fir s t c o re h ad b een s u ch a s to m ake th e e xis te nce o f a r ic h
min e a n o verw helm in g p ro bab ility , a nd th at th ere fo re th o se
p riv y to th e f a cts a b out i t h ad p osse sse d a
mate ria l fa ct. A s th e S .E .C . p ut it s a lti ly in a p ost- tr ia l b rie f, “ th e a rg um ent th at th e d efe nd ants w ere
fr e e to purc hase th e sto ck unti l th e exis te nce of a m in e had been esta b lis h ed beyo nd doub t is
eq uiv ale nt to s a yin g th at th ere i s n o u nfa ir n ess i n b etti n g o n a h o rs e e nte re d i n a r a ce, k no w in g th at th e
anim al h as re ceiv ed a n ille gal sti m ula nt, b ecause in th e h o m estr e tc h th e h o rs e m ig ht d ro p d ead .”
Defe nse c o unse l d eclin ed to b e d ra w n in to a rg um ent o n th e e q uin e a nalo gy. A s to th e p essim is ti c
April 1 2th re le ase , th e S .E .C . m ad e m uch o f th e fa ct th at F ogarty , its c hie f d ra fte r, h ad b ase d it o n
in fo rm ati o n th at w as alm ost fo rty -e ig ht ho urs old w hen it w as is su ed , desp ite th e fa ct th at
co m munic ati o ns b etw een K id d-5 5, T im min s, a nd N ew Y ork w ere re la ti v ely g o od a t th e ti m e, a nd
exp re sse d th e v ie w th at “ th e m ost in d ulg ent e xp la nati o n fo r h is s tr a nge c o nd uct is th at D r. F ogarty
sim ply d id n o t c are w heth er h e g av e th e s h are ho ld ers o f T exas G ulf a nd th e p ub lic a d is c o ura gin g
sta te m ent b ase d o n s ta le in fo rm ati o n.” B ru sh in g a sid e th e q uesti o n o f s ta le ness, th e d efe nse a sse rte d
th at th e re le ase “accura te ly sta te d th e sta tu s o f th e d rillin g in th e o pin io n o f S te p hens, F ogarty ,
Mollis o n, H oly k, a nd C la yto n,” th at “ th e p ro ble m p re se nte d w as o bvio usly o ne o f j u d gm ent,” a nd th at
th e c o m pany h ad b een i n a p arti c ula rly d iffic ult a nd s e nsiti v e p ositi o n i n th at i f i t h ad , i n ste ad , i s su ed
an o verly o pti m is ti c r e p ort th at h ad la te r p ro ved to h av e b een b ase d o n fa ls e h o pes, it c o uld ju st a s
well h av e th en b een a ccuse d o f f r a ud f o r th at.
Weig hin g th e c ru cia l q uesti o n o f w heth er th e i n fo rm ati o n o bta in ed f r o m th e f ir s t d rill h o le h ad b een
“m ate ria l,” Ju d ge B onsa l c o nclu d ed th at th e d efin iti o n o f m ate ria lity in su ch in sta nces m ust b e a
co nse rv ati v e o ne. T here w as, h e p oin te d o ut, a q uesti o n o f p ub lic p olic y in v olv ed : “ It is im porta nt
und er our fr e e-e nte rp ris e sy ste m th at in sid ers , in clu d in g dir e cto rs , offic ers , and em plo yees, be
enco ura ged to o w n se curiti e s o f th eir co m pany. T he in centi v e th at co m es w ith sto ck o w ners h ip benefits b oth th e c o m pany a nd th e s to ckho ld ers .” K eep in g h is d efin iti o n c o nse rv ati v e, h e d ecid ed th at
up u nti l th e e v enin g o f A pril 9 th , w hen th re e c o nv erg in g d rill h o le s p ositi v ely e sta b lis h ed th e th re e-
dim ensio nality o f th e o re d ep osit, m ate ria l i n fo rm ati o n h ad n o t b een i n h and , a nd th e d ecis io ns
o f th e
in sid ers to b uy T exas G ulf s to ck b efo re th at d ate , e v en i f b ase d o n th e d rillin g r e su lts , w ere n o m ore
th an p erfe ctl y s p orti n g, a nd le gal, “ ed ucate d g uesse s.” ( A n ew sp ap er c o lu m nis t w ho d is a gre ed w ith
th e j u d ge’s f in d in g w as to r e m ark th at th e g uesse s h ad b een s o e d ucate d a s to q ualify f o r
su m ma c u m
la ude
.) I n th e c ase o f D ark e, th e j u d ge f o und th at th e s p ate o f s to ck p urc hase s b y h is ti p pees a nd s u b -
ti p pees o n th e la st d ays o f M arc h s e em ed h ig hly lik ely to h av e b een in sti g ate d b y w ord fr o m D ark e
th at d rillin g a t K id d-5 5 w as a b out to b e r e su m ed ; b ut e v en h ere , a cco rd in g to J u d ge B onsa l’s lo gic ,
mate ria l in fo rm ati o n d id n o t y et e xis t a nd th ere fo re c o uld n eith er b e a cte d u p on n o r p asse d a lo ng to
oth ers .
Case w as th ere fo re d is m is se d a gain st a ll e d ucate d g uesse rs w ho h ad b ought s to ck o r c alls , o r m ad e
re co m mend ati o ns to ti p pees, b efo re th e e v enin g o f A pril 9 th . W ith C la yto n a nd C ra w fo rd , w ho h ad
been s o i n ju d ic io us a s to b uy o r o rd er s to ck o n A pril 1 5th , i t w as a no th er m atte r. T he j u d ge f o und n o
ev id ence th at th ey h ad i n te nd ed to d eceiv e o r d efr a ud a nyo ne, b ut th ey
had
m ad e th eir p urc hase s w ith
th e f u ll k no w le d ge th at a g re at m in e h ad b een f o und a nd th at i t w ould b e a nno unced th e n ext d ay— in
sh o rt, w ith m ate ria l p riv ate in fo rm ati o n in h and . T here fo re th ey w ere fo und to h av e v io la te d R ule
10B -5 , a nd in d ue ti m e w ould p re su m ab ly b e e njo in ed fr o m d oin g s u ch a th in g a gain a nd m ad e to
offe r re sti tu ti o n to th e p ers o ns th ey b ought th eir A pril 1 5th s h are s fr o m — assu m in g, o f c o urs e , th at
su ch p ers o ns c an b e f o und , th e c o m ple xiti e s o f s to ck-e xchange tr a d in g b ein g s u ch th at i t i s n ’t a lw ays
an e asy m atte r to fig ure o ut e xactl y w ho m o ne h as b een d ealin g w ith o n a ny p arti c ula r tr a nsa cti o n.
The la w in o ur ti m e is , a nd p ro bab ly o ught to r e m ain , a lm ost u nre alis ti c ally h um anis ti c ; in its e yes,
co rp ora ti o ns are p eo ple , sto ck exchanges are str e et- c o rn er m ark etp la ces w here b uyer and se lle r
haggle f a ce to f a ce, a nd c o m pute rs s c arc ely e xis t.
As f o r th e A pril 1 2th p re ss r e le ase , th e j u d ge f o und i t i n r e tr o sp ect “ glo om y” a nd “ in co m ple te ,” b ut
he a ckno w le d ged th at its p urp ose h ad b een th e w orth y o ne o f c o rre cti n g th e e xaggera te d r u m ors th at
had b een a p pearin g a nd d ecid ed th at th e S .E .C . h ad fa ile d to p ro ve th at it w as fa ls e , m is le ad in g, o r
decep ti v e. T hus h e
d is m is se d th e c o m pla in t th at T exas G ulf h ad d elib era te ly tr ie d to c o nfu se its
sto ckho ld ers a nd th e p ub lic .
UP
to th is p oin t, it w as tw o w in s a gain st a w ho le s tr in g o f lo sse s fo r th e S .E .C ., a nd th e rig ht o f a
min er to d ro p h is d rill a nd r u n fo r a b ro kera ge o ffic e a p peare d to h av e r e ta in ed m ost o f its s a ncti ty ,
pro vid ed a t l e ast th at h is d rill h o le i s th e f ir s t o f a s e rie s. B ut th ere r e m ain ed to b e s e ttl e d th e m atte r
th at, o f a ll th o se c o nte ste d in th e c ase , w as o f th e m ost c o nse q uence to s to ckho ld ers , s to ck tr a d ers ,
and th e n ati o nal e co no m y, a s o ppose d to th e m em bers o f c o rp ora te m in in g e xp lo ra ti o n g ro up s. I t w as
th e m atte r o f th e A pril 1 6th a cti v iti e s o f C oate s a nd L am ont, a nd its im porta nce la y in th e fa ct th at it
tu rn ed o n th e q uesti o n o f p re cis e ly w hen, in th e e yes o f th e la w , a p ie ce o f in fo rm ati o n c ease s to b e
in sid e a nd b eco m es p ub lic . T he q uesti o n h ad n ev er b efo re b een s u b je cte d to a nyth in g l ik e s o e xacti n g
a te st, s o w hat c am e o ut o f th e T exas G ulf c ase w ould in sta ntl y b eco m e th e le gal a uth o rity o n th e
su b je ct u nti l s u p ers e d ed b y s o m e e v en m ore r e fin ed c ase .
The b asic p ositi o n o f th e S .E .C . w as th at th e s to ck p urc hase s o f C oate s, a nd th e c ir c um sp ect ti p
giv en b y L am ont to H in to n b y te le p ho ne, w ere ille gal u se o f in sid e in fo rm ati o n b ecause th ey w ere
acco m plis h ed befo re th e anno uncem ent of th e ore str ik e on th e D ow Jo nes bro ad ta p e— an
anno uncem ent th at th e S .E .C .’ s l a w yers k ep t r e fe rrin g to a s th e “ o ffic ia l” o ne, a lth o ugh th e D ow J o nes
se rv ic e, m uch a s i t m ig ht l ik e to , d eriv es n o s u ch s ta tu s f r o m a ny a uth o rity o th er th an c usto m . B ut th e S.E .C . w ent fu rth er th an th at. E ven if th e tw o d ir e cto rs ’ te le p ho ne c alls h ad b een m ad e a fte r th e
“o ffic ia l” a nno uncem ent, i t c o nte nd ed , th ey w ould h av e b een i m pro per a nd i lle gal u nle ss e no ugh ti m e
had e la p se d f o r th e n ew s to b e th o ro ughly a b so rb ed b y m em bers o f th e i n v esti n g p ub lic n o t p riv ile ged
to a tte nd th e p re ss c o nfe re nce o r e v en to b e w atc hin g th e b ro ad ta p e a t th e rig ht m om ent. D efe nse
co unse l s a w th in gs r a th er d iffe re ntl y . I n i ts v ie w , f a r f r o m b ein g c ulp ab le r e gard le ss o f w heth er o r n o t
th ey h ad a cte d b efo re o r a fte r th e b ro ad ta p e a nno uncem ent, i ts c lie nts w ere i n no cent i n e ith er c ase . I n
th e f ir s t p la ce, th e l a w yers c o nte nd ed , C oate s a nd L am ont h ad e v ery r e aso n to b elie v e th e n ew s w as
out, s in ce S te p hens h ad s a id d urin g th e d ir e cto rs ’ m eeti n g th at it h ad b een
re le ase d b y th e O nta rio
Min is te r o f M in es th e p re v io us e v enin g, a nd th ere fo re C oate s a nd L am ont a cte d in g o od fa ith ; in th e
se co nd p la ce, c o unse l w ent o n, w hat w ith th e b uzzin g in b ro kera ge o ffic es a nd th e e arly -m orn in g
excite m ent a t th e S to ck E xchange, to a ll i n te nts a nd p urp ose s th e n ew s r e ally
was
o ut, v ia o sm osis a nd
The N orth ern M in er
, c o nsid era b ly b efo re it a p peare d o n th e ti c ker o r b efo re th e m oote d te le p ho ne
calls w ere m ad e. L am ont’ s la w yers a rg ued th at th eir c lie nt h ad n’t a d vis e d H in to n to b uy T exas G ulf
sto ck, a nyho w ; h e’d m ere ly a d vis e d h im to l o ok a t th e b ro ad ta p e, a n a ct a s i n no cent to r e co m mend a s
to p erfo rm , a nd w hat H in to n h ad d one th en h ad b een e nti r e ly o n h is o w n h o ok. I n s u m , th e l a w yers f o r
th e tw o s id es c o uld a gre e o n n eith er w heth er th e r u le s h ad b een v io la te d n o r w hat th e r u le s a ctu ally
were ; in d eed , it w as o ne o f th e d efe nse ’s c o nte nti o ns th at th e S .E .C . w as a sk in g th e c o urt to w rite
new r u le s a nd th en a p ply th em r e tr o acti v ely , w hile th e p la in ti ff i n sis te d th at h e w as m ere ly a sk in g th at
an o ld r u le , 1 0B -5 , b e a p plie d b ro ad ly , in th e s p ir it o f th e M arq uis o f Q ueensb erry . N ear th e e nd o f
th e tr ia l L am ont’ s la w yers , b earin g d ow n hard , cre ate d a co urtr o om se nsa ti o n b y in tr o ducin g a
su rp ris e e xhib it, a la rg e, e la b ora te m ap o f th e U nite d S ta te s d otte d w ith c o lo re d fla gs, s o m e b lu e,
so m e r e d , s o m e g re en, s o m e g o ld , s o m e s ilv er— each fla g, th e la w yers a nno unced , d eno ti n g a p la ce
where th e T exas G ulf n ew s h ad b een d is se m in ate d b efo re L am ont h ad a cte d o r it h ad re ached th e
bro ad ta p e. O n q uesti o nin g, it c am e o ut th at a ll b ut e ig ht o f th e fla gs re p re se nte d o ffic es o f th e
bro kera ge fir m o f M errill L ynch, P ie rc e, F enner & S m ith , o n w ho se in te ro ffic e w ir e th e n ew s h ad
been c arrie d a t 1 0:2 9; b ut w hile th is r e v ela ti o n o f th e h ig hly lim ite d s c o pe o f th e d is se m in ati o n m ay
hav e m iti g ate d th e l e gal f o rc e o f th e m ap , i t a p pare ntl y d id n o t m iti g ate th e e sth eti c i m pre ssio n o n th e
ju d ge. “ Is n ’t th at b eauti fu l? ” h e e xcla im ed , w hile th e S .E .C . m en fu m ed in c hagrin , a nd w hen o ne o f
th e p ro ud d efe nse la w yers n o ti c ed a c o up le o f lo cati o ns o n th e m ap th at h ad b een o verlo oked a nd
poin te d o ut th at th ere s h o uld r e ally b e e v en m ore fla gs, J u d ge B onsa l, s ti ll b em use d , s h o ok h is h ead
and s a id h e w as a fr a id th at w ould n’t w ork , s in ce a ll k no w n c o lo rs s e em ed to h av e b een u se d a lr e ad y.
Lam ont’ s f a sti d io usn ess i n w aiti n g u nti l 1 2:3 3, a lm ost tw o
h o urs a fte r h is c all to H in to n, b efo re h e
bought sto ck fo r him se lf and his fa m ily le ft th e S .E .C . unim pre sse d — and it w as here th at th e
Com mis sio n to ok i ts m ost a v ant- g ard e s ta nd a nd a sk ed th e j u d ge f o r a d ecis io n th at w ould f o rg e m ost
fe arle ssly i n to th e l e gal j u ngle s o f th e f u tu re . A s th e s ta nd w as s e t f o rth i n th e S .E .C . b rie fs , “ It i s th e
Com mis sio n’s p ositi o n th at e v en a fte r c o rp ora te in fo rm ati o n h as b een p ub lis h ed in th e n ew s m ed ia ,
in sid ers , are sti ll und er a d uty to re fr a in fr o m se curiti e s tr a nsa cti o ns unti l th ere had ela p se d a
re aso nab le a m ount o f ti m e i n w hic h th e s e curiti e s i n d ustr y , th e s h are ho ld ers , a nd th e i n v esti n g p ub lic
can e v alu ate th e d ev elo pm ent a nd m ake i n fo rm ed i n v estm ent d ecis io ns … I n sid ers m ust w ait a t l e ast
unti l th e i n fo rm ati o n i s l ik ely to h av e r e ached th e a v era ge i n v esto r w ho f o llo w s th e m ark et a nd h e h as
had s o m e o pportu nity to c o nsid er it.” In th e T exas G ulf c ase , th e S .E .C . a rg ued , o ne h o ur a nd th ir ty -
nin e m in ute s a fte r th e s ta rt o f th e b ro ad -ta p e tr a nsm is sio n w as n o t l o ng e no ugh f o r th at e v alu ati o n, a s
ev id enced b y th e fa ct th at th e e no rm ous ris e in th e p ric e o f T exas G ulf s to ck h ad h ard ly m ore th an
sta rte d b y th at ti m e, a nd th ere fo re L am ont’ s 1 2:3 3 p urc hase s h ad v io la te d th e S ecuriti e s E xchange
Act. W hat, th en, d id th e S .E .C . th in k
would
b e “ a r e aso nab le a m ount o f ti m e”? T hat w ould “ v ary f r o m case to c ase ,” th e S .E .C .’ s c o unse l K ennam er s a id in h is s u m mati o n, a cco rd in g to th e n atu re o f th e
in sid e i n fo rm ati o n; f o r e xam ple , w ord o f a d iv id end c ut w ould p ro bab ly p erc o la te th ro ugh th e d ulle st
in v esto r’s b ra in in a v ery s h o rt ti m e, w hile a p ie ce o f n ew s a s u nusu al a nd a b str u se a s T exas G ulf ’s
mig ht ta ke d ays, o r e v en l o nger. I t w ould , K ennam er s a id , b e “ a n early i m possib le ta sk to f o rm ula te a
rig id s e t o f r u le s th at w ould a p ply i n a ll s itu ati o ns o f th is s o rt.” T here fo re , i n th e S .E .C .’ s c ano n, th e
only w ay a n in sid er c o uld fin d o ut w heth er h e h ad w aite d lo ng e no ugh b efo re b uyin g h is c o m pany’s
sto ck w as b y b ein g h ale d i n to c o urt a nd s e ein g w hat th e j u d ge w ould d ecid e.
Lam ont’ s c o unse l, le d b y S . H aza rd G ille sp ie , w ent a fte r th is sta nd w ith th e sa m e ze al, if n o t
actu ally gle e, th at had m ark ed its fo ra y in to carto gra p hy. F ir s t, G ille sp ie sa id , th e S .E .C . had
co nte nd ed th at C oate s’ c all to H aem is e gger a nd L am ont’ s to H in to n h ad b een w ro ng b ecause th ey h ad
been m ad e b efo re th e b ro ad ta p e
a nno uncem ent; th en i t h ad s a id th at L am ont’ s l a te r s to ck p urc hase h ad
been w ro ng b ecause it h ad b een m ad e
afte r
th e a nno uncem ent, b ut n o t lo ng e no ugh a fte r. If th ese
ap pare ntl y o pposite c o urs e s o f a cti o n w ere b oth f r a ud , w hat w as r ig ht c o nd uct? T he S .E .C . s e em ed to
want to h av e th e ru le s m ad e u p a s it w ent a lo ng— or, ra th er, to h av e th e c o urts m ake th em u p . A s
Gille sp ie p ut th e m atte r m ore f o rm ally , th e S .E .C . w as “ ask in g th e c o urt to w rite … a r u le j u d ic ia lly
and to a p ply it re tr o acti v ely to a d ju d ic ate M r. L am ont g uilty o f fr a ud b ecause o f c o nd uct w hic h h e
re aso nab ly b elie v ed to b e e nti r e ly p ro per.”
It w ould n’t sta nd up , Ju d ge B onsa l agre ed — and fo r th at m atte r, neith er w ould th e S .E .C .’ s
co nte nti o n th at th e ti m e o f th e b ro ad -ta p e tr a nsm is sio n h ad b een th e ti m e w hen th e n ew s h ad b eco m e
pub lic . H e to ok th e n arro w er v ie w th at, b ase d o n le gal p re ced ent, th e c o ntr o llin g m om ent h ad b een
th e o ne w hen th e p re ss re le ase h ad b een re ad a nd h and ed to th e re p orte rs , e v en th o ugh h ard ly a ny
outs id er— th at is , h ard ly a nyb ody a t a ll— had k no w n o f it fo r s o m e ti m e a fte rw ard . C le arly tr o ub le d
by th e i m plic ati o ns o f th is f in d in g, J u d ge B onsa l a d ded th at “ it m ay b e, a s th e C om mis sio n c o nte nd s,
th at a m ore e ffe cti v e r u le s h o uld b e e sta b lis h ed to p re clu d e i n sid ers f r o m a cti n g o n i n fo rm ati o n a fte r
it h as b een a nno unced b ut b efo re i t h as b een a b so rb ed b y th e p ub lic .” B ut h e d id n’t th in k i t w as u p to
him to w rite s u ch a r u le . N or d id h e th in k it w as u p to h im to d ete rm in e w heth er o r n o t L am ont h ad
waite d lo ng eno ugh befo re pla cin g his 12:3 3 ord er. If it w ere le ft to ju d ges to m ake su ch
dete rm in ati o ns, h e s a id , “ th is c o uld o nly l e ad to u ncerta in ty . A d ecis io n i n o ne c ase w ould n o t c o ntr o l
ano th er c ase w ith d iffe re nt f a cts . N o i n sid er w ould k no w w heth er h e h ad w aite d l o ng e no ugh … I f a
waiti n g p erio d is to b e fix ed , th is c o uld b e m ost a p pro pria te ly d one b y th e C om mis sio n.” N o o ne
would b ell th e c at, a nd th e c o m pla in ts a gain st C oate s a nd L am ont w ere d is m is se d .
TH E
S .E .C . a p peale d a ll th e d is m is sa ls , a nd C la yto n a nd C ra w fo rd , th e o nly tw o d efe nd ants fo und to
hav e v io la te d th e S ecuriti e s E xchange A ct, a p peale d th e ju d gm ents a gain st th em . In its a p peal b rie f
th e C om mis sio n p ain sta kin gly re v ie w ed th e e v id ence a nd
s u ggeste d to th e C ir c uit C ourt th at J u d ge
Bonsa l had erre d in his in te rp re ta ti o n o f it, w hile th e d efe nse b rie f fo r C la yto n and C ra w fo rd
co ncentr a te d o n th e p ossib ly d etr im enta l e ffe cts o f th e d octr in e im plie d in th e fin d in g a gain st th em .
Mig ht n o t th e d octr in e m ean, fo r e xam ple , th at e v ery s e curity a naly st w ho d oes h is b est to fe rre t o ut
littl e -k no w n fa cts a b out a p arti c ula r c o m pany, a nd th en re co m mend s th at c o m pany’s sto ck to h is
custo m ers a s h e is p aid to d o, c o uld b e a d ju d ged a n in sid er im pro perly d is tr ib uti n g ti p s p re cis e ly
because o f h is d ilig ence? M ig ht it n o t te nd to “ sti fle in v estm ent b y c o rp ora te p ers o nnel a nd im ped e
th e f lo w o f c o rp ora te i n fo rm ati o n to i n v esto rs ” ?
Perh ap s s o . A t a ll e v ents , i n A ugust, 1 968, th e U .S . C ourt o f A ppeals f o r th e S eco nd C ir c uit h and ed
dow n a d ecis io n w hic h fla tl y r e v ers e d J u d ge B onsa l’s fin d in gs o n ju st a b out e v ery s c o re e xcep t th e
fin d in gs again st C ra w fo rd and C la yto n, w hic h w ere affir m ed . T he A ppeals C ourt fo und th at th e orig in al N ovem ber d rill ho le
had
p ro vid ed m ate ria l e v id ence o f a v alu ab le o re d ep osit, a nd th at
th ere fo re F ogarty , M ollis o n, D ark e, H oly k, a nd a ll o th er i n sid ers w ho h ad b ought T exas G ulf s to ck o r
calls o n it d urin g th e w in te r w ere g uilty o f v io la ti o ns o f th e la w ; th at th e g lo om y A pril 1 2th p re ss
re le ase h ad b een a m big uo us a nd p erh ap s m is le ad in g; a nd th at C oate s h ad im pro perly a nd ille gally
ju m ped th e g un in p la cin g h is o rd ers r ig ht a fte r th e A pril 1 6th p re ss c o nfe re nce. O nly L am ont— th e
charg es a gain st w ho m h ad b een d ro pped f o llo w in g h is d eath s h o rtl y a fte r th e l o w er c o urt d ecis io n—
and a T exas G ulf o ffic e m anager, J o hn M urra y, r e m ain ed e xo nera te d .
The d ecis io n w as a fa m ous v ic to ry fo r th e S .E .C ., a nd th e fir s t r e acti o n o f W all S tr e et w as to c ry
out th at i t w ould m ake f o r u tte r c o nfu sio n. P end in g f u rth er a p peals to th e S up re m e C ourt, i t w ould , a t
le ast, r e su lt i n a n i n te re sti n g e xp erim ent. F or th e f ir s t ti m e i n th e h is to ry o f th e w orld , th e e ffo rt w ould
hav e to b e m ad e, i n W all S tr e et, to c o nd uct a s to ck m ark et w ith o ut th e u se o f a s ta cked d eck. 5
Xero x X ero x X ero x X ero x
WHEN T H E O RIG IN AL
m im eo gra p h m achin e— th e fir s t m echanic al d up lic ato r o f w ritte n p ages th at w as
pra cti c al fo r o ffic e u se — was p ut o n th e m ark et b y th e A . B . D ic k C om pany, o f C hic ago , in 1 887, it
did n o t ta ke th e c o untr y b y s to rm . O n th e c o ntr a ry , M r. D ic k— a fo rm er lu m berm an w ho h ad b eco m e
bore d w ith c o pyin g h is p ric e l is ts b y h and , h ad tr ie d to i n v ent a d up lic ati n g m achin e h im se lf, a nd h ad
fin ally o bta in ed rig hts to p ro duce th e m im eo gra p h fr o m its in v ento r, T ho m as A lv a E dis o n— fo und
him se lf
fa ced w ith a fo rm id ab le m ark eti n g p ro ble m . “ P eo ple d id n’t
want
to m ake lo ts o f c o pie s o f
offic e d ocum ents ,” s a ys h is g ra nd so n C . M atth ew s D ic k, J r., c urre ntl y a v ic e-p re sid ent o f th e A . B .
Dic k C om pany, w hic h n o w m anufa ctu re s a w ho le lin e o f o ffic e c o pie rs a nd d up lic ato rs , in clu d in g
mim eo gra p h m achin es. “ B y a nd l a rg e, th e f ir s t u se rs o f th e th in g w ere n o n-b usin ess o rg aniz a ti o ns l ik e
churc hes, s c ho ols , a nd B oy S co ut tr o ops. T o a ttr a ct c o m panie s a nd p ro fe ssio nal m en, G ra nd fa th er a nd
his a sso cia te s h ad to u nd erta ke a n e no rm ous m is sio nary e ffo rt. O ffic e d up lic ati n g b y m achin e w as a
new a nd u nse ttl in g id ea th at u p se t lo ng-e sta b lis h ed o ffic e p atte rn s. In 1 887, a fte r a ll, th e ty p ew rite r
had b een o n th e m ark et o nly a l ittl e o ver a d ecad e a nd w asn ’t y et i n w id esp re ad u se , a nd n eith er w as
carb on p ap er. I f a b usin essm an o r a l a w yer w ante d f iv e c o pie s o f a d ocum ent, h e’d h av e a c le rk m ake
fiv e c o pie s— by h and . P eo ple w ould s a y to G ra nd fa th er, ‘ W hy s h o uld I w ant to h av e a lo t o f c o pie s
of th is a nd th at l y in g a ro und ? N oth in g b ut c lu tte r i n th e o ffic e, a te m pta ti o n to p ry in g e yes, a nd a w aste
of g o od p ap er.’ ”
On a no th er l e v el, th e tr o ub le s th at th e e ld er M r. D ic k e nco unte re d w ere p erh ap s c o nnecte d w ith th e
genera lly b ad re p ute th at th e n o ti o n o f m akin g c o pie s o f g ra p hic m ate ria l h ad b een h eld in fo r a
num ber o f c entu rie s— a b ad re p ute re fle cte d in th e v ario us o verto nes o f th e E nglis h n o un a nd v erb
“co py.” T he O xfo rd E nglis h D ic ti o nary m akes i t c le ar th at d urin g th o se c entu rie s th ere w as a n a ura o f
deceit a sso cia te d w ith th e w ord ; in d eed , fr o m th e la te s ix te enth c entu ry u nti l V ic to ria n ti m es “ co py”
and “ co unte rfe it” w ere n early s y no nym ous. ( B y th e m id dle o f th e s e v ente enth c entu ry , th e m ed ie v al
use o f th e n o un “ co py” in th e r o bust s e nse o f “ p le nty ” o r “ ab und ance” h ad fa d ed o ut, le av in g b ehin d
no th in g b ut i ts a d je cti v e f o rm , “ co pio us.” ) “ T he o nly g o od c o pie s a re th o se w hic h e xhib it th e d efe cts
of b ad o rig in als ,” L a R ochefo ucauld w ro te in his “M axim s” in 1 665. “N ev er b uy a co py o f a
pic tu re ,” R usk in pro no unced dogm ati c ally in 1857, w arn in g no t again st chic anery but again st
deb ase m ent. A nd th e c o pyin g o f w ritte n d ocum ents w as o fte n s u sp ect, to o. “ T ho ugh th e a tte ste d C opy
of a R eco rd b e g o od p ro of, y et th e C opy o f a C opy n ev er s o w ell a tte ste d … w ill n o t b e a d m itte d a s
pro of i n J u d ic atu re ,”
J o hn L ocke w ro te i n 1 690. A t a b out th e s a m e ti m e, th e p rin ti n g tr a d e c o ntr ib ute d
to th e l a nguage th e s u ggesti v e e xp re ssio n “ fo ul c o py,” a nd i t w as a f a v orite V ic to ria n h ab it to c all o ne
obje ct, o r p ers o n, a p ale c o py o f a no th er.
Pra cti c al n ecessity a ris in g o ut o f i n cre asin g i n d ustr ia liz a ti o n w as d oub tl e ss c hie fly r e sp onsib le f o r
a tw enti e th -c entu ry re v ers a l o f th ese a tti tu d es. In a ny c ase , o ffic e re p ro ducti o n b egan to g ro w v ery ra p id ly . (It m ay se em p ara d oxic al th at th is gro w th co in cid ed w ith th e ris e o f th e te le p ho ne, b ut
perh ap s i t i s n ’t. A ll th e e v id ence s u ggests th at c o m munic ati o n b etw een p eo ple b y w hate v er m eans, f a r
fr o m s im ply a cco m plis h in g its p urp ose , in v aria b ly b re ed s th e n eed fo r m ore .) T he ty p ew rite r a nd
carb on p ap er cam e in to co m mon use afte r 1 890, and m im eo gra p hin g b ecam e a sta nd ard o ffic e
pro ced ure so on afte r 1900. “N o offic e is co m ple te w ith o ut an E dis o n M im eo gra p h,” th e D ic k
Com pany fe lt a b le to b oast in 1 903. B y th at ti m e, th ere w ere a lr e ad y a b out a h und re d a nd fifty
th o usa nd o f th e d ev ic es i n u se ; b y 1 910 th ere w ere p ro bab ly o ver tw o h und re d th o usa nd , a nd b y 1 940
alm ost h alf a m illio n. T he o ffs e t p rin ti n g p re ss— a m ettl e so m e c o m peti to r c ap ab le o f p ro ducin g w ork
much h and so m er th an m im eo gra p hed o utp ut— was s u ccessfu lly a d ap te d f o r o ffic e u se i n th e n in ete en-
th ir ti e s a nd fo rti e s, a nd is n o w s ta nd ard e q uip m ent in m ost la rg e o ffic es. A s w ith th e m im eo gra p h
machin e, th o ugh, a s p ecia l m aste r p age m ust b e p re p are d b efo re r e p ro ducti o n c an s ta rt— a r e la ti v ely
exp ensiv e and ti m e-c o nsu m in g p ro cess— so th e o ffs e t p re ss is eco no m ic ally use fu l o nly w hen a
su b sta nti a l num ber of co pie s are w ante d . In offic e-e q uip m ent ja rg o n, th e offs e t pre ss and th e
mim eo gra p h are “d up lic ato rs ” ra th er th an “co pie rs ,” th e div id in g lin e betw een dup lic ati n g and
co pyin g b ein g g enera lly d ra w n s o m ew here b etw een te n a nd tw enty c o pie s. W here te chno lo gy l a gged
lo ngest w as in th e d ev elo pm ent o f e ffic ie nt a nd e co no m ic al c o pie rs . V ario us p ho to gra p hic d ev ic es
th at d id n o t re q uir e th e m akin g o f m aste r p ages— of w hic h th e m ost fa m ous w as (a nd s ti ll is ) th e
Pho to sta t— began a p pearin g a ro und 1 910, b ut b ecause o f th eir h ig h c o st, s lo w ness, a nd d iffic ulty o f
opera ti o n, th eir use fu ln ess w as la rg ely lim ite d to th e co pyin g of arc hite ctu ra l and engin eerin g
dra w in gs a nd le gal d ocum ents . U nti l a fte r 1 950, th e o nly p ra cti c al
m achin e fo r m akin g a c o py o f a
busin ess l e tte r o r a p age o f ty p esc rip t w as a ty p ew rite r w ith c arb on p ap er i n i ts p la te n.
The n in ete en-fifti e s w ere th e r a w , p io neerin g y ears o f m echaniz e d o ffic e c o pyin g. W ith in a s h o rt
ti m e, th ere s u d denly a p peare d o n th e m ark et a w ho le b atc h o f d ev ic es c ap ab le o f r e p ro ducin g m ost
offic e p ap ers w ith o ut th e u se o f a m aste r p age, a t a c o st o f o nly a fe w c ents p er c o py, a nd w ith in a
ti m e sp an of a min ute or le ss per co py. Their te chno lo gy varie d — Min neso ta M in in g &
Manufa ctu rin g’s T herm o-F ax, in tr o duced in 1950, use d heat- s e nsiti v e co pyin g pap er; A meric an
Pho to co py’s D ia l- A -M ati c A uto sta t (1 952) w as b ase d o n a re fin em ent o f o rd in ary p ho to gra p hy;
Eastm an K odak’s V erifa x (1 953) u se d a m eth o d c alle d d ye tr a nsfe r; a nd s o o n— but a lm ost a ll o f
th em , u nlik e M r. D ic k’s m im eo gra p h, im med ia te ly fo und a r e ad y m ark et, p artl y b ecause th ey fille d a
genuin e n eed a nd p artl y , it n o w s e em s c le ar, b ecause th ey a nd th eir fu ncti o n e xerc is e d a p ow erfu l
psy cho lo gic al fa sc in ati o n o n th eir u se rs . In a s o cie ty th at s o cio lo gis ts a re fo re v er c hara cte riz in g a s
“m ass,” th e no ti o n of m akin g one-o f- a -k in d th in gs in to m any-o f- a -k in d th in gs sh o w ed sig ns of
beco m in g a re al co m puls io n. H ow ev er, all th ese pio neer co pyin g m achin es had se rio us and
fr u str a ti n g in here nt d efe cts ; fo r e xam ple , A uto sta t a nd V erifa x w ere h ard to o pera te a nd tu rn ed o ut
dam p c o pie s th at h ad to b e d rie d , w hile T herm o-F ax c o pie s te nd ed to d ark en w hen e xp ose d to to o
much heat, and all th re e co uld m ake co pie s only on sp ecia l tr e ate d pap er su p plie d by th e
manufa ctu re r. W hat w as need ed fo r th e co m puls io n to flo w er in to a m ania w as a te chno lo gic al
bre akth ro ugh, a nd th e b re akth ro ugh c am e a t th e tu rn o f th e d ecad e w ith th e a d vent o f a m achin e th at
work ed o n a n ew p rin cip le , k no w n a s x ero gra p hy, a nd w as a b le to m ake d ry , g o od-q uality , p erm anent
co pie s o n o rd in ary p ap er w ith a m in im um o f tr o ub le . T he e ffe ct w as i m med ia te . L arg ely a s a r e su lt o f
xero gra p hy, th e e sti m ate d n um ber o f c o pie s ( a s o ppose d to d up lic ate s) m ad e a nnually in th e U nite d
Sta te s s p ra ng fr o m s o m e tw enty m illio n in th e m id -fifti e s to n in e a nd a h alf
billio n
in 1 964, a nd to
fo urte en b illio n in 1 966— no t to m enti o n b illio ns m ore in E uro pe, A sia , a nd L ati n A meric a. M ore
th an th at, th e a tti tu d e o f e d ucato rs to w ard p rin te d te xtb ooks a nd o f b usin ess p eo ple to w ard
w ritte n
co m munic ati o n u nd erw ent a d is c ern ib le c hange; a v ant- g ard e p hilo so phers to ok to h ailin g x ero gra p hy as a r e v olu ti o n c o m para b le in im porta nce to th e in v enti o n o f th e w heel; a nd c o in -o pera te d c o pyin g
machin es b egan tu rn in g up in cand y sto re s and b eauty p arlo rs . T he m ania — no t as im med ia te ly
dis ru p ti n g a s th e tu lip m ania i n s e v ente enth -c entu ry H olla nd b ut p ro bab ly d esti n ed to b e c o nsid era b ly
fa rth er-re achin g— was i n f u ll s w in g.
The c o m pany r e sp onsib le f o r th e g re at b re akth ro ugh a nd th e o ne o n w ho se m achin es th e m ajo rity o f
th ese b illio ns o f c o pie s w ere m ad e w as, o f c o urs e , th e X ero x C orp ora ti o n, o f R ocheste r, N ew Y ork .
As a r e su lt, it b ecam e th e m ost s p ecta cula r b ig -b usin ess s u ccess o f th e n in ete en-s ix ti e s. In 1 959, th e
year th e c o m pany— th en c alle d H alo id X ero x, In c.— in tr o duced its fir s t a uto m ati c x ero gra p hic o ffic e
co pie r, its s a le s w ere th ir ty -th re e m illio n d olla rs . In 1 961, th ey w ere s ix ty -s ix m illio n, in 1 963 a
hund re d a nd s e v enty -s ix m illio n, a nd in 1 966 o ver h alf a b illio n. A s J o se p h C . W ils o n, th e c hie f
executi v e o f th e f ir m , p oin te d o ut, th is g ro w th r a te w as s u ch th at i f m ain ta in ed f o r a c o up le o f d ecad es
(w hic h, p erh ap s fo rtu nate ly fo r e v ery o ne, c o uld n’t p ossib ly h ap pen), X ero x s a le s w ould b e la rg er
th an th e gro ss nati o nal p ro duct o f th e U nite d S ta te s. U np la ced in
Fortu ne’s
ra nkin g o f th e fiv e
hund re d la rg est A meric an in d ustr ia l c o m panie s in 1 961, X ero x b y 1 964 h ad a tta in ed tw o-h und re d -
and -tw enty -s e v enth pla ce, and by 1967 it had clim bed to hund re d -a nd -tw enty -s ix th .
Fortu ne’s
ra nkin g is b ase d o n a nnual s a le s; a cco rd in g to c erta in o th er c rite ria , X ero x p la ced m uch h ig her th an
hund re d -a nd -s e v enty -fir s t. F or e xam ple , e arly i n 1 966 i t r a nked a b out s ix ty -th ir d i n th e c o untr y i n n et
pro fits , p ro bab ly n in th i n r a ti o o f p ro fit to s a le s, a nd a b out f ifte enth i n te rm s o f th e m ark et v alu e o f i ts
sto ck— and in th is la st r e sp ect th e y o ung u p sta rt w as a head o f s u ch lo ng-e sta b lis h ed in d ustr ia l g ia nts
as U .S . S te el, C hry sle r, P ro cte r & G am ble , a nd R .C .A . In d eed , th e e nth usia sm th e in v esti n g p ub lic
sh o w ed fo r X ero x m ad e its s h are s th e s to ck m ark et G olc o nd a o f th e s ix ti e s. A nyo ne w ho b ought its
sto ck to w ard th e e nd o f 1 959 a nd h eld o n to it u nti l e arly 1 967 w ould h av e fo und h is h o ld in g w orth
ab out s ix ty -s ix ti m es i ts o rig in al p ric e, a nd a nyo ne w ho w as r e ally f o re -s ig hte d a nd b ought H alo id i n
1955 w ould h av e s e en h is o rig in al
i n v estm ent g ro w — one m ig ht a lm ost s a y m ir a culo usly — a h und re d
and e ig hty ti m es. N ot s u rp ris in gly , a c o vey o f “ X ero x m illio nair e s” s p ra ng u p — se v era l h und re d o f
th em a ll to ld , m ost o f w ho m e ith er l iv ed i n th e R ocheste r a re a o r h ad c o m e f r o m th ere .
The H alo id C om pany, s ta rte d i n R ocheste r i n 1 906, w as th e g ra nd fa th er o f X ero x, j u st a s o ne o f i ts
fo und ers — Jo se p h C . W ils o n, a s o m eti m e p aw nb ro ker a nd s o m eti m e m ayo r o f R ocheste r— was th e
gra nd fa th er of his nam esa ke, th e 1946–1968 boss of X ero x. H alo id m anufa ctu re d pho to gra p hic
pap ers , a nd , lik e a ll p ho to gra p hic c o m panie s— and e sp ecia lly th o se in R ocheste r— it liv ed in th e
gia nt s h ad ow o f its n eig hb or, E astm an K odak. E ven in th is s u b dued lig ht, th o ugh, it w as e ffe cti v e
eno ugh to w eath er th e D ep re ssio n i n m odestl y g o od s h ap e. I n th e y ears i m med ia te ly a fte r th e S eco nd
World W ar, h o w ev er, b oth c o m peti ti o n a nd la b or c o sts in cre ase d , s e nd in g H alo id o n a s e arc h fo r
new p ro ducts . O ne o f th e p ossib iliti e s its s c ie nti s ts h it u p on w as a c o pyin g p ro cess th at w as b ein g
work ed o n a t th e B atte lle M em oria l In sti tu te , a la rg e n o n-p ro fit in d ustr ia l- re se arc h o rg aniz a ti o n in
Colu m bus, O hio . A t th is p oin t, th e s to ry f la sh es b ack to 1 938 a nd a s e co nd -flo or k itc hen a b ove a b ar
in A sto ria , Q ueens, w hic h w as b ein g u se d a s a m akesh ift la b ora to ry b y a n o bsc ure th ir ty -tw o-y ear-
old i n v ento r n am ed C heste r F . C arls o n. T he s o n o f a b arb er o f S w ed is h e xtr a cti o n, a nd a g ra d uate i n
physic s o f th e C alifo rn ia In sti tu te o f T echno lo gy, C arls o n w as e m plo yed in N ew Y ork in th e p ate nt
dep artm ent of P. R . M allo ry & C o., an In d ia nap olis m anufa ctu re r of ele ctr ic al and ele ctr o nic
co m ponents ; in q uest o f fa m e, fo rtu ne, a nd in d ep end ence, h e w as d ev oti n g h is s p are ti m e to tr y in g to
in v ent a n o ffic e c o pyin g m achin e, a nd to h elp h im in th is e nd eav or h e h ad h ir e d O tto K orn ei, a
Germ an re fu gee p hysic is t. T he fr u it o f th e tw o m en’s exp erim ents w as a p ro cess b y w hic h, o n
Octo ber 2 2, 1 938, a fte r u sin g a g o od d eal o f c lu m sy e q uip m ent a nd p ro ducin g c o nsid era b le s m oke
and s te nch, th ey w ere a b le to tr a nsfe r fr o m o ne p ie ce o f p ap er to a no th er th e u nhero ic m essa ge “ 1 0– 22–38 A sto ria .” T he p ro cess, w hic h C arls o n c alle d e le ctr o pho to gra p hy, h ad — and h as— fiv e b asic
ste p s: s e nsiti z in g a p ho to co nd ucti v e s u rfa ce to l ig ht b y g iv in g i t a n e le ctr o sta ti c c harg e ( fo r e xam ple ,
by ru b bin g it w ith fu r); exp osin g
th is su rfa ce to a w ritte n p age to fo rm an ele ctr o sta ti c im age;
dev elo pin g th e l a te nt i m age b y d usti n g th e s u rfa ce w ith a p ow der th at w ill a d here o nly to th e c harg ed
are as; tr a nsfe rrin g th e im age to s o m e s o rt o f p ap er; a nd fix in g th e im age b y th e a p plic ati o n o f h eat.
The s te p s, e ach o f th em in its e lf fa m ilia r e no ugh in c o nnecti o n w ith o th er te chno lo gie s, w ere u tte rly
new i n c o m bin ati o n— so n ew , i n f a ct, th at th e k in gs a nd c ap ta in s o f c o m merc e w ere m ark ed ly s lo w to
re co gniz e th e p ote nti a liti e s o f th e p ro cess. A pply in g th e k no w le d ge h e h ad p ic ked u p in h is jo b
dow nto w n, C arls o n im med ia te ly w ove a c o m plic ate d n et o f p ate nts a ro und th e in v enti o n (K orn ei
sh o rtl y le ft to ta ke a jo b e ls e w here , a nd th us v anis h ed p erm anentl y fr o m th e e le ctr o pho to gra p hic
sc ene) a nd se t a b out tr y in g to p ed dle it. O ver th e n ext fiv e y ears , w hile c o nti n uin g to w ork fo r
Mallo ry , h e p urs u ed h is m oonlig hti n g i n a n ew f o rm , o ffe rin g r ig hts to th e p ro cess to e v ery i m porta nt
offic e-e q uip m ent co m pany in th e co untr y , o nly to b e tu rn ed d ow n ev ery ti m e. F in ally , in 1 944,
Carls o n p ers u ad ed B atte lle M em oria l I n sti tu te to u nd erta ke f u rth er d ev elo pm ent w ork o n h is p ro cess
in e xchange f o r th re e-q uarte rs o f a ny r o yalti e s th at m ig ht a ccru e f r o m i ts s a le o r l ic ense .
Here th e fla sh b ack e nd s a nd x ero gra p hy, a s s u ch, c o m es in to b ein g. B y 1 946, B atte lle ’s w ork o n
th e C arls o n p ro cess h ad c o m e to th e a tte nti o n o f v ario us p eo ple a t H alo id , a m ong th em th e y o unger
Jo se p h C . W ils o n, w ho w as a b out to a ssu m e th e p re sid ency o f th e c o m pany. W ils o n c o m munic ate d
his in te re st to a n ew fr ie nd o f h is — Sol M . L in o w itz , a b rig ht a nd v ig o ro usly p ub lic -s p ir ite d y o ung
la w yer, r e centl y b ack f r o m s e rv ic e i n th e N av y, w ho w as th en b usy o rg aniz in g a n ew R ocheste r r a d io
sta ti o n th at w ould a ir lib era l v ie w s a s a c o unte rb ala nce to th e c o nse rv ati v e v ie w s o f th e G annett
new sp ap ers . A lth o ugh H alo id h ad its o w n la w yers , W ils o n, im pre sse d w ith L in o w itz , a sk ed h im to
lo ok i n to th e B atte lle th in g a s a “ o ne-s h o t” j o b f o r th e c o m pany. “ W e w ent to C olu m bus to s e e a p ie ce
of m eta l r u b bed w ith c at’ s f u r,” L in o w itz h as s in ce s a id . O ut o f th at tr ip a nd o th ers c am e a n a gre em ent
giv in g H alo id rig hts to th e C arls o n p ro cess in e xchange fo r ro yalti e s to C arls o n a nd B atte lle , a nd
co m mitti n g it to s h are w ith B atte lle in th e w ork a nd th e c o sts o f d ev elo pm ent. E very th in g
e ls e , it
se em ed , flo w ed fr o m th at a gre em ent. In 1 948, in s e arc h o f a n ew n am e fo r th e C arls o n p ro cess, a
Batte lle m an g o t to geth er w ith a p ro fe sso r o f c la ssic al la nguages a t O hio S ta te U niv ers ity , a nd b y
co m bin in g tw o w ord s fr o m cla ssic al G re ek th ey cam e up w ith “xero gra p hy,” o r “d ry w riti n g.”
Meanw hile , s m all te am s o f s c ie nti s ts a t B atte lle a nd H alo id , s tr u gglin g to d ev elo p th e p ro cess, w ere
enco unte rin g b afflin g a nd u nexp ecte d te chnic al p ro ble m s o ne a fte r a no th er; a t o ne p oin t, in d eed , th e
Halo id p eo ple b ecam e s o d is c o ura ged th at th ey c o nsid ere d s e llin g m ost o f th eir x ero gra p hy r ig hts to
In te rn ati o nal B usin ess M achin es. B ut th e d eal w as f in ally c alle d o ff, a nd a s th e r e se arc h w ent o n a nd
th e b ills fo r it m ounte d , H alo id ’s c o m mitm ent to th e p ro cess g ra d ually b ecam e a d o-o r-d ie a ffa ir. In
1955, a n ew a gre em ent w as d ra w n u p , u nd er w hic h H alo id to ok o ver f u ll ti tl e to th e C arls o n p ate nts
and th e fu ll c o st o f th e d ev elo pm ent p ro je ct, in p aym ent fo r w hic h it is su ed h uge b und le s o f H alo id
sh are s to B atte lle , w hic h, in tu rn , is su ed a b und le o r tw o to C arls o n. T he co st w as sta ggerin g.
Betw een 1 947 a nd 1 960, H alo id s p ent a b out s e v enty -fiv e m illio n d olla rs o n r e se arc h in x ero gra p hy,
or a b out tw ic e w hat it e arn ed fr o m its r e gula r o pera ti o ns d urin g th at p erio d; th e b ala nce w as r a is e d
th ro ugh b orro w in g a nd th ro ugh th e w ho le sa le is su ance o f c o m mon s to ck to a nyo ne w ho w as k in d ,
re ckle ss, o r p re sc ie nt eno ugh to ta ke it. T he U niv ers ity o f R ocheste r, p artl y o ut o f in te re st in a
str u gglin g lo cal in d ustr y , bought an eno rm ous quanti ty fo r its end ow ment fu nd at a pric e th at
su b se q uentl y , b ecause o f s to ck s p lits , a m ounte d to f ifty c ents a s h are . “ P le ase d on’t b e m ad a t u s i f w e
fin d w e h av e to s e ll o ur H alo id s to ck i n a c o up le o f y ears to c ut o ur l o sse s o n i t,” a u niv ers ity o ffic ia l
nerv ously w arn ed W ils o n. W ils o n p ro m is e d n o t to b e m ad . M eanw hile , h e a nd o th er e xecuti v es o f th e co m pany to ok m ost o f th eir p ay in th e fo rm o f s to ck, a nd s o m e o f th em w ent a s fa r a s to p ut u p th eir
sa v in gs a nd th e m ortg ages o n th eir h o use s to h elp th e c ause a lo ng. ( P ro m in ent a m ong th e e xecuti v es
by th is ti m e w as L in o w itz , w ho se a sso cia ti o n w ith H alo id h ad tu rn ed o ut to b e a nyth in g b ut a o ne-s h o t
th in g; in ste ad , h e b ecam e W ils o n’s rig ht- h and m an, ta kin g c harg e o f th e c o m pany’s c ru cia l p ate nt
arra ngem ents , o rg aniz in g a nd g uid in g i ts i n te rn ati o nal a ffilia ti o ns, a nd
e v entu ally s e rv in g f o r a ti m e a s
chair m an o f its b oard o f d ir e cto rs .) In 1 958, a fte r p ra yerfu l c o nsid era ti o n, th e c o m pany’s n am e w as
changed to H alo id X ero x, e v en th o ugh n o x ero gra p hic p ro duct o f m ajo r im porta nce w as y et o n th e
mark et. T he tr a d em ark “ X ero X ” h ad b een a d opte d b y H alo id se v era l y ears e arlie r— a sh am ele ss
im ita ti o n of E astm an’s “K odak,” as W ils o n has ad m itte d . T he te rm in al “X ” so on had to be
dow ngra d ed to lo w er c ase , b ecause it w as fo und th at n o body w ould b oth er to c ap ita liz e it, b ut th e
near-p alin d ro m e, a t le ast a s ir re sis ti b le a s E astm an’s , re m ain ed . X ero X o r X ero x, th e tr a d em ark ,
Wils o n has sa id , w as ad opte d and re ta in ed again st th e v ehem ent ad vic e o f m any o f th e fir m ’s
co nsu lta nts , w ho fe are d th at th e p ub lic w ould fin d it u np ro no unceab le , o r w ould th in k it d eno te d a n
anti - fr e eze , o r w ould b e p ut i n m in d o f a w ord h ig hly d is c o ura gin g to f in ancia l e ars — “ze ro .”
Then, in 1 960, th e e xp lo sio n c am e, a nd s u d denly e v ery th in g w as re v ers e d . In ste ad o f w orry in g
ab out w heth er i ts tr a d e n am e w ould b e s u ccessfu l, th e c o m pany w as w orry in g a b out i ts b eco m in g
to o
su ccessfu l, f o r th e n ew v erb “ to x ero x” b egan to a p pear s o f r e q uentl y i n c o nv ers a ti o n a nd i n p rin t th at
th e c o m pany’s p ro prie ta ry r ig hts in th e n am e w ere th re ate ned , a nd it h ad to e m bark o n a n e la b ora te
cam paig n a gain st s u ch u sa ge. (In 1 961, th e c o m pany w ent th e w ho le h o g a nd c hanged its n am e to
pla in X ero x C orp ora ti o n.) A nd i n ste ad o f w orry in g a b out th e f u tu re o f th em se lv es a nd th eir f a m ilie s,
th e X ero x e xecuti v es w ere w orry in g a b out th eir r e p uta ti o n w ith th e fr ie nd s a nd r e la ti v es w ho m th ey
had p ru d entl y a d vis e d
not
to in v est in th e s to ck a t tw enty c ents a s h are . In a w ord , e v ery b ody w ho
held X ero x s to ck i n q uanti ty h ad g o t r ic h o r r ic her— th e e xecuti v es w ho h ad s c rim ped a nd s a crific ed ,
th e U niv ers ity o f R ocheste r, B atte lle M em oria l I n sti tu te , a nd e v en, o f a ll p eo ple , C heste r F . C arls o n,
who h ad c o m e o ut o f th e v ario us a gre em ents w ith X ero x s to ck th at a t 1 968 p ric es w as w orth m any
millio n d olla rs , p utti n g h im ( a cco rd in g to
Fortu ne
) a m ong th e s ix ty -s ix r ic hest p eo ple i n th e c o untr y .
TH US
b ald ly o utl in ed , th e s to ry o f X ero x h as a n o ld -fa sh io ned , e v en a n in ete enth -c entu ry , rin g— th e
lo nely in v ento r in h is c ru d e la b ora to ry , th e s m all, fa m ily -o rie nte d c o m pany, th e in iti a l s e tb acks
, th e
re lia nce o n th e p ate nt s y ste m , th e re so rt to c la ssic al G re ek fo r a tr a d e n am e, th e e v entu al tr iu m ph
glo rio usly v in d ic ati n g th e fr e e-e nte rp ris e sy ste m . B ut th ere is a no th er d im ensio n to X ero x. In th e
matte r of dem onstr a ti n g a se nse of re sp onsib ility to so cie ty as a w ho le , ra th er th an ju st to its
sto ckho ld ers , e m plo yees, a nd c usto m ers , it h as sh o w n its e lf to b e th e re v ers e o f m ost n in ete enth -
centu ry c o m panie s— to b e, i n d eed , i n th e a d vance g uard o f tw enti e th -c entu ry c o m panie s. “ T o s e t h ig h
go als , to hav e alm ost unatta in ab le asp ir a ti o ns, to im bue p eo ple w ith th e b elie f th at th ey can b e
achie v ed — th ese a re a s i m porta nt a s th e b ala nce s h eet, p erh ap s m ore s o ,” W ils o n s a id o nce, a nd o th er
Xero x e xecuti v es h av e o fte n g o ne o ut o f th eir w ay to e m phasiz e th at “ th e X ero x s p ir it” i s n o t s o m uch
a m eans to a n e nd a s a m atte r o f e m phasiz in g “ hum an v alu es” fo r th eir o w n sa ke. S uch p la tf o rm
rh eto ric is fa r fr o m u nco m mon in b ig -b usin ess c ir c le s, o f c o urs e , a nd w hen it c o m es fr o m X ero x
executi v es it is ju st a s a p t to a ro use s k ep ti c is m — or e v en, c o nsid erin g th e c o m pany’s h uge p ro fits ,
ir rita ti o n. B ut th ere is ev id ence th at X ero x m eans w hat it sa ys. In 1 965, th e co m pany d onate d
$1,6 32,5 48 to e d ucati o nal a nd c harita b le i n sti tu ti o ns, a nd $ 2,2 46,0 00 i n 1 966; b oth y ears th e b ig gest
re cip ie nts w ere th e U niv ers ity o f R ocheste r a nd th e R ocheste r C om munity C hest, a nd i n e ach c ase th e
su m re p re se nte d a ro und o ne a nd a h alf p er c ent o f th e c o m pany’s n et in co m e b efo re ta xes. T his is
mark ed ly h ig her th an th e p erc enta ge th at m ost la rg e c o m panie s s e t a sid e fo r g o od w ork s; to ta ke a co up le o f e xam ple s f r o m a m ong th o se o fte n c ite d f o r th eir l ib era lity , R .C .A .’ s c o ntr ib uti o ns f o r 1 965
am ounte d to ab out se v en-te nth s o f o ne p er cent o f p re -ta x in co m e, and A meric an T ele p ho ne &
Tele gra p h’s to c o nsid era b ly l e ss th an o ne p er c ent. T hat X ero x i n te nd ed to p ers is t i n i ts h ig h-m in d ed
ways w as in d ic ate d b y its c o m mitm ent o f its e lf in 1 966 to th e “ o ne-p er-c ent p ro gra m ,” o fte n c alle d
th e C le v ela nd P la n— a s y ste m in augura te d in th at c ity u nd er w hic h lo cal in d ustr ie s a gre e to g iv e o ne
per c ent o f p re -ta x in co m e a nnually to lo cal e d ucati o nal in sti tu ti o ns, a p art fr o m th eir o th er d onati o ns
—so th at if X ero x in co m e c o nti n ues to s o ar, th e U niv ers ity o f R ocheste r a nd its s is te r in sti tu ti o ns in
th e a re a c an f a ce th e f u tu re w ith a c erta in a ssu ra nce.
In o th er m atte rs , to o, X ero x h as ta ken ris k s fo r re aso ns th at h av e n o th in g to d o w ith p ro fit. In a
1964 s p eech, W ils o n s a id , “ T he c o rp ora ti o n c anno t r e fu se to ta ke a s ta nd o n p ub lic is su es o f m ajo r
co ncern ”— a p ie ce o f b usin ess h ere sy i f th ere e v er w as o ne, s in ce ta kin g a s ta nd o n a p ub lic i s su e i s
th e o bvio us w ay o f a lie nati n g c usto m ers a nd p ote nti a l c usto m ers w ho ta ke th e o pposite s ta nd . T he
chie f p ub lic s ta nd th at X ero x h as ta ken i s i n f a v or o f th e U nite d N ati o ns— and , b y i m plic ati o n, a gain st
its detr a cto rs . Early in 1964, th e co m pany decid ed to sp end fo ur m illio n dolla rs — a year’s
ad verti s in g b ud get— on u nd erw riti n g a s e rie s o f n etw ork -te le v is io n p ro gra m s d ealin g w ith th e U .N .,
th e p ro gra m s to b e u nacco m panie d b y c o m merc ia ls o r a ny o th er id enti fic ati o n o f X ero x a p art fr o m a
sta te m ent a t th e b egin nin g a nd e nd o f e ach th at X ero x h ad p aid fo r it. T hat J u ly a nd A ugust— so m e
th re e m onth s a fte r th e d ecis io n h ad b een a nno unced — Xero x s u d denly r e ceiv ed a n a v ala nche o f l e tte rs
opposin g th e p ro je ct a nd u rg in g th e c o m pany to a b and on it. N um berin g a lm ost fifte en th o usa nd , th e
le tte rs ra nged in to ne fr o m sw eet re aso nab le ness to str id ent a nd e m oti o nal d enuncia ti o n. M any o f
th em a sse rte d th at th e U .N . w as a n in str u m ent fo r d ep riv in g A meric ans o f th eir C onsti tu ti o nal r ig hts ,
th at its c harte r h ad b een w ritte n in p art b y A meric an C om munis ts , a nd th at it w as c o nsta ntl y b ein g
use d to f u rth er C om munis t o bje cti v es, a nd a f e w l e tte rs , f r o m c o m pany p re sid ents , b lu ntl y th re ate ned
to r e m ove th e X ero x m achin es fr o m th eir o ffic es u nle ss th e s e rie s w as c ancelle d . O nly a h and fu l o f
th e l e tte r w rite rs m enti o ned th e J o hn B ir c h S ocie ty , a nd n o ne i d enti fie d th em se lv es a s m em bers o f i t,
but cir c um sta nti a l ev id ence su ggeste d th at th e av ala nche re p re se nte d a care fu lly pla nned B ir c h
cam paig n. F or o ne th in g, a r e cent B ir c h S ocie ty p ub lic ati o n h ad u rg ed th at m em bers w rite to X ero x to
pro te st th e U .N . s e rie s, p oin ti n g o ut th at a f lo od o f l e tte rs h ad s u cceed ed i n p ers u ad in g a m ajo r a ir lin e
to r e m ove th e U .N . in sig ne fr o m its a ir p la nes. F urth er e v id ence o f a s y ste m ati c c am paig n tu rn ed u p
when a n a naly sis , m ad e a t X ero x’s in sti g ati o n, sh o w ed th at th e fifte en th o usa nd le tte rs h ad b een
writte n b y o nly a b out f o ur th o usa nd p ers o ns. I n a ny e v ent, th e X ero x o ffic es a nd d ir e cto rs d eclin ed to
be p ers u ad ed o r in ti m id ate d ; th e U .N . se rie s ap peare d o n th e
A meric an B ro ad casti n g C om pany
netw ork in 1 965, to p la ud its a ll a ro und . W ils o n la te r m ain ta in ed th at th e s e rie s— and th e d ecis io n to
ig no re th e pro te st again st it— mad e X ero x m any m ore fr ie nd s th an enem ie s. In all his pub lic
sta te m ents o n th e s u b je ct, h e i n sis te d o n c hara cte riz in g w hat m any o bse rv ers c o nsid ere d a r a th er r a re
str o ke o f b usin ess i d ealis m , a s s im ply s o und b usin ess j u d gm ent.
In th e fa ll o f 1 966, X ero x b egan e nco unte rin g a m easu re o f a d vers ity fo r th e fir s t ti m e s in ce its
in tr o ducti o n o f x ero gra p hy. B y th at ti m e, th ere w ere m ore th an fo rty c o m panie s in th e o ffic e c o pie r
busin ess, m any o f th em p ro ducin g x ero gra p hic d ev ic es u nd er l ic ense f r o m X ero x. ( T he o nly i m porta nt
part o f its te chno lo gy fo r w hic h X ero x h ad re fu se d to g ra nt a lic ense w as a se le niu m d ru m th at
enab le s its o w n m achin es to m ake c o pie s o n o rd in ary p ap er. A ll c o m peti n g p ro ducts s ti ll re q uir e d
tr e ate d p ap er.) T he g re at a d vanta ge th at X ero x h ad b een e njo yin g w as th e o ne th at th e f ir s t to e nte r a
new fie ld a lw ays e njo ys— th e a d vanta ge o f c harg in g h ig h p ric es. N ow , a s
Barro n’s
p oin te d o ut in
August, i t a p peare d th at “ th is o nce-fa b ulo us i n v enti o n m ay— as a ll te chno lo gic al a d vances i n ev ita b ly
must— so on ev olv e in to an accep te d co m monp la ce.” C ut- ra te la te co m ers w ere sw arm in g in to co pyin g; o ne c o m pany, in a le tte r se nt to its sto ckho ld ers in M ay, fo re sa w a ti m e w hen a c o pie r
se llin g fo r te n o r tw enty d olla rs c o uld b e m ark ete d “ as a to y” ( o ne w as a ctu ally m ark ete d fo r a b out
th ir ty d olla rs in 1 968) a nd th ere w as e v en ta lk o f th e d ay w hen c o pie rs w ould b e g iv en a w ay to
pro m ote s a le s o f p ap er, th e w ay ra zo rs h av e lo ng g iv en a w ay to p ro m ote ra zo r b la d es. F or s o m e
years , r e aliz in g th at i ts c o zy l ittl e m ono poly w ould e v entu ally p ass i n to th e p ub lic d om ain , X ero x h ad
been w id enin g its in te re sts th ro ugh m erg ers w ith c o m panie s in o th er fie ld s, m ain ly p ub lis h in g a nd
ed ucati o n; fo r exam ple , in 1 962 it had b ought U niv ers ity M ic ro film s, a lib ra ry o n m ic ro film o f
unp ub lis h ed m anusc rip ts , o ut- o f- p rin t b ooks, d octo ra l d is se rta ti o ns, p erio dic als , a nd n ew sp ap ers , a nd
in 1 965 it had ta cked o n tw o o th er co m panie s— Americ an E ducati o n P ub lic ati o ns, th e co untr y ’s
la rg est p ub lis h er o f e d ucati o nal p erio dic als fo r p rim ary - a nd s e co nd ary -s c ho ol s tu d ents , a nd B asic
Syste m s, a m anufa ctu re r o f
te achin g m achin es. B ut th ese m oves f a ile d to r e assu re th at d ogm ati c c riti c
th e m ark etp la ce, a nd X ero x s to ck r a n i n to a s p ell o f h eav y w eath er. B etw een l a te J u ne, 1 966, w hen i t
sto od a t 2 67¾ , a nd e arly O cto ber, w hen it d ip ped to 1 31⅝ , th e m ark et v alu e o f th e c o m pany w as
more th an c ut i n h alf. I n th e s in gle b usin ess w eek o f O cto ber 3 rd th ro ugh O cto ber 7 th , X ero x d ro pped
42½ p oin ts , a nd o n o ne p arti c ula rly a la rm in g d ay— Octo ber 6 th — tr a d in g in X ero x o n th e N ew Y ork
Sto ck E xchange h ad to b e s u sp end ed fo r fiv e h o urs b ecause th ere w ere a b out tw enty -fiv e m illio n
dolla rs ’ w orth o f s h are s o n s a le th at n o o ne w ante d to b uy.
I fin d th at c o m panie s a re in clin ed to b e a t th eir m ost in te re sti n g w hen th ey a re u nd erg o in g a littl e
mis fo rtu ne, a nd th ere fo re I c ho se th e f a ll o f 1 966 a s th e ti m e to h av e a l o ok a t X ero x a nd i ts p eo ple —
so m eth in g I’ d h ad in m in d to d o fo r a y ear o r s o . I s ta rte d o ut b y g etti n g a cq uain te d w ith o ne o f its
pro ducts . T he X ero x l in e o f c o pie rs a nd r e la te d i te m s w as b y th en a c o m pre hensiv e o ne. T here w as,
fo r in sta nce, th e 9 14, a d esk siz e m achin e th at m akes b la ck-a nd -w hite c o pie s o f a lm ost a ny p age—
prin te d , h and w ritte n, ty p ed , o r d ra w n, b ut n o t e xceed in g n in e b y fo urte en in ches in s iz e — at a r a te o f
ab out o ne c o py e v ery s ix s e co nd s; th e 8 13, a m uch s m alle r d ev ic e, w hic h c an s ta nd o n to p o f a d esk
and i s e sse nti a lly a m in ia tu riz e d v ers io n o f th e 9 14 ( o r, a s X ero x te chnic ia ns l ik e to s a y, “ a 9 14 w ith
th e a ir l e ft o ut” ); th e 2 400, a h ig h-s p eed r e p ro ducti o n m achin e th at l o oks l ik e a m odern k itc hen s to ve
and c an c o ok u p c o pie s a t a r a te o f f o rty a m in ute , o r tw enty -fo ur h und re d a n h o ur; th e C opyflo , w hic h
is c ap ab le o f e nla rg in g m ic ro film ed p ages in to o rd in ary b ooksiz e p ages a nd p rin ti n g th em ; th e L D X,
by w hic h d ocum ents c an b e tr a nsm itte d o ver te le p ho ne w ir e s, m ic ro w av e r a d io , o r c o axia l c ab le ; a nd
th e T ele co pie r, a no n-x ero gra p hic d ev ic e, d esig ned and m anufa ctu re d b y M agnav ox b ut so ld b y
Xero x, w hic h i s a s o rt o f j u nio r v ers io n o f th e L D X a nd i s e sp ecia lly i n te re sti n g to a l a ym an b ecause
it c o nsis ts s im ply o f a s m all b ox th at, w hen a tta ched to a n o rd in ary te le p ho ne, p erm its th e u se r to
ra p id ly tr a nsm it a s m all p ic tu re ( w ith a g o od d eal o f s q ueakin g a nd c lic kin g, to b e s u re ) to a nyo ne
eq uip ped w ith a te le p ho ne and a sim ila r sm all box. O f all th ese , th e 914, th e fir s t auto m ati c
xero gra p hic p ro duct and th e o ne th at co nsti tu te d th e b ig b re akth ro ugh, w as sti ll m uch th e m ost
im porta nt b oth to X ero x a nd to i ts c usto m ers .
It h as b een s u ggeste d th at th e 9 14 is th e m ost s u ccessfu l c o m merc ia l p ro duct in h is to ry , b ut th e
sta te m ent c anno t b e a uth o rita ti v ely c o nfir m ed o r d enie d , if o nly b ecause X ero x d oes n o t p ub lis h
pre cis e r e v enue f ig ure s o n i ts i n d iv id ual p ro ducts ; th e c o m pany d oes s a y, th o ugh, th at i n 1 965 th e 9 14
acco unte d fo r a b out s ix ty -tw o p er c ent o f its to ta l o pera ti n g r e v enues, w hic h w ork s o ut to s o m eth in g
over $ 243,0 00,0 00. In 1 966 it c o uld b e b ought fo r $ 27,5 00, o r it c o uld b e re nte d fo r tw enty -fiv e
dolla rs m onth ly , p lu s a t le ast fo rty -n in e d olla rs ’ w orth o f c o pie s a t fo ur c ents e ach. T hese c harg es
were d elib era te ly s e t u p to m ake r e nti n g m ore a ttr a cti v e th an b uyin g, b ecause X ero x u lti m ate ly m akes
more m oney th at w ay. T he 9 14, w hic h is p ain te d b eig e a nd w eig hs s ix h und re d a nd fifty p ound s, lo oks a g o od d eal l ik e a m odern L -s h ap ed m eta l d esk ; th e th in g to b e c o pie d — a f la t p age, tw o p ages
of a n o pen b ook, o r e v en a s m all th re e-d im ensio nal o bje ct lik e a w atc h o r a m ed al— is p la ced fa ce
dow n o n a g la ss w in d ow in th e fla t to p s u rfa ce, a b utto n is p ush ed , a nd n in e s e co nd s la te r th e c o py
pops i n to a tr a y w here a n “ o ut” b ask et m ig ht b e i f th e 9 14 a ctu ally w ere a d esk . T echno lo gic ally , th e
914 is s o c o m ple x (m ore c o m ple x, s o m e X ero x s a le sm en in sis t, th an a n a uto m obile ) th at it h as a n
anno yin g te nd ency to go w ro ng, and co nse q uentl y X ero x m ain ta in s a fie ld sta ff o f th o usa nd s o f
re p air m en w ho a re p re su m ab ly r e ad y to a nsw er a c all o n s h o rt n o ti c e. T he m ost c o m mon m alfu ncti o n
is a ja m min g o f th e s u p ply o f c o py p ap er, w hic h is r a th er p ic tu re sq uely c alle d a “ m is p uff,” b ecause
each sh eet of pap er is ra is e d in to positi o n to be in sc rib ed by an in te rio r puff of air, and th e
malfu ncti o n o ccurs w hen th e p uff g o es w ro ng. A b ad m is p uff c an o ccasio nally p ut a p ie ce o f th e
pap er i n c o nta ct w ith h o t p arts , i g niti n g i t a nd c ausin g a n a la rm in g c lo ud o f w hite s m oke to i s su e f r o m
th e m achin e; in su ch a c ase th e o pera to r is u rg ed to d o n o th in g, o r, a t m ost, to u se a sm all fir e
exti n guis h er th at i s a tta ched to i t, s in ce th e f ir e b urn s i ts e lf o ut c o m para ti v ely h arm le ssly i f l e ft a lo ne,
where as a b ucket o f w ate r th ro w n o ver a
9 14 m ay c o nv ey p ote nti a lly le th al v olta ges to its m eta l
su rfa ce. A part fr o m m alfu ncti o ns, th e m achin e re q uir e s a g o od d eal o f re gula r a tte nti o n fr o m its
opera to r, w ho is a lm ost in v aria b ly a w om an. ( T he g ir ls w ho o pera te d th e e arlie st ty p ew rite rs w ere
th em se lv es c alle d “ ty p ew rite rs ,” b ut f o rtu nate ly n o body c alls X ero x o pera to rs “ xero xes.” ) I ts s u p ply
of c o pyin g p ap er a nd b la ck e le ctr o sta ti c p ow der, c alle d “ to ner,” m ust b e r e p le nis h ed r e gula rly , w hile
its m ost c ru cia l p art, th e s e le niu m d ru m , m ust b e c le aned r e gula rly w ith a s p ecia l n o n-s c ra tc hy c o tto n,
and w axed e v ery s o o fte n. I s p ent a c o up le o f a fte rn o ons w ith o ne 9 14 a nd i ts o pera to r, a nd o bse rv ed
what s e em ed to b e th e c lo se st r e la ti o nsh ip b etw een a w om an a nd a p ie ce o f o ffic e e q uip m ent th at I
had e v er s e en. A g ir l w ho u se s a ty p ew rite r o r s w itc hb oard h as n o i n te re st i n th e e q uip m ent, b ecause
it ho ld s no m yste ry , w hile o ne w ho o pera te s a co m pute r is b ore d w ith it, b ecause it is utte rly
in co m pre hensib le . B ut a 9 14 h as d is ti n ct a nim al tr a its : it h as to b e fe d a nd c urrie d ; it is in ti m id ati n g
but c an b e ta m ed ; it is su b je ct to u np re d ic ta b le b urs ts o f m is b ehav io r; a nd , g enera lly sp eakin g, it
re sp ond s i n k in d to i ts tr e atm ent. “ I w as f r ig hte ned o f i t a t f ir s t,” th e o pera to r I w atc hed to ld m e. “ T he
Xero x m en s a y, ‘If y o u’re fr ig hte ned o f it, it w on’t w ork ,’ a nd th at’ s p re tty m uch rig ht. It’ s a g o od
sc o ut; I ’ m f o nd o f i t n o w .”
Xero x s a le sm en, I l e arn ed f r o m ta lk s w ith s o m e o f th em , a re f o re v er tr y in g to th in k o f n ew u se s f o r
th e c o m pany’s c o pie rs , b ut th ey h av e f o und a gain a nd a gain th at th e p ub lic i s w ell a head o f th em . O ne
ra th er o dd u se o f x ero gra p hy i n su re s th at b rid es g et th e w ed din g p re se nts th ey w ant. T he p ro sp ecti v e
brid e s u b m its h er l is t o f p re fe rre d p re se nts to a d ep artm ent s to re ; th e s to re s e nd s th e l is t to i ts b rid al-
re gis tr y co unte r, w hic h is eq uip ped w ith a X ero x co pie r; each fr ie nd o f th e b rid e, hav in g b een
ta ctf u lly b rie fe d i n a d vance, c o m es to th is c o unte r a nd i s i s su ed a c o py o f th e l is t, w here up on h e d oes
his s h o ppin g a nd th en r e tu rn s th e c o py w ith th e p urc hase d ite m s c hecked o ff, s o th at th e m aste r lis t
may b e re v is e d a nd th us re ad y fo r th e n ext d ono r. (“ H ym en, iö H ym en, H ym en!” ) A gain , p olic e
dep artm ents in N ew O rle ans a nd v ario us o th er p la ces, in ste ad o f la b orio usly ty p in g u p a r e ceip t fo r
th e p ro perty r e m oved f r o m p eo ple w ho s p end th e n ig ht i n th e
l o ckup , n o w p la ce th e p ro perty i ts e lf—
walle t, w atc h, k eys, a nd s u ch— on th e s c annin g g la ss o f a 9 14, a nd in a fe w s e co nd s h av e a s o rt o f
pic to gra p hic re ceip t. H osp ita ls u se x ero gra p hy to c o py e le ctr o card io gra m s a nd la b ora to ry re p orts ,
and b ro kera ge fir m s to g et h o t ti p s to c usto m ers m ore q uic kly . In fa ct, a nyb ody w ith a ny s o rt o f id ea
th at m ig ht b e a d vanced b y c o pyin g c an g o to o ne o f th e m any c ig ar o r s ta ti o nery s to re s th at h av e a
co in -o pera te d c o pie r a nd i n d ulg e h im se lf. ( It i s i n te re sti n g to n o te th at X ero x to ok to p ro ducin g c o in -
opera te d 9 14s i n tw o c o nfig ura ti o ns— one th at w ork s f o r a d im e a nd o ne th at w ork s f o r a q uarte r; th e
buyer o r l e ase r o f th e m achin e c o uld d ecid e w hic h h e w ante d to c harg e.) Copyin g h as i ts a b use s, to o, a nd th ey a re c le arly s e rio us. T he m ost o bvio us o ne i s o verc o pyin g. A
te nd ency fo rm erly id enti fie d w ith b ure aucra ts h as b een sp re ad in g— th e u rg e to m ake tw o o r m ore
co pie s w hen o ne w ould d o, a nd to m ake o ne w hen n o ne w ould d o; th e p hra se “ in tr ip lic ate ,” o nce
use d to d eno te b ure aucra ti c w aste , h as b eco m e a g ro ss u nd ers ta te m ent. T he b utto n w aiti n g to b e
push ed , th e w hir o f a cti o n, th e n eat r e p ro ducti o n d ro ppin g in to th e tr a y— all th is a d ds u p to a h ead y
exp erie nce, a nd th e n eo phyte o pera to r o f a c o pie r fe els a n im puls e to c o py a ll th e p ap ers in h is
pockets . A nd o nce o ne h as u se d a c o pie r, o ne te nd s to b e h o oked . P erh ap s th e c hie f d anger o f th is
ad dic ti o n is n o t s o m uch th e c lu tte rin g u p o f file s a nd lo ss o f im porta nt m ate ria l th ro ugh s u b m ers io n
as it is th e in sid io us g ro w th o f a n egati v e a tti tu d e to w ard o rig in als — a fe elin g th at n o th in g c an b e o f
im porta nce
unle ss
i t i s c o pie d , o r i s a c o py i ts e lf.
A m ore im med ia te p ro ble m o f x ero gra p hy is th e o verw helm in g te m pta ti o n it o ffe rs to v io la te th e
co pyrig ht la w s. A lm ost a ll la rg e p ub lic a nd c o lle ge lib ra rie s— and m any h ig h-s c ho ol lib ra rie s a s
well— are n o w e q uip ped w ith c o pyin g m achin es, a nd te achers a nd s tu d ents i n n eed o f a f e w c o pie s o f
a g ro up o f p oem s f r o m a p ub lis h ed b ook, a c erta in s h o rt s to ry f r o m a n a nth o lo gy, o r a c erta in a rti c le
fr o m a s c ho la rly jo urn al h av e d ev elo ped th e h ab it o f s im ply p lu ckin g it fr o m th e lib ra ry ’s s h elv es,
ta kin g it to th e lib ra ry ’s re p ro ducti o n d ep artm ent, a nd h av in g th e re q uir e d n um ber o f X ero x c o pie s
mad e. T he e ffe ct, o f c o urs e , is to d ep riv e th e
a uth o r a nd th e p ub lis h er o f in co m e. T here a re n o le gal
re co rd s o f s u ch in fr in gem ents o f c o pyrig ht, s in ce p ub lis h ers a nd a uth o rs a lm ost n ev er s u e e d ucato rs ,
if o nly b ecause th ey d on’t k no w th at th e in fr in gem ents h av e o ccurre d ; fu rth erm ore , th e e d ucato rs
th em se lv es ofte n hav e no id ea th at th ey hav e done anyth in g ille gal. T he lik elih o od th at m any
co pyrig hts h av e a lr e ad y b een i n fr in ged u nkno w in gly th ro ugh x ero gra p hy b ecam e i n d ir e ctl y a p pare nt a
fe w y ears a go w hen a c o m mitte e o f e d ucato rs s e nt a c ir c ula r to te achers f r o m c o ast to c o ast i n fo rm in g
th em e xp lic itl y w hat rig hts to re p ro duce c o pyrig hte d m ate ria l th ey d id a nd d id n o t h av e, a nd th e
alm ost in sta nt s e q uel w as a m ark ed r is e in th e n um ber o f r e q uests fr o m e d ucato rs to p ub lis h ers fo r
perm is sio ns. A nd th ere w as m ore c o ncre te e v id ence o f th e w ay th in gs w ere g o in g; fo r e xam ple , in
1965 a s ta ff m em ber o f th e lib ra ry s c ho ol o f th e U niv ers ity o f N ew M exic o p ub lic ly a d vocate d th at
lib ra rie s s p end n in ety p er c ent o f th eir b ud gets o n s ta ff, te le p ho nes, c o pyin g, te le fa csim ile s, a nd th e
lik e, a nd o nly te n p er c ent— a s o rt o f ti th e— on b ooks a nd j o urn als .
To a c erta in e xte nt, lib ra rie s a tte m pt to p olic e c o pyin g o n th eir o w n. T he p ho to gra p hic s e rv ic e o f
th e N ew Y ork P ub lic L ib ra ry ’s m ain b ra nch, w hic h fills s o m e fifte en h und re d re q uests a w eek fo r
co pie s o f lib ra ry m atte r, in fo rm s p atr o ns th at “ co pyrig hte d m ate ria l w ill n o t b e re p ro duced b eyo nd
‘fa ir u se ’” — th at is , th e a m ount a nd k in d o f re p ro ducti o n, g enera lly c o nfin ed to b rie f e xcerp ts , th at
hav e b een e sta b lis h ed b y le gal p re ced ent a s n o t c o nsti tu ti n g in fr in gem ent. T he lib ra ry g o es o n, “ T he
ap plic ant a ssu m es a ll r e sp onsib ility fo r a ny q uesti o n th at m ay a ris e in th e m akin g o f th e c o py a nd in
th e u se m ad e th ere o f.” In th e fir s t p art o f its s ta te m ent th e lib ra ry s e em s to a ssu m e th e r e sp onsib ility
and in th e s e co nd p art to re no unce it, a nd th is a m biv ale nce m ay re fle ct a n u neasin ess w id ely fe lt
am ong u se rs o f lib ra ry c o pie rs . O uts id e lib ra ry w alls , th ere o fte n d oes n o t se em to b e e v en th is
degre e o f s c ru p le . B usin ess p eo ple w ho a re o th erw is e m eti c ulo us i n th eir o bse rv ance o f th e l a w s e em
to re gard c o pyrig ht in fr in gem ent a b out a s s e rio usly a s th ey re gard ja yw alk in g. A w rite r I’ v e h eard
ab out w as in v ite d to a s e m in ar o f h ig h-le v el a nd h ig h-m in d ed in d ustr ia l le ad ers a nd w as s ta rtl e d to
fin d th at a c hap te r fr o m h is
m ost r e cent b ook h ad b een c o pie d a nd d is tr ib ute d to th e p arti c ip ants , to
se rv e a s a b asis fo r d is c ussio n. W hen th e w rite r p ro te ste d , th e b usin essm en w ere ta ken a b ack, a nd
ev en in ju re d ; th ey h ad th o ught th e w rite r w ould b e p le ase d b y th eir a tte nti o n to h is w ork , b ut th e
fla tte ry , a fte r a ll, w as o f th e s o rt s h o w n b y a th ie f w ho c o m mend s a l a d y’s j e w elr y b y m akin g o ff w ith
it. In th e o pin io n o f s o m e c o m menta to rs , w hat h as h ap pened s o f a r i s o nly th e f ir s t p hase o f a k in d o f
re v olu ti o n i n g ra p hic s. “ X ero gra p hy i s b rin gin g a r e ig n o f te rro r i n to th e w orld o f p ub lis h in g, b ecause
it m eans th at ev ery re ad er can b eco m e b oth auth o r and p ub lis h er,” th e C anad ia n sa ge M ars h all
McL uhan w ro te i n th e s p rin g, 1 966, i s su e o f th e
Am eric a n S ch ola r
. “ A uth o rs h ip a nd r e ad ers h ip a lik e
can b eco m e p ro ducti o n-o rie nte d u nd er x ero gra p hy.… X ero gra p hy i s e le ctr ic ity i n v ad in g th e w orld o f
ty p ogra p hy, a nd it m eans a to ta l r e v olu ti o n in th is o ld s p here .” E ven a llo w in g fo r M cL uhan’s e rra ti c
eb ullie nce (“ I c hange m y o pin io ns d aily ,” h e o nce c o nfe sse d ), h e s e em s to h av e g o t h is te eth in to
so m eth in g h ere . V ario us m agazin e a rti c le s h av e p re d ic te d n o th in g le ss th an th e d is a p peara nce o f th e
book a s i t n o w e xis ts , a nd p ic tu re d th e l ib ra ry o f th e f u tu re a s a s o rt o f m onste r c o m pute r c ap ab le o f
sto rin g a nd r e tr ie v in g th e c o nte nts o f b ooks e le ctr o nic ally a nd x ero gra p hic ally . T he “ b ooks” i n s u ch a
lib ra ry w ould b e ti n y c hip s o f c o m pute r f ilm — “ed iti o ns o f o ne.” E very o ne a gre es th at s u ch a l ib ra ry
is sti ll so m e ti m e aw ay. (B ut no t so fa r aw ay as to p re clu d e a w ary re acti o n fr o m fo re hand ed
pub lis h ers . B egin nin g l a te i n 1 966, th e l o ng-fa m ilia r “ all r ig hts r e se rv ed ” r ig m aro le o n th e c o pyrig ht
page o f a ll b ooks p ub lis h ed b y H arc o urt, B ra ce & W orld w as a lte re d to r e ad , a b it s p ookily , “ A ll
rig hts r e se rv ed . N o p art o f th is p ub lic ati o n m ay b e r e p ro duced o r tr a nsm itte d in a ny fo rm o r b y a ny
means, e le ctr o nic o r m echanic al, in clu d in g p ho to co py, re co rd in g, o r a ny in fo rm ati o n sto ra ge a nd
re tr ie v al s y ste m … ” O th er p ub lis h ers q uic kly fo llo w ed th e e xam ple .) O ne o f th e n eare st a p pro aches
to i t i n th e l a te s ix ti e s w as th e X ero x s u b sid ia ry U niv ers ity M ic ro film s, w hic h c o uld , a nd d id , e nla rg e
its m ic ro film s of out- o f- p rin t books and prin t th em as attr a cti v e and hig hly le gib le pap erb ack
volu m es, a t a c o st to th e c usto m er o f fo ur c ents a p age; in c ase s w here th e b ook w as
c o vere d b y
co pyrig ht, th e fir m p aid a ro yalty to th e a uth o r o n e ach c o py p ro duced . B ut th e ti m e w hen a lm ost
anyo ne c an m ake h is o w n c o py o f a p ub lis h ed b ook a t l o w er th an th e m ark et p ric e i s n o t s o m e y ears
aw ay; i t i s n o w . A ll th at th e a m ate ur p ub lis h er n eed s i s a ccess to a X ero x m achin e a nd a s m all o ffs e t
prin ti n g p re ss. O ne o f th e le sse r b ut sti ll im porta nt a ttr ib ute s o f x ero gra p hy is its a b ility to m ake
maste r c o pie s fo r u se o n o ffs e t p re sse s, a nd m ake th em m uch m ore c heap ly a nd q uic kly th an w as
pre v io usly p ossib le . A cco rd in g to I r w in K arp , c o unse l to th e A uth o rs L eague o f A meric a, a n e d iti o n
of fifty c o pie s o f a ny p rin te d b ook c o uld in 1 967 b e h and so m ely “ p ub lis h ed ” ( m in us th e b in d in g) b y
th is c o m bin ati o n o f te chno lo gie s in a m atte r o f m in ute s a t a c o st o f a b out e ig ht- te nth s o f a c ent p er
page, a nd le ss th an th at if th e e d iti o n w as la rg er. A te acher w is h in g to d is tr ib ute to a c la ss o f fifty
stu d ents th e c o nte nts o f a s ix ty -fo ur-p age b ook o f p oetr y s e llin g fo r th re e d olla rs a nd s e v enty -fiv e
cents c o uld d o s o , if h e w ere d is p ose d to ig no re th e c o pyrig ht la w s, a t a c o st o f s lig htl y o ver fifty
cents p er c o py.
The d anger in th e n ew te chno lo gy, a uth o rs a nd p ub lis h ers h av e c o nte nd ed , is th at in d oin g a w ay
with th e b ook i t m ay d o a w ay w ith th em , a nd th us w ith w riti n g i ts e lf. H erb ert S . B aile y, J r., d ir e cto r
of P rin ceto n U niv ers ity P re ss, w ro te in th e
Satu rd ay R evie w
o f a sc ho la r fr ie nd o f h is w ho h as
cancelle d a ll h is s u b sc rip ti o ns to s c ho la rly j o urn als ; i n ste ad , h e n o w s c ans th eir ta b le s o f c o nte nts a t
his p ub lic lib ra ry and m akes co pie s o f th e arti c le s th at in te re st him . B aile y co m mente d , “If all
sc ho la rs fo llo w ed [th is ] p ra cti c e, th ere w ould b e n o sc ho la rly jo urn als .” B egin nin g in th e m id dle
six ti e s, C ongre ss h as b een c o nsid erin g a r e v is io n o f th e c o pyrig ht la w s— th e fir s t s in ce 1 909. A t th e
hearin gs, a c o m mitte e r e p re se nti n g th e N ati o nal E ducati o n A sso cia ti o n a nd a c lu tc h o f o th er e d ucati o n
gro up s a rg ued fir m ly a nd p ers u asiv ely th at if e d ucati o n is to k eep u p w ith o ur n ati o nal g ro w th , th e
pre se nt c o pyrig ht la w a nd th e fa ir -u se d octr in e s h o uld b e lib era liz e d fo r s c ho la sti c p urp ose s. T he
auth o rs a nd p ub lis h ers , n o t s u rp ris in gly , o ppose d s u ch lib era liz a ti o n, in sis ti n g th at a ny e xte nsio n o f
exis ti n g rig hts w ould te nd to d ep riv e th em o f th eir liv elih o ods to so m e d egre e n o w , a nd to a fa r
gre ate r d egre e in th e
u ncharte d x ero gra p hic fu tu re . A b ill th at w as a p pro ved in 1 967 b y th e H ouse Ju d ic ia ry C om mitte e s e em ed to r e p re se nt a v ic to ry fo r th em , s in ce it e xp lic itl y s e t fo rth th e fa ir -u se
doctr in e a nd c o nta in ed n o e d ucati o nal- c o pyin g e xem pti o n. B ut th e fin al o utc o m e o f th e s tr u ggle w as
sti ll u ncerta in l a te i n 1 968. M cL uhan, f o r o ne, w as c o nv in ced th at a ll e ffo rts to p re se rv e th e o ld f o rm s
of a uth o r p ro te cti o n re p re se nt b ackw ard th in kin g a nd a re d oom ed to fa ilu re (o r, a nyw ay, h e w as
co nv in ced th e d ay h e w ro te h is
Am eric a n S ch ola r
a rti c le ). “ T here is n o p ossib le p ro te cti o n fr o m
te chno lo gy e xcep t b y te chno lo gy,” h e w ro te . “ W hen y o u c re ate a n ew e nv ir o nm ent w ith o ne p hase o f
te chno lo gy, y o u h av e to c re ate a n a nti - e nv ir o nm ent w ith th e n ext.” B ut a uth o rs a re s e ld om g o od a t
te chno lo gy, a nd p ro bab ly d o n o t f lo uris h i n a nti - e nv ir o nm ents .
In d ealin g w ith th is P and ora ’s b ox th at X ero x p ro ducts h av e o pened , th e c o m pany s e em s to h av e
measu re d u p to le ra b ly w ell to its lo fty id eals a s s e t fo rth b y W ils o n. A lth o ugh it h as a c o m merc ia l
in te re st i n e nco ura gin g— or, a t l e ast, n o t
dis
co ura gin g— more a nd m ore c o pyin g o f j u st a b out a nyth in g
th at c an b e r e ad , it m akes m ore th an a to ken e ffo rt to in fo rm th e u se rs o f its m achin es o f th eir le gal
re sp onsib iliti e s; fo r e xam ple , e ach n ew m achin e th at is s h ip ped o ut is a cco m panie d b y a c ard board
poste r g iv in g a lo ng lis t o f th in gs th at m ay n o t b e c o pie d , a m ong th em p ap er m oney, g o vern m ent
bond s, posta ge sta m ps, passp orts , and “co pyrig hte d m ate ria l of any m anner or kin d w ith o ut
perm is sio n o f th e c o pyrig ht o w ner.” ( H ow m any o f th ese p oste rs e nd u p in w aste b ask ets is a no th er
matte r.) M ore o ver, c aught i n th e m id dle b etw een th e c o nte nd in g f a cti o ns i n th e f ig ht o ver r e v is io n o f
co pyrig ht l a w , i t r e sis te d th e te m pta ti o n to s ta nd p io usly a sid e w hile r a kin g i n th e p ro fits , a nd s h o w ed
an exem pla ry se nse o f so cia l re sp onsib ility — at le ast fr o m th e p oin t o f v ie w o f th e auth o rs and
pub lis h ers . T he c o pyin g in d ustr y in g enera l, b y c o ntr a st, te nd ed e ith er to r e m ain n eutr a l o r to le an to
th e e d ucato rs ’ s id e. A t a 1 963 s y m posiu m o n c o pyrig ht r e v is io n, a n in d ustr y s p okesm an w ent a s fa r
as to a rg ue th at m achin e c o pyin g b y a sc ho la r is m ere ly a c o nv enie nt e xte nsio n o f h and c o pyin g,
whic h h as tr a d iti o nally b een a ccep te d a s le giti m ate . B ut n o t X ero x. In ste ad , in S ep te m ber, 1 965,
Wils o n w ro te to th e H ouse Ju d ic ia ry C om mitte e fla tl y opposin g any kin d
of sp ecia l co pyin g
exem pti o n in any new la w . O f co urs e , in ev alu ati n g th is se em in gly q uix o ti c sta nd o ne o ught to
re m em ber th at X ero x is a p ub lis h in g fir m a s w ell a s a c o pyin g-m achin e fir m ; in d eed , w hat w ith
Americ an E ducati o n P ub lic ati o ns a nd U niv ers ity M ic ro film s, i t i s o ne o f th e l a rg est p ub lis h in g f ir m s
in th e co untr y . C onv enti o nal p ub lis h ers , I gath ere d fr o m m y re se arc hes, so m eti m es fin d it a b it
bew ild erin g to b e c o nfr o nte d b y th is fu tu ris ti c g ia nt n o t m ere ly a s a n a lie n th re at to th eir fa m ilia r
world b ut a s a n e nerg eti c c o lle ague a nd c o m peti to r w ith in i t.
HAVIN G
h ad a lo ok a t s o m e X ero x p ro ducts a nd d ev ote d s o m e th o ught to th e s o cia l im plic ati o ns o f
th eir u se , I w ent to R ocheste r to s c ra p e u p a fir s t- h and a cq uain ta nce w ith th e c o m pany a nd to g et a n
id ea h o w its p eo ple w ere re acti n g to th eir p ro ble m s, m ate ria l a nd m ora l. A t th e ti m e I w ent, th e
mate ria l p ro ble m s c erta in ly s e em ed to b e to th e f o re , s in ce th e w eek o f th e f o rty -tw o-a nd -a -h alf- p oin t
sto ck d ro p w as n o t lo ng p ast. O n th e p la ne e n r o ute , I h ad b efo re m e a c o py o f X ero x’s m ost r e cent
pro xy s ta te m ent, w hic h l is te d th e n um ber o f X ero x s h are s h eld b y e ach d ir e cto r a s o f F eb ru ary , 1 966,
and I a m use d m yse lf b y c alc ula ti n g s o m e o f th e d ir e cto rs ’ p ap er l o sse s i n th at o ne b ad O cto ber w eek,
assu m in g th at th ey h ad h eld o n to th eir sto ck. C hair m an W ils o n, fo r e xam ple , h ad h eld 1 54,0 26
co m mon s h are s i n F eb ru ary , s o h is l o ss w ould h av e b een $ 6,5 46,1 05. L in o w itz ’s h o ld in g w as 3 5,1 66
sh are s, fo r a lo ss of $1,4 94,5 55. D r. Jo hn H . D essa uer, executi v e vic e-p re sid ent in charg e of
re se arc h, h ad h eld 7 3,8 45 s h are s a nd w as th ere fo re p re su m ab ly o ut $ 3,1 38,4 12.5 0. S uch s u m s c o uld
hard ly b e c o nsid ere d tr iv ia l e v en b y X ero x e xecuti v es. W ould I, th en, fin d th eir p re m is e s p erv ad ed
by g lo om , o r a t l e ast b y s ig ns o f s h o ck?
The X ero x e xecuti v e o ffic es w ere o n th e u p per flo ors o f R ocheste r’s M id to w n T ow er, th e g ro und le v el o f w hic h i s o ccup ie d b y M id to w n P la za , a n i n d oor s h o ppin g m all. ( L ate r th at y ear, th e c o m pany
moved i ts h ead quarte rs a cro ss th e s tr e et to X ero x S quare , a c o m ple x th at i n clu d es a th ir ty -s to ry o ffic e
build in g, a n a ud ito riu m fo r c iv ic a s w ell a s c o m pany u se , a nd a s u nken ic e r in k.) B efo re g o in g u p to
th e X ero x o ffic es, I to ok a tu rn o r tw o
a ro und th e m all, a nd fo und it to b e e q uip ped w ith a ll k in d s o f
sh o ps, a c afé , k io sk s, p ools , tr e es, a nd b enches th at— in s p ite o f a n o ppre ssiv ely b la nd a nd a fflu ent
atm osp here , c re ate d m ain ly , I s u sp ect, b y b la nd p ip ed -in m usic — were o ccup ie d i n p art b y b um s, j u st
lik e th e b enches i n o utd oor m alls . T he tr e es h ad a te nd ency to l a nguis h f o r l a ck o f l ig ht a nd a ir , b ut th e
bum s l o oked O .K . H av in g a sc end ed b y e le v ato r, I m et a X ero x p ub lic -re la ti o ns m an w ith w ho m I h ad
an a p poin tm ent, a nd im med ia te ly a sk ed h im h o w th e c o m pany h ad re acte d to th e s to ck d ro p. “ O h,
no body ta kes it to o s e rio usly ,” h e re p lie d . “ Y ou h ear a lo t o f lig hth earte d ta lk a b out it a t th e g o lf
clu b s. O ne fe llo w w ill sa y to ano th er, ‘Y ou b uy th e d rin ks— I d ro pped ano th er eig hty th o usa nd
dolla rs o n X ero x yeste rd ay.’ Jo e W ils o n
did
fin d it a b it tr a um ati c th at d ay th ey h ad to su sp end
tr a d in g o n th e S to ck E xchange, b ut o th erw is e h e to ok i t i n s tr id e. I n f a ct, a t a p arty th e o th er d ay w hen
th e s to ck w as w ay d ow n a nd a l o t o f p eo ple w ere c lu ste rin g a ro und h im a sk in g h im w hat i t a ll m eant,
I h eard h im s a y, ‘ W ell, y o u k no w , it’ s v ery r a re ly th at o pportu nity k no cks tw ic e.’ A s fo r th e o ffic e,
yo u s c arc ely h ear th e s u b je ct m enti o ned a t a ll.” A s a m atte r o f fa ct, I s c arc ely d id h ear it m enti o ned
again w hile I w as a t X ero x, a nd th is s a ng-fr o id tu rn ed o ut to b e j u sti fie d , b ecause w ith in a l ittl e m ore
th an a m onth th e s to ck h ad m ad e u p i ts e nti r e l o ss, a nd w ith in a f e w m ore m onth s i t h ad m oved u p to
an a ll- ti m e h ig h.
I s p ent th e r e st o f th at m orn in g c allin g o n th re e s c ie nti fic a nd te chnic al X ero x m en a nd l is te nin g to
no sta lg ic ta le s of th e early years of xero gra p hic dev elo pm ent. T he fir s t of th ese m en w as D r.
Dessa uer, th e p re v io us w eek’s th re e-m illio n-d olla r l o se r, w ho m I n ev erth ele ss f o und l o okin g tr a nq uil
—as I g uess I s h o uld h av e e xp ecte d , in v ie w o f th e fa ct th at h is X ero x s to ck w as s ti ll p re su m ab ly
worth m ore th an n in e a nd a h alf m illio n d olla rs . (A fe w m onth s la te r it w as p re su m ab ly w orth n o t
quite
tw en ty
m illio n.) D r. D essa uer, a G erm an-b orn v ete ra n o f th e c o m pany w ho h ad b een in c harg e
of i ts r e se arc h a nd e ngin eerin g e v er s in ce 1 938 a nd w as th en a ls o v ic e-c hair m an o f i ts b oard , w as th e
man w ho fir s t b ro ught C arls o n’s in v enti o n to th e a tte nti o n o f J o se p h W ils o n, a fte r h e h ad re ad a n
arti c le a b out it in a te chnic al jo urn al
in 1 945. S tu ck u p o n h is o ffic e w all, I n o ti c ed , w as a g re eti n g
card f r o m m em bers o f h is o ffic e s ta ff i n w hic h h e w as h aile d a s th e “ W iz a rd ,” a nd I f o und h im to b e a
sm ilin g, y o uth fu l- lo okin g m an w ith j u st e no ugh o f a n a ccent to p ass m uste r f o r w iz a rd ry .
“Y ou w ant to h ear a b out th e o ld d ays, e h?” D r. D essa uer sa id . “ W ell, it w as e xciti n g. It w as
wond erfu l. I t w as a ls o te rrib le . S om eti m es I w as g o in g o ut o f m y m in d , m ore o r l e ss l ite ra lly . M oney
was th e m ain p ro ble m . T he c o m pany w as f o rtu nate i n b ein g m odestl y i n th e b la ck, b ut n o t f a r e no ugh.
The m em bers o f o ur te am w ere a ll g am blin g o n th e p ro je ct. I e v en m ortg aged m y h o use — all I h ad l e ft
was m y life in su ra nce. M y n eck w as w ay o ut. M y fe elin g w as th at if it d id n’t w ork W ils o n a nd I
would b e b usin ess fa ilu re s b ut a s fa r a s I w as c o ncern ed I’ d a ls o b e a te chnic al fa ilu re . N obody
would e v er g iv e m e a jo b a gain . I’ d h av e to g iv e u p s c ie nce a nd s e ll in su ra nce o r s o m eth in g.” D r.
Dessa uer th re w a r e tr o sp ecti v ely d is tr a cte d g la nce a t th e c eilin g a nd w ent o n, “ H ard ly a nyb ody w as
very o pti m is ti c i n th e e arly y ears . V ario us m em bers o f o ur o w n g ro up w ould c o m e i n a nd te ll m e th at
th e d am n th in g w ould n ev er w ork . T he b ig gest ris k w as th at e le ctr o sta ti c s w ould p ro ve to b e n o t
fe asib le i n h ig h h um id ity . A lm ost a ll th e e xp erts a ssu m ed th at— th ey’d s a y, ‘ Y ou’ll n ev er m ake c o pie s
in N ew O rle ans.’ A nd e v en if it d id w ork , th e m ark eti n g p eo ple th o ught w e w ere d ealin g w ith a
pote nti a l m ark et o f n o m ore th an a fe w th o usa nd m achin es. S om e a d vis e rs to ld u s th at w e w ere
ab so lu te ly c ra zy to g o a head w ith th e p ro je ct. W ell, a s y o u k no w , e v ery th in g w ork ed o ut a ll r ig ht—
th e 9 14 w ork ed , e v en in N ew O rle ans, a nd th ere w as a b ig m ark et fo r it. T hen c am e th e d esk -to p vers io n, th e 8 13. I s tu ck m y n eck w ay o ut a gain o n th at, h o ld in g o ut fo r a d esig n th at s o m e e xp erts
co nsid ere d to o f r a gile .”
I a sk ed D r. D essa uer w heth er h is n eck w as n o w o ut o n a nyth in g i n th e w ay o f n ew r e se arc h, a nd , i f
so , w heth er it is a s e xciti n g a s x ero gra p hy w as. H e r e p lie d , “ Y es to b oth q uesti o ns, b ut b eyo nd th at
th e s u b je ct i s p riv ile ged k no w le d ge.”
Dr. H aro ld E . C la rk , th e n ext m an I s a w , h ad b een i n d ir e ct c harg e o f th e x ero gra p hy-d ev elo pm ent
pro gra m und er D r. D essa uer’s su p erv is io n, and he gav e m e m ore deta ils on ho w th e C arls o n
in v enti o n had been co axed and nurs e d in to a co m merc ia l
pro duct. “C het Carls o n was
morp ho lo gic al,” b egan D r. C la rk , a sh o rt m an w ith a p ro fe sso ria l m anner w ho w as, in fa ct, a
pro fe sso r o f p hysic s b efo re h e c am e to H alo id in 1 949. I p ro bab ly lo oked b la nk, b ecause D r. C la rk
gav e a l ittl e l a ugh a nd w ent o n, “ I d on’t r e ally k no w w heth er ‘ m orp ho lo gic al’ m eans a nyth in g. I
th in k
it m eans p utti n g o ne th in g to geth er w ith a no th er th in g to g et a n ew th in g. A nyw ay, th at’ s w hat C het
was. X ero gra p hy h ad p ra cti c ally n o f o und ati o n i n p re v io us s c ie nti fic w ork . C het p ut to geth er a r a th er
odd lo t o f p heno m ena, e ach o f w hic h w as o bsc ure in its e lf a nd n o ne o f w hic h h ad p re v io usly b een
re la te d in anyo ne’s th in kin g. T he re su lt w as th e big gest th in g in im agin g sin ce th e co m in g of
pho to gra p hy its e lf. F urth erm ore , h e d id it e nti r e ly w ith o ut th e h elp o f a fa v ora b le s c ie nti fic c lim ate .
As yo u kno w , th ere are d oze ns o f in sta nces o f sim ulta neo us d is c o very d ow n th ro ugh sc ie nti fic
his to ry , but no one cam e anyw here near bein g sim ulta neo us w ith C het. I’ m as am aze d by his
dis c o very n o w a s I w as w hen I f ir s t h eard o f i t. A s a n i n v enti o n, i t w as m agnific ent. T he o nly tr o ub le
was th at a s a p ro duct i t w asn ’t a ny g o od.”
Dr. C la rk g av e a no th er l ittl e l a ugh a nd w ent o n to e xp la in th at th e tu rn in g p oin t w as r e ached a t th e
Batte lle M em oria l I n sti tu te , a nd i n a m anner f u lly c o nso nant w ith th e tr a d iti o n o f s c ie nti fic a d vances’
occurrin g m ore o r le ss b y m is ta ke. T he m ain tr o ub le w as th at C arls o n’s p ho to co nd ucti v e s u rfa ce,
whic h w as c o ate d w ith s u lp hur, l o st i ts q ualiti e s a fte r i t h ad m ad e a f e w c o pie s a nd b ecam e u se le ss.
Acti n g o n a hunch unsu p porte d b y sc ie nti fic th eo ry , th e B atte lle re se arc hers tr ie d ad din g to th e
su lp hur a sm all q uanti ty o f se le niu m , a n o n-m eta llic e le m ent p re v io usly u se d c hie fly in e le ctr ic al
re sis to rs a nd a s a c o lo rin g m ate ria l to r e d den g la ss. T he s e le niu m -a nd -s u lp hur s u rfa ce w ork ed a l ittl e
bette r th an th e all- s u lp hur one, so th e B atte lle m en tr ie d ad din g a littl e m ore se le niu m . M ore
im pro vem ent. T hey gra d ually kep t in cre asin g th e perc enta ge unti l th ey had a su rfa ce co nsis ti n g
enti r e ly o f s e le niu m — no s u lp hur. T hat o ne w ork ed b est o f a ll, a nd th us it w as fo und , b ackhand ed ly ,
th at s e le niu m a nd s e le niu m a lo ne c o uld m ake x ero gra p hy p ra cti c al.
“T hin k o f i t,” D r. C la rk s a id , l o okin g th o ughtf u l h im se lf. “ A s im ple th in g l ik e s e le niu m — one o f th e
earth ’s e le m ents , o f w hic h th ere a re h ard ly m ore th an a h und re d a lto geth er, a nd a c o m mon
o ne a t th at.
It tu rn ed o ut to b e th e key. O nce its effe cti v eness w as d is c o vere d , w e w ere aro und th e co rn er,
alth o ugh w e d id n’t kno w it at th e ti m e. W e sti ll ho ld p ate nts co verin g th e use o f se le niu m in
xero gra p hy— alm ost a p ate nt o n o ne o f th e e le m ents . N ot b ad , e h? N or d o w e u nd ers ta nd e xactl y
how
se le niu m w ork s, e v en n o w . W e’re m ysti fie d , f o r e xam ple , b y th e f a ct th at i t h as n o m em ory e ffe cts —
no tr a ces of pre v io us co pie s are le ft on th e se le niu m -c o ate d dru m — and th at it se em s to be
th eo re ti c ally c ap ab le o f la sti n g in d efin ite ly . In th e la b , a s e le niu m -c o ate d d ru m w ill la st th ro ugh a
millio n p ro cesse s, a nd w e d on’t u nd ers ta nd w hy i t w ears o ut e v en th en. S o, y o u s e e, th e d ev elo pm ent
of x ero gra p hy w as l a rg ely e m pir ic al. W e w ere tr a in ed s c ie nti s ts , n o t Y ankee ti n kers , b ut w e s tr u ck a
bala nce b etw een Y ankee ti n kerin g a nd s c ie nti fic i n q uir y .”
Next, I ta lk ed w ith H ora ce W . B ecker, th e X ero x e ngin eer w ho w as p rin cip ally re sp onsib le fo r
brin gin g th e 9 14 fr o m th e w ork in g-m odel s ta ge to th e p ro ducti o n lin e. A B ro okly nite w ith a ta le nt,
ap pro pria te to h is a ssig nm ent, fo r e lo quent a nguis h , h e to ld m e o f th e h air -ra is in g o bsta cle s a nd haza rd s th at s u rro und ed th is p ro gre ss. W hen h e jo in ed H alo id X ero x in 1 958, h is la b ora to ry w as a
lo ft a b ove a R ocheste r g ard en-s e ed –packagin g e sta b lis h m ent; s o m eth in g w as w ro ng w ith th e ro of,
and o n h o t d ays d ro ps o f m olte n ta r w ould o oze th ro ugh i t a nd s p atte r th e e ngin eers a nd th e m achin es.
The 9 14 fin ally c am e o f a ge in a no th er la b , o n O rc hard S tr e et, e arly in 1 960. “ It w as a b eat- u p o ld
lo ft b uild in g, to o, w ith a c re aky e le v ato r a nd a v ie w o f a r a ilr o ad s id in g w here c ars f u ll o f p ig s k ep t
go in g b y,” B ecker to ld m e, “ b ut w e h ad th e s p ace w e n eed ed , a nd i t d id n’t d rip ta r. I t w as a t O rc hard
Str e et th at w e f in ally c aught f ir e . D on’t a sk m e h o w i t h ap pened . W e d ecid ed i t w as ti m e to s e t u p a n
asse m bly lin e, a nd w e d id . E very b ody w as k eyed u p . T he u nio n p eo ple te m pora rily fo rg o t th eir
grie v ances, a nd th e b osse s fo rg o t th eir p erfo rm ance ra ti n gs. Y ou c o uld n’t te ll a n e ngin eer fr o m a n
asse m ble r in th at p la ce. N o o ne c o uld s ta y a w ay— yo u’d s n eak in o n a S und ay, w hen th e a sse m bly
lin e w as s h ut d ow n, a nd th ere w ould b e s o m eb ody a d ju sti n g s o m eth in g o r ju st p utte rin g a ro und a nd
ad m ir in g o ur w ork . I n o th er w ord s, th e 9 14 w as o n i ts w ay a t l a st.”
But o nce th e m achin e w as o n i ts w ay o ut o f th e s h o p a nd o n to
s h o w ro om s a nd c usto m ers , B ecker
re la te d , h is tr o ub le s h ad o nly b egun, b ecause h e w as n o w h eld re sp onsib le fo r m alfu ncti o ns a nd
desig n d efic ie ncie s, a nd w hen it c am e to h av in g a s p ecta cula r c o lla p se ju st a t th e m om ent w hen th e
pub lic s p otl ig ht w as f u ll o n i t, th e 9 14 tu rn ed o ut to b e a v erita b le E dse l. I n tr ic ate r e la ys d eclin ed to
work , s p rin gs b ro ke, p ow er s u p plie s f a ile d , i n exp erie nced u se rs d ro pped s ta p le s a nd p ap er c lip s i n to
it a nd fo ule d th e w ork s ( n ecessita ti n g th e in sta lla ti o n in e v ery m achin e o f a s ta p le -c atc her), a nd th e
exp ecte d d iffic ulti e s in h um id c lim ate s d ev elo ped , a lo ng w ith u nanti c ip ate d o nes a t h ig h a lti tu d es.
“A ll i n a ll,” B ecker s a id , “ at th at ti m e th e m achin es h ad a b ad h ab it, w hen y o u p re sse d th e b utto n, o f
doin g n o th in g.” O r if th e m achin es d id d o s o m eth in g, it w as s o m eth in g w ro ng. A t th e 9 14’s fir s t b ig
sh o w in g in L ond on, fo r in sta nce, W ils o n h im se lf w as o n h and to p ut a c ere m onia l fo re fin ger to its
butto n; h e d id s o , a nd n o t o nly w as n o c o py m ad e b ut a g ia nt g enera to r s e rv in g th e lin e w as b lo w n
out. T hus w as x ero gra p hy i n tr o duced i n G re at B rita in , a nd , c o nsid erin g th e n atu re o f i ts d éb ut, th e f a ct
th at B rita in l a te r b eco m e f a r a nd a w ay th e b ig gest o vers e as u se r o f th e 9 14 a p pears to b e a tr ib ute to
both X ero x r e silie nce a nd B riti s h p ati e nce.
That a fte rn o on, a X ero x g uid e d ro ve m e o ut to W eb ste r, a f a rm to w n n ear th e e d ge o f L ake O nta rio ,
a fe w m ile s fr o m R ocheste r, to s e e th e in co ngru o us s u ccesso r to B ecker’s le aky a nd d ra fty lo fts — a
huge c o m ple x o f m odern i n d ustr ia l b uild in gs, i n clu d in g o ne o f r o ughly a m illio n s q uare f e et w here a ll
Xero x c o pie rs a re a sse m ble d ( e xcep t th o se m ad e b y th e c o m pany’s a ffilia te s in B rita in a nd J a p an),
and a no th er, s o m ew hat s m alle r b ut m ore s v elte , w here r e se arc h a nd d ev elo pm ent a re c arrie d o ut. A s
we w alk ed d ow n o ne o f th e hum min g p ro ducti o n lin es in th e m anufa ctu rin g b uild in g, m y guid e
exp la in ed th at th e l in e o pera te s s ix te en h o urs a d ay o n tw o s h ifts , th at i t a nd th e o th er l in es h av e b een
la ggin g b ehin d d em and co nti n uo usly fo r se v era l years , th at th ere are no w alm ost tw o th o usa nd
em plo yees w ork in g in th e b uild in g, a nd th at th eir u nio n is a lo cal o f th e A malg am ate d C lo th in g
Work ers o f A meric a, th is a no m aly b ein g d ue c hie fly to th e fa ct th at R ocheste r u se d to b e a c ente r o f
th e c lo th in g b usin ess a nd th e C lo th in g W ork ers h as l o ng b een th e s tr o ngest u nio n i n th e a re a.
Afte r m y g uid e h ad d eliv ere d m e b ack to R ocheste r, I s e t o ut o n m y o w n to c o lle ct s o m e o pin io ns
on th e c o m munity ’s a tti tu d e to w ard X ero x a nd i ts s u ccess. I f o und th em to b e a m biv ale nt. “ X ero x h as
been a g o od th in g fo r R ocheste r,” s a id a lo cal b usin essm an. “ E astm an K odak, o f c o urs e , w as th e
city ’s G re at W hite F ath er fo r y ears , a nd it is s ti ll fa r a nd a w ay th e b ig gest lo cal b usin ess, a lth o ugh
Xero x i s n o w s e co nd a nd c o m in g u p f a st. F acin g th at k in d o f c halle nge d oesn ’t d o K odak a ny h arm —
in f a ct, i t d oes i t a l o t o f g o od. B esid es, a s u ccessfu l n ew l o cal c o m pany m eans n ew m oney a nd n ew
jo bs. O n th e o th er h and , s o m e p eo ple a ro und h ere r e se nt X ero x. M ost o f th e l o cal i n d ustr ie s g o b ack
to th e n in ete enth c entu ry , a nd th eir p eo ple a re n’t a lw ays n o te d f o r r e cep ti v eness to n ew co m ers . W hen Xero x w as g o in g th ro ugh its m ete o ric r is e , s o m e th o ught th e b ub ble w ould b urs t— no , th ey
hoped
it
would b urs t. O n to p o f th at, th ere ’s b een a c erta in a m ount o f fe elin g a gain st th e w ay J o e W ils o n a nd
Sol L in o w itz a re a lw ays ta lk in g a b out h um an v alu es w hile m akin g m oney h and o ver fis t. B ut, y o u
kno w — th e p ric e o f s u ccess.”
I w ent o ut to th e U niv ers ity o f R ocheste r, h ig h o n th e b anks o f th e G enese e R iv er, a nd h ad a ta lk
with i ts p re sid ent, W . A lle n W allis . A ta ll m an w ith r e d h air, tr a in ed a s a s ta ti s ti c ia n, W allis s e rv ed
on th e b oard s o f s e v era l R ocheste r c o m panie s, i n clu d in g E astm an K odak, w hic h h ad a lw ays b een th e
univ ers ity ’s S anta C la us a nd r e m ain ed i ts b ig gest a nnual b enefa cto r. A s f o r X ero x, th e u niv ers ity h ad
se v era l so und re aso ns fo r fe elin g k in d ly to w ard it. In th e fir s t p la ce, th e u niv ers ity w as a p riz e
exam ple of a X ero x
multi
millio nair e , sin ce its cle ar cap ita l gain o n th e in v estm ent am ounte d to
aro und a h und re d m illio n d olla rs a nd it h ad ta ken o ut m ore th an te n m illio n in p ro fits . In th e s e co nd
pla ce, X ero x a nnually c o m es th ro ugh w ith a nnual c ash g ifts s e co nd o nly to K odak’s , a nd h ad r e centl y
ple d ged n early s ix m illio n d olla rs to th e u niv ers ity ’s c ap ita l- fu nd s d riv e. I n th e th ir d p la ce, W ils o n, a
Univ ers ity o f R ocheste r g ra d uate h im se lf, h ad b een o n th e u niv ers ity ’s b oard o f tr u ste es s in ce 1 949
and its c hair m an s in ce 1 959. “ B efo re I c am e h ere , in 1 962, I’ d n ev er e v en h eard o f c o rp ora ti o ns’
giv in g u niv ers iti e s s u ch s u m s a s K odak a nd X ero x g iv e u s n o w ,” P re sid ent W allis s a id . “ A nd a ll th ey
want in r e tu rn is fo r u s
to p ro vid e to p-q uality e d ucati o n— no t d o th eir r e se arc h fo r th em , o r a nyth in g
lik e th at. O h, th ere ’s a g o od d eal o f in fo rm al te chnic al c o nsu lti n g b etw een o ur s c ie nti fic p eo ple a nd
th e X ero x p eo ple — sa m e th in g w ith K odak, B ausc h & L om b, a nd o th ers — but th at’ s n o t w hy th ey’re
su p porti n g th e u niv ers ity . T hey w ant to m ake R ocheste r a p la ce th at w ill b e a ttr a cti v e to th e p eo ple
th ey w ant h ere . T he u niv ers ity h as n ev er i n v ente d a nyth in g f o r X ero x, a nd I g uess i t n ev er w ill.”
The n ext m orn in g, in th e X ero x e xecuti v e o ffic es, I m et th e th re e n o nte chnic al X ero x m en o f th e
hig hest m agnitu d e, e nd in g w ith W ils o n h im se lf. T he fir s t o f th ese w as L in o w itz , th e la w yer w ho m
Wils o n to ok o n “ te m pora rily ” in 1 946 a nd k ep t o n p erm anentl y a s h is le ast d is p ensa b le a id e. ( S in ce
Xero x b ecam e fa m ous, th e g enera l p ub lic te nd ed to th in k o f L in o w itz a s m ore th an th at— as, in fa ct,
th e c o m pany’s c hie f e xecuti v e. X ero x o ffic ia ls w ere a w are o f th is p opula r m is c o ncep ti o n, a nd w ere
mysti fie d b y it, sin ce W ils o n, w heth er h e w as c alle d p re sid ent, a s h e w as u nti l M ay o f 1 966, o r
chair m an o f th e b oard , a s h e w as a fte r th at, h ad b een th e b oss r ig ht a lo ng.) I c aught L in o w itz a lm ost
lite ra lly o n th e r u n, s in ce h e h ad j u st b een a p poin te d U nite d S ta te s A mbassa d or to th e O rg aniz a ti o n o f
Americ an S ta te s a nd w as a b out to le av e R ocheste r a nd X ero x fo r W ash in gto n a nd h is n ew d uti e s. A
vig o ro us m an in h is fifti e s, h e fa ir ly e xud ed d riv e, in te nsity , a nd s in cerity . A fte r a p olo giz in g fo r th e
fa ct th at h e h ad o nly a f e w m in ute s to s p end w ith m e, h e s a id , r a p id ly , th at i n h is o pin io n th e s u ccess
of X ero x w as p ro of th at th e o ld i d eals o f f r e e e nte rp ris e s ti ll h eld tr u e, a nd th at th e q ualiti e s th at h ad
mad e fo r th e c o m pany’s s u ccess w ere id ealis m , te nacity , th e c o ura ge to ta ke r is k s, a nd e nth usia sm .
With th at, h e w av ed g o odbye a nd w as o ff. I w as l e ft f e elin g a l ittl e l ik e a w his tl e -s to p v ote r w ho h as
ju st b een b rie fly a d dre sse d b y a c and id ate f r o m th e r e ar p la tf o rm o f a c am paig n tr a in , b ut, l ik e m any
su ch v ote rs , I w as i m pre sse d . L in o w itz h ad u se d th o se b anal w ord s n o t m ere ly a s i f h e m eant th em b ut
as i f h e h ad i n v ente d th em , a nd I h ad th e f e elin g th at W ils o n a nd X ero x w ere g o in g to m is s h im .
I fo und C . P ete r M cC olo ugh, w ho h ad b een p re sid ent o f th e c o m pany s in ce W ils o n h ad m oved u p
to c hair m an, a nd w ho w as
a p pare ntl y d esti n ed e v entu ally to s u cceed h im a s b oss ( a s h e d id i n 1 968),
pacin g h is o ffic e lik e a c aged a nim al, p ausin g fr o m ti m e to ti m e a t a s ta nd up d esk , w here h e w ould
sc rib ble s o m eth in g o r b ark a fe w w ord s in to a d ic ta ti n g m achin e. A lib era l D em ocra ti c la w yer, lik e
Lin o w itz , b ut a C anad ia n b y b ir th , h e is a c heerfu l e xtr o vert w ho , b ein g in h is e arly fo rti e s, w as
sp oken o f a s re p re se nti n g a n ew X ero x g enera ti o n, c harg ed w ith d ete rm in in g th e c o urs e th at th e
co m pany w ould ta ke n ext. “ I fa ce th e p ro ble m s o f g ro w th ,” h e to ld m e a fte r h e h ad a b and oned h is pacin g f o r a r e stl e ss p erc h o n th e e d ge o f a c hair. F utu re g ro w th o n a l a rg e s c ale s im ply i s n ’t p ossib le
in x ero gra p hy, h e w ent o n— th ere is n ’t ro om e no ugh le ft— and th e d ir e cti o n th at X ero x is ta kin g is
to w ard e d ucati o nal te chniq ues. H e m enti o ned c o m pute rs a nd te achin g m achin es, a nd w hen h e s a id h e
co uld “ d re am o f a s y ste m w here b y y o u’d w rite s tu ff in C onnecti c ut a nd w ith in h o urs re p rin t it in
cla ssro om s a ll o ver th e c o untr y ,” I g o t th e fe elin g th at s o m e o f X ero x’s e d ucati o nal d re am s c o uld
easily b eco m e n ig htm are s. B ut th en h e a d ded , “ T he d anger in in genio us h ard w are is th at it d is tr a cts
atte nti o n f r o m e d ucati o n. W hat g o od i s a w ond erfu l m achin e i f y o u d on’t k no w w hat to p ut o n i t? ”
McC olo ugh s a id th at s in ce h e c am e to H alo id , in 1 954, h e fe lt h e’d b een p art o f th re e e nti r e ly
diffe re nt c o m panie s— unti l 1 959 a s m all o ne e ngaged i n a d angero us a nd e xciti n g g am ble ; f r o m 1 959
to 1 964 a g ro w in g o ne e njo yin g th e fr u its o f v ic to ry ; a nd n o w a h uge o ne b ra nchin g o ut in n ew
dir e cti o ns. I a sk ed h im w hic h o ne h e lik ed b est, a nd h e th o ught a lo ng ti m e. “ I d on’t k no w ,” h e s a id
fin ally . “ I u se d to fe el g re ate r fr e ed om , a nd I u se d to fe el th at e v ery o ne in th e c o m pany sh are d
atti tu d es o n s p ecific m atte rs l ik e l a b or r e la ti o ns. I d on’t f e el th at w ay s o m uch n o w . T he p re ssu re s a re
gre ate r, a nd th e c o m pany i s m ore i m pers o nal. I w ould n’t s a y th at l ife h as b eco m e e asie r, o r th at i t i s
lik ely to g et e asie r i n th e f u tu re .”
Of a ll th e s u rp ris in g th in gs a b out J o se p h C . W ils o n, n o t th e l e ast, I th o ught w hen I w as u sh ere d i n to
his pre se nce, w as th e fa ct th at his offic e w alls w ere deco ra te d w ith old -fa sh io ned flo w ere d
wallp ap er. A se nti m enta l str e ak in th e m an at th e head of X ero x se em ed th e m ost unlik ely of
ano m alie s. B ut h e h ad a h o m ey, u nth re ate nin g b earin g to g o w ith th e w allp ap er; a s m allis h m an i n h is
la te fifti e s, h e lo oked s e rio us— alm ost g ra v e— durin g m ost o f m y v is it, a nd s p oke in a s lo w , r a th er
hesita nt w ay. I a sk ed h im h o w h e h ad h ap pened to g o i n to h is f a m ily ’s b usin ess, a nd h e r e p lie d th at a s
a m atte r o f f a ct h e n early h ad n’t. E nglis h l ite ra tu re h ad b een h is s e co nd m ajo r a t th e u niv ers ity , a nd h e
had co nsid ere d eith er ta kin g up te achin g or go in g in to th e fin ancia l and ad m in is tr a ti v e end of
univ ers ity w ork . B ut a fte r g ra d uati n g h e h ad g o ne o n to th e H arv ard B usin ess S cho ol, w here h e h ad
been a to p stu d ent, a nd so m eho w o r o th er … In a ny c ase , h e h ad jo in ed H alo id th e y ear h e le ft
Harv ard , a nd th ere , h e to ld m e w ith a s u d den s m ile , h e w as.
The s u b je cts th at W ils o n s e em ed to b e m ost k een o n d is c ussin g w ere X ero x’s n o n-p ro fit a cti v iti e s
and h is th eo rie s o f c o rp ora te r e sp onsib ility . “ T here a re c erta in fe elin gs o f r e se ntm ent to w ard u s o n
th is ,” h e s a id . “ I d on’t m ean ju st fr o m s to ckho ld ers c o m pla in in g th at w e’re g iv in g th eir m oney a w ay
—th at p oin t o f v ie w is lo sin g g ro und . I m ean in th e c o m munity . Y ou d on’t a ctu ally h ear it, b ut y o u
so m eti m es g et a k in d o f in tu iti v e fe elin g th at p eo ple a re s a yin g, ‘ W ho d o th ese y o ung u p sta rts th in k
th ey a re , a nyho w ?’”
I ask ed w heth er th e le tte r-w riti n g cam paig n again st th e U .N . te le v is io n se rie s had cause d any
mis g iv in gs o r d ow nrig ht fa in th earte d ness w ith in th e c o m pany, a nd h e s a id , “ A s a n o rg aniz a ti o n, w e
nev er w av ere d . A lm ost w ith o ut e xcep ti o n, th e p eo ple h ere fe lt th at th e a tta cks o nly s e rv ed to c all
atte nti o n to th e v ery p oin t w e w ere tr y in g to m ake— th at w orld c o öpera ti o n is o ur b usin ess, b ecause
with o ut i t th ere m ig ht b e n o w orld a nd th ere fo re n o b usin ess. W e b elie v e w e f o llo w ed s o und b usin ess
polic y in g o in g a head w ith th e se rie s. A t th e sa m e ti m e, I w on’t m ain ta in th at it w as
only
so und
busin ess p olic y. I d oub t w heth er w e w ould h av e d one it if, le t’ s sa y, w e h ad a ll b een B ir c hers
ours e lv es.”
Wils o n w ent o n s lo w ly , “ T he w ho le m atte r o f c o m mitti n g th e c o m pany to ta kin g s ta nd s o n m ajo r
pub lic is su es r a is e s q uesti o ns th at m ake u s e xam in e o urs e lv es a ll th e ti m e. It’ s a m atte r o f b ala nce.
You c an’t j u st b e b la nd , o r y o u th ro w a w ay y o ur i n flu ence. B ut y o u c an’t ta ke a s ta nd o n e v ery m ajo r
is su e, e ith er. W e
d on’t th in k i t’ s a c o rp ora ti o n’s j o b to ta ke s ta nd s o n n ati o nal e le cti o ns, f o r e xam ple
—fo rtu nate ly , p erh ap s, s in ce S ol L in o w itz i s a D em ocra t a nd I ’ m a R ep ub lic an. I s su es l ik e u niv ers ity ed ucati o n, c iv il r ig hts , a nd N egro e m plo ym ent c le arly
are
o ur b usin ess. I ’ d h o pe th at w e w ould h av e
th e c o ura ge to s ta nd u p f o r a p oin t o f v ie w th at w as u np opula r i f w e th o ught i t w as a p pro pria te to d o
so . S o fa r, w e h av en’t fa ced th at s itu ati o n— we h av en’t fo und a c o nflic t b etw een w hat w e c o nsid er
our c iv ic re sp onsib ility a nd g o od b usin ess. B ut th e ti m e m ay c o m e. W e m ay h av e to s ta nd o n th e
fir in g lin e y et. F or e xam ple , w e’v e tr ie d , w ith o ut m uch fa nfa re , to e q uip s o m e N egro y o uth s to ta ke
jo bs b eyo nd sw eep in g th e flo or a nd so o n. T he p ro gra m re q uir e d c o m ple te c o öpera ti o n fr o m o ur
unio n, and w e go t it. B ut I’ v e le arn ed th at, in su b tl e w ays, th e ho neym oon is o ver. T here ’s an
und erc urre nt o f o ppositi o n. H ere ’s s o m eth in g s ta rte d , th en, th at if it g ro w s c o uld c o nfr o nt u s w ith a
re al b usin ess p ro ble m . If it b eco m es a fe w h und re d o bje cto rs in ste ad o f a fe w d oze n, th in gs m ig ht
ev en c o m e to a s tr ik e, a nd i n s u ch a c ase I h o pe w e a nd th e u nio n l e ad ers h ip w ould s ta nd u p a nd f ig ht.
But I d on’t r e ally k no w . Y ou c an’t h o nestl y p re d ic t w hat y o u’d d o in a c ase lik e th at. I
th in k
I k no w
what w e’d d o.”
Getti n g u p a nd w alk in g to a w in d ow , W ils o n s a id th at, a s h e s a w it, o ne o f th e c o m pany’s m ajo r
effo rts n o w , a nd e v en m ore i n th e f u tu re , m ust b e to k eep th e p ers o nal a nd h um an q uality f o r w hic h i t
has c o m e to b e k no w n. “ A lr e ad y w e s e e s ig ns o f l o sin g i t,” h e s a id . “ W e’re tr y in g to i n d octr in ate n ew
peo ple , b ut tw enty th o usa nd em plo yees aro und th e W este rn H em is p here is n ’t lik e a th o usa nd in
Rocheste r.”
I jo in ed W ils o n a t th e w in d ow , p re p ara to ry to le av in g. It w as a d ank, d ark m orn in g, s u ch a s I’ m
to ld th e c ity is fa m ous fo r m uch o f th e y ear, a nd I a sk ed h im w heth er, o n a g lo om y d ay lik e th is , h e
was e v er a ssa ile d b y d oub ts th at th e o ld q uality
co uld
b e p re se rv ed . H e n o dded b rie fly a nd s a id , “ It’ s
an e v erla sti n g b attl e , w hic h w e m ay o r m ay n o t w in .” 6
Makin g t h e C usto m ers W hole
ON T H E M ORN IN G
o f T uesd ay, N ovem ber 1 9th , 1 963, a w ell- d re sse d b ut h aggard -lo okin g m an in h is
mid dle th ir ti e s p re se nte d h im se lf a t th e e xecuti v e o ffic es o f th e N ew Y ork S to ck E xchange, a t 1 1
Wall S tr e et, w ith th e a nno uncem ent th at h e w as M orto n K am erm an, m anagin g p artn er o f th e b ro kera ge
fir m o f Ir a H aup t & C o., a m em ber o f th e S to ck E xchange, a nd th at h e w ante d to s e e F ra nk J . C oyle ,
head o f th e E xchange’s m em ber-fir m s d ep artm ent. A fte r c heckin g, a re cep ti o nis t e xp la in ed p olite ly
th at M r.
C oyle w as ti e d u p i n a m eeti n g, w here up on th e v is ito r s a id th at h is m is sio n w as a n u rg ent o ne
and a sk ed to s e e R obert M . B is h o p, th e d ep artm ent’ s s e co nd -in -c o m mand . B is h o p, th e re cep ti o nis t
fo und , w as u nav aila b le , to o; h e w as ti e d u p w ith a n i m porta nt p ho ne c all. A t l e ngth , K am erm an, w ho
se em ed to b e g ro w in g m ore a nd m ore d is tr a cte d , w as u sh ere d in to th e p re se nce o f a le ss e xalte d
Exchange o ffic ia l n am ed G eo rg e H . N ew man. H e th en d uly d eliv ere d h is m essa ge— th at, to th e b est
of h is b elie f, th e c ap ita l r e se rv e o f th e H aup t fir m h ad fa lle n b elo w th e E xchange’s r e q uir e m ents fo r
mem ber f ir m s, a nd th at h e w as f o rm ally r e p orti n g th e f a ct, i n a cco rd ance w ith r e gula ti o ns. W hile th is
sta rtl in g a nno uncem ent w as b ein g m ad e, B is h o p, in a n earb y o ffic e, w as c o nti n uin g h is im porta nt
te le p ho ne c o nv ers a ti o n, th e s e co nd p arty to w hic h w as a k no w le d geab le W all S tr e ete r w ho m B is h o p
has s in ce d eclin ed to i d enti fy . T he c alle r w as te llin g B is h o p h e h ad r e aso n to b elie v e th at tw o S to ck
Exchange m em ber fir m s— J. R . W illis to n & B eane, In c., a nd Ir a H aup t & C o.— were in fin ancia l
tr o ub le se rio us eno ugh to w arra nt th e E xchange’s atte nti o n. A fte r hangin g up , B is h o p m ad e an
in te ro ffic e c all to N ew man to te ll h im w hat h e h ad j u st h eard . T o B is h o p’s s u rp ris e , N ew man a lr e ad y
had th e n ew s, o r p art o f i t. “ A s a m atte r o f f a ct, K am erm an i s r ig ht h ere w ith m e n o w ,” h e s a id .
In th is h um dru m s e tti n g o f o ffic e c o nfu sio n th ere b egan o ne o f th e m ost tr y in g— and in s o m e w ays
one o f th e m ost s e rio us— cris e s in th e S to ck E xchange’s lo ng h is to ry . B efo re it w as o ver, th is c ris is
had b een e xacerb ate d b y th e g re ate r c ris is r e su lti n g f r o m th e a ssa ssin ati o n o f P re sid ent K enned y, a nd
out o f it th e S to ck E xchange— whic h h as n o t a lw ays b een n o te d fo r a cti n g in th e p ub lic in te re st, a nd ,
in d eed , h ad b een a ccuse d o nly a f e w m onth s b efo re b y th e S ecuriti e s a nd E xchange C om mis sio n o f a n
anti - s o cia l te nd ency to c o nd uct its e lf lik e a p riv ate c lu b — em erg ed te m pora rily p oore r b y a lm ost te n
millio n d olla rs b ut i n calc ula b ly r ic her i n th e e ste em o f a t l e ast s o m e o f i ts c o untr y m en. T he e v ent th at
had b ro ught H aup t a nd W illis to n & B eane in to s tr a ite ned c ir c um sta nces is h is to ry — or, r a th er, fu tu re
his to ry . It w as th e su d den so urin g o f a h uge sp ecula ti o n th at th ese tw o fir m s (a lo ng w ith v ario us
bro kers n o t m em bers o f th e S to ck E xchange) h ad
b eco m e in v olv ed in o n b ehalf o f a s in gle c usto m er
—th e A llie d C ru d e V egeta b le O il & R efin in g C o., o f B ayo nne, N ew J e rs e y. T he s p ecula ti o n w as in
co ntr a cts to b uy v ast q uanti ti e s o f c o tto nse ed o il a nd s o yb ean o il fo r fu tu re d eliv ery . S uch c o ntr a cts
are k no w n a s c o m modity f u tu re s, a nd th e e le m ent o f s p ecula ti o n i n th em l ie s i n th e p ossib ility th at b y
deliv ery d ate th e c o m modity w ill b e w orth m ore (o r le ss) th an th e c o ntr a ct p ric e. V egeta b le -o il
fu tu re s a re tr a d ed d aily a t th e N ew Y ork P ro duce E xchange, a t 2 B ro ad w ay, a nd a t th e B oard o f Tra d e, in C hic ago , a nd th ey a re b ought a nd s o ld o n b ehalf o f c usto m ers b y a b out e ig hty o f th e fo ur
hund re d -o dd fir m s th at b elo ng to th e S to ck E xchange a nd c o nd uct a p ub lic b usin ess. O n th e d ay th at
Kam erm an cam e to th e E xchange, th e H aup t fir m w as ho ld in g fo r A llie d — on cre d it— so m any
co tto nse ed -o il a nd s o yb ean-o il c o ntr a cts th at th e c hange o f a s in gle p enny p er p ound in th e p ric es o f
th e c o m moditi e s m eant a tw elv e-m illio n-d olla r c hange i n th e v alu e o f th e A llie d a cco unt w ith H aup t.
On th e tw o p re v io us b usin ess d ays— Frid ay th e fifte enth a nd M ond ay th e e ig hte enth — th e p ric es h ad
dro pped a n a v era ge o f a littl e le ss th an a c ent a nd a h alf p er p ound , a nd a s a re su lt H aup t h ad
dem and ed th at A llie d p ut u p a b out fifte en m illio n d olla rs in c ash to k eep th e a cco unt se aw orth y.
Allie d h ad d eclin ed to d o th is , s o H aup t— lik e a ny b ro ker w hen a c usto m er o pera ti n g o n c re d it h as
defa ulte d — was fa ced w ith th e n ecessity o f s e llin g o ut th e A llie d c o ntr a cts to g et b ack w hat it c o uld
of its a d vances. T he s u ic id al e xte nt o f th e r is k th at H aup t h ad u nd erta ken is fu rth er in d ic ate d b y th e
fa ct th at w hile th e f ir m ’s c ap ita l i n e arly N ovem ber h ad a m ounte d to o nly a b out e ig ht m illio n d olla rs ,
it h ad b orro w ed e no ugh m oney to s u p ply a s in gle c usto m er— Allie d — with s o m e th ir ty -s e v en m illio n
dolla rs to fin ance th e o il s p ecula ti o ns. W ors e s ti ll, a s th in gs tu rn ed o ut it h ad a ccep te d a s c o lla te ra l
fo r s o m e o f th ese a d vances e no rm ous a m ounts o f a ctu al c o tto nse ed o il a nd s o yb ean o il f r o m A llie d ’s
in v ento ry , th e p re se nce o f w hic h i n ta nks a t B ayo nne w as a tte ste d to b y w are ho use r e ceip ts s ta ti n g th e
pre cis e a m ount a nd k in d o f o il o n h and . H aup t h ad b orro w ed th e m oney i t s u p plie d A llie d w ith f r o m
vario us b anks, p assin g a lo ng m ost o f th e w are ho use r e ceip ts to th e b anks a s c o lla te ra l. A ll th is w ould
hav e b een w ell
a nd g o od if it h ad n o t d ev elo ped la te r th at m any o f th e w are ho use re ceip ts w ere
fo rg ed , th at m uch o f th e o il th ey a tte ste d to w as n o t, a nd p ro bab ly n ev er h ad b een, in B ayo nne, a nd
th at A llie d ’s p re sid ent, A nth o ny D e A ngelis ( w ho w as l a te r s e nt to j a il o n a w ho le p arc el o f c harg es),
had a p pare ntl y p ulle d o ff th e b ig gest c o m merc ia l f r a ud s in ce th at o f I v ar K re uger, th e m atc h k in g.
Where w as th e m is sin g o il? H ow c o uld A llie d ’s d ir e ct a nd in d ir e ct c re d ito rs , in clu d in g s o m e o f
th e m ost p ow erfu l a nd w orld ly -w is e b anks o f th e U nite d S ta te s a nd G re at B rita in , h av e b een so
th o ro ughly g ulle d ? W ould a ggre gate lo sse s o n th e w ho le d eb acle fin ally to ta l a h und re d a nd fifty
millio n d olla rs , a s s o m e a uth o riti e s h ad e sti m ate d , o r w ould th e b ill b e e v en b ig ger? H ow c o uld a
le ad in g S to ck E xchange fir m lik e H aup t h av e b een s o fo olis h a s to ta ke o n s u ch a n in co nceiv ab ly
ris k y co m mitm ent fo r a sin gle custo m er? T hese questi o ns had no t ev en been ra is e d , le t alo ne
answ ere d , o n N ovem ber 1 9th ; s o m e o f th em h av e n o t b een a nsw ere d y et, a nd s o m e o f th em m ay n o t
be a nsw ere d fo r y ears . W hat b egan to e m erg e o n N ovem ber 1 9th , a nd w hat b ecam e c le ar in th e
harro w in g d ays th at fo llo w ed , w as th at in th e case o f H aup t, w hic h had ab out tw enty th o usa nd
in d iv id ual s to ck-m ark et c usto m ers o n its b ooks, a nd in th e c ase o f W illis to n & B eane, w hic h h ad
ab out n in e th o usa nd , th e im pend in g d is a ste r d ir e ctl y in v olv ed th e p ers o nal s a v in gs o f m any to ta lly
in no cent p ers o ns w ho h ad n ev er h eard o f A llie d a nd h ad o nly th e v aguest n o ti o n o f w hat c o m modity
tr a d in g i s .
KAM ER M AN’S
r e p ort to th e S to ck E xchange d id n o t m ean th at H aup t h ad g o ne b ro ke, a nd a t th e ti m e h e
mad e it K am erm an him se lf su re ly did no t th in k th at his fir m
had
go ne bro ke; th ere is a gre at
diffe re nce b etw een in so lv ency a nd a m ere fa ilu re to m eet th e E xchange’s ra th er str in gent c ap ita l
re q uir e m ents , w hic h a re in te nd ed to p ro vid e a m arg in o f sa fe ty . In d eed , v ario us S to ck E xchange
offic ia ls h av e sa id th at o n th at T uesd ay m orn in g th ey d id n o t c o nsid er th e H aup t situ ati o n to b e
esp ecia lly s e rio us, w hile th e W illis to n & B eane s itu ati o n, it w as c le ar fr o m th e fir s t, w as e v en le ss
so . O ne o f th e f ir s t r e acti o ns i n th e m em ber-fir m s d ep artm ent w as c hagrin th at K am erm an h ad c o m e to
th e E xchange w ith
his p ro ble m b efo re th e E xchange, th ro ugh its ela b ora te sy ste m o f aud its and
exam in ati o ns, h ad d is c o vere d th e p ro ble m fo r its e lf. T his , th e E xchange in sis ts s tu b born ly , if a b it la m ely , w as a m atte r o f b ad lu ck r a th er th an b ad m anagem ent. A s a m atte r o f r o uti n e, th e E xchange
re q uir e d e ach o f i ts m em ber f ir m s to f ill o ut d eta ile d q uesti o nnair e s o n i ts f in ancia l c o nd iti o n s e v era l
ti m es a y ear, a nd a s a n a d diti o nal c heck a n e xp ert a cco unta nt fr o m th e E xchange sta ff d esc end ed
unexp ecte d ly o n e ach m em ber fir m a t le ast o nce a y ear to s u b je ct its b ooks to a s u rp ris e in sp ecti o n.
Ir a H aup t & C o. h ad fille d o ut its m ost re cent q uesti o nnair e e arly in O cto ber, a nd s in ce th e h uge
build up in A llie d ’s c o m moditi e s p ositi o n w ith H aup t to ok p la ce a fte r th at, th e q uesti o nnair e s h o w ed
no th in g a m is s. A s f o r th e s u rp ris e i n sp ecti o n, th e E xchange’s m an w as i n th e H aup t o ffic es c o nd ucti n g
it a t th e v ery ti m e th e tr o ub le b ro ke. T he a ud ito r h ad b een th ere f o r a w eek, h is n o se b urie d i n H aup t’ s
acco unt b ooks, b ut th e ta sk o f c o nd ucti n g s u ch a n i n sp ecti o n i s a te d io us o ne, a nd b y N ovem ber 1 9th
th e a ud ito r h ad n’t g o t a ro und to e xam in in g th e H aup t c o m moditi e s d ep artm ent. “ T hey h ad s e t o ur m an
up w ith a d esk in a d ep artm ent w here n o th in g u nusu al w as g o in g o n,” a n E xchange o ffic ia l h as s in ce
sa id . “ It’ s e asy to s a y n o w th at h e s h o uld h av e
sm elle d
tr o ub le , b ut h e d id n’t.”
At m id m orn in g o n T uesd ay th e n in ete enth , C oyle a nd B is h o p s a t d ow n w ith K am erm an to s e e w hat
need ed to b e d one a b out H aup t’ s p ro ble m , a nd w hat c o uld b e d one. B is h o p re m em bers th at th e
atm osp here o f th e m eeti n g w as b y n o m eans g rim ; a cco rd in g to K am erm an’s fig ure s, th e a m ount o f
cap ita l th at H aup t n eed ed to b rin g i t u p to s n uff w as a b out a h und re d a nd e ig hty th o usa nd d olla rs — an
alm ost p altr y s u m fo r a fir m o f H aup t’ s s iz e . H aup t c o uld m ake u p th e d efic ie ncy e ith er b y o bta in in g
new m oney f r o m o uts id e o r b y c o nv erti n g s e curiti e s i t o w ned i n to c ash . B is h o p u rg ed th e l a tte r c o urs e
as th e q uic ker a nd s u re r, w here up on K am erm an te le p ho ned h is fir m a nd in str u cte d h is p artn ers to
begin s e llin g s o m e o f th eir s e curiti e s a t o nce. T he d iffic ulty a p pare ntl y w as g o in g to b e s o lv ed a s
sim ply a s th at.
But d urin g th e r e st o f th e d ay, a fte r K am erm an h ad l e ft 1 1 W all, th e c ris is s h o w ed a te nd ency to g o
th ro ugh th e p ro cess th at i n p oliti c al c ir c le s h ad c o m e to b e c alle d e sc ala ti o n. I n th e l a te
a fte rn o on, a n
om in o us p ie ce o f n ew s a rriv ed . A llie d h ad ju st file d a v olu nta ry -b ankru p tc y p eti ti o n in N ew ark .
Theo re ti c ally , th e b ankru p tc y d id n o t a ffe ct th e fin ancia l p ositi o n o f its fo rm er b ro kers , s in ce th ey
held s e curity f o r th e m oney th ey h ad s u p plie d A llie d w ith ; n ev erth ele ss, th e n ew s w as a la rm in g i n th at
it p ro vid ed a h in t o f w ors e n ew s to fo llo w . S uch n ew s, in d eed , w as n o t lo ng in c o m in g; th e s a m e
ev enin g, w ord r e ached th e S to ck E xchange th at th e m anagers o f th e N ew Y ork P ro duce E xchange, i n
an e ffo rt to fo re sta ll c hao s in th eir m ark et, h ad v ote d to s u sp end a ll tr a d in g in c o tto nse ed -o il fu tu re s
unti l f u rth er n o ti c e, a nd to r e q uir e i m med ia te s e ttl e m ent o f a ll o uts ta nd in g c o ntr a cts a t a p ric e d ic ta te d
by th em . S in ce th e d ic ta te d p ric e w ould h av e to b e a lo w o ne, th is m eant th at a ny r e m ain in g c hance
th at H aup t o r W illis to n & B eane h ad o f g etti n g o ut fr o m u nd er th e A llie d s p ecula ti o ns o n fa v ora b le
te rm s w as g o ne.
In th e m em ber-fir m s d ep artm ent th at e v enin g, B is h o p w as fr a nti c ally tr y in g to g et in to uch w ith G .
Keith F unsto n, th e p re sid ent o f th e S to ck E xchange, w ho w as f ir s t a t a m id to w n d in ner a nd th en o n a
tr a in b ound fo r W ash in gto n, w here h e w as s c hed ule d to te sti fy th e n ext d ay b efo re a c o ngre ssio nal
co m mitte e. W hat w ith o ne th in g a nd a no th er, B is h o p w as b usy in h is o ffic e a ll e v enin g; to w ard
mid nig ht, h e fo und h im se lf th e la st m an in th e m em ber-fir m s d ep artm ent, a nd , h av in g d ecid ed it w as
to o l a te to g o h o m e to F anw ood, N ew J e rs e y, f o r th e n ig ht, h e c o lla p se d o n a l e ath er c o uch i n C oyle ’s
offic e. H e h ad a r e stl e ss n ig ht th ere ; th e c le anin g w om en w ere c o nsid era te ly q uie t, h e s a id a fte rw ard ,
but th e p ho nes k ep t r in gin g a ll n ig ht l o ng.
Pro m ptl y a t n in e-th ir ty o n W ed nesd ay m orn in g, th e S to ck E xchange’s b oard o f g o vern o rs m et i n th e
six th -flo or G overn o rs ’ R oom — whic h, w ith its re gal re d c arp et, fie rc e o ld p ortr a its , a nd flu te d g ilt
co lu m ns, carrie s ra th er unco m fo rta b le co nno ta ti o ns of W all Str e et’ s checkere d past— and , in
acco rd ance w ith E xchange re gula ti o ns, v ote d to s u sp end H aup t a nd W illis to n & B eane b ecause o f th eir c ap ita l d iffic ulti e s. T he s u sp ensio n w as m ad e p ub lic a fe w m in ute s a fte r tr a d in g o pened , a t te n
o’c lo ck, b y H enry M . W atts , J r., c hair m an o f th e b oard o f g o vern o rs , w ho a sc end ed a ro str u m th at
overlo oks th e tr a d in g flo or, ra ng th e b ell th at n o rm ally
s ig nals th e b egin nin g o r e nd in g o f a d ay’s
tr a d in g, a nd r e ad a n a nno uncem ent o f i t. F ro m th e p oin t o f v ie w o f th e p ub lic , th e i m med ia te e ffe ct o f
th e a cti o n w as th at th e a cco unts o f th e a lm ost th ir ty th o usa nd c usto m ers o f th e tw o s u sp end ed fir m s
were n o w fr o ze n— th at is , th e o w ners o f th e a cco unts c o uld n eith er se ll th eir sto cks n o r g et th eir
money o ut. T ouched b y th e p lig ht o f th ese u nfo rtu nate s, th e S to ck E xchange b ra ss n o w s e t a b out tr y in g
to h elp th e b ele aguere d f ir m s r a is e e no ugh c ap ita l to l ift th e s u sp ensio ns a nd f r e e th e a cco unts . I n th e
case o f W illis to n & B eane, i ts e ffo rts w ere tr iu m phantl y s u ccessfu l. I t d ev elo ped th at th is f ir m n eed ed
ab out h alf a m illio n d olla rs to g et b ack in to b usin ess, a nd s o m any fe llo w -b ro kers c am e fo rw ard to
help o ut w ith l o ans th at th e f ir m a ctu ally h ad to f ig ht o ff u nw ante d o ffe rs . T he h alf m illio n w as f in ally
accep te d p artl y f r o m W als to n & C o. a nd p artl y f r o m M errill L ynch, P ie rc e, F enner & S m ith . ( C ozily ,
th e B eane o f W illis to n & B eane w as th e v ery m an w ho h ad b een th e c ab oose w hen th e fir m ’s n am e
was M errill L ynch, P ie rc e, F enner & B eane.) R esto re d to fin ancia l h ealth b y th is ti m ely in je cti o n o f
cap ita l, W illis to n & B eane w as re lie v ed o f its s u sp ensio n— and its n in e th o usa nd c usto m ers w ere
re lie v ed of th eir anxie ty — ju st afte r no on on F rid ay, or slig htl y m ore th an tw o days afte r th e
su sp ensio n h ad b een i m pose d .
But in th e case o f H aup t th in gs w ent d iffe re ntl y . It w as cle ar b y W ed nesd ay th at th e cap ita l-
sh o rta ge fig ure o f a h und re d a nd e ig hty th o usa nd d olla rs h ad b een th e r o sie st o f d re am s. E ven s o , it
ap peare d th at th e f ir m m ig ht s ti ll b e s o lv ent d esp ite i ts l o sse s o n th e f o rc ed s a le o f th e o il c o ntr a cts —
on o ne c o nd iti o n. T he c o nd iti o n w as th at th e o il i n B ayo nne ta nks th at A llie d h ad p le d ged to H aup t a s
co lla te ra l— and th at n o w , th ro ugh A llie d ’s d efa ult, b elo nged to H aup t— co uld b e s o ld to o th er o il
pro cesso rs a t a fa ir p ric e. R ic hard M . C ro oks, a n E xchange g o vern o r w ho , u nlik e n early a ll h is
co lle agues, w as a n e xp ert o n c o m moditi e s tr a d in g, f ig ure d th at i f th e B ayo nne o il w ere th us u nlo ad ed ,
Haup t m ig ht sti ll e nd u p slig htl y in th e b la ck. H e th ere fo re te le p ho ned a c o up le o f th e c o untr y ’s
le ad in g v egeta b le -o il p ro cesso rs a nd u rg ed th em to b id o n th e o il. T he re p lie s h e re ceiv ed w ere
unanim ous a nd s ta rtl in g. T he l e ad in g p ro cesso rs d eclin ed to m ake a ny b id a t a ll, a nd
th ey l e ft C ro oks
with th e fe elin g th at th ey w ere s u sp ic io us o f th e B ayo nne w are ho use re ceip ts h eld b y H aup t— th at
th ey s u sp ecte d s o m e o r a ll o f th em to b e fo rg erie s. If th ese s u sp ic io ns w ere w ell fo und ed , it w ould
fo llo w th at s o m e o r a ll o f th e o il a tte ste d to b y th e r e ceip ts w as n o t in B ayo nne. “ T he s itu ati o n w as
very s im ple ,” C ro oks h as s a id . “ W are ho use re ceip ts a re a ccep te d in th e c o m moditi e s b usin ess a s
pra cti c ally a s g o od a s c urre ncy, a nd n o w th e p ossib ility h ad b een r a is e d th at m illio ns o f d olla rs o f
Haup t’ s a sse ts c o nsis te d o f c o unte rfe it m oney.”
Sti ll, a ll th at C ro oks k new d efin ite ly o n W ed nesd ay m orn in g w as th at th e p ro cesso rs w ould n o t b id
on A llie d o il, a nd th ro ugho ut th e r e st o f W ed nesd ay a nd a ll d ay T hurs d ay th e E xchange f u rio usly w ent
on tr y in g to h elp H aup t g et b ack o n i ts f e et a lo ng w ith W illis to n & B eane. N eed le ss to s a y, th e f ifte en
partn ers o f H aup t w ere b usy at th e sa m e end eav or, and in aid o f it K am erm an to ld th e
Tim es
buo yantl y o n W ed nesd ay ev enin g, “Ir a H aup t & C o. is so lv ent and is in an excelle nt fin ancia l
positi o n.” A ls o o n W ed nesd ay e v enin g, C ro oks h ad d in ner i n N ew Y ork w ith a v ete ra n c o m moditi e s
bro ker fr o m C hic ago . “ A lth o ugh I’ m a n o pti m is t b y te m pera m ent, m y e xp erie nce te lls m e th at th ese
th in gs a lw ays tu rn o ut to b e m uch w ors e th an th ey lo ok a t fir s t,” C ro oks s a id r e centl y . “ I m enti o ned
th is to m y b ro ker fr ie nd , a nd h e a gre ed . T he n ext m orn in g a t a b out e le v en-th ir ty , h e c alle d m e a nd
sa id , ‘D ic k, th is th in g is a h und re d p er c ent w ors e th an e v en
yo u
th in k.’ ” A b it la te r, a t m id day o n
Thurs d ay, th e E xchange’s m em ber-fir m s d ep artm ent l e arn ed th at m any o f A llie d ’s w are ho use r e ceip ts
were i n d eed f a ke. As n early a s c an b e d ete rm in ed , th e H aup t p artn ers w ere m akin g th e s a m e u nhap py d is c o very a t
ab out th e s a m e ti m e. A t a ny r a te , a n um ber o f th em d id n o t g o h o m e T hurs d ay e v enin g b ut s p ent th e
nig ht a t th eir o ffic es a t 1 11 B ro ad w ay, tr y in g to fig ure o ut w hat th eir p ositi o n w as. B is h o p g o t h o m e
to F anw ood th at n ig ht, b ut h e f o und th at h e c o uld s le ep h ard ly a ny b ette r th ere th an o n C oyle ’s c o uch.
Acco rd in gly , h e ro se b efo re d aw n, to ok th e J e rs e y C entr a l’s fiv e-e ig ht to th e c ity , a nd o n a h unch
went to th e H aup t o ffic es. T here , in th e p artn ers ’ a re a— re centl y re d eco ra te d w ith m odern c o nto ur
chair s , m arb le -to pped filin g
c ab in ets , a nd r e fr ig era to rs d is g uis e d a s d esk s— he fo und s e v era l o f th e
partn ers , u nsh av en a nd u nkem pt, d ro w sin g in th eir c hair s . “ T hey w ere p re tty s h o t b y th en,” B is h o p
sa id la te r. A nd n o w ond er. A fte r b ein g a w akened , th ey to ld h im th at th ey h ad b een u p a ll n ig ht
calc ula ti n g, a nd th at a t a b out th re e o ’c lo ck th ey h ad c o m e to th e c o nclu sio n th at th eir p ositi o n w as
ho pele ss; in v ie w o f th e w orth le ssn ess o f th e w are ho use re ceip ts , th e H aup t fir m w as in so lv ent.
Bis h o p to ok th is d is a str o us i n te llig ence w ith h im to th e S to ck E xchange, w here h e w aite d f o r th e s u n
to c o m e u p a nd f o r e v ery o ne e ls e to c o m e to w ork .
AT
o ne-fo rty o n F rid ay a fte rn o on, w hen th e s to ck m ark et w as a lr e ad y b ad ly r a ttl e d b y th e r u m ors o f
Haup t’ s im pend in g fa ilu re , th e fir s t re p orts o f th e P re sid ent’ s a ssa ssin ati o n re ached th e E xchange
flo or, i n g arb le d f o rm . C ro oks, w ho w as th ere , s a ys th at th e f ir s t th in g h e h eard w as th at th e P re sid ent
had b een s h o t, th e s e co nd w as th at th e P re sid ent’ s b ro th er, th e A tto rn ey G enera l, h ad a ls o b een s h o t,
and th e th ir d w as th at th e V ic e-P re sid ent h ad h ad a h eart a tta ck. “ T he r u m ors c am e l ik e m achin e-g un
bulle ts ,” C ro oks s a ys. A nd th ey s tr u ck w ith c o m para b le im pact. In th e n ext tw enty -s e v en m in ute s,
durin g w hic h n o h ard n ew s a rriv ed to re lie v e th e a tm osp here o f a p ocaly p se , th e p ric es o f sto cks
declin ed a t a r a te u np ara lle le d i n th e E xchange’s h is to ry . I n l e ss th an h alf a n h o ur, th e v alu es o f l is te d
sto cks d ecre ase d b y th ir te en b illio n d olla rs , a nd th ey w ould n o d oub t h av e d ro pped fu rth er if th e
board o f g o vern o rs h ad n o t c lo se d th e m ark et fo r th e d ay a t s e v en m in ute s p ast tw o. T he p anic ’s
im med ia te e ffe ct o n th e H aup t s itu ati o n w as to m ake th e s ta tu s o f th e tw enty th o usa nd f r o ze n a cco unts
fa r w ors e , b ecause n o w , i n th e e v ent o f H aup t’ s b ankru p tc y a nd th e c o nse q uent l iq uid ati o n o f m any o f
th e a cco unts , th e c ash in g i n w ould h av e to b e d one a t p anic p ric es, w ith h eav y l o sse s to th e a cco unts ’
ow ners . A l a rg er a nd l e ss c alc ula b le e ffe ct o f th e e v ents i n D alla s w as p ara ly zin g d esp air. H ow ev er,
Wall S tr e et— or, ra th er, s o m e W all S tr e ete rs — had a p sy cho lo gic al a d vanta ge o ver th e re st o f th e
co untr y i n th at th ere w as w ork a t h and to b e d one. T his c o nv erg ence o f d is a ste rs c o nfr o nte d th em w ith
a d efin ab le ta sk .
Hav in g te sti fie d in W ash in gto n o n W ed nesd ay a fte rn o on, F unsto n h ad re tu rn ed to N ew Y ork th at
ev enin g a nd h ad s p ent m ost o f T hurs d ay a s w ell a s F rid ay m orn in g w ork in g o n g etti n g W illis to n &
Beane b ack i n b usin ess. S om eti m e d urin g th at p erio d, a s i t w as g ra d ually m ad e c le ar th at H aup t w as
no t m ere ly s h o rt o f c ap ita l b ut a ctu ally in so lv ent, F unsto n b ecam e c o nv in ced th e E xchange a nd its
mem ber f ir m s m ust c o nsid er d oin g s o m eth in g v ir tu ally u np re ced ente d — th at i s , r e im burs e th e i n no cent
vic ti m s o f H aup t’ s im pru d ence w ith th eir o w n m oney. (T he n eare st th in g to a p re ced ent fo r su ch
acti o n w as th e c ase o f D uP ont, H om se y & C o., a s m all S to ck E xchange fir m th at w ent b ankru p t in
1960 a s a re su lt o f fr a ud b y o ne o f its p artn ers ; th e E xchange th en re p aid th e fir m ’s c usto m ers th e
money th ey h ad b een d iv este d o f— ab out e ig ht h und re d th o usa nd d olla rs .) N ow , h av in g h urrie d b ack
to h is o ffic e fr o m a lu nch d ate s h o rtl y b efo re th e e m erg ency c lo sin g o f th e m ark et, F unsto n s e t a b out
putti n g h is p la n i n to a cti o n, c allin g a b out th ir ty l e ad in g b ro kers w ho se o ffic es h ap pened to b e n earb y
and a sk in g th em to tr o t o ver to th e E xchange im med ia te ly a s a n u no ffic ia l d ele gati o n r e p re se nti n g its
mem bers h ip . S ho rtl y a fte r th re e o ’c lo ck, th e b ro kers w ere a sse m ble d i n th e S outh C om mitte e R oom —
a s o m ew hat s m alle r v ers io n o f th e G overn o rs ’ R oom — and F unsto n s e t b efo re th em th e fa cts o f th e Haup t c ase a s h e th en k new th em , a lo ng w ith a n o utl in e o f h is p la n fo r a s o lu ti o n. T he fa cts w ere
th ese : H aup t o w ed a b out th ir ty -s ix m illio n d olla rs to a g ro up o f U nite d S ta te s a nd B riti s h b anks; s in ce
over tw enty m illio n o f its a sse ts w ere re p re se nte d b y w are ho use re ceip ts th at n o w a p peare d to b e
worth le ss, th ere w as n o h o pe th at H aup t c o uld p ay i ts d eb ts . I n th e n o rm al c o urs e o f e v ents , th ere fo re ,
Haup t w ould b e s u ed b y th e c re d ito r b anks w hen th e c o urts r e o pened n ext w eek, th e c ash a nd m any o f
th e s e curiti e s h eld b y H aup t fo r its c usto m ers w ould b e ti e d u p b y th e c re d ito rs , a nd , a cco rd in g to
Funsto n’s l ib era l e sti m ate , s o m e o f th e c usto m ers m ig ht e nd u p g etti n g b ack— afte r a n e xte nd ed p erio d
cause d b y l e gal d ela ys— no m ore th an s ix ty -fiv e c ents o n th e d olla r. A nd th ere w as a no th er s id e to th e
case . If H aup t w ere to go in to b ankru p tc y, th e p sy cho lo gic al effe ct o f th is , co m bin ed w ith th e
palp ab le e ffe ct o f H aup t’ s c o nsid era b le a sse ts ’ b ein g th ro w n o n th e m ark et, m ig ht w ell l e ad
to f u rth er
dep re ssio n o f a s to ck m ark et a lr e ad y in w ild r e tr e at a t a ti m e o f g ra v e n ati o nal c ris is . N ot o nly th e
welfa re o f th e H aup t c usto m ers w as a t s ta ke, th en, b ut p erh ap s th e n ati o nal w elfa re , to o. F unsto n’s
pla n, s im ple e no ugh in o utl in e, w as th at th e S to ck E xchange o r its m em bers p ut u p e no ugh m oney to
enab le a ll th e H aup t c usto m ers to g et b ack th eir c ash a nd s e curiti e s— to b e o nce a gain “ w ho le ,” i n th e
bankin g exp re ssio n. (T he b ankin g exp re ssio n is ety m olo gic ally so und ; “w ho le ” d eriv es fr o m th e
Anglo -S axo n
“hal,”
w hic h m eant u nin ju re d o r r e co vere d fr o m in ju ry , a nd fr o m w hic h “ hale ” is a ls o
deriv ed .) F unsto n f u rth er p ro pose d th at H aup t’ s c re d ito rs , th e b anks, b e p ers u ad ed to d efe r a ny e ffo rts
to c o lle ct th eir m oney u nti l th e c usto m ers h ad b een ta ken c are o f. F unsto n e sti m ate d th at th e a m ount
need ed to d o th e j o b m ig ht r u n to s e v en m illio n d olla rs , o r e v en m ore .
Alm ost to a m an, th e a sse m ble d b ro kers a gre ed to s u p port th is p ub lic -s p ir ite d , if n o t d ow nrig ht
ele em osy nary , p la n. B ut b efo re th e m eeti n g w as o ver a d iffic ulty a ro se . N ow th at th e S to ck E xchange
and th e m em ber f ir m s h ad d ecid ed o n a d eed o f s e lf- s a crific e, th e p ro ble m c o nfr o nti n g e ach s id e— to
a c erta in e xte nt, a nyw ay— was h o w to a rra nge to h av e th e o th er s id e d o th e s a crific in g. F unsto n u rg ed
th e m em ber fir m s to ta ke o ver th e e nti r e m atte r. T he fir m s d eclin ed th is s u ggesti o n w ith th anks a nd
co unte re d b y u rg in g th e S to ck E xchange to h and le it. “ If w e d o,” F unsto n s a id , “ yo u’ll h av e to r e p ay
us th e a m ount w e p ay o ut.” O ut o f th is n o t v ery d ig nifie d d ia lo gue e m erg ed a n a gre em ent th at i n iti a lly
th e fu nd s w ould c o m e o ut o f th e E xchange’s tr e asu ry , w ith re p aym ent to b e a p porti o ned a m ong th e
mem ber fir m s la te r. A th re e-m an co m mitte e, head ed by Funsto n, w as em pow ere d to co nd uct
nego ti a ti o ns to b rin g th e d eal o ff.
The chie f p arti e s th at need ed nego ti a ti n g w ith w ere H aup t’ s cre d ito r b anks. T heir unanim ous
co nse nt to th e p la n w as e sse nti a l, b ecause i f e v en o ne o f th em i n sis te d o n i m med ia te l iq uid ati o n o f i ts
lo ans “ th e p ot w ould f a ll i n ,” a s th e E xchange’s c hair m an, H enry W atts — a f a th erly -lo okin g g ra d uate
of H arv ard a nd o f O maha B each, 1 944— pungentl y p ut it. P ro m in ent a m ong th e c re d ito rs w ere fo ur
lo cal b anks o f to w erin g p re sti g e— Chase M anhatta n, M org an G uara nty T ru st, F ir s t N ati o nal C ity , a nd
Manufa ctu re rs
H ano ver T ru st— whic h a m ong th em h ad le nt H aup t a b out e ig hte en a nd a h alf m illio n
dolla rs . ( T hre e o f th e b anks h av e r e m ain ed n o ta b ly r e ti c ent a b out th e e xact a m ount o f th eir ill- fa te d
lo ans to H aup t, b ut b la m in g th em fo r th eir s ile nce w ould b e lik e b la m in g a p oker p la yer w ho is le ss
th an g arru lo us a b out a lo sin g n ig ht. T he C hase , h o w ev er, h as s a id th at H aup t o w ed it $ 5,7 00,0 00.)
Earlie r in th e w eek, G eo rg e C ham pio n, c hair m an o f th e C hase , h ad te le p ho ned F unsto n; n o t o nly d id
th e S to ck E xchange h av e a fr ie nd a t C hase , C ham pio n a ssu re d h im , b ut th e b ank s to od r e ad y to g iv e
any h elp it c o uld in th e H aup t m atte r. F unsto n n o w c alle d C ham pio n a nd s a id h e w as r e ad y to ta ke
him u p o n h is o ffe r. H e a nd B is h o p th en b egan to tr y to a sse m ble r e p re se nta ti v es o f th e C hase a nd th e
th re e o th er b anks f o r a n i m med ia te c o nfe re nce. B is h o p r e m em bers th at h e f e lt h ig hly b earis h a b out th e
chances o f ro und in g u p a g ro up o f b ankers a t fiv e o ’c lo ck o n a F rid ay— ev en s u ch a n e xcep ti o nal
Frid ay a s th is o ne— but to h is s u rp ris e h e fo und p ra cti c ally a ll o f th em a t th eir b attl e s ta ti o ns a nd willin g to c o m e s tr a ig ht to th e E xchange.
Funsto n a nd h is fe llo w -n ego ti a to rs fo r th e E xchange— Chair m an W atts a nd V ic e-C hair m an W alte r
N. F ra nk— co nfe rre d w ith th e b ankers fr o m sh o rtl y a fte r fiv e u nti l w ell in to th e d in ner h o ur. T he
meeti n g w as c o nstr u cti v e, i f te nse . “ F ir s t, w e a ll a gre ed th at i t w as a d ev il o f a s itu ati o n a ll a ro und ,”
Funsto n s u b se q uentl y r e calle d . “ T hen w e g o t d ow n to b usin ess. T he b ankers , o f c o urs e , w ere h o pin g
th at th e E xchange w ould p ic k u p th e w ho le th in g, b ut w e q uic kly d is a b use d th em o f th at n o ti o n.
In ste ad , I m ad e th em a n o ffe r. W e w ould p ut u p a c erta in s u m in c ash s o le ly fo r th e b enefit o f th e
Haup t c usto m ers ; i n e xchange f o r e v ery d olla r th at w e p ut u p , th e b anks w ould d efe r c o lle cti o n— th at
is , w ould te m pora rily r e fr a in f r o m f o re clo sin g— on tw o d olla rs . I f, a s w e th en e sti m ate d , tw enty -tw o
and a h alf m illio n w as n eed ed to m ake H aup t s o lv ent, w e w ould p ut u p s e v en a nd a h alf, a nd th e
banks w ould d efe r c o lle cti o n o f fifte en. T hey w ere n’t s o s u re a b out o ur fig ure s— th ey th o ught w e
were to o lo w — and th ey in sis te d th at th e E xchange’s c la im to g et b ack a ny o f its c o ntr ib uti o n o ut o f
Haup t a sse ts w ould h av e to c o m e a fte r th e b anks’ c la im s fo r th eir lo ans. W e a gre ed to th at. W e a ll
fo ught a nd n ego ti a te d , a nd w hen w e fin ally w ent h o m e th ere w as g enera l a gre em ent o n th e b ro ad
outl in e o f th e th in g. O f c o urs e , e v ery o ne r e co gniz e d th at th is m eeti n g w as o nly p re lim in ary — to b egin
with , b y n o m eans a ll th e c re d ito r b anks w ere re p re se nte d a t it— and th at b oth th e d eta il w ork a nd
much o f th e h ard b arg ain in g w ould h av e to b e d one o ver th e w eekend .”
Ju st ho w m uch d eta il w ork and hard b arg ain in g la y ahead b ecam e m anife st o n S atu rd ay. T he
Exchange’s b oard m et a t e le v en, a nd m ore th an tw o-th ir d s o f its th ir ty -th re e m em bers w ere p re se nt;
because o f th e H aup t c ris is , s o m e g o vern o rs h ad c ancelle d w eekend p la ns, a nd o th ers h ad flo w n in
fr o m th eir re gula r sta nd s in su ch o utp osts as G eo rg ia and F lo rid a. T he b oard ’s fir s t acti o n— a
decis io n to keep th e Exchange clo se d on M ond ay, th e day of th e Pre sid ent’ s fu nera l— was
acco m plis h ed w ith d eep r e lie f, b ecause th e h o lid ay w ould g iv e th e n ego ti a to rs a n a d diti o nal tw enty -
fo ur h o urs in w hic h to h am mer o ut a d eal b efo re th e d ead lin e re p re se nte d b y th e re o penin g o f th e
co urts a nd th e m ark ets . F unsto n b ro ught th e g o vern o rs u p to d ate o n w hat w as k no w n a b out H aup t’ s
fin ancia l p ositi o n a nd o n th e s ta tu s o f th e n ego ti a ti o ns th at h ad b een b egun w ith th e b anks; h e a ls o
gav e th em a n ew e sti m ate o f th e s u m th at m ig ht b e r e q uir e d to m ake th e H aup t c usto m ers w ho le — nin e
millio n d olla rs . A fte r a fr a cti o nal m om ent o f s ile nce, s e v era l g o vern o rs r o se to s a y, in e sse nce, th at
th ey f e lt th at m ore th an m oney w as a t s ta ke; i t w as a q uesti o n o f th e r e la ti o n o f th e S to ck E xchange to
th e c o untr y ’s m any m illio n in v esto rs . T he m eeti n g w as th en te m pora rily a d jo urn ed , a nd , w ith th e
auth o rity o f th e g o vern o rs ’ lo fty s e nti m ents to b ack it u p , th e E xchange’s th re e-m an c o m mitte e g o t
dow n to n ego ti a ti o ns w ith th e b ankers .
Thus, th e p atte rn f o r S atu rd ay a nd S und ay w as s e t. W hile th e r e st o f th e n ati o n s a t s tu p efie d i n f r o nt
of its te le v is io n s e ts , a nd w hile th e d ow nto w n M anhatta n s tr e ets w ere a s d ese rte d a s th ey m ust h av e
been d urin g th e y ello w -fe v er e p id em ic s o f th e e arly n in ete enth c entu ry , th e s ix th flo or o f 1 1 W all
Str e et w as a n exus o f u tte rly a b so rb ed a cti v ity . T he E xchange’s c o m mitte e w ould re m ain c lo se te d
with th e b ankers unti l a p oin t w as re ached at w hic h F unsto n and his co lle agues need ed fu rth er
auth o riz a ti o n; th en th e b oard o f g o vern o rs w ould g o in to se ssio n a gain a nd e ith er
gra nt th e new
auth o rity o r d eclin e to d o s o . B etw een s e ssio ns, th e g o vern o rs c o ngre gate d i n th e h allw ays o r s m oked
and b ro oded in e m pty o ffic es. A n o rd in arily o bsc ure c o rn er o f th e E xchange b ure aucra cy c alle d th e
Cond uct a nd C om pla in ts D ep artm ent w as h av in g a b usy w eekend , to o; a s ta ff o f h alf a d oze n th ere
was co nti n uo usly o n th e p ho ne d ealin g w ith anxio us in q uir ie s fr o m H aup t custo m ers , w ho w ere
fe elin g a nyth in g b ut h ale . A nd , o f c o urs e , th ere w ere la w yers e v ery w here — “I n ev er s a w s o m any
la w yers i n m y l ife ,” o ne v ete ra n S to ck E xchange m an h as s a id . C oyle e sti m ate s th at th ere w ere m ore
th an a h und re d p eo ple a t 1 1 W all S tr e et d urin g m ost o f th e w eekend , a nd s in ce p ra cti c ally a ll lo cal re sta ura nts a s w ell a s th e E xchange’s o w n e ati n g f a ciliti e s w ere c lo se d , th e f o od p ro ble m w as a cute .
On S atu rd ay, th e e nti r e o utp ut o f a d ow nto w n l u nch c o unte r th at h ad s h re w dly s ta yed o pen w as b ought
up a nd c o nsu m ed , a fte r w hic h a ta xi w as d is p atc hed to G re enw ic h V illa ge fo r m ore su p plie s; o n
Sund ay, o ne o f th e E xchange s e cre ta rie s th o ughtf u lly b ro ught in a n e le ctr ic c o ffe e-m aker a nd a h uge
bag o f g ro cerie s a nd s e t u p s h o p i n th e C hair m an’s D in in g R oom .
The b ankers ’ n ego ti a ti n g c o m mitte e n o w i n clu d ed m en f r o m tw o H aup t c re d ito rs th at h ad n o t b een
re p re se nte d o n F rid ay— th e N ati o nal S ta te B ank o f N ew ark a nd th e C onti n enta l I llin o is N ati o nal B ank
& T ru st C o., o f C hic ago . ( S ti ll u nre p re se nte d w ere th e fo ur B riti s h c re d ito rs — Henry A nsb acher &
Co.; W illia m B ra nd t’ s S ons & C o., L td .; S . Ja p het & C o., L td .; and K le in w ort, B enso n, L td .
More o ver, w ith th e w eekend half go ne, th ey se em ed to b e te m pora rily unre p re se nta b le . It w as
decid ed to c o nti n ue n ego ti a ti n g w ith o ut th e B riti s h b anks a nd th en, o n M ond ay m orn in g, p re se nt a ny
agre em ent to th em fo r a p pro val.) A c ru cia l p oin t a t is su e, it n o w d ev elo ped , w as th e a m ount o f c ash
th at w ould b e n eed ed f r o m th e S to ck E xchange to f u lfill i ts p art o f th e b arg ain . T he b ankers a ccep te d
Funsto n’s fo rm ula u nd er w hic h th ey w ould d efe r c o lle cti o n o f tw o d olla rs fo r e v ery d olla r th at th e
Exchange c o ntr ib ute d to th e c ause , a nd th ey d id n o t d oub t th at H aup t w as s tu ck w ith a b out tw enty -tw o
and a h alf m illio n d olla rs ’ w orth o f u se le ss w are ho use r e ceip ts ; h o w ev er, th ey w ere u nw illin g to ta ke
th at f ig ure a s th e m axim um a m ount th at m ig ht b e n ecessa ry to l iq uid ate H aup t. T o b e o n th e s a fe s id e,
th ey arg ued , th e am ount
o ught to b e b ase d o n H aup t’ s o ver-a ll in d eb te d ness to th em — th ir ty -s ix
millio n— and th is m eant th at th e E xchange’s c ash c o ntr ib uti o n w ould h av e to b e n o t s e v en a nd a h alf
millio n b ut tw elv e. A no th er p oin t a t is su e w as th e q uesti o n o f to w ho m th e E xchange w ould p ay
whate v er s u m w as a gre ed u p on. S om e o f th e b ankers th o ught th e m oney o ught to g o s tr a ig ht in to th e
co ffe rs o f Ir a H aup t & C o., to b e d is p ense d b y th e fir m its e lf to its c usto m ers ; th e tr o ub le w ith th is
su ggesti o n, a s th e E xchange’s r e p re se nta ti v es w ere n o t s lo w to p oin t o ut, w as th at it w ould p ut th e
Exchange’s co ntr ib uti o n enti r e ly beyo nd its co ntr o l. A s a fin al co m plic ati o n, one bank— th e
Conti n enta l Illin o is — was d is ti n ctl y r e lu cta nt to e nte r in to th e d eal a t a ll. “ T he C onti n enta l’s p eo ple
were th in kin g in te rm s o f th eir b ank’s e xp osu re ,” a n E xchange m an h as e xp la in ed s y m path eti c ally .
“T hey th o ught o ur arra ngem ent m ig ht ulti m ate ly b e m ore d am agin g to th em th an a fo rm al H aup t
bankru p tc y a nd r e ceiv ers h ip . T hey n eed ed ti m e to c o nsid er, to m ake s u re th ey w ere ta kin g th e p ro per
acti o n, b ut I m ust s a y th ey w ere c o öpera ti v e.” In d eed , s in ce it w as p rim arily th e S to ck E xchange’s
go od n am e th at w as a t th e c ente r o f th e p la nned d eal, i t w ould a p pear th at a ll th e b anks w ere m arv els
of c o öpera ti o n. A fte r a ll, a b anker is le gally a nd m ora lly c harg ed w ith d oin g th e b est h e c an fo r h is
dep osito rs a nd s to ckho ld ers , a nd i s th ere fo re h ard ly i n a p ositi o n to i n d ulg e i n g ra nd g estu re s f o r th e
pub lic g o od; if h is e yes a re flin ty , th ey m ay m ask a k in d , b ut s ti fle d , h eart. A s fo r th e C onti n enta l, it
had r e aso n to b e p arti c ula rly s lo w to a ct, b ecause its “ exp osu re ” a m ounte d to w ell o ver te n m illio n
dolla rs , o r m uch m ore th an th at o f a ny o th er b ank. N o o ne c o ncern ed h as b een w illin g to s a y e xactl y
what th e p oin ts w ere o n w hic h th e C onti n enta l h eld o ut, b ut it s e em s s a fe to a ssu m e th at n o b ank o r
pers o n w ho h ad l e nt H aup t l e ss th an te n m illio n d olla rs c an k no w e xactl y h o w th e C onti n enta l f e lt.
By th e ti m e th e n ego ti a ti o ns w ere r e cesse d , a t a b out s ix o ’c lo ck S atu rd ay e v enin g, a c o m pro m is e
had b een re ached o n th e m ain is su es— on th e a m ount- o f- c ash c o ntr o vers y b y a n a gre em ent th at th e
Exchange w ould p ut u p a n i n iti a l s e v en a nd a h alf m illio n w ith a p le d ge to g o u p to tw elv e m illio n i f
it b ecam e necessa ry , and o n th e co ntr o vers y ab out ho w th e m oney w ould b e p aid to th e H aup t
custo m ers b y a gre em ent th at th e E xchange’s c hie f e xam in er w ould b e a p poin te d liq uid ato r o f H aup t.
But th e C onti n enta l w as sti ll re calc itr a nt, a nd , o f c o urs e , th e B riti s h b anks h ad n o t y et e v en b een
ap pro ached . In a ny e v ent, e v ery b ody s h ut u p s h o p fo r th e n ig ht, w ith p le d ges to r e tu rn e arly th e n ext
afte rn o on, e v en th o ugh i t w as S und ay. F unsto n, w ho w as c o m in g d ow n w ith a b ad c o ld , w ent h o m e to Gre enw ic h. T he b ankers w ent h o m e to p la ces lik e G le n C ove a nd B ask in g R id ge. W atts , a d ie hard
co m mute r f r o m P hila d elp hia , w ent h o m e to th at tr a nq uil c ity . E ven B is h o p w ent h o m e to F anw ood.
At tw o o ’c lo ck S und ay a fte rn o on, th e E xchange g o vern o rs , th eir r a nks n o w a ugm ente d b y a rriv als
fr o m L os A ngele s, M in neap olis , P itts b urg h, and R ic hm ond , m et in jo in t se ssio n w ith th e th ir ty
re p re se nta ti v es o f m em ber fir m s, w ho w ere a nxio us to le arn w hat th ey w ere b ein g c o m mitte d to .
Afte r th e c urre nt s ta tu s o f th e e m erg in g a gre em ent h ad b een e xp la in ed to th em , th ey v ote d u nanim ously
in fa v or o f g o in g a head w ith it. A s th e a fte rn o on p ro gre sse d , e v en C onti n enta l Illin o is s o fte ned its
oppositi o n, and at ab out six o ’c lo ck, afte r a se rie s o f fr a nti c lo ng-d is ta nce te le p ho ne calls and
atte m pts to tr a ck d ow n C onti n enta l o ffic ers o n tr a in s a nd in a ir p orts , th e C hic ago b ank a gre ed to g o
alo ng, e xp la in in g th at it w as d oin g s o in th e p ub lic in te re st ra th er th an in p urs u ance o f its o ffic ers ’
best b usin ess ju d gm ent. A t a b out th e s a m e ti m e, th e
Tim es’
fin ancia l e d ito r, T ho m as E . M ulla ney—
who , lik e th e re st of th e pre ss, had been rig id ly exclu d ed fr o m th e six th flo or th ro ugho ut th e
nego ti a ti o ns— calle d F unsto n to s a y h e h ad h eard r u m ors o f a p la n o n H aup t i n th e o ffin g. B ecause th e
Briti s h b anks w ould h av e re aso n to b e m iffe d , a t th e v ery le ast, if th ey sh o uld re ad in th e n ext
morn in g’s a ir e d iti o ns o f a s c hem e to d is p ose o f th eir c re d its w ith o ut th eir a gre em ent, o r e v en th eir
kno w le d ge, F unsto n h ad to g iv e a r e p ly th at c o uld o nly d ep re ss s ti ll fu rth er th e s p ir its o f th e w aiti n g
tw enty th o usa nd c usto m ers . “ T here i s n o p la n,” h e s a id .
TH E
q uesti o n o f w ho w ould u nd erta ke th e d elic ate ta sk o f c ajo lin g th e B riti s h b anks h ad c o m e u p
early S und ay a fte rn o on. F unsto n, d esp ite h is c o ld , w as a nxio us to m ake th e tr ip ( fo r o ne th in g, h e
h as
sin ce a d m itte d , th e d ra m a o f it a p peale d to h im ), a nd h ad g o ne a s fa r a s g etti n g h is se cre ta ry to
re se rv e s p ace o n a p la ne, b ut a s th e a fte rn o on p ro gre sse d a nd th e l o cal p ro ble m s c o nti n ued to a p pear
in tr a cta b le , i t w as d ecid ed th at h e c o uld n’t b e s p are d . S ev era l o th er g o vern o rs q uic kly v olu nte ere d to
go , a nd o ne o f th em , G usta v e L . L ev y, w as e v entu ally s e le cte d , o n th e g ro und th at h is f ir m , G old m an,
Sachs & C o., h ad h ad a l o ng a nd c lo se a sso cia ti o n w ith K le in w ort, B enso n, o ne o f th e B riti s h b anks,
and th at L ev y h im se lf w as o n e xcelle nt te rm s w ith s o m e o f th e K le in w ort, B enso n p artn ers . (L ev y
would la te r su cceed W atts a s c hair m an.) A cco rd in gly , L ev y, a cco m panie d b y a n e xecuti v e a nd a
la w yer o f th e C hase — who w ere p re su m ab ly in clu d ed in th e h o pe th at th ey w ould se t th e B riti s h
banks a n i n sp ir in g e xam ple o f c o öpera ti o n— le ft 1 1 W all S tr e et s h o rtl y a fte r f iv e o ’c lo ck a nd c aught a
Lond on-b ound je t a t se v en. T he tr io sa t u p o n th e p la ne m ost o f th e n ig ht, c are fu lly p la nnin g th e
ap pro ach th ey w ould m ake to th e b ankers in th e m orn in g. T hey w ere w ell a d vis e d to d o s o , b ecause
th e B riti s h b anks c erta in ly h ad n o c ause to fe el c o öpera ti v e;
th eir
S to ck E xchange w asn ’t in tr o ub le .
And th ere w as m ore to it th an th at. A cco rd in g to u nim peachab le s o urc es, th e fo ur B riti s h b anks h ad
le nt H aup t a to ta l o f f iv e a nd a h alf m illio n d olla rs , a nd th ese l o ans, l ik e m any s h o rt- te rm l o ans m ad e
by fo re ig n banks to A meric an bro kers , had no t been se cure d by any co lla te ra l. S ourc es only
fr a cti o nally m ore i m peachab le m ain ta in th at s o m e o f th e l o ans h ad b een e xte nd ed v ery r e centl y — th at
is , a w eek o r le ss b efo re th e d eb acle . T he m oney le nt is k no w n to h av e c o nsis te d o f E uro dolla rs , a
phanto m b ut n o neth ele ss s e rv ic eab le c urre ncy c o nsis ti n g o f d olla r d ep osits in E uro pean b anks; s o m e
fo ur b illio n E uro dolla rs w ere a cti v ely tr a d ed a m ong E uro pean fin ancia l in sti tu ti o ns a t th at ti m e, a nd
th e b anks th at le nt th e fiv e a nd a h alf m illio n to H aup t h ad fir s t b orro w ed th em fr o m s o m eb ody e ls e .
Acco rd in g to a lo cal e xp ert in in te rn ati o nal b ankin g, E uro dolla rs a re c usto m arily tr a d ed in h uge
blo cks a t a r e la ti v ely ti n y p ro fit; fo r in sta nce, a b ank m ig ht b orro w a b lo ck a t fo ur a nd a q uarte r p er
cent a nd l e nd i t a t f o ur a nd a h alf p er c ent, a t a n et a d vanta ge o f o ne f o urth o f o ne p er c ent p er a nnum .
Obvio usly , s u ch tr a nsa cti o ns a re lo oked u p on a s p ra cti c ally w ith o ut
r is k . O ne-fo urth o f o ne p er c ent
of fiv e a nd a h alf m illio n d olla rs o ver a p erio d o f o ne w eek a m ounts to $ 264.4 2, w hic h g iv es s o m e in d ic ati o n o f th e s iz e o f th e p ro fit o n th e H aup t d eal th at th e f o ur B riti s h b anks w ould h av e b een a b le
to d iv id e a m ong th em se lv es, le ss e xp ense s, if e v ery th in g h ad g o ne a s p la nned . In ste ad , th ey n o w
sto od to l o se th e w ho le b und le .
Lev y a nd th e C hase m en a rriv ed re d -e yed in L ond on sh o rtl y a fte r d ayb re ak o n a d ep re ssin gly
driz zly m orn in g. T hey w ent to th e S av oy to c hange th eir c lo th es a nd h av e b re akfa st a nd th en h ead ed
str a ig ht fo r th e C ity , L ond on’s fin ancia l d is tr ic t. T heir fir s t m eeti n g w as a t th e F enchurc h S tr e et
esta b lis h m ent o f W illia m B ra nd t’ s S ons, w hic h h ad p ut u p o ver h alf o f th e f iv e a nd a h alf m illio n. T he
Bra nd t p artn ers c o urte o usly o ffe re d c o nd ole nces o n th e d eath o f th e P re sid ent, a nd th e A meric ans
agre ed th at it w as a te rrib le th in g, w here up on b oth s id es c am e to th e p oin t. T he B ra nd t m en k new o f
Haup t’ s i m pend in g f a ilu re b ut n o t o f th e p la n n o w a fo ot to r e sc ue th e H aup t c usto m ers b y a v oid in g a
fo rm al b ankru p tc y; L ev y e xp la in ed th is , a nd a n h o ur’s d is c ussio n f o llo w ed , i n th e c o urs e o f w hic h th e
Brito ns s h o w ed a c erta in r e lu cta nce to g o a lo ng— as w ell th ey m ig ht. H av in g j u st b een ta ken i n b y o ne
gro up o f Y ankees, th ey w ere n o t a nxio us to b e im med ia te ly ta ken in b y a no th er. “ T hey w ere v ery
unhap py,” L ev y s a ys. “ T hey r a is e d h ell w ith m e a s a r e p re se nta ti v e o f th e N ew Y ork S to ck E xchange,
one o f w ho se m em bers h ad g o t th em in to th is ja m . T hey w ante d to m ake a tr a d e w ith u s— to g et a
prio rity in th e c o lle cti o n o f th eir c la im s in e xchange fo r c o m in g a lo ng w ith u s a nd a gre ein g to d efe r
co lle cti o n. B ut th eir tr a d in g p ositi o n w asn ’t re ally g o od; in a b ankru p tc y p ro ceed in g, th eir c la im s,
base d on unse cure d lo ans, w ould hav e been co nsid ere d
afte r
th e cla im s o f cre d ito rs w ho held
co lla te ra l, a nd in m y o pin io n th ey w ould h av e n ev er c o lle cte d a n ic kel. O n th e o th er h and , u nd er th e
te rm s o f o ur o ffe r th ey w ould b e tr e ate d eq ually w ith all th e o th er H aup t cre d ito rs excep t th e
custo m ers . W e h ad to e xp la in to th em th at w e w ere n’t tr a d in g.”
The B ra nd t m en r e p lie d th at b efo re d ecid in g th ey w ante d to th in k th e m atte r o ver, a nd a ls o to h ear
what th e o th er B riti s h b anks s a id . T he A meric an d ele gate s th en r e p air e d to th e L ond on
o ffic e o f th e
Chase , o n L om bard S tr e et, w here , b y p re arra ngem ent, th ey m et w ith r e p re se nta ti v es o f th e th re e o th er
Briti s h banks and L ev y had a chance fo r a re unio n w ith his K le in w ort, B enso n fr ie nd s. T he
cir c um sta nces o f th e re unio n w ere o bvio usly le ss th an h ap py, b ut L ev y s a ys th at h is fr ie nd s to ok a
re alis ti c v ie w o f th eir s itu ati o n a nd , w ith h ero ic o bje cti v ity , a ctu ally h elp ed th eir fe llo w -B rito ns to
se e th e A meric an sid e o f th e q uesti o n. N ev erth ele ss, th is m eeti n g, lik e th e e arlie r o ne, b ro ke u p
with o ut co m mitm ent b y anyo ne. L ev y and his co lle agues sta yed at th e C hase fo r lu nch and th en
walk ed o ver to th e B ank o f E ngla nd , w hic h w as in te re ste d in th e H aup t lo ans to th e e xte nt th at th eir
defa ult w ould a ffe ct B rita in ’s b ala nce o f p aym ents . T he B ank o f E ngla nd , th ro ugh o ne o f i ts d ep uti e s,
assu re d th e v is ito rs o f its d is tr e ss o ver b oth A meric a’s n ati o nal tr a ged y a nd W all S tr e et’ s p aro chia l
one, a nd a d vis e d th em th at w hile it la cked th e p ow er to te ll th e L ond on b anks w hat to d o, in its
ju d gm ent th ey w ould b e w is e to g o a lo ng w ith th e A meric an s c hem e. T hen, a t a b out tw o o ’c lo ck, th e
tr io r e tu rn ed to L om bard S tr e et to w ait n erv ously f o r w ord f r o m th e b anks. A s i t h ap pened , a p ara lle l
vig il w as th en b egin nin g o n W all S tr e et, w here it w as n in e o ’c lo ck o n M ond ay m orn in g, a nd w here
Funsto n, j u st a rriv ed i n h is o ffic e a nd v ery m uch a w are th at o nly o ne d ay r e m ain ed i n w hic h to g et th e
deal w ra p ped u p , w as p acin g h is r u g a s h e w aite d f o r a c all th at w ould te ll h im w heth er L ond on w as
go in g to c ause th e p ot to f a ll i n .
Kle in w ort, B enso n a nd S . J a p het & C o. w ere th e fir s t to a gre e to g o a lo ng, L ev y r e calls . T hen—
afte r a sile nce o f p erh ap s h alf a n h o ur, d urin g w hic h L ev y a nd h is c o lle agues b egan to h av e a n
ago niz in g s e nse o f th e m in ute s ti c kin g a w ay i n N ew Y ork — an a ffir m ati v e a nsw er c am e f r o m B ra nd t.
That w as th e b ig o ne; w ith th e c hie f c re d ito r a nd tw o o f th e th re e o th ers i n l in e, i t w as a ll b ut c erta in
th at A nsb acher w ould jo in u p . A t a ro und 4
P.M .
L ond on ti m e, A nsb acher d id , a nd L ev y w as fin ally
ab le to p la ce th e c all th at F unsto n h ad b een w aiti n g fo r. T heir m is sio n a cco m plis h ed , th e A meric ans went s tr a ig ht to th e L ond on a ir p ort, a nd w ith in th re e h o urs w ere o n a p la ne h ead ed h o m e.
On g etti n g th e g o od n ew s, F unsto n f e lt th at th e w ho le a gre em ent
w as p re tty w ell in th e b ag a t la st,
sin ce a ll th at w as n eed ed to s e al th e b ag w as th e s ig natu re s o f th e f ifte en H aup t g enera l p artn ers , w ho
se em ed to h av e n o th in g to lo se a nd e v ery th in g to g ain fr o m th e p la n. S ti ll, th e ta sk o f g etti n g th o se
sig natu re s w as a v ita l o ne. S ho rt o f a b ankru p tc y su it, w hic h ev ery o ne w as tr y in g to av oid , no
liq uid ato r co uld dis tr ib ute th e H aup t asse ts — no t ev en th e m arb le -to pped cab in ets and th e
re fr ig era to rs — with o ut th e p artn ers ’ p erm is sio n. A cco rd in gly , la te o n M ond ay a fte rn o on th e H aup t
partn ers , each acco m panie d by his la w yer, tr o oped in to C hair m an W atts ’s offic e at th e S to ck
Exchange to l e arn e xactl y w hat f a te th e W all S tr e et p ow ers h ad b een a rra ngin g f o r th em .
The H aup t p artn ers c o uld h ard ly h av e f o und th e p ro je cte d a gre em ent p le asa nt r e ad in g, i n asm uch a s
it p re sc rib ed , a m ong o th er th in gs, th at th ey w ere to e xecute p ow ers o f a tto rn ey g iv in g a l iq uid ato r f u ll
co ntr o l o ver H aup t’ s a ffa ir s . H ow ev er, o ne o f th eir o w n la w yers g av e th em a sh o rt, p ungent ta lk
poin ti n g o ut th at th ey w ere p ers o nally lia b le fo r th e fir m ’s d eb ts w heth er o r n o t th ey sig ned th e
agre em ent, s o th ey m ig ht a s w ell b e p ub lic -s p ir ite d a nd s ig n i t. M ore b rie fly , th ey w ere o ver a b arre l.
(M any o f th em l a te r f ile d p ers o nal b ankru p tc y p ap ers .) O ne s ta rtl in g e v ent b ro ke th e e v en te no r o f th is
glo om y m eeti n g. S ho rtl y a fte r th e H aup t la w yer h ad w ound u p h is d is q uis iti o n o n th e fa cts o f life ,
so m eo ne n o ti c ed a n u nfa m ilia r a nd str ik in gly y o uth fu l fa ce in th e c ro w d a nd a sk ed its o w ner to
id enti fy h im se lf. T he u nhesita ti n g re p ly w as “ I’ m R usse ll W ats o n, a re p orte r fo r th e
Wall S tr e et
Jo urn al
.” T here w as a s h o rt, s tu nned s ile nce, in re co gniti o n o f th e fa ct th at a n u nti m ely le ak m ig ht
sti ll d is tu rb th e d elic ate b ala nce o f m oney a nd e m oti o n th at m ad e u p th e a gre em ent. W ats o n h im se lf,
who w as tw enty -fo ur a nd h ad b een o n th e
Jo urn al
f o r a y ear, h as s in ce e xp la in ed h o w h e g o t i n to th e
meeti n g, a nd u nd er w hat c ir c um sta nces h e le ft it. “ I w as n ew o n th e S to ck E xchange b eat th en,” h e
sa id a fte rw ard . “ E arlie r in th e d ay, th ere h ad b een w ord th at F unsto n w ould p ro bab ly h o ld a p re ss
co nfe re nce s o m eti m e th at e v enin g, s o I w ent o ver to th e E xchange. A t th e m ain e ntr a nce, I a sk ed a
guard w here M r. F unsto n’s c o nfe re nce w as. T he g uard s a id i t w as o n th e s ix th f lo or, a nd u sh ere d m e
in to a n e le v ato r. I
s u p pose h e th o ught I w as a b anker, a H aup t p artn er, o r a l a w yer. O n th e s ix th f lo or,
peo ple w ere m illin g a ro und e v ery w here . I ju st w alk ed o ff th e e le v ato r a nd in to th e o ffic e w here th e
meeti n g w as— no body s to pped m e. I d id n’t u nd ers ta nd m uch o f w hat w as g o in g o n. I g o t th e fe elin g
th at w hate v er w as a t s ta ke, th ere w as g enera l a gre em ent b ut s ti ll a lo t o f h agglin g o ver d eta ils to b e
done. I d id n’t re co gniz e a nyb ody th ere b ut F unsto n. I sto od a ro und q uie tl y fo r a b out fiv e m in ute s
befo re a nyb ody n o ti c ed m e, a nd th en e v ery b ody s a id , p re tty m uch a t o nce, ‘G ood G od, g et o ut o f
here !’ T hey d id n’t e xactl y
kic k
m e o ut, b ut I s a w i t w as ti m e to g o .”
Durin g th e h agglin g p hase th at fo llo w ed — a p ain fu lly p ro tr a cte d o ne, it d ev elo ped — th e H aup t
partn ers a nd th eir la w yers m ad e a c o m mand p ost o f W atts ’s o ffic e, w hile th e b ank re p re se nta ti v es
and
th eir
la w yers c am ped in th e N orth C om mitte e R oom , ju st d ow n th e h all. F unsto n, w ho w as
dete rm in ed th at n ew s o f a s e ttl e m ent s h o uld b e in th e h and s o f in v esto rs b efo re th e o penin g o f th e
mark et n ext m orn in g, w as g o in g w ild w ith i r rita ti o n a nd f r u str a ti o n, a nd i n a n e ffo rt to s p eed th in gs u p
he c o nsti tu te d h im se lf a s o rt o f c o m bin ati o n m esse nger b oy a nd e nv oy. “ A ll M ond ay e v enin g, I k ep t
ru nnin g b ack a nd fo rth s a yin g, ‘ L ook, th ey w on’t g iv e in o n th is p oin t, s o y o u’v e g o t to ,’ ” h e r e calls .
“O r I’ d sa y, ‘L ook w hat ti m e it is — only tw elv e ho urs unti l to m orro w ’s m ark et o penin g! In iti a l
here .’ ”
At fifte en m in ute s p ast m id nig ht, n in e a nd th re e-q uarte rs h o urs b efo re th e m ark et’ s r e o penin g, th e
agre em ent w as sig ned in th e S outh C om mitte e R oom b y th e tw enty -e ig ht p arti e s a t in te re st, in a n
atm osp here th at a p arti c ip ant h as d esc rib ed a s o ne o f e xhausti o n a nd g enera l r e lie f. A s s o on a s th e
banks o pened o n T uesd ay m orn in g, th e S to ck E xchange d ep osite d s e v en a nd a h alf m illio n d olla rs , a su m am ounti n g to ro ughly o ne-th ir d o f its av aila b le re se rv e, in an acco unt o n w hic h th e H aup t
liq uid ato r co uld dra w ; th e sa m e m orn in g, th e liq uid ato r him se lf— Ja m es P. M aho ny, a vete ra n
mem ber o f th e E xchange’s sta ff— moved in to th e H aup t o ffic es to ta ke c harg e. T he sto ck m ark et,
enco ura ged by co nfid ence in th e new P re sid ent or by new s of th e H aup t se ttl e m ent, or by a
co m bin ati o n o f th e tw o, h ad i ts g re ate st o ne-d ay r is e i n
h is to ry , m ore th an e lim in ati n g F rid ay’s l o sse s.
A w eek l a te r, o n D ecem ber 2 nd , M aho ny a nno unced th at $ 1,7 50,0 00, h ad a lr e ad y b een p aid o ut o f th e
Sto ck E xchange acco unt to b ail o ut H aup t custo m ers ; b y D ecem ber 1 2th , th e fig ure w as up to
$5,4 00,0 00, a nd b y C hris tm as to $ 6,7 00,0 00. F in ally , o n M arc h 1 1 , 1 964, th e E xchange w as a b le to
re p ort th at it h ad d is p ense d n in e a nd a h alf m illio n d olla rs , a nd th at th e H aup t c usto m ers , w ith th e
excep ti o n o f a h and fu l w ho c o uld n’t b e f o und , w ere w ho le a gain .
TH E
agre em ent, in w hic h so m e peo ple sa w an unm is ta kab le im plic ati o n th at W all Str e et’ s
Esta b lis h m ent n o w f e lt a cco unta b le f o r p ub lic h arm c ause d b y th e m is d eed s, o r e v en th e m is fo rtu nes,
of any o f its m em bers , gav e ris e to a v arie ty o f re acti o ns. T he re sc ued H aup t custo m ers w ere
pre d ic ta b ly gra te fu l, of co urs e . T he
Tim es
sa id th at th e agre em ent w as ev id ence o f “a se nse o f
re sp onsib ility th at s e rv ed to in sp ir e in v esto r c o nfid ence” a nd “ m ay h av e h elp ed to a v oid a p ote nti a l
panic .” In W ash in gto n, P re sid ent Jo hnso n in te rru p te d h is fir s t b usin ess d ay in o ffic e to te le p ho ne
Funsto n a nd c o ngra tu la te h im . T he c hair m an o f th e S .E .C ., W illia m L . C ary , w ho w as n o t o rd in arily
giv en to th ro w in g b ouq uets a t th e S to ck E xchange, s a id i n D ecem ber th at i t h ad f u rn is h ed “ a d ra m ati c ,
im pre ssiv e d em onstr a ti o n o f its s tr e ngth a nd c o ncern fo r th e p ub lic in te re st.” O th er s to ck e xchanges
aro und th e w orld w ere s ile nt o n th e m atte r, b ut i f o ne m ay j u d ge b y th e u nse nti m enta l w ay th at m ost o f
th em d o b usin ess, s o m e o f th eir o ffic ia ls m ust h av e b een i n d ulg in g i n a c erta in a m ount o f h ead sh akin g
over th e s tr a nge d oin gs in N ew Y ork . T he S to ck E xchange’s m em ber fir m s, w ho w ere a sse sse d fo r
th e n in e a nd a h alf m illio n d olla rs o ver a p erio d o f th re e y ears , a p peare d to b e g enera lly s a ti s fie d ,
alth o ugh a fe w o f th em w ere h eard to g ru m ble th at fin e o ld fir m s w ith ju sti fie d r e p uta ti o ns fo r s k ill
and p ro bity s h o uld n o t b e a sk ed to p ay th e l o sse s o f g re ed y u p sta rts w ho o vers te p a nd g et c aught o ut.
Oddly , a lm ost n o o ne s e em s to h av e e xp re sse d g ra ti tu d e to th e B riti s h a nd A meric an b anks, w hic h
re co up ed s o m eth in g l ik e h alf o f th eir l o sse s. I t m ay b e th at p eo ple s im ply d on’t th ank b anks, e xcep t i n
te le v is io n c o m merc ia ls .
The S to ck E xchange i ts e lf, m eanw hile , w as to rn b etw een b lu sh in gly
a ccep ti n g c o ngra tu la ti o ns a nd
pru d entl y , i f p erh ap s g ra cele ssly , i n sis ti n g th at w hat i t h ad d one w asn ’t to b e r e gard ed a s a p re ced ent
—th at it w ould n’t n ecessa rily d o th e s a m e th in g a gain . N or w ere th e E xchange’s o ffic ia ls a t a ll s u re
th at th e s a m e th in g w ould h av e b een d one if th e H aup t c ase h ad o ccurre d e arlie r— ev en a v ery littl e
earlie r. C ro oks, w ho w as c hair m an o f th e E xchange in th e e arly 1 950s, fe lt th at th e c hances o f s u ch
acti o n d urin g h is te rm w ould h av e b een a b out f ifty -fifty . F unsto n, w ho a ssu m ed h is o ffic e i n 1 951, f e lt
th at th e m atte r w ould h av e b een “ q uesti o nab le ” d urin g th e e arly y ears o f h is i n cum bency. “ O ne’s i d ea
of p ub lic r e sp onsib ility i s e v olu ti o nary ,” h e s a id . H e w as p arti c ula rly a nno yed b y th e i d ea, w hic h h e
had heard re p eate d ly , th at th e Exchange had acte d out of a se nse of guilt. Psy cho analy ti c
in te rp re ta ti o ns o f th e e v ent, h e f e lt, w ere g ra tu ito us, n o t to s a y c hurlis h . A s f o r th o se o ld er g o vern o rs
who g la re d , q uite p ossib ly b ale fu lly , a t th e n ego ti a ti o ns fr o m th eir g ilt fr a m es in th e G overn o rs ’
Room a nd th e N orth a nd S outh C om mitte e R oom s, th eir re acti o n to th e w ho le p ro ceed in g m ay b e
im agin ed b ut c anno t b e k no w n. 7
The I m pacte d P hilo so ph ers
AM ONG T H E G REATEST
p ro ble m s f a cin g A meric an i n d ustr y to day, o ne m ay l e arn b y ta lk in g w ith a ny o f
a la rg e n um ber o f in d ustr ia lis ts w ho a re n o t k no w n to b e e sp ecia lly g iv en to p onti fic ati n g, is “ th e
pro ble m o f c o m munic ati o n.” T his p re o ccup ati o n w ith th e d iffic ulty o f g etti n g a th o ught o ut o f o ne
head a nd in to a no th er is s o m eth in g th e in d ustr ia lis ts s h are w ith a s u b sta nti a l n um ber o f in te lle ctu als
and c re ati v e w rite rs , m ore a nd m ore o f w ho m s e em i n clin ed to r e gard c o m munic ati o n, o r th e l a ck o f
it, a s o ne o f th e
g re ate st p ro ble m s n o t j u st o f i n d ustr y b ut o f h um anity . ( A g ro up o f a v ant- g ard e w rite rs
and arti s ts hav e giv en th e im porta nce of co m munic ati o n a backhand ed boost by fla tl y and
uneq uiv ocally p ro cla im in g th em se lv es to b e
again st
it.) A s fa r a s th e in d ustr ia lis ts a re c o ncern ed , I
ad m it th at in th e co urs e o f hearin g th em in v oke th e w ord “co m munic ati o n”— ofte n in an alm ost
mysti c al w ay— over a p erio d o f y ears I h av e h ad a l o t o f tr o ub le f ig urin g o ut e xactl y w hat th ey m eant.
The g enera l th esis is c le ar e no ugh; n am ely , th at e v ery th in g w ould b e a ll r ig ht, fir s t, if th ey c o uld g et
th ro ugh to e ach o th er w ith in th eir o w n o rg aniz a ti o ns, a nd , s e co nd , i f th ey, o r th eir o rg aniz a ti o ns, c o uld
get th ro ugh to e v ery b ody e ls e . W hat h as p uzzle d m e i s h o w a nd w hy, i n th is d ay w hen th e f o und ati o ns
sp onso r o ne s tu d y o f c o m munic ati o n a fte r a no th er, in d iv id uals a nd o rg aniz a ti o ns fa il s o c o nsis te ntl y
to e xp re ss th em se lv es u nd ers ta nd ab ly , o r h o w a nd w hy th eir l is te ners f a il to g ra sp w hat th ey h ear.
A fe w y ears a go , I a cq uir e d a tw o-v olu m e p ub lic ati o n o f th e U nite d S ta te s G overn m ent P rin ti n g
Offic e e nti tl e d
Hea rin gs B efo re t h e S ubco m mitte e o n A ntitr u st a nd M onopoly o f t h e C om mitte e o n
th e J u dic ia ry, U nite d S ta te s S en ate , E ig hty -s e ven th C ongre ss, F ir st S essio n, P ursu ant to S . R es.
52
, a nd a fte r a fa ir ly d ilig ent p eru sa l o f its 1 ,4 59 p ages I th o ught I c o uld b egin to se e w hat th e
in d ustr ia lis ts a re ta lk in g a b out. T he h earin gs, c o nd ucte d in A pril, M ay, a nd J u ne, 1 961, u nd er th e
chair m ansh ip o f S enato r E ste s K efa uv er, o f T ennesse e, h ad to d o w ith th e n o w fa m ous p ric e-fix in g
and b id -rig gin g c o nsp ir a cie s i n th e e le ctr ic al- m anufa ctu rin g i n d ustr y , w hic h h ad a lr e ad y r e su lte d , th e
pre v io us F eb ru ary , in th e im positi o n b y a fe d era l ju d ge in P hila d elp hia o f fin es to ta lin g $ 1,9 24,5 00
on tw enty -n in e fir m s a nd fo rty -fiv e o f th eir e m plo yees, a nd a ls o o f th ir ty -d ay p ris o n s e nte nces o n
se v en o f th e e m plo yees. S in ce th ere h ad b een n o p ub lic p re se nta ti o n o f e v id ence, a ll th e d efe nd ants
hav in g p le ad ed e ith er g uilty o r n o d efe nse , a nd s in ce th e r e co rd s o f th e g ra nd j u rie s th at i n d ic te d th em
were se cre t, th e p ub lic h ad h ad littl e o pportu nity to h ear a b out th e d eta ils o f th e v io la ti o ns, a nd
Senato r K efa uv er f e lt th at th e w ho le m atte r n eed ed a g o od a ir in g. T he tr a nsc rip t s h o w s th at i t g o t o ne,
and w hat th e a ir in g re v eale d — at le ast w ith in th e b ig gest c o m pany in v olv ed — was a b re akd ow n in
in tr a m ura l c o m munic ati o n
s o d ra sti c a s to m ake th e b uild in g o f th e T ow er o f B ab el s e em a tr iu m ph o f
org aniz a ti o nal r a p port.
In a se rie s of in d ic tm ents bro ught by th e go vern m ent in th e U nite d S ta te s D is tr ic t C ourt in
Phila d elp hia b etw een F eb ru ary a nd O cto ber, 1 960, th e tw enty -n in e c o m panie s a nd th eir e xecuti v es
were c harg ed w ith h av in g r e p eate d ly v io la te d S ecti o n 1 o f th e S herm an A ct o f 1 890, w hic h d ecla re s ille gal “ ev ery c o ntr a ct, c o m bin ati o n in th e fo rm o f tr u st o r o th erw is e , o r c o nsp ir a cy, in re str a in t o f
tr a d e o r c o m merc e a m ong th e s e v era l S ta te s, o r w ith fo re ig n n ati o ns.” (T he S herm an A ct w as th e
in str u m ent u se d in th e c ele b ra te d tr u st- b usti n g a cti v iti e s o f T heo dore R oose v elt, a nd a lo ng w ith th e
Cla yto n A ct o f 1 914 it h as s e rv ed a s th e g o vern m ent’ s w eap on a gain st c arte ls a nd m ono polie s e v er
sin ce.) T he v io la ti o ns, th e g o vern m ent a lle ged , w ere c o m mitte d in c o nnecti o n w ith th e s a le o f la rg e
and e xp ensiv e p ie ces o f a p para tu s o f a v arie ty th at i s r e q uir e d c hie fly b y p ub lic a nd p riv ate e le ctr ic -
uti lity c o m panie s (p ow er tr a nsfo rm ers , sw itc hgear a sse m blie s, a nd tu rb in e-g enera to r u nits , a m ong
many o th ers ), a nd w ere th e o utc o m e o f a s e rie s o f m eeti n gs a tte nd ed b y e xecuti v es o f th e s u p pose d ly
co m peti n g co m panie s— begin nin g at le ast as early as 1 956 and co nti n uin g in to 1 959— at w hic h
no nco m peti ti v e p ric e le v els w ere a gre ed u p on, n o m in ally s e ale d b id s o n in d iv id ual c o ntr a cts w ere
rig ged in a d vance, a nd e ach c o m pany w as a llo cate d a c erta in p erc enta ge o f th e a v aila b le b usin ess.
The go vern m ent fu rth er alle ged th at, in an effo rt to p re se rv e th e se cre cy o f th ese m eeti n gs, th e
executi v es h ad re so rte d to su ch d ev ic es a s re fe rrin g to th eir c o m panie s b y c o de n um bers in th eir
co rre sp ond ence, m akin g te le p ho ne c alls f r o m p ub lic b ooth s o r f r o m th eir h o m es r a th er th an f r o m th eir
offic es, a nd d octo rin g th e e xp ense a cco unts c o verin g th eir g et- to geth ers to c o nceal th e fa ct th at th ey
had a ll b een in a c erta in c ity o n a c erta in d ay. B ut th eir s tr a ta gem s d id n o t p re v ail. T he fe d era ls ,
fo rc efu lly le d b y R obert A . B ic ks, th en h ead o f th e A nti tr u st D iv is io n o f th e D ep artm ent o f J u sti c e,
su cceed ed i n e xp osin g th em , w ith c o nsid era b le h elp f r o m s o m e o f th e c o nsp ir a to rs th em se lv es, w ho ,
afte r a n e m plo yee o f a s m all c o nsp ir a to r c o m pany s a w fit to s p ill th e s to ry in th e e arly fa ll o f 1 959,
flo cked to tu rn s ta te ’s e v id ence.
The e co no m ic a nd s o cia l s ig nific ance o f th e w ho le a ffa ir m ay b e
d em onstr a te d c le arly e no ugh b y
citi n g ju st a fe w fig ure s. In a n a v era ge y ear a t th e ti m e o f th e c o nsp ir a cie s, a to ta l o f m ore th an o ne
and th re e-q uarte rs b illio n d olla rs w as s p ent to p urc hase m achin es o f th e s o rt in q uesti o n, n early a
fo urth o f i t b y f e d era l, s ta te , a nd l o cal g o vern m ents ( w hic h, o f c o urs e , m eans th e ta xp ayers ), a nd m ost
of th e r e st b y p riv ate u ti lity c o m panie s ( w hic h a re in clin ed to p ass a lo ng a ny r is e in th e c o st o f th eir
eq uip m ent to th e p ub lic i n th e f o rm o f r a te i n cre ase s). T o ta ke a s p ecific e xam ple o f th e k in d o f m oney
in v olv ed in an in d iv id ual tr a nsa cti o n, th e lis t pric e of a 500,0 00-k ilo w att tu rb in e-g enera to r— a
monstr o us d ev ic e f o r p ro ducin g e le ctr ic p ow er f r o m s te am p ow er— was o fte n s o m eth in g l ik e s ix te en
millio n d olla rs . A ctu ally , m anufa ctu re rs s o m eti m es c ut th eir p ric es b y a s m uch a s 2 5 p erc ent i n o rd er
to m ake a s a le , a nd th ere fo re , if e v ery th in g w as a b ove b oard , it m ig ht h av e b een p ossib le to b uy th e
machin e at a sa v in g of fo ur m illio n dolla rs ; if re p re se nta ti v es of th e co m panie s m akin g su ch
genera to rs h eld a s in gle m eeti n g a nd a gre ed to f ix p ric es, th ey c o uld , i n e ffe ct, i n cre ase th e c o st to th e
custo m er b y th e f o ur m illio n. A nd i n th e e nd , th e c usto m er w as a lm ost s u re to b e th e p ub lic .
IN
p re se nti n g th e i n d ic tm ents i n P hila d elp hia , B ic ks s ta te d th at, c o nsid ere d c o lle cti v ely , th ey r e v eale d
“a p atte rn o f v io la ti o ns w hic h c an fa ir ly b e s a id to r a nge a m ong th e m ost s e rio us, th e m ost fla gra nt,
th e m ost p erv asiv e th at h av e e v er m ark ed a ny b asic A meric an in d ustr y .” J u st b efo re im posin g th e
se nte nces, Ju d ge J. C ulle n G aney w ent ev en fu rth er; in his vie w , th e vio la ti o ns co nsti tu te d “a
sh o ckin g i n d ic tm ent o f a v ast s e cti o n o f o ur e co no m y, f o r w hat i s r e ally a t s ta ke h ere i s th e s u rv iv al o f
… th e f r e e-e nte rp ris e s y ste m .” T he p ris o n s e nte nces s h o w ed th at h e m eant i t; a lth o ugh th ere h ad b een
many s u ccessfu l p ro se cuti o ns fo r v io la ti o n o f th e S herm an A ct d urin g th e s e v en d ecad es s in ce its
passa ge, i t w as r a re i n d eed f o r e xecuti v es to b e j a ile d . N ot s u rp ris in gly , th ere fo re , th e c ase k ic ked u p
quite a ru ckus in th e p re ss. T he
New R ep ublic
, to b e su re , c o m pla in ed th at th e n ew sp ap ers a nd
magazin es w ere i n te nti o nally p la yin g d ow n “ th e b ig gest b usin ess s c and al i n d ecad es,” b ut th e c harg e
did no t se em to
hav e m uch fo und ati o n. C onsid erin g su ch th in gs as th e pub lic ’s ap ath y to w ard sw itc hgear, th e w oefu l b lo odle ssn ess o f c rim in al c ase s in v olv in g a nti tr u st la w s, a nd th e re la ti v ely
fe w d eta ils o f th e c o nsp ir a cie s th at h ad e m erg ed , th e p re ss in g enera l g av e th e s to ry a g o od d eal o f
sp ace, a nd e v en th e
Wall S tr e et J o urn al
and
Fortu ne
ra n u nco m pro m is in g a nd h ig hly in fo rm ati v e
acco unts o f th e d eb acle ; h ere a nd th ere , i n f a ct, o ne c o uld d ete ct s ig ns o f a r e v iv al o f th e s p ir it o f o ld -
ti m e anti b usin ess jo urn alis m as it exis te d back in th e th ir ti e s. A fte r all, w hat co uld be m ore
exhila ra ti n g th an to s e e s e v era l d ig nifie d , i m peccab ly ta ilo re d , a nd h ig hly p aid e xecuti v es o f a f e w o f
th e n ati o n’s m ost r e sp ecte d c o rp ora ti o ns b ein g tr o oped o ff to ja il lik e c o m mon p ic kp ockets ? It w as
certa in ly th e b ig gest m om ent fo r b usin ess-b aite rs sin ce 1 938, w hen R ic hard W hitn ey, th e fo rm er
pre sid ent o f th e N ew Y ork S to ck E xchange, w as p ut b ehin d b ars fo r s p ecula ti n g w ith h is c usto m ers ’
money. S om e c alle d i t th e b ig gest s in ce T eap ot D om e.
To to p it a ll o ff, th ere w as a p re v ale nt s u sp ic io n o f h yp ocris y in th e v ery h ig hest p la ces. N eith er
th e chair m an of th e board no r th e pre sid ent of G enera l E le ctr ic , th e la rg est of th e co rp ora te
defe nd ants , h ad b een c aught in th e g o vern m ent’ s d ra gnet, a nd th e sa m e w as tr u e o f W esti n gho use
Ele ctr ic , th e s e co nd -la rg est; th ese fo ur u lti m ate b osse s le t it b e k no w n th at th ey h ad b een e nti r e ly
ig no ra nt o f w hat h ad b een g o in g o n w ith in th eir c o m mand s r ig ht u p to th e ti m e th e fir s t te sti m ony o n
th e s u b je ct w as g iv en to th e J u sti c e D ep artm ent. M any p eo ple , h o w ev er, w ere n o t s a ti s fie d b y th ese
dis c la im ers , a nd , i n ste ad , to ok th e p ositi o n th at th e d efe nd ant e xecuti v es w ere m en i n th e m id dle , w ho
had b ro ken th e la w o nly in r e sp onse e ith er to a ctu al o rd ers o r to a c o rp ora te c lim ate fa v orin g p ric e-
fix in g, and w ho w ere no w bein g allo w ed to su ffe r fo r th e sin s of th eir su p erio rs . A mong th e
unsa ti s fie d w as J u d ge G aney h im se lf, w ho s a id a t th e ti m e o f th e s e nte ncin g, “ O ne w ould b e m ost
naïv e in d eed to b elie v e th at th ese v io la ti o ns o f th e la w , s o lo ng p ers is te d in , a ffe cti n g s o la rg e a
se gm ent o f th e i n d ustr y , a nd , f in ally , i n v olv in g s o m any m illio ns u p on m illio ns o f d olla rs , w ere f a cts
unkno w n to th o se r e sp onsib le fo r th e c o nd uct o f th e c o rp ora ti o n.… I a m c o nv in ced th at in th e g re at
num ber o f th ese d efe nd ants ’ case s, th ey w ere to rn b etw een co nsc ie nce and
ap pro ved co rp ora te
polic y, w ith th e r e w ard in g o bje cti v es o f p ro m oti o n, c o m fo rta b le s e curity , a nd l a rg e s a la rie s.”
The p ub lic natu ra lly w ante d a rin gle ad er, an arc hco nsp ir a to r, and it ap peare d to fin d w hat it
wante d in G enera l E le ctr ic , w hic h— to th e a cute c o nste rn ati o n o f th e m en e nd eav orin g to g uid e its
desti n ie s f r o m c o m pany h ead quarte rs , a t 5 70 L exin gto n A venue, N ew Y ork C ity — go t th e l io n’s s h are
of a tte nti o n b oth in th e p re ss a nd in th e S ub co m mitte e h earin gs. W ith s o m e 3 00,0 00 e m plo yees, a nd
sa le s a v era gin g s o m e f o ur b illio n d olla rs a y ear o ver th e p ast te n y ears , i t w as n o t o nly f a r a nd a w ay
th e b ig gest o f th e tw enty -n in e a ccuse d c o m panie s b ut, ju d ged o n th e b asis o f s a le s in 1 959, th e fifth -
big gest co m pany in th e co untr y . It als o d re w a hig her to ta l o f fin es ($ 437,5 00) th an any o th er
co m pany, a nd s a w m ore o f its e xecuti v es s e nt to ja il (th re e, w ith e ig ht o th ers re ceiv in g s u sp end ed
se nte nces). F urth erm ore , a s i f to i n te nsify i n th is h o ur o f c ris is th e h o rro r a nd s h o ck o f tr u e b elie v ers
—and th e g le e o f s c o ffe rs — its h ig hest- ra nkin g e xecuti v es h ad fo r y ears tr ie d to re p re se nt it to th e
pub lic a s a p ara go n o f s u ccessfu l v ir tu e b y i s su in g e nco m iu m s to th e f r e e c o m peti ti v e s y ste m , th e v ery
sy ste m th at th e p ric e-fix in g m eeti n gs w ere s e t u p to m ock. In 1 959, s h o rtl y a fte r th e g o vern m ent’ s
in v esti g ati o n o f th e v io la ti o ns h ad b een b ro ught to th e a tte nti o n o f G .E .’ s p olic ym akers , th e c o m pany
dem ote d a nd c ut th e p ay o f th o se o f its e xecuti v es w ho a d m itte d th at th ey h ad b een in v olv ed ; o ne
vic e-p re sid ent, f o r e xam ple , w as i n fo rm ed th at i n ste ad o f th e $ 127,0 00 a y ear h e h ad b een g etti n g h e
would n o w g et $ 40,0 00. ( H e h ad s c arc ely a d ju ste d h im se lf to th at b lo w w hen J u d ge G aney f in ed h im
fo ur th o usa nd d olla rs a nd s e nt h im to p ris o n f o r th ir ty d ays, a nd s h o rtl y a fte r h e r e gain ed h is f r e ed om ,
Genera l E le ctr ic e ase d h im o ut e nti r e ly .) T he G .E . p olic y o f im posin g p enalti e s o f its o w n o n th ese
em plo yees, re gard le ss of w hat punis h m ent th e co urt m ig ht pre sc rib e, w as no t ad opte d by
Westi n gho use , w hic h w aite d u nti l th e ju d ge h ad d is p ose d o f th e c ase a nd th en d ecid ed th at th e fin es and p ris o n s e nte nces h e h ad h and ed o ut to its s ta b le o f o ffe nd ers w ere c hasti s e m ent e no ugh, a nd d id
no t its e lf p enaliz e th em a t a ll. S om e p eo ple sa w th is a tti tu d e a s e v id ence th at W esti n gho use w as
co nd onin g th e co nsp ir a cie s, but oth ers re gard ed it as a co m mend ab le ,
if ta cit, ad m is sio n th at
managem ent a t th e h ig hest le v el in th e c o nniv in g c o m panie s w as r e sp onsib le — mora lly , a t le ast— fo r
th e w ho le m ess a nd w as th ere fo re in n o p ositi o n to d is c ip lin e its e rrin g e m plo yees. In th e v ie w o f
th ese p eo ple , G .E .’ s h aste to p enaliz e th e a ckno w le d ged c ulp rits o n i ts p ayro ll s tr o ngly s u ggeste d th at
th e f ir m w as tr y in g to s a v e i ts o w n s k in b y th ro w in g a f e w l u ckle ss e m plo yees to th e w olv es, o r— as
Senato r P hilip A . H art, o f M ic hig an, p ut it, m ore p ungentl y , d urin g th e h earin gs— “to d o a P onti u s
Pila te o pera ti o n.”
EM BA TTLED
d ays a t 5 70 L exin gto n A venue! A fte r y ears o f c lo akin g th e c o m pany in th e m antl e o f a
wis e a nd b enev ole nt c o rp ora te in sti tu ti o n, th e p ub lic -re la ti o ns p eo ple a t G .E . h ead quarte rs w ere
fa ced w ith th e u gly c ho ic e o f r e p re se nti n g i ts r o le i n th e p ric e-fix in g a ffa ir a s th at o f e ith er a f o ol o r a
knav e. T hey te nd ed str o ngly to w ard “fo ol.” Ju d ge G aney, b y his sta te m ent th at he assu m ed th e
co nsp ir a cie s to h av e b een n o t o nly c o nd oned b ut a p pro ved b y th e to p b ra ss a nd th e c o m pany a s a
who le , c le arly c ho se “ knav e.” B ut h is a naly sis m ay o r m ay n o t h av e b een th e rig ht o ne, a nd a fte r
re ad in g th e K efa uv er S ub co m mitte e te sti m ony I h av e c o m e to th e m ela ncho ly c o nclu sio n th at th e tr u th
will v ery l ik ely n ev er b e k no w n. F or, a s th e te sti m ony s h o w s, th e c le ar w ate rs o f m ora l r e sp onsib ility
at G .E . b ecam e h o pele ssly m ud die d b y a s tr u ggle to c o m munic ate — a s tr u ggle s o c o nfu se d th at in
so m e c ase s, i t w ould a p pear, i f o ne o f th e b ig b osse s a t G .E .
had
o rd ere d a s u b ord in ate to b re ak th e
la w , th e m essa ge w ould so m eho w h av e b een g arb le d in its re cep ti o n, a nd if th e su b ord in ate
had
in fo rm ed th e b oss th at h e w as h o ld in g c o nsp ir a to ria l m eeti n gs w ith c o m peti to rs , th e b oss m ig ht w ell
hav e been und er th e im pre ssio n th at th e su b ord in ate w as go ssip in g id ly ab out la w n parti e s or
pin o chle s e ssio ns. S pecific ally , it w ould a p pear th at a s u b ord in ate w ho r e ceiv ed a d ir e ct o ra l o rd er
fr o m h is b oss h ad to fig ure o ut w heth er it m eant w hat it s e em ed to o r th e e xact o pposite , w hile th e
boss, in c o nv ers in g w ith a s u b ord in ate , h ad to fig ure o ut w heth er h e s h o uld ta ke w hat th e m an to ld
him
a t fa ce v alu e o r s h o uld a tte m pt to tr a nsla te it o ut o f a s e cre t c o de to w hic h h e w as b y n o m eans
su re h e h ad th e k ey. T hat w as th e p ro ble m i n a
n uts h ell, a nd I s ta te i t h ere th us b ald ly a s a s u ggesti o n
fo r a ny p ote nti a l b enefic ia ry o f a f o und ati o n w ho m ay b e c asti n g a b out f o r a s u ita b le p ro je ct o n w hic h
to d ra w u p a p ro sp ectu s.
For th e p ast e ig ht y ears o r s o , G .E . h ad h ad a c o m pany r u le c alle d D ir e cti v e P olic y 2 0.5 , w hic h
re ad , i n p art, “ N o e m plo yee s h all e nte r i n to a ny u nd ers ta nd in g, a gre em ent, p la n o r s c hem e, e xp re sse d
or im plie d , fo rm al o r in fo rm al, w ith a ny c o m peti to r, in r e gard to p ric es, te rm s o r c o nd iti o ns o f s a le ,
pro ducti o n, d is tr ib uti o n, te rrito rie s, o r c usto m ers ; n o r e xchange o r d is c uss w ith a c o m peti to r p ric es,
te rm s o r c o nd iti o ns o f s a le , o r a ny o th er c o m peti ti v e in fo rm ati o n.” In e ffe ct, th is r u le w as s im ply a n
in ju ncti o n to G .E .’ s p ers o nnel to o bey th e fe d era l a nti tr u st la w s, e xcep t th at it w as s o m ew hat m ore
co ncre te and co m pre hensiv e in th e m atte r o f p ric e th an th ey are . It w as alm ost im possib le fo r
executi v es w ith ju ris d ic ti o n o ver p ric in g p olic ie s a t G .E . to b e u naw are o f 2 0.5 , o r e v en h azy a b out
it, b ecause to m ake s u re th at n ew e xecuti v es w ere a cq uain te d w ith it a nd to r e fr e sh th e m em orie s o f
old o nes, th e c o m pany fo rm ally r e is su ed a nd d is tr ib ute d it a t in te rv als , a nd a ll s u ch e xecuti v es w ere
ask ed to s ig n th eir n am es to i t a s a n e arn est th at th ey w ere c urre ntl y c o m ply in g w ith i t a nd i n te nd ed to
keep o n d oin g s o . T he tr o ub le — at l e ast d urin g th e p erio d c o vere d b y th e c o urt a cti o n, a nd a p pare ntl y
fo r a lo ng ti m e b efo re th at a s w ell— was th at so m e p eo ple a t G .E ., in clu d in g so m e o f th o se w ho
re gula rly s ig ned 2 0.5 , s im ply d id n o t b elie v e th at i t w as to b e ta ken s e rio usly . T hey a ssu m ed th at 2 0.5
was m ere w in d ow d re ssin g: th at it w as o n th e b ooks so le ly to p ro vid e le gal p ro te cti o n fo r th e co m pany a nd f o r th e h ig her-u p s; th at m eeti n g i lle gally w ith c o m peti to rs w as r e co gniz e d a nd a ccep te d
as sta nd ard pra cti c e w ith in th e co m pany; and th at ofte n w hen a ra nkin g executi v e ord ere d a
su b ord in ate e xecuti v e to c o m ply w ith 2 0.5 , h e w as a ctu ally o rd erin g h im to v io la te it. Illo gic al a s it
mig ht s e em , th is l a st a ssu m pti o n b eco m es c o m pre hensib le i n th e l ig ht o f th e f a ct th at, f o r a ti m e, w hen
so m e e xecuti v es o ra lly c o nv eyed , o r re co nv eyed , th e o rd er, th ey w ere a p pare ntl y in th e h ab it o f
acco m panyin g it w ith a n u nm is ta kab le w in k. In M ay o f 1 948, fo r e xam ple , th ere w as a m eeti n g o f
G.E . s a le s m anagers d urin g w hic h th e c usto m o f w in kin g w as o penly d is c usse d . R obert
P axto n, a n
up per-le v el G .E . e xecuti v e w ho la te r b ecam e th e c o m pany’s p re sid ent, a d dre sse d th e m eeti n g a nd
deliv ere d th e u su al a d m oniti o n a b out a nti tr u st v io la ti o ns, w here up on W illia m S . G in n, th en a s a le s
executi v e in th e tr a nsfo rm er d iv is io n, u nd er P axto n’s a uth o rity , s ta rtl e d h im b y s a yin g, “ I d id n’t s e e
yo u w in k.” P axto n r e p lie d f ir m ly , “ T here w as n o w in k. W e m ean i t, a nd th ese a re th e o rd ers .” A sk ed
by S enato r K efa uv er ho w lo ng he had b een aw are th at o rd ers is su ed at G .E . w ere so m eti m es
acco m panie d b y w in ks, P axto n r e p lie d th at h e h ad f ir s t o bse rv ed th e p ra cti c e w ay b ack i n 1 935, w hen
his b oss h ad g iv en h im a n in str u cti o n a lo ng w ith a w in k o r its e q uiv ale nt, a nd th at w hen, s o m e ti m e
la te r, th e s ig nific ance o f th e g estu re d aw ned o n h im , h e h ad b eco m e s o in cense d th at h e h ad w ith
diffic ulty re str a in ed h im se lf fr o m je o pard iz in g h is c are er b y p unchin g th e b oss in th e n o se . P axto n
went o n to s a y th at h is o bje cti o ns to th e p ra cti c e o f w in kin g h ad b een s o s tr o ng a s to e arn h im a
re p uta ti o n i n th e c o m pany f o r b ein g a n a nti w in k m an, a nd th at h e, f o r h is p art, h ad n ev er w in ked .
Alth o ugh P axto n w ould s e em to h av e le ft littl e d oub t a s to h o w h e in te nd ed h is w in kle ss o rd er o f
1948 to b e in te rp re te d , its m eanin g fa ile d to g et th ro ugh to G in n, fo r n o t lo ng a fte r it w as is su ed , h e
went o ut a nd fix ed p ric es to a fa re -th ee-w ell. ( O bvio usly , it ta kes m ore th an o ne c o m pany to m ake a
pric e-fix in g a gre em ent, b ut a ll th e te sti m ony te nd s to in d ic ate th at it w as G .E . th at g enera lly s e t th e
patte rn fo r th e re st o f th e in d ustr y in su ch m atte rs .) T hir te en y ears la te r, G in n— fr e sh fr o m a fe w
weeks i n j a il, a nd f r e sh o ut o f a $ 135,0 00-a -y ear j o b— ap peare d b efo re th e S ub co m mitte e to a cco unt
fo r, a m ong o th er th in gs, h is s tr a nge r e sp onse to th e w in kle ss o rd er. H e h ad d is re gard ed it, h e s a id ,
because he had re ceiv ed a co ntr a ry o rd er fr o m tw o o f his o th er su p erio rs in th e G .E . chain o f
co m mand , H enry V . B . E rb en a nd F ra ncis F air m an, a nd in e xp la in in g w hy h e h ad h eed ed th eir o rd er
ra th er th an P axto n’s h e in tr o duced th e fa sc in ati n g c o ncep t o f d egre es o f c o m munic ati o n— ano th er
th em e fo r a fo und ati o n g ra nte e to g et h is te eth in to . E rb en a nd F air m an, G in n s a id , h ad b een m ore
arti c ula te , p ers u asiv e, a nd f o rc efu l i n i s su in g th eir o rd er th an P axto n h ad b een i n i s su in g h is ; F air m an,
esp ecia lly , G in n
s tr e sse d , h ad p ro ved to b e “ a g re at c o m munic ato r, a g re at p hilo so pher, a nd , f r a nkly ,
a g re at b elie v er i n s ta b ility o f p ric es.” B oth E rb en a nd F air m an h ad d is m is se d P axto n a s n aïv e, G in n
te sti fie d , a nd , in fu rth er s u m mary o f h o w h e h ad b een le d a str a y, h e s a id th at “ th e p eo ple w ho w ere
ad vocati n g th e D ev il w ere a b le to s e ll m e b ette r th an th e p hilo so phers th at w ere s e llin g th e L ord .”
It w ould be help fu l to hav e at hand a re p ort fr o m E rb en and Fair m an th em se lv es on th e
co m munic ati o n te chniq ue th at e nab le d th em to p re v ail o ver P axto n, b ut u nfo rtu nate ly n eith er o f th ese
philo so phers c o uld te sti fy b efo re th e S ub co m mitte e, b ecause b y th e ti m e o f th e h earin gs b oth o f th em
were d ead . P axto n, w ho w as a v aila b le , w as d esc rib ed i n G in n’s te sti m ony a s h av in g b een a t a ll ti m es
one o f th e p hilo so pher-s a le sm en o n th e s id e o f th e L ord . “ I c an c la rify M r. P axto n b y s a yin g M r.
Paxto n c am e c lo se r to b ein g a n A dam S m ith a d vocate th an a ny b usin essm an I h av e m et i n A meric a,”
Gin n d ecla re d . S ti ll, in 1 950, w hen G in n ad m itte d to P axto n in casu al co nv ers a ti o n th at he had
“co m pro m is e d h im se lf” in r e sp ect to a nti tr u st m atte rs , P axto n m ere ly to ld h im th at h e w as a d am ned
fo ol, a nd d id n o t r e p ort th e c o nfe ssio n to a nyo ne e ls e i n th e c o m pany. T esti fy in g a s to w hy h e d id n o t,
Paxto n s a id th at w hen th e c o nv ers a ti o n o ccurre d h e w as n o l o nger G in n’s b oss, a nd th at, i n th e l ig ht o f
his p ers o nal e th ic s, r e p eati n g s u ch a n a d m is sio n b y a m an n o t u nd er h is a uth o rity w ould b e “ go ssip ” and “ ta le b earin g.”
Meanw hile , G in n, no lo nger answ era b le to P axto n, w as m eeti n g w ith co m peti to rs at fr e q uent
in te rv als a nd m ovin g ste ad ily u p th e c o rp ora te la d der. In N ovem ber, 1 954, h e w as m ad e g enera l
manager o f th e tr a nsfo rm er d iv is io n, w ho se h ead quarte rs w ere in P itts fie ld , M assa chuse tts — a jo b
th at p ut h im i n l in e f o r a v ic e-p re sid ency. A t th e ti m e o f G in n’s s h ift, R alp h J . C ord in er, w ho h as b een
chair m an o f th e b oard o f G enera l E le ctr ic s in ce 1 949, c alle d h im d ow n to N ew Y ork f o r th e e xp re ss
purp ose o f e njo in in g h im to c o m ply s tr ic tl y a nd u nd ev ia ti n gly w ith D ir e cti v e P olic y 2 0.5 . C ord in er
co m munic ate d th is id ea so su ccessfu lly th at it w as cle ar eno ugh to G in n at th e m om ent, b ut it
re m ain ed s o o nly a s lo ng a s it to ok h im , a fte r le av in g th e c hair m an, to w alk to E rb en’s o ffic e. T here
his co m pre hensio n o f w hat he had ju st heard b ecam e clo ud ed . E rb en, w ho w as head o f G .E .’ s
dis tr ib uti o n g ro up , r a nked d ir e ctl y b elo w C ord in er a nd d ir e ctl y a b ove G in n, a nd , a cco rd in g to G in n’s
te sti m ony, n o so oner w ere th ey a lo ne in h is o ffic e th an h e c o unte rm and ed C ord in er’s in ju ncti o n,
sa yin g, “ N ow , k eep o n d oin g th e w ay th at y o u h av e b een d oin g, b ut ju st b e s e nsib le a b out it a nd u se
yo ur h ead o n th e s u b je ct.” E rb en’s e xtr a o rd in ary c o m munic ati v e p ro w ess a gain c arrie d th e d ay, a nd
Gin n c o nti n ued to m eet w ith c o m peti to rs . “ I k new M r. C ord in er c o uld fir e m e,” h e to ld S enato r
Kefa uv er, “ b ut a ls o I k new I w as w ork in g f o r M r. E rb en.”
At th e e nd o f 1 954, P axto n to ok o ver E rb en’s jo b a nd th ere b y b ecam e G in n’s b oss a gain . G in n
went rig ht o n m eeti n g w ith c o m peti to rs , b ut, sin ce h e w as a w are th at P axto n d is a p pro ved o f th e
pra cti c e, d id n’t te ll h im a b out it. M ore o ver, h e te sti fie d , w ith in a m onth o r tw o h e h ad b eco m e
co nv in ced th at h e c o uld n o t a ffo rd to d is c o nti n ue a tte nd in g th e m eeti n gs u nd er a ny c ir c um sta nces, f o r
in J a nuary , 1 955, th e e nti r e e le ctr ic al- e q uip m ent i n d ustr y b ecam e e m bro ile d i n a d ra sti c p ric e w ar—
kno w n a s th e “ w hite s a le ,” b ecause o f i ts ti m in g a nd th e b arg ain s i t a ffo rd ed to b uyers — in w hic h th e
ers tw hile a m ia b le c o m peti to rs b egan fie rc ely u nd erc utti n g o ne a no th er. S uch a m anife sta ti o n o f fr e e
ente rp ris e w as, o f c o urs e , e xactl y w hat th e in te rc o m pany c o nsp ir a cie s w ere in te nd ed to p re v ent, b ut
ju st a t th at ti m e th e s u p ply o f e le ctr ic al a p para tu s s o g re atl y e xceed ed th e d em and th at fir s t a fe w o f
th e c o nsp ir a to rs a nd th en m ore a nd m ore b egan b re akin g th e a gre em ents th ey th em se lv es h ad m ad e. I n
dealin g w ith th e s itu ati o n a s b est h e c o uld , G in n s a id , h e “ use d th e p hilo so phie s th at h ad b een ta ught
me p re v io usly ”— by w hic h h e m eant th at h e c o nti n ued to c o nd uct p ric e-fix in g m eeti n gs, in th e h o pe
th at a t l e ast
so m e
o f th e a gre em ents m ad e a t th em w ould b e h o no re d . A s f o r P axto n, i n G in n’s o pin io n
th at p hilo so pher w as n o t o nly i g no ra nt o f th e m eeti n gs b ut s o c o nsta nt i n h is d ev oti o n to th e c o ncep t o f
fr e e a nd a ggre ssiv e c o m peti ti o n th at h e a ctu ally e njo yed th e p ric e w ar, d is a str o us th o ugh it w as to
ev ery b ody’s p ro fits . ( In h is o w n te sti m ony, P axto n v ig o ro usly d enie d th at h e h ad e njo yed i t.)
With in a y ear o r s o , th e e le ctr ic al- e q uip m ent in d ustr y to ok a n
u p tu rn , a nd in J a nuary , 1 957, G in n,
hav in g rid den o ut th e sto rm re la ti v ely w ell, go t his v ic e-p re sid ency. A t th e sa m e ti m e, he w as
tr a nsfe rre d to S chenecta d y, to b eco m e g enera l m anager o f G .E .’ s tu rb in e-g enera to r d iv is io n, a nd
Cord in er a gain c alle d h im in to h ead quarte rs a nd g av e h im a le ctu re o n 2 0.5 . S uch le ctu re s w ere
getti n g to b e a ro uti n e w ith C ord in er; ev ery ti m e a new em plo yee w as assig ned to a str a te gic
manageria l p ost, o r an o ld em plo yee w as p ro m ote d to su ch a p ost, th e lu cky fe llo w co uld b e
re aso nab ly c erta in th at h e w ould b e s u m moned to th e c hair m an’s o ffic e to h ear a re nd iti o n o f th e
auste re c re ed . In h is b ook
The H ea rt o f J a pan
, A le xand er C am pbell re p orts th at a la rg e J a p anese
ele ctr ic al c o ncern h as d ra w n u p a l is t o f s e v en c o m pany c o m mand m ents ( fo r e xam ple , “ B e c o urte o us
and s in cere !” ), a nd th at e ach m orn in g, i n e ach o f i ts th ir ty f a cto rie s, th e w ork ers a re r e q uir e d to s ta nd
at atte nti o n and re cite th ese in unis o n, and th en to sin g th e co m pany so ng (“ F or ev er-in cre asin g
pro ducti o n/L ove y o ur w ork , g iv e y o ur a ll!” ). C ord in er d id n o t r e q uir e h is s u b ord in ate s to r e cite o r
sin g 2 0.5 — as fa r a s is k no w n, h e n ev er e v en h ad it s e t to m usic — but fr o m th e n um ber o f ti m es m en lik e G in n h ad i t r e ad to th em o r o th erw is e r e calle d to th eir a tte nti o n, th ey m ust h av e c o m e to k no w i t
well e no ugh to c hant i t, i m pro vis in g a tu ne a s th ey w ent a lo ng.
This ti m e, C ord in er’s m essa ge n o t o nly m ad e a n im pre ssio n o n G in n’s m in d b ut stu ck th ere in
unad ulte ra te d fo rm . G in n, a cco rd in g to h is te sti m ony, b ecam e a r e fo rm ed e xecuti v e a nd d ro pped h is
pric e-fix in g h ab its o vern ig ht. H ow ev er, it a p pears th at h is s u d den c o nv ers io n c anno t b e a ttr ib ute d
who lly to C ord in er’s p ow ers o f c o m munic ati o n, o r e v en to th e d rip -d rip -d rip e ffe ct o f r e p eti ti o n, f o r
it w as to a co nsid era b le exte nt pra gm ati c in chara cte r, lik e th e co nv ers io n of H enry V III to
Pro te sta nti s m . H e r e fo rm ed , G in n e xp la in ed to th e S ub co m mitte e, b ecause h is “ air c o ver w as g o ne.”
“Y our w hat w as g o ne?” S enato r K efa uv er a sk ed .
“M y a ir c o ver w as g o ne,” r e p lie d G in n. “ I m ean I h ad l o st m y a ir c o ver. M r. E rb en w asn ’t a ro und
any m ore , and all o f m y co lle agues had go ne, and I w as no w w ork in g d ir e ctl y fo r M r. P axto n,
kno w in g h is f e elin gs o n th e m atte r.… A ny p hilo so phy
th at I h ad g ro w n u p w ith b efo re i n th e p ast w as
no w o ut th e w in d ow .”
If E rb en, w ho h ad n o t b een G in n’s b oss s in ce la te in 1 954, h ad b een th e s o urc e o f h is a ir c o ver,
Gin n m ust h av e b een w ith o ut its p ro te cti o n fo r o ver tw o y ears , b ut, p re su m ab ly , in th e e xcite m ent o f
th e p ric e w ar h e h ad fa ile d to n o ti c e its a b se nce. H ow ev er th at m ay h av e b een, h ere h e n o w w as, a
man s u d denly s h o rn n o t o nly o f h is a ir c o ver b ut o f h is p hilo so phy. S w iftl y f illin g th e l a tte r v oid w ith
a w ho le n ew s e t o f p rin cip le s, h e c ir c ula te d c o pie s o f 2 0.5 a m ong h is d ep artm ent m anagers in th e
tu rb in e-g enera to r d iv is io n a nd to pped th is o ff b y e nerg eti c ally a d opti n g w hat h e c alle d a “ le p ro sy
polic y”; th at is , he ad vis e d his su b ord in ate s to av oid ev en casu al so cia l co nta cts w ith th eir
co unte rp arts i n c o m peti n g c o m panie s, b ecause “ o nce th e r e la ti o nsh ip s a re e sta b lis h ed , I h av e c o m e to
th e c o nclu sio n a fte r m any y ears o f h ard e xp erie nce th at th e r e la ti o nsh ip s te nd to s p re ad a nd th e h anky-
panky b egin s to g et g o in g.” B ut n o w f a te p la yed a c ru el tr ic k o n G in n, a nd , a ll u nkno w in g, h e l a nd ed
in th e v ery p ositi o n th at P axto n a nd C ord in er h ad b een in fo r y ears — th at o f a p hilo so pher v ain ly
end eav orin g to se ll th e Lord to a flo ck th at declin ed to buy his m essa ge and w as, in fa ct,
sy ste m ati c ally e ngagin g in th e h anky-p anky its le ad er h ad w arn ed it a gain st. S pecific ally , d urin g th e
who le o f 1 957 a nd 1 958 a nd th e fir s t p art o f 1 959 tw o o f G in n’s s u b ord in ate s w ere p io usly s ig nin g
20.5 w ith o ne h and a nd , w ith th e o th er, b ris k ly d ra w in g u p p ric e-fix in g a gre em ents a t a w ho le s e rie s
of m eeti n gs— in N ew Y ork ; P hila d elp hia ; C hic ago ; H ot S prin gs, V ir g in ia ; a nd S kyto p, P ennsy lv ania ,
to n am e a f e w o f th eir g ath erin g p la ces.
It a p pears th at G in n h ad n o t b een a b le to i m part m uch o f h is s h in in g n ew p hilo so phy to o th ers , a nd
th at a t th e r o ot o f h is d iffic ulty l a y th at o ld j in x, th e p ro ble m o f c o m munic ati n g. A sk ed a t th e h earin gs
ho w h is s u b ord in ate s c o uld p ossib ly h av e g o ne s o fa r a str a y, h e r e p lie d , “ I h av e g o t to a d m it th at I
mad e a c o m munic ati o n e rro r. I d id n’t se ll th is th in g to th e b oys w ell e no ugh.… T he p ric e is so
im porta nt in th e c o m ple te r u nnin g o f a b usin ess th at, p hilo so phic ally , w e h av e g o t to s e ll p eo ple n o t
only j u st th e f a ct th at i t i s a gain st th e l a w , b ut … th at i t
s h o uld n’t b e d one f o r m any, m any r e aso ns. B ut
it h as g o t to b e a p hilo so phic al a p pro ach a nd a c o m munic ati o n a p pro ach.… E ven th o ugh … I h ad to ld
my a sso cia te s n o t to d o th is , s o m e o f th e b oys d id g et o ff th e r e se rv ati o n.… I h av e to a d m it to m yse lf
here a n a re a o f a fa ilu re in c o m munic ati o ns … w hic h I a m p erfe ctl y w illin g to a ccep t m y p art o f th e
re sp onsib ility f o r.”
In e arn estl y s tr iv in g to a naly ze th e c ause o f th e fa ilu re , G in n s a id , h e h ad r e ached th e c o nclu sio n
th at m ere ly is su in g d ir e cti v es, n o m atte r h o w fr e q uentl y , w as n o t e no ugh; w hat w as n eed ed w as “ a
co m ple te p hilo so phy, a c o m ple te u nd ers ta nd in g, a c o m ple te b re akd ow n o f b arrie rs b etw een p eo ple ,
if w e a re g o in g to g et s o m e u nd ers ta nd in g a nd re ally liv e a nd m anage th ese c o m panie s w ith in th e
philo so phie s th at th ey s h o uld b e m anaged i n .” Senato r H art p erm itte d h im se lf to c o m ment, “ Y ou c an c o m munic ate u nti l y o u a re d ead a nd g o ne,
but if th e p oin t yo u are co m munic ati n g ab out, ev en th o ugh it b e a la w o f th e la nd , str ik es yo ur
aud ie nce a s s o m eth in g th at i s j u st a f o lk lo re … y o u w ill n ev er s e ll th e p ackage.”
Gin n r u efu lly c o nced ed th at th at w as tr u e.
TH E
c o ncep t o f d egre es o f c o m munic ati o n w as fu rth er d ev elo ped , b y im plic ati o n, in th e te sti m ony o f
ano th er defe nd ant, F ra nk E . S te hlik , w ho had been genera l m anager of th e G .E . lo w -v olta ge-
sw itc hgear d ep artm ent f r o m M ay, 1 956, to F eb ru ary , 1 960. ( A s a ll b ut a ti n y m in o rity o f th e u se rs o f
ele ctr ic ity a re c o nte nte d ly u naw are , s w itc hgear s e rv es to c o ntr o l a nd p ro te ct a p para tu s u se d in th e
genera ti o n, co nv ers io n, tr a nsm is sio n, and dis tr ib uti o n of ele ctr ic al energ y, and m ore th an $100
millio n w orth o f it is so ld a nnually in th e U nite d S ta te s.) S te hlik re ceiv ed so m e o f h is b usin ess
guid ance in th e c o nv enti o nal fo rm o f o rd ers , o ra l a nd w ritte n, a nd s o m e— perh ap s ju st a s m uch, to
ju d ge b y h is te sti m ony— th ro ugh a le ss in te lle ctu al, m ore v is c era l m ed iu m o f c o m munic ati o n th at h e
calle d “ im pacts .” A ppare ntl y , w hen s o m eth in g h ap pened w ith in th e c o m pany th at m ad e a n i m pre ssio n
on h im , h e w ould c o nsu lt a s o rt o f in te rn al m eta p hysic al v oltm ete r to a sc erta in th e fo rc e o f th e jo lt
th at h e h ad r e ceiv ed , a nd , fr o m th e r e ad in g h e g o t, w ould a tte m pt to g auge th e tr u e d rift o f c o m pany
polic y. F or e xam ple , h e te sti fie d th at d urin g 1 956, 1 957, a nd m ost o f 1 958 h e b elie v ed th at G .E . w as
fr a nkly a nd f u lly i n f a v or o f c o m ply in g w ith 2 0.5 . B ut th en, i n th e a utu m n o f 1 958, G eo rg e E . B ure ns,
Ste hlik ’s i m med ia te s u p erio r, to ld h im th at h e, B ure ns, h ad b een d ir e cte d b y P axto n, w ho b y th en w as
pre sid ent o f G .E ., to h av e l u nch w ith M ax S co tt, p re sid ent o f th e I - T -E C ir c uit B re aker C om pany, a n
im porta nt c o m peti to r in th e s w itc hgear m ark et. P axto n s a id in h is o w n te sti m ony th at w hile h e h ad
in d eed a sk ed B ure ns to h av e lu nch w ith S co tt, h e h ad in str u cte d h im c ate go ric ally n o t to ta lk a b out
pric es, b ut a p pare ntl y B ure ns d id n o t m enti o n th is c av eat to S te hlik ; in a ny e v ent, th e d is c lo su re th at
th e h ig h c o m mand h ad to ld B ure ns to lu nch w ith a n a rc hriv al, S te hlik te sti fie d , “ had a h eav y im pact
on m e.” A sk ed to a m plify th is , h e s a id , “ T here a re a g re at m any im pacts th at in flu ence m e in m y
th in kin g a s to th e tr u e a tti tu d e o f th e c o m pany, a nd th at w as o ne o f th em .” A s th e im pacts , g re at a nd
sm all, p ile d u p , th eir c um ula ti v e e ffe ct fin ally c o m munic ate d to S te hlik th at h e h ad b een w ro ng in
su p posin g th e c o m pany h ad a ny r e al r e sp ect fo r 2 0.5 . A cco rd in gly , w hen, la te in 1 958, S te hlik w as
ord ere d b y B ure ns to b egin h o ld in g p ric e m eeti n gs w ith th e c o m peti to rs , h e w as n o t in th e le ast
su rp ris e d .
Ste hlik ’s c o m plia nce w ith B ure ns’ o rd er u lti m ate ly b ro ught o n a w ho le n ew s e rie s o f i m pacts , o f a
much m ore c ru d ely c o m munic ati v e s o rt. In F eb ru ary , 1 960, G enera l E le ctr ic c ut h is a nnual p ay fr o m
$70,0 00 to $ 26,0 00 f o r v io la ti n g 2 0.5 ; a y ear l a te r J u d ge G aney g av e h im a th re e-th o usa nd -d olla r f in e
and a s u sp end ed th ir ty -d ay ja il s e nte nce fo r v io la ti n g th e S herm an A ct; a nd a b out a m onth a fte r
th at
G.E . a sk ed fo r, a nd g o t, h is r e sig nati o n. In d eed , d urin g h is la st y ears w ith th e fir m S te hlik s e em s to
hav e r e ceiv ed a lm ost a s m any l a cera ti n g i m pacts a s a R aym ond C hand le r h ero . B ut te sti m ony g iv en a t
th e hearin gs by L . B . G ezo n, m anager of th e m ark eti n g se cti o n of th e lo w -v olta ge-s w itc hgear
dep artm ent, in d ic ate d th at S te hlik , again lik e a C hand le r hero , w as cap ab le o f d is h in g o ut b lu nt
im pacts a s w ell a s ta kin g th em . G ezo n, w ho w as d ir e ctl y u nd er S te hlik in th e lin e o f c o m mand , to ld
th e S ub co m mitte e th at a lth o ugh h e h ad ta ken p art in p ric e-fix in g m eeti n gs p rio r to A pril, 1 956, w hen
Ste hlik b ecam e
h is b oss, h e d id n o t s u b se q uentl y e ngage i n a ny a nti tr u st v io la ti o ns u nti l l a te 1 958, a nd
th at h e d id s o th en o nly a s th e r e su lt o f a n i m pact th at b ore n o ne o f th e s u b tl e ty n o te d b y S te hlik i n h is
early e xp erie nce w ith th is p heno m eno n. T he im pact c am e d ir e ctl y fr o m S te hlik , w ho , it s e em s, le ft
no th in g to c hance in c o m munic ati n g w ith h is s u b ord in ate s. In G ezo n’s w ord s, S te hlik to ld h im “ to
re su m e th e m eeti n gs; th at th e c o m pany p olic y w as u nchanged ; th e r is k w as j u st a s g re at a s i t e v er h ad been; a nd th at if o ur a cti v iti e s w ere d is c o vere d , I p ers o nally w ould b e d is m is se d o r d is c ip lin ed [ b y
th e c o m pany], a s w ell a s p unis h ed b y th e g o vern m ent.” S o G ezo n w as l e ft w ith th re e c ho ic es: to q uit,
to d is o bey th e d ir e ct o rd er o f his su p erio r (in w hic h case , he th o ught, “th ey m ig ht hav e fo und
so m eb ody e ls e to d o m y jo b”), o r to o bey th e o rd er, a nd th ere b y v io la te th e a nti tr u st la w s, w ith n o
im munity a gain st th e p ossib le c o nse q uences. I n s h o rt, h is a lte rn ati v es w ere c o m para b le to th o se f a ced
by a n i n te rn ati o nal s p y.
Alth o ugh G ezo n d id re su m e th e m eeti n gs, h e w as n o t in d ic te d , p ossib ly b ecause h e h ad b een a
re la ti v ely m in o r p ric e-fix er. G enera l E le ctr ic , fo r its p art, d em ote d h im b ut d id n o t re q uir e h im to
re sig n. Y et it w ould b e a m is ta ke to a ssu m e th at G ezo n w as r e la ti v ely u nto uched b y h is e xp erie nce.
Ask ed b y S enato r K efa uv er if h e d id n o t th in k th at S te hlik ’s o rd er h ad p la ced h im in a n in to le ra b le
positi o n, h e r e p lie d th at i t h ad n o t s tr u ck h im th at w ay a t th e ti m e. A sk ed w heth er h e th o ught i t u nju st
th at h e h ad s u ffe re d d em oti o n f o r c arry in g o ut th e o rd er o f a s u p erio r, h e r e p lie d , “ I p ers o nally d on’t
co nsid er i t s o .” T o j u d ge b y h is a nsw ers , th e i m pact o n G ezo n’s h eart a nd m in d w ould s e em to h av e
been h eav y i n d eed .
TH E
o th er s id e o f th e c o m munic ati o n p ro ble m — th e d iffic ulty th at a s u p erio r is lik ely to e nco unte r in
und ers ta nd in g w hat a s u b ord in ate te lls h im — is g ra p hic ally illu str a te d b y th e te sti m ony o f R aym ond
W. S m ith , w ho w as g enera l m anager o f G .E .’ s tr a nsfo rm er d iv is io n fr o m th e b egin nin g o f 1 957 u nti l
la te i n 1 959, a nd o f A rth ur F . V in so n, w ho i n O cto ber, 1 957, w as a p poin te d v ic e-p re sid ent i n c harg e
of G .E .’ s a p para tu s g ro up , a nd a ls o a m em ber o f th e c o m pany’s e xecuti v e c o m mitte e. S m ith ’s jo b
was th e o ne
G in n h ad h eld fo r th e p re v io us tw o y ears , a nd w hen V in so n g o t
his
jo b, h e b ecam e
Sm ith ’s im med ia te b oss. S m ith ’s h ig hest p ay d urin g th e p erio d in q uesti o n w as r o ughly $ 100,0 00 a
year, w hile V in so n r e ached a b asic s a la ry o f $ 11 0,0 00 a nd a ls o g o t a v aria b le b onus, r a ngin g fr o m
$45,0 00 to $ 100,0 00. S m ith te sti fie d th at o n Ja nuary 1 , 1 957, th e v ery d ay h e to ok c harg e o f th e
tr a nsfo rm er d iv is io n— and a h o lid ay, a t th at— he m et w ith C hair m an C ord in er a nd E xecuti v e V ic e-
Pre sid ent P axto n, a nd C ord in er g av e h im th e fa m ilia r a d m oniti o n a b out liv in g u p to 2 0.5 . H ow ev er,
la te r th at y ear, th e c o m peti ti v e g o in g g o t s o ro ugh th at tr a nsfo rm ers w ere s e llin g a t d is c o unts o f a s
much a s 3 5 p erc ent, a nd S m ith d ecid ed o n h is o w n h o ok th at th e ti m e h ad c o m e to b egin n ego ti a ti n g
with r iv al fir m s in th e h o pe o f s ta b iliz in g th e m ark et. H e fe lt th at h e w as ju sti fie d in d oin g th is , h e
sa id , b ecause h e w as c o nv in ced th at b oth i n c o m pany c ir c le s a nd i n th e w ho le i n d ustr y n ego ti a ti o ns o f
th is k in d w ere “ th e o rd er o f th e d ay.”
By th e ti m e V in so n b ecam e h is s u p erio r, in O cto ber, S m ith w as re gula rly a tte nd in g p ric e-fix in g
meeti n gs, a nd h e f e lt th at h e o ught to l e t h is n ew b oss k no w w hat h e w as d oin g. A cco rd in gly , h e to ld
th e S ub co m mitte e, o n tw o o r th re e o ccasio ns w hen th e tw o m en fo und th em se lv es a lo ne to geth er in
th e n o rm al c o urs e o f b usin ess, h e sa id to V in so n, “ I h ad a m eeti n g w ith th e c la n th is m orn in g.”
Counse l f o r th e S ub co m mitte e a sk ed S m ith w heth er h e h ad e v er p ut th e m atte r m ore b lu ntl y — wheth er,
fo r e xam ple , h e h ad e v er s a id a nyth in g lik e “ W e’re m eeti n g w ith c o m peti to rs to fix p ric es. W e’re
go in g to h av e a littl e c o nsp ir a cy h ere a nd I d on’t w ant it to g et o ut.” S m ith r e p lie d th at h e h ad n ev er
sa id a nyth in g r e m ote ly lik e th at— had d one n o th in g m ore th an m ake r e m ark s o n th e o rd er o f “ I h ad a
meeti n g w ith th e c la n th is m orn in g.” H e d id n o t e la b ora te o n w hy h e d id n o t sp eak w ith g re ate r
dir e ctn ess, b ut tw o lo gic al p ossib iliti e s p re se nt th em se lv es. P erh ap s h e h o ped th at h e c o uld k eep
Vin so n in fo rm ed a b out th e s itu ati o n a nd a t th e s a m e ti m e p ro te ct h im fr o m th e ris k o f b eco m in g a n
acco m plic e. O r p erh ap s h e h ad n o s u ch in te nti o n, a nd w as s im ply e xp re ssin g h im se lf in th e o bliq ue,
co llo quia l w ay th at c hara cte riz e d m uch o f h is s p eakin g. ( P axto n, a c lo se fr ie nd o f S m ith ’s , h ad o nce
co m pla in ed to S m ith th at h e w as “ giv en to b ein g s o m ew hat c ry p ti c ”
i n h is r e m ark s.) A nyho w , V in so n, acco rd in g to h is o w n te sti m ony, h ad fla tl y m is u nd ers to od w hat S m ith m eant; in d eed , h e c o uld n o t
re call e v er h earin g S m ith u se th e e xp re ssio n “ m eeti n g o f th e c la n,” a lth o ugh h e d id r e call h is s a yin g
th in gs lik e “ W ell, I a m g o in g to ta ke th is n ew p la n o n tr a nsfo rm ers a nd s h o w it to th e b oys.” V in so n
te sti fie d th at he had th o ught th e “b oys” m eant th e G .E . d is tr ic t sa le s p eo ple and th e co m pany’s
custo m ers , a nd th at th e “ new p la n” w as a n ew m ark eti n g p la n; h e s a id th at it h ad c o m e a s a ru d e
sh o ck to h im to le arn — a c o up le o f y ears la te r, a fte r th e c ase h ad b ro ken— th at in s p eakin g o f th e
“b oys” a nd th e “ new p la n,” S m ith h ad b een re fe rrin g to c o m peti to rs a nd a p ric e-fix in g s c hem e. “ I
th in k M r. S m ith i s a s in cere m an,” V in so n te sti fie d . “ I a m s u re M r. S m ith … th o ught h e w as te llin g m e
th at h e w as g o in g to o ne o f th ese m eeti n gs. T his m eant n o th in g to m e.”
Sm ith , o n th e o th er h and , w as c o nfid ent th at h is m eanin g h ad g o t th ro ugh to V in so n. “ I n ev er g o t th e
im pre ssio n th at h e m is u nd ers to od m e,” h e in sis te d to th e S ub co m mitte e. Q uesti o nin g V in so n la te r,
Kefa uv er ask ed w heth er an executi v e in his positi o n, w ith th ir ty -o dd years ’ exp erie nce in th e
ele ctr ic al in d ustr y , co uld possib ly be so naiv e as to m is u nd ers ta nd a su b ord in ate on su ch a
su b sta nti v e m atte r a s g ra sp in g w ho th e “ b oys” w ere . “ I d on’t th in k it is to o n aiv e,” r e p lie d V in so n.
“W e h av e a l o t o f b oys.… I m ay b e n aïv e, b ut I a m c erta in ly te llin g th e tr u th , a nd i n th is k in d o f th in g I
am s u re I a m n aïv e.”
S EN ATO R
K
EFA UVER :
M r. V in so n, y ou w ould n’t b e a v ic e-p re sid ent a t $ 200,0 00 a y ear if y ou w ere n aïv e.
M R . V
IN SO N:
I th in k I c ould w ell g et th ere b y b ein g n aïv e in th is a re a. I t m ig ht h elp .
Here , in a d iffe re nt fie ld a lto geth er, th e c o m munic ati o n p ro ble m a gain c o m es to th e fo re . W as
Vin so n r e ally s a yin g to K efa uv er w hat h e s e em ed to b e s a yin g— th at n aïv eté a b out a nti tr u st v io la ti o ns
mig ht b e a h elp to a m an in g etti n g a nd h o ld in g a $ 200,0 00-a -y ear jo b a t G enera l E le ctr ic ? It s e em s
unlik ely . A nd y et w hat e ls e c o uld h e h av e m eant? W hate v er th e a nsw er, n eith er th e fe d era l a nti tr u st
men no r th e S enate in v esti g ato rs w ere ab le to pro ve th at S m ith su cceed ed in his atte m pts to
co m munic ate to
V in so n th e fa ct th at h e w as e ngagin g in p ric e-fix in g. A nd , la ckin g s u ch p ro of, th ey
were u nab le to e sta b lis h w hat th ey g av e e v ery a p peara nce o f g o in g a ll o ut to e sta b lis h if th ey c o uld :
nam ely , th at a t l e ast s o m e o ne m an a t th e p in nacle o f G .E .’ s m anagem ent— so m e m em ber o f th e s a cre d
executi v e co m mitte e its e lf— was im plic ate d . A ctu ally , w hen th e sto ry of th e co nsp ir a cie s fir s t
becam e k no w n, V in so n n o t o nly c o ncurre d in a c o m pany d ecis io n to p unis h S m ith b y d ra sti c ally
dem oti n g h im b ut p ers o nally in fo rm ed h im o f th e d ecis io n— tw o a cts th at, if h e h ad g ra sp ed S m ith ’s
meanin g b ack in 1 957, w ould h av e d eno te d a r e m ark ab le d egre e o f c ynic is m a nd h yp ocris y. ( S m ith ,
by th e w ay, ra th er th an accep t th e d em oti o n, q uit G enera l E le ctr ic and , afte r b ein g fin ed th re e
th o usa nd d olla rs a nd g iv en a su sp end ed th ir ty -d ay p ris o n se nte nce b y Ju d ge G aney, fo und a jo b
els e w here , a t te n th o usa nd d olla rs a y ear.)
This w as n o t V in so n’s o nly b ru sh w ith th e c ase . H e w as a ls o a m ong th o se n am ed in o ne o f th e
gra nd ju ry in d ic tm ents th at pre cip ita te d th e co urt acti o n, th is ti m e in co nnecti o n no t w ith his
co m pre hensio n o f S m ith ’s j a rg o n b ut w ith th e c o nsp ir a cy i n th e s w itc hgear d ep artm ent. O n th is a sp ect
of th e c ase , f o ur s w itc hgear e xecuti v es— Bure ns, S te hlik , C la re nce E . B urk e, a nd H . F ra nk H ents c hel
—te sti fie d b efo re th e gra nd ju ry (a nd la te r b efo re th e S ub co m mitte e) th at at so m e ti m e in Ju ly ,
August, o r S ep te m ber o f 1 958 ( n o ne o f th em c o uld e sta b lis h th e p re cis e d ate ) V in so n h ad h ad lu nch
with th em i n D in in g R oom B o f G .E .’ s s w itc hgear w ork s i n P hila d elp hia , a nd th at d urin g th e m eal h e
had in str u cte d th em to h o ld p ric e m eeti n gs w ith c o m peti to rs . A s a re su lt o f th is o rd er, th ey s a id , a
meeti n g atte nd ed by re p re se nta ti v es of G .E ., W esti n gho use , th e A llis -C halm ers M anufa ctu rin g
Com pany, th e F ed era l P acific E le ctr ic C om pany, a nd th e I - T -E C ir c uit B re aker C om pany w as h eld a t
th e H ote l T ra ym ore in A tl a nti c C ity o n N ovem ber 9 , 1 958, a t w hic h s a le s o f s w itc hgear to fe d era l, sta te , and m unic ip al agencie s w ere d iv vie d up , w ith G enera l E le ctr ic to get 3 9 p erc ent o f th e
busin ess, W esti n gho use 3 5 p erc ent, I- T -E 1 1 p erc ent, A llis -C halm ers 8 p erc ent, a nd F ed era l P acific
Ele ctr ic 7 p erc ent. A t s u b se q uent m eeti n gs, a gre em ent w as r e ached o n a llo cati n g s a le s o f s w itc hgear
to p riv ate b uyers as w ell, and an
ela b ora te fo rm ula w as w ork ed o ut w here b y th e p riv ile ge o f
su b m itti n g th e lo w est b id to p ro sp ecti v e c usto m ers w as ro ta te d a m ong th e c o nsp ir in g c o m panie s a t
tw o-w eek i n te rv als . B ecause o f i ts p erio dic n atu re , th is w as c alle d th e p hase -o f- th e-m oon f o rm ula —
a d esig nati o n th at i n d ue ti m e l e d to th e f o llo w in g l y ric al e xchange b etw een th e S ub co m mitte e a nd L .
W. L ong, a n e xecuti v e o f A llis -C halm ers :
S EN ATO R
K
EFA UVER :
W ho w ere th e p hase rs -o f-th e-m ooners — phase -o f-th e-m ooners ?
M R . L
ONG
: A
S it d evelo ped, th is s o -c alle d p hase -o f-th e-m oon o pera tio n w as c arrie d o ut a t a le vel b elo w m e, I th in k r e fe rre d to a s a
work in g g ro up.…
M R . F
ER RA LL
[ c ounse l f o r th e S ubcom mit te e]: D id th ey e ver r e port to y ou a bout it ?
M R . L
ONG:
P hase o f th e m oon? N o.
Vin so n to ld th e J u sti c e D ep artm ent p ro se cuto rs , a nd r e p eate d to th e S ub co m mitte e, th at h e h ad n o t
kno w n a b out th e T ra ym ore m eeti n g, th e p hase -o f- th e-m ooners , o r th e e xis te nce o f th e c o nsp ir a cy
its e lf u nti l th e c ase b ro ke; a s f o r th e l u nch i n D in in g R oom B , h e i n sis te d th at i t h ad n ev er ta ken p la ce.
On th is p oin t, B ure ns, S te hlik , B urk e, a nd H ents c hel s u b m itte d to lie -d ete cto r te sts , a d m in is te re d b y
th e F .B .I ., a nd p asse d th em . V in so n r e fu se d to ta ke a lie -d ete cto r te st, a t fir s t e xp la in in g th at h e w as
acti n g o n a d vic e o f c o unse l a nd a gain st h is p ers o nal i n clin ati o n, a nd l a te r, a fte r h earin g h o w th e f o ur
oth er m en h ad fa re d , a rg uin g th at if th e m achin e h ad n o t p ro no unced th em lia rs , it c o uld n’t b e a ny
go od. It w as e sta b lis h ed th at o n o nly e ig ht b usin ess d ays d urin g J u ly , A ugust, a nd S ep te m ber h ad
Bure ns, B urk e, S te hlik , a nd H ents c hel a ll b een to geth er i n th e P hila d elp hia p la nt a t th e l u nch h o ur, a nd
Vin so n p ro duced so m e o f h is e xp ense a cco unts , w hic h, h e p oin te d o ut to th e Ju sti c e D ep artm ent,
sh o w ed th at h e h ad b een e ls e w here o n e ach o f th o se d ays. C onfr o nte d w ith th is e v id ence, th e J u sti c e
Dep artm ent d ro pped i ts c ase a gain st V in so n, a nd h e s ta yed o n a s a v ic e-p re sid ent o f G enera l E le ctr ic .
Noth in g th at th e S ub co m mitte e e lic ite d fr o m h im c ast a ny s u b sta nti v e d oub t o n th e d efe nse th at h ad
im pre sse d th e g o vern m ent p ro se cuto rs .
Thus, th e u p perm ost e chelo n a t G .E . c am e th ro ugh u nsc ath ed ;
th e r e co rd s h o w ed th at p arti c ip ati o n
in th e c o nsp ir a cy w ent fa ir ly fa r d ow n in th e o rg aniz a ti o n b ut n o t a ll th e w ay to th e to p. G ezo n,
ev ery b ody a gre ed , h ad fo llo w ed o rd ers fr o m S te hlik , a nd S te hlik h ad fo llo w ed o rd ers fr o m B ure ns,
but th at w as th e e nd o f th e tr a il, b ecause a lth o ugh B ure ns s a id h e h ad fo llo w ed o rd ers fr o m V in so n,
Vin so n d enie d it a nd m ad e th e d enia l s ti c k. T he g o vern m ent, a t th e e nd o f its in v esti g ati o n, s ta te d in
co urt th at i t c o uld n o t p ro ve, a nd d id n o t c la im , th at e ith er C hair m an C ord in er o r P re sid ent P axto n h ad
auth o riz e d , o r e v en k no w n a b out, th e c o nsp ir a cie s, a nd th ere b y o ffic ia lly r u le d o ut th e p ossib ility th at
th ey h ad r e so rte d to a t le ast a fig ura ti v e w in k. L ate r, P axto n a nd C ord in er s h o w ed u p in W ash in gto n
to te sti fy b efo re th e S ub co m mitte e, a nd its in te rro gato rs w ere s im ila rly u nab le to e sta b lis h th at th ey
had e v er i n d ulg ed i n a ny v arie ty o f w in kin g.
AFT ER
b ein g d esc rib ed b y G in n a s G enera l E le ctr ic ’s s tu b born est a nd m ost d ed ic ate d a d vocate o f f r e e
co m peti ti o n, Paxto n exp la in ed to th e Sub co m mitte e th at his th in kin g on th e su b je ct had been
in flu enced n o t d ir e ctl y b y A dam S m ith b ut, r a th er, b y w ay o f a f o rm er G .E . b oss h e h ad w ork ed u nd er
—th e la te G era rd S w ope. S w ope, P axto n te sti fie d , h ad a lw ays b elie v ed fir m ly th at th e u lti m ate g o al
of b usin ess w as to p ro duce m ore g o ods fo r m ore p eo ple a t lo w er c o st. “ I b ought th at th en, I b uy it
no w ,” sa id P axto n. “I th in k it is th e m ost m arv elo us sta te m ent o f eco no m ic p hilo so phy th at any in d ustr ia lis t has ev er exp re sse d .” In th e co urs e of his te sti m ony, Paxto n had an exp la nati o n,
philo so phic al o r o th erw is e , o f e ach o f th e s e v era l s itu ati o ns r e la te d to p ric e-fix in g i n w hic h h is n am e
had e arlie r b een m enti o ned . F or in sta nce, it h ad b een b ro ught o ut th at in 1 956 o r 1 957 a y o ung m an
nam ed J e rry P age, a m in o r e m plo yee in G .E .’ s s w itc hgear d iv is io n, h ad w ritte n d ir e ctl y to C ord in er
alle gin g th at th e s w itc hgear d iv is io ns o f G .E . a nd o f s e v era l c o m peti to r c o m panie s w ere i n v olv ed i n
a c o nsp ir a cy in w hic h in fo rm ati o n a b out p ric es w as e xchanged b y m eans o f a s e cre t c o de b ase d o n
diffe re nt c o lo rs o f l e tte r p ap er. C ord in er h ad tu rn ed th e m atte r o ver to P axto n w ith o rd ers th at h e g et
to th e b otto m o f i t, a nd P axto n h ad th ere up on c o nd ucte d a n i n v esti g ati o n th at l e d h im to c o nclu d e th at
th e c o lo r-c o de c o nsp ir a cy w as “ w ho lly a h allu cin ati o n o n th e p art o f th is b oy.” In
a rriv in g a t th at
co nclu sio n, P axto n had ap pare ntl y been rig ht, alth o ugh it la te r cam e out th at th ere had been a
co nsp ir a cy i n th e s w itc hgear d iv is io n d urin g 1 956 a nd 1 957; th is , h o w ev er, w as a r a th er c o nv enti o nal
one, b ase d s im ply o n p ric e-fix in g m eeti n gs, r a th er th an o n a nyth in g s o g aud y a s a c o lo r c o de. P age
co uld n o t b e c alle d to te sti fy b ecause o f i ll h ealth .
Paxto n c o nced ed th at th ere h ad b een s o m e o ccasio ns w hen h e “ m ust h av e b een p re tty d am n d um b.”
(D um b o r n o t, fo r h is se rv ic es a s th e c o m pany’s p re sid ent h e w as, o f c o urs e , re m unera te d o n a
co nsid era b ly g ra nd er s c ale th an V in so n— re ceiv in g a b asic a nnual s a la ry o f $ 125,0 00, p lu s a nnual
in centi v e c o m pensa ti o n o f a b out $ 175,0 00, p lu s s to ck o pti o ns d esig ned to e nab le h im to c o lle ct m uch
more a t lo w ta x ra te s.) A s fo r P axto n’s a tti tu d e to w ard c o m pany c o m munic ati o ns, h e e m erg es a s a
pessim is t on th is sc o re . U pon bein g ask ed at th e hearin gs to co m ment on th e Sm ith -V in so n
co nv ers a ti o ns o f 1 957, h e s a id th at, k no w in g S m ith , h e ju st c o uld n o t “ cast th e m an in th e r o le o f a
lia r,” a nd w ent o n:
When I w as y ounger, I u se d to p la y a g ood d eal o f b rid ge. W e p la yed a bout f if ty r u bbers o f b rid ge, f o ur o f u s, e very w in te r, a nd I th in k
we p ro bably p la yed so m e ra th er g ood b rid ge. If y ou g entle m en a re b rid ge p la yers , y ou k now th at th ere is a c ode o f sig nals th at is
exchanged betw een partn ers as th e gam e pro gre sse s. It is a sty liz e d fo rm of pla yin g.… N ow , as I th in k about th is — and I w as
partic ula rly im pre sse d w hen I r e ad S m it h ’s te stim ony w hen h e ta lk ed a bout a “ m eetin g o f th e c la n” o r “ m eetin g o f th e b oys” — I b egin to
th in k th at th ere m ust h ave b een a s ty liz e d m eth od o f c om munic atio n b etw een th ese p eople w ho w ere d ealin g w it h c om petit io n. N ow ,
Sm it h c ould s a y, “ I to ld V in so n w hat I w as d oin g,” a nd V in so n w ould n’t h ave th e f o ggie st id ea w hat w as b ein g to ld to h im , a nd b oth m en
could te stif y u nder o ath , o ne s a yin g y es a nd th e o th er m an s a yin g n o, a nd b oth b e te llin g th e tr u th .… [T hey] w ould n’t b e o n th e s a m e
wavele ngth . [ T hey] w ould n’t h ave th e s a m e m eanin gs. I th in k, I b elie ve n ow th at th ese m en d id th in k th at th ey w ere te llin g th e tr u th , b ut
th ey w ere n’t c om munic atin g b etw een e ach o th er w it h u nders ta ndin g.
Here , c erta in ly , i s th e g lo om ie st p ossib le a naly sis o f th e c o m munic ati o ns p ro ble m .
CH AIR M AN
C ord in er’s sta tu s, it a p pears fr o m h is te sti m ony, w as a p pro xim ate ly th at o f th e B osto n
Cab ots i n th e c ele b ra te d j in gle . H is s e rv ic es to th e c o m pany, f o r w hic h h e w as r e co m pense d i n tr u ly
hand so m e s ty le ( w ith , fo r 1 960, a s a la ry o f ju st o ver $ 280,0 00, p lu s c o nti n gent d efe rre d in co m e o f
ab out $ 120,0 00, p lu s s to ck o pti o ns p ote nti a lly w orth h und re d s o f th o usa nd s m ore ), w ere in d ub ita b ly
many a nd v alu ab le , b ut th ey w ere p erfo rm ed o n s u ch a n e xalte d l e v el th at, a t l e ast i n a nti tr u st m atte rs ,
he d oes n o t s e em to h av e b een a b le to h av e a ny e arth ly c o m munic ati o n a t a ll. W hen h e e m phati c ally
to ld th e S ub co m mitte e th at a t n o ti m e h ad h e h ad s o m uch a s a n i n klin g o f th e n etw ork o f c o nsp ir a cie s,
it c o uld b e d ed uced th at h is w as a c ase n o t o f f a ulty c o m munic ati o n b ut o f n o c o m munic ati o n. H e d id
no t s p eak to th e S ub co m mitte e o f p hilo so phy o r p hilo so phers , a s G in n a nd P axto n h ad d one, b ut f r o m
his p ast r e co rd o f o rd erin g r e is su es o f 2 0.5 a nd o f p ep perin g h is s p eeches a nd p ub lic s ta te m ents w ith
pra is e o f fr e e e nte rp ris e , it s e em s c le ar th at h e w as
un p hilo so phe s a ns le s a vo ir
—and o ne o n th e
sid e o f s e llin g th e L ord , s in ce n o e v id ence w as a d duced to s u ggest th at h e w as g iv en to w in kin g in
any fo rm . K efa uv er r a n th ro ugh a lo ng lis t o f a nti tr u st v io la ti o ns o f w hic h G enera l E le ctr ic h ad b een accuse d o ver th e p ast h alf- c entu ry , a sk in g C ord in er, w ho jo in ed th e c o m pany in 1 922, h o w m uch h e
knew a b out e ach o f th em ; u su ally , h e re p lie d th at h e h ad k no w n a b out th em o nly a fte r th e fa ct. In
co m menti n g o n G in n’s te sti m ony th at E rb en h ad c o unte rm and ed C ord in er’s d ir e ct o rd er in 1 954,
Cord in er s a id th at h e h ad r e ad i t w ith “ gre at a la rm ” a nd “ gre at w ond erm ent,” s in ce E rb en h ad a lw ays
in d ic ate d to h im “ an in te nse c o m peti ti v e s p ir it,” r a th er th an a ny d is p ositi o n to b e fr ie nd ly w ith r iv al
co m panie s.
Thro ugho ut h is te sti m ony, C ord in er u se d th e c urio us e xp re ssio n “ b e r e sp onsiv e to .” I f, f o r i n sta nce,
Kefa uv er i n ad verte ntl y a sk ed th e s a m e q uesti o n tw ic e, C ord in er w ould s a y, “ I w as r e sp onsiv e to th at
a m om ent a go ,” o r i f K efa uv er i n te rru p te d h im , a s h e o fte n d id , C ord in er w ould a sk p olite ly , “ M ay I
be r e sp onsiv e?” T his , to o, o ffe rs a s m all le ad fo r a fo und ati o n g ra nte e, w ho m ig ht w ant to lo ok in to
th e d is ti n cti o n b etw een b ein g r e sp onsiv e ( a p assiv e s ta te ) a nd a nsw erin g ( a n a ct) , a nd th eir r e la ti v e
effe cti v eness i n th e p ro cess o f c o m munic ati o n.
Sum min g u p h is p ositi o n o n th e c ase a s a w ho le , i n r e p ly to a q uesti o n o f K efa uv er’s a b out w heth er
he th o ught th at G .E . h ad in curre d “ co rp ora te d is g ra ce,” C ord in er sa id , “ N o, I a m n o t g o in g to b e
re sp onsiv e a nd s a y th at G enera l E le ctr ic h ad c o rp ora te d is g ra ce. I a m g o in g to s a y th at w e a re d eep ly
grie v ed a nd c o ncern ed .… I a m n o t p ro ud o f i t.”
CH AIR M AN
C ord in er, th en, h ad b een a b le to fa ir ly d eafe n h is s u b ord in ate o ffic ers w ith le ctu re s o n
co m plia nce w ith th e r u le s o f th e c o m pany a nd th e l a w s o f th e c o untr y , b ut h e h ad n o t b een a b le to g et
all th o se o ffic ers to c o m ply w ith e ith er, a nd P re sid ent P axto n c o uld m use th o ughtf u lly o n h o w i t w as
th at tw o o f h is s u b ord in ate s w ho h ad g iv en ra d ic ally d iffe re nt a cco unts o f a c o nv ers a ti o n b etw een
th em c o uld b e n o t lia rs b ut m ere ly p oor c o m munic ato rs . P hilo so phy s e em s to h av e re ached a h ig h
poin t a t G .E ., a nd c o m munic ati o n a l o w o ne. I f e xecuti v es c o uld j u st l e arn to u nd ers ta nd o ne a no th er,
most o f th e w itn esse s sa id o r im plie d , th e p ro ble m o f a nti tr u st v io la ti o ns w ould b e so lv ed . B ut
perh ap s th e p ro ble m i s c ultu ra l a s w ell a s te chnic al, a nd h as s o m eth in g to d o w ith a l o ss o f p ers o nal
id enti ty th at c o m es fr o m w ork in g in a h uge o rg aniz a ti o n. T he c arto onis t J u le s F eiffe r, c o nte m pla ti n g
th e c o m munic ati o n p ro ble m i n a n o nin d ustr ia l c o nte xt, h as s a id , “ A ctu ally , th e b re akd ow n i s b etw een
th e p ers o n a nd h im se lf. I f y o u’re n o t a b le to c o m munic ate s u ccessfu lly b etw een y o urs e lf a nd y o urs e lf,
ho w a re y o u s u p pose d to m ake it w ith th e s tr a ngers o uts id e?” S up pose , p ure ly a s a h yp oth esis , th at
th e o w ner o f a co m pany w ho o rd ers his su b ord in ate s to o bey th e anti tr u st la w s has su ch p oor
co m munic ati o n w ith h im se lf th at h e d oes n o t r e ally k no w w heth er h e w ants th e o rd er to b e c o m plie d
with o r n o t. I f h is o rd er i s d is o beyed , th e r e su lti n g p ric e-fix in g m ay b enefit h is c o m pany’s c o ffe rs ; i f
it is o beyed , th en h e h as d one th e r ig ht th in g. In th e fir s t in sta nce, h e is n o t p ers o nally im plic ate d in
any w ro ngd oin g, w hile in th e s e co nd h e is p ositi v ely in v olv ed in
rig ht
d oin g. W hat, a fte r a ll, c an h e
lo se ? It is p erh ap s re aso nab le to s u p pose th at s u ch a n e xecuti v e m ig ht c o m munic ate h is u ncerta in ty
more fo rc efu lly th an h is o rd er. P ossib ly y et a no th er fo und ati o n g ra nte e sh o uld h av e a lo ok a t th e
re v ers e o f c o m munic ati o n
fa ilu re , w here h e m ig ht d is c o ver th at m essa ges th e s e nd er d oes n o t e v en
re aliz e h e i s s e nd in g s o m eti m es tu rn o ut to h av e g o t a cro ss o nly to o e ffe cti v ely .
Meanw hile , in th e fir s t y ears a fte r th e S ub co m mitte e c o nclu d ed its in v esti g ati o n, th e d efe nd ant
co m panie s w ere b y n o m eans a llo w ed to f o rg et th eir tr a nsg re ssio ns. T he l a w p erm its c usto m ers w ho
can p ro ve th at th ey h av e p aid a rti fic ia lly h ig h p ric es a s a re su lt o f a nti tr u st v io la ti o ns to su e fo r
dam ages— in m ost c ase s, tr ip le d am ages— and s u its r u nnin g i n to m any m illio ns o f d olla rs p ile d u p s o
hig h th at C hie f J u sti c e W arre n h ad to s e t u p a s p ecia l p anel o f f e d era l j u d ges to p la n h o w th ey s h o uld
all b e h and le d . N eed le ss to s a y, C ord in er w as n o t a llo w ed to f o rg et a b out th e m atte r, e ith er; i n d eed , i t
would b e s u rp ris in g i f h e w as a llo w ed a c hance to th in k a b out m uch e ls e , f o r, i n a d diti o n to th e s u its , he had to co nte nd w ith acti v e effo rts — unsu ccessfu l, as it tu rn ed out— by a m in o rity gro up of
sto ckho ld ers to u nse at h im . P axto n re ti r e d a s p re sid ent in A pril, 1 961, b ecause o f ill h ealth d ati n g
back a t le ast to th e p re v io us J a nuary , w hen h e u nd erw ent a m ajo r o pera ti o n. A s fo r th e e xecuti v es
who ple ad ed guilty and w ere fin ed or im pris o ned , m ost of th o se w ho had been em plo yed by
co m panie s o th er th an G .E . r e m ain ed w ith th em , e ith er in th eir o ld jo bs o r in s im ila r o nes. O f th o se
who h ad b een e m plo yed b y G .E ., n o ne re m ain ed th ere . S om e re ti r e d p erm anentl y fr o m b usin ess,
oth ers s e ttl e d fo r c o m para ti v ely s m all jo bs, a nd a fe w la nd ed b ig o nes— most s p ecta cula rly G in n,
who i n J u ne, 1 961, b ecam e p re sid ent o f B ald w in -L im a-H am ilto n, m anufa ctu re rs o f h eav y m achin ery .
And a s fo r th e fu tu re o f p ric e-fix in g in th e e le ctr ic al in d ustr y , it s e em s s a fe to s a y th at w hat w ith th e
Ju sti c e D ep artm ent, J u d ge G aney, S enato r K efa uv er, a nd th e tr ip le -d am age s u its , th e im pact o n th e
philo so phers w ho g uid e c o rp ora te p olic y w as s u ch th at th ey, a nd e v en th eir s u b ord in ate s, w ere l ik ely
to tr y to h ew s c ru p ulo usly to th e lin e fo r q uite s o m e ti m e. Q uite a d iffe re nt q uesti o n, h o w ev er, is
wheth er th ey h ad m ad e a ny h ead w ay i n th eir a b ility to c o m munic ate . 8
The L ast G re a t C orn er
BETW EEN S P R IN G
a nd m id su m mer, 1 958, th e c o m mon s to ck o f th e E . L . B ru ce C om pany, th e n ati o n’s
le ad in g m aker o f h ard w ood flo ors , m oved fr o m a lo w o f ju st u nd er $ 17 a s h are to a h ig h o f $ 190 a
sh are . T his s ta rtl in g, e v en a la rm in g, ris e w as m ad e in a n a sc end in g s c ale th at w as c lim axed b y a
fr a nti c c re sc end o i n w hic h th e p ric e w ent u p a h und re d d olla rs a s h are i n a s in gle d ay. N oth in g o f th e
so rt h ad h ap pened f o r a g enera ti o n. F urth erm ore — and e v en m ore a la rm in g— th e r is e d id n o t s e em to
hav e th e
s lig hte st b it o f re la ti o n to a ny s u d den h unger o n th e p art o f th e A meric an p ub lic fo r n ew
hard w ood flo ors . T o th e c o nste rn ati o n o f a lm ost e v ery o ne c o ncern ed , c o nceiv ab ly in clu d in g e v en
so m e o f th e h o ld ers o f B ru ce s to ck, it s e em ed to b e e nti r e ly th e re su lt o f a te chnic al s to ck-m ark et
situ ati o n c alle d a c o rn er. W ith th e e xcep ti o n o f a g enera l p anic s u ch a s o ccurre d i n 1 929, a c o rn er i s
th e m ost d ra sti c a nd s p ecta cula r o f a ll d ev elo pm ents th at c an o ccur i n th e s to ck m ark et, a nd m ore th an
once in th e n in ete enth a nd e arly tw enti e th c entu rie s, c o rn ers h ad th re ate ned to w re ck th e n ati o nal
eco no m y.
The B ru ce s itu ati o n n ev er th re ate ned to d o th at. F or o ne th in g, th e B ru ce C om pany w as s o s m all i n
re la ti o n to th e e co no m y a s a w ho le th at e v en th e w ild est g yra ti o ns i n i ts s to ck c o uld h ard ly h av e m uch
nati o nal effe ct. F or ano th er, th e B ru ce “co rn er” w as accid enta l— th e by-p ro duct of a fig ht fo r
co rp ora te c o ntr o l— ra th er th an th e r e su lt o f c alc ula te d m anip ula ti o ns, a s m ost o f th e h is to ric c o rn ers
had b een. F in ally , th is o ne e v entu ally tu rn ed o ut to b e n o t a tr u e c o rn er a t a ll, b ut o nly a n ear th in g; i n
Sep te m ber, B ru ce s to ck q uie te d d ow n a nd s e ttl e d a t a r e aso nab le l e v el. B ut th e i n cid ent s e rv ed to s ti r
up m em orie s, s o m e o f th em p erh ap s ti n ged w ith n o sta lg ia , a m ong th o se f lin ty o ld W all S tr e ete rs w ho
had b een a ro und to s e e th e c la ssic c o rn ers — or a t l e ast th e l a st o f th em .
In J u ne o f 1 922, th e N ew Y ork S to ck E xchange b egan lis ti n g th e s h are s o f a c o rp ora ti o n c alle d
Pig gly W ig gly S to re s— a c hain o f r e ta il s e lf- s e rv ic e m ark ets s itu ate d m ostl y in th e S outh a nd W est,
with h ead quarte rs i n M em phis — and th e s ta ge w as s e t f o r o ne o f th e m ost d ra m ati c f in ancia l b attl e s o f
th at g aud y d ecad e w hen W all S tr e et, o nly n eglig entl y w atc hed o ver b y th e fe d era l g o vern m ent, w as
fr e q uentl y s e nt r e elin g b y th e m achin ati o ns o f o pera to rs s e ekin g to e nric h th em se lv es a nd d estr o y th eir
enem ie s. A mong th e th eatr ic al a sp ects o f th is p arti c ula r b attl e — a b attl e s o c ele b ra te d i n i ts ti m e th at
head lin e w rite rs r e fe rre d to it s im ply a s th e “ P ig gly C ris is ” — was th e p ers o nality o f th e h ero ( o r, a s
so m e p eo ple sa w it, th e v illa in ), w ho w as a n ew co m er to W all S tr e et, a c o untr y b oy se tti n g o ut
defia ntl y , a m id th e c heers o f a g o od p art o f r u ra l A meric a, to l a y th e s lic k m anip ula to rs o f N ew Y ork
by
th e h eels . H e w as C la re nce S aund ers , o f M em phis , a p lu m p, n eat, h and so m e m an o f f o rty -o ne w ho
was a lr e ad y s o m eth in g o f a le gend in h is h o m e to w n, c hie fly b ecause o f a h o use h e w as p utti n g u p
th ere fo r h im se lf. C alle d th e P in k P ala ce, it w as a n e no rm ous str u ctu re fa ced w ith p in k G eo rg ia
marb le a nd b uilt a ro und a n a w e-in sp ir in g w hite -m arb le R om an a tr iu m , a nd , a cco rd in g to S aund ers , i t
would sta nd fo r a th o usa nd years . U nfin is h ed th o ugh it w as, th e P in k P ala ce w as lik e no th in g Mem phis h ad e v er s e en b efo re . Its g ro und s w ere to in clu d e a p riv ate g o lf c o urs e , s in ce S aund ers
lik ed to d o h is g o lfin g i n s e clu sio n. E ven th e m akesh ift e sta te w here h e a nd h is w ife a nd f o ur c hild re n
were c am pin g o ut p end in g c o m ple ti o n o f th e P ala ce h ad its o w n g o lf c o urs e . ( S om e p eo ple s a id th at
his p re fe re nce fo r p riv acy w as in d uced b y th e a tti tu d e o f th e lo cal c o untr y c lu b g o vern o rs , w ho
co m pla in ed th at h e h ad c o rru p te d th eir e nti r e s u p ply o f c ad die s b y th e g ra nd eur o f h is ti p s.) S aund ers ,
who h ad f o und ed th e P ig gly W ig gly S to re s i n 1 919, h ad m ost o f th e s ta nd ard tr a its o f th e f la m boyant
Americ an p ro m ote rs — su sp ect g enero sity , a k nack f o r a ttr a cti n g p ub lic ity , l o ve o f o ste nta ti o n, a nd s o
on— but h e a ls o h ad s o m e m uch l e ss c o m mon tr a its , n o ta b ly a r e m ark ab ly v iv id s ty le , b oth i n s p eech
and w riti n g, a nd a g ift, o f w hic h h e m ay o r m ay n o t h av e b een a w are , fo r c o m ed y. B ut lik e s o m any
gre at m en b efo re h im , h e h ad a w eakness, a tr a gic f la w . I t w as th at h e i n sis te d o n th in kin g o f h im se lf
as a h ic k, a b oob, a nd a s u cker, a nd , i n d oin g s o , h e s o m eti m es b ecam e a ll th re e.
This u nlik ely f e llo w w as th e m an w ho e ngin eere d th e l a st r e al c o rn er i n a n ati o nally tr a d ed s to ck.
TH E
g am e o f C orn er— fo r i n i ts h eyd ay i t w as a g am e, a h ig h-s ta kes g am blin g g am e, p ure a nd s im ple ,
em bodyin g a g o od m any o f th e c hara cte ris ti c s o f p oker— was o ne p hase o f th e e nd le ss W all S tr e et
co nte st b etw een b ulls , w ho w ant th e p ric e o f a s to ck to g o u p , a nd b ears , w ho w ant it to g o d ow n.
When a g am e o f C orn er w as u nd er w ay, th e b ulls ’ b asic m eth o d o f o pera ti o n w as, o f c o urs e , to b uy
sto ck, a nd th e b ears ’ w as to se ll it. S in ce th e a v era ge b ear d id n’t o w n a ny o f th e sto ck is su e in
co nte st, h e w ould re so rt to th e c o m mon p ra cti c e o f se llin g sh o rt. W hen a
sh o rt sa le is m ad e, th e
tr a nsa cti o n i s c o nsu m mate d w ith s to ck th at th e s e lle r h as b orro w ed ( a t a s u ita b le r a te o f i n te re st) f r o m
a b ro ker. S in ce b ro kers a re m ere ly a gents , a nd n o t o utr ig ht o w ners , th ey, in tu rn , m ust b orro w th e
sto ck th em se lv es. T his th ey d o b y ta p pin g th e “ flo ati n g s u p ply ” o f s to ck th at i s i n c o nsta nt c ir c ula ti o n
am ong i n v estm ent h o use s— sto ck th at p riv ate i n v esto rs h av e l e ft w ith o ne h o use o r a no th er f o r tr a d in g
purp ose s, s to ck th at is o w ned b y e sta te s a nd tr u sts a nd h as b een re le ase d fo r a cti o n u nd er c erta in
pre sc rib ed co nd iti o ns, and so o n. In esse nce, th e flo ati n g su p ply co nsis ts o f all th e sto ck in a
parti c ula r co rp ora ti o n th at is av aila b le fo r tr a d in g and is no t im mure d in a sa fe -d ep osit b ox o r
encase d in a m attr e ss. T ho ugh th e su p ply flo ats , it is sc ru p ulo usly k ep t tr a ck o f; th e sh o rt se lle r,
borro w in g, s a y, a th o usa nd s h are s fr o m h is b ro ker, k no w s th at h e h as in curre d a n im muta b le d eb t.
What h e h o pes— th e h o pe th at k eep s h im a liv e— is th at th e m ark et p ric e o f th e s to ck w ill g o d ow n,
enab lin g h im to b uy th e th o usa nd s h are s h e o w es a t a b arg ain r a te , p ay o ff h is d eb t, a nd p ocket th e
diffe re nce. W hat h e r is k s i s th at th e l e nd er, f o r o ne r e aso n o r a no th er, m ay d em and th at h e d eliv er u p
his th o usa nd b orro w ed s h are s a t a m om ent w hen th eir m ark et p ric e i s a t a h ig h. T hen th e g rin d in g tr u th
of th e o ld W all S tr e et j in gle i s b orn e i n u p on h im : “ H e w ho s e lls w hat i s n ’t h is ’n m ust b uy i t b ack o r
go to p ris o n.” A nd in th e d ays w hen c o rn ers w ere p ossib le , th e sh o rt se lle r’s sle ep w as fu rth er
dis tu rb ed b y th e fa ct th at h e w as o pera ti n g b ehin d b la nk w alls ; d ealin g o nly w ith a gents , h e n ev er
knew e ith er th e id enti ty o f th e p urc hase r o f h is s to ck ( a p ro sp ecti v e c o rn ere r? ) o r th e id enti ty o f th e
ow ner o f th e s to ck h e h ad b orro w ed ( th e s a m e p ro sp ecti v e c o rn ere r, a tta ckin g f r o m th e r e ar? ).
Alth o ugh it is so m eti m es co nd em ned as b ein g th e to ol o f th e sp ecula to r, sh o rt se llin g is sti ll
sa ncti o ned , in a s e v ere ly re str ic te d fo rm , o n a ll o f th e n ati o n’s e xchanges. In its u nfe tte re d s ta te , it
was th e s ta nd ard g am bit i n th e g am e o f C orn er. T he s itu ati o n w ould b e s e t u p w hen a g ro up o f b ears
would g o o n a w ell- o rg aniz e d sp re e o f sh o rt se llin g, a nd w ould o fte n h elp th eir c ause a lo ng b y
sp re ad in g r u m ors th at th e c o m pany b ack o f th e s to ck in q uesti o n w as o n its la st le gs. T his o pera ti o n
was c alle d a b ear r a id .
T he b ulls ’ m ost fo rm id ab le — but, o f c o urs e , r is k ie st— co unte r-m ove w as to
tr y f o r a c o rn er. O nly a s to ck th at m any tr a d ers w ere s e llin g s h o rt c o uld b e c o rn ere d ; a s to ck th at w as
in th e th ro es o f a r e al b ear r a id w as i d eal. I n th e l a tte r s itu ati o n, th e w ould -b e c o rn ere r w ould a tte m pt to b uy u p th e i n v estm ent h o use s’ f lo ati n g s u p ply o f th e s to ck a nd e no ugh o f th e p riv ate ly h eld s h are s to
fr e eze o ut th e b ears ; if th e a tte m pt s u cceed ed , w hen h e c alle d fo r th e s h o rt s e lle rs to m ake g o od th e
sto ck th ey h ad b orro w ed , th ey c o uld b uy i t f r o m n o o ne b ut h im . A nd th ey w ould h av e to b uy i t a t a ny
pric e h e c ho se to a sk , th eir o nly a lte rn ati v es— at l e ast th eo re ti c ally — bein g to g o i n to b ankru p tc y o r to
ja il f o r f a ilu re to m eet th eir o blig ati o ns.
In th e o ld d ays o f ti ta nic fin ancia l d eath s tr u ggle s, w hen A dam S m ith ’s g ho st s ti ll s m ile d o n W all
Str e et, c o rn ers w ere fa ir ly c o m mon a nd w ere o fte n e xtr e m ely s a nguin ary , w ith h und re d s o f in no cent
bysta nd ers , a s w ell a s th e e m battl e d p rin cip als , g etti n g th eir fin ancia l h ead s lo pped o ff. T he m ost
fa m ous c o rn ere r in h is to ry w as th at c ele b ra te d o ld p ir a te , C om modore C orn eliu s V and erb ilt, w ho
engin eere d n o le ss th an th re e s u ccessfu l c o rn ers d urin g th e e ig hte en-s ix ti e s. P ro bab ly h is c la ssic jo b
was in th e s to ck o f th e H arle m R ailw ay. B y d in t o f s e cre tl y b uyin g u p a ll its a v aila b le s h are s w hile
sim ulta neo usly cir c ula ti n g a se rie s o f untr u th fu l ru m ors o f im min ent b ankru p tc y to lu re th e sh o rt
se lle rs in , h e a chie v ed a n a ir ti g ht tr a p . F in ally , w ith th e a ir o f a m an d oin g th em a fa v or b y s a v in g
th em fr o m ja il, h e o ffe re d th e c o rn ere d s h o rts a t $ 179 a s h are th e s to ck h e h ad b ought u p a t a s m all
fr a cti o n o f th at f ig ure . T he m ost g enera lly d is a str o us c o rn er w as th at o f 1 901 i n th e s to ck o f N orth ern
Pacific ; to ra is e th e h uge q uanti ti e s o f c ash th ey n eed ed to c o ver th em se lv es, th e N orth ern P acific
sh o rts s o ld s o m any o th er s to cks a s to c ause a n ati o nal p anic w ith w orld -w id e re p erc ussio ns. T he
next- to -la st g re at c o rn er o ccurre d in 1 920, w hen A lla n A . R yan, a so n o f th e le gend ary T ho m as
Fortu ne R yan, in o rd er to h ara ss h is e nem ie s in th e N ew Y ork S to ck E xchange, s o ught to c o rn er th e
sto ck o f th e S tu tz M oto r C om pany, m akers o f th e r e no w ned S tu tz B earc at. R yan a chie v ed h is c o rn er
and th e S to ck E xchange s h o rt s e lle rs w ere d uly s q ueeze d . B ut R yan, i t tu rn ed o ut, h ad a b earc at
b y th e
ta il. T he S to ck E xchange s u sp end ed S tu tz d ealin gs, l e ngth y l iti g ati o n f o llo w ed , a nd R yan c am e o ut o f
th e a ffa ir f in ancia lly r u in ed .
Then, a s a t o th er ti m es, th e g am e o f C orn er s u ffe re d fr o m a d iffic ulty th at p la gues o th er g am es—
post- m orte m d is p ute s a b out th e r u le s. T he r e fo rm l e gis la ti o n o f th e n in ete en-th ir ti e s, b y o utl a w in g a ny
sh o rt se llin g th at is sp ecific ally in te nd ed to d em ora liz e a sto ck, as w ell as o th er m anip ula ti o ns
le ad in g to w ard c o rn ers , v ir tu ally ru le d th e g am e o ut o f e xis te nce. W all S tr e ete rs w ho s p eak o f th e
Corn er th ese d ays a re r e fe rrin g to th e in te rs e cti o n o f B ro ad a nd W all. In U .S . s to ck m ark ets , o nly a n
accid enta l c o rn er ( o r n ear-c o rn er, lik e th e B ru ce o ne) is n o w p ossib le ; C la re nce S aund ers w as th e
la st i n te nti o nal p la yer o f th e g am e.
SA UNDER S
h as b een v ario usly c hara cte riz e d b y p eo ple w ho k new h im w ell a s “ a m an o f lim itl e ss
im agin ati o n a nd e nerg y,” “ arro gant a nd c o nceite d a s a ll g eto ut,” “ esse nti a lly a fo ur-y ear-o ld c hild ,
pla yin g a t th in gs,” a nd “ o ne o f th e m ost r e m ark ab le m en o f h is g enera ti o n.” B ut th ere i s n o d oub t th at
ev en m any o f th e p eo ple w ho l o st m oney o n h is p ro m oti o nal s c hem es b elie v ed th at h e w as th e s o ul o f
ho nesty . H e w as b orn in 1 881 to a p oor fa m ily in A mhers t C ounty , V ir g in ia , a nd in h is te ens w as
em plo yed b y th e lo cal g ro cer a t th e p itta nce th at is o rth o dox fo r fu tu re ty co ons ta kin g o n th eir fir s t
jo bs— in his case , fo ur d olla rs a w eek. M ovin g ahead fa st, he w ent o n to a w ho le sa le gro cery
co m pany in C la rk sv ille , T ennesse e, a nd th en to o ne in M em phis , a nd , w hile sti ll in h is tw enti e s,
org aniz e d a s m all r e ta il f o od c hain c alle d U nite d S to re s. H e s o ld th at a fte r a f e w y ears , d id a s ti n t a s
a w ho le sa le g ro cer o n h is o w n, a nd th en, in 1 919, b egan to b uild a c hain o f re ta il se lf- s e rv ic e
mark ets , to w hic h h e g av e th e e ngagin g n am e o f P ig gly W ig gly S to re s. (W hen a M em phis b usin ess
asso cia te o nce a sk ed h im w hy h e h ad c ho se n th at n am e, h e r e p lie d , “ S o p eo ple w ould a sk m e w hat
yo u ju st d id .” ) T he sto re s flo uris h ed so e xub era ntl y th at b y th e a utu m n o f 1 922 th ere w ere o ver
tw elv e h und re d o f th em . O f th ese , so m e six h und re d a nd fifty w ere o w ned o utr ig ht b y S aund ers ’ Pig gly W ig gly S to re s, I n c.; th e r e st w ere i n d ep end entl y o w ned , b ut th eir o w ners p aid r o yalti e s to th e
pare nt
c o m pany fo r th e rig ht to a d opt its p ate nte d m eth o d o f o pera ti o ns. In 1 923, a n e ra w hen a
gro cery s to re m eant c le rk s i n w hite a p ro ns a nd o fte n a th um b o n th e s c ale , th is m eth o d w as d esc rib ed
by th e
New Y o rk T im es
w ith a sto nis h m ent: “ T he c usto m er in a P ig gly W ig gly S to re ra m ble s d ow n
ais le a fte r a is le , o n b oth s id es o f w hic h a re s h elv es. T he c usto m er c o lle cts h is p urc hase s a nd p ays a s
he g o es o ut.” A lth o ugh S aund ers d id n o t k no w i t, h e h ad i n v ente d th e s u p erm ark et.
A n atu ra l c o nco m ita nt o f th e ra p id ris e o f P ig gly W ig gly S to re s, In c., w as th e a ccep ta nce o f its
sh are s f o r l is ti n g o n th e N ew Y ork S to ck E xchange, a nd w ith in s ix m onth s o f th at e v ent P ig gly W ig gly
sto ck h ad b eco m e k no w n a s a d ep end ab le , if u nse nsa ti o nal, d iv id end -p ayer— th e k in d o f w id ow s’-
and -o rp hans’ sto ck th at sp ecula to rs re gard w ith th e re sp ectf u l in d iffe re nce th at c ra p -s h o ote rs fe el
ab out b rid ge. T his r e p uta ti o n, h o w ev er, w as s h o rtl iv ed . I n N ovem ber, 1 922, s e v era l s m all c o m panie s
th at h ad b een o pera ti n g g ro cery s to re s in N ew Y ork , N ew J e rs e y, a nd C onnecti c ut u nd er th e n am e
Pig gly W ig gly fa ile d a nd w ent in to r e ceiv ers h ip . T hese c o m panie s h ad s c arc ely a ny c o nnecti o n w ith
Saund ers ’ c o ncern ; h e h ad m ere ly s o ld th em th e r ig ht to u se h is f ir m ’s c atc hy tr a d e n am e, l e ase d th em
so m e p ate nte d e q uip m ent, a nd w ash ed h is h and s o f th em . B ut w hen th ese i n d ep end ent P ig gly W ig gly s
fa ile d , a g ro up o f s to ck-m ark et o pera to rs ( w ho se id enti ti e s n ev er w ere r e v eale d , b ecause th ey d ealt
th ro ugh ti g ht- lip ped bro kers ) sa w in th e situ ati o n a heav en-s e nt opportu nity fo r a bear ra id . If
in d iv id ual P ig gly W ig gly s to re s w ere f a ilin g, th ey r e aso ned , th en r u m ors c o uld b e s p re ad th at w ould
le ad th e u nin fo rm ed p ub lic to b elie v e th at th e p are nt f ir m w as f a ilin g, to o. T o f u rth er th is b elie f, th ey
began b ris k ly s e llin g P ig gly W ig gly s h o rt, i n o rd er to f o rc e th e p ric e d ow n. T he s to ck y ie ld ed r e ad ily
to th eir p re ssu re , a nd w ith in a f e w w eeks i ts p ric e, w hic h e arlie r i n th e y ear h ad h o vere d a ro und f ifty
dolla rs a s h are , d ro pped to b elo w f o rty .
At th is poin t, S aund ers anno unced to th e pre ss th at he w as ab out to “b eat th e W all S tr e et
pro fe ssio nals at th eir o w n gam e” w ith a b uyin g cam paig n. H e w as b y no m eans a p ro fe ssio nal
him se lf; in fa ct, p rio r to th e lis ti n g o f P ig gly W ig gly h e h ad n ev er o w ned a s in gle s h are o f a ny s to ck
quo te d o n th e N ew Y ork S to ck E xchange. T here i s l ittl e r e aso n to b elie v e th at a t th e b egin nin g o f
h is
buyin g c am paig n h e h ad a ny in te nti o n o f tr y in g fo r a c o rn er; it s e em s m ore lik ely th at h is a nno unced
moti v e— th e unassa ila b le one of su p porti n g th e pric e of th e sto ck in ord er to pro te ct his ow n
in v estm ent a nd th at o f o th er P ig gly W ig gly s to ckho ld ers — was a ll h e h ad i n m in d . I n a ny c ase , h e to ok
on th e b ears w ith c hara cte ris ti c z e st, s u p ple m enti n g h is o w n fu nd s w ith a lo an o f a b out te n m illio n
dolla rs fr o m a g ro up o f b ankers in M em phis , N ash v ille , N ew O rle ans, C hatta no oga, a nd S t. L ouis .
Legend h as it th at h e stu ffe d h is te n m illio n-p lu s, in b ills o f la rg e d eno m in ati o n, in to a su itc ase ,
board ed a tr a in f o r N ew Y ork , a nd , h is p ockets b ulg in g w ith c urre ncy th at w ould n’t f it i n th e s u itc ase ,
marc hed o n W all S tr e et, r e ad y to d o b attl e . H e e m phati c ally d enie d th is in la te r y ears , in sis ti n g th at
he had re m ain ed in M em phis and m aste rm in d ed his cam paig n b y m eans o f te le gra m s and lo ng-
dis ta nce te le p ho ne c alls to v ario us W all S tr e et b ro kers . W here v er h e w as a t th e ti m e, h e d id r o und u p
a c o rp s o f s o m e tw enty b ro kers , a m ong th em J e sse L . L iv erm ore , w ho s e rv ed a s h is c hie f o f s ta ff.
Liv erm ore , o ne o f th e m ost c ele b ra te d A meric an s p ecula to rs o f th is c entu ry , w as th en f o rty -fiv e y ears
old b ut w as s ti ll o ccasio nally , a nd d eris iv ely , r e fe rre d to b y th e n ic knam e h e h ad e arn ed a c o up le o f
decad es e arlie r— th e B oy P lu nger o f W all S tr e et. S in ce S aund ers r e gard ed W all S tr e ete rs i n g enera l
and sp ecula to rs in p arti c ula r as p ara siti c sc o und re ls in te nt o nly o n b atte rin g d ow n his sto ck, it
se em ed lik ely th at h is d ecis io n to m ake a n a lly o f L iv erm ore w as a r e lu cta nt o ne, a rriv ed a t s im ply
with th e i d ea o f g etti n g th e e nem y c hie fta in i n to h is o w n c am p.
On th e f ir s t d ay o f h is d uel w ith th e b ears , S aund ers , o pera ti n g b ehin d h is m ask o f b ro kers , b ought
33,0 00 s h are s o f P ig gly W ig gly , m ostl y f r o m th e s h o rt s e lle rs ; w ith in a w eek h e h ad b ro ught th e to ta l to 1 05,0 00— more th an h alf o f th e 2 00,0 00 s h are s o uts ta nd in g. M eanw hile , v enti la ti n g h is e m oti o ns a t
th e c o st o f ti p pin g h is h and , h e b egan r u nnin g a s e rie s o f a d verti s e m ents in w hic h h e v ig o ro usly a nd
pungentl y to ld th e r e ad ers o f S outh ern a nd W este rn n ew sp ap ers w hat h e th o ught o f W all S tr e et. “ S hall
th e g am ble r ru le ?” h e d em and ed in o ne o f th ese e ffu sio ns. “ O n a w hite h o rs e h e rid es. B lu ff is h is
co at o f m ail a nd th us s h ie ld ed i s a y ello w h eart. H is h elm et i s d eceit, h is s p urs c lin k w ith tr e achery ,
and th e h o ofb eats o f h is h o rs e th und er
d estr u cti o n. S hall g o od b usin ess fle e? S hall it tr e m ble w ith
fe ar? S hall it b e th e lo ot o f th e sp ecula to r? ” O n W all S tr e et, L iv erm ore w ent o n b uyin g P ig gly
Wig gly .
The e ffe cti v eness o f S aund ers ’ b uyin g c am paig n w as r e ad ily a p pare nt; b y la te J a nuary o f 1 923 it
had d riv en th e p ric e o f th e s to ck u p o ver 6 0, o r h ig her th an e v er b efo re . T hen, to in te nsify th e b ear
ra id ers ’ jitte rs , r e p orts c am e in fr o m C hic ago , w here th e s to ck w as a ls o tr a d ed , th at P ig gly W ig gly
was c o rn ere d — th at th e s h o rt s e lle rs c o uld n o t r e p la ce th e s to ck th ey h ad b orro w ed w ith o ut c o m in g to
Saund ers fo r su p plie s. T he re p orts w ere im med ia te ly d enie d b y th e N ew Y ork S to ck E xchange,
whic h a nno unced th at th e f lo ati n g s u p ply o f P ig gly W ig gly w as a m ple , b ut th ey m ay h av e p ut a n i d ea
in to S aund ers ’ h ead , a nd th is , in tu rn , m ay h av e p ro m pte d a c urio us a nd — at fir s t g la nce— mysti fy in g
move h e m ad e in m id -F eb ru ary , w hen, in a no th er w id ely d is se m in ate d n ew sp ap er a d verti s e m ent, h e
offe re d to
se ll
fifty th o usa nd s h are s o f P ig gly W ig gly s to ck to th e p ub lic a t fifty -fiv e d olla rs a s h are .
The a d p oin te d o ut, p ers u asiv ely e no ugh, th at th e s to ck w as p ayin g a d iv id end o f a d olla r f o ur ti m es a
year— a re tu rn o f m ore th an 7 p erc ent. “ T his is to b e a q uic k p ro positi o n, su b je ct to w ith d ra w al
with o ut p rio r n o ti c e,” th e a d w ent o n, c alm ly b ut u rg entl y . “ T o g et in o n th e g ro und flo or o f a ny b ig
pro positi o n i s th e o pportu nity th at c o m es to f e w , a nd th en o nly o nce i n a l ife ti m e.”
Anyo ne w ho i s e v en s lig htl y f a m ilia r w ith m odern e co no m ic l ife c an s c arc ely h elp w ond erin g w hat
th e S ecuriti e s and E xchange C om mis sio n, w hic h is charg ed w ith se ein g to it th at all fin ancia l
ad verti s in g i s k ep t f a ctu al, i m pers o nal, a nd u nem oti o nal, w ould h av e h ad to s a y a b out th e h ard s e ll i n
th o se la st tw o se nte nces. B ut if S aund ers ’ fir s t sto ck-o ffe rin g ad w ould hav e cause d an S .E .C .
exam in er to tu rn p ale , h is s e co nd , p ub lis h ed fo ur d ays la te r, m ig ht w ell h av e in d uced a n a p ople cti c
se iz u re . A f u ll- p age a ffa ir , i t c rie d o ut, i n h uge b la ck ty p e:
OPPO RTU NIT Y
!
OPPO RTU NIT Y
!
It K nocks! I t K nocks! I t K nocks!
Do y ou h ear? D o y ou lis te n? D o y ou u nders ta nd?
Do y ou w ait ? D o y ou a ct n ow ?…
Has a n ew D anie l a ppeare d a nd th e lio ns e at h im n ot?
Has a n ew J o se ph c om e th at r id dle s m ay b e m ade p la in ?
Has a n ew M ose s b een b orn to a n ew P ro m is e d L and?
Why, th en, a sk s th e s k eptic al, c an
CLA REN CE S A UNDER S
… b e s o g enero us to th e p ublic ?
Afte r f in ally m akin g i t c le ar th at h e w as s e llin g c o m mon s to ck a nd n o t s n ake o il, S aund ers r e p eate d
his o ffe r to s e ll a t fifty -fiv e d olla rs a s h are , a nd w ent o n to e xp la in th at h e w as b ein g s o g enero us
because , a s a f a rs ig hte d b usin essm an, h e w as a nxio us to h av e P ig gly W ig gly o w ned b y i ts c usto m ers
and o th er s m all i n v esto rs , r a th er th an b y W all S tr e et s h ark s. T o m any p eo ple , th o ugh, i t a p peare d th at
Saund ers w as b ein g g enero us to th e p oin t o f f o lly . T he p ric e o f P ig gly W ig gly o n th e N ew Y ork S to ck
Exchange w as ju st th en p ush in g 7 0; it lo oked a s if S aund ers w ere h and in g a nyo ne w ho h ad fifty -fiv e
dolla rs in h is p ocket a c hance to m ake fifte en d olla rs w ith n o ris k . T he a rriv al o f a n ew D anie l,
Jo se p h, o r M ose s m ig ht b e d eb ata b le , b ut o pportu nity c erta in ly d id s e em to b e k no ckin g, a ll r ig ht.
Actu ally , a s th e s k ep ti c al m ust h av e s u sp ecte d , th ere w as a c atc h. I n m akin g w hat s o und ed l ik e s u ch
a c o stl y a nd u nb usin esslik e o ffe r, S aund ers , a r a nk n o vic e a t C orn er, h ad d ev is e d o ne o f th e c ra fti e st dodges e v er u se d in th e g am e. O ne o f th e g re at h aza rd s in C orn er w as a lw ays th at e v en th o ugh a
pla yer m ig ht d efe at h is o pponents , h e w ould d is c o ver th at h e h ad w on a P yrrh ic v ic to ry . O nce th e
sh o rt s e lle rs h ad b een s q ueeze d d ry , th at is , th e c o rn ere r m ig ht fin d th at th e re am s o f s to ck h e h ad
accum ula te d i n th e p ro cess w ere a d ead w eig ht a ro und h is n eck; b y p ush in g i t a ll b ack i n to th e m ark et
in o ne sh o ve, h e w ould d riv e its p ric e d ow n c lo se to ze ro . A nd if, lik e S aund ers , h e h ad h ad to
borro w h eav ily to g et in to th e g am e in th e fir s t p la ce, h is c re d ito rs c o uld b e e xp ecte d to c lo se in o n
him a nd p erh ap s n o t o nly d iv est h im o f h is g ain s b ut d riv e h im in to b ankru p tc y. S aund ers a p pare ntl y
anti c ip ate d th is h aza rd a lm ost a s s o on a s a c o rn er w as i n s ig ht, a nd a cco rd in gly m ad e p la ns to u nlo ad
so m e o f h is s to ck b efo re w in nin g in ste ad o f a fte rw ard . H is p ro ble m w as to k eep th e s to ck h e s o ld
fr o m g o in g r ig ht b ack in to th e flo ati n g s u p ply , th us b re akin g h is c o rn er; a nd h is s o lu ti o n w as to s e ll
his fifty -fiv e-d olla r s h are s o n th e in sta llm ent p la n. In h is F eb ru ary a d verti s e m ents , h e s ti p ula te d th at
th e p ub lic c o uld b uy s h are s o nly b y p ayin g tw enty -fiv e d olla rs d ow n a nd th e b ala nce in th re e te n-
dolla r in sta llm ents , d ue J u ne 1 st, S ep te m ber 1 st, a nd D ecem ber 1 st. In a d diti o n— and v astl y m ore
im porta nt— he sa id he w ould no t tu rn over th e sto ck certi fic ate s to th e buyers unti l th e fin al
in sta llm ent h ad b een p aid . S in ce th e b uyers o bvio usly c o uld n’t se ll th e c erti fic ate s u nti l th ey h ad
th em , th e s to ck c o uld n o t b e u se d to r e p le nis h th e f lo ati n g s u p ply . T hus S aund ers h ad u nti l D ecem ber
1st to s q ueeze th e s h o rt s e lle rs d ry .
Easy a s i t m ay b e to s e e th ro ugh S aund ers ’ p la n b y h in d sig ht, h is m aneuv er w as th en s o u no rth o dox
th at fo r a w hile n eith er th e g o vern o rs o f th e S to ck E xchange n o r L iv erm ore h im se lf c o uld b e q uite
su re w hat th e m an in M em phis w as u p to . T he S to ck E xchange b egan m akin g fo rm al in q uir ie s, a nd
Liv erm ore b egan g etti n g sk itti s h , b ut h e w ent o n b uyin g fo r S aund ers ’ a cco unt, a nd su cceed ed in
push in g P ig gly W ig gly ’s p ric e u p w ell a b ove 7 0. In M em phis , S aund ers s a t b ack c o m fo rta b ly ; h e
te m pora rily cease d sin gin g th e p ra is e s o f P ig gly W ig gly sto ck in his ad s, and d ev ote d th em to
eulo giz in g a p ple s, g ra p efr u it, o nio ns, h am s, a nd L ad y B alti m ore c akes. E arly i n M arc h, th o ugh, h e r a n
ano th er f in ancia l a d , r e p eati n g h is s to ck o ffe r a nd i n v iti n g a ny r e ad ers w ho w ante d to d is c uss i t w ith
him to d ro p i n a t h is M em phis o ffic e. H e a ls o e m phasiz e d th at q uic k a cti o n w as n ecessa ry ; ti m e w as
ru nnin g o ut.
By n o w , i t w as a p pare nt th at S aund ers w as tr y in g f o r a c o rn er, a nd o n W all S tr e et i t w as n o t o nly
th e P ig gly W ig gly b ears w ho w ere b eco m in g a p pre hensiv e. F in ally , L iv erm ore , p ossib ly re fle cti n g
th at in 1 908 h e h ad lo st a lm ost a m illio n d olla rs tr y in g to g et a c o rn er in c o tto n, c o uld s ta nd it n o
lo nger. H e d em and ed th at S aund ers c o m e to N ew Y ork a nd ta lk th in gs o ver. S aund ers a rriv ed o n th e
morn in g o f M arc h 1 2th . A s h e la te r d esc rib ed th e m eeti n g to re p orte rs , th ere w as a d iffe re nce o f
opin io n; L iv erm ore , h e s a id — and h is to ne w as th at o f a m an r a th er s e t u p o ver h av in g m ad e a p ik er
out o f th e B oy P lu nger— “gav e m e th e im pre ssio n th at h e w as a littl e a fr a id o f m y fin ancia l s itu ati o n
and th at h e d id n o t c are to b e in v olv ed in a ny m ark et c ra sh .” T he u p sh o t o f th e c o nfe re nce w as th at
Liv erm ore b ow ed o ut o f th e P ig gly W ig gly
o pera ti o n, l e av in g S aund ers to r u n i t b y h im se lf. S aund ers
th en b oard ed a tr a in fo r C hic ago to a tte nd to so m e b usin ess th ere . A t A lb any, h e w as h and ed a
te le gra m fr o m a m em ber o f th e S to ck E xchange w ho w as th e n eare st th in g h e h ad to a fr ie nd in th e
white -c harg er-a nd -c o at- o f- m ail s e t. T he te le gra m in fo rm ed h im th at h is a nti c s h ad p ro voked a g re at
deal o f h ead -s h akin g i n th e c o uncils o f th e E xchange, a nd u rg ed h im to s to p c re ati n g a s e co nd m ark et
by a d verti s in g s to ck f o r s a le a t a p ric e s o f a r b elo w th e q uo ta ti o n o n th e E xchange. A t th e n ext s ta ti o n,
Saund ers te le gra p hed b ack a r a th er u nre sp onsiv e r e p ly . I f i t w as a p ossib le c o rn er th e E xchange w as
fr e tti n g a b out, h e s a id , h e c o uld a ssu re th e g o vern o rs th at th ey c o uld p ut th eir fe ars a sid e, s in ce h e
him se lf w as m ain ta in in g th e flo ati n g s u p ply b y d aily o ffe rin g s to ck fo r lo an in a ny a m ount d esir e d .
But h e d id n’t s a y h o w l o ng h e w ould c o nti n ue to d o s o . A w eek la te r, o n M ond ay, M arc h 1 9th , S aund ers ra n a n ew sp ap er a d s ta ti n g th at h is s to ck o ffe r
was a b out to b e w ith d ra w n; th is w as th e la st c all. A t th e ti m e, o r s o h e c la im ed a fte rw ard , h e h ad
acq uir e d a ll b ut 1 ,1 28 o f P ig gly W ig gly ’s 2 00,0 00 o uts ta nd in g s h are s, f o r a to ta l o f 1 98,8 72, s o m e o f
whic h h e o w ned a nd th e re st o f w hic h h e “ co ntr o lle d ”— a re fe re nce to th e in sta llm ent- p la n s h are s
who se c erti fic ate s h e s ti ll h eld . A ctu ally , th is fig ure w as o pen to c o nsid era b le a rg um ent ( th ere w as
one p riv ate i n v esto r i n P ro vid ence, f o r i n sta nce, w ho a lo ne h eld e le v en h und re d s h are s), b ut th ere i s
no d enyin g th at S aund ers had in his hand s p ra cti c ally ev ery sin gle sh are o f P ig gly W ig gly th en
av aila b le fo r tr a d in g— and th at h e th ere fo re h ad h is c o rn er. O n th at sa m e M ond ay, it is b elie v ed ,
Saund ers te le p ho ned L iv erm ore a nd a sk ed if h e w ould r e le nt lo ng e no ugh to s e e th e P ig gly W ig gly
pro je ct th ro ugh b y c allin g fo r d eliv ery o f a ll th e s h are s th at w ere o w ed S aund ers ; in o th er w ord s,
would L iv erm ore p le ase sp rin g th e tr a p ? N oth in g d oin g, L iv erm ore is su p pose d to h av e re p lie d ,
ev id entl y c o nsid erin g h im se lf w ell o ut o f th e w ho le a ffa ir. S o th e f o llo w in g m orn in g, T uesd ay, M arc h
20th , S aund ers s p ra ng th e tr a p h im se lf.
IT
tu rn ed o ut to b e o ne o f W all S tr e et’ s w ild er d ays. P ig gly W ig gly o pened a t 7 5½ , u p 5 ½ fr o m th e
pre v io us d ays’ c lo sin g p ric e. A n h o ur a fte r th e o penin g, w ord a rriv ed th at S aund ers h ad
c alle d fo r
deliv ery o f a ll h is P ig gly W ig gly s to ck. A cco rd in g to th e r u le s o f th e E xchange, s to ck c alle d f o r u nd er
su ch c ir c um sta nces h ad to b e p ro duced b y tw o-fifte en th e f o llo w in g a fte rn o on. B ut P ig gly W ig gly , a s
Saund ers w ell k new , s im ply w asn ’t to b e h ad — excep t, o f c o urs e , f r o m h im . T o b e s u re , th ere w ere a
fe w s h are s a ro und th at w ere s ti ll h eld b y p riv ate in v esto rs , a nd fr a nti c s h o rt s e lle rs tr y in g to s h ake
th em lo ose b id th eir p ric e u p a nd u p . B ut b y a nd la rg e th ere w asn ’t m uch a ctu al tr a d in g in P ig gly
Wig gly , b ecause th ere w as s o littl e P ig gly W ig gly to b e tr a d ed . T he S to ck E xchange p ost w here it
was b ought a nd so ld b ecam e th e c ente r o f a m ob sc ene a s tw o-th ir d s o f th e b ro kers o n th e flo or
clu ste re d a ro und i t, a f e w o f th em to b id b ut m ost o f th em j u st to p ush , w ho op, a nd o th erw is e g et i n o n
th e e xcite m ent. D esp era te s h o rt s e lle rs b ought P ig gly W ig gly a t 9 0, th en a t 1 00, th en a t 1 1 0. R ep orts
of se nsa ti o nal p ro fits m ad e th e ro und s. T he P ro vid ence in v esto r, w ho had p ic ked up his ele v en
hund re d s h are s a t 3 9 i n th e p re v io us a utu m n, w hile th e b ear r a id w as i n f u ll c ry , c am e to to w n to b e i n
on th e k ill, u nlo ad ed h is h o ld in gs a t a n a v era ge p ric e o f 1 05, a nd th en c aught a n a fte rn o on tr a in b ack
ho m e, ta kin g w ith h im a p ro fit o f o ver s e v enty th o usa nd d olla rs . A s i t h ap pened , h e c o uld h av e d one
ev en b ette r i f h e h ad b id ed h is ti m e; b y n o on, o r a l ittl e a fte r, th e p ric e o f P ig gly W ig gly h ad r is e n to
124, a nd i t s e em ed d esti n ed to z o om s tr a ig ht th ro ugh th e l o fty r o of a b ove th e tr a d ers ’ h ead s. B ut 1 24
was a s h ig h a s it w ent, fo r th at fig ure h ad b are ly b een r e co rd ed w hen a r u m or r e ached th e flo or th at
th e g o vern o rs o f th e E xchange w ere m eeti n g to c o nsid er th e s u sp ensio n o f f u rth er tr a d in g i n th e s to ck
and th e p ostp onem ent o f th e s h o rt s e lle rs ’ d ead lin e f o r d eliv ery . T he e ffe ct o f s u ch a cti o n w ould b e to
giv e th e b ears ti m e to b eat th e b ush es fo r s to ck, a nd th us to w eaken, if n o t b re ak, S aund ers ’ c o rn er.
On th e b asis o f th e ru m or a lo ne, P ig gly W ig gly fe ll to 8 2 b y th e ti m e th e E xchange’s c lo sin g b ell
end ed th e c hao ti c s e ssio n.
The r u m or p ro ved to b e tr u e. A fte r th e c lo se o f b usin ess, th e G overn in g C om mitte e o f th e E xchange
anno unced b oth th e su sp ensio n o f tr a d in g in P ig gly W ig gly a nd th e e xte nsio n o f th e sh o rt se lle rs ’
deliv ery d ead lin e “ unti l fu rth er a cti o n b y th is c o m mitte e.” T here w as n o im med ia te o ffic ia l re aso n
giv en f o r th is d ecis io n, b ut s o m e m em bers o f th e c o m mitte e u no ffic ia lly l e t i t b e k no w n th at th ey h ad
been a fr a id o f a r e p eti ti o n o f th e N orth ern P acific p anic if th e c o rn er w ere n o t b ro ken. O n th e o th er
hand , i r re v ere nt s id e-lin ers w ere i n clin ed to w ond er w heth er th e G overn in g C om mitte e h ad n o t b een
moved b y th e p iti fu l p lig ht o f th e c o rn ere d s h o rt s e lle rs , m any o f w ho m — as in th e S tu tz M oto r c ase
tw o y ears e arlie r— were b elie v ed to b e m em bers o f th e E xchange. Desp ite a ll th is , S aund ers , in M em phis , w as in a ju b ila nt, e xp ansiv e m ood th at T uesd ay e v enin g.
Afte r a ll, h is p ap er p ro fits a t th at m om ent r a n to s e v era l m illio n d olla rs . T he h itc h, o f c o urs e , w as th at
he c o uld n o t r e aliz e th em , b ut h e s e em s to h av e b een s lo w to g ra sp th at f a ct o r to u nd ers ta nd th e e xte nt
to w hic h h is p ositi o n h ad b een u nd erm in ed . T he in d ic ati o ns a re th at h e w ent to b ed c o nv in ced th at,
besid es h av in g p ers o nally b ro ught a b out a f ir s t- c la ss m ess o n th e h ate d S to ck E xchange, h e h ad m ad e
him se lf a b und le a nd h ad d em onstr a te d h o w a p oor S outh ern b oy c o uld te ach th e c ity slic kers a
le sso n. It a ll m ust h av e a d ded u p to a h ead y s e nsa ti o n. B ut, lik e m ost s u ch s e nsa ti o ns, it d id n’t la st
lo ng. B y W ed nesd ay e v enin g, w hen S aund ers i s su ed h is f ir s t p ub lic u tte ra nce o n th e P ig gly C ris is , h is
mood h ad c hanged to a n o dd m ix tu re o f p uzzle m ent, d efia nce, a nd a s o m ew hat m ute d e cho o f th e
cro w in g tr iu m ph o f th e n ig ht b efo re . “ A r a zo r to m y th ro at, fig ura ti v ely s p eakin g, is w hy I s u d denly
and w ith o ut w arn in g k ic ked th e p egs fr o m u nd er W all S tr e et a nd its g ang o f g am ble rs a nd m ark et
manip ula to rs ,” h e d ecla re d in a p re ss in te rv ie w . “ It w as str ic tl y a q uesti o n o f w heth er I sh o uld
su rv iv e, a nd l ik ew is e m y b usin ess a nd th e f o rtu nes o f m y f r ie nd s, o r w heth er I s h o uld b e ‘ lic ked ’ a nd
poin te d to a s a b oob fr o m T ennesse e. A nd th e c o nse q uence w as th at th e b oastf u l a nd su p pose d ly
in v uln era b le W all S tr e et p ow ers fo und th eir m eth o ds co ntr o verte d b y w ell- la id p la ns and q uic k
acti o n.” S aund ers w ound u p h is s ta te m ent b y la yin g d ow n h is te rm s: th e S to ck E xchange’s d ead lin e
exte nsio n n o tw ith sta nd in g, h e w ould e xp ect s e ttl e m ent i n f u ll o n a ll s h o rt s to ck b y 3
P.M .
th e n ext d ay
—Thurs d ay— at $ 150 a s h are ; th ere afte r h is p ric e w ould b e $ 250.
On T hurs d ay, to S aund ers ’ su rp ris e , v ery fe w sh o rt se lle rs c am e fo rw ard to se ttl e ; p re su m ab ly
th o se w ho d id c o uld n’t s ta nd
th e u ncerta in ty . B ut th en th e G overn in g C om mitte e k ic ked th e p egs f r o m
und er S aund ers b y a nno uncin g th at th e sto ck o f P ig gly W ig gly w as p erm anentl y str ic ken fr o m its
tr a d in g l is t a nd th at th e s h o rt s e lle rs w ould b e g iv en a f u ll f iv e d ays f r o m th e o rig in al d ead lin e— th at
is , u nti l tw o-fifte en th e fo llo w in g M ond ay— to m eet th eir o blig ati o ns. In M em phis , S aund ers , fa r
re m oved f r o m th e s c ene th o ugh h e w as, c o uld n o t m is s th e i m port o f th ese m oves— he w as n o w o n th e
lo sin g e nd o f th in gs. N or c o uld h e a ny lo nger fa il to s e e th at th e p ostp onem ent o f th e s h o rt s e lle rs ’
dead lin e w as th e v ita l is su e. “ A s I u nd ers ta nd it,” h e s a id in a no th er s ta te m ent, h and ed to r e p orte rs
th at e v enin g, “ th e f a ilu re o f a b ro ker to m eet h is c le arin gs th ro ugh th e S to ck E xchange a t th e a p poin te d
ti m e i s th e s a m e a s a b ank th at w ould b e u nab le to m eet i ts c le arin gs, a nd a ll o f u s k no w w hat w ould
hap pen to th at k in d o f a b ank.… T he b ank e xam in er w ould h av e a s ig n s tu ck u p o n th e d oor w ith th e
word ‘ C lo se d .’ I t i s u nb elie v ab le to m e th at th e a ugust a nd a ll- p ow erfu l N ew Y ork S to ck E xchange i s
a w elc her. T here fo re I c o nti n ue to b elie v e th at th e … s h are s o f s to ck s ti ll d ue m e o n c o ntr a cts … w ill
be se ttl e d on th e pro per basis .” A n ed ito ria l in th e M em phis
Com merc ia l Appea l
backed up
Saund ers ’ c ry o f tr e achery , d ecla rin g, “ T his lo oks lik e w hat g am ble rs c all w elc hin g. W e h o pe th e
ho m e b oy b eats th em to a f r a zzle .”
That s a m e T hurs d ay, b y a c o in cid ence, th e a nnual fin ancia l re p ort o f P ig gly W ig gly S to re s, In c.,
was m ad e pub lic . It w as a hig hly fa v ora b le one— sa le s, pro fits , curre nt asse ts , and all oth er
sig nific ant f ig ure s w ere u p s h arp ly o ver th e y ear b efo re — but n o body p aid a ny a tte nti o n to i t. F or th e
mom ent, th e r e al w orth o f th e c o m pany w as i r re le v ant; th e p oin t w as th e g am e.
ON
F rid ay m orn in g, th e P ig gly W ig gly b ub ble b urs t. I t b urs t b ecause S aund ers , w ho h ad s a id h is p ric e
would r is e to $ 250 a s h are a fte r 3
P.M .
T hurs d ay, m ad e th e s ta rtl in g a nno uncem ent th at h e w ould s e ttl e
fo r a h und re d . E . W . B ra d fo rd , S aund ers ’ N ew Y ork l a w yer, w as a sk ed w hy S aund ers h ad s u d denly
gra nte d th is s tr ik in g c o ncessio n. S aund ers h ad d one it o ut o f th e g enero sity o f h is h eart, B ra d fo rd
re p lie d g am ely , b ut th e tr u th w as s o on o bvio us: S aund ers h ad m ad e th e c o ncessio n b ecause h e’d h ad
to . T he p ostp onem ent g ra nte d b y th e S to ck E xchange h ad g iv en th e s h o rt s e lle rs a nd th eir b ro kers a chance to s c an lis ts o f P ig gly W ig gly s to ckho ld ers , a nd fr o m th ese th ey h ad b een a b le to s m oke o ut
sm all b lo cks o f sh are s th at S aund ers h ad n o t c o rn ere d . W id ow s a nd o rp hans in A lb uq uerq ue a nd
Sio ux C ity , w ho k new n o th in g a b out s h o rt s e lle rs a nd c o rn ers , w ere o nly to o h ap py, w hen p re sse d , to
dig in to th eir m attr e sse s o r s a fe -d ep osit b oxes a nd s e ll— in th e s o -c alle d o ver-th e-c o unte r m ark et,
sin ce th e sto ck c o uld n o lo nger b e tr a d ed o n th e E xchange— th eir te n o r tw enty sh are s o f P ig gly
Wig gly f o r a t l e ast d oub le w hat th ey h ad p aid f o r th em . C onse q uentl y , i n ste ad o f h av in g to b uy s to ck
fr o m S aund ers a t h is p ric e o f $ 250 a nd th en h and it b ack to h im in s e ttl e m ent o f th eir lo ans, m any o f
th e s h o rt s e lle rs w ere a b le to b uy i t i n o ver-th e-c o unte r tr a d in g a t a ro und a h und re d d olla rs , a nd th us,
with b itte r p le asu re , p ay o ff th eir M em phis a d vers a ry n o t i n c ash b ut i n s h are s o f P ig gly W ig gly — th e
very l a st th in g h e w ante d j u st th en. B y n ig htf a ll F rid ay, v ir tu ally a ll th e s h o rt s e lle rs w ere i n th e c le ar,
hav in g r e d eem ed th eir i n d eb te d ness e ith er b y th ese o ver-th e-c o unte r p urc hase s o r b y p ayin g S aund ers
cash a t h is o w n s u d denly d efla te d r a te o f a h und re d d olla rs a s h are .
That ev enin g, S aund ers re le ase d sti ll ano th er sta te m ent, and th is o ne, w hile sti ll d efia nt, w as
unm is ta kab ly a h o w l o f a nguis h . “ W all S tr e et g o t lic ked a nd th en c alle d fo r ‘ m am ma,’ ” it r e ad . “ O f
all th e i n sti tu ti o ns i n A meric a, th e N ew Y ork S to ck E xchange i s th e w ors t m enace o f a ll i n i ts p ow er
to r u in a ll w ho d are to o ppose i t. A l a w u nto i ts e lf … a n a sso cia ti o n o f m en w ho c la im th e r ig ht th at
no k in g o r a uto cra t e v er d are d to ta ke: to m ake a r u le th at a p plie s o ne d ay o n c o ntr a cts a nd a b ro gate i t
th e n ext d ay to le t o ut a b unch o f w elc hers .… M y w ho le life fr o m th is d ay o n w ill b e a im ed to w ard
th e e nd o f h av in g th e p ub lic p ro te cte d fr o m a lik e o ccurre nce.… I a m n o t a fr a id . L et W all S tr e et g et
me if th ey c an.” B ut it a p peare d th at W all S tr e et h ad g o t h im ; h is c o rn er w as b ro ken, le av in g h im
deep ly in d eb t to th e s y nd ic ate o f S outh ern b ankers a nd e ncum bere d w ith a m ounta in o f s to ck w ho se
im med ia te f u tu re w as, to s a y th e l e ast, p re cario us.
SA UNDEES’
fu lm in ati o ns d id no t go unheed ed o n W all S tr e et, and as a re su lt th e E xchange fe lt
co m pelle d to ju sti fy its e lf. O n M ond ay, M arc h 2 6th , s h o rtl y a fte r th e P ig gly W ig gly s h o rt s e lle rs ’
dead lin e h ad p asse d a nd S aund ers ’ c o rn er w as, f o r a ll p ra cti c al p urp ose s, a d ead i s su e, th e E xchange
offe re d i ts a p olo gia , i n th e f o rm o f a l e ngth y r e v ie w o f th e c ris is f r o m b egin nin g to e nd . I n p re se nti n g
its c ase , th e E xchange e m phasiz e d th e p ub lic h arm th at m ig ht h av e b een d one if th e c o rn er h ad g o ne
unb ro ken, e xp la in in g, “ T he e nfo rc em ent sim ulta neo usly o f a ll c o ntr a cts fo r th e re tu rn o f th e sto ck
would h av e fo rc ed th e sto ck to a ny p ric e th at m ig ht b e fix ed b y M r. S aund ers , a nd c o m peti ti v e
bid din g fo r th e in su ffic ie nt s u p ply m ig ht h av e b ro ught a b out c o nd iti o ns illu str a te d b y o th er c o rn ers ,
no ta b ly th e N orth ern P acific c o rn er in 1 901.” T hen, its s y nta x y ie ld in g to its s in cerity , th e E xchange
went o n to sa y th at “ th e d em ora liz in g e ffe cts o f su ch a situ ati o n a re n o t lim ite d to th o se d ir e ctl y
affe cte d b y th e c o ntr a cts b ut e xte nd s to th e w ho le m ark et.” G etti n g d ow n to th e tw o s p ecific a cti o ns i t
had ta ken— th e s u sp ensio n o f tr a d in g i n P ig gly W ig gly a nd th e e xte nsio n o f th e s h o rt s e lle rs ’ d ead lin e
—th e E xchange a rg ued th at b oth o f th em w ere w ith in th e b ound s o f i ts o w n c o nsti tu ti o n a nd r u le s, a nd
th ere fo re i r re p ro achab le . A rro gant a s th is m ay s o und n o w , th e E xchange h ad a p oin t; i n th o se d ays i ts
ru le s w ere j u st a b out th e o nly c o ntr o ls o ver s to ck tr a d in g.
The q uesti o n o f w heth er, e v en b y th eir o w n r u le s, th e s lic kers r e ally p la yed fa ir w ith th e b oob is
sti ll deb ate d am ong fis c al anti q uaria ns. T here is str o ng pre su m pti v e ev id ence th at th e slic kers
th em se lv es l a te r c am e to h av e th eir d oub ts . R egard in g th e r ig ht o f th e E xchange to s u sp end tr a d in g i n
a sto ck th ere can be no arg um ent, sin ce th e rig ht w as, as th e E xchange cla im ed at th e ti m e,
sp ecific ally g ra nte d i n i ts c o nsti tu ti o n. B ut th e r ig ht to p ostp one th e d ead lin e f o r s h o rt s e lle rs to h o no r
th eir c o ntr a cts , th o ugh a ls o c la im ed a t th e ti m e, is a no th er m atte r. In Ju ne, 1 925, tw o y ears a fte r
Saund ers ’ c o rn er, th e E xchange fe lt c o nstr a in ed to a m end its c o nsti tu ti o n w ith a n a rti c le s ta ti n g th at “w henev er in th e o pin io n o f th e G overn in g C om mitte e a c o rn er h as b een c re ate d in a s e curity lis te d
on th e E xchange … th e G overn in g C om mitte e m ay p ostp one th e ti m e fo r d eliv erie s o n E xchange
co ntr a cts
th ere in .” B y ad opti n g a sta tu te auth o riz in g it to d o w hat it had d one lo ng b efo re , th e
Exchange w ould s e em , a t th e v ery l e ast, to h av e e xp ose d a g uilty c o nsc ie nce.
TH E
im med ia te a fte rm ath o f th e P ig gly C ris is w as a w av e o f s y m path y fo r S aund ers . T hro ugho ut th e
hin te rla nd , th e p ub lic i m age o f h im b ecam e th at o f a g alla nt c ham pio n o f th e u nd erd og w ho h ad b een
ru th le ssly c ru sh ed . E ven i n N ew Y ork , th e v ery l a ir o f th e S to ck E xchange, th e
Tim es
c o nced ed i n a n
ed ito ria l th at in th e m in d s o f m any p eo ple S aund ers r e p re se nte d S t. G eo rg e a nd th e S to ck E xchange
th e d ra go n. T hat th e d ra go n tr iu m phed i n th e e nd , s a id th e
Tim es
, w as “ b ad n ew s f o r a n ati o n a t l e ast
66⅔ p er c ent ‘ s u cker,’ w hic h h ad its m om ent o f tr iu m ph w hen it r e ad th at a s u cker h ad tr im med th e
in te re sts a nd h ad h is fo ot o n W all S tr e et’ s n eck w hile th e v ic io us m anip ula to rs g asp ed th eir liv es
aw ay.”
Not a m an to ig no re s u ch a h o st o f fr ie nd ly fe llo w s u ckers , S aund ers w ent to w ork to tu rn th em to
acco unt. A nd h e n eed ed th em , f o r h is p ositi o n w as p erilo us i n d eed . H is b ig gest p ro ble m w as w hat to
do a b out th e te n m illio n d olla rs th at h e o w ed h is b anker b ackers — and d id n’t h av e. T he b asic p la n
behin d h is c o rn er— if h e h ad h ad a ny p la n a t a ll— must h av e b een to m ake s u ch a k illin g th at h e c o uld
pay b ack a b ig s lic e o f h is d eb t o ut o f th e p ro fits , p ay b ack th e r e st o ut o f th e p ro ceed s f r o m h is p ub lic
sto ck s a le , a nd th en w alk o ff w ith a s ti ll h uge b lo ck o f P ig gly W ig gly s to ck fr e e a nd c le ar. E ven
th o ugh th e c ut- ra te h und re d -d olla r s e ttl e m ent h ad n ette d h im a k illin g b y m ost m en’s s ta nd ard s ( ju st
ho w m uch o f a k illin g i s n o t k no w n, b ut i t h as b een r e lia b ly e sti m ate d a t h alf a m illio n o r s o ), i t w as
no t a fr a cti o n o f w hat h e m ig ht h av e r e aso nab ly e xp ecte d it to b e, a nd b ecause it w asn ’t h is w ho le
str u ctu re b ecam e a n a rc h w ith o ut a k eysto ne.
Hav in g p aid h is b ankers w hat h e h ad r e ceiv ed f r o m th e s h o rt s e lle rs a nd f r o m h is p ub lic s to ck s a le ,
Saund ers fo und th at h e s ti ll o w ed th em a b out fiv e m illio n d olla rs , h alf o f it d ue S ep te m ber 1 , 1 923,
and th e b ala nce o n J a nuary 1 , 1 924. H is b est h o pe o f r a is in g th e m oney l a y i n s e llin g m ore o f th e v ast
bund le o f P ig gly W ig gly sh are s h e sti ll h ad o n h and . S in ce h e c o uld n o lo nger se ll
th em o n th e
Exchange, he re so rte d to his fa v orite fo rm o f se lf- e xp re ssio n— new sp ap er ad verti s in g, th is ti m e
su p ple m ente d w ith a m ail- o rd er p itc h o ffe rin g P ig gly W ig gly again at fifty -fiv e d olla rs . It so on
becam e ev id ent, th o ugh, th at p ub lic sy m path y w as o ne th in g and p ub lic w illin gness to tr a nsla te
sy m path y in to c ash w as q uite a no th er. E very o ne, w heth er in N ew Y ork , M em phis , o r T exark ana,
knew a b out th e re cent s p ecula ti v e s h enanig ans in P ig gly W ig gly a nd a b out th e d ub io us s ta te o f th e
pre sid ent’ s f in ances. N ot e v en S aund ers ’ f e llo w s u ckers w ould h av e a ny p art o f h is d eal n o w , a nd th e
cam paig n w as a b le ak f a ilu re .
Sad ly a ccep ti n g th is fa ct, S aund ers n ext a p peale d to th e lo cal a nd r e gio nal p rid e o f h is M em phis
neig hb ors b y tu rn in g h is re m ark ab le p ow ers o f p ers u asio n to th e jo b o f c o nv in cin g th em th at h is
fin ancia l d ile m ma w as a c iv ic i s su e. I f h e s h o uld g o b ro ke, h e a rg ued , i t w ould r e fle ct n o t o nly o n th e
chara cte r and b usin ess acum en o f M em phis b ut o n S outh ern ho no r in genera l. “I d o no t ask fo r
charity ,” h e w ro te in o ne o f th e la rg e a d s h e a lw ays s e em ed a b le to fin d th e c ash fo r, “ and I d o n o t
re q uest a ny f lo w ers f o r m y f in ancia l f u nera l, b ut I d o a sk … e v ery b ody i n M em phis to r e co gniz e a nd
kno w th at th is i s a s e rio us s ta te m ent m ad e f o r th e p urp ose o f a cq uain ti n g th o se w ho w is h to a ssis t i n
th is m atte r, th at th ey m ay w ork w ith m e, a nd w ith o th er fr ie nd s a nd b elie v ers in m y b usin ess, in a
Mem phis c am paig n to h av e e v ery m an a nd w om an w ho p ossib ly c an in th is c ity b eco m e o ne o f th e
partn ers o f th e P ig gly W ig gly b usin ess, b ecause it is a g o od in v estm ent fir s t, a nd , s e co nd , b ecause it
is th e rig ht th in g to d o.” R ais in g h is s ig hts in a s e co nd a d , h e d ecla re d , “ F or P ig gly W ig gly to b e ru in ed w ould s h am e th e w ho le S outh .”
Ju st w hic h a rg um ent p ro ved th e c lin cher i n p ers u ad in g M em phis th at i t s h o uld tr y to p ull S aund ers ’
chestn uts o ut o f th e fir e is h ard to s a y, b ut s o m e p art o f h is lin e o f r e aso nin g c lic ked , a nd s o on th e
Mem phis
Com merc ia l A ppea l
w as urg in g th e to w n to get b ehin d th e em battl e d lo cal b oy. T he
re sp onse o f th e city ’s b usin ess le ad ers w as tr u ly in sp ir in g to S aund ers . A w hir lw in d th re e-d ay
cam paig n w as p la nned , w ith th e o bje ct o f s e llin g fifty th o usa nd s h are s o f h is s to ck to th e c iti z e ns o f
Mem phis a t th e o ld m agic f ig ure o f f ifty -fiv e d olla rs a s h are ; i n o rd er to g iv e b uyers
s o m e d egre e o f
assu ra nce th at th ey w ould n o t la te r fin d th em se lv es a lo ne o ut o n a lim b, it w as s ti p ula te d th at u nle ss
th e w ho le b lo ck w as so ld w ith in th e th re e d ays, a ll sa le s w ould b e c alle d o ff. T he C ham ber o f
Com merc e s p onso re d th e d riv e; th e A meric an L egio n, th e C iv ita n C lu b , a nd th e E xchange C lu b fe ll
in to lin e; a nd e v en th e B ow ers S to re s a nd th e A rro w S to re s, b oth c o m peti to rs o f P ig gly W ig gly in
Mem phis , a gre ed to p lu g th e w orth y c ause . H und re d s o f c iv ic -m in d ed v olu nte ers s ig ned u p to rin g
doorb ells . O n M ay 3rd , fiv e days befo re th e sc hed ule d sta rt of th e cam paig n, 250 M em phis
busin essm en a sse m ble d a t th e G ayo so H ote l f o r a k ic ko ff d in ner. T here w ere c heers w hen S aund ers ,
acco m panie d b y h is w ife , e nte re d th e d in in g r o om ; o ne o f th e m any a fte r-d in ner s p eakers d esc rib ed
him a s “ th e m an w ho h as d one m ore fo r M em phis th an a ny in th e la st th o usa nd y ears ” — a ro usin g
tr ib ute th at put G od knew ho w m any C hic kasa w chie fs in th eir pla ce. “B usin ess riv alr ie s and
pers o nal d iffe re nces w ere sw ep t a w ay lik e m is ts b efo re th e su n,” a
Com merc ia l A ppea l
re p orte r
wro te o f th e d in ner.
The d riv e g o t o ff to a sp le nd id sta rt. O n th e o penin g d ay— May 8 th — so cie ty w om en a nd B oy
Sco uts p ara d ed th e s tr e ets o f M em phis w earin g b ad ges th at r e ad , “ W e’re O ne H und re d P er C ent fo r
Cla re nce S aund ers a nd P ig gly W ig gly .” M erc hants a d orn ed th eir w in d ow s w ith p la card s b earin g th e
slo gan “ A S hare o f P ig gly W ig gly S to ck i n E very H om e.” T ele p ho nes a nd d oorb ells r a ng i n cessa ntl y .
In s h o rt o rd er, 2 3,6 98 o f th e 5 0,0 00 s h are s h ad b een s u b sc rib ed fo r. Y et a t th e v ery m om ent w hen
most o f M em phis h ad b eco m e m ir a culo usly c o nv in ced th at th e p ed dlin g o f P ig gly W ig gly s to ck w as
an a cti v ity f u lly a s u p lifti n g a s s o lic iti n g f o r th e R ed C ro ss o r th e C om munity C hest, u gly d oub ts w ere
bre w in g, a nd s o m e v ip ers i n th e h o m e n est s u d denly d em and ed th at S aund ers c o nse nt to a n i m med ia te
sp ot a ud it o f h is c o m pany’s b ooks. S aund ers , f o r w hate v er r e aso ns, r e fu se d , b ut o ffe re d to p la cate th e
sk ep ti c s b y s te p pin g d ow n a s p re sid ent o f P ig gly W ig gly if s u ch a m ove “ w ould fa cilita te th e s to ck-
se llin g c am paig n.” H e w as n o t a sk ed to g iv e u p th e p re sid ency, b ut o n M ay 9 th , th e s e co nd d ay o f th e
cam paig n, a w atc hd og c o m mitte e o f fo ur— th re e b ankers a nd a b usin essm an— was a p poin te d b y th e
Pig gly W ig gly d ir e cto rs to h elp h im ru n th e c o m pany fo r a n in te rim p erio d, w hile th e d ust s e ttl e d .
That sa m e d ay, S aund ers w as c o nfr o nte d w ith a no th er e m barra ssin g situ ati o n: w hy, th e c am paig n
le ad ers w ante d to k no w , w as h e c o nti n uin g to b uild h is m illio n-d olla r P in k P ala ce a t a ti m e w hen th e
who le to w n w as w ork in g fo r him fo r no th in g? H e re p lie d hasti ly th at he w ould hav e th e p la ce
board ed u p th e v ery n ext d ay a nd th at th ere w ould b e n o f u rth er c o nstr u cti o n u nti l h is f in ancia l f u tu re
lo oked b rig ht a gain .
The c o nfu sio n a tte nd ant o n th ese tw o i s su es b ro ught th e d riv e to a s ta nd sti ll. A t th e e nd o f th e th ir d
day, th e to ta l n um ber o f s h are s s u b sc rib ed fo r w as s ti ll u nd er 2 5,0 00, a nd th e s a le s th at h ad b een
mad e w ere c ancele d . S aund ers h ad to a d m it th at th e d riv e h ad b een a f a ilu re . “ M em phis h as f iz zle d ,”
he r e p orte d ly a d ded — alth o ugh h e w as a t g re at p ain s to d eny th is a fe w y ears la te r, w hen h e n eed ed
more o f M em phis ’ m oney f o r a n ew v entu re . I t w ould n o t b e s u rp ris in g, th o ugh, i f h e h ad m ad e s o m e
su ch im pru d ent r e m ark , fo r h e w as u nd ers ta nd ab ly s u ffe rin g fr o m a c ase o f fr a zzle d n erv es, a nd w as
sh o w in g th e str a in . Ju st b efo re th e a nno uncem ent o f th e c am paig n’s u nhap py e nd , h e w ent in to a
clo se d co nfe re nce w ith se v era l M em phis busin ess le ad ers and cam e out of it w ith a bru is e d cheekb one a nd a to rn c o lla r. N one o f th e o th er m en a t th e m eeti n g s h o w ed a ny m ark s o f v io le nce. It
ju st w asn ’t S aund ers ’ d ay.
Alth o ugh i t w as n ev er e sta b lis h ed th at S aund ers h ad h ad h is h and i m pro perly i n th e P ig gly W ig gly
co rp ora te ti ll d urin g h is c o rn erin g o pera ti o n, h is f ir s t b usin ess m ove a fte r th e c o lla p se o f h is a tte m pt
to u nlo ad s to ck s u ggeste d th at h e h ad a t l e ast h ad g o od r e aso n to r e fu se a s p ot a ud it o f th e c o m pany’s
books. In s p ite o f fu ti le g ru nts o f p ro te st fr o m th e w atc hd og c o m mitte e, h e b egan s e llin g n o t P ig gly
Wig gly s to ck b ut P ig gly W ig gly s to re s— partl y liq uid ati n g th e c o m pany, th at is — and n o o ne k new
where h e w ould sto p. T he C hic ago sto re s w ent fir s t, a nd th o se in D env er a nd K ansa s C ity so on
fo llo w ed . H is a nno unced in te nti o n w as to b uild u p th e c o m pany’s tr e asu ry s o th at
it
c o uld b uy th e
sto ck th at th e p ub lic h ad s p urn ed , b ut th ere w as s o m e s u sp ic io n th at th e tr e asu ry d esp era te ly n eed ed a
tr a nsfu sio n j u st th en— and n o t o f
P ig gly W ig gly s to ck, e ith er. “ I’ v e g o t W all S tr e et a nd th e w ho le g ang
lic ked ,” S aund ers r e p orte d c heerfu lly i n J u ne. B ut i n m id -A ugust, w ith th e S ep te m ber 1 st d ead lin e f o r
re p aym ent o f tw o a nd a h alf m illio n d olla rs o n h is lo an s ta rin g h im in th e fa ce a nd w ith n o th in g lik e
th at a m ount o f c ash e ith er o n h and o r in p ro sp ect, h e r e sig ned a s p re sid ent o f P ig gly W ig gly S to re s,
In c., a nd tu rn ed o ver h is a sse ts — his s to ck in th e c o m pany, h is P in k P ala ce, a nd a ll th e re st o f h is
pro perty — to h is c re d ito rs .
It re m ain ed o nly fo r th e fo rm al s ta m p o f fa ilu re to b e p ut o n S aund ers p ers o nally a nd o n P ig gly
Wig gly u nd er h is m anagem ent. O n A ugust 2 2nd , th e N ew Y ork a ucti o n fir m o f A dria n H . M ulle r &
Son, w hic h dealt in so m any next- to -w orth le ss sto cks th at its sa le sro om w as ofte n calle d “th e
se curiti e s g ra v eyard ,” k no cked d ow n f ifte en h und re d s h are s o f P ig gly W ig gly a t a d olla r a s h are — th e
tr a d iti o nal p ric e f o r s e curiti e s th at h av e b een r u n i n to th e g ro und — and th e f o llo w in g s p rin g S aund ers
went th ro ugh fo rm al b ankru p tc y p ro ceed in gs. B ut th ese w ere a nti c lim axes. T he re al lo w p oin t o f
Saund ers ’ c are er w as p ro bab ly th e d ay h e w as fo rc ed o ut o f h is c o m pany’s p re sid ency, a nd it w as
th en th at, in th e o pin io n o f m any o f h is a d m ir e rs , h e a chie v ed h is r h eto ric al p eak. W hen h e e m erg ed ,
hara sse d b ut s ti ll d efia nt, fr o m a d ir e cto rs ’ c o nfe re nce a nd a nno unced h is r e sig nati o n to r e p orte rs , a
hush f e ll. T hen S aund ers a d ded h o ars e ly , “ T hey h av e th e b ody o f P ig gly W ig gly , b ut th ey c anno t h av e
th e s o ul.”
IF
b y th e s o ul o f P ig gly W ig gly S aund ers m eant h im se lf, th en i t d id r e m ain f r e e— fr e e to g o m arc hin g
on in its o w n e rra ti c w ay. H e n ev er v entu re d to p la y a no th er g am e o f C orn er, b ut h is s p ir it w as fa r
fr o m b ro ken. A lth o ugh o ffic ia lly b ankru p t, h e m anaged to f in d p eo ple o f tr u ly r o cklik e f a ith w ho w ere
sti ll w illin g to f in ance h im , a nd th ey e nab le d h im to l iv e o n a s c ale o nly s lig htl y l e ss g ra nd th an i n th e
past; r e d uced to p la yin g g o lf a t th e M em phis C ountr y C lu b r a th er th an o n h is o w n p riv ate c o urs e , h e
hand ed o ut c ad dy ti p s th at th e c lu b g o vern o rs c o nsid ere d a s c o rru p ti n g a s e v er. T o b e s u re , h e n o
lo nger o w ned th e P in k P ala ce, b ut th is w as a b out th e o nly e v id ence th at s e rv ed to r e m in d h is fe llo w
to w nsm en o f h is m is fo rtu nes. E ventu ally , th e u nfin is h ed p le asu re d om e
c am e i n to th e h and s o f th e c ity
of M em phis , w hic h a p pro pria te d $ 150,0 00 to f in is h i t a nd tu rn i t i n to a m use um o f n atu ra l h is to ry a nd
in d ustr ia l a rts . A s s u ch, i t c o nti n ues to s u sta in th e S aund ers l e gend i n M em phis .
Afte r h is d ow nfa ll, S aund ers s p ent th e b ette r p art o f th re e y ears in s e ekin g r e d re ss o f th e w ro ngs
th at h e fe lt h e h ad s u ffe re d in th e P ig gly W ig gly fig ht, a nd in fo ilin g th e e ffo rts o f h is e nem ie s a nd
cre d ito rs to m ake th in gs s ti ll m ore u np le asa nt fo r h im . F or a w hile , h e k ep t th re ate nin g to s u e th e
Sto ck E xchange fo r c o nsp ir a cy a nd b re ach o f c o ntr a ct, b ut a te st s u it, b ro ught b y s o m e s m all P ig gly
Wig gly sto ckho ld ers , fa ile d , a nd h e d ro pped th e id ea. T hen, in Ja nuary , 1 926, h e le arn ed th at a
fe d era l i n d ic tm ent w as a b out to b e b ro ught a gain st h im f o r u sin g th e m ails to d efr a ud i n h is m ail- o rd er
cam paig n to se ll h is P ig gly W ig gly sto ck. H e b elie v ed , in co rre ctl y , th at th e g o vern m ent h ad b een egged o n to b rin g th e in d ic tm ent b y a n o ld a sso cia te o f h is — Jo hn C . B urc h, o f M em phis , w ho h ad
beco m e s e cre ta ry -tr e asu re r o f P ig gly W ig gly a fte r th e s h akeup . H is p ati e nce o nce m ore e xhauste d ,
Saund ers w ent a ro und to P ig gly W ig gly h ead quarte rs a nd c o nfr o nte d B urc h. T his c o nfe re nce p ro ved
fa r m ore s a ti s fa cto ry to S aund ers th an h is b oard -ro om s c uffle o n th e d ay th e M em phis c iv ic s to ck-
se llin g d riv e fa ile d . B urc h, a cco rd in g to S aund ers , “ und erto ok in a sta m merin g w ay to d eny” th e
accusa ti o n, w here up on S aund ers d eliv ere d a rig ht to th e ja w , k no ckin g o ff B urc h’s g la sse s b ut n o t
doin g m uch o th er d am age. B urc h a fte rw ard b elittl e d th e b lo w a s “ gla ncin g,” a nd a d ded a n a lib i th at
so und ed lik e th at o f a ny o utp oin te d p ugilis t: “ T he a ssa ult u p on m e w as m ad e s o s u d denly th at I d id
no t h av e ti m e o r o pportu nity to s tr ik e M r. S aund ers .” B urc h r e fu se d to p re ss c harg es.
About a m onth la te r, th e m ail- fr a ud in d ic tm ent w as b ro ught a gain st S aund ers , b ut b y th at ti m e,
sa ti s fie d th at B urc h w as in no cent o f a ny d ir ty w ork , h e w as h is a m ia b le o ld s e lf a gain . “ I h av e o nly
one th in g to r e gre t in th is n ew a ffa ir,” h e a nno unced p le asa ntl y , “ and th at is m y fis ti c e nco unte r w ith
Jo hn C . B urc h.” T he n ew a ffa ir d id n’t l a st l o ng; i n A pril th e i n d ic tm ent w as q uash ed b y th e M em phis
Dis tr ic t C ourt, a nd S aund ers a nd P ig gly W ig gly w ere f in ally q uits . B y th en, th e c o m pany w as w ell
o n
its w ay b ack u p , a nd , w ith a g re atl y c hanged c o rp ora te s tr u ctu re , it flo uris h ed o n in to th e n in ete en
six ti e s; h o use w iv es c o nti n ued to ra m ble d ow n th e a is le s o f h und re d s o f P ig gly W ig gly s to re s, n o w
opera te d u nd er a f r a nchis e a gre em ent w ith th e P ig gly W ig gly C orp ora ti o n, o f J a ckso nv ille , F lo rid a.
Saund ers , to o, w as w ell o n h is w ay b ack u p . I n 1 928, h e s ta rte d a n ew g ro cery c hain , w hic h h e—
but h ard ly a nyo ne e ls e — calle d th e C la re nce S aund ers , S ole O w ner o f M y N am e, S to re s, In c. Its
outl e ts s o on c am e to b e k no w n a s S ole O w ner s to re s, w hic h w as p re cis e ly w hat th ey w ere n’t, fo r
with o ut S aund ers ’ fa ith fu l b ackers th ey w ould h av e e xis te d o nly in h is m in d . S aund ers ’ c ho ic e o f a
co rp ora te ti tl e , h o w ev er, w as n o t d esig ned to m is le ad th e p ub lic ; ra th er, it w as h is ir o nic w ay o f
re m in d in g th e w orld th at, a fte r th e s k in nin g W all S tr e et h ad g iv en h im , h is n am e w as a b out th e o nly
th in g h e sti ll h ad a c le ar ti tl e to . H ow m any S ole O w ner c usto m ers — or g o vern o rs o f th e S to ck
Exchange, fo r th at m atte r— go t th e p oin t is q uesti o nab le . In a ny c ase , th e n ew s to re s c aught o n s o
ra p id ly a nd d id s o w ell th at S aund ers l e ap ed b ack u p f r o m b ankru p tc y to r ic hes, a nd b ought a m illio n-
dolla r e sta te ju st o uts id e M em phis . H e a ls o o rg aniz e d a nd u nd erw ro te a p ro fe ssio nal fo otb all te am
calle d th e S ole O w ner T ig ers — an i n v estm ent th at p aid o ff h and so m ely o n th e f a ll a fte rn o ons w hen h e
co uld h ear c rie s o f “ R ah! R ah! R ah! S ole O w ner! S ole O w ner! S ole O w ner!” rin gin g th ro ugh th e
Mem phis S ta d iu m .
FO R
th e s e co nd ti m e, S aund ers ’ g lo ry w as fle eti n g. T he v ery fir s t w av e o f th e d ep re ssio n h it S ole
Ow ner S to re s s u ch a c ru sh in g b lo w th at in 1 930 th ey w ent b ankru p t, a nd h e w as b ro ke a gain . B ut
again h e p ulle d h im se lf to geth er a nd s u rv iv ed th e d eb acle . F in d in g b ackers , h e p la nned a n ew c hain
of g ro cery s to re s, a nd th o ught u p a n am e f o r i t th at w as m ore o utl a nd is h , i f p ossib le , th an e ith er o f i ts
pre d ecesso rs — Keed oozle . H e n ev er m ad e a no th er k illin g, h o w ev er, o r b ought a no th er m illio n-d olla r
esta te , th o ugh it w as a lw ays c le ar th at h e e xp ecte d to . H is h o pes w ere p in ned o n th e K eed oozle , a n
ele ctr ic ally o pera te d g ro cery s to re , a nd h e s p ent th e b ette r p art o f th e la st tw enty y ears o f h is life
tr y in g to p erfe ct it. In a K eed oozle s to re , th e m erc hand is e w as
d is p la yed b ehin d g la ss p anels , e ach
with a s lo t b esid e i t, l ik e th e f o od i n a n A uto m at. T here th e s im ila rity e nd ed , f o r, i n ste ad o f i n se rti n g
co in s i n th e s lo t to o pen a p anel a nd l ift o ut a p urc hase , K eed oozle c usto m ers i n se rte d a k ey th at th ey
were giv en on ente rin g th e sto re . M ore o ver, S aund ers ’ th in kin g had ad vanced fa r beyo nd th e
ele m enta ry s ta ge o f h av in g th e k ey o pen th e p anel; e ach ti m e a K eed oozle k ey w as i n se rte d i n a s lo t,
th e id enti ty o f th e ite m s e le cte d w as in sc rib ed in c o de o n a s e gm ent o f r e co rd in g ta p e e m bed ded in
th e key its e lf, and sim ulta neo usly th e ite m w as auto m ati c ally tr a nsfe rre d to a co nv eyo r b elt th at carrie d i t to a n e xit g ate a t th e f r o nt o f th e s to re . W hen a c usto m er h ad f in is h ed h is s h o ppin g, h e w ould
pre se nt h is k ey to a n a tte nd ant a t th e g ate , w ho w ould d ecip her th e ta p e a nd a d d u p th e b ill. A s s o on
as th is w as p aid , th e p urc hase s w ould b e cata p ulte d in to th e custo m er’s arm s, all b agged and
wra p ped , b y a d ev ic e a t th e e nd o f th e c o nv eyo r b elt.
A c o up le o f p ilo t K eed oozle s to re s w ere tr ie d o ut— one i n M em phis a nd th e o th er i n C hic ago — but
it w as fo und th at th e m achin ery w as to o co m ple x and exp ensiv e to co m pete w ith su p erm ark et
push carts . U nd ete rre d , S aund ers s e t to w ork o n a n e v en m ore i n tr ic ate m echanis m — th e F oodele ctr ic ,
whic h w ould d o e v ery th in g th e K eed oozle c o uld d o a nd a d d u p th e b ill a s w ell. I t w ill n ev er c o rn er
th e re ta il- s to re -e q uip m ent m ark et, th o ugh, b ecause it w as sti ll u nfin is h ed w hen S aund ers d ie d , in
Octo ber, 1 953, fiv e y ears to o s o on fo r h im to s e e th e B ru ce “ co rn er” , w hic h, in a ny c ase , h e w ould
hav e b een f u lly e nti tl e d to s c o ff a t a s a m ere s q uab ble a m ong r ib bon c le rk s. 9
A S eco n d S ort o f L if e
DURIN G
F ra nklin D . R oose v elt’ s P re sid ency, w hen W all S tr e et a nd W ash in gto n te nd ed to b e o n c at-
and -d og te rm s, p erh ap s n o N ew D eale r o th er th an T hat M an h im se lf b ette r ty p ifie d th e N ew D eal in
th e e yes o f W all S tr e et th an D av id E li L ilie nth al. T he e xp la nati o n o f th is e sti m ate o f h im in s o uth ern
Manhatta n la y no t in any sp ecific anti - W all S tr e et acts o f L ilie nth al’s — in d eed , th e sc atte rin g o f
fin ancie rs , a m ong th em W end ell L . W illk ie , w ho h ad p ers o nal d ealin gs w ith h im g enera lly f o und h im
to b e a
r e aso nab le s o rt o f f e llo w — but i n w hat h e h ad c o m e to s y m boliz e th ro ugh h is a sso cia ti o n w ith
th e T ennesse e V alle y A uth o rity , w hic h, a s a g o vern m ent- o w ned e le ctr ic -p ow er c o ncern fa r la rg er
th an any p riv ate p ow er co rp ora ti o n in th e co untr y , em bodie d W all S tr e et’ s no ti o n o f gallo pin g
Socia lis m . B ecause L ilie nth al w as a c o nsp ic uo us a nd v ig o ro us m em ber o f th e T .V .A .’ s th re e-m an
board o f d ir e cto rs fr o m 1 933 u nti l 1 941, a nd w as its c hair m an fr o m 1 941 u nti l 1 946, th e b usin ess
co m munity o f th at p erio d, in his p hra se , th o ught he “w ore ho rn s.” In 1 946, he b ecam e th e fir s t
chair m an o f th e U nite d S ta te s A to m ic E nerg y C om mis sio n, a nd w hen h e g av e u p th at p ositi o n, in
Feb ru ary , 1 950, a t th e a ge o f f ifty , th e
Tim es
s a id i n a n ew s s to ry th at h e h ad b een “ p erh ap s th e m ost
co ntr o vers ia l f ig ure i n W ash in gto n s in ce th e e nd o f th e w ar.”
What h as L ilie nth al b een u p to in th e y ears s in ce h e le ft th e g o vern m ent? A s a m atte r o f p ub lic
re co rd , h e h as b een u p to a n um ber o f th in gs, a ll o f th em , s u rp ris in gly , c ente re d o n W all S tr e et o r o n
priv ate b usin ess, o r b oth . F or o ne th in g, L ilie nth al is lis te d in a ny n um ber o f b usin ess c o m pend iu m s
as th e co -fo und er and th e chair m an o f th e b oard o f th e D ev elo pm ent & R eso urc es C orp ora ti o n.
Sev era l y ears a go , I p ho ned D . & R .’ s o ffic es, th en a t 5 0 B ro ad w ay, N ew Y ork C ity , a nd d is c o vere d
it to b e a p riv ate f ir m — Wall S tr e et- b acked a s w ell a s, g iv e o r ta ke a b lo ck, W all S tr e et- b ase d — th at
pro vid es m anageria l, te chnic al, b usin ess, a nd p la nnin g s e rv ic es to w ard th e d ev elo pm ent o f n atu ra l
re so urc es a b ro ad . T hat is to s a y, D . & R .— who se o th er c o -fo und er, th e la te G ord on R . C la p p, w as
Lilie nth al’ s s u ccesso r a s T .V .A . c hair m an— is i n th e b usin ess o f h elp in g g o vern m ents s e t u p p ro gra m s
more o r le ss s im ila r to th e T .V .A . S in ce its fo rm ati o n, in 1 955, I le arn ed , D . & R . h ad , a t m odera te
but g ra ti fy in g p ro fit to i ts e lf, p la nned a nd m anaged th e b egin nin gs o f a v ast s c hem e f o r th e r e cla m ati o n
of K huzis ta n, an arid and p overty -s tr ic ken, th o ugh o il- ric h, re gio n o f w este rn Ir a n; ad vis e d th e
go vern m ent o f Ita ly o n th e d ev elo pm ent o f its b ackw ard s o uth ern p ro vin ces; h elp ed th e R ep ub lic o f
Colo m bia s e t u p a T .V .A .- lik e a uth o rity f o r i ts p ote nti a lly f e rti le b ut f lo od-p la gued C auca V alle y; a nd
offe re d a d vic e to G hana o n w ate r s u p ply , to th e Iv ory
C oast o n m in era l d ev elo pm ent, a nd to P uerto
Ric o o n e le ctr ic p ow er a nd a to m ic e nerg y.
For a no th er th in g— and w hen I f o und o ut a b out th is , i t s tr u ck m e a s c o nsid era b ly m ore a sto nis h in g,
on fo rm , th an D . & R .— Lilie nth al has m ad e an auth enti c fo rtu ne as a co rp ora te offic er and
entr e p re neur. In a p ro xy s ta te m ent o f th e M in era ls & C hem ic als C orp ora ti o n o f A meric a, d ate d J u ne
24, 1 960, th at fe ll in to m y h and s, I fo und L ilie nth al lis te d a s a d ir e cto r o f th e fir m a nd th e h o ld er o f 41,3 66 s h are s o f i ts c o m mon s to ck. T hese s h are s a t th e ti m e o f m y i n v esti g ati o n w ere b ein g tr a d ed o n
th e N ew Y ork S to ck E xchange a t s o m eth in g o ver tw enty -fiv e d olla rs e ach, a nd s im ple m ulti p lic ati o n
re v eale d th at th ey r e p re se nte d a th um pin g s u m b y m ost m en’s s ta nd ard s, c erta in ly i n clu d in g th o se o f a
man w ho h ad s p ent m ost o f h is l ife o n g o vern m ent w ages, w ith o ut th e h elp o f p riv ate r e so urc es.
And , fo r s ti ll a no th er th in g, in 1 953 H arp er & B ro th ers b ro ught o ut L ilie nth al’s th ir d b ook, “ B ig
Busin ess: A N ew E ra .” ( H is p re v io us b ooks w ere “ T .V .A .: D em ocra cy o n th e M arc h” a nd “ T his I
Do B elie v e,” w hic h a p peare d in 1 944 a nd 1 949, r e sp ecti v ely .) In “ B ig B usin ess,” L ilie nth al a rg ues
th at n o t o nly th e p ro ducti v e a nd d is tr ib uti v e su p erio rity o f th e U nite d S ta te s b ut a ls o its n ati o nal
se curity d ep end s o n in d ustr ia l b ig ness; th at w e n o w h av e a d eq uate p ub lic s a fe guard s a gain st a b use s
of b ig b usin ess, o r k no w w ell e no ugh h o w to f a sh io n th em a s r e q uir e d ; th at b ig b usin ess d oes n o t te nd
to d estr o y s m all b usin ess, a s i s o fte n s u p pose d , b ut, r a th er, te nd s to p ro m ote i t; a nd , f in ally , th at a b ig -
busin ess s o cie ty d oes n o t s u p pre ss in d iv id ualis m , a s m ost in te lle ctu als b elie v e, b ut a ctu ally te nd s to
enco ura ge i t b y r e d ucin g p overty , d is e ase , a nd p hysic al i n se curity a nd i n cre asin g th e o pportu niti e s f o r
le is u re a nd tr a v el. F ig hti n g w ord s, i n s h o rt, f r o m a n o ld N ew D eale r.
Lilie nth al i s a m an w ho se g o vern m ent c are er I , a s a n ew sp ap er r e ad er, h ad f o llo w ed f a ir ly c lo se ly .
My i n te re st i n h im a s a g o vern m ent o ffic ia l h ad r e ached i ts p eak i n F eb ru ary , 1 947, w hen, i n a nsw er
to a fie rc e a tta ck o n h im b y h is o ld e nem y S enato r K enneth D . M cK ella r, o f T ennesse e, d urin g
Congre ssio nal hearin gs o n his fitn ess fo r th e A .E .C . jo b, he utte re d a sp onta neo us sta te m ent
of
pers o nal d em ocra ti c fa ith th at fo r m any p eo ple s ti ll r a nks a s o ne o f th e m ost s ti r rin g a tta cks o n w hat
la te r c am e to b e k no w n a s M cC arth yis m . (“ O ne o f th e te nets o f d em ocra cy th at g ro w o ut o f th is
centr a l c o re o f a b elie f th at th e in d iv id ual c o m es fir s t, th at a ll m en a re th e c hild re n o f G od a nd th eir
pers o naliti e s a re th ere fo re sa cre d ,” L ilie nth al sa id , a m ong o th er th in gs, “ is a d eep b elie f in c iv il
lib erti e s a nd th eir p ro te cti o n; a nd a r e p ugnance to a nyo ne w ho w ould s te al fr o m a h um an b ein g th at
whic h is m ost p re cio us to him , his go od nam e, b y im puti n g th in gs to him , b y in nuend o, o r b y
in sin uati o n.” ) T he fr a gm ents of in fo rm ati o n I pic ked up ab out his new , priv ate care er le ft m e
co nfu se d . W ond erin g h o w W all S tr e et a nd b usin ess life h ad a ffe cte d L ilie nth al, a nd v ic e v ers a , in
th eir b ela te d
ra ppro ch em en t
, I g o t i n to uch w ith h im , a nd a d ay o r s o l a te r, a t h is i n v ita ti o n, d ro ve o ut
to N ew J e rs e y to s p end th e a fte rn o on w ith h im .
LIL IE N TH AL
a nd h is w ife , H ele n L am b L ilie nth al, liv ed o n B attl e R oad , in P rin ceto n, w here th ey h ad
se ttl e d i n 1 957, a fte r s ix y ears i n N ew Y ork C ity , a t f ir s t i n a h o use o n B eekm an P la ce a nd l a te r i n a n
ap artm ent o n S utto n P la ce. T he P rin ceto n h o use , w hic h s ta nd s in a p lo t o f le ss th an a n a cre , is o f
Geo rg ia n b ric k w ith g re en s h utte rs . S urro und ed b y o th er h o use s o f i ts k in d , th e p la ce i s c ap acio us y et
anyth in g b ut p re te nti o us. L ilie nth al, w earin g g ra y s la cks a nd a p la id s p orts s h ir t, m et m e a t th e fr o nt
door. A t ju st p ast s ix ty , h e w as a ta ll, tr im m an w ith a r e ced in g h air lin e, a s lig htl y h aw klik e p ro file ,
and c and id , p ie rc in g e yes. H e le d m e in to th e liv in g r o om , w here h e in tr o duced M rs . L ilie nth al a nd
th en p oin te d o ut a c o up le o f h o use ho ld tr e asu re s— a l a rg e O rie nta l r u g i n f r o nt o f th e f ir e p la ce, w hic h
he s a id w as a g ift fr o m th e S hah o f Ir a n, a nd , h angin g o n th e w all o pposite th e fir e p la ce, a C hin ese
sc ro ll o f th e l a te n in ete enth c entu ry s h o w in g f o ur r a th er r o guis h m en, w ho , h e to ld m e, h av e a s p ecia l
meanin g fo r him , sin ce th ey are up per-m id dle -ra nk civ il se rv ants . Poin ti n g to a parti c ula rly
enig m ati c -lo okin g fe llo w , h e a d ded , w ith a s m ile , th at h e a lw ays th o ught o f th at o ne a s h is O rie nta l
co unte rp art.
Mrs . L ilie nth al w ent to g et c o ffe e, a nd w hile s h e w as g o ne, I a sk ed L ilie nth al to te ll m e s o m eth in g
of h is p ost- g o vern m ent life , s ta rti n g
a t th e b egin nin g. “ A ll r ig ht,” h e s a id . “ T he b egin nin g: I le ft th e
A.E .C . fo r a n um ber o f re aso ns. In th at k in d o f w ork , I fe el, a fe llo w is h ig hly e xp end ab le . If y o u sta yed to o l o ng, y o u m ig ht f in d y o urs e lf p la cati n g i n d ustr y o r th e m ilita ry , o r b oth — build in g u p w hat
would a m ount to a n a to m ic p ork b arre l. A no th er th in g— I w ante d to b e a llo w ed to s p eak m y m in d
more fr e ely th an I c o uld a s a g o vern m ent o ffic ia l. I fe lt I’ d se rv ed m y te rm . S o I tu rn ed in m y
re sig nati o n i n N ovem ber, 1 949, a nd i t w ent i n to e ffe ct th re e m onth s l a te r. A s f o r th e ti m in g, I r e sig ned
th en b ecause , fo r o nce, I w asn ’t u nd er fir e . O rig in ally , I’ d p la nned to d o it e arlie r in 1 949, b ut th en
cam e th e la st C ongre ssio nal atta ck on m e— th e ti m e H ic kenlo oper, of Io w a, accuse d m e of
‘in cre d ib le m is m anagem ent.’ ” I n o ti c ed th at L ilie nth al d id n o t s m ile in r e fe rrin g to th e H ic kenlo oper
affa ir. “ I e nte re d p riv ate life w ith b oth tr e p id ati o n a nd re lie f,” h e w ent o n. “ T he tr e p id ati o n w as
ab out m y a b ility to m ake a liv in g, a nd it w as v ery r e al. O h, I’ d b een a p ra cti c in g la w yer a s a y o ung
man, in C hic ago , b efo re g o in g in to g o vern m ent w ork , a nd m ad e q uite a lo t o f m oney a t it, to o. B ut
no w I d id n’t
want
to p ra cti c e l a w . A nd I w as w orrie d a b out w hat e ls e I c o uld d o. I w as s o o bse sse d
with th e s u b je ct th at I h arp ed o n it a ll th e ti m e, a nd m y w ife a nd m y fr ie nd s b egan to k id m e. T hat
Chris tm as o f 1 949, m y w ife g av e m e a b eggar’s ti n c up , a nd o ne o f m y f r ie nd s g av e m e a g uita r to g o
with i t. T he f e elin g o f r e lie f— well, th at w as a m atte r o f p ers o nal p riv acy a nd f r e ed om . A s a p riv ate
citi z e n, I w ould n’t h av e to b e tr a ile d a ro und b y h o rd es o f s e curity o ffic ers a s I h ad b een a t th e A .E .C .
I w ould n’t h av e to a nsw er th e c harg es o f C ongre ssio nal c o m mitte es. A nd , a b ove a ll, I’ d b e a b le to
ta lk f r e ely to m y w ife a gain .”
Mrs . L ilie nth al h ad r e tu rn ed w ith th e c o ffe e a s h er h usb and w as ta lk in g, a nd n o w s h e s a t d ow n w ith
us. S he c o m es, I k new , fr o m a fa m ily o f p io neers w ho , o ver s e v era l g enera ti o ns, m oved w estw ard
fr o m N ew E ngla nd to O hio to In d ia na to O kla ho m a, w here s h e w as b orn . S he s e em ed to m e to lo ok
th e p art— th at o f a w om an o f d ig nity , p ati e nce, p ra cti c ality , a nd g entl e s tr e ngth . “ I c an te ll y o u th at m y
husb and ’s r e sig nati o n w as a r e lie f to
me
,” s h e s a id . “ B efo re h e w ent w ith th e A .E .C ., w e’d a lw ays
ta lk ed o ver a ll a sp ects o f h is w ork . W hen h e to ok th at j o b, w e a gre ed b etw een u s
th at a lth o ugh w e’d
in d ulg e in th e d is c ussio n o f p ers o naliti e s a s fr e ely a s w e p le ase d , h e w ould n ev er te ll m e a nyth in g
ab out th e w ork o f th e A .E .C . th at I c o uld n’t r e ad i n th e n ew sp ap ers . I t w as a te rrib le c o nstr a in t to b e
und er.”
Lilie nth al n o dded . “ I’ d c o m e h o m e a t n ig ht w ith s o m e f r ig htf u l e xp erie nce i n m e,” h e s a id . “ N o o ne
who s o m uch a s to uches th e a to m is e v er q uite th e s a m e a gain . P erh ap s I’ d h av e b een in a s e rie s o f
co nfe re nces a nd l is te ned to th e k in d o f ta lk th at m any m ilita ry a nd s c ie nti fic m en g o i n f o r— citi e s f u ll
of h um an b ein gs re fe rre d to a s ‘ta rg ets ,’ a nd th at s o rt o f th in g. I n ev er g o t u se d to th at im pers o nal
ja rg o n. I ’ d c o m e h o m e s ic k a t h eart. B ut I c o uld n’t ta lk a b out i t to H ele n. I w asn ’t a llo w ed to g et i t o ff
my c hest.”
“A nd n o w th ere w ould n’t b e a ny m ore h earin gs,” M rs . L ilie nth al s a id . “ T ho se te rrib le h earin gs!
I’ ll n ev er f o rg et o ne W ash in gto n c o ckta il p arty w e w ent to , f o r o ur s in s. M y h usb and h ad b een g o in g
th ro ugh o ne o f th e e nd le ss s e rie s o f C ongre ssio nal h earin gs. A w om an i n a f u nny h at c am e g ush in g u p
to h im a nd s a id s o m eth in g lik e ‘ O h, M r. L ilie nth al, I w as
so
a nxio us to c o m e to y o ur h earin gs, b ut I
ju st c o uld n’t m ake i t. I ’ m s o s o rry . I j u st
lo ve
h earin gs, d on’t y o u?’”
Husb and a nd w ife l o oked a t e ach o th er, a nd th is ti m e L ilie nth al m anaged a g rin .
LIL IE N TH AL
s e em ed g la d to g et o n to w hat h ap pened n ext. A t a b out th e ti m e h is r e sig nati o n b ecam e
effe cti v e, h e to ld m e, h e w as a p pro ached b y v ario us m en fr o m H arv ard re p re se nti n g th e fie ld s o f
his to ry , p ub lic a d m in is tr a ti o n, a nd l a w , w ho a sk ed h im to a ccep t a n a p poin tm ent to th e f a culty . B ut h e
decid ed h e d id n’t w ant to b eco m e a p ro fe sso r a ny m ore th an h e w ante d to p ra cti c e la w . W ith in th e
next fe w w eeks c am e o ffe rs fr o m n um ero us la w fir m s in N ew Y ork a nd W ash in gto n, a nd fr o m s o m e
in d ustr ia l c o m panie s. R eassu re d b y th ese th at h e w as n o t g o in g to n eed th e ti n c up a nd g uita r a fte r a ll, Lilie nth al, a fte r m ullin g o ver th e o ffe rs , f in ally tu rn ed th em a ll d ow n a nd s e ttl e d , i n M ay, 1 950, f o r a
part- ti m e jo b a s a c o nsu lta nt to th e c ele b ra te d b ankin g fir m o f L aza rd F rè re s & C o., w ho se s e nio r
partn er, A nd ré M eyer, h e h ad
m et th ro ugh A lb ert L ask er, a m utu al fr ie nd . L aza rd g av e h im a n o ffic e
in its h ead quarte rs a t 4 4 W all, b ut b efo re h e c o uld d o m uch c o nsu lti n g, h e w as o ff o n a le ctu re to ur
acro ss th e U nite d S ta te s, f o llo w ed b y a tr ip to E uro pe th at s u m mer, w ith h is w ife , o n b ehalf o f th e l a te
Collie r’s
m agazin e. T he tr ip d id n o t r e su lt i n a ny a rti c le s, th o ugh, a nd o n r e tu rn in g h o m e i n th e f a ll h e
fo und it n ecessa ry to g et b ack o n a fu ll- ti m e in co m e-p ro ducin g b asis ; th is h e d id b y b eco m in g a
co nsu lta nt to vario us oth er co m panie s, am ong th em th e Carrie r Corp ora ti o n and th e Rad io
Corp ora ti o n o f A meric a. T o C arrie r he o ffe re d ad vic e o n m anageria l p ro ble m s. F or R .C .A ., he
work ed o n th e q uesti o n o f c o lo r te le v is io n, u lti m ate ly a d vis in g h is c lie nt to c o ncentr a te o n te chnic al
re se arc h ra th er th an o n la w -c o urt s q uab ble s o ver p ate nts ; h e a ls o h elp ed p ers u ad e th e c o m pany to
pre ss its c o m pute r p ro gra m a nd to s ta y o ut o f th e c o nstr u cti o n o f a to m ic r e acto rs . E arly in 1 951, h e
to ok a no th er tr ip a b ro ad f o r
Collie r’s
—to I n d ia , P akis ta n, T haila nd , a nd J a p an. T his tr ip p ro duced a n
arti c le — pub lis h ed in
Collie r’s
th at A ugust— in w hic h h e p ro pose d a s o lu ti o n to th e d is p ute b etw een
In d ia a nd P akis ta n o ver K ash m ir a nd th e h ead w ate rs o f th e I n d us R iv er. L ilie nth al’s i d ea w as th at th e
te nsio n b etw een th e tw o c o untr ie s c o uld b est b e l e sse ned b y a c o öpera ti v e p ro gra m to i m pro ve l iv in g
co nd iti o ns in th e w ho le d is p ute d a re a th ro ugh e co no m ic d ev elo pm ent o f th e In d us B asin . N in e y ears
la te r, la rg ely th ro ugh th e fin ancia l b ackin g a nd m ora l su p port o f E ugene R . B la ck a nd th e W orld
Bank, th e L ilie nth al p la n w as e sse nti a lly a d opte d , a nd a n In d us tr e aty sig ned b etw een In d ia a nd
Pakis ta n. B ut th e im med ia te re acti o n to his arti c le w as genera l in d iffe re nce, and Lilie nth al,
te m pora rily s ty m ie d a nd c o nsid era b ly d is illu sio ned , o nce m ore s e ttl e d d ow n to th e h um ble r p ro ble m s
of p riv ate b usin ess.
At th is p oin t in L ilie nth al’s n arra ti v e, th e d oorb ell r a ng. M rs . L ilie nth al w ent to a nsw er it, a nd I
co uld h ear h er ta lk in g to s o m eo ne— a g ard ener, e v id entl y — ab out th e p ru nin g o f s o m e ro se s. A fte r
lis te nin g r e stl e ssly fo r a m in ute o r tw o, L ilie nth al c alle d to h is w ife , “ H ele n, p le ase te ll D om enic to
pru ne th o se r o se s f a rth er b ack th an h e d id l a st y ear!” M rs . L ilie nth al w ent o uts id e w ith D om enic , a nd
Lilie nth al re m ark ed , “ D om enic a lw ays p ru nes to o g entl y , to m y w ay o f th in kin g. It’ s a c ase o f o ur
backgro und s
—Ita ly v ers u s th e M id dle W est.” T hen, r e su m in g w here h e h ad le ft o ff, h e s a id th at h is
asso cia ti o n w ith L aza rd F rè re s, a nd m ore p arti c ula rly w ith M eyer, h ad le d h im in to a n a sso cia ti o n,
fir s t a s a c o nsu lta nt a nd la te r a s a n e xecuti v e, w ith a s m all c o m pany c alle d th e M in era ls S ep ara ti o n
North A meric an C orp ora ti o n, in w hic h L aza rd F rè re s h ad a la rg e in te re st. It w as in th is u nd erta kin g
th at, u nexp ecte d ly , h e m ad e h is fo rtu ne. T he c o m pany w as in tr o ub le , a nd M eyer’s n o ti o n w as th at
Lilie nth al m ig ht b e th e m an to d o so m eth in g a b out it. S ub se q uentl y , in th e c o urs e o f a se rie s o f
merg ers , a cq uis iti o ns, a nd o th er m aneuv ers , th e c o m pany’s n am e w as c hanged to , s u ccessiv ely , th e
Atta p ulg us M in era ls & C hem ic als C orp ora ti o n, th e M in era ls & C hem ic als C orp ora ti o n o f A meric a,
and , in 1 960, th e M in era ls & C hem ic als P hilip p C orp ora ti o n; m eanw hile , its a nnual re ceip ts ro se
fr o m a b out s e v en h und re d a nd fifty th o usa nd d olla rs , fo r 1 952, to s o m eth in g o ver tw o h und re d a nd
se v enty -fo ur m illio n, f o r 1 960. F or L ilie nth al, th e a ccep ta nce o f M eyer’s c o m mis sio n to l o ok i n to th e
co m pany’s affa ir s w as th e begin nin g of a fo ur-y ear im mers io n in th e day-to -d ay pro ble m s of
managin g a b usin ess; th e e xp erie nce, h e s a id d ecis iv ely , tu rn ed o ut to b e o ne o f h is l ife ’s r ic hest, a nd
by n o m eans o nly i n th e l ite ra l s e nse o f th at w ord .
I H AVE
r e co nstr u cte d th e c o rp ora te f a cts b ehin d L ilie nth al’s e xp erie nce p artl y f r o m w hat h e to ld m e i n
Prin ceto n, p artl y fr o m a s u b se q uent s tu d y o f s o m e o f th e c o m pany’s p ub lis h ed d ocum ents , a nd p artl y
fr o m ta lk s w ith o th er p ers o ns i n te re ste d i n th e f ir m . M in era ls S ep ara ti o n N orth A meric an, w hic h w as fo und ed in 1 916 a s a n o ffs h o ot o f a B riti s h fir m , w as a p ate nt c o m pany, d eriv in g its c hie f in co m e
fr o m r o yalti e s o n p ate nts fo r p ro cesse s u se d in r e fin in g c o pper o re a nd th e o re s o f o th er n o nfe rro us
min era ls . Its a cti v iti e s w ere tw ofo ld — atte m pti n g to d ev elo p n ew p ate nts in its r e se arc h la b ora to ry ,
and o ffe rin g te chnic al s e rv ic es to th e m in in g a nd m anufa ctu rin g c o m panie s th at l e ase d i ts o ld o nes. B y
1950, a lth o ugh i t w as s ti ll n etti n g a n ic e a nnual p ro fit, i t w as i n a b ad w ay. U nd er th e d ir e cti o n o f i ts
lo ng-ti m e p re sid ent, D r. S eth G re go ry — who w as th en o ver n in ety b ut s ti ll r u le d th e c o m pany w ith a n
ir o n h and , c o m muti n g d aily b etw een h is m id to w n a p artm ent
h o te l a nd h is o ffic e, a t 1 1 B ro ad w ay, i n a
re gally p urp le R olls -R oyce— it h ad c ut d ow n i ts r e se arc h a cti v iti e s to a lm ost n o th in g a nd w as l iv in g
on h alf a d oze n o ld p ate nts , a ll o f w hic h w ere s c hed ule d to g o i n to th e p ub lic d om ain i n f r o m f iv e to
eig ht y ears . I n e ffe ct, i t w as a s ti ll h ealth y c o m pany l iv in g u nd er a d eath s e nte nce. L aza rd F rè re s, a s a
la rg e sto ckho ld er, w as und ers ta nd ab ly co ncern ed . D r. G re go ry w as pers u ad ed to re ti r e on a
hand so m e p ensio n, a nd i n F eb ru ary , 1 952, a fte r w ork in g w ith M in era ls S ep ara ti o n f o r s o m e ti m e a s a
co nsu lta nt, L ilie nth al w as in sta lle d as th e co m pany’s pre sid ent and a m em ber of its board of
dir e cto rs . H is fir s t ta sk w as to fin d a n ew s o urc e o f in co m e to r e p la ce th e fa st- e xp ir in g p ate nts , a nd
he a nd th e o th er d ir e cto rs a gre ed th at th e w ay to a cco m plis h th is w as th ro ugh a m erg er; it fe ll to
Lilie nth al to p arti c ip ate i n a rra ngin g o ne b etw een M in era ls S ep ara ti o n a nd a no th er c o m pany i n w hic h
Laza rd F rè re s— alo ng w ith th e W all S tr e et fir m o f F . E bers ta d t & C o.— had la rg e h o ld in gs: th e
Atta p ulg us C la y C om pany, o f A tta p ulg us, G eo rg ia , w hic h p ro duced a v ery ra re k in d o f c la y th at is
use fu l in p urify in g p etr o le um p ro ducts , a nd w hic h m anufa ctu re d v ario us h o use ho ld p ro ducts , a m ong
th em a f lo or c le aner c alle d S peed i- D ri.
As a m arria ge b ro ker b etw een M in era ls S ep ara ti o n a nd A tta p ulg us, L ilie nth al h ad th e to uchy j o b o f
pers u ad in g th e e xecuti v es o f th e S outh ern c o m pany th at th ey w ere n o t b ein g u se d a s p aw ns b y a b unch
of ra p acio us W all S tr e et b ankers . B ein g an agent o f th e b ankers w as an unaccusto m ed ro le fo r
Lilie nth al, b ut h e e v id entl y c arrie d it o ff w ith a p lo m b, d esp ite th e fa ct th at h is p re se nce c o m plic ate d
th e e m oti o nal p ro ble m s s ti ll fu rth er b y in tr o ducin g in to th e s itu ati o n a w hiff o f g allo pin g S ocia lis m .
“D av e w as v ery e ffe cti v e in b uild in g u p th e A tta p ulg us p eo ple ’s m ora le a nd c o nfid ence,” a no th er
Wall S tr e ete r h as to ld m e. “ H e r e co ncile d th em to th e m erg er, a nd s h o w ed th em its a d vanta ges fo r
th em .” L ilie nth al h im se lf to ld m e, “ I fe lt a t h o m e in th e a d m in is tr a ti v e a nd te chnic al p arts o f th e jo b,
but th e f in ancia l p art h ad to b e d one b y th e p eo ple f r o m L aza rd a nd E bers ta d t. E very ti m e th ey b egan
ta lk in g a b out s p in o ffs a nd e xchanges o f s h are s, I w as lo st. I d id n’t e v en k no w w hat a s p in o ff
was
.”
(A s L ilie nth al k no w s n o w , i t i s , n o t to g et to o te chnic al a b out i t, a d iv is io n o f a c o m pany i n to
tw o o r
more c o m panie s— th e o pposite o f a m erg er.) T he m erg er to ok p la ce in D ecem ber, 1 952, a nd n eith er
th e A tta p ulg us p eo ple n o r th e M in era ls S ep ara ti o n p eo ple h ad a ny r e aso n to r e gre t it, b ecause b oth
th e p ro fits a nd th e s to ck p ric e o f th e n ew ly fo rm ed c o m pany— th e A tta p ulg us M in era ls & C hem ic als
Corp ora ti o n— so on b egan to ris e . A t th e ti m e o f th e m erg er, L ilie nth al w as m ad e c hair m an o f th e
board o f d ir e cto rs , a t a n a nnual s a la ry o f e ig hte en th o usa nd d olla rs . O ver th e n ext th re e y ears , w hile
se rv in g f ir s t i n th is p ositi o n a nd l a te r a s c hair m an o f th e e xecuti v e c o m mitte e, h e h ad a l a rg e p art n o t
only in th e c o nd uct o f th e c o m pany’s r o uti n e a ffa ir s b ut a ls o in its fu rth er g ro w th th ro ugh a s e rie s o f
new m erg ers — one i n 1 954, w ith E dgar B ro th ers , a l e ad in g p ro ducer o f k ao lin f o r p ap er c o ati n g, a nd
tw o in 1 955, w ith a p air o f lim esto ne c o ncern s in O hio a nd V ir g in ia . T he m erg ers a nd th e in cre ase d
effic ie ncy th at w ent w ith th em w ere n o t l o ng i n p ayin g o ff; b etw een 1 952 a nd 1 955 th e c o m pany’s n et
pro fit p er s h are m ore th an q uin tu p le d .
The m echanic s o f L ilie nth al’s o w n r is e f r o m th e c o m para ti v e r a gs o f a p ub lic s e rv ant to th e r ic hes
of a s u ccessfu l e ntr e p re neur a re b ald ly o utl in ed i n th e c o m pany’s p ro xy s ta te m ents f o r i ts a nnual a nd
sp ecia l sto ckho ld ers ’ m eeti n gs. (T here are fe w pub lic docum ents m ore in d is c re et th an pro xy sta te m ents , in w hic h th e p re cis e p riv ate sto ckho ld in gs o f d ir e cto rs m ust b e lis te d .) In N ovem ber,
1952, M in era ls S ep ara ti o n N orth A meric an g ra nte d L ilie nth al, a s a s u p ple m ent to h is a nnual s a la ry , a
sto ck o pti o n.
* H is o pti o n e nti tl e d h im to b uy a s m any a s f ifty th o usa nd s h are s o f th e f ir m ’s s to ck f r o m
its tr e asu ry a t $ 4.8 7½ p er s h are , th en th e g o in g r a te , a ny ti m e b efo re th e e nd o f 1 955, a nd i n e xchange
he s ig ned a c o ntr a ct a gre ein g to s e rv e th e c o m pany a s a n a cti v e e xecuti v e th ro ugho ut 1 953, 1 954, a nd
1955. T he p ote nti a l fin ancia l a d vanta ge to h im , o f c o urs e , a s to a ll o th er r e cip ie nts o f s to ck o pti o ns,
la y in th e fa ct th at if th e p ric e o f th e s to ck r o se s u b sta nti a lly , h e c o uld b uy s h are s a t th e o pti o n p ric e
and th us h av e a h o ld in g th at w ould i m med ia te ly b e w orth m uch m ore th an h e p aid f o r i t. F urth erm ore ,
and m ore i m porta nt, i f h e s h o uld l a te r d ecid e to s e ll h is s h are s, th e p ro ceed s w ould b e a c ap ita l g ain ,
ta xab le a t a m axim um ra te o f 2 5% . O f c o urs e , if th e sto ck fa ile d to g o u p , th e
o pti o n w ould b e
worth le ss. B ut, l ik e s o m any s to cks o f th e m id -fifti e s, L ilie nth al’s d id g o u p , f a nta sti c ally . B y th e e nd
of 1 954, a cco rd in g to th e p ro xy s ta te m ents , L ilie nth al h ad e xerc is e d h is o pti o n to th e e xte nt o f b uyin g
tw elv e th o usa nd s e v en h und re d a nd fifty s h are s, w hic h w ere th en w orth n o t $ 4.8 7½ e ach b ut a b out
$20. In F eb ru ary , 1 955, he so ld o ff fo ur th o usa nd sh are s at $ 22.7 5 each, b rin gin g in nin ety -o ne
th o usa nd d olla rs . T his s u m , le ss c ap ita l- g ain s ta x, w as th en a p plie d a gain st fu rth er p urc hase s u nd er
th e o pti o n, a nd in A ugust, 1 955, th e p ro xy s ta te m ents s h o w , L ilie nth al r a is e d h is h o ld in gs to a lm ost
fo rty th o usa nd s h are s, o r c lo se to th e n um ber h e h eld a t th e ti m e o f m y v is it to h im . B y th at ti m e, th e
sto ck, w hic h h ad a t f ir s t b een s o ld o ver th e c o unte r, n o t o nly h ad a chie v ed a l is ti n g o n th e N ew Y ork
Sto ck E xchange b ut h ad b eco m e o ne o f th e E xchange’s h ig hfly in g s p ecula ti v e f a v orite s; i ts p ric e h ad
sk yro ckete d to a b out fo rty d olla rs a s h are , a nd L ilie nth al, o bvio usly , w as s o lid ly in th e m illio nair e
cla ss. M ore o ver, th e c o m pany w as n o w o n a s o und lo ng-te rm b asis , p ayin g a n a nnual c ash d iv id end
of f ifty c ents a s h are , a nd th e L ilie nth al f a m ily ’s f in ancia l w orrie s w ere p erm anentl y o ver.
Fis c ally sp eakin g, L ilie nth al to ld m e, h is sy m bolic m om ent o f tr iu m ph w as th e d ay, in Ju ne o f
1955, w hen th e sh are s o f M in era ls & C hem ic als gra d uate d to a lis ti n g o n th e N ew Y ork S to ck
Exchange. I n a cco rd ance w ith c usto m , L ilie nth al, a s a to p o ffic er, w as i n v ite d o nto th e f lo or to s h ake
hand s w ith th e p re sid ent o f th e E xchange a nd b e sh o w n a ro und g enera lly . “ I w ent th ro ugh it in a
daze ,” L ilie nth al to ld m e. “ U nti l th en, I ’ d n ev er b een i n sid e a ny s to ck e xchange i n m y l ife . I t w as a ll
myste rio us a nd f a sc in ati n g. N o z o o c o uld h av e s e em ed m ore s tr a nge to m e.” H ow th e S to ck E xchange
fe lt a t th is s ta ge a b out h av in g th e f o rm er w eare r o f h o rn s o n i ts f lo or i s n o t r e co rd ed .
IN
te llin g m e a b out h is e xp erie nce w ith th e c o m pany, L ilie nth al h ad s p oken w ith z e st a nd h ad m ad e
th e w ho le th in g s o und m yste rio us a nd f a sc in ati n g. I a sk ed h im w hat, a p art f r o m th e o bvio us f in ancia l
in d ucem ent, h ad le d h im to d ev ote h im se lf to th e a ffa ir s o f a s m all fir m , a nd h o w it h ad fe lt fo r th e
fo rm er b oss o f T .V .A . and A .E .C . to b e, in effe ct, p ed dlin g A tta p ulg ite , kao lin , lim esto ne, and
Speed i- D ri. L ilie nth al l e aned b ack i n h is c hair a nd
s ta re d a t th e c eilin g. “ I w ante d a n e ntr e p re neuria l
exp erie nce,” h e s a id . “ I f o und a g re at a p peal i n th e i d ea o f ta kin g a s m all a nd q uite c rip ple d c o m pany
and tr y in g to m ake s o m eth in g o f it. B uild in g. T hat k in d o f b uild in g, I th o ught, is th e c entr a l th in g in
Americ an fr e e e nte rp ris e , a nd s o m eth in g I’ d m is se d in a ll m y g o vern m ent w ork . I w ante d to tr y m y
hand a t it. N ow , a b out h o w it fe lt. W ell, it fe lt p le nty e xciti n g. It w as fu ll o f in te lle ctu al s ti m ula ti o n,
and a lo t o f m y o ld id eas c hanged . I c o nceiv ed a g re at n ew r e sp ect fo r fin ancie rs — men lik e A nd ré
Meyer. T here ’s a co rre ctn ess ab out th em , a certa in hig h se nse o f ho no r, th at I’ d nev er had any
co ncep ti o n o f. I fo und th at b usin ess life is fu ll o f c re ati v e, o rig in al m in d s— alo ng w ith th e u su al
num ber o f s e co nd -g uesse rs , o f c o urs e . F urth erm ore , I fo und it s e d ucti v e. In fa ct, I w as in d anger o f
beco m in g a s la v e. B usin ess h as its m an-e ati n g s id e, a nd p art o f th e m an-e ati n g s id e is th at it’ s s o
ab so rb in g. I fo und th at th e th in gs y o u r e ad — fo r in sta nce, th at a cq uir in g m oney fo r its o w n s a ke c an beco m e a n a d dic ti o n i f y o u’re n o t c are fu l— are l ite ra lly tr u e. C erta in g o od f r ie nd s h elp ed k eep m e o n
th e tr a ck— men lik e F erd in and E bers ta d t, w ho becam e m y fe llo w -d ir e cto r afte r th e A tta p ulg us
merg er, a nd N ath an G re ene, s p ecia l c o unse l to L aza rd F rè re s, w ho w as o n th e b oard fo r a w hile .
Gre ene w as a k in d o f b usin ess f a th er c o nfe sso r to m e. I r e m em ber h is s a yin g, ‘ Y ou th in k y o u’ll m ake
yo ur p ile a nd th en b e i n d ep end ent. M y f r ie nd , i n W all S tr e et y o u d on’t j u st w in y o ur i n d ep end ence a t
one s tr o ke. T o p ara p hra se T ho m as J e ffe rs o n, y o u h av e to w in y o ur in d ep end ence o ver a gain e v ery
day.’ I f o und th at h e w as r ig ht a b out th at. O h, I h ad m y p ro ble m s. I q uesti o ned m yse lf a t e v ery s te p . I t
was exhausti n g. Y ou se e, fo r so lo ng I’ d b een asso cia te d w ith tw o p re tty fa r-re achin g th in gs—
in sti tu ti o ns. I h ad a f e elin g o f i d enti ty w ith th em ; i n th at k in d o f w ork y o u a re a b le to l o se y o ur s e nse
of s e lf. N ow , w ith m yse lf to w orry a b out— my p ers o nal s ta nd ard s a s w ell a s m y fin ancia l fu tu re — I
fo und m yse lf w ond erin g a ll th e ti m e w heth er I w as m akin g th e r ig ht m ove. B ut th at p art’ s a ll in m y
jo urn al, a nd y o u c an r e ad i t th ere , i f y o u l ik e.”
*
I s a id I c erta in ly w ould l ik e to r e ad i t, a nd L ilie nth al l e d m e to h is s tu d y, i n th e b ase m ent. I t p ro ved
to b e a g o od-s iz e d r o om w ho se w in d ow s o pened o n w in d ow w ells in to w hic h s tr a nd s o f iv y w ere
tr a ilin g; lig ht c am e in fr o m o uts id e, a nd e v en a littl e s la nti n g s u nsh in e, b ut th e to ps o f th e w in d ow
wells w ere to o h ig h to p erm it a v ie w o f th e g ard en o r th e n eig hb orh o od. L ilie nth al r e m ark ed , “ M y
neig hb or R obert O ppenheim er c o m pla in ed a b out th e e nclo se d fe elin g w hen h e fir s t s a w th is r o om . I
to ld h im th at w as j u st th e f e elin g I w ante d !” T hen h e s h o w ed m e a f ilin g c ab in et, s ta nd in g i n a c o rn er;
it c o nta in ed th e j o urn al, i n r o w s a nd r o w s o f l o ose -le af n o te b ooks, th e e arlie st o f th em d ati n g b ack to
its a uth o r’s h ig h-s c ho ol d ays. H av in g in v ite d m e to m ake m yse lf a t h o m e, L ilie nth al le ft m e a lo ne in
his s tu d y a nd w ent b ack u p sta ir s .
Takin g h im a t h is w ord , I w ent fo r a tu rn o r tw o a ro und th e r o om , lo okin g a t th e p ic tu re s o n th e
walls a nd fin d in g a b out w hat m ig ht h av e b een e xp ecte d : in sc rib ed p ho to gra p hs fr o m F ra nklin D .
Roose v elt, H arry S . T ru m an, S enato r G eo rg e N orris , L ouis B ra nd eis ; p ic tu re s o f L ilie nth al w ith
Roose v elt, w ith W illk ie , w ith F io re llo L aG uard ia , w ith N els o n R ockefe lle r, w ith N ehru in In d ia ; a
nig ht v ie w o f th e F onta na D am , in th e T ennesse e V alle y, b ein g b uilt u nd er a b la ze o f e le ctr ic ity
su p plie d b y T .V .A . p ow er p la nts . A m an’s s tu d y r e fle cts h im se lf a s h e w is h es to b e s e en p ub lic ly , b ut
his jo urn al, if h e is h o nest, re fle cts s o m eth in g e ls e . I h ad n o t b ro w se d lo ng in L ilie nth al’s jo urn al
befo re I re aliz e d th at it w as a n e xtr a o rd in ary d ocum ent— no t m ere ly a h is to ric al s o urc e o f u nusu al
in te re st b ut a s e arc hin g r e co rd o f a p ub lic m an’s th o ughts a nd e m oti o ns. I l e afe d th ro ugh th e y ears o f
his asso cia ti o n w ith M in era ls & C hem ic als , and , sc atte re d am id m uch ab out fa m ily , D em ocra ti c
politi c s, f r ie nd s, tr ip s a b ro ad , r e fle cti o ns o n n ati o nal p olic ie s, a nd h o pes a nd f e ars f o r th e r e p ub lic , I
cam e u p on th e f o llo w in g e ntr ie s h av in g to d o w ith b usin ess a nd l ife i n N ew Y ork :
May 2 4, 1 951:
L ooks a s if I a m in th e m in era ls b usin ess. I n a s m all w ay, th at c ould b ecom e a b ig w ay. [ H e g oes o n to e xpla in th at h e
has ju st h ad h is f ir s t in te rv ie w w it h D r. G re gory , a nd is a ppare ntly a ccepta ble to th e o ld m an a s th e n ew p re sid ent o f th e c om pany.]
May 3 1, 1 951:
[ S ta rtin g in b usin ess] is lik e le arn in g to w alk a fte r a lo ng illn ess.… A t f ir s t y ou h ave to
th in k:
m ove th e r ig ht f o ot, m ove
th e le ft fo ot, e tc . T hen y ou a re w alk in g w it h out th in kin g, a nd th en w alk in g is so m eth in g o ne d oes w it h u nconsc io usn ess a nd u tte r
confid ence. T his la tte r s ta te , a s to b usin ess, h as y et to c om e, b ut I h ad th e f ir s t to uch o f it to day.
Ju ly 2 2, 1 951:
I re call W endell W illk ie s a yin g to m e y ears a go, “ L iv in g in N ew Y ork is a g re at e xperie nce. I w ould n’t liv e a nyw here
els e . It is th e m ost e xcit in g, s tim ula tin g, s a tis fy in g s p ot in th e w orld ,” e tc . I th in k th is w as a pro pos o f s o m e re m ark I h ad m ade o n a
busin ess v is it to N ew Y ork — th at I w as c erta in ly g la d I d id n’t
have
to liv e in th at m adhouse o f n ois e a nd d ir t. [ L ast] T hurs d ay w as a d ay
in w hic h I s h are d s o m e o f W illk ie ’s f e elin g.… T here w as a g ra ndeur a bout th e p la ce, a nd a dventu re , a s e nse o f b ein g in th e c ente r o f a
gre at a chie vem ent, N ew Y ork C it y in th e f if tie s.
Octo ber 2 8, 1 951:
W hat I a m re achin g fo r, p erh aps, is to h ave m y c ake a nd e at it , to o, b ut in a w ay th is is n ot w holly s e nse le ss n or fu tile . T hat is , I c an h ave e nough a ctu al c onta ct w it h th e a ffa ir s o f b usin ess to k eep a s e nse o f r e alit y , o r d evelo p o ne. H ow o th erw is e
can I e xpla in th e p le asu re I g et in v is it in g a c opper m in e o r ta lk in g to o pera to rs o f a n e le ctr ic fu rn ace, o r a c oal- re se arc h p ro je ct, o r
watc hin g h ow A ndré M eyer w ork s.… B ut a lo ng w it h th at I w ant to b e f re e e nough to th in k a bout w hat th ese th in gs m ean, f re e e nough
to re ad o uts id e th e im media te fie ld o f in te re st. T his re quir e s k eepin g o ut o f
sta tu s
(th e a bse nce o f w hic h I k now m akes m e v aguely
unhappy).
Decem ber 8 , 1 952:
W hat is it th at in vestm ent b ankers d o f o r th eir m oney? W ell, I h ave c erta in ly h ad m y e yes o pened, a s to th e a m ount
of to il, sw eat, fru str a tio ns, p ro ble m s— yes, a nd te ars — th at h as to b e g one th ro ugh.… If e very one w ho h as so m eth in g to se ll in th e
mark et h ad to b e a s m etic ulo us a nd d eta ile d in h is s ta te m ents a bout w hat h e is s e llin g a s th ose w ho o ffe r s to ck in th e m ark et a re n ow ,
under th e T ru th in S ecurit ie s la w , d arn lit tle w ould b e s o ld , in tim e to b e u se fu l, a t le ast.
Decem ber 2 0, 1 952:
M y p urp ose in th is A tta pulg us v entu re is to m ake a g ood d eal o f m oney in a s h ort tim e, in a w ay (i. e ., o ld m an
capit a l g ain s) th at e nable s m e to k eep th re e-fo urth s o f it , in ste ad o f p ayin g 8 0% o r m ore in in com e ta xes.… B ut th ere is a noth er p urp ose :
to h ave h ad th e e xperie nce o f b usin ess.… T he r e al r e aso n, o r th e c hie f r e aso n, is a f e elin g th at m y lif e w ould n’t b e c om ple te , liv in g in a
busin ess p erio d— th at is , a tim e d om in ate d b y th e b usin ess o f b usin ess— unle ss I h ad b een a ctiv e in th at a re a. W hat I w ante d w as to b e
an o bse rv er o f th is f a sc in atin g a ctiv it y th at s o c olo rs a nd a ffe cts th e w orld ’s
lif e , n ot … a n o bse rv er f ro m w it h out ( a s a w rit e r, te acher)
but f ro m th e a re na it s e lf . I s till h ave th is f e elin g, a nd w hen I g et lo w a nd g la d to c huck th e w hole th in g ( a s I h ave f ro m tim e to tim e), th e
su sta in in g p art is th at e ven th e b um ps a nd s o re s p ots a re e xperie nces, a ctu al e xperie nces w it h in th e b usin ess w orld .…
Then, to o, [ I w ante d to b e a ble to m ake] a c om paris o n o f th e m anagers o f b usin ess, th e s p ir it , th e te nsio ns, th e m otiv atio ns, e tc ., w it h
th ose o f g overn m ent ( s o m eth in g I k eep d oin g a nyw ay)— and th at n eeds d oin g to u nders ta nd e it h er g overn m ent o r b usin ess. T his r e quir e s
actu al v alid e xperie nce in th e b usin ess w orld s o m ew hat c om para ble to m y lo ng h ir in g o ut in g overn m ent m atte rs .
I d on’t k id m yse lf th at I w ill e ver b e a ccepte d a s a b usin essm an, n ot a fte r th ose lo ng y ears w hen I w ore h orn s, f o r a ll o f th em o uts id e
th e T ennesse e V alle y a t le ast. A nd I f e el le ss d efe nsiv e— usu ally s h ow n b y a b ellig ere nce— on th is s c ore th an I d id w hen I r a re ly s a w a
ty coon o r a W all S tr e ete r, w here as n ow I liv e w it h th em .…
Ja nuary 1 8, 1 953:
I a m n ow d efin it e ly c om mit te d [to M in era ls & C hem ic als ] fo r n ot le ss th an th re e m ore y ears … a nd m ora lly
com mit te d to s e e th e th in g th ro ugh. W hile I c an’t c onceiv e th at th is b usin ess w ill e ver s e em e nough, a n e nd o f it s e lf , to m ake u p a
sa tis fa cto ry lif e , y et th e b usy -n ess, th e a ctiv it y , th e c ris e s, th e g am ble s, th e m anagem ent p ro ble m s I m ust fa ce, th e ju dgm ent a bout
people , a ll c om bin e to m ake s o m eth in g f a r f ro m d ull. A dd to th is th e g ood c hance o f m akin g a g ood d eal o f m oney.… M y d ecis io n to tr y
busin ess— th at s e em ed to s o m any p eople a b it o f r o m antic m oonsh in e— makes m ore s e nse to day th an it d id a y ear a go.
But th ere is s o m eth in g m is sin g.…
Decem ber 2 , 1 953:
C ra w fo rd G re enew alt [ p re sid ent o f d u P ont] … in tr o duced m e in a s p eech ( in P hila delp hia ).… H e n ote d th at I h ad
ente re d th e c hem ic al b usin ess; b earin g in m in d th at I h ad p re vio usly h eaded th e b ig gest th in gs in A meric a, b ig ger th an [a ny] p riv ate
corp ora tio ns, h e w as n atu ra lly a lit tle n erv ous a bout s e ein g m e b ecom e a p ote ntia l c om petit o r. It w as k id din g, b ut it w as g ood k id din g.
And it c erta in ly g ave lit tle o le A tta pulg us q uit e a n otic e.
Ju ne 3 0, 1 954:
I h ave fo und a n ew k in d o f s a tis fa ctio n, a nd in a s e nse , fu lf illm ent, in a b usin ess c are er. I re ally n ever fe lt th at th e
“c onsu lt a nt” th in g w as b ein g a b usin essm an, o r e ngagin g in th e re alit ie s o f a lif e o f b usin ess. T oo re m ote fro m th e a ctu al th in kin g
pro cess, th e e xerc is e o f ju dgm ent a nd d ecis io n.… In th is c om pany, a s w e a re e volv in g it ,
th ere a re s o m any o f th e e le m ents o f fu n.…
The s ta rtin g w it h a lm ost n oth in g … th e c om pany d ependin g o n p ate nts a lo ne … a cquis it io n, m erg ers , s to ck is su es, p ro xy s ta te m ents , th e
meth ods o f f in ancin g in te rn ally a nd b y b ank lo ans … a ls o th e w ay s to ck p ric es a re m ade, th e s illy a nd a lm ost c hild lik e b asis u pon w hic h
gro w n m en d ecid e th at a s to ck s h ould b e b ought, a nd a t w hat p ric e … th e m erg er w it h E dgar, th e g re at [ s u bse quent] r is e in th e p ric e o f
th eir s to ck … th e r e vie w o f th e p ric e s tr u ctu re . T he b egin nin g o f b ette r c osts . T he c ata ly st id ea. T he d riv e a nd e nerg y a nd im agin atio n:
th e n ig hts a nd d ays ( in th e la b u ntil 2
A.M .
n ig ht a fte r n ig ht) a nd f in ally th e b egin nin g o f a n ew b usin ess.… I t is q uit e a s to ry .
(L ate r I go t a ra th er diffe re nt pers p ecti v e on Lilie nth al’s re acti o ns to th e tr a nsiti o n fr o m
go vern m ent to b usin ess b y ta lk in g to th e m an h e h ad d esc rib ed a s h is “ b usin ess fa th er c o nfe sso r,”
Nath an G re ene. “ W hat h ap pens to a m an w ho le av es to p-le v el g o vern m ent w ork a nd c o m es to W all
Str e et as a co nsu lta nt? ” G re ene ask ed m e rh eto ric ally . “W ell, usu ally it’ s a b ig le td ow n. In th e
go vern m ent, D av e w as use d to a se nse o f gre at auth o rity and p ow er— tr e m end ous nati o nal and
in te rn ati o nal r e sp onsib ility . P eo ple w ante d to b e s e en w ith h im . F ore ig n d ig nita rie s s o ught h im o ut.
He h ad a ll s o rts o f f a ciliti e s— ro w s o f b utto ns o n h is d esk . H e p ush ed th em , a nd l a w yers , te chnic ia ns,
acco unta nts ap peare d to d o his b id din g. A ll rig ht, no w he co m es to W all S tr e et. T here ’s a b ig welc o m in g re cep ti o n, h e m eets a ll th e p artn ers o f h is n ew fir m a nd th eir w iv es, h e’s g iv en a n ic e
offic e w ith a carp et. B ut th ere ’s no th in g o n his d esk — only o ne b utto n, and all it su m mons is a
se cre ta ry . H e d oesn ’t h av e p erq uis ite s lik e lim ousin es. F urth erm ore , h e r e ally h as n o r e sp onsib ility .
He s a ys to h im se lf, ‘ I’ m a n i d ea m an, I ’ v e g o t to h av e s o m e i d eas.’ H e h as s o m e, b ut th ey’re n o t g iv en
much a tte nti o n b y th e p artn ers . S o th e o utw ard f o rm o f h is n ew w ork i s a l e td ow n. T he s a m e w ith i ts
co nte nt. In W ash in gto n, it h ad b een d ev elo pm ent o f n atu ra l re so urc es, a to m ic e nerg y, o r th e lik e—
world -s h akin g th in gs. N ow it tu rn s o ut to b e s o m e littl e b usin ess to m ake m oney. It a ll s e em s a b it
petty .
“T hen, th ere ’s th e m atte r o f m oney i ts e lf. I n th e g o vern m ent, o ur h yp oth eti c al m an d id n’t n eed i t s o
bad ly . H e h ad a ll th ese s e rv ic es a nd th e b asic c o m fo rts s u p plie d h im a t n o p ers o nal c o st, a nd
b esid es
he h ad a g re at se nse o f m ora l su p erio rity . H e w as a b le to sn eer a t p eo ple w ho w ere o ut m akin g
money. H e c o uld th in k o f s o m eb ody i n h is l a w -s c ho ol c la ss w ho w as m akin g a p ile i n th e S tr e et, a nd
sa y, ‘ H e’s s o ld o ut.’ T hen o ur m an le av es g o vern m ent a nd g o es to th e W all S tr e et fle sh p ots h im se lf,
and h e s a ys, ‘ B oy, a m I g o in g to m ake th ese g uys p ay f o r m y s e rv ic es!’ T hey d o p ay, to o. H e g ets b ig
fe es f o r c o nsu lti n g. T hen h e f in d s o ut a b out b ig i n co m e ta xes, h o w h e h as to p ay m ost o f h is i n co m e to
th e g o vern m ent n o w i n ste ad o f g etti n g h is l iv elih o od f r o m i t. T he s h o e i s o n th e o th er f o ot. H e m ay—
so m eti m es h e d oes— begin to s c re am ‘ C onfis c ati o n!,’ j u st l ik e a ny o ld W all S tr e ete r.
“H ow d id D av e h and le th ese p ro ble m s? W ell, h e h ad h is tr o ub le s— afte r a ll, h e w as s ta rti n g a
se co nd s o rt o f life — but h e h and le d th em ju st a b out a s w ell a s th ey c an b e h and le d . H e w as n ev er
bore d , and he nev er sc re am ed ‘C onfis c ati o n!’ H e has a gre at cap acity fo r sin kin g him se lf in
so m eth in g. T he s u b je ct m atte r is n ’t s o im porta nt to h im . It’ s a lm ost a s if h e w ere a b le to th in k th at
what h e’s d oin g is im porta nt, w heth er it is o r n o t, sim ply
beca use
h e’s d oin g it. H is a b ility w as
in v alu ab le to M in era ls & C hem ic als , a nd n o t j u st a s a n a d m in is tr a to r. D av e i s a l a w yer, a fte r a ll; h e
kno w s m ore a b out c o rp ora te fin ances th an h e lik es to a d m it. H e e njo ys p la yin g th e b are fo ot b oy, b ut
he’s h ard ly th at. D av e is a n a lm ost p erfe ct e xam ple o f s o m eb ody w ho k ep t h is in d ep end ence w hile
getti n g r ic h o n W all S tr e et.” )
One w ay a nd a no th er, th en— re ad in g th ro ugh th ese a m biv ale nt p ro te sta ti o ns i n th e j o urn al, a nd l a te r
hearin g G re ene— I se em ed to d ete ct u nd er th e e xub era nce a nd th e a b so rp ti o n a n aggin g se nse o f
dis sa ti s fa cti o n, a lm ost o f c o m pro m is e . F or L ilie nth al, th e o bvio usly g enuin e th rill o f h av in g a n ew
kin d o f e xp erie nce, a nd a n a lm ost u nim agin ab ly p ro fita b le o ne, h ad b een, I s e nse d , a ro se w ith a
worm i n i t. I w ent b ack u p to th e l iv in g r o om . T here I f o und L ilie nth al f ia t o n h is b ack o n th e S hah’s
ru g u nd ern eath a p ile o f p re -s c ho ol- a ge c hild re n. A t le ast, it lo oked a t fir s t g la nce lik e a p ile ; o n
clo se r i n sp ecti o n I f o und th at i t c o nsis te d o f j u st tw o b oys. M rs . L ilie nth al, w ho h ad r e tu rn ed f r o m th e
gard en, in tr o duced th em a s A lle n a nd D anie l B ro m berg er, s o ns o f th e L ilie nth als ’ d aughte r, N ancy,
and S ylv ain B ro m berg er, a d din g th at th e
B ro m berg ers w ere l iv in g n earb y, s in ce S ylv ain w as te achin g
philo so phy at th e univ ers ity . (A fe w w eeks la te r, B ro m berg er m oved on to th e U niv ers ity of
Chic ago .) T he L ilie nth als ’ o nly o th er o ffs p rin g, D av id , J r., l iv ed i n E dgarto w n, M assa chuse tts , w here
he h ad s e ttl e d d ow n to b eco m e a w rite r, a s h e s u b se q uentl y d id . I n r e sp onse to th e u rg in g o f th e s e nio r
Lilie nth als , th e g ra nd child re n c lim bed o ff th eir g ra nd fa th er a nd d is a p peare d fr o m th e ro om . W hen
th in gs w ere n o rm al a gain , I to ld L ilie nth al m y r e acti o n to th e e ntr ie s I h ad r e ad i n th e j o urn al, a nd h e
hesita te d f o r a w hile b efo re s p eakin g. “ Y es,” h e s a id , f in ally . “ W ell, o ne th in g— it w asn ’t m akin g a ll
th at m oney th at w orrie d m e. T hat d id n’t m ake m e f e el e ith er g o od o r b ad , b y i ts e lf. I n th e g o vern m ent
years , w e’d a lw ays p aid o ur b ills , a nd b y s c rim pin g w e’d b een a b le to s a v e e no ugh to s e nd th e k id s
to c o lle ge. W e’d n ev er th o ught m uch a b out m oney. A nd th en m akin g a lo t o f it, m akin g a m illio n— I
was s u rp ris e d , o f c o urs e . I ’ d n ev er e sp ecia lly a im ed a t th at o r th o ught i t m ig ht h ap pen to m e. I t’ s l ik e when y o u’re a b oy a nd y o u tr y to ju m p s ix fe et. T hen y o u fin d y o u c an ju m p s ix fe et, a nd y o u s a y,
‘W ell, s o w hat? ’ It’ s s o rt o f ir re le v ant. O ver th e p ast fe w y ears , a lo t o f p eo ple h av e s a id to m e,
‘H ow d oes it fe el to b e ric h?’ A t fir s t, I w as k in d o f o ffe nd ed — th ere se em ed to b e a n im plie d
criti c is m i n th e q uesti o n— but I ’ m o ver th at. I te ll th em i t d oesn ’t f e el a ny s p ecia l w ay. T he w ay I f e el
is — But th is i s g o in g to s o und s tu ffy .”
“N o, I d on’t th in k i t’ s s tu ffy ,” s a id M rs . L ilie nth al, a nti c ip ati n g w hat w as c o m in g.
“Y es, it is , b ut I’ m g o in g to sa y it a nyw ay,” sa id L ilie nth al. “ I d on’t th in k m oney m akes m uch
diffe re nce, a s l o ng a s y o u h av e e no ugh.”
“I d on’t q uite a gre e,” s a id M rs . L ilie nth al. “ It d oesn ’t m ake m uch d iffe re nce w hen y o u’re y o ung.
You d on’t m in d th en, a s l o ng a s y o u c an s tr u ggle a lo ng. B ut a s y o u g et o ld er, i t
is
h elp fu l.”
Lilie nth al n o dded i n d efe re nce to th at. T hen h e s a id th at h e th o ught th e u nd erto ne o f d is sa ti s fa cti o n I
had n o ti c ed in th e jo urn al p ro bab ly s te m med , a t le ast in p art, fr o m th e fa ct th at h is c are er in p riv ate
busin ess, a b so rb in g th o ugh it w as, d id n o t b rin g w ith it th e g ra ti fic ati o ns o f p ub lic -s e rv ic e w ork .
Tru e, h e h ad n o t b een d ep riv ed o f th em e nti r e ly , b ecause it w as a t th e h eig ht o f h is
M in era ls &
Chem ic als o pera ti o ns, in 1 954, th at he fir s t w ent to C olo m bia , at th e re q uest o f th at co untr y ’s
go vern m ent, a nd , s e rv in g a s a p eso -a -y ear c o nsu lta nt, s ta rte d th e C auca V alle y p ro je ct th at w as l a te r
co nti n ued b y th e D ev elo pm ent & R eso urc es C orp ora ti o n. B ut f o r th e m ost p art b ein g a to p o ffic er o f
Min era ls & C hem ic als h ad k ep t h im p re tty w ell ti e d d ow n, a nd h e’d h ad to r e gard th e C olo m bia w ork
as a s id elin e, i f n o t m ere ly a h o bby. I f o und i t i m possib le to a v oid s e ein g s y m bolic s ig nific ance i n th e
fa ct th at th e p rin cip al m ate ria l w ith w hic h L ilie nth al th e b usin essm an h ad b een e ngaged w as— cla y.
I th o ught o f s o m eth in g e ls e i n L ilie nth al’s l ife a t th at ti m e th at m ig ht h av e ta ken s o m e o f th e k ic k o ut
of th e p ro cess o f b eco m in g a s u ccessfu l b usin essm an. H is “ B ig B usin ess” b ook h ad c o m e o ut w hen h e
was i n th e th ic k o f th e M in era ls & C hem ic als w ork . I w ond ere d w heth er, s in ce i t i s s u ch a n u ncriti c al
paean to f r e e e nte rp ris e , i t h ad b een c o nstr u ed b y s o m e p eo ple a s a r a ti o naliz a ti o n o f h is n ew c are er,
and I a sk ed a b out th is .
“W ell, th e id eas in th e b ook w ere r a th er a s h o ck to s o m e o f m y h usb and ’s N ew D eal fr ie nd s, a ll
rig ht,” M rs . L ilie nth al s a id , a b it d ry ly .
“T hey n eed ed s h o ckin g, d am n it! ” L ilie nth al b urs t o ut. H e s p oke w ith s o m e h eat, a nd I th o ught o f
th e p hra se i n h is j o urn al— use d th ere i n a n e nti r e ly d iffe re nt c o nte xt b ut s ti ll i n r e fe re nce to h im se lf—
ab out d efe nsiv eness s h o w n b y b ellig ere nce. A fte r a m om ent, h e w ent o n, i n a n o rm al to ne, “ M y w ife
and d aughte r th o ught I d id n’t s p end e no ugh ti m e w ork in g o n th e b ook, a nd th ey w ere r ig ht. I w ro te it
in to o m uch o f a h urry . M y c o nclu sio ns a re n’t s u p porte d b y e no ugh a rg um ent. F or o ne th in g, I s h o uld
hav e s p elle d o ut i n m ore d eta il m y o ppositi o n to th e w ay th e a nti tr u st l a w s a re a d m in is te re d . B ut th e
anti - tr u st p art w asn ’t th e r e al tr o ub le . T he th in g th at r e ally s h o ok u p s o m e o f m y o ld f r ie nd s w as w hat
I s a id a b out b ig in d ustr y in r e la ti o n to in d iv id ualis m , a nd a b out th e m achin e in r e la ti o n to a esth eti c s.
Morris C ooke, w ho u se d to b e a d m in is tr a to r o f th e R ura l E le ctr ific ati o n A dm in is tr a ti o n— he w as o ne
who w as s h aken u p . H e to ok m e a p art o ver th e b ook, a nd I to ok h im a p art b ack. T he a nti - b ig ness
dogm ati s ts sto pped hav in g anyth in g to d o w ith m e. T hey sim ply w ro te m e o ff.
I w asn ’t hurt o r
dis a p poin te d . T ho se p eo ple a re liv in g o n n o sta lg ia ; th ey lo ok b ackw ard , a nd I tr y to lo ok fo rw ard .
Then, o f c o urs e , th ere w ere th e tr u st b uste rs . T hey
re a lly
w ent a fte r m e. B ut i s n ’t tr u st b usti n g, i n th e
se nse o f b re akin g u p b ig c o m panie s s im ply b ecause th ey’re b ig , p re tty m uch a re lic o f a p ast e ra ?
Yes, I s ti ll th in k I w as r ig ht i n th e m ain th in gs I s a id — perh ap s a head o f m y ti m e, b ut r ig ht.”
“T he tr o ub le w as th e ti m in g,” M rs . L ilie nth al s a id . “ T he b ook c am e s o c lo se to c o in cid in g w ith m y
husb and ’s l e av in g p ub lic s e rv ic e a nd g o in g i n to p riv ate b usin ess. S om e p eo ple th o ught i t r e p re se nte d
a c hange i n p oin t o f v ie w i n d uced b y e xp ed ie ncy. W hic h i t d id n’t! ” “N o,” L ilie nth al s a id . “ T he b ook w as w ritte n m ostl y in 1 952, b ut a ll th e id eas in it w ere h atc hed
while I w as s ti ll i n p ub lic s e rv ic e. F or e xam ple , m y i d ea th at b ig ness i s e sse nti a l f o r n ati o nal s e curity
cam e in la rg e p art o ut o f m y exp erie nces in th e A .E .C . T he co m pany th at had th e re se arc h and
manufa ctu rin g fa ciliti e s to m ake th e ato m ic b om b an o pera ti o nal w eap on, so engin eere d th at it
would n’t r e q uir e P h.D .s to u se it in th e fie ld — Bell T ele p ho ne, to b e s p ecific — was a b ig c o m pany.
Because i t w as s o b ig , th e A nti - T ru st D iv is io n o f th e D ep artm ent o f J u sti c e w as s e ekin g to b re ak th e
Bell S yste m in to s e v era l p arts — unsu ccessfu lly , a s it tu rn ed o ut— at th e v ery ti m e w e in th e A .E .C .
were c allin g o n it to d o a v ita l d efe nse jo b th at r e q uir e d u nity . T hat s e em ed w ro ng. M ore g enera lly ,
th e w ho le p oin t o f v ie w I e xp re sse d i n th e b ook g o es w ay b ack to m y q uarre l w ith A rth ur M org an, th e
fir s t T .V .A . c hair m an, i n th e e arly th ir ti e s. H e h ad g re at f a ith i n a h and ic ra ft e co no m y, I w as f o r l a rg e-
sc ale in d ustr y . T .V .A ., a fte r a ll, w as, a nd is , th e b ig gest p ow er s y ste m in th e fr e e w orld . In T .V .A . I
alw ays b elie v ed in b ig ness— alo ng w ith d ecentr a liz a ti o n. B ut, y o u k no w , th e c hap te r I h o ped w ould
pro duce th e m ost d is c ussio n w as th e o ne o n b ig ness a s a p ro m ote r o f in d iv id ualis m . It
did
p ro duce
dis c ussio n, of a so rt. I re m em ber peo ple — acad em ic peo ple , m ostl y — co m in g up to m e w ith
in cre d ulo us e xp re ssio ns a nd s a yin g s o m eth in g th at s ta rte d w ith ‘ D o y o u
re a lly
b elie v e … ’ W ell, m y
answ er w ould s ta rt w ith ‘ Y es, I r e ally d o b elie v e … ’”
One o th er to uchy m atte r th at L ilie nth al m ay h av e q uesti o ned
h im se lf a b out i n th e p ro cess o f m akin g
his W all Str e et fo rtu ne w as th e fa ct th at in m akin g it he had no t re ally
need ed
to sc re am
“C onfis c ati o n,” s in ce h e h ad m ad e it th ro ugh a ta x lo opho le , th e s to ck o pti o n. P ossib ly th ere h av e
been l ib era l, r e fo rm is t b usin essm en w ho h av e r e fu se d to a ccep t s to ck o pti o ns o n p rin cip le , a lth o ugh I
hav e n ev er h eard o f o ne d oin g so , a nd I a m n o t c o nv in ced th at su ch a re nuncia ti o n w ould b e a
se nsib le o r u se fu l f o rm o f p ro te st. I n a ny e v ent, I d id n’t a sk L ilie nth al a b out th e m atte r; i n th e a b se nce
of a ny a ccep te d c o de o f jo urn alis m e v ery jo urn alis t w rite s h is o w n, a nd in m in e, s u ch a q uesti o n
would h av e c o m e c lo se to in v asio n o f m ora l p riv acy. In re tr o sp ect, th o ugh, I a lm ost w is h I h ad
vio la te d m y c o de th at o ne ti m e. L ilie nth al, b ein g L ilie nth al, m ig ht h av e o bje cte d to th e q uesti o n
str e nuo usly , b ut I th in k h e w ould h av e a nsw ere d i t e q ually s tr e nuo usly , a nd w ith o ut h ed gin g. A s th in gs
were , a fte r d is c o urs in g o n th e c riti c al r e acti o ns to h is b ook, “ B ig B usin ess,” h e g o t u p a nd w alk ed to
a w in d ow . “ I se e D om enic h as b een p re tty c auti o us a b out h is ro se -p ru nin g,” h e sa id to h is w ife .
“M ayb e I ’ ll g o o ut l a te r a nd c ut th em b ack s o m e m ore .” H is j a w w as s e t i n a w ay th at m ad e m e f e el
pre tty s u re I k new h o w th e r o se -p ru nin g c o ntr o vers y w as g o in g to b e r e so lv ed .
TH E
tr iu m phant s o lu ti o n to L ilie nth al’s p ro ble m — th e w ay th at h e e v entu ally fo und to h av e h is c ake
and e at i t— was th e D ev elo pm ent & R eso urc es C orp ora ti o n. T he c o rp ora ti o n a ro se o ut o f a s e rie s o f
co nv ers a ti o ns b etw een L ilie nth al and M eyer d urin g th e sp rin g o f 1 955, in th e co urs e o f w hic h
Lilie nth al p oin te d o ut th at h e w as w ell a cq uain te d w ith d oze ns o f fo re ig n d ig nita rie s a nd te chnic al
pers o nnel w ho h ad c o m e to v is it th e T .V .A ., a nd s a id th at th eir i n te nse i n te re st i n th at p ro je ct s e em ed
to in d ic ate th at a t le ast so m e o f th eir c o untr ie s w ould b e re cep ti v e to th e id ea o f sta rti n g sim ila r
pro gra m s. “ O ur a im i n f o rm in g D . & R . w as n o t to tr y to r e m old th e w orld , o r a ny l a rg e p art o f i t, b ut
only to tr y to h elp a cco m plis h s o m e r a th er s p ecific th in gs, a nd , i n cid enta lly , m ake a p ro fit,” L ilie nth al
to ld m e. “ A nd ré w as n o t s o s u re a b out th e p ro fit— we b oth k new th ere w ould b e a d efic it a t f ir s t— but
he lik ed th e id ea o f d oin g c o nstr u cti v e th in gs, a nd L aza rd F rè re s d ecid ed to b ack u s, in r e tu rn fo r a
half in te re st in th e c o rp ora ti o n.”
C la p p, w ho w as se rv in g at th e ti m e as d ep uty N ew Y ork C ity
ad m in is tr a to r, c am e i n a s c o -fo und er o f th e v entu re , a nd th e s u b se q uent e xecuti v e a p poin tm ents m ad e
D. & R . v ir tu ally a T .V .A . a lu m ni a sso cia ti o n: J o hn O liv er, w ho b ecam e e xecuti v e v ic e-p re sid ent,
had b een w ith T .V .A . fr o m 1 942 to 1 954, e nd in g u p a s its g enera l m anager; W . L . V oord uin , w ho becam e d ir e cto r o f e ngin eerin g, h ad b een w ith T .V .A . f o r a d ecad e a nd h ad p la nned i ts w ho le s y ste m
of d am s; W alto n S eym our, w ho b ecam e v ic e-p re sid ent f o r i n d ustr ia l d ev elo pm ent, h ad b een a T .V .A .
co nsu lta nt o n e le ctr ic -p ow er m ark eti n g f o r th ir te en y ears ; a nd a d oze n o th er f o rm er T .V .A . m en w ere
sc atte re d o n d ow n th ro ugh th e r a nks.
In J u ly , 1 955, D . & R . s e t u p s h o p a t 4 4 W all, a nd s e t to w ork fin d in g c lie nts . W hat w as to p ro ve
its m ost im porta nt o ne c am e to lig ht d urin g a W orld B ank m eeti n g in Is ta nb ul th at L ilie nth al a nd h is
wife a tte nd ed in S ep te m ber o f th at y ear. A t th e m eeti n g, L ilie nth al fe ll in w ith A bolh assa n E bte haj,
th en h ead o f a s e v en-y ear d ev elo pm ent p la n i n I r a n; a s i t h ap pened , I r a n w as j u st a b out th e i d eal D . &
R. c lie nt, s in ce, f o r o ne th in g, th e r o yalti e s o n i ts n ati o naliz e d o il i n d ustr y g av e i t c o nsid era b le c ap ita l
with w hic h to p ay fo r th e d ev elo pm ent o f its r e so urc es, a nd , fo r a no th er, w hat it d esp era te ly n eed ed
was te chnic al a nd p ro fe ssio nal g uid ance. T he e nco unte r w ith E bte haj l e d to a n i n v ita ti o n to L ilie nth al
and C la p p to v is it Ir a n a s th e g uests o f th e S hah, a nd se e w hat th ey th o ught c o uld b e d one a b out
Khuzis ta n. L ilie nth al’s em plo ym ent co ntr a ct w ith M in era ls & C hem ic als end ed th at D ecem ber;
alth o ugh h e s ta yed o n a s a d ir e cto r, h e w as n o w f r e e to d ev ote a ll h is ti m e, o r n early a ll o f i t, to D . &
R. In F eb ru ary , 1 956, h e a nd C la p p w ent to Ir a n. “ B efo re th en, I b lu sh to s a y, I h ad n ev er h eard o f
Khuzis ta n,” L ilie nth al to ld m e. “ I’ v e le arn ed a lo t a b out it s in ce th en. It w as th e h eart o f th e O ld
Testa m ent E la m ite k in gd om a nd l a te r o f th e P ers ia n E m pir e . T he r u in s o f P ers e p olis a re n o t f a r a w ay,
and th o se o f S usa , w here K in g D ariu s h ad h is w in te r p ala ce, a re in th e v ery c ente r o f K huzis ta n. In
ancie nt ti m es, th e w ho le re gio n h ad a n e xte nsiv e w ate r-c o nse rv ati o n s y ste m — yo u c an s ti ll fin d th e
re m ain s o f c anals th at w ere p ro bab ly b uilt b y D ariu s tw enty -fiv e h und re d y ears a go — but a fte r th e
declin e o f th e P ers ia n E m pir e th e w ate r s y ste m w as ru in ed b y in v asio n a nd
n egle ct. L ord C urz o n
desc rib ed w hat th e K huzis ta n u p la nd s lo oked lik e a c entu ry a go — ‘a d ese rt o ver w hic h th e e ye m ay
ro am u narre ste d fo r m ile s.’ It w as th at w ay w hen w e g o t th ere . N ow ad ays, K huzis ta n is o ne o f th e
world ’s r ic hest o il f ie ld s— th e f a m ous A bad an r e fin ery i s a t i ts s o uth ern ti p — but th e i n hab ita nts , tw o
and a h alf m illio n o f th em , h av en’t b enefite d f r o m th at. T he r iv ers h av e f lo w ed u nuse d , th e f a b ulo usly
ric h s o il h as la in fa llo w , a nd a ll b ut a ti n y fr a cti o n o f th e p eo ple h av e c o nti n ued to liv e in d esp era te
poverty . W hen C la p p a nd I f ir s t s a w th e p la ce, w e w ere a p palle d . S ti ll, f o r tw o o ld T .V .A . h and s l ik e
us, it w as a d re am ; it w as s im ply c ry in g o ut fo r d ev elo pm ent. W e lo oked fo r s ite s fo r d am s, lik ely
sp ots to h unt fo r m in era ls a nd m ake s o il- fe rti lity s tu d ie s, a nd s o o n. W e s a w fla re s o f n atu ra l g as
ris in g fr o m o il fie ld s. T hat w as w aste , a nd it su ggeste d p etr o chem ic al p la nts , to u se th e g as fo r
makin g f e rti liz e r a nd p la sti c s. I n e ig ht d ays w e’d r o ughed o ut a p la n, a nd i n a b out tw o w eeks D . & R .
had s ig ned a f iv e-y ear c o ntr a ct w ith th e I r a nia n g o vern m ent.
“T hat w as o nly th e b egin nin g. B ill V oord uin , o ur c hie f e ngin eer, fle w o ut th ere a nd sp otte d a
wond erfu l d am s ite a t a p la ce ju st a fe w m ile s fr o m th e r u in s o f S usa — a n arro w c anyo n w ith w alls
th at r is e a lm ost v erti c ally f r o m th e b ed o f th e D ez R iv er. W e f o und w e w ere g o in g to h av e to m anage
th e p ro je ct a s w ell a s a d vis e o n it, a nd s o o ur n ext jo b w as lin in g u p o ur m anageria l g ro up . T o g iv e
yo u s o m e i d ea o f th e s iz e o f th e p ro je ct, r ig ht n o w th ere a re a b out s e v en h und re d p eo ple w ork in g o n i t
at th e p ro fe ssio nal le v el— a h und re d A meric ans, th re e h und re d Ir a nia ns, a nd th re e h und re d o th ers ,
mostl y E uro peans, w ho w ork d ir e ctl y fo r fir m s u nd er su b co ntr a cts . B esid es th at, th ere a re a b out
fo rty -s e v en h und re d Ir a nia n la b ore rs . O ver fiv e th o usa nd p eo ple , a ll to ld . T he e nti r e p la n in clu d es
fo urte en d am s, o n f iv e d iffe re nt r iv ers , a nd w ill ta ke m any y ears to f in is h . D . & R . h as j u st c o m ple te d
its f ir s t c o ntr a ct, f o r f iv e y ears , a nd s ig ned a n ew o ne, f o r a y ear a nd a h alf, w ith o pti o n to r e new f o r
ano th er fiv e y ears . Q uite a b it h as b een a cco m plis h ed a lr e ad y. T ake th e fir s t d am — th e D ez o ne. It’ s
to b e s ix h und re d a nd tw enty f e et h ig h, o r m ore th an h alf a gain a s h ig h a s th e A sw an, i n E gyp t, a nd i t
will e v entu ally ir rig ate th re e h und re d a nd s ix ty th o usa nd a cre s a nd g enera te fiv e h und re d a nd tw enty th o usa nd k ilo w atts o f e le ctr ic ity .
I t s h o uld b e f in is h ed e arly i n 1 963. M eanw hile , a s u gar p la nta ti o n—
th e fir s t in K huzis ta n in tw enty -fiv e c entu rie s— has b een s ta rte d , w ith ir rig ati o n b y p um ped w ate r; it
sh o uld y ie ld its fir s t c ro p th is s u m mer, a nd a s u gar re fin ery w ill b e re ad y b y th e ti m e th e s u gar is .
Ano th er th in g: e v entu ally th e re gio n w ill s u p ply its o w n e le ctr ic p ow er fr o m th e d am s, b ut fo r th e
in te rim p erio d a h ig h-te nsio n lin e, th e fir s t a nyw here in Ir a n, h as b een p ut in o ver th e s e v enty -tw o
mile s f r o m A bad an to A hw az— a c ity o f a h und re d a nd tw enty th o usa nd th at p re v io usly h ad n o p ow er
so urc e e xcep t h alf a d oze n l ittl e d ie se ls , w hic h s e ld om w ork ed .”
While th e Ir a nia n p ro je ct w as p ro ceed in g, D . & R . w as a ls o b usy lin in g u p a nd c arry in g o ut its
pro gra m s fo r Ita ly , C olo m bia , G hana, th e Iv ory C oast, a nd P uerto R ic o , a s w ell a s p ro gra m s fo r
priv ate b usin ess g ro up s in C hile a nd th e P hilip pin es. A jo b th at D . & R . h ad ju st ta ken o n fo r th e
Unite d S ta te s A rm y C orp s of E ngin eers excite d L ilie nth al eno rm ously — an in v esti g ati o n of th e
eco no m ic im pact o f p ow er fr o m a p ro pose d d am o n th e A la sk an se cto r o f th e Y uko n, w hic h h e
desc rib ed as “th e riv er w ith th e gre ate st hyd ro ele ctr ic pote nti a l re m ain in g on th is co nti n ent.”
Meanw hile , L aza rd F rè re s r e ta in ed i ts f in ancia l i n te re st i n th e f ir m a nd n o w v ery h ap pily c o lle cte d i ts
sh are o f a s u b sta nti a l a nnual p ro fit, a nd L ilie nth al h ap pily to ok to te asin g M eyer a b out h is fo rm er
sk ep ti c is m a s to D . & R . f in ancia l p ro sp ects .
Lilie nth al’s n ew c are er h ad m eant a h ig hly p erip ate ti c l ife b oth f o r h im a nd f o r M rs . L ilie nth al. H e
sh o w ed m e h is fo re ig n-tr a v el lo g fo r 1 960, w hic h h e s a id w as a fa ir ly ty p ic al y ear, a nd it re ad a s
fo llo w s:
Ja nuary 2 3-M arc h 2 6:
H onolu lu , T okyo, M anila ; I lig an, M in danao;
Manila , B angkok, S ie m re ap, B angkok; T ehra n, A hw az, A ndim esh k, A hw az, T ehra n; G eneva, B ru sse ls , M adrid ; h om e.
Octo ber 1 1–17:
B uenos A ir e s; P ata gonia ; h om e.
Novem ber 1 8–D ecem ber 5 :
London, T ehra n, R om e, M ila n, P aris , h om e.
Then h e w ent a nd g o t th e v olu m e o f h is jo urn al th at r e la te s to th o se tr ip s. T urn in g to th e p ages o n
his s ta y i n I r a n e arly l a st s p rin g, I w as p arti c ula rly s tr u ck b y a f e w e xcerp ts :
Ahw az, M arc h 5 :
T he c ry o f th e A ra b w om en a s th e S hah’s b ig b la ck C hry sle r p asse d th em , a s o lid ro w a lo ng th e ro ad fro m th e
air p ort, m ade m e th in k o f th e r e bel y ell; th en I r e cogniz e d it : it w as th e I n dia n y elp , th e k in d w e u se d to m ake a s k id s, m ovin g o ur h and
over o ur m outh s to g iv e th at u ndula tin g w ail.
Ahw az, M arc h 1 1:
O ur e xperie nce in th e v illa gers ’ h uts o n W ednesd ay th re w m e in to a d eep p it . I h overe d b etw een d esp air — whic h is
an e m otio n I c onsid er a s in — and a nger, w hic h d oesn ’t d o m uch g ood, I s u ppose .
Andim esh k, M arc h 9 :
… W e h ave tr a velle d m any m ile s, th ro ugh d ust, m udhole s w here w e g ot s tu ck fa st, a nd s o m e o f th e ro ughest
“ro ads” I h ave e ver k now n— and w e a ls o tr a velle d b ack to th e n in th c entu ry , a nd e arlie r, v is it in g v illa ges a nd g oin g in to m ud “ h om es”
quit e u nbelie vable — and u nfo rg etta ble f o re ver a nd e ver. A s th e B ib lic al o ath h as it : L et m y r ig ht h and w it h er if I e ver f o rg et h ow s o m e o f
th e m ost a ttr a ctiv e o f m y fe llo w h um an b ein gs liv e— are liv in g to nig ht, o nly a fe w k ilo m etr e s fro m h ere , w here w e v is it e d th em th is
afte rn oon.…
And y et I a m a s s u re a s I a m w rit in g th ese n ote s th at th e G hebli a re a, o f o nly 4 5,0 00 a cre s, s w allo w ed in th e v astn ess o f th e
Khuzis ta n, w ill b ecom e a s w ell k now n a s, s a y, th e c om munit y o f T upelo … b ecam e, o r N ew H arm ony o r S alt L ake C it y w hen it w as
fo unded b y a h andfu l o f d edic ate d m en in a p ass o f th e g re at R ockie s.
The a fte rn o on sh ad ow s w ere g etti n g lo ng o n B attl e R oad , a nd it w as ti m e fo r m e to b e g o in g.
Lilie nth al w alk ed o ut to m y c ar w ith m e, a nd o n th e w ay I a sk ed h im w heth er h e e v er m is se d th e
ro ugh-a nd -tu m ble , a nd th e lim elig ht, o f b ein g p erh ap s th e m ost c o ntr o vers ia l m an in W ash in gto n. H e
grin ned , a nd s a id , “ S ure .” W hen w e r e ached th e c ar, h e w ent o n, “ I n ev er in te nd ed to b e e sp ecia lly
co m bati v e, in W ash in gto n o r in th e T ennesse e V alle y. It w as ju st th at p eo ple k ep t d is a gre ein g w ith
me. B ut, a ll r ig ht, I w ould n’t h av e p ut m yse lf i n c o ntr o vers ia l s itu ati o ns s o m uch i f I h ad n’t w ante d to .
I g uess I
was
c o m bati v e. W hen I w as a k id , I w as in te re ste d in b oxin g. A t h ig h s c ho ol— in M ic hig an City , I n d ia na— I b oxed a l o t w ith a c o usin o f m in e, a nd w hile I w as i n c o lle ge, a t D eP auw , i n c entr a l
In d ia na, I to ok to boxin g durin g th e su m mers w ith a m an w ho had been a pro fe ssio nal lig ht-
heav yw eig ht. T he T aco m a T ig er, h e’d b een c alle d . W ork in g o ut w ith h im w as a c halle nge. I f I m ad e a
mis ta ke, I ’ d b e o n th e f lo or.
I w ante d j u st o nce to l a nd o n h im
good
. I t w as m y a m biti o n. I n ev er d id ,
of c o urs e , b ut I g o t to b e a fa ir ly g o od b oxer. I b ecam e b oxin g c o ach a t D eP auw w hile I w as a n
und erg ra d uate . L ate r o n, a t H arv ard L aw , I d id n’t h av e ti m e to k eep i t u p , a nd I n ev er b oxed s e rio usly
again . B ut I d on’t th in k th at fo r m e b oxin g w as a n e xp re ssio n o f c o m bati v eness fo r its o w n s a ke. I
th in k I co nsid ere d co m pete nce at defe nd in g yo urs e lf a m eans of pre se rv in g yo ur pers o nal
in d ep end ence. I le arn ed th at fr o m m y fa th er. ‘B e y o ur o w n m an,’ h e u se d to s a y. H e’d c o m e fr o m
Austr ia -H ungary , th e p art th at’ s n o w e aste rn C ze cho slo vakia , in th e e ig hte en-e ig hti e s, w hen h e w as
ab out tw enty , a nd h e s p ent h is a d ult life a s a s to re keep er in v ario us M id dle W este rn to w ns: M orto n,
Illin o is , w here I w as b orn ; V alp ara is o , In d ia na; S prin gfie ld , M is so uri; M ic hig an C ity a nd , la te r,
Win am ac, In d ia na. H e h ad v ery p ale -b lu e e yes th at re fle cte d th e in sid es o f h im . Y ou c o uld te ll b y
lo okin g a t h im th at h e w ould n’t tr a d e in d ep end ence fo r s e curity . H e d id n’t k no w h o w to d is se m ble ,
and w ould n’t h av e w ante d to if h e h ad k no w n h o w . W ell, to g et b ack to m y b ein g c o ntr o vers ia l, o r
co m bati v e, o r w hate v er y o u c all it, in W ash in gto n— yes, th ere ’s s o m eth in g m is sin g w hen y o u d on’t
hav e a M cK ella r l a yin g i t o n th e l in e a ny m ore . T he m ora l e q uiv ale nt o f th at f o r m e n o w i s ta kin g o n
challe nges, d iffe re nt k in d s o f M cK ella rs o r T aco m a T ig ers , m ayb e— th e M in era ls & C hem ic als th in g,
th e D . & R . th in g— and tr y in g to m eet th em .”
I r e v is ite d L ilie nth al in e arly s u m mer, 1 968, th is ti m e a t D . & R .’ s th ir d h o m e o ffic e, a s u ite w ith a
sp le nd id h arb or v ie w a t I W hite hall S tr e et. B oth D . & R . a nd h e h ad m oved a lo ng in th e in te rim . In
Khuzis ta n, th e D ez D am h ad b een c o m ple te d o n s c hed ule ; w ate r i m pound in g h ad b egun i n N ovem ber,
1962, th e f ir s t p ow er h ad b een d eliv ere d i n M ay, 1 963, a nd th e r e gio n w as n o w n o t o nly s u p ply in g i ts
ow n p ow er b ut p ro ducin g e no ugh s u rp lu s to a ttr a ct fo re ig n in d ustr y . M eanw hile , a gric ultu re in th e
once-b arre n re gio n w as flo uris h in g as a re su lt o f ir rig ati o n m ad e p ossib le b y th e d am , and , as
Lilie nth al— six ty -e ig ht n o w , a nd a s c o m bati v e a s e v er— put it, “ T he g lo om y e co no m is ts h av e to b e
glo om y a b out s o m e o th er u nd erd ev elo ped c o untr y .” D . & R . h ad j u st s ig ned a n ew
fiv e-y ear c o ntr a ct
with Ir a n to c arry o n th e w ork . O th erw is e , th e fir m h ad e xp and ed its c lie nte le to in clu d e fo urte en
co untr ie s; its m ost c o ntr o vers ia l u nd erta kin g w as in V ie tn am , w here , u nd er c o ntr a ct w ith th e U nite d
Sta te s g o vern m ent, i t w as c o opera ti n g w ith a s im ila r g ro up o f S outh V ie tn am ese i n w ork in g u p p la ns
fo r th e p ostw ar d ev elo pm ent o f th e M eko ng V alle y. ( T his a ssig nm ent h ad l e d to c riti c is m o f L ilie nth al
by th o se w ho to ok i t to i m ply th at h e s u p porte d th e w ar; i n f a ct, h e to ld m e, h e r e gard ed th e w ar a s th e
dis a str o us o utc o m e o f a s e rie s o f “ ho rrib le m is c alc ula ti o ns,” a nd th e p la nnin g o f p ostw ar r e so urc es
dev elo pm ent a s a s e p ara te m atte r. It w as c le ar e no ugh, n ev erth ele ss, th at th e c riti c is m h urt. A t th e
sa m e ti m e, D . & R . w as w id enin g its h o riz o ns b y b egin nin g to m ove, u nexp ecte d ly , in to d om esti c
urb an d ev elo pm ent, h av in g b een e ngaged b y p riv ate fo und ati o n-s p onso re d g ro up s in Q ueens C ounty ,
New Y ork a nd O akla nd C ounty , M ic hig an to s e e w heth er th e T .V .A . a p pro ach m ig ht h av e s o m e v alu e
in d ealin g w ith th o se m odern d ese rts , th e s lu m s. “ Ju st p re te nd th is is Z am bia a nd te ll u s w hat y o u
would d o,” th ese g ro up s h ad sa id , in e ffe ct, to D . & R .— a w ild ly im agin ati v e id ea, su re ly , th e
use fu ln ess o f w hic h r e m ain ed to b e p ro ved .
As f o r D . & R . i ts e lf a nd i ts p la ce i n A meric an b usin ess, L ilie nth al r e co unte d th at s in ce I h ad s e en
him it h ad e xp and ed to th e e xte nt o f o penin g a se co nd p erm anent o ffic e o n th e W est C oast, h ad
co nsid era b ly in cre ase d its p ro fits , a nd b eco m e e sse nti a lly e m plo yee-o w ned , w ith L aza rd re ta in in g
only a to ken in te re st. M ost e nco ura gin g o f a ll, a t a ti m e w hen o ld -lin e b usin ess w as h av in g s e rio us re cru itm ent p ro ble m s b ecause its o bse ssio n w ith p ro fit w as re p ellin g h ig h-m in d ed y o uth , D . & R .
fo und th at its id ealis ti c o bje cti v es m ad e it a m agnet fo r th e m ost p ro m is in g n ew g ra d uate s. A nd a s a
re su lt o f a ll th ese th in gs, L illie nth al c o uld a t la st s a y w hat h e h ad n o t b een a b le to s a y o n th e e arlie r
occasio n— th at p riv ate e nte rp ris e w as n o w a ffo rd in g h im m ore s a ti s fa cti o n th an h e h ad e v er d eriv ed
fr o m p ub lic s e rv ic e.
Is D . & R ., th en, a p ro to ty p e o f th e f r e e e nte rp ris e o f th e f u tu re , a cco unta b le h alf to i ts s to ckho ld ers
and h alf to th e r e st o f h um anity ? I f s o , th en th e i r o ny i s c o m ple te , a nd L ilie nth al, o f a ll p eo ple , e nd s u p
as th e p ro to ty p ic al b usin essm an.
* F or a d eta ile d d is c ussio n o f s to ck o ptio ns, s e e p . 1 01.
* T his p art o f L ilie nth al’ s jo urn al w as e ventu ally p ublis h ed, in 1 966. 10
Sto ck h old er S ea so n
A F E W Y EA RS A GO ,
a E uro pean d ip lo m at w as q uo te d in th e
Tim es
a s s a yin g, “ T he A meric an e co no m y
has b eco m e s o b ig th at it is b eyo nd th e im agin ati o n to c o m pre hend . B ut n o w o n to p o f s iz e y o u a re
getti n g r a p id g ro w th a s w ell. It is a s itu ati o n o f fu nd am enta l p ow er u neq ualle d in th e h is to ry o f th e
world .” A t a b out th e sa m e ti m e, A . A . B erle w ro te , in a stu d y o f c o rp ora te p ow er, th at th e fiv e
hund re d o r so c o rp ora ti o ns th at d om in ate th at e co no m y “ re p re se nt a c o ncentr a ti o n o f p ow er o ver
eco no m ic s
w hic h m akes th e m ed ie v al fe ud al sy ste m lo ok lik e a S und ay-s c ho ol p arty .” A s fo r th e
pow er w ith in th o se c o rp ora ti o ns, it c le arly r e sts , fo r a ll p ra cti c al p urp ose s, w ith th eir d ir e cto rs a nd
th eir p ro fe ssio nal m anagers ( o fte n n o t s u b sta nti a l o w ners ), w ho , B erle g o es o n to s u ggest i n th e s a m e
essa y, so m eti m es c o nsti tu te a se lf- p erp etu ati n g o lig arc hy. M ost fa ir -m in d ed o bse rv ers th ese d ays
se em to fe el th at th e s te w ard sh ip o f th e o lig arc hs, fr o m a s o cia l p oin t o f v ie w , is n ’t a nyth in g lik e a s
bad a s it m ig ht b e, a nd in m any c ase s is p re tty g o od, y et, h o w ev er th at m ay b e, th e u lti m ate p ow er
th eo re ti c ally d oes n o t r e sid e i n th em a t a ll. A cco rd in g to th e c o rp ora te f o rm o f o rg aniz a ti o n, i t r e sid es
in th e s to ckho ld ers , o f w ho m , i n U nite d S ta te s b usin ess e nte rp ris e s o f a ll s iz e s a nd d esc rip ti o ns, th ere
are m ore th an tw enty m illio n. E ven th o ugh th e c o urts h av e r e p eate d ly r u le d th at a d ir e cto r d oes n o t
hav e to f o llo w s to ckho ld er i n str u cti o ns, a ny m ore th an a c o ngre ssm an h as to f o llo w th e i n str u cti o ns o f
his co nsti tu ents , sto ckho ld ers nev erth ele ss do ele ct dir e cto rs , on th e lo gic al, if no t exactl y
dem ocra ti c , b asis o f o ne s h are , o ne v ote . T he s to ckho ld ers a re d ep riv ed o f th eir re al p ow er b y a
num ber o f fa cto rs , a m ong w hic h a re th eir in d iffe re nce to it in ti m es o f r is in g p ro fits a nd d iv id end s,
th eir ig no ra nce o f c o rp ora te a ffa ir s , a nd th eir sh eer n um bers . O ne w ay o r a no th er, th ey v ote th e
managem ent s la te , a nd th e r e su lts o f m ost d ir e cto r e le cti o ns h av e a c erta in R ussia n r in g— nin ety -n in e
per c ent o r m ore o f th e v ote s c ast in fa v or. T he c hie f, a nd in m any c ase s th e o nly , o ccasio n w hen
sto ckho ld ers m ake th eir p re se nce fe lt b y m anagem ent is at th e annual m eeti n g. C om pany annual
meeti n gs a re c usto m arily h eld i n th e s p rin g, a nd o ne s p rin g— it w as th at o f 1 966— I m ad e th e r o und s
of a fe w o f th em to g et a lin e o n w hat th e th eo re ti c al h o ld ers o f a ll th at fe ud al p ow er h ad to s a y fo r
th em se lv es, a nd a ls o o n th e s ta te o f th eir r e la ti o ns w ith th eir e le cte d d ir e cto rs .
What p arti c ula rly c o m mend ed th e 1 966 se aso n to m e w as th at it p ro m is e d to b e a p arti c ula rly
liv ely o ne. V ario us r e p orts o f a n ew “ hard -lin e a p pro ach” b y c o m pany m anagem ents to s to ckho ld ers
had a p peare d i n th e p re ss. ( I w as c harm ed b y th e n o ti o n o f a c and id ate f o r o ffic e a nno uncin g h is n ew
hard -lin e a p pro ach to v ote rs r ig ht b efo re a n e le cti o n.) T he n ew a p pro ach, it w as r e p orte d
, w as th e
up sh o t o f e v ents a t th e p re v io us y ear’s m eeti n gs, w here a n ew h ig h in s to ckho ld er u nru lin ess w as
re ached . T he c hair m an o f th e C om munic ati o ns S ate llite C orp ora ti o n w as fo rc ed to c all o n g uard s to
eje ct bodily tw o bad gerin g sto ckho ld ers at his co m pany’s m eeti n g, in W ash in gto n. H arla nd C .
Forb es, w ho w as th en th e c hair m an o f C onso lid ate d E dis o n, o rd ere d o ne h eckle r o ff th e p re m is e s in
New Y ork , a nd , in P hila d elp hia , A meric an T ele p ho ne & T ele gra p h C hair m an F re d eric k R . K ap pel was g o ad ed in to a nno uncin g a b ru p tl y , “ T his m eeti n g is n o t b ein g r u n b y R obert’ s [ R ule s o f O rd er].
It’ s b ein g r u n b y m e.” ( T he e xecuti v e d ir e cto r o f th e A meric an S ocie ty o f C orp ora te S ecre ta rie s l a te r
exp la in ed th at p re cis e a p plic ati o n o f R obert’ s r u le s w ould h av e h ad th e e ffe ct n o t o f in cre asin g th e
sto ckho ld ers ’ fr e ed om o f s p eech b ut, r a th er, o f r e str ic ti n g it. M r. K ap pel, th e s e cre ta ry im plie d , h ad
mere ly been pro te cti n g sto ckho ld ers fr o m parlia m enta ry ty ra nny.) In Schenecta d y, G era ld L.
Phillip pe, c hair m an o f G enera l E le ctr ic , a fte r s e v era l h o urs o f f e ncin g w ith s to ckho ld ers , s u m med u p
his n ew h ard lin e b y s a yin g, “ I s h o uld lik e it to b e c le ar th at n ext y ear, a nd in th e y ears to c o m e, th e
chair m ay w ell a d opt a m ore rig o ro us a tti tu d e.” A cco rd in g to
Busin ess W eek
, th e G enera l E le ctr ic
managem ent th en a ssig ned a s p ecia l ta sk f o rc e to th e j o b o f s e ein g w hat c o uld b e d one a b out c ra ckin g
dow n o n h eckle rs b y c hangin g th e a nnual- m eeti n g p atte rn , a nd e arly i n 1 966 th e b ib le o f m anagem ent,
th e
Harv a rd B usin ess R evie w
, e nte re d th e lis ts w ith a n a rti c le b y O . G le nn S axo n, J r., th e h ead o f a
co m pany s p ecia liz in g in in v esto r s e rv ic es to m anagem ent, in w hic h h e r e co m mend ed c ris p ly th at th e
chair m en o f a nnual m eeti n gs “ re co gniz e th e a uth o rity in here nt in th e r o le o f th e c hair, a nd r e so lv e to
use it a p pro pria te ly .” A ppare ntl y , th e th eo re ti c al h o ld ers o f fu nd am enta l p ow er u neq ualle d in th e
his to ry o f th e w orld w ere a b out to b e p ut i n th eir p la ce.
ONE
th in g I c o uld n’t h elp n o ti c in g a s I w ent o ver th e s c hed ule o f th e y ear’s le ad in g m eeti n gs w as a
tr e nd a w ay f r o m h o ld in g th em i n o r n ear N ew Y ork . I n v aria b ly , th e o ffic ia l r e aso n g iv en w as th at th e
move w ould a cco m modate sto ckho ld ers fr o m o th er a re as w ho
h ad se ld om , if e v er, b een a b le to
atte nd in th e p ast; h o w ev er, m ost o f th e n o is ie st d is sid ent s to ckho ld ers s e em to b e b ase d in th e N ew
York a re a, a nd th e m oves w ere ta kin g p la ce i n th e y ear o f th e n ew h ard l in e, s o I f o und th e l ik elih o od
of a re la ti o nsh ip b etw een th ese tw o fa cts b y no m eans re m ote . U nite d S ta te s S te el ho ld ers , fo r
exam ple , w ere to m eet in C le v ela nd , m akin g th eir se co nd fo ra y o uts id e th eir c o m pany’s n o m in al
ho m e s ta te o f N ew J e rs e y s in ce i ts f o rm ati o n, i n 1 901. G enera l E le ctr ic w as g o in g o uts id e N ew Y ork
Sta te fo r th e th ir d ti m e in re cent years — and go in g all th e w ay to G eo rg ia , a sta te in w hic h
managem ent a p peare d to h av e s u d denly d is c o vere d f ifty -s ix h und re d s to ckho ld ers ( o r a b it m ore th an
one p er c ent o f th e f ir m ’s to ta l r o ll) w ho w ere b ad ly i n n eed o f a c hance to a tte nd a n a nnual m eeti n g.
The b ig gest c o m pany o f th em a ll, A meric an T ele p ho ne & T ele gra p h, h ad c ho se n D etr o it, w hic h w as
its th ir d site outs id e N ew Y ork C ity in its eig hty -o ne-y ear his to ry , th e se co nd hav in g been
Phila d elp hia , w here th e 1 965 s e ssio n w as h eld .
To o pen m y o w n m eeti n g-g o in g s e aso n, I tr a cked A .T .& T . to D etr o it. L eafin g th ro ugh s o m e p ap ers
on th e p la ne g o in g o ut th ere , I l e arn ed th at th e n um ber o f A .T . & T . s to ckho ld ers h ad i n cre ase d to a n
all- ti m e re co rd o f a lm ost th re e m illio n, a nd I fe ll to w ond erin g w hat w ould h ap pen in th e u nlik ely
ev ent th at a ll o f th em , o r e v en h alf o f th em , a p peare d i n D etr o it a nd d em and ed s e ats a t th e m eeti n g. A t
any r a te , e ach o ne o f th em h ad r e ceiv ed b y m ail, a fe w w eeks e arlie r, a n o ti c e o f th e m eeti n g a lo ng
with a fo rm al in v ita ti o n to a tte nd , a nd it s e em ed to m e a lm ost c erta in th at A meric an in d ustr y h ad
achie v ed a no th er “ fir s t” — th e fir s t ti m e a lm ost th re e m illio n in d iv id ual in v ita ti o ns h ad e v er b een
maile d o ut to a ny e v ent o f a ny k in d a nyw here . M y f e ars o n th e f ir s t s c o re w ere p ut to r e st w hen I g o t
to C obo H all, a h uge riv erfr o nt a ud ito riu m , w here th e m eeti n g w as to ta ke p la ce. T he h all w as fa r
fr o m fille d ; th e Y ankees in th eir b ette r d ays w ould h av e b een d is g uste d w ith s u ch a tu rn o ut o n a ny
weekd ay a fte rn o on. ( T he p ap ers n ext d ay s a id th e a tte nd ance w as f o ur th o usa nd a nd s ix te en.) L ookin g
aro und , I n o ti c ed i n th e c ro w d s e v era l f a m ilie s w ith s m all c hild re n, o ne w om an i n a w heelc hair, o ne
man
w ith a beard , and ju st tw o N egro sto ckho ld ers — th e la st obse rv ati o n su ggesti n g th at th e
tr u m pete rs o f “ p eo ple ’s c ap ita lis m ” m ig ht w ell d o s o m e c o ord in ati n g w ith th e c iv il- rig hts m ovem ent.
The a nno unced ti m e o f th e m eeti n g w as o ne-th ir ty , a nd C hair m an K ap pel e nte re d o n th e d ot a nd marc hed to a r e ad in g s ta nd o n th e p la tf o rm ; th e e ig hte en o th er A .T . & T . d ir e cto rs tr o oped to a r o w o f
se ats j u st b ehin d h im , a nd M r. K ap pel g av elle d th e m eeti n g to o rd er.
Fro m m y r e ad in g a nd f r o m a nnual m eeti n gs th at I ’ d a tte nd ed i n p ast y ears , I k new th at th e m eeti n gs
of th e b ig gest c o m panie s a re u su ally m ark ed b y th e p re se nce o f s o -c alle d p ro fe ssio nal s to ckho ld ers —
pers o ns w ho m ake a fu ll- ti m e o ccup ati o n o f b uyin g s to ck in c o m panie s o r o bta in in g th e p ro xie s o f
oth er s to ckho ld ers , th en in fo rm in g th em se lv es m ore o r le ss in ti m ate ly a b out th e c o rp ora ti o ns’ a ffa ir s
and a tte nd in g a nnual m eeti n gs to r a is e q uesti o ns o r p ro pose r e so lu ti o ns— and th at th e m ost c ele b ra te d
mem bers o f th is b re ed w ere M rs . W ilm a S oss, o f N ew Y ork , w ho h ead s a n o rg aniz a ti o n o f w om en
sto ckho ld ers a nd v ote s th e p ro xie s o f its m em bers a s w ell a s h er o w n s h are s, a nd L ew is D . G ilb ert,
als o o f N ew Y ork , w ho r e p re se nts h is o w n h o ld in gs a nd th o se o f h is fa m ily — a c o nsid era b le to ta l.
Som eth in g I did no t kno w , and le arn ed at th e A .T . & T. m eeti n g (a nd at oth ers I atte nd ed
su b se q uentl y ), w as th at, a p art f r o m th e p re p are d s p eeches o f m anagem ent, a g o od m any b ig -c o m pany
meeti n gs r e ally c o nsis t o f a d ia lo gue— in s o m e c ase s i t’ s m ore o f a d uel— betw een th e c hair m an a nd
th e f e w p ro fe ssio nal s to ckho ld ers . T he c o ntr ib uti o ns o f n o n-p ro fe ssio nals r u n s tr o ngly to i ll- in fo rm ed
or ta m e q uesti o ns a nd w in d y e nco m iu m s o f m anagem ent, a nd th us th e ta sk o f m akin g c o gent c riti c is m s
or ask in g em barra ssin g q uesti o ns fa lls to th e p ro fe ssio nals . T ho ugh la rg ely se lf- a p poin te d , th ey
beco m e, b y d efa ult, th e s o le r e p re se nta ti v es o f a h uge c o nsti tu ency th at m ay b ad ly n eed r e p re se nti n g.
Som e o f th em a re n o t v ery g o od re p re se nta ti v es, a nd a fe w a re s o b ad th at th eir c o nd uct ra is e s a
pro ble m in A meric an m anners ; th ese fe w re p eate d ly s a y th in gs a t a nnual m eeti n gs— booris h , s illy ,
in su lti n g, o r a b usiv e th in gs— th at a re a p pare ntl y p erm is sib le b y c o rp ora te ru le s b ut a re c erta in ly
im perm is sib le b y d ra w in g-ro om r u le s, a nd s o m eti m es
s u cceed i n g iv in g th e a nnual m eeti n gs o f m ig hty
co m panie s th e g enera l a ir o f b arn yard s q uab ble s. M rs . S oss, a fo rm er p ub lic -re la ti o ns w om an w ho
has b een a ti r e le ss p ro fe ssio nal s to ckho ld er s in ce 1 947, i s u su ally a g o od m any c uts a b ove th is l e v el.
Tru e, s h e i s n o t b eyo nd p la yin g to th e g alle ry b y w earin g b iz a rre c o stu m es to m eeti n gs; s h e tr ie s, w ith
occasio nal s u ccess, to ta unt re calc itr a nt c hair m en in to th ro w in g h er o ut; s h e is o fte n s c o ld in g a nd
occasio nally ab usiv e; and no body co uld accuse her o f b ein g und uly co ncis e . I co nfe ss th at her
custo m ary to ne a nd m anner s e t m y te eth o n e d ge, b ut I c an’t h elp r e co gniz in g th at, b ecause s h e d oes
her h o m ew ork , s h e u su ally h as a p oin t. M r. G ilb ert, w ho h as b een a t i t s in ce 1 933 a nd i s th e d ean o f
th em a ll, a lm ost in v aria b ly h as a p oin t, a nd b y c o m paris o n w ith h is c o lle agues h e is th e so ul o f
bre v ity a nd p uncti lio a s w ell a s o f d ed ic ati o n a nd d ilig ence. D esp is e d a s p ro fe ssio nal s to ckho ld ers
are b y m ost c o m pany m anagem ents , M rs . S oss a nd M r. G ilb ert a re w id ely e no ugh r e co gniz e d to b e
lis te d in
Who’s W ho in A m eric a ;
fu rth erm ore , fo r w hat s a ti s fa cti o n it m ay b rin g th em , th ey a re th e
nam ele ss A gam em no ns and A ja xes, in v aria b ly calle d “in d iv id uals ,” in so m e o f th e p ro se ep ic s
pro duced b y th e b usin ess E sta b lis h m ent its e lf. (“ T he g re ate r p orti o n o f th e d is c ussio n p erio d w as
ta ken u p b y q uesti o ns a nd s ta te m ents o f a fe w in d iv id uals o n m atte rs th at c an s c arc ely b e d eem ed
re le v ant.… T w o in d iv id uals in te rru p te d th e o penin g sta te m ent o f th e chair m an.… T he chair m an
ad vis e d th e in d iv id uals w ho h ad in te rru p te d to c ho ose b etw een c easin g th eir in te rru p ti o n o r le av in g
th e m eeti n g.… ” S o re ad s, in p art, th e o ffic ia l re p ort o f th e 1 965 A .T . & T . a nnual m eeti n g.) A nd
alth o ugh M r. Saxo n’s pie ce in th e
Harv a rd B usin ess R evie w
w as enti r e ly ab out pro fe ssio nal
sto ckho ld ers a nd h o w to d eal w ith th em , th e a uth o r’s c o rp ora te d ig nity d id n o t p erm it h im to m enti o n
th e n am e o f e v en o ne o f th em . A void in g th is w as q uite a tr ic k, b ut M r. S axo n p ulle d i t o ff.
Both M rs . S oss a nd M r. G ilb ert w ere p re se nt a t C obo H all. In d eed , th e m eeti n g h ad b are ly g o t
und er w ay b efo re M r. G ilb ert w as o n h is fe et c o m pla in in g th at s e v era l r e so lu ti o ns h e h ad a sk ed th e
co m pany to in clu d e in th e p ro xy s ta te m ent a nd th e m eeti n g a gend a h ad b een o m itte d fr o m b oth . M r.
Kap pel— a s te rn -lo okin g
m an w ith s te el- rim med s p ecta cle s, w ho w as u nm is ta kab ly c ast in th e o ld - fa sh io ned , a lo of c o rp ora te m old , r a th er th an th e n ew , m ore p erm is siv e o ne— re p lie d s h o rtl y th at th e
Gilb ert p ro posa ls h ad r e fe rre d to m atte rs th at w ere n o t p ro per f o r s to ckho ld er c o nsid era ti o n, a nd h ad
been s u b m itte d to o l a te , a nyho w . M r. K ap pel th en a nno unced th at h e w as a b out to r e p ort o n c o m pany
opera ti o ns, w here up on th e e ig hte en o th er d ir e cto rs file d o ff th e p la tf o rm . E vid entl y , th ey h ad b een
th ere o nly to b e i n tr o duced , n o t to f ie ld q uesti o ns f r o m s to ckho ld ers . E xactl y w here th ey w ent I d on’t
kno w ; th ey v anis h ed fr o m m y fie ld o f v is io n, a nd I w asn ’t e nlig hte ned w hen, la te r o n in th e m eeti n g,
Mr. K ap pel r e sp ond ed to a s to ckho ld er’s q uesti o n a s to th eir w here ab outs w ith th e l a co nic s ta te m ent
“T hey’re h ere .” G oin g i t a lo ne, M r. K ap pel s a id i n h is r e p ort th at “ b usin ess i s b oom in g, e arn in gs a re
go od, a nd th e p ro sp ect a head is fo r m ore o f th e s a m e,” d ecla re d th at A .T . & T . w as e ager fo r th e
Fed era l C om munic ati o ns C om mis sio n to g et o n w ith its in v esti g ati o n o f te le p ho ne ra te s, s in ce th e
co m pany h ad “ no s k ele to ns in th e c lo se t,” a nd th en p ain te d a p ic tu re o f a b rig ht te le p ho nic fu tu re in
whic h “ p ic tu re p ho nes” w ill b e c o m monp la ce a nd l ig ht b eam s w ill c arry m essa ges.
When M r. K ap pel’s a d dre ss w as o ver a nd th e m anagem ent- s p onso re d s la te o f d ir e cto rs fo r th e
co m in g y ear h ad b een d uly n o m in ate d , M rs . S oss r o se to m ake a n o m in ati o n o f h er o w n— Dr. F ra nces
Ark in , a p sy cho analy st. I n e xp la nati o n, M rs . S oss s a id th at s h e f e lt A .T . & T . o ught to h av e a w om an
on its b oard , a nd th at, fu rth erm ore , s h e s o m eti m es fe lt s o m e o f th e c o m pany’s e xecuti v es w ould b e
benefite d b y o ccasio nal p sy chia tr ic exam in ati o ns. (T his re m ark se em ed to m e gra tu ito us, b ut th e
bala nce o f m anners b etw een b osse s a nd sto ckho ld ers w as su b se q uentl y re d re sse d , a t le ast to m y
min d , a t a no th er m eeti n g, w hen th e c hair m an s u ggeste d th at s o m e o f h is fir m ’s s to ckho ld ers o ught to
se e a p sy chia tr is t.) T he n o m in ati o n o f D r. A rk in w as s e co nd ed b y M r. G ilb ert, a lth o ugh n o t u nti l M rs .
Soss, w ho w as s itti n g a c o up le o f s e ats f r o m h im , h ad r e ached o ver a nd n ud ged h im v ig o ro usly i n th e
rib s. P re se ntl y , a p ro fe ssio nal s to ckho ld er n am ed E vely n Y . D av is p ro te ste d th e v enue o f th e m eeti n g,
co m pla in in g th at s h e h ad b een fo rc ed to c o m e a ll th e w ay fr o m N ew Y ork b y b us. M rs . D av is , a
bru nette , w as th e y o ungest a nd p erh ap s th e b est- lo okin g o f th e p ro fe ssio nal s to ckho ld ers b ut, o n th e
basis o f w hat I s a w a t th e A .T . & T . m eeti n g a nd o th ers , n o t th e b est i n fo rm ed o r th e m ost te m pera te ,
se rio us-m in d ed , o r w orld ly -w is e . O n th is o ccasio n, s h e w as g re ete d b y th und ero us b oos, a nd w hen
Mr. K ap pel a nsw ere d h er b y s a yin g, “ Y ou’re o ut o f o rd er. Y ou’re ju st ta lk in g to th e w in d ,” h e w as
lo ud ly c heere d . It w as o nly th en th at I u nd ers to od th e n atu re o f th e a d vanta ge th at th e c o m pany h ad
gain ed b y m ovin g i ts m eeti n g a w ay f r o m N ew Y ork : i t h ad n o t s u cceed ed i n s h akin g o ff th e g ad flie s,
but it h ad s u cceed ed in p utti n g th em in a c lim ate w here th ey w ere s u b je ct to th e r ig o rs o f th at g re at
Americ an e m oti o n, re gio nal p rid e. A la d y in a flo w ere d h at w ho s a id s h e w as fr o m D es P la in es,
Illin o is , e m phasiz e d th e p oin t b y ris in g to s a y, “ I w is h s o m e o f th e p eo ple h ere w ould b ehav e lik e
in te llig ent a d ults , r a th er th an tw o-y ear-o ld s.” ( P ro lo nged a p pla use .)
Even so , th e sn ip in g fr o m th e E ast w ent o n, a nd b y th re e-th ir ty , w hen th e m eeti n g h ad b een in
se ssio n fo r tw o h o urs , M r. K ap pel w as c le arly g etti n g te sty ; h e b egan p acin g im pati e ntl y a ro und th e
pla tf o rm , a nd h is a nsw ers g o t s h o rte r a nd s h o rte r. “ O .K ., O .K .” w as a ll h e r e p lie d to o ne c o m pla in t
th at h e w as d ic ta to ria l. T he c lim ax c am e i n a w ra ngle b etw een h im a nd M rs . S oss a b out th e f a ct th at
A.T . & T ., a lth o ugh it h ad lis te d th e b usin ess a ffilia ti o ns o f its n o m in ees fo r d ir e cto r in a p am phle t
th at w as hand ed out at th e m eeti n g, had fa ile d to lis t th em in th e m ate ria l m aile d out to th e
sto ckho ld ers , th e o verw helm in g m ajo rity o f w ho m w ere n o t a t th e m eeti n g a nd h ad d one th eir v oti n g
by p ro xy. M ost o th er b ig c o m panie s m ake s u ch d is c lo su re s in th eir m aile d p ro xy s ta te m ents , s o th e
sto ckho ld ers w ere a p pare ntl y e nti tl e d to a r e aso nab le e xp la nati o n o f w hy A .T . & T . h ad f a ile d to d o
so , b ut s o m ew here a lo ng th e w ay re aso n w as le ft b ehin d . A s th e e xchange p ro gre sse d , M rs . S oss
ad opte d a s c o ld in g to ne a nd M r. K ap pel a n i c y o ne; a s f o r th e c ro w d, i t w as h av in g a f in e ti m e b ooin g
th e C hris ti a n, i f th at i s w hat M rs . S oss r e p re se nte d , a nd c heerin g th e l io n, i f th at i s w hat M r. K ap pel re p re se nte d . “ I c an’t h ear y o u, s ir,” M rs . S oss s a id a t o ne p oin t. “ W ell, i f y o u’d j u st l is te n i n ste ad o f
ta lk in g— ” M r. K ap pel r e tu rn ed . T hen M rs . S oss
s a id s o m eth in g I d id n’t c atc h, a nd i t m ust h av e b een
a te llin g b it o f c hair m an-b aiti n g, b ecause M r. K ap pel’s m anner c hanged c o m ple te ly , f r o m i c e to f ir e ;
he began sh akin g his fin ger and sa yin g he w ould n’t sta nd fo r any m ore ab use , and th e flo or
mic ro pho ne th at M rs . S oss h ad b een u sin g w as a b ru p tl y tu rn ed o ff. F ollo w ed a t a d is ta nce o f te n o r
fifte en fe et by a unifo rm ed se curity guard , and to th e acco m panim ent of deafe nin g booin g and
sta m pin g, M rs . S oss m arc hed u p th e a is le a nd to ok a s ta nd i n f r o nt o f th e p la tf o rm , f a cin g M r. K ap pel,
who i n fo rm ed h er th at h e k new s h e w ante d h im to h av e h er th ro w n o ut a nd th at h e d eclin ed to c o m ply .
Eventu ally , M rs . S oss w ent b ack to h er s e at a nd e v ery b ody c alm ed d ow n. T he r e st o f th e m eeti n g,
giv en o ver la rg ely to q uesti o ns a nd c o m ments fr o m a m ate ur s to ckho ld ers , ra th er th an p ro fe ssio nal
ones, w as c erta in ly le ss liv ely th an w hat h ad g o ne b efo re , a nd n o t n o ti c eab ly h ig her in in te lle ctu al
co nte nt. S to ckho ld ers fr o m G ra nd R ap id s, D etr o it, a nd A nn A rb or a ll e xp re sse d th e v ie w th at it
would b e b est to le t th e d ir e cto rs r u n th e c o m pany, a lth o ugh th e G ra nd R ap id s m an o bje cte d m ild ly
th at th e “ B ell T ele p ho ne H our” c o uld n’t b e re ceiv ed o n te le v is io n in h is lo cality a nym ore . A m an
fr o m P le asa nt R id ge, M ic hig an, s p oke u p f o r r e ti r e d s to ckho ld ers w ho w ould l ik e A .T . & T . to p lo w
le ss o f its e arn in gs b ack in to e xp ansio n, s o th at it c o uld p ay h ig her d iv id end s. A s to ckho ld er fr o m
ru ra l L ouis ia na s ta te d th at w hen h e p ic ked u p h is te le p ho ne l a te ly , th e o pera to r d id n’t a nsw er f o r f iv e
or te n m in ute s. “ A h b ra ng it to y o ur a tte nti o n,” th e L ouis ia na m an s a id , a nd M r. K ap pel p ro m is e d to
hav e s o m eb ody l o ok i n to th e m atte r. M rs . D av is r a is e d a c o m pla in t a b out A .T . & T .’ s c o ntr ib uti o ns to
charity , g iv in g M r. K ap pel th e o pportu nity to r e p ly th at h e w as g la d th e w orld c o nta in ed p eo ple m ore
charita b le th an sh e. (T ax-e xem pt a p pla use .) A D etr o it m an sa id , “ I h o pe y o u w on’t le t th e a b use
yo u’v e b een s u b je cte d to b y a fe w m alc o nte nts k eep y o u fr o m b rin gin g th e m eeti n g b ack to th e g re at
Mid w est a gain .” I t w as a nno unced th at D r. A rk in h ad b een d efe ate d f o r a s e at o n th e b oard , s in ce s h e
had r e ceiv ed a v ote o f o nly 1 9,1 06 s h are s a gain st s o m e fo ur h und re d m illio n, p ro xy v ote s in clu d ed ,
fo r e ach c and id ate o n th e m anagem ent s la te . ( B y
a p pro vin g th e m anagem ent s la te , a p ro xy v ote r c an,
in e ffe ct, o ppose a flo or n o m in ati o n, e v en th o ugh h e k no w s n o th in g a b out it.) A nd th at w as h o w th e
1966 a nnual m eeti n g o f th e w orld ’s l a rg est c o m pany w ent— or h o w i t w ent u nti l f iv e-th ir ty , w hen a ll
but a fe w h und re d s to ckho ld ers h ad le ft, a nd w hen I h ead ed fo r th e a ir p ort to c atc h a p la ne b ack to
New Y ork .
TH E
A .T . & T . m eeti n g l e ft m e i n a th o ughtf u l m ood. A nnual m eeti n gs, I r e fle cte d , c an b e ti m es to tr y
th e s o ul o f a n a d m ir e r o f re p re se nta ti v e d em ocra ti c g o vern m ent, e sp ecia lly w hen h e fin d s h im se lf
guilti ly sy m path iz in g w ith th e chair m an w ho is b ein g b ad gere d fr o m th e flo or. T he p ro fe ssio nal
sto ckho ld ers , in th eir w ild er m om ents , a re m anagem ent’ s se cre t w eap on; a M rs . S oss a nd a M rs .
Dav is a t th eir m ost s tr id ent c o uld h av e m ad e C om modore V and erb ilt a nd P ie rp ont M org an s e em l ik e
affa b le o ld g entl e m en, a nd th ey c an m ake a l a tte r-d ay m agnate l ik e M r. K ap pel s e em l ik e a h enp ecked
husb and , if no t actu ally a cham pio n of sto ckho ld ers ’ rig hts . A t su ch m om ents , th e pro fe ssio nal
sto ckho ld ers b eco m e, f r o m a p ra cti c al s ta nd poin t, e nem ie s o f i n te llig ent d is se nt. O n th e o th er h and , I
th o ught, th ey d ese rv e s y m path y, to o, w heth er o r n o t o ne b elie v es th ey h av e r ig ht o n th eir s id e, b ecause
th ey a re i n th e p ositi o n o f r e p re se nti n g a c o nsti tu ency th at d oesn ’t w ant to b e r e p re se nte d . I t’ s h ard to
im agin e a nyo ne m ore r e lu cta nt to c la im h is d em ocra ti c r ig hts , o r m ore s u sp ic io us o f a nyo ne w ho tr ie s
to c la im th em fo r h im , th an a d iv id end -fa tte ned s to ckho ld er— and , o f c o urs e , m ost s to ckho ld ers a re
th o ro ughly d iv id end -fa tte ned th ese d ays. B erle s p eaks o f th e e sta te o f s to ckho ld in g a s b ein g b y its
natu re “ p assiv e-re cep ti v e,” r a th er th an “ m anagin g a nd c re ati n g;” m ost o f th e A .T . & T . s to ckho ld ers
in D etr o it, i t s e em ed to m e, w ere s o d eep ly d ev ote d to th e n o ti o n o f th e c o m pany a s S anta C la us th at th ey w ent b eyo nd p assiv e r e cep ti v ity to a cti v e c up board lo ve. A nd th e p ro fe ssio nal s to ckho ld ers , I
fe lt, h ad ta ken o n a n a ssig nm ent a lm ost a s th ankle ss a s th at o f re cru iti n g fo r th e Y oung C om munis t
League a m ong th e j u nio r e xecuti v es o f th e C hase M anhatta n B ank.
In v ie w o f C hair m an P hillip pe’s w arn in g to G enera l E le ctr ic s to ckho ld ers a t S chenecta d y i n 1 965,
and o f th e r e p ort a b out th e c o m pany’s h ard -lin e ta sk f o rc e, i t w as w ith a s e nse o f b ein g e ngaged i n h o t
purs u it th at I b oard ed a s o uth b ound P ullm an fo r th e G enera l E le ctr ic a nnual m eeti n g. T his o ne w as
held in A tl a nta ’s M unic ip al A ud ito riu m , a sn ap py hall, th e re ar o f w hic h w as b rig hte ned b y an
in te rio r gard en co m ple te w ith tr e es and a la w n, and in sp ite o f th e fa ct th at it w as held o n a
la nguo ro us, r a in y S outh ern s p rin g m orn in g, m ore th an a th o usa nd G .E . s to ckho ld ers tu rn ed o ut. A s f a r
as I c o uld s e e, th re e o f th em w ere N egro es, a nd i t w as n o t l o ng b efo re I s a w th at a no th er o f th em w as
Mrs . S oss.
How ev er e xasp era te d h e m ay h av e b eco m e th e p re v io us y ear in S chenecta d y, M r. P hillip pe, w ho
als o c o nd ucte d th e 1 966 m eeti n g, w as in p erfe ct c o ntr o l o f h im se lf a nd o f th e situ ati o n th is ti m e
aro und . W heth er he w as exp ati a ti n g o n th e w ond ers o f G .E .’ s b ala nce sh eet and its la b ora to ry
dis c o verie s o r sp arrin g w ith th e p ro fe ssio nal sto ckho ld ers , he sp oke in th e sa m e sin gso ng w ay,
delic ate ly tr e ad in g th e th in lin e b etw een p ati e nt, c are fu l e xp ositi o n a nd ir o ny. M r. S axo n, in h is
Harv a rd B usin ess R evie w
a rti c le , h ad w ritte n, “ T op e xecuti v es a re f in d in g i t n ecessa ry to l e arn h o w
to le sse n th e ad vers e im pact of th e fe w dis ru p te rs on th e m ajo rity of sh are o w ners , w hile
sim ulta neo usly e nhancin g th e p ositi v e e ffe cts o f th e g o od th in gs w hic h d o ta ke p la ce in th e a nnual
meeti n g,” a nd , h av in g l e arn ed s o m eti m e e arlie r th at th e s a m e M r. S axo n h ad b een e ngaged b y G .E . a s
an a d vis e r o n s to ckho ld er r e la ti o ns, I c o uld n’t h elp s u sp ecti n g th at M r. P hilip pe’s p erfo rm ance w as a
dem onstr a ti o n o f S axo nis m in a cti o n. T he p ro fe ssio nal sto ckho ld ers , fo r th eir p art, re sp ond ed b y
ad opti n g p re cis e ly th e sa m e a m big uo us sty le , a nd th e re su lti n g d ia lo gue h ad th e g enera l a ir o f a
co nv ers a ti o n b etw een tw o p eo ple w ho h av e q uarre lle d a nd th en d ecid ed , n o t q uite w ho le hearte d ly , to
make i t u p . ( T he p ro fe ssio nal s to ckho ld ers m ig ht h av e d em and ed to k no w h o w m uch m oney G .E . h ad
sp ent i n th e i n te re st o f k eep in g th em u nd er c o ntr o l, b ut th ey m is se d th e c hance.) O ne o f th e e xchanges
in th is v ein a chie v ed a to uch o f w it. M rs . S oss, s p eakin g in h er s w eete st to ne, c alle d a tte nti o n to th e
fa ct th at one of
th e board -o f- d ir e cto rs cand id ate s— Fre d eric k L. H ovde, Pre sid ent of Purd ue
Univ ers ity a nd fo rm er c hair m an o f th e A rm y S cie nti fic A dvis o ry P anel— ow ned o nly te n s h are s o f
G.E . s to ck, a nd s a id s h e f e lt th at th e b oard s h o uld b e m ad e u p o f m ore s u b sta nti a l h o ld ers , w here up on
Mr. P hilip pe p oin te d o ut, ju st a s s w eetl y , th at th e c o m pany h ad m any th o usa nd s o f h o ld ers o f te n o r
fe w er s h are s, M rs . S oss a m ong th em , a nd s u ggeste d th at p erh ap s th ese s m all h o ld ers w ere d ese rv in g
of re p re se nta ti o n o n th e b oard b y o ne o f th eir n um ber. M rs . S oss h ad to c o nced e a fin e s tr o ke o f
chair m ansh ip , a nd s h e d id . O n a no th er m atte r, a lth o ugh d eco ru m w as s tr in gentl y m ain ta in ed b y b oth
sid es, o utw ard a cco rd w as l e ss c o m ple te . S ev era l s to ckho ld ers , M rs . S oss a m ong th em , h ad f o rm ally
pro pose d th at th e c o m pany a d opt f o r i ts d ir e cto r e le cti o ns th e s y ste m c alle d c um ula ti v e v oti n g, u nd er
whic h a s to ckho ld er m ay c o ncentr a te a ll th e v ote s h e is e nti tl e d to o n a s in gle c and id ate r a th er th an
sp re ad th em o ver th e w ho le s la te , a nd w hic h th ere fo re g iv es a m in o rity g ro up o f s to ckho ld ers a m uch
bette r c hance o f e le cti n g o ne re p re se nta ti v e to th e b oard . C um ula ti v e v oti n g, th o ugh a su b je ct o f
co ntr o vers y i n b ig -b usin ess c ir c le s, f o r o bvio us r e aso ns, i s n ev erth ele ss a p erfe ctl y r e sp ecta b le i d ea;
in d eed , i t i s m and ato ry f o r c o m panie s i n co rp ora te d i n m ore th an tw enty s ta te s, a nd i t i s u se d b y s o m e
fo ur h und re d c o m panie s l is te d o n th e N ew Y ork S to ck E xchange. N ev erth ele ss, M r. P hillip pe d id n o t
fin d i t n ecessa ry to a nsw er M rs . S oss’s a rg um ent f o r c um ula ti v e v oti n g; h e c ho se i n ste ad to s ta nd o n a
brie f c o m pany s ta te m ent o n th is s u b je ct th at h ad b een p re v io usly m aile d o ut to s to ckho ld ers , th e m ain
poin t of w hic h w as th at th e pre se nce on th e G .E . board , as a re su lt of cum ula ti v e voti n g, of re p re se nta ti v es o f s p ecia l- in te re st g ro up s m ig ht h av e a “ d iv is iv e a nd d is ru p ti v e e ffe ct.” O f c o urs e ,
Mr. P hillip pe d id n o t s a y h e k new , a s h e d oub tl e ss d id k no w , th at th e c o m pany h ad i n h and m ore th an
eno ugh p ro xie s to d efe at th e p ro posa l.
Som e c o m panie s, lik e s o m e a nim als , h av e th eir p riv ate , h ig hly s p ecia liz e d g ad flie s, w ho h ara ss
th em a nd n o body e ls e , a nd G enera l E le ctr ic i s o ne. I n th is i n sta nce, th e g ad fly w as L ouis A . B ru sa ti ,
of C hic ago , w ho a t th e c o m pany’s m eeti n gs o ver th e p ast th ir te en y ears h ad a d vanced th ir ty -o ne
pro posa ls , a ll o f w hic h
h ad b een d efe ate d b y a v ote o f a t l e ast n in ety -s e v en p er c ent to th re e p er c ent.
In A tl a nta , M r. B ru sa ti , a g ra y-h air e d m an b uilt lik e a fo otb all p la yer, w as a t it a gain — no t w ith
pro posa ls th is ti m e b ut w ith q uesti o ns. F or o ne th in g, he w ante d to kno w w hy M r. P hillip pe’s
pers o nal h o ld in gs o f G .E . s to ck, lis te d in th e p ro xy s ta te m ent, n o w w ere fo ur h und re d a nd tw enty -
th re e s h are s f e w er th an th ey h ad b een a y ear a go . M r. P hillip pe r e p lie d th at th e d iffe re nce r e p re se nte d
sh are s th at h e h ad c o ntr ib ute d to f a m ily tr u st f u nd s, a nd a d ded , m ild ly b ut w ith e m phasis , “ I c o uld s a y
it’ s n o ne o f y o ur b usin ess. I b elie v e I h av e a rig ht to th e p riv acy o f m y a ffa ir s .” T here w as m ore
re aso n fo r th e m ild ness th an fo r th e em phasis , as M r. B ru sa ti did no t fa il to poin t out, in an
im peccab ly u nem oti o nal m ono to ne; m any o f M r. P hillip pe’s s h are s h ad b een a cq uir e d u nd er o pti o ns
at p re fe re nti a l p ric es n o t a v aila b le to o th ers , a nd , m ore o ver, th e fa ct th at M r. P hillip pe’s p re cis e
ho ld in gs h ad b een i n clu d ed i n th e p ro xy s ta te m ent c le arly s h o w ed th at i n th e o pin io n o f th e S ecuriti e s
and E xchange C om mis sio n h is h o ld in gs
were
M r. B ru sa ti ’s b usin ess. G oin g o n to th e m atte r o f th e
fe es p aid d ir e cto rs , M r. B ru sa ti e lic ite d fr o m M r. P hillip pe th e in fo rm ati o n th at o ver th e p ast s e v en
years th ese h ad b een r a is e d f r o m tw enty -fiv e h und re d d olla rs p er a nnum f ir s t to f iv e th o usa nd d olla rs
and th en to s e v enty -fiv e h und re d . T he e nsu in g d ia lo gue b etw een th e tw o m en w ent l ik e th is :
“B y th e w ay, w ho e sta b lis h es th o se f e es? ”
“T ho se f e es a re e sta b lis h ed b y th e b oard o f d ir e cto rs .”
“T he b oard o f d ir e cto rs e sta b lis h th eir o w n f e es? ”
“Y es.”
“T hank y o u.”
“T hank
yo u
, M r. B ru sa ti .”
Late r o n in th e m orn in g, th ere w ere s e v era l le ngth y a nd e lo quent o ra ti o ns b y s to ckho ld ers o n th e
vir tu es o f G enera l E le ctr ic a nd o f th e S outh , b ut th is r a th er e le gantl y e llip ti c al e xchange b etw een M r.
Bru sa ti a nd M r. P hillip pe s tu ck in m y m in d , fo r it s e em ed to s u m u p th e s p ir it o f th e m eeti n g. O nly
afte r a d jo urn m ent— whic h c am e a t tw elv e-th ir ty , fo llo w in g M r. P hillip pe’s a nno uncem ent th at th e
uno ppose d s la te o f d ir e cto rs h ad b een e le cte d a nd th at c um ula ti v e v oti n g h ad l o st b y 9 7.5 1 p er c ent to
2.4 9 p er c ent— did I r e aliz e th at n o t o nly h ad th ere b een n o s ta m pin g, b ooin g, o r s h o uti n g, a s th ere h ad
been i n D etr o it, b ut r e gio nal p rid e h ad n o t h ad to b e i n v oked a gain st th e p ro fe ssio nal s to ckho ld ers . I t
had b een G enera l E le ctr ic ’s h o le c ard , I fe lt, b ut G enera l E le ctr ic h ad w on o n th e b oard , w ith o ut
need in g to tu rn i t u p .
EA CH
m eeti n g I a tte nd ed h ad i ts e asily d is c ern ib le c hara cte ris ti c to ne, a nd th at o f C has. P fiz e r & C o.,
th e d iv ers ifie d p harm aceuti c al a nd c hem ic al fir m , w as a m ic ab ility . P fiz e r, w hic h in p re v io us y ears
had c usto m arily h eld i ts a nnual m eeti n g a t i ts h ead quarte rs i n B ro okly n, r e v ers e d th e tr e nd b y m ovin g
th is y ear’s m eeti n g r ig ht i n to th e l a ir o f th e m ost v ocal d is se nte rs , m id to w n M anhatta n, b ut e v ery th in g
th at I s a w a nd h eard c o nv in ced m e th at th e m oti v ati o n b ehin d th is m ove h ad b een n o t a b ra sh r e so lv e
on th e c o m pany’s p art to b eard th e lio ns in th eir d en b ut a h ig hly u nfa sh io nab le d esir e to g et th e
maxim um p ossib le tu rn o ut. P fiz e r s e em ed to fe el s e lf- c o nfid ent e no ugh to m eet its s to ckho ld ers w ith
its g uard d ow n. F or in sta nce, in c o ntr a st w ith th e o th er m eeti n gs I a tte nd ed , n o s to ckho ld er ti c kets were c o lle cte d o r c re d enti a ls c hecked a t th e e ntr a nce to th e G ra nd B allr o om o f th e C om modore
Hote l, w here th e P fiz e r m eeti n g w as held ; F id el C astr o him se lf, w ho se o ra to ric al sty le I hav e
occasio nally fe lt th at th e p ro fe ssio nal s to ckho ld ers w ere u sin g a s a m odel, c o uld p re su m ab ly h av e
walk ed i n a nd s a id w hate v er h e c ho se . S om e s e v ente en h und re d p ers o ns, o r n early e no ugh to f ill th e
ballr o om , s h o w ed u p , a nd a ll th e m em bers o f th e P fiz e r b oard o f d ir e cto rs s a t o n th e p la tf o rm fr o m
sta rt to f in is h a nd a nsw ere d a ny q uesti o ns a d dre sse d to th em i n d iv id ually .
Speakin g, ap pro pria te ly , w ith a fa in t tr a ce o f a B ro okly n accent, C hair m an Jo hn E . M cK een
welc o m ed th e s to ckho ld ers a s “ m y d ear a nd c heris h ed fr ie nd s” ( I tr ie d to im agin e M r. K ap pel a nd
Mr. P hillip pe a d dre ssin g th eir sto ckho ld ers th at w ay, a nd c o uld n’t, b ut th en th eir c o m panie s a re
big ger), a nd s a id th at o n th e w ay o ut e v ery o ne p re se nt w ould b e g iv en a b ig f r e e-s a m ple k it o f P fiz e r
co nsu m er p ro ducts , su ch a s B arb aso l, D esiti n , a nd Im pré v u. W ooed th us b y e nd earm ents a nd th e
pro m is e o f g ifts , a nd
fu rth er s o fte ned u p b y th e re p ort o f P re sid ent J o hn J . P ow ers , J r., o n c urre nt
opera ti o ns (re co rd s all aro und ) and im med ia te pro sp ects (m ore re co rd s exp ecte d ), th e m ost
in tr a nsig ent p ro fe ssio nal s to ckho ld er w ould h av e b een h ard p ut to it to m ount m uch o f a r e b ellio n a t
th is p arti c ula r m eeti n g, a nd , a s i t h ap pened , th e o nly p ro fe ssio nal p re se nt s e em ed to b e J o hn G ilb ert,
bro th er o f L ew is . (I le arn ed la te r th at L ew is G ilb ert a nd M rs . D av is w ere in C le v ela nd th at d ay,
atte nd in g th e U .S . S te el m eeti n g.) Jo hn G ilb ert is th e so rt o f p ro fe ssio nal sto ckho ld er th e P fiz e r
managem ent d ese rv es, o r w ould lik e to th in k it d oes. W ith an easy go in g m anner and a hab it o f
punctu ati n g h is w ord s w ith s e lf- d ep re cati n g l ittl e l a ughs, h e i s th e m ost i n gra ti a ti n g g ad fly i m agin ab le
(o r w as o n th is o ccasio n; I’ m to ld h e is n ’t a lw ays), a nd a s h e ra n th ro ugh w hat s e em ed to b e th e
sta nd ard G ilb ert- fa m ily r e p erto ir e o f q uesti o ns— on th e r e lia b ility o f th e f ir m ’s a ud ito rs , th e s a la rie s
of its o ffic ers , th e fe es o f its d ir e cto rs — he se em ed a lm ost a p olo geti c th at d uty c alle d o n h im to
co m mit th e in d elic acy o f a sk in g s u ch th in gs. A s fo r th e a m ate ur s to ckho ld ers p re se nt, th eir q uesti o ns
and c o m ments w ere a b out lik e th o se a t th e o th er m eeti n gs I’ d a tte nd ed , b ut th is ti m e th eir a tti tu d e
to w ard th e ro le of th e pro fe ssio nal sto ckho ld er w as no ti c eab ly diffe re nt. In ste ad of bein g
overw helm in gly o ppose d , th ey a p peare d to b e sp lit; to ju d ge fr o m th e v olu m e o f c la p pin g a nd o f
dis c re et g ro anin g, a b out h alf o f th o se p re se nt c o nsid ere d G ilb ert a n uis a nce a nd h alf c o nsid ere d h im a
help . P ow ers le ft n o d oub t a b out h o w
he
fe lt; b efo re a d jo urn in g th e m eeti n g h e s a id , w ith o ut ir o ny,
th at h e h ad w elc o m ed G ilb ert’ s q uesti o ns, a nd m ad e a p oin t o f in v iti n g h im to c o m e a gain n ext y ear.
And , i n d eed , d urin g th e l a te r s ta ges o f th e P fiz e r m eeti n g, w hen G ilb ert, i n a c o nv ers a ti o nal w ay, w as
pra is in g th e c o m pany fo r s o m e th in gs a nd c riti c iz in g it fo r o th ers , a nd th e v ario us m em bers o f th e
board w ere re p ly in g to h is c o m ments ju st a s in fo rm ally , I g o t fo r th e fir s t ti m e a fle eti n g s e nse o f
genuin e c o m munic ati o n b etw een s to ckho ld ers a nd m anagers .
TH E
R ad io C orp ora ti o n o f A meric a, w hic h h ad h eld its la st tw o m eeti n gs fa r fr o m its N ew Y ork
head quarte rs — in L os A ngele s in 1 964, in C hic ago in 1 965— re se rv ed th e c urre nt tr e nd e v en m ore
decis iv ely th an P fiz e r b y c o nv enin g th is ti m e i n C arn egie H all. T he e nti r e o rc hestr a a nd th e tw o ti e rs
of b oxes w ere c o m ple te ly fille d w ith s to ckho ld ers — ab out tw enty -th re e h und re d o f th em , o f w ho m a
str ik in gly la rg er p ro porti o n th an a t a ny o f m y o th er m eeti n gs w as m ale . M rs . S oss a nd M rs . D av is
were o n h and , th o ugh, a lo ng w ith L ew is G ilb ert a nd s o m e p ro fe ssio nal s to ckho ld ers I h ad n’t s e en
befo re , a nd , a s w ith P fiz e r, th e c o m pany’s w ho le b oard o f d ir e cto rs s a t o n th e p la tf o rm , w here th e
chie f c ente rs o f a ttr a cti o n i n R .C .A .’ s c ase w ere D av id S arn o ff, th e c o m pany’s s e v enty -fiv e-y ear-o ld
chair m an, a nd h is fo rty -e ig ht- y ear-o ld s o n, R obert W . S arn o ff, w ho h ad b een its p re sid ent s in ce th e
begin nin g o f th e y ear. F or m e, tw o a sp ects o f th e R .C .A . m eeti n g sto od o ut: th e e v id ent re sp ect,
am ounti n g alm ost to venera ti o n, of th e sto ckho ld ers fo r th eir cele b ra te d chair m an, and an unaccusto m ed d is p ositi o n o f th e a m ate ur sto ckho ld ers to sp eak u p fo r th em se lv es. T he e ld er M r.
Sarn o ff, l o okin g h ale a nd r e ad y f o r a nyth in g, c o nd ucte d th e m eeti n g, a nd h e a nd s e v era l o th er R .C .A .
executi v es g av e re p orts o n c o m pany o pera ti o ns a nd p ro sp ects , in th e c o urs e o f w hic h th e w ord s
“re co rd ” a nd “ gro w th ” re curre d s o m ono to no usly th at I, n o t b ein g a n R .C .A . s to ckho ld er, b egan to
no d. I w as b ro ught w id e a w ake w ith a jo lt o n o ne o ccasio n, th o ugh, w hen I h eard W alte r D . S co tt,
chair m an o f R .C .A .’ s su b sid ia ry th e N ati o nal B ro ad casti n g C om pany, sa y in c o nnecti o n w ith h is
netw ork ’s te le v is io n p ro gra m min g th at “ cre ati v e r e so urc es a re a lw ays r u nnin g a head o f d em and .”
No o ne o bje cte d to th at s ta te m ent o r to a nyth in g e ls e in th e g lo w in g r e p orts , b ut w hen th ey w ere
over th e s to ckho ld ers h ad th eir s a y o n o th er m atte rs . M r. G ilb ert r a is e d s o m e f a v orite q uesti o ns o f h is
ab out a cco unti n g p ro ced ure s, a nd a re p re se nta ti v e o f R .C .A .’ s a cco unta nts , A rth ur Y oung & C o.,
mad e r e p lie s th at s e em ed to s a ti s fy M r. G ilb ert. A D ic kensia n e ld erly l a d y, w ho i d enti fie d h ers e lf a s
Mrs . M arth a B ra nd a nd s a id s h e h eld “ m any th o usa nd s” o f s h are s o f R .C .A . s to ck, e xp re sse d th e v ie w
th at th e a cco unti n g p ro ced ure s o f th e c o m pany s h o uld n o t e v en b e q uesti o ned . I h av e s in ce le arn ed
th at M rs . B ra nd is a p ro fe ssio nal s to ckho ld er w ho is a n a no m aly w ith in th e p ro fe ssio n, in th at s h e
le ans s tr o ngly to w ard th e m anagem ent v ie w o f th in gs. M r. G ilb ert
th en a d vanced a p ro posa l fo r th e
ad opti o n o f c um ula ti v e v oti n g, s u p porti n g i t w ith a b out th e s a m e a rg um ents th at M rs . S oss h ad u se d a t
th e G .E . m eeti n g. M r. S arn o ff o ppose d th e m oti o n, a nd s o d id M rs . B ra nd , w ho e xp la in ed th at s h e
was s u re th e p re se nt d ir e cto rs a lw ays w ork ed ti r e le ssly f o r th e w elfa re o f th e c o rp ora ti o n, a nd a d ded
th is ti m e th at sh e w as th e ho ld er of “m any, m any th o usa nd s” of sh are s. Tw o or th re e oth er
sto ckho ld ers s p oke u p in fa v or o f c um ula ti v e v oti n g— th e o nly o ccasio n a t a ny m eeti n g o n w hic h I
sa w s to ckho ld ers n o t e asily id enti fia b le a s p ro fe ssio nals s p eak in d is se nt o n a m atte r o f s u b sta nce.
(C um ula ti v e v oti n g w as d efe ate d , 9 5.3 p er c ent to 4 .7 p er c ent.) M rs . S oss, s ti ll i n a s m ild a m ood a s
in A tl a nta , s a id s h e w as d elig hte d to s e e a w om an, M rs . J o se p hin e Y oung C ase , s itti n g o n th e s ta ge a s
a m em ber o f th e R .C .A . b oard , b ut d ep lo re d th e f a ct th at M rs . C ase ’s p rin cip al o ccup ati o n w as g iv en
on th e p ro xy sta te m ent as “ho use w ife .” C ould n’t a w om an w ho w as chair m an o f th e b oard o f
Skid m ore C olle ge a t l e ast b e c alle d a “ ho m e e xecuti v e”? A no th er l a d y s to ckho ld er s e t o ff a r o und o f
ap pla use b y d eliv erin g a p aean to C hair m an S arn o ff, w ho m s h e c alle d “ th e m arv ello us C in d ere lla
man o f th e tw enti e th c entu ry .”
Mrs . D av is — who h ad e arlie r o bje cte d to th e site o f th e m eeti n g o n th e g ro und , w hic h I fo und
dum fo und in g, th at C arn egie H all w as “to o unso phis ti c ate d ” fo r R .C .A .— ad vanced a re so lu ti o n
callin g fo r c o m pany a cti o n “ to in su re th at h ere afte r n o p ers o n s h all s e rv e a s a d ir e cto r a fte r h e s h all
hav e a tta in ed th e a ge o f s e v enty -tw o.” E ven th o ugh s im ila r r u lin gs a re in e ffe ct in m any c o m panie s,
and e v en th o ugh th e p ro posa l, n o t b ein g r e tr o acti v e, w ould h av e n o e ffe ct u p on M r. S arn o ff ’s s ta tu s, i t
se em ed
to b e a im ed a t h im , a nd th us M rs . D av is d em onstr a te d a gain h er u ncanny k nack o f p la yin g i n to
managem ent’ s hand s. N or d id sh e ap pear to help her cause b y p utti n g o n a B atm an m ask (th e
sy m bolis m o f w hic h I d id n’t g ra sp ) w hen s h e m ad e i t. A t a ll e v ents , th e p ro posa l g av e r is e to s e v era l
im passio ned d efe nse s o f M r. S arn o ff, a nd o ne o f th e s p eakers w ent o n to c o m pla in b itte rly th at M rs .
Dav is w as in su lti n g th e in te llig ence o f e v ery o ne p re se nt. A t th is , th e se rio us-m in d ed M r. G ilb ert
le ap ed u p to s a y, “ I q uite a gre e a b out th e s illin ess o f h er c o stu m e, b ut th ere i s a v alid p rin cip le i n h er
pro posa l.” In m akin g th is V olta ir ia n d is ti n cti o n, M r. G ilb ert, to ju d ge fr o m his ev id ent sta te o f
agita ti o n, w as achie v in g a tr iu m ph o f re aso n o ver in clin ati o n th at w as co sti n g him p le nty . M rs .
Dav is ’s r e so lu ti o n w as d efe ate d o verw helm in gly ; th e m arg in a gain st i t s e rv ed to e nd th e m eeti n g w ith
what a m ounte d to a r o usin g v ote o f c o nfid ence i n th e C in d ere lla m an.
CLA SSIC
fa rc e, w ith ele m ents of sla p sti c k, w as th e dom in ant m ood of th e m eeti n g of th e Com munic ati o ns S ate llite C orp ora ti o n, w ith w hic h I w ound u p m y m eeti n g-g o in g s e aso n. C om sa t is ,
of c o urs e , th e g la m oro us s p ace-a ge c o m munic ati o ns c o m pany th at w as s e t u p b y th e g o vern m ent in
1963 a nd tu rn ed o ver to p ub lic o w ners h ip in a c ele b ra te d s to ck s a le in 1 964. U pon a rriv in g a t th e
meeti n g s ite — th e S ho re ham H ote l, in W ash in gto n— I w as s c arc ely s ta rtl e d to d is c o ver M rs . D av is ,
Mrs . S oss, a nd L ew is G ilb ert a m ong th e th o usa nd o r s o s to ckho ld ers p re se nt. M rs . D av is , d ecked o ut
in s ta ge m akeup , a n o ra nge p ith h elm et, a s h o rt r e d s k ir t, w hite b oots , a nd a b la ck s w eate r b earin g i n
white l e tte rs th e l e gend “ I W as B orn to R ais e H ell,” h ad p la nte d h ers e lf s q uare ly i n f r o nt o f a b atte ry
of te le v is io n c am era s. M rs . S oss, a s I h ad le arn ed b y n o w w as h er c usto m , h ad ta ken a p la ce a t th e
opposite s id e o f th e r o om fr o m M rs . D av is , a nd th is m eant th at s h e w as n o w a s fa r a s p ossib le fr o m
th e te le v is io n c am era s. C onsid erin g th at M rs . S oss d oes n o t o rd in arily s e em to b e a v ers e to b ein g
pho to gra p hed , I c o uld w rite d ow n th is c ho ic e o f s e at o nly a s a h ard -w on tr iu m ph o f c o nsc ie nce a kin
to M r. G ilb ert’ s a t C arn egie H all. A s fo r M r. G ilb ert, h e to ok a p la ce n o t fa r fr o m M rs . S oss, a nd
th us, o f c o urs e , a l o ng w ay f r o m M rs . D av is .
Sin ce th e p re v io us y ear, L eo D . W elc h, th e m an w ho h ad c o nd ucte d th e 1 965 C om sa t m eeti n g w ith
su ch a f ir m h and , h as b een r e p la ced a s c hair m an o f th e c o m pany b y J a m es M cC orm ack, a W est P oin t
gra d uate , f o rm er R ho des S cho la r, a nd r e ti r e d A ir F orc e g enera l w ith a n i m peccab ly p olis h ed m anner,
who b ears a c erta in r e se m bla nce to th e D uke o f W in d so r, a nd M r. M cC orm ack w as c o nd ucti n g th is
year’s s e ssio n. H e w arm ed u p w ith s o m e p re lim in ary re m ark s in th e c o urs e o f w hic h h e n o te d — -
sm ooth ly , b ut n o t w ith o ut e m phasis — th at a s fo r th e su b je ct o f a ny in te rv enti o n
th at a sto ckho ld er
mig ht c ho ose to m ake, “ th e fie ld o f r e le v ance is q uite n arro w .” W hen M r. M cC orm ack h ad fin is h ed
his w arm up , M rs . S oss m ad e a b rie f sp eech th at m ay o r m ay n o t h av e c o m e w ith in th e fie ld o f
re le v ance; I m is se d m ost o f it, b ecause th e flo or m ic ro pho ne s u p plie d to h er w asn ’t w ork in g rig ht.
Mrs . D av is th en c la im ed th e f lo or, a nd
her
m ik e w as w ork in g a ll to o w ell; a s th e c am era s g ro und , s h e
la unched in to a n e ars p litti n g ti r a d e a gain st th e c o m pany a nd its d ir e cto rs b ecause th ere h ad b een a
sp ecia l d oor to th e m eeti n g r o om r e se rv ed f o r th e e ntr a nce o f “ d is ti n guis h ed g uests .” M rs . D av is , i n a
go od m any w ord s, s a id s h e c o nsid ere d th is p ro ced ure u nd em ocra ti c . “ W e a p olo giz e , a nd w hen y o u
go o ut, p le ase g o b y a ny d oor y o u w ant,” M r. M cC orm ack s a id , b ut M rs . D av is , c le arly u nap pease d ,
went o n s p eakin g. A nd n o w th e m ood o f fa rc e w as h eig hte ned w hen it b ecam e c le ar th at th e S oss-
Gilb ert fa cti o n h ad d ecid ed to a b and on a ll e ffo rts to k eep ra nks c lo se d w ith M rs . D av is . N ear th e
heig ht o f h er o ra ti o n, M r. G ilb ert, l o okin g a s o utr a ged a s a b oy w ho se b all g am e i s b ein g s p oile d b y a
pla yer w ho d oesn ’t k no w th e r u le s o r c are a b out th e g am e, g o t u p a nd b egan s h o uti n g, “ P oin t o f o rd er!
Poin t o f o rd er!” B ut M r. M cC orm ack s p urn ed th is o ffe r o f p arlia m enta ry h elp ; h e r u le d M r. G ilb ert’ s
poin t o f o rd er o ut o f o rd er, a nd b ad e M rs . D av is p ro ceed . I h ad n o tr o ub le d ed ucin g w hy h e d id th is .
There w ere u nm is ta kab le s ig ns th at h e, u nlik e a ny o th er c o rp ora te c hair m an I h ad s e en i n a cti o n, w as
enjo yin g ev ery m in ute o f th e go in gs o n. T hro ugh m ost o f th e m eeti n g, and esp ecia lly w hen th e
pro fe ssio nal s to ckho ld ers h ad th e f lo or, M r. M cC orm ack w ore th e d re am y s m ile o f a w ho lly b em use d
sp ecta to r.
Eventu ally , M rs . D av is ’s s p eech b uilt u p to a p eak o f b oth v olu m e a nd c o nte nt a t w hic h s h e b egan
makin g sp ecific alle gati o ns again st in d iv id ual C om sa t d ir e cto rs , and at th is p oin t th re e se curity
guard s— tw o b eefy m en a nd a d ete rm in ed -lo okin g w om an, a ll d re sse d i n g aud y b ottl e -g re en u nifo rm s
th at m ig ht h av e b een c o stu m es fo r “ T he P ir a te s o f P enza nce”— ap peare d a t th e re ar, m arc hed w ith
bris k y et s ta te ly tr e ad u p th e c ente r a is le , a nd a ssu m ed th e p ositi o n o f p ara d e r e st in th e a is le w ith in
hand y r e ach o f M rs . D av is , w here up on s h e a b ru p tl y c o nclu d ed h er
s p eech a nd s a t d ow n. “ A ll r ig ht,”
Mr. M cC orm ack s a id , s ti ll g rin nin g. “ E very th in g’s c o ol n o w .”
The g uard s r e ti r e d , a nd th e m eeti n g p ro ceed ed . M r. M cC orm ack a nd th e C om sa t p re sid ent, J o se p h V. C hary k, g av e th e so rt o f g lo w in g re p ort o n th e c o m pany th at I h ad g ro w n a ccusto m ed to , M r.
McC orm ack g o in g s o fa r a s to s a y th at C om sa t m ig ht s ta rt s h o w in g its fir s t p ro fit th e fo llo w in g y ear
ra th er th an i n 1 969, a s o rig in ally f o re cast. ( It d id .) M r. G ilb ert a sk ed w hat f e e, a p art f r o m h is r e gula r
sa la ry , M r. M cC orm ack r e ceiv ed fo r a tte nd in g d ir e cto rs ’ m eeti n gs. M r. M cC orm ack r e p lie d th at h e
go t n o fe e, a nd w hen M r. G ilb ert sa id , “ I’ m g la d y o u g et n o th in g, I a p pro ve o f th at,” e v ery b ody
la ughed a nd M r. M cC orm ack g rin ned m ore b ro ad ly th an e v er. ( M r. G ilb ert w as c le arly tr y in g to m ake
what h e c o nsid ere d to b e a s e rio us p oin t, b ut th is d id n’t s e em to b e th e d ay f o r th at s o rt o f th in g.) M rs .
Soss to ok a d ig a t M rs . D av is b y sa yin g p oin te d ly th at a nyo ne w ho o ppose d M r. M cC orm ack a s
co m pany c hair m an w as “ la ckin g i n p ers p ic acity ;” s h e d id n o te , h o w ev er, th at s h e c o uld n’t q uite b rin g
hers e lf to v ote fo r M r. W elc h, th e fo rm er chair m an, w ho w as no w a cand id ate fo r th e b oard ,
in asm uch a s h e h ad o rd ere d h er th ro w n o ut la st y ear. A p ep py o ld g entl e m an s a id th at h e th o ught th e
co m pany w as d oin g f in e a nd e v ery o ne s h o uld h av e f a ith i n i t. O nce, w hen M r. G ilb ert s a id s o m eth in g
th at M rs . D av is d id n’t lik e a nd M rs . D av is , w ith o ut w aiti n g to b e re co gniz e d , b egan s h o uti n g h er
obje cti o n a cro ss th e ro om , M r. M cC orm ack g av e a s h o rt ir re p re ssib le g ig gle . T hat s in gle fa ls e tto
sy lla b le , m agnific entl y a m plifie d b y th e c hair m an’s m ic ro pho ne, w as th e m oti f o f th e C om sa t m eeti n g.
On th e p la ne re tu rn in g fr o m W ash in gto n, as I w as m usin g o n th e m eeti n gs I had atte nd ed , it
occurre d to m e th at if th ere h ad b een n o p ro fe ssio nal s to ckho ld ers a t th em I w ould p ro bab ly h av e
le arn ed a lm ost a s m uch a s I d id a b out th e c o m panie s’ a ffa ir s b ut th at I w ould h av e le arn ed a g o od
deal l e ss a b out th eir c hie f e xecuti v es’ p ers o naliti e s. I t h ad , a fte r a ll, b een th e q uesti o ns, i n te rru p ti o ns,
and sp eeches o f th e p ro fe ssio nal sto ckho ld ers th at b ro ught th e co m panie s to life , in a se nse , b y
fo rc in g each chair m an to sh ed his offic ia l portr a it- b y-B achra ch m ask and engage in a hum an
re la ti o nsh ip . M ore o fte n th an n o t, th is h ad b een th e h ard ly s a ti s fa cto ry h um an r e la ti o nsh ip o f n agger
and n agged , b ut a nyo ne l o okin g f o r h um anity i n h ig h c o rp ora te a ffa ir s c an’t a ffo rd to p ic k a nd c ho ose .
Sti ll, s o m e d oub ts r e m ain ed . B ein g th ir ty th o usa nd f e et u p i n th e a ir i s c o nd uciv e to ta kin g th e b ro ad er
vie w , a nd , d oin g s o a s w e w in ged o ver P hila d elp hia , I c o nclu d ed th at, o n th e b asis o f w hat I h ad s e en
and h eard , b oth c o m pany m anagem ents a nd sto ckho ld ers m ig ht w ell c o nsid er a le sso n K in g L ear
le arn ed — th at w hen th e r o le o f d is se nte r i s l e ft to th e F ool, th ere m ay b e tr o ub le a head f o r e v ery b ody. 11
One F re e B ite
AM ONG TH E TH OUSA NDS
of yo ung sc ie nti s ts w ho w ere doin g very w ell in th e re se arc h-a nd -
dev elo pm ent p ro gra m s o f A meric an co m panie s in th e fa ll o f 1 962 w as o ne nam ed D onald W .
Wohlg em uth , w ho w as w ork in g f o r th e B . F . G oodric h C om pany, i n A kro n, O hio . A 1 954 g ra d uate o f
th e U niv ers ity o f M ic hig an, w here he had ta ken th e d egre e o f B achelo r o f S cie nce in chem ic al
engin eerin g, he had go ne dir e ctl y fr o m th e univ ers ity to a jo b in th e chem ic al la b ora to rie s of
Goodric h, a t a s ta rti n g s a la ry o f th re e
h und re d a nd s ix ty -fiv e d olla rs a m onth . S in ce th en, e xcep t fo r
tw o y ears s p ent in th e A rm y, h e h ad w ork ed c o nti n uo usly fo r G oodric h, in v ario us e ngin eerin g a nd
re se arc h c ap aciti e s, a nd h ad r e ceiv ed a to ta l o f f ifte en s a la ry i n cre ase s o ver th e s ix a nd a h alf y ears .
In N ovem ber, 1 962, a s h e a p pro ached h is th ir ty -fir s t b ir th d ay, h e w as e arn in g $ 10,6 44 a y ear. A ta ll,
se lf- c o nta in ed , se rio us-lo okin g m an o f G erm an a ncestr y , w ho se h o rn -rim med g la sse s g av e h im a n
ow lis h e xp re ssio n, W ohlg em uth liv ed in a ra nch h o use in W ad sw orth , a s u b urb o f A kro n, w ith h is
wife a nd th eir fifte en-m onth -o ld d aughte r. A ll in a ll, h e s e em ed to b e th e y o ung A meric an
hom me
moyen r é u ssi
to th e p oin t o f b ore d om . W hat w as d ecid ed ly n o t ro uti n e a b out h im , th o ugh, w as th e
natu re o f h is jo b; h e w as th e m anager o f G oodric h’s d ep artm ent o f s p ace-s u it e ngin eerin g, a nd o ver
th e p ast y ears , i n th e p ro cess o f w ork in g h is w ay u p to th at p ositi o n, h e h ad h ad a c o nsid era b le p art i n
th e d esig nin g and co nstr u cti o n o f th e su its w orn b y o ur M erc ury astr o nauts o n th eir o rb ita l and
su b orb ita l f lig hts .
Then, in th e fir s t w eek o f N ovem ber, W ohlg em uth g o t a p ho ne c all fr o m a n e m plo ym ent a gent in
New Y ork , w ho i n fo rm ed h im th at th e e xecuti v es o f a l a rg e c o m pany i n D over, D ela w are , w ere m ost
anxio us to ta lk to h im a b out th e p ossib ility o f h is ta kin g a j o b w ith th em . D esp ite th e c alle r’s r e ti c ence
—a tr a it c o m mon a m ong e m plo ym ent a gents m akin g fir s t a p pro aches to p ro sp ecti v e e m plo yees—
Wohlg em uth in sta ntl y k new th e id enti ty o f th e la rg e c o m pany. T he In te rn ati o nal L ate x C orp ora ti o n,
whic h i s b est k no w n to th e p ub lic a s a m aker o f g ir d le s a nd b ra ssié re s, b ut w hic h W ohlg em uth k new
to b e a ls o o ne o f G oodric h’s th re e m ajo r c o m peti to rs i n th e s p ace-s u it f ie ld , i s s itu ate d i n D over. H e
knew , fu rth er, th at L ate x h ad r e centl y b een a w ard ed a s u b co ntr a ct, a m ounti n g to s o m e th re e-q uarte rs
of a m illio n d olla rs , to d o r e se arc h a nd d ev elo pm ent o n s p ace s u its fo r th e A pollo , o r m an-o n-th e-
moon, p ro je ct. A s a m atte r o f f a ct, L ate x h ad w on th is c o ntr a ct i n c o m peti ti o n w ith G oodric h, a m ong
oth ers , a nd w as th us fo r th e m om ent m uch th e h o tte st c o m pany in th e s p ace-s u it fie ld . O n to p o f th at,
Wohlg em uth w as so m ew hat d is c o nte nte d w ith h is situ ati o n a t G oodric h; fo r o ne th in g, h is sa la ry ,
ho w ev er b ounti fu l it m ig ht s e em to m any th ir ty -y ear-o ld s, w as c o nsid era b ly
b elo w th e a v era ge fo r
Goodric h e m plo yees o f h is ra nk, a nd , fo r a no th er, h e h ad b een tu rn ed d ow n n o t lo ng b efo re b y th e
co m pany a uth o riti e s w hen h e a sk ed f o r a ir -c o nd iti o nin g o r f ilte rin g to k eep d ust o ut o f th e p la nt a re a
allo cate d to s p ace-s u it w ork . A cco rd in gly , a fte r m akin g a rra ngem ents b y p ho ne w ith th e e xecuti v es
menti o ned b y th e e m plo ym ent a gent— and th ey d id i n d eed p ro ve to b e L ate x m en— Wohlg em uth w ent to D over th e f o llo w in g S und ay.
He s ta yed th ere a d ay a nd a h alf, b orro w in g M ond ay fr o m v acati o n ti m e th at w as d ue h im fr o m
Goodric h, a nd g etti n g w hat h e s u b se q uentl y d esc rib ed a s “ a r e al r e d -c arp et tr e atm ent.” H e w as ta ken
on a to ur of th e Late x sp ace-s u it- d ev elo pm ent fa ciliti e s by Leo nard Shep ard , dir e cto r of th e
co m pany’s I n d ustr ia l P ro ducts D iv is io n. H e w as e nte rta in ed a t th e h o m e o f M ax F elle r, a L ate x v ic e-
pre sid ent. H e w as s h o w n th e D over h o usin g s itu ati o n b y a no th er c o m pany e xecuti v e. F in ally , b efo re
lu nch on M ond ay, he had a ta lk w ith all th re e of th e L ate x executi v es, fo llo w in g w hic h— as
Wohlg em uth la te r d esc rib ed th e s c ene in c o urt— th e th re e “ re m oved th em se lv es to a no th er r o om fo r
ap pro xim ate ly te n m in ute s.” W hen th ey r e ap peare d , o ne o f th em o ffe re d W ohlg em uth th e p ositi o n o f
manager o f e ngin eerin g f o r th e I n d ustr ia l P ro ducts D iv is io n, w hic h i n clu d ed r e sp onsib ility f o r s p ace-
su it d ev elo pm ent, a t a n a nnual s a la ry o f $ 13,7 00, e ffe cti v e a t th e b egin nin g o f D ecem ber. A fte r g etti n g
his w ife ’s ap pro val by te le p ho ne— and it w as no t hard to get, sin ce sh e w as orig in ally fr o m
Balti m ore and w as delig hte d at th e pro sp ect of m ovin g back to her ow n part of th e w orld —
Wohlg em uth a ccep te d . H e fle w b ack to A kro n th at n ig ht. F ir s t th in g T uesd ay m orn in g, W ohlg em uth
co nfr o nte d C arl E ffle r, h is i m med ia te b oss a t G oodric h, w ith th e n ew s th at h e w as q uitti n g a t th e e nd
of th e m onth to ta ke a no th er j o b.
“A re y o u k id din g?” E ffle r a sk ed .
“N o, I a m n o t,” W ohlg em uth r e p lie d .
Follo w in g th is cris p exchange, w hic h W ohlg em uth la te r re p orte d in co urt, E ffle r, in th e ti m e-
ho no re d tr a d iti o n o f b ere av ed b osse s, gru m ble d a b it ab out th e d iffic ulty o f fin d in g a q ualifie d
re p la cem ent befo re th e end of th e m onth . W ohlg em uth sp ent th e
re st of th e day putti n g his
dep artm ent’ s p ap ers in o rd er a nd c le arin g h is d esk o f u nfin is h ed b usin ess, a nd th e n ext m orn in g h e
went to s e e W ayne G allo w ay, a G oodric h s p ace-s u it e xecuti v e w ith w ho m h e h ad w ork ed c lo se ly
and h ad b een o n th e fr ie nd lie st o f te rm s fo r a lo ng ti m e; h e sa id la te r th at h e fe lt h e o w ed it to
Gallo w ay “ to e xp la in to h im m y s id e o f th e p ic tu re ” i n p ers o n, e v en th o ugh a t th e m om ent h e w as n o t
und er G allo w ay’s s u p erv is io n in th e c o m pany c hain o f c o m mand . W ohlg em uth b egan th is in te rv ie w
by ra th er m elo dra m ati c ally h and in g G allo w ay a la p el p in in th e fo rm o f a M erc ury c ap su le , w hic h
had b een a w ard ed to h im fo r h is w ork o n th e M erc ury s p ace s u its ; n o w , h e s a id , h e fe lt h e w as n o
lo nger e nti tl e d to w ear it. W hy, th en, G allo w ay a sk ed , w as h e le av in g? S im ple e no ugh, W ohlg em uth
sa id — he c o nsid ere d th e L ate x o ffe r a s te p u p b oth in s a la ry a nd in r e sp onsib ility . G allo w ay r e p lie d
th at i n m akin g th e m ove W ohlg em uth w ould b e ta kin g to L ate x c erta in th in gs th at d id n o t b elo ng to h im
—sp ecific ally , k no w le d ge o f th e p ro cesse s th at G oodric h u se d i n m akin g s p ace s u its . I n th e c o urs e o f
th e c o nv ers a ti o n, W ohlg em uth a sk ed G allo w ay w hat h e w ould d o if h e w ere to re ceiv e a s im ila r
offe r. G allo w ay r e p lie d th at h e d id n’t k no w ; f o r th at m atte r, h e a d ded , h e d id n’t k no w w hat h e w ould
do i f h e w ere a p pro ached b y a g ro up w ho h ad a f o olp ro of p la n f o r r o bbin g a b ank. W ohlg em uth h ad
to b ase h is d ecis io n o n lo yalty a nd e th ic s, G allo w ay sa id — a re m ark th at W ohlg em uth to ok a s a n
accusa ti o n o f b ad fa ith . H e lo st h is te m per, h e la te r e xp la in ed , a nd g av e G allo w ay a ra sh a nsw er.
“L oyalty a nd e th ic s h av e th eir p ric e, a nd I n te rn ati o nal L ate x h as p aid i t,” h e s a id .
Afte r th at, th e f a t w as i n th e f ir e . L ate r i n th e m orn in g, E ffle r c alle d W ohlg em uth i n to h is o ffic e a nd
to ld h im i t h ad b een d ecid ed th at h e s h o uld l e av e th e G oodric h p re m is e s a s s o on a s p ossib le , s ta yin g
aro und o nly lo ng e no ugh to m ake a lis t o f p ro je cts th at w ere p end in g a nd to g o th ro ugh c erta in o th er
fo rm aliti e s. In m id -a fte rn o on, w hile W ohlg em uth w as o ccup ie d w ith th ese ta sk s, G allo w ay c alle d
him a nd to ld h im th at th e G oodric h le gal d ep artm ent w ante d to s e e h im . In th e le gal d ep artm ent, h e
was a sk ed w heth er h e in te nd ed to u se c o nfid enti a l in fo rm ati o n b elo ngin g to G oodric h o n b ehalf o f
Late x. A cco rd in g to th e s u b se q uent a ffid av it o f a
G oodric h l a w yer, h e r e p lie d — again r a sh ly — “H ow are y o u g o in g to p ro ve it? ” H e w as th en a d vis e d th at h e w as n o t le gally fr e e to m ake th e m ove to
Late x. W hile h e w as n o t b ound to G oodric h b y th e k in d o f c o ntr a ct, c o m mon i n A meric an i n d ustr y , i n
whic h a n e m plo yee a gre es n o t to d o s im ila r w ork fo r a ny c o m peti n g c o m pany fo r a s ta te d p erio d o f
ti m e, h e h ad , o n h is r e tu rn fr o m th e A rm y, s ig ned a r o uti n e p ap er a gre ein g “ to k eep c o nfid enti a l a ll
in fo rm ati o n, r e co rd s, a nd d ocum ents o f th e c o m pany o f w hic h I m ay h av e k no w le d ge b ecause o f m y
em plo ym ent” — so m eth in g W ohlg em uth had enti r e ly fo rg o tte n unti l th e G oodric h la w yer re m in d ed
him . E ven if h e h ad n o t m ad e th at a gre em ent, th e la w yer to ld h im n o w , h e w ould b e p re v ente d fr o m
go in g to w ork o n s p ace s u its f o r L ate x b y e sta b lis h ed p rin cip le s o f tr a d e-s e cre ts l a w . M ore o ver, i f h e
pers is te d i n h is p la n, G oodric h m ig ht s u e h im .
Wohlg em uth r e tu rn ed to h is o ffic e a nd p ut i n a c all to F elle r, th e L ate x v ic e-p re sid ent h e h ad m et i n
Dover. W hile h e w as w aiti n g f o r th e c all to b e c o m ple te d , h e ta lk ed w ith E ffle r, w ho h ad c o m e i n to
se e h im , a nd w ho se a tti tu d e to w ard h is d efe cti o n s e em ed to h av e s ti ffe ned c o nsid era b ly . W ohlg em uth
co m pla in ed th at h e f e lt a t th e m erc y o f G oodric h, w hic h, i t s e em ed to h im , w as u nre aso nab ly b lo ckin g
his fr e ed om o f a cti o n, a nd E ffle r u p se t h im fu rth er b y s a yin g th at w hat h ad h ap pened d urin g th e p ast
fo rty -e ig ht h o urs c o uld n o t b e fo rg o tte n a nd m ig ht w ell a ffe ct h is fu tu re w ith G oodric h. W ohlg em uth ,
it a p peare d , m ig ht b e su ed if h e le ft a nd sc o rn ed if h e d id n’t le av e. W hen th e D over c all c am e
th ro ugh, W ohlg em uth to ld F elle r th at in v ie w o f th e n ew s itu ati o n h e w ould b e u nab le to g o to w ork
fo r L ate x.
That e v enin g, h o w ev er, W ohlg em uth ’s p ro sp ects se em ed to ta ke a tu rn fo r th e b ette r. H om e in
Wad sw orth , h e c alle d th e fa m ily d enti s t, a nd th e d enti s t r e co m mend ed a lo cal la w yer. W ohlg em uth
to ld h is s to ry to th e la w yer, w ho th ere up on c o nsu lte d a no th er la w yer b y p ho ne. T he tw o c o unse llo rs
agre ed th at G oodric h w as p ro bab ly b lu ffin g a nd w ould n o t r e ally s u e W ohlg em uth i f h e w ent to L ate x.
The n ext m orn in g— Thurs d ay— offic ia ls o f L ate x c alle d h im b ack to a ssu re h im th at th eir f ir m w ould
bear h is le gal e xp ense s in th e e v ent o f a la w su it, a nd , fu rth erm ore , w ould in d em nify
h im a gain st a ny
sa la ry l o sse s. T hus e m bold ened , W ohlg em uth d eliv ere d tw o m essa ges w ith in th e n ext c o up le o f h o urs
—one in p ers o n a nd o ne b y p ho ne. H e to ld E ffle r w hat th e tw o la w yers h ad to ld h im , a nd h e c alle d
th e le gal dep artm ent to re p ort th at he had no w changed his m in d and w as go in g to w ork at
In te rn ati o nal L ate x a fte r a ll. L ate r th at d ay, a fte r c o m ple ti n g th e c le anup jo b in h is o ffic e, h e le ft th e
Goodric h p re m is e s f o r g o od, ta kin g w ith h im n o d ocum ents .
The fo llo w in g d ay— Frid ay— R. G . Je te r, g enera l c o unse l o f G oodric h, te le p ho ned E m ers o n P .
Barre tt, d ir e cto r o f in d ustr ia l re la ti o ns fo r L ate x, a nd sp oke o f G oodric h’s c o ncern fo r its tr a d e
se cre ts if W ohlg em uth w ent to w ork th ere . B arre tt re p lie d th at alth o ugh “th e w ork fo r w hic h
Wohlg em uth w as h ir e d w as d esig n a nd c o nstr u cti o n o f sp ace su its ,” L ate x w as n o t in te re ste d in
le arn in g a ny G oodric h tr a d e se cre ts b ut w as “ o nly in te re ste d in se curin g th e g enera l p ro fe ssio nal
ab iliti e s o f M r. W ohlg em uth .” T hat th is a nsw er d id n o t s a ti s fy J e te r, o r G oodric h, b ecam e m anife st
th e f o llo w in g M ond ay. T hat e v enin g, w hile W ohlg em uth w as i n a n A kro n r e sta ura nt c alle d th e B ro w n
Derb y, a tte nd in g a fa re w ell d in ner in h is h o no r g iv en b y fo rty o r fifty o f h is fr ie nd s, a w aitr e ss to ld
him th at th ere w as a m an o uts id e w ho w ante d to s e e h im . T he m an w as a d ep uty s h eriff o f S um mit
County , o f w hic h A kro n i s th e s e at, a nd w hen W ohlg em uth c am e o ut, th e m an h and ed h im tw o p ap ers .
One w as a s u m mons to a p pear in th e C ourt o f C om mon P le as o n a d ate a w eek o r s o o ff. T he o th er
was a c o py o f a p eti ti o n th at h ad b een file d in th e s a m e c o urt th at d ay b y G oodric h, p ra yin g th at
Wohlg em uth b e p erm anentl y e njo in ed f r o m , a m ong o th er th in gs, d is c lo sin g to a ny u nauth o riz e d p ers o n
any tr a d e s e cre ts b elo ngin g to G oodric h, a nd “ p erfo rm in g a ny w ork f o r a ny c o rp ora ti o n … o th er th an
pla in ti ff, re la ti n g to th e d esig n, m anufa ctu re a nd /o r s a le o f h ig h-a lti tu d e p re ssu re s u its , s p ace s u its
and /o r s im ila r p ro te cti v e g arm ents .” TH E
n eed f o r th e p ro te cti o n o f tr a d e s e cre ts w as f u lly r e co gniz e d i n th e M id dle A ges, w hen th ey w ere
so je alo usly g uard ed b y th e c ra ft g uild s th at th e g uild s’ e m plo yees w ere rig o ro usly p re v ente d fr o m
changin g j o bs.
Lais se z-fa ir e
in d ustr ia l s o cie ty , s in ce i t
e m phasiz e s th e p rin cip le th at th e i n d iv id ual i s
enti tl e d to ris e in th e w orld b y ta kin g th e b est o pportu nity h e is o ffe re d , h as b een fa r m ore le nie nt
ab out j o b-ju m pin g, b ut th e r ig ht o f a n o rg aniz a ti o n to k eep i ts s e cre ts h as s u rv iv ed . I n A meric an l a w ,
th e basic co m mand m ent on th e su b je ct w as la id dow n by Ju sti c e O liv er W end ell H olm es in
co nnecti o n w ith a 1 905 C hic ago c ase . H olm es w ro te , “ T he p la in ti ff h as th e rig ht to k eep th e w ork
whic h it h as d one, o r p aid fo r d oin g, to its e lf. T he fa ct th at o th ers m ig ht d o s im ila r w ork , if th ey
wis h ed , does no t auth o riz e th em to ste al pla in ti ff ’s .” T his ad m ir a b ly dow nrig ht, if no t hig hly
so phis ti c ate d , u kase h as b een c ite d in a lm ost e v ery tr a d e-s e cre ts c ase th at h as c o m e u p s in ce, b ut
over th e y ears , a s b oth s c ie nti fic re se arc h a nd in d ustr ia l o rg aniz a ti o n h av e b eco m e in fin ite ly m ore
co m ple x, so hav e th e q uesti o ns o f w hat, exactl y , co nsti tu te s a tr a d e se cre t, and w hat co nsti tu te s
ste alin g it. T he A meric an L aw In sti tu te ’s “ R esta te m ent o f th e L aw o f T orts ,” a n a uth o rita ti v e te xt
is su ed in 1 939, g ra p ple s m anfu lly w ith th e fir s t q uesti o n b y s ta ti n g, o r r e sta ti n g, th at “ a tr a d e s e cre t
may c o nsis t o f a ny fo rm ula , p atte rn , d ev ic e, o r c o m pila ti o n o f in fo rm ati o n w hic h is u se d in o ne’s
busin ess, a nd w hic h g iv es h im a n o pportu nity to o bta in a n a d vanta ge o ver c o m peti to rs w ho d o n o t
kno w o r u se i t.” B ut i n a c ase h eard i n 1 952 a n O hio c o urt d ecid ed th at th e A rth ur M urra y m eth o d o f
te achin g d ancin g, th o ugh it w as u niq ue a nd w as p re su m ab ly h elp fu l in lu rin g c usto m ers a w ay fr o m
co m peti to rs , w as n o t a tr a d e se cre t. “ A ll o f u s h av e ‘o ur m eth o d’ o f d oin g a m illio n th in gs— our
meth o d o f c o m bin g o ur h air, s h in in g o ur s h o es, m ow in g o ur la w n,” th e c o urt m use d , a nd c o nclu d ed
th at a tr a d e s e cre t m ust n o t o nly b e u niq ue a nd c o m merc ia lly h elp fu l b ut a ls o h av e i n here nt v alu e. A s
fo r w hat c o nsti tu te s th ie v ery o f tr a d e s e cre ts , i n a p ro ceed in g h eard i n M ic hig an i n 1 939, i n w hic h th e
Dutc h C ookie M achin e C om pany c o m pla in ed th at o ne o f i ts f o rm er e m plo yees w as th re ate nin g to u se
its h ig hly c la ssifie d m eth o ds to m ake c o okie m achin es o n h is o w n, th e tr ia l c o urt d ecid ed th at th ere
were n o f e w er th an th re e s e cre t p ro cesse s b y w hic h D utc h C ookie m achin es w ere m ad e, a nd e njo in ed
th e fo rm er e m plo yee fr o m u sin g th em in a ny m anner; h o w ev er, th e M ic hig an S up re m e C ourt, o n
ap peal, fo und th at th e d efe nd ant, a lth o ugh h e k new th e
th re e s e cre ts , d id n o t p la n to u se th em in h is
ow n o pera ti o ns, a nd , a cco rd in gly , i t r e v ers e d th e l o w er c o urt’ s d ecis io n a nd v acate d th e i n ju ncti o n.
And s o o n. O utr a ged d ancin g te achers , c o okie -m achin e m anufa ctu re rs , a nd o th ers h av e m ad e th eir
way th ro ugh A meric an c o urts , a nd th e p rin cip le s o f l a w r e gard in g th e p ro te cti o n o f tr a d e s e cre ts h av e
beco m e w ell esta b lis h ed ; any diffic ulty aris e s chie fly in th e ap plic ati o n of th ese prin cip le s to
in d iv id ual c ase s. T he n um ber o f s u ch c ase s h as b een r is in g s h arp ly in r e cent y ears , a s r e se arc h a nd
dev elo pm ent b y p riv ate i n d ustr y h av e e xp and ed , a nd a g o od i n d ex to th e r a te o f s u ch e xp ansio n i s th e
fa ct th at e le v en a nd a h alf b illio n d olla rs w as s p ent in th is w ork in 1 962, m ore th an th re e ti m es th e
fig ure fo r 1 953. N o c o m pany w ants to s e e th e d is c o verie s p ro duced b y a ll th at m oney g o o ut o f its
doors in th e a tta ché c ase s, o r e v en in th e h ead s, o f y o ung s c ie nti s ts b ound fo r g re ener p astu re s. In
nin ete enth -c entu ry A meric a, th e b uild er o f a b ette r m ouse tr a p w as s u p pose d to h av e b een a c yno su re
—pro vid ed , o f c o urs e , th at th e m ouse tr a p w as p ro perly p ate nte d . In th o se d ays o f c o m para ti v ely
sim ple te chno lo gy, p ate nts c o vere d m ost p ro prie ta ry r ig hts in b usin ess, s o tr a d e-s e cre ts c ase s w ere
ra re . T he b ette r m ouse tr a p s o f to day, h o w ev er, lik e th e p ro cesse s in v olv ed in o utf itti n g a m an to g o
in to o rb it o r to th e m oon, a re o fte n u np ate nta b le .
Sin ce th o usa nd s o f s c ie nti s ts a nd b illio ns o f d olla rs m ig ht b e a ffe cte d b y th e r e su lts o f th e tr ia l o f
Goodric h v . W ohlg em uth , it n atu ra lly a ttr a cte d a n u nusu al a m ount o f p ub lic a tte nti o n. In A kro n, th e
co urt pro ceed in gs w ere m uch dis c usse d both in th e lo cal pap er, th e
Bea co n Jo urn al
, and in
co nv ers a ti o n. G oodric h is a n o ld -lin e c o m pany, w ith a s tr o ng s tr e ak o f p ate rn alis m in its re la ti o ns with its e m plo yees, a nd w ith str o ng fe elin gs a b out w hat it re gard s a s b usin ess e th ic s. “ W e w ere
excep ti o nally u p se t b y w hat W ohlg em uth d id ,” a G oodric h e xecuti v e o f lo ng s ta nd in g s a id r e centl y .
“In m y j u d gm ent, th e e p is o de c ause d m ore c o ncern to th e c o m pany th an a nyth in g th at h as h ap pened i n
years . In fa ct, in th e n in ety -th re e y ears th at G oodric h h as b een in b usin ess, w e h ad n ev er b efo re
ente re d a s u it to r e str a in a f o rm er e m plo yee f r o m d is c lo sin g tr a d e s e cre ts . O f c o urs e , m any e m plo yees
in s e nsiti v e
p ositi o ns h av e l e ft u s. B ut i n th o se c ase s th e c o m panie s d oin g th e h ir in g h av e r e co gniz e d
th eir r e sp onsib iliti e s. O n o ne o ccasio n, a G oodric h c hem is t w ent to w ork f o r a no th er c o m pany u nd er
cir c um sta nces th at m ad e it a p pear to u s th at h e w as g o in g to u se o ur m eth o ds. W e ta lk ed to th e m an,
and to h is n ew e m plo yer, to o. T he u p sh o t w as th at th e c o m peti n g c o m pany n ev er b ro ught o ut th e
pro duct i t h ad h ir e d o ur m an to w ork o n. T hat w as r e sp onsib le c o nd uct o n th e p art o f b oth e m plo yee
and c o m pany. A s f o r th e W ohlg em uth c ase , th e l o cal c o m munity a nd o ur e m plo yees w ere a b it h o sti le
to w ard u s a t f ir s t— a b ig c o m pany s u in g a l ittl e g uy, a nd s o o n. B ut th ey g ra d ually c am e a ro und to o ur
poin t o f v ie w .”
In te re st o uts id e A kro n, w hic h w as e v id enced b y a s m all flo od o f le tte rs o f in q uir y a b out th e c ase ,
ad dre sse d to th e G oodric h le gal d ep artm ent, m ad e it c le ar th at G oodric h v . W ohlg em uth w as b ein g
watc hed as a bellw eth er. S om e in q uir ie s w ere fr o m co m panie s th at had sim ila r pro ble m s, or
anti c ip ate d h av in g th em , a nd a su rp ris in g n um ber w ere fr o m re la ti v es o f y o ung sc ie nti s ts , a sk in g,
“D oes th is m ean m y b oy i s s tu ck i n h is p re se nt j o b f o r th e r e st o f h is l ife ?” I n tr u th , a n i m porta nt i s su e
was a t s ta ke, a nd p itf a lls a w aite d th e j u d ge w ho h eard th e c ase , n o m atte r w hic h w ay h e d ecid ed . O n
one s id e w as th e d anger th at d is c o verie s m ad e in th e c o urs e o f c o rp ora te re se arc h m ig ht b eco m e
unp ro te cta b le — a s itu ati o n th at w ould e v entu ally le ad to th e d ry in g u p o f p riv ate r e se arc h fu nd s. O n
th e o th er sid e w as th e d anger th at th o usa nd s o f sc ie nti s ts m ig ht, th ro ugh th eir v ery ab ility and
in genuity , f in d th em se lv es p erm anentl y l o cked i n a d ep lo ra b le , a nd p ossib ly u nco nsti tu ti o nal, k in d o f
in te lle ctu al s e rv itu d e— th ey w ould b e b arre d f r o m c hangin g j o bs b ecause th ey k new to o m uch.
TH E
tr ia l— held in A kro n, pre sid ed over by Ju d ge Fra nk H . H arv ey, and co nd ucte d , lik e all
pro ceed in gs o f its ty p e, w ith o ut a ju ry — began o n N ovem ber 2 6th a nd c o nti n ued th ro ugh D ecem ber
12th , w ith a w eek’s re cess in th e m id dle ; W ohlg em uth , w ho w as s u p pose d to h av e s ta rte d w ork a t
Late x o n D ecem ber 3 rd , r e m ain ed i n A kro n u nd er a v olu nta ry a gre em ent w ith th e c o urt, a nd te sti fie d
exte nsiv ely in h is o w n d efe nse . In ju ncti o n, th e fo rm o f re lie f th at w as s o ught b y G oodric h a nd th e
chie f fo rm o f re lie f
th at is a v aila b le to a nyo ne w ho se se cre ts h av e b een sto le n, is a re m ed y th at
orig in ate d in R om an la w ; it w as a ncie ntl y c alle d “ in te rd ic t,” a nd is s ti ll s o c alle d in S co tl a nd . W hat
Goodric h w as ask in g, in effe ct, w as th at th e co urt is su e a d ir e ct o rd er to W ohlg em uth no t o nly
fo rb id din g h im to r e v eal G oodric h s e cre ts b ut a ls o fo rb id din g h im to ta ke e m plo ym ent in a ny o th er
co m pany’s sp ace-s u it dep artm ent. A ny vio la ti o n of su ch an ord er w ould be co nte m pt of co urt,
punis h ab le b y a f in e, o r i m pris o nm ent, o r b oth . J u st h o w s e rio usly G oodric h v ie w ed th e c ase b ecam e
cle ar w hen its te am o f la w yers p ro ved to b e head ed b y Je te r him se lf, w ho , as v ic e-p re sid ent,
se cre ta ry , th e c o m pany’s u lti m ate a uth o rity o n p ate nt la w , g enera l la w , e m plo yee re la ti o ns, u nio n
re la ti o ns, a nd w ork m en’s c o m pensa ti o n, a nd L ord H ig h P ra cti c ally E very th in g E ls e , h ad n o t fo und
ti m e to tr y a case in co urt him se lf fo r te n years . T he chie f defe nse co unse l w as R ic hard A .
Cheno w eth , o f th e A kro n l a w f ir m o f B uckin gham , D oolittl e & B urro ughs, w hic h L ate x, th o ugh i t w as
no t a defe nd ant in th e acti o n, had re ta in ed to hand le th e case , in fu lfillm ent of its pro m is e to
Wohlg em uth .
Fro m th e o uts e t, th e tw o s id es r e co gniz e d th at i f G oodric h w as to p re v ail, i t h ad to p ro ve, f ir s t, th at
it p osse sse d tr a d e s e cre ts ; s e co nd , th at W ohlg em uth a ls o p osse sse d th em , a nd th at a s u b sta nti a l p eril of d is c lo su re e xis te d ; a nd , th ir d , th at it w ould s u ffe r ir re p ara b le in ju ry if in ju ncti v e re lie f w as n o t
gra nte d . O n th e f ir s t p oin t, G oodric h a tto rn eys, th ro ugh th eir q uesti o nin g o f E ffle r, G allo w ay, a nd o ne
oth er c o m pany e m plo yee, s e t o ut to e sta b lis h th at G oodric h h ad a n um ber o f u nassa ila b le s p ace-s u it
se cre ts , a m ong th em a w ay o f m akin g th e h ard s h ell o f a s p ace h elm et, a w ay o f m akin g th e v is o r s e al,
a w ay o f m akin g a s o ck e nd in g, a w ay o f m akin g th e in ner lin er o f g lo ves, a w ay o f fa ste nin g th e
helm et o nto th e r e st o f th e s u it, a nd a w ay o f a p ply in g a w ear-re sis ta nt m ate ria l c alle d n eo pre ne to
tw o-w ay-s tr e tc h fa b ric . W ohlg em uth , th ro ugh h is c o unse l’s c ro ss-e xam in ati o ns, s o ught to s h o w th at
no ne o f th ese p ro cesse s w ere s e cre ts a t a ll; fo r e xam ple , in th e c ase o f th e n eo pre ne p ro cess, w hic h
Effle r had d esc rib ed as “a v ery criti c al tr a d e se cre t” o f G oodric h, d efe nse co unse l b ro ught o ut
ev id ence th at a L ate x p ro duct th at is n eith er se cre t n o r in te nd ed to b e w orn in o ute r sp ace— th e
Pla yte x G old en G ir d le
—was m ad e o f tw o-w ay-s tr e tc h fa b ric w ith n eo pre ne a p plie d to it, a nd , to
em phasiz e th e p oin t, C heno w eth in tr o duced a P la yte x G old en G ir d le fo r a ll to s e e. N or d id e ith er
sid e n egle ct to b rin g in to c o urt a s p ace s u it, in e ach in sta nce in hab ite d . T he G oodric h s u it, a 1 961
model, w as i n te nd ed to d em onstr a te w hat th e c o m pany h ad a chie v ed b y m eans o f r e se arc h— re se arc h
th at it d id n o t w ant to s e e c o m pro m is e d th ro ugh th e lo ss o f its s e cre ts . T he L ate x s u it, a ls o a 1 961
model, w as in te nd ed to s h o w th at L ate x w as a lr e ad y a head o f G oodric h in s p ace-s u it d ev elo pm ent
and w ould th ere fo re h av e n o in te re st in s te alin g G oodric h s e cre ts . T he L ate x s u it w as p arti c ula rly
biz a rre -lo okin g, and th e Late x em plo yee w ho w ore it in co urt lo oked alm ost excru cia ti n gly
unco m fo rta b le , a s if h e w ere u naccusto m ed to th e a ir o f e arth , o r o f A kro n. “ H is a ir tu b es w ere n’t
ho oked u p , a nd h e w as h o t,” th e
Bea co n J o urn al
e xp la in ed n ext d ay. A t a ny ra te , a fte r h e h ad s a t
su ffe rin g f o r te n o r f ifte en m in ute s w hile d efe nse c o unse l q uesti o ned a w itn ess a b out h is c o stu m e, h e
su d denly p oin te d in a n a go niz e d w ay to h is h ead , a nd th e c o urt re co rd o f w hat fo llo w ed , p ro bab ly
uniq ue i n th e a nnals o f j u ris p ru d ence, r e ad s l ik e th is :
M AN I N T H E
S
PA CE
S
UIT :
M ay I ta ke th is o ff? ( H elm et) .…
T HE
C
OURT:
A ll r ig ht.
The se co nd ele m ent in G oodric h’s b urd en o f p ro of— th at W ohlg em uth w as p riv y to G oodric h
se cre ts — was f a ir ly q uic kly d ealt w ith , b ecause W ohlg em uth ’s l a w yers c o nced ed th at h ard ly a nyth in g
th e c o m pany k new a b out s p ace s u its h ad b een k ep t fr o m h im ; th ey b ase d th eir d efe nse o n, fir s t, th e
unq uesti o ned fa ct th at h e h ad ta ken n o p ap ers a w ay w ith h im a nd , s e co nd , th e u nlik elih o od th at h e
would b e a b le to r e m em ber th e d eta ils o f c o m ple x s c ie nti fic p ro cesse s, e v en i f h e w ante d to . O n th e
th ir d e le m ent— th e m atte r o f i r re p ara b le i n ju ry — Je te r p oin te d o ut th at G oodric h, w hic h h ad m ad e th e
fir s t fu ll- p re ssu re fly in g s u it in h is to ry , fo r th e la te W ile y P ost’ s h ig h-a lti tu d e e xp erim ents in 1 934,
and w hic h had sin ce poure d vast su m s in to sp ace-s u it re se arc h and dev elo pm ent, w as th e
unq uesti o ned p io neer a nd h ad u p to th en b een c o nsid ere d th e le ad er in th e fie ld ; h e tr ie d to p ain t
Late x, w hic h h ad b een m akin g fu ll- p re ssu re s u its o nly s in ce th e m id -fifti e s, a s a
p arv enu w ith th e
nefa rio us p la n o f c ash in g in o n G oodric h’s y ears o f re se arc h b y h ir in g W ohlg em uth . E ven if th e
in te nti o ns o f L ate x a nd W ohlg em uth w ere th e b est in th e w orld , J e te r c o nte nd ed , W ohlg em uth w ould
in ev ita b ly r e v eal G oodric h s e cre ts in th e c o urs e o f w ork in g in L ate x’s s p ace-s u it d ep artm ent. In a ny
ev ent, J e te r w as u nw illin g to a ssu m e g o od i n te nti o ns. A s e v id ence o f b ad o nes, th ere w as, o n th e p art
of Late x, th e fa ct th at th e fir m had delib era te ly so ught out W ohlg em uth , and , on th e part of
Wohlg em uth , th e sta te m ent he had m ad e to G allo w ay ab out th e p ric e o f lo yalty and eth ic s. T he
defe nse d is p ute d th e c o nte nti o n th at a d is c lo su re o f se cre ts w ould b e in ev ita b le , a nd , o f c o urs e ,
denie d e v il in te nti o ns o n a nyo ne’s p art. It r o und ed o ut its c ase w ith a s ta te m ent m ad e in c o urt u nd er
oath b y W ohlg em uth : “ I w ill n o t re v eal [to In te rn ati o nal L ate x] a ny ite m s w hic h in m y o w n m in d I would c o nsid er to b e tr a d e se cre ts o f th e B . F . G oodric h C om pany.” T his , o f c o urs e , w as c o ld
co m fo rt to G oodric h.
Hav in g h eard th e e v id ence a nd th e la w yers ’ s u m mati o ns, J u d ge H arv ey r e se rv ed d ecis io n u nti l a
la te r d ate a nd i s su ed a n o rd er te m pora rily f o rb id din g W ohlg em uth to r e v eal th e a lle ged s e cre ts o r to
work i n th e L ate x s p ace-s u it p ro gra m ; h e c o uld g o o n th e L ate x p ayro ll, b ut h e h ad to s ta y o ut o f s p ace
su its u nti l th e c o urt’ s d ecis io n w as h and ed d ow n. In m id -D ecem ber, W ohlg em uth , le av in g h is fa m ily
behin d , w ent to D over a nd b egan w ork in g fo r L ate x o n o th er p ro ducts ; e arly in J a nuary , b y w hic h
ti m e h e h ad s u cceed ed i n s e llin g h is h o use i n W ad sw orth a nd b uyin g o ne i n D over, h is f a m ily j o in ed
him a t h is n ew s ta nd .
IN
A kro n, m eanw hile , th e l a w yers h ad a t e ach o th er i n b rie fs i n te nd ed to s w ay J u d ge H arv ey. V ario us
fin e p oin ts o f la w w ere d eb ate d , le arn ed ly b ut in co nclu siv ely ; y et a s th e b rie fs w ore o n, it b ecam e
in cre asin gly c le ar th at th e e sse nce o f th e c ase w as q uite s im ple . F or a ll p ra cti c al p urp ose s, th ere w as
no c o ntr o vers y o ver th e f a cts . W hat r e m ain ed i n c o ntr o vers y w as th e a nsw ers to tw o q uesti o ns: F ir s t,
sh o uld a m an b e fo rm ally r e str a in ed fr o m r e v ealin g tr a d e s e cre ts w hen h e h as n o t y et c o m mitte d a ny
su ch a ct, a nd w hen it is n o t c le ar th at h e in te nd s to ? A nd , s e co nd ly , s h o uld a m an b e p re v ente d fr o m
ta kin g a jo b s im ply b ecause th e jo b
p re se nts h im w ith u niq ue te m pta ti o ns to b re ak th e la w ? H av in g
sc o ure d th e l a w books, c o unse l f o r th e d efe nse f o und e xactl y th e te xt q uo ta ti o n th ey w ante d i n s u p port
of th e a rg um ent th at b oth q uesti o ns s h o uld b e a nsw ere d i n th e n egati v e. ( U nlik e th e d ecis io ns o f o th er
co urts , th e g enera l s ta te m ents o f th e a uth o rs o f la w te xtb ooks h av e n o o ffic ia l s ta nd in g in a ny c o urt,
but b y u sin g th em j u d ic io usly a n a d vocate c an e xp re ss h is o w n o pin io ns i n s o m eo ne e ls e ’s w ord s a nd
buttr e ss th em w ith bib lio gra p hic al re fe re nces.) T he quo ta ti o n w as fr o m a te xt enti tl e d “T ra d e
Secre ts ,” w hic h w as w ritte n b y a l a w yer n am ed R id sd ale E llis a nd p ub lis h ed i n 1 953, a nd i t r e ad , i n
part, “ U su ally i t i s n o t u nti l th ere i s e v id ence th at th e e m plo yee [ w ho h as c hanged j o bs] h as n o t l iv ed
up to h is c o ntr a ct, e xp re sse d o r im plie d , to m ain ta in se cre cy, th at th e fo rm er e m plo yer c an ta ke
acti o n. I n th e l a w o f to rts th ere i s th e m axim : E very d og h as o ne f r e e b ite . A d og c anno t b e p re su m ed
to b e v ic io us u nti l h e h as p ro ved th at h e is b y b iti n g s o m eo ne. A s w ith a d og, th e fo rm er e m plo yer
may h av e to w ait f o r a f o rm er e m plo yee to c o m mit s o m e o vert a ct b efo re h e c an a ct.” T o c o unte r th is
doctr in e— whic h, b esid es b ein g p ic tu re sq ue, a p peare d to h av e a c ru sh in gly e xact a p plic ab ility to th e
case u nd er d is p ute — Goodric h’s la w yers c am e u p w ith a q uo ta ti o n o f th eir o w n fr o m th e v ery s a m e
book. ( “ E llis o n tr a d e s e cre ts ,” a s th e la w yers r e fe rre d to it in th eir b rie fs , w as r e p eate d ly u se d b y
th e tw o sid es to b ela b or e ach o th er, fo r th e g o od re aso n th at it w as th e o nly te xt o n th e su b je ct
av aila b le in th e S um mit C ounty la w lib ra ry , w here b oth sid es d id th e b ulk o f th eir re se arc h.) In
su p port o f
th eir
c ause , G oodric h c o unse l fo und th at E llis h ad s a id , in c o nnecti o n w ith tr a d e-s e cre ts
case s i n w hic h th e d efe nd ant w as a c o m pany a ccuse d o f l u rin g a w ay a no th er c o m pany’s c o nfid enti a l
em plo yee: “ W here th e c o nfid enti a l e m plo yee le ft to e nte r d efe nd ant’ s e m plo ym ent, a n in fe re nce c an
be d ra w n to s u p ple m ent o th er c ir c um sta nti a l e v id ence th at th e l a tte r e m plo ym ent w as s ti m ula te d b y a
desir e b y th e d efe nd ant to l e arn p la in ti ff’ s s e cre ts .”
In o th er w ord s, E llis a p pare ntl y fe lt th at w hen th e c ir c um sta nces lo ok s u sp ic io us, o ne fr e e b ite is
not
p erm itte d . W heth er h e c o ntr a d ic te d h im se lf o r m ere ly r e fin ed h is p ositi o n i s a n ic e
q uesti o n; E llis
him se lf h ad d ie d s e v era l y ears e arlie r, s o i t w as n o t p ossib le to c o nsu lt h im o n th e m atte r.
On Feb ru ary 20th , 1963, hav in g stu d ie d th e brie fs and delib era te d on th em , Ju d ge H arv ey
deliv ere d h is d ecis io n, in th e fo rm o f a n in e-p age e ssa y fr a ught w ith s u sp ense . T o b egin w ith , th e
Ju d ge w ro te , h e w as c o nv in ced th at G oodric h d id h av e tr a d e s e cre ts r e la ti v e to s p ace s u its , a nd th at
Wohlg em uth m ig ht b e a b le to r e m em ber a nd th ere fo re b e a b le to d is c lo se s o m e o f th em to L ate x, to th e ir re p ara b le in ju ry o f G oodric h. H e d ecla re d , fu rth er, th at “ th ere is n ’t a ny d oub t th at th e L ate x
co m pany w as a tte m pti n g to g ain [W ohlg em uth ’s ] v alu ab le e xp erie nce in th is p arti c ula r s p ecia liz e d
fie ld f o r th e r e aso n th at th ey h ad th is s o -c alle d ‘ A pollo ’ c o ntr a ct w ith th e g o vern m ent, a nd th ere i s n ’t
any d oub t th at i f h e i s p erm itte d to w ork i n th e s p ace-s u it d iv is io n o f th e L ate x c o m pany … h e w ould
hav e an o pportu nity to d is c lo se co nfid enti a l in fo rm ati o n o f th e B . F. G oodric h C om pany.” S ti ll
fu rth er, J u d ge H arv ey w as c o nv in ced b y th e a tti tu d e o f L ate x, a s th is w as e v id enced b y th e c o nd uct o f
its r e p re se nta ti v es i n c o urt, th at th e c o m pany i n te nd ed to tr y to g et W ohlg em uth to g iv e i t “ th e b enefit
of e v ery k in d o f i n fo rm ati o n h e h ad .” A t th is p oin t i n th e o pin io n, th in gs c erta in ly l o oked b la ck f o r th e
defe nse . H ow ev er— and th e J u d ge w as w ell d ow n p age 6 b efo re h e g o t to th e “ ho w ev er” — what h e
had c o nclu d ed a fte r s tu d yin g th e o ne-fr e e-b ite c o ntr o vers y a m ong th e la w yers w as th at a n in ju ncti o n
canno t b e i s su ed a gain st d is c lo su re o f tr a d e s e cre ts b efo re s u ch d is c lo su re h as o ccurre d u nle ss th ere
is c le ar a nd s u b sta nti a l e v id ence o f e v il i n te nt o n th e p art o f th e d efe nd ant. T he d efe nd ant i n th is c ase ,
th e Ju d ge p oin te d o ut, w as W ohlg em uth , and if any ev il in te nt w as in v olv ed , it ap peare d to b e
attr ib uta b le to L ate x r a th er th an to h im . F or th is r e aso n, a lo ng w ith s o m e te chnic al o nes, h e w ound u p ,
“It i s th e v ie w a nd th e O rd er o f th is C ourt th at I n ju ncti o n b e d enie d a gain st th e d efe nd ant.”
Goodric h p ro m ptl y a p peale d th e d ecis io n, a nd th e S um mit C ounty C ourt o f A ppeals , p end in g its
ow n d ecis io n o n th e c ase , is su ed a no th er re str a in in g o rd er, w hic h d iffe re d fr o m J u d ge H arv ey’s in
th at it p erm itte d W ohlg em uth to d o sp ace-s u it w ork fo r L ate x, b ut sti ll fo rb ad e him to d is c lo se
Goodric h’s a lle ged
tr a d e s e cre ts . A cco rd in gly , W ohlg em uth , w ith a n i n iti a l v ic to ry u nd er h is b elt b ut
with a n ew l e gal s tr u ggle o n h is b ehalf a head , w ent to w ork i n th e L ate x m oon-s u it s h o p.
Je te r a nd h is c o lle agues, in th eir b rie f to th e C ourt o f A ppeals , s ta te d u neq uiv ocally th at J u d ge
Harv ey h ad b een w ro ng n o t o nly i n s o m e o f th e te chnic al a sp ects o f h is d ecis io n b ut i n h is f in d in g th at
th ere m ust b e e v id ence o f b ad f a ith o n th e d efe nd ant’ s p art b efo re a n i n ju ncti o n c an b e g ra nte d . “ T he
questi o n to b e d ecid ed is n o t o ne o f g o od o r b ad fa ith , b ut, ra th er, w heth er th ere is a th re at o r a
lik elih o od th at tr a d e s e cre ts w ill b e d is c lo se d ,” th e G oodric h b rie f d ecla re d ro und ly — and a littl e
in co nsis te ntl y , in v ie w o f a ll th e ti m e a nd e ffo rt th e c o m pany h ad e xp end ed o n a tte m pts to p in b ad
fa ith o n b oth L ate x a nd W ohlg em uth . W ohlg em uth ’s la w yers , o f c o urs e , d id n o t fa il to p oin t o ut th e
in co nsis te ncy. “ It se em s str a nge in d eed th at G oodric h sh o uld fin d fa ult w ith th is fin d in g o f Ju d ge
Harv ey,” th ey r e m ark ed i n th eir b rie f. Q uite c le arly , th ey h ad c o nceiv ed f o r J u d ge H arv ey f e elin gs s o
te nd er a s to b ord er o n th e p ro te cti v e.
The d ecis io n o f th e C ourt o f A ppeals w as h and ed d ow n o n M ay 2 2nd . W ritte n b y J u d ge A rth ur W .
Doyle , w ith h is tw o c o lle agues o f th e c o urt c o ncurrin g, it w as a p arti a l re v ers a l o f J u d ge H arv ey.
Fin d in g th at “ th ere e xis ts a p re se nt r e al th re at o f d is c lo su re , e v en w ith o ut a ctu al d is c lo su re ,” a nd th at
“an in ju ncti o n m ay … pre v ent a fu tu re w ro ng,” th e co urt gra nte d an in ju ncti o n th at re str a in ed
Wohlg em uth fr o m d is c lo sin g to L ate x a ny o f th e p ro cesse s a nd in fo rm ati o n c la im ed a s tr a d e s e cre ts
by G oodric h. O n th e o th er h and , J u d ge D oyle w ro te , “ W e h av e n o d oub t th at W ohlg em uth h ad th e
rig ht to ta ke em plo ym ent in a co m peti ti v e b usin ess, and to use his kno w le d ge (o th er th an tr a d e
se cre ts ) a nd e xp erie nce fo r th e b enefit o f h is n ew e m plo yer.” P la in ly p ut, W ohlg em uth w as a t la st
fr e e to a ccep t a p erm anent j o b d oin g s p ace-s u it w ork f o r L ate x, p ro vid ed o nly th at h e r e fr a in ed f r o m
dis c lo sin g G oodric h s e cre ts i n th e c o urs e o f h is w ork .
NEIT H ER
sid e c arrie d th e c ase a b ove th e S um mit C ounty C ourt o f A ppeals — to th e O hio S up re m e
Court a nd , b eyo nd th at, to th e U nite d S ta te s S up re m e C ourt— so w ith th e d ecis io n o f th e A ppeals
Court th e W ohlg em uth c ase w as s e ttl e d . P ub lic in te re st in it s u b sid ed s o on a fte r th e tr ia l w as o ver,
but p ro fe ssio nal in te re st c o nti n ued to m ount, a nd , o f c o urs e , it m ounte d s ti ll m ore a fte r th e A ppeals Court d ecis io n in M ay. In M arc h, th e N ew Y ork C ity B ar A sso cia ti o n, in c o lla b ora ti o n w ith th e
Americ an B ar A sso cia ti o n, h ad p re se nte d a s y m posiu m o n tr a d e s e cre ts , w ith th e W ohlg em uth c ase a s
its fo cus. In th e la te r m onth s o f th at y ear, e m plo yers w orrie d a b out lo ss o f tr a d e se cre ts b ro ught
num ero us su its again st fo rm er em plo yees, p re su m ab ly re ly in g o n th e W ohlg em uth d ecis io n as a
pre ced ent. A y ear l a te r th ere w ere m ore th an tw o d oze n tr a d e-s e cre ts c ase s p end in g i n th e c o urts , th e
most p ub lic iz e d o f th em b ein g th e e ffo rt o f E . I. d u P ont d e N em ours & C o. to p re v ent o ne o f its
fo rm er r e se arc h e ngin eers f r o m ta kin g p art i n th e p ro ducti o n o f c erta in r a re p ig m ents f o r th e A meric an
Pota sh & C hem ic al C orp ora ti o n.
It w ould b e lo gic al to su p pose th at Je te r m ig ht b e w orrie d a b out e nfo rc em ent o f th e A ppeals
Court’ s o rd er— mig ht b e afr a id th at W ohlg em uth , w ork in g b ehin d th e lo cked d oor o f th e L ate x
la b ora to ry , a nd p erh ap s n urs in g a g ru d ge a gain st G oodric h, w ould ta ke h is o ne f r e e b ite i n s p ite o f th e
ord er, o n th e a ssu m pti o n th at h e w ould n o t b e c aught. H ow ev er, J e te r d id n’t lo ok a t th in gs th at w ay.
“U nti l a nd u nle ss w e le arn o th erw is e , w e a ssu m e th at W ohlg em uth a nd In te rn ati o nal L ate x, b oth
hav in g kno w le d ge o f th e co urt o rd er, w ill co m ply w ith th e la w ,” Je te r sa id afte r th e case w as
co nclu d ed . “ N o s p ecific s te p s b y G oodric h to p olic e th e e nfo rc em ent o f th e o rd er h av e b een ta ken, o r
are c o nte m pla te d . H ow ev er, it if s h o uld b e v io la te d , th ere a re v ario us w ays in w hic h w e w ould b e
lik ely to fin d o ut. W ohlg em uth , a fte r a ll, is w ork in g w ith o th ers , w ho c o m e a nd g o . O ut o f p erh ap s
tw enty -fiv e e m plo yees i n c o nsta nt to uch w ith h im , i t’ s l ik ely th at o ne o r tw o w ill l e av e L ate x w ith in a
co up le o f y ears . F urth erm ore , y o u c an le arn q uite a lo t fr o m s u p plie rs w ho d eal w ith b oth L ate x a nd
Goodric h; and als o fr o m custo m ers . H ow ev er, I do no t fe el th at th e ord er w ill be vio la te d .
Wohlg em uth h as b een th ro ugh a la w su it. It w as q uite a n e xp erie nce fo r h im . H e n o w k no w s h is
re sp onsib iliti e s u nd er th e l a w , w hic h h e m ay n o t h av e k no w n b efo re .”
Wohlg em uth h im se lf s a id l a te i n 1 963 th at s in ce th e c o nclu sio n o f th e c ase h e h ad r e ceiv ed a g re at
many i n q uir ie s f r o m o th er s c ie nti s ts w ork in g i n i n d ustr y , th e g is t o f th eir q uesti o ns b ein g, “ D oes y o ur
case m ean th at I’ m m arrie d to m y jo b?” H e to ld th em th at th ey w ould hav e to d ra w th eir o w n
co nclu sio ns. W ohlg em uth a ls o s a id th at th e c o urt o rd er h ad h ad n o e ffe ct o n h is w ork in th e L ate x
sp ace-s u it d ep artm ent. “ P re cis e ly w hat th e G oodric h s e cre ts a re is n o t s p elle d o ut in th e o rd er, a nd
th ere fo re I h av e a cte d a s if a ll th e th in gs th ey a lle ged to b e s e cre ts a ctu ally
are
s e cre ts ,” h e s a id .
“N ev erth ele ss, m y e ffic ie ncy is n o t im pair e d b y m y a v oid in g d is c lo su re o f th o se th in gs. T ake, fo r
exam ple , th e u se o f p oly ure th ane a s a n i n ner l in er— a p ro cess th at G oodric h c la im ed a s a tr a d e s e cre t.
That w as s o m eth in g L ate x h ad tr ie d p re v io usly a nd f o und u nsa ti s fa cto ry . T here fo re , i t w asn ’t p la nnin g
to i n v esti g ate f u rth er a lo ng th o se l in es, a nd i t s ti ll i s n ’t, I a m j u st a s e ffe cti v e f o r L ate x a s i f th ere h ad
nev er b een a n in ju ncti o n. H ow ev er, I w ill s a y th is . If I w ere to g et a b ette r o ffe r fr o m s o m e o th er
co m pany n o w , I’ m s u re I w ould e v alu ate th e q uesti o n v ery c are fu lly — whic h is w hat I d id n’t d o th e
la st ti m e.” W ohlg em uth — th e n ew , p ost- tr ia l W ohlg em uth — sp oke in a n o ti c eab ly s lo w , te nse w ay,
with l o ng p ause s f o r th o ught, a s i f th e w ro ng w ord m ig ht b rin g l ig htn in g d ow n o n h is h ead . H e w as a
yo ung m an w ith a s tr o ng s e nse o f b elo ngin g to th e fu tu re , a nd h e lo oked fo rw ard to m akin g, if h e
co uld , a m ate ria l c o ntr ib uti o n to p utti n g m an o n th e m oon. A t th e s a m e ti m e, J e te r m ay h av e b een
rig ht; h e w as a ls o a m an w ho h ad r e centl y s p ent a lm ost s ix m onth s in th e to ils o f th e la w , a nd w ho
work ed , a nd w ould c o nti n ue to w ork , in th e k no w le d ge th at a s lip o f th e to ngue m ig ht m ean a fin e,
im pris o nm ent, a nd p ro fe ssio nal r u in . 12
In D efe n se o f S te rlin g
I
TH E F E D ER A L R ESE RV E B A NK
o f N ew Y ork sta nd s o n th e b lo ck b ound ed b y L ib erty , N assa u, and
Willia m S tr e ets a nd M aid en L ane, o n th e s lo pe o f o ne o f th e f e w n o ti c eab le h illo cks r e m ain in g i n th e
bulld oze d , s k ysc ra p er-fla tte ned e arth o f d ow nto w n M anhatta n. I ts e ntr a nce f a ces L ib erty , a nd i ts m ie n
is d ig nifie d a nd g rim . I ts a rc hed g ro und -flo or w in d ow s, d esig ned i n i m ita ti o n o f th o se o f
th e P itti a nd
Ric card i P ala ces i n F lo re nce, a re p ro te cte d b y i r o n g rille s m ad e o f b ars a s th ic k a s a b oy’s w ris t, a nd
ab ove th em a re r o w s o f s m all r e cta ngula r w in d ow s s e t i n a b lu fflik e f o urte en-s to ry w all o f s a nd sto ne
and lim esto ne, th e b lo cks o f w hic h o nce v arie d in c o lo r fr o m b ro w n th ro ugh g ra y to b lu e, b ut w hic h
so ot h as r e d uced to a c o m mon g ra y; th e fa çad e’s a uste rity is r e lie v ed o nly a t th e le v el o f th e tw elfth
flo or, b y a F lo re nti n e l o ggia . T w o g ia nt i r o n l a nte rn s— near-re p lic as o f l a nte rn s th at a d orn th e S tr o zzi
Pala ce i n F lo re nce— fla nk th e m ain e ntr a nce, b ut th ey s e em to b e th ere l e ss to p le ase o r i llu m in ate th e
entr a nt th an to in ti m id ate h im . N or is th e b uild in g’s in te rio r m uch m ore c heery o r h o sp ita b le ; th e
gro und flo or fe atu re s c av ern o us g ro in v aulti n g a nd h ig h ir o nw ork p arti ti o ns in in tr ic ate g eo m etr ic ,
flo ra l, and anim al d esig ns, and it is guard ed b y ho rd es o f b ank se curity m en, w ho se d ark -b lu e
unifo rm s m ake th em l o ok m uch l ik e p olic em en.
Huge a nd d our a s it is , th e F ed era l R ese rv e B ank, a s a b uild in g, a ro use s v arie d fe elin gs in its
beho ld ers . T o a d m ir e rs o f th e d eb onair n ew C hase M anhatta n B ank a cro ss L ib erty S tr e et, w hic h is
no ta b le f o r h uge w in d ow s, b rig ht- c o lo re d ti le d w alls , a nd s ty lis h A bstr a ct E xp re ssio nis t p ain ti n gs, i t
is a n e p ito m e o f n in ete enth -c entu ry h eav y-fo ote d ness i n b ank a rc hite ctu re , e v en th o ugh i t w as a ctu ally
co m ple te d in 1 924. T o a n a w estr u ck w rite r fo r th e m agazin e
Arc h ite ctu re
in 1 927, it s e em ed “ as
in v io la b le a s th e R ock o f G ib ra lta r a nd n o l e ss i n sp ir in g o f o ne’s r e v ere nt o beis a nce,” a nd p osse sse d
of “ a q uality w hic h, f o r l a ck o f a b ette r w ord , I c an b est d esc rib e a s ‘ e p ic ’” T o th e m oth ers o f y o ung
gir ls w ho w ork in it a s s e cre ta rie s o r p ages, it lo oks lik e a p arti c ula rly s in is te r s o rt o f p ris o n. B ank
ro bbers a re a p pare ntl y e q ually r e sp ectf u l o f i ts i n v io la b ility ; th ere h as n ev er b een th e s lig hte st h in t o f
an a tte m pt o n it. T o th e M unic ip al A rt S ocie ty o f N ew Y ork , w hic h n o w ra te s it a s a fu ll- fle d ged
la nd m ark , i t w as u nti l 1 967 o nly a s e co nd -c la ss l a nd m ark , b ein g a ssig ned to C ate go ry I I, “ S tr u ctu re s
of G re at L ocal or R egio nal Im porta nce W hic h S ho uld B e P re se rv ed ,” ra th er th an C ate go ry I,
“S tr u ctu re s o f N ati o nal Im porta nce W hic h S ho uld B e P re se rv ed a t A ll C osts .” O n th e o th er h and , it
has o ne i n d is p uta b le e d ge o n th e P itti , R ic card i, a nd S tr o zzi P ala ces: I t i s b ig ger th an a ny o f th em . I n
fa ct, i t i s a b ig ger F lo re nti n e p ala ce th an h as e v er s to od i n F lo re nce.
The F ed era l R ese rv e B ank o f N ew Y ork i s s e t a p art f r o m th e o th er b anks o f W all S tr e et i n p urp ose and f u ncti o n a s w ell a s i n a p peara nce. A s b y f a r th e l a rg est a nd m ost i m porta nt o f th e tw elv e r e gio nal
Fed era l R ese rv e B anks— whic h, to geth er w ith th e F ed era l R ese rv e B oard in W ash in gto n a nd th e
six ty -tw o h und re d c o m merc ia l b anks th at a re m em bers , m ake u p th e F ed era l R ese rv e S yste m — it is
th e c hie f o pera ti n g a rm o f th e U nite d S ta te s’ c entr a l- b ankin g in sti tu ti o n. M ost o th er c o untr ie s h av e
only o ne c entr a l b ank— th e B ank o f E ngla nd , th e B ank o f F ra nce, a nd s o o n— ra th er th an a n etw ork o f
su ch b anks, b ut th e c entr a l b anks o f a ll c o untr ie s h av e th e s a m e d ual p urp ose : to k eep th e n ati o nal
curre ncy i n a h ealth y s ta te b y r e gula ti n g i ts s u p ply , p artl y th ro ugh th e d egre e o f e ase o r d iffic ulty w ith
whic h it m ay b e b orro w ed , a nd , w hen n ecessa ry , to d efe nd its v alu e in re la ti o n to th at o f o th er
nati o nal c urre ncie s. T o a cco m plis h th e f ir s t o bje cti v e, th e N ew Y ork b ank c o öpera te s w ith i ts p are nt
board a nd i ts e le v en b ro th er b anks i n p erio dic ally a d ju sti n g a n um ber o f m oneta ry th ro ttl e s, o f w hic h
th e m ost v is ib le ( a lth o ugh n o t n ecessa rily th e m ost im porta nt) is th e r a te o f in te re st a t w hic h it le nd s
money to o th er b anks. A s to th e s e co nd o bje cti v e, b y v ir tu e o f tr a d iti o n a nd o f its s itu ati o n in th e
nati o n’s a nd th e w orld ’s g re ate st f in ancia l c ente r, th e F ed era l R ese rv e B ank o f N ew Y ork i s th e s o le
agent o f th e F ed era l R ese rv e S yste m and o f th e U nite d S ta te s T re asu ry in d ealin gs w ith o th er
co untr ie s. T hus, o n its s h o uld ers fa lls th e c hie f r e sp onsib ility fo r o pera ti o ns in d efe nse o f th e d olla r.
Tho se r e sp onsib iliti e s w ere w eig hin g h eav ily d urin g th e g re at m oneta ry c ris is o f 1 968— and , i n d eed ,
sin ce th e d efe nse o f th e d olla r s o m eti m es in v olv es th e d efe nse o f o th er c urre ncie s a s w ell, o ver th e
pre ced in g th re e a nd a h alf y ears .
Charg ed a s it is w ith a cti n g in th e n ati o nal in te re st— in fa ct h av in g n o o th er p urp ose — th e F ed era l
Rese rv e B ank o f N ew Y ork , to geth er w ith i ts b ro th er b anks, o bvio usly i s a n a rm o f g o vern m ent. Y et
it h as a fo ot in th e fr e e-e nte rp ris e c am p; in w hat s o m e m ig ht c all c hara cte ris ti c A meric an fa sh io n, it
sta nd s s q uare ly a str id e th e c halk lin e b etw een g o vern m ent a nd b usin ess.
A lth o ugh it fu ncti o ns a s a
go vern m ent a gency, its sto ck is p riv ate ly o w ned b y th e m em ber b anks th ro ugho ut th e c o untr y , to
whic h i t p ays a nnual d iv id end s l im ite d b y l a w to s ix p er c ent p er y ear. A lth o ugh i ts to p o ffic ers ta ke a
fe d era l o ath , th ey a re n o t a p poin te d b y th e P re sid ent o f th e U nite d S ta te s, o r e v en b y th e F ed era l
Rese rv e B oard , b ut a re e le cte d b y th e b ank’s o w n b oard o f d ir e cto rs , a nd th eir s a la rie s a re p aid n o t
out o f th e fe d era l ti ll b ut o ut o f th e b ank’s o w n in co m e. Y et th at in co m e— th o ugh, h ap pily , a lw ays
fo rth co m in g— is enti r e ly in cid enta l to th e bank’s purp ose , and if it ris e s ab ove exp ense s and
div id end s th e e xcess is a uto m ati c ally p aid in to th e U nite d S ta te s T re asu ry . A b ank th at c o nsid ers
pro fits i n cid enta l i s s c arc ely th e n o rm i n W all S tr e et, a nd th is a tti tu d e p uts F ed era l R ese rv e B ank m en
in a u niq uely a d vanta geo us s o cia l p ositi o n. B ecause th eir b ank
is
a b ank, a fte r a ll, a nd a p riv ate ly
ow ned , p ro fita b le o ne a t th at, th ey c an’t b e d is m is se d a s m ere g o vern m ent b ure aucra ts ; c o nv ers e ly ,
hav in g th eir g aze f ix ed s te ad ily a b ove th e m ir e o f c up id ity e nti tl e s th em to b e c alle d th e i n te lle ctu als ,
if n o t a ctu ally th e a ris to cra ts , o f W all S tr e et b ankin g.
Und er th em l ie s g o ld — sti ll th e b ed ro ck o n w hic h a ll m oney n o m in ally r e sts , th o ugh i n r e cent ti m es
a b ed ro ck th at h as b een s h ud derin g o m in o usly u nd er th e f o rc e o f v ario us m oneta ry e arth q uakes. A s o f
Marc h, 1 968, m ore th an th ir te en th o usa nd to ns o f th e s tu ff, w orth m ore th an th ir te en b illio n d olla rs
and a m ounti n g to m ore th an a q uarte r o f a ll th e m oneta ry g o ld in th e fr e e w orld , r e p ose d o n a ctu al
bed ro ck se v enty -s ix fe et b elo w th e L ib erty S tr e et le v el a nd fifty b elo w se a le v el, in a v ault th at
would b e in und ate d if a sy ste m o f su m p p um ps d id n o t d iv ert a str e am th at o rig in ally w and ere d
th ro ugh M aid en L ane. T he fa m ous n in ete enth -c entu ry B riti s h e co no m is t W alte r B ageho t o nce to ld a
fr ie nd th at w hen h is s p ir its w ere lo w it u se d to c heer h im to g o d ow n to h is b ank a nd “ d ab ble m y
hand i n a h eap o f s o vere ig ns.” A lth o ugh i t i s , to s a y th e l e ast, a s ti m ula ti n g e xp erie nce to g o d ow n a nd
lo ok
a t th e g o ld i n th e F ed era l R ese rv e B ank v ault, w hic h i s i n th e f o rm n o t o f s o vere ig ns b ut o f d ully
gle am in g b ars a b out th e siz e a nd sh ap e o f b uild in g b ric ks, n o t e v en th e b est- a ccre d ite d v is ito r is allo w ed to d ab ble h is h and s in it; fo r o ne th in g, th e b ars w eig h a b out tw enty -e ig ht p ound s e ach a nd
are th ere fo re ill- a d ap te d to d ab blin g, a nd , fo r a no th er, n o ne o f th e g o ld b elo ngs to e ith er th e F ed era l
Rese rv e B ank o r th e U nite d S ta te s. A ll U nite d S ta te s g o ld is k ep t a t F ort K no x, a t th e N ew Y ork
Assa y O ffic e, o r a t th e v ario us m in ts ; th e g o ld d ep osite d a t th e F ed era l R ese rv e B ank b elo ngs to s o m e
se v enty o th er c o untr ie s— th e la rg est d ep osito rs b ein g E uro pean— whic h fin d it c o nv enie nt to s to re a
go od p art o f th eir g o ld r e se rv es th ere . O rig in ally , m ost o f th em p ut g o ld th ere f o r s a fe keep in g d urin g
th e S eco nd W orld W ar. A fte r th e w ar, th e E uro pean n ati o ns— with th e e xcep ti o n o f F ra nce— no t o nly
le ft i t i n N ew Y ork b ut g re atl y i n cre ase d i ts q uanti ty a s th eir e co no m ie s r e co vere d .
Nor d oes th e g o ld r e p re se nt a nyth in g lik e a ll th e fo re ig n d ep osits a t L ib erty S tr e et; in v estm ents o f
vario us s o rts b ro ught th e M arc h ’ 6 8 to ta l to m ore th an tw enty -e ig ht b illio n. A s a b anker fo r m ost o f
th e c entr a l b anks o f th e n o n-C om munis t w orld , a nd a s th e c entr a l b ank re p re se nti n g th e w orld ’s
le ad in g c urre ncy, th e F ed era l R ese rv e B ank o f N ew Y ork is th e u nd is p ute d c hie f c ita d el o f w orld
curre ncy. B y v ir tu e o f th is p ositi o n, it is a ffo rd ed a k in d o f flu o ro sc o pic v is io n o f th e in sid es o f
in te rn ati o nal f in ance, e nab lin g i t to d ete ct a t a g la nce a n i n cip ie ntl y d is e ase d c urre ncy h ere , a f a lte rin g
eco no m y th ere . I f, f o r e xam ple , G re at B rita in i s r u nnin g a d efic it i n h er f o re ig n d ealin gs, th is i n sta ntl y
sh o w s u p in th e F ed era l R ese rv e B ank’s b ooks in th e fo rm o f a d eclin e in th e B ank o f E ngla nd ’s
bala nce. I n th e f a ll o f 1 964, p re cis e ly s u ch a d eclin e w as o ccurrin g, a nd i t m ark ed th e b egin nin g o f a
lo ng, g alla nt, in te rm itte ntl y h air -ra is in g, a nd u lti m ate ly lo sin g s tr u ggle b y a n um ber o f c o untr ie s a nd
th eir c entr a l b anks, le d b y th e U nite d S ta te s a nd th e F ed era l R ese rv e, to s a fe guard th e e xis ti n g o rd er
of w orld fin ance by pre se rv in g th e in te grity of th e pound ste rlin g. O ne tr o ub le w ith im posin g
build in gs i s th at th ey h av e a te nd ency to b elittl e th e p eo ple a nd a cti v iti e s th ey e nclo se , a nd m ost o f th e
ti m e it is re aso nab ly a ccura te to th in k o f th e F ed era l R ese rv e B ank a s a p la ce w here o fte n b ore d
peo ple p ush a ro und w ork ad ay s lip s o f p ap er q uite s im ila r to th o se p ush ed a ro und i n o th er b anks. B ut
sin ce 1964 so m e of th e ev ents th ere , if th ey hav e sc arc ely been cap ab le of in sp ir in g re v ere nt
obeis a nce, h av e h ad a c erta in e p ic q uality .
EA RLY
in 1964, it began to be cle ar th at B rita in , w hic h fo r se v era l years had m ain ta in ed an
ap pro xim ate e q uilib riu m in h er in te rn ati o nal b ala nce o f p aym ents — th at is , th e a m ount o f m oney s h e
had a nnually se nt o uts id e h er b ord ers h ad b een a b out e q ual to th e a m ount sh e h ad ta ken in — was
ru nnin g a s u b sta nti a l d efic it. F ar f r o m b ein g th e r e su lt o f d om esti c d ep re ssio n i n B rita in , th is s itu ati o n
was th e re su lt o f o vere xub era nt d om esti c exp ansio n; b usin ess w as b oom in g, and new ly afflu ent
Brito ns w ere o rd erin g b ale s a nd b ale s o f c o stl y g o ods f r o m a b ro ad w ith o ut i n cre asin g th e e xp orts o f
Briti s h g o ods o n a nyth in g lik e th e sa m e sc ale . In sh o rt, B rita in w as liv in g b eyo nd h er m eans. A
su b sta nti a l b ala nce-o f- p aym ents d efic it is a w orry to a re la ti v ely se lf- s u ffic ie nt co untr y lik e th e
Unite d S ta te s ( in d eed , th e U nite d S ta te s w as h av in g th at v ery w orry a t th at v ery ti m e, a nd i t w ould f o r
years to c o m e), b ut to a tr a d in g n ati o n lik e B rita in , a b out a q uarte r o f w ho se e nti r e e co no m y is
dep end ent o n f o re ig n tr a d e, i t c o nsti tu te s a g ra v e d anger.
The s itu ati o n w as c ause fo r g ro w in g c o ncern a t th e F ed era l R ese rv e B ank, a nd th e fo cal p oin t o f
th e c o ncern w as th e o ffic e, o n th e te nth flo or, o f C harle s A . C oom bs, th e b ank’s v ic e-p re sid ent in
charg e o f fo re ig n o pera ti o ns. A ll s u m mer lo ng, th e flu o ro sc o pe s h o w ed a s ic k a nd w ors e nin g p ound
ste rlin g. F ro m th e r e se arc h s e cti o n o f th e fo re ig n d ep artm ent, C oom bs d aily g o t r e p orts th at a to rre nt
of m oney w as le av in g B rita in . F ro m u nd erg ro und , w ord r o se th at th e p ile o f g o ld b ars in th e lo cker
assig ned to B rita in w as s h rin kin g a p pre cia b ly — no t th ro ugh a ny fo ul p la y in th e v ault b ut b ecause s o
many o f th e b ars w ere b ein g tr a nsfe rre d to o th er l o ckers i n s e ttl e m ent o f B rita in ’s i n te rn ati o nal d eb ts .
Fro m th e fo re ig n-e xchange tr a d in g d esk , o n th e s e v enth flo or, th e n ew s a lm ost e v ery a fte rn o on w as th at th e o pen-m ark et q uo ta ti o ns o n th e p ound i n te rm s o f d olla rs h ad s u nk a gain th at d ay. D urin g J u ly
and A ugust, a s th e q uo ta ti o n d ro pped fr o m $ 2.7 9 to $ 2.7 890, a nd th en to $ 2.7 875, th e s itu ati o n w as
re gard ed o n L ib erty S tr e et a s s o s e rio us th at C oom bs, w ho w ould n o rm ally h and le fo re ig n-e xchange
matte rs h im se lf, o nly m akin g ro uti n e re p orts to th o se h ig her u p , w as c o nsta ntl y c o nfe rrin g a b out it
with h is b oss, th e F ed era l R ese rv e B ank’s p re sid ent, a ta ll, c o ol, so ft- s p oken m an n am ed A lfr e d
Hayes.
Mysti fy in gly co m ple x th o ugh it m ay ap pear, w hat actu ally
hap pens in in te rn ati o nal fin ancia l
dealin gs i s e sse nti a lly w hat h ap pens i n p riv ate d om esti c tr a nsa cti o ns. T he m oney w orrie s o f a n ati o n,
lik e th o se o f a f a m ily , a re th e c o nse q uence o f h av in g to o m uch m oney g o o ut a nd n o t e no ugh c o m e i n .
The f o re ig n s e lle rs o f g o ods to B rita in c anno t s p end th e p ound s th ey a re p aid i n th eir o w n c o untr ie s,
and th ere fo re th ey c o nv ert th em in to th eir o w n c urre ncie s; th is th ey d o b y s e llin g th e p ound s in th e
fo re ig n-e xchange m ark ets , ju st a s if th ey w ere se llin g se curiti e s o n a sto ck e xchange. T he m ark et
pric e o f th e p ound flu ctu ate s in re sp onse to s u p ply a nd d em and , a nd s o d o th e p ric es o f a ll o th er
curre ncie s— all, th at is , e xcep t th e d olla r, th e s u n in th e p la neta ry s y ste m o f c urre ncie s, in asm uch a s
th e U nite d S ta te s h as, s in ce 1 934, s to od p le d ged to e xchange g o ld in a ny q uanti ty fo r d olla rs a t th e
ple asu re o f a ny n ati o n a t th e f ix ed p ric e o f th ir ty -fiv e d olla rs p er o unce.
Und er th e p re ssu re o f s e llin g, th e p ric e o f th e p ound g o es d ow n. B ut its flu ctu ati o ns a re s e v ere ly
re str ic te d . T he in flu ence o f m ark et fo rc es c anno t b e a llo w ed to lo w er o r r a is e th e p ric e m ore th an a
co up le o f c ents b elo w o r a b ove th e p ound ’s p ar v alu e; if s u ch w ild s w in gs s h o uld o ccur u nchecked ,
bankers a nd b usin essm en e v ery w here w ho tr a d ed w ith B rita in w ould fin d th em se lv es in v olu nta rily
engaged in a k in d o f r o ule tte g am e, a nd w ould b e in clin ed to s to p tr a d in g w ith B rita in . A cco rd in gly ,
und er in te rn ati o nal m oneta ry ru le s a gre ed u p on a t B re tto n W oods, N ew H am psh ir e , in 1 944, a nd
ela b ora te d a t v ario us o th er p la ces a t la te r ti m es, th e p ound in 1 964, n o m in ally v alu ed a t $ 2.8 0, w as
allo w ed to f lu ctu ate o nly b etw een $ 2.7 8 a nd $ 2.8 2, a nd th e e nfo rc er o f th is a b rid gm ent o f th e l a w o f
su p ply a nd d em and w as th e B ank o f E ngla nd . O n a d ay w hen th in gs w ere g o in g s m ooth ly , th e p ound
mig ht b e q uo te d o n th e e xchange m ark ets a t, s a y, $ 2.7 990, a r is e o f $ .0 015 fr o m th e p re v io us d ay’s
clo sin g. ( F ifte en-h und re d th s o f a c ent d oesn ’t s o und l ik e m uch, b ut o n a r o und m illio n d olla rs , w hic h
is g enera lly th e b asic u nit in in te rn ati o nal m oneta ry d ealin gs, it a m ounts to fifte en h und re d d olla rs .)
When th at h ap pened , th e B ank o f E ngla nd n eed ed to d o n o th in g. I f, h o w ev er, th e p ound w as s tr o ng i n
th e m ark ets a nd r o se to $ 2.8 2 ( s o m eth in g it s h o w ed a b so lu te ly n o te nd ency to d o in 1 964), th e B ank
of E ngla nd w as
p le d ged to — and w ould h av e b een v ery h ap py to — accep t g o ld o r d olla rs i n e xchange
fo r p ound s a t th at p ric e, th ere b y p re v enti n g a fu rth er in cre ase in th e p ric e a nd a t th e sa m e ti m e
in cre asin g its o w n r e se rv e o f g o ld a nd d olla rs , w hic h s e rv e a s th e p ound ’s b ackin g. If, o n th e o th er
hand ( a nd th is w as a m ore r e alis ti c h yp oth esis ), th e p ound w as w eak a nd s a nk to $ 2.7 8, th e B ank o f
Engla nd ’s s w orn d uty w as to i n te rv ene i n th e m ark et a nd b uy w ith g o ld o r d olla rs a ll p ound s o ffe re d
fo r s a le a t th at p ric e, h o w ev er d eep ly th is m ig ht h av e c ut i n to i ts o w n r e se rv es. T hus, th e c entr a l b ank
of a s p end th rift c o untr y , l ik e th e f a th er o f a s p end th rift f a m ily , i s e v entu ally f o rc ed to p ay th e b ills o ut
of c ap ita l. B ut i n ti m es o f s e rio us c urre ncy w eakness th e c entr a l b ank l o se s e v en m ore o f i ts r e se rv es
th an th is w ould su ggest, because of th e vagarie s of m ark et psy cho lo gy. P ru d ent im porte rs and
exp orte rs s e ekin g to p ro te ct th eir c ap ita l a nd p ro fits r e d uce to a m in im um th e s u m th ey h o ld i n p ound s
and th e le ngth o f ti m e th ey h o ld it. C urre ncy s p ecula to rs , w ho se n o se s h av e b een tr a in ed to s n iff o ut
weakness, p ounce o n a fa llin g p ound a nd m ake e no rm ous s h o rt s a le s, in th e e xp ecta ti o n o f tu rn in g a
pro fit o n a fu rth er d ro p, a nd th e B ank o f E ngla nd m ust a b so rb th e s p ecula ti v e s a le s a lo ng w ith th e
str a ig htf o rw ard o nes.
The u lti m ate c o nse q uence o f u nchecked c urre ncy w eakness i s s o m eth in g th at m ay b e i n co m para b ly more d is a str o us in its e ffe cts th an fa m ily b ankru p tc y. T his is d ev alu ati o n, a nd d ev alu ati o n o f a k ey
world c urre ncy lik e th e p ound is th e r e curre nt n ig htm are o f a ll c entr a l b ankers , w heth er in L ond on,
New Y ork , F ra nkfu rt, Z uric h, o r T okyo . I f a t a ny ti m e th e d ra in o n B rita in ’s r e se rv es b ecam e s o g re at
th at th e B ank o f E ngla nd w as u nab le , o r u nw illin g, to fu lfill its o blig ati o n to m ain ta in th e p ound a t
$2.7 8, th e n ecessa ry re su lt w ould b e d ev alu ati o n. T hat is , th e $ 2.7 8-to -$ 2.8 2 lim ita ti o n w ould b e
ab ru p tl y a b ro gate d ; b y s im ple g o vern m ent d ecre e th e p ar v alu e o f th e p ound w ould b e re d uced to
so m e l o w er f ig ure , a nd a n ew s e t o f l im its e sta b lis h ed a ro und th e n ew p arity . T he h eart o f th e d anger
was th e p ossib ility th at w hat fo llo w ed m ig ht b e c hao s n o t c o nfin ed to B rita in . D ev alu ati o n, a s th e
most h ero ic a nd m ost d angero us o f re m ed ie s fo r a s ic k c urre ncy, is rig htl y fe are d . B y m akin g th e
dev alu in g c o untr y ’s g o ods c heap er
to o th ers , it b oosts e xp orts , a nd th us re d uces o r e lim in ate s a
defic it i n i n te rn ati o nal a cco unts , b ut a t th e s a m e ti m e i t m akes b oth i m ports a nd d om esti c g o ods m ore
exp ensiv e a t h o m e, a nd th us r e d uces th e c o untr y ’s s ta nd ard o f liv in g. It is r a d ic al s u rg ery , c urin g a
dis e ase a t th e e xp ense o f s o m e o f th e p ati e nt’ s s tr e ngth a nd w ell- b ein g— and , i n m any c ase s, s o m e o f
his p rid e a nd p re sti g e a s w ell. W ors t o f a ll, if th e d ev alu ed c urre ncy is o ne th at, lik e th e p ound , is
wid ely u se d in in te rn ati o nal d ealin gs, th e d is e ase — or, m ore p re cis e ly , th e c ure — is lik ely to p ro ve
co nta gio us. T o n ati o ns h o ld in g la rg e a m ounts o f th at p arti c ula r c urre ncy in th eir re se rv e v aults , th e
effe cts o f th e d ev alu ati o n is th e s a m e a s if th e v aults h ad b een b urg la riz e d . S uch n ati o ns a nd o th ers ,
fin d in g th em se lv es a t a n u naccep ta b le tr a d in g d is a d vanta ge a s a r e su lt o f th e d ev alu ati o n, m ay h av e to
re so rt to c o m peti ti v e d ev alu ati o n o f th eir o w n c urre ncie s. A d ow nw ard s p ir a l d ev elo ps: R um ors o f
fu rth er d ev alu ati o ns a re c o nsta ntl y in th e w in d ; th e lo ss o f c o nfid ence in o th er p eo ple ’s m oney le ad s
to a d is in clin ati o n to d o b usin ess a cro ss n ati o nal b ord ers ; a nd i n te rn ati o nal tr a d e, u p on w hic h d ep end
th e f o od a nd s h elte r o f h und re d s o f m illio ns o f p eo ple a ro und th e w orld , te nd s to d eclin e. J u st s u ch a
dis a ste r fo llo w ed th e c la ssic d ev alu ati o n o f a ll ti m e, th e d ep artu re o f th e p ound fr o m th e o ld g o ld
sta nd ard in 1931— an ev ent th at is sti ll genera lly co nsid ere d a m ajo r cause of th e w orld w id e
Dep re ssio n o f th e th ir ti e s.
The p ro cess w ork s s im ila rly in r e sp ect to th e c urre ncie s o f a ll th e h und re d -o dd c o untr ie s th at a re
mem bers o f th e In te rn ati o nal M oneta ry F und , a n o rg aniz a ti o n th at o rig in ate d a t B re tto n W oods. F or
any c o untr y , a fa v ora b le b ala nce o f p aym ents m eans a n a ccum ula ti o n o f d olla rs , e ith er d ir e ctl y o r
in d ir e ctl y , w hic h a re fr e ely c o nv erti b le in to g o ld , in th e c o untr y ’s c entr a l b ank; if th e d em and fo r its
curre ncy is g re at e no ugh, th e c o untr y m ay r e v alu e it u p w ard — th e r e v ers e o f a d ev alu ati o n— as b oth
Germ any a nd th e N eth erla nd s d id i n 1 961. C onv ers e ly , a n u nfa v ora b le b ala nce o f p aym ents s ta rts th e
se q uence o f e v ents th at m ay e nd in fo rc ed d ev alu ati o n. T he d egre e o f d is ru p ti o n o f w orld tr a d e th at
dev alu ati o n o f a curre ncy cause s d ep end s o n th at curre ncy’s in te rn ati o nal im porta nce. (A la rg e
dev alu ati o n o f th e In d ia n ru p ee in Ju ne,
1966, a lth o ugh it w as a se rio us m atte r to In d ia , c re ate d
sc arc ely a r ip ple i n th e i n te rn ati o nal m ark ets .) A nd — to r o und o ut th is b rie f o utl in e o f th e r u le s o f a n
in tr ic ate g am e o f w hic h e v ery b ody e v ery w here i s a n i n ad verte nt p la yer— ev en th e l o rd ly d olla r i s f a r
fr o m im mune to th e e ffe cts o f a n u nfa v ora b le b ala nce o f p aym ents o r o f s p ecula ti o n. B ecause o f th e
dolla r’s p le d ged r e la ti o n to g o ld , i t s e rv es a s th e s ta nd ard f o r a ll o th er c urre ncie s, s o i ts p ric e d oes,
no t flu ctu ate in th e m ark ets . H ow ev er, it c an s u ffe r w eakness o f a le ss v is ib le b ut e q ually o m in o us
so rt. W hen th e U nite d S ta te s se nd s o ut su b sta nti a lly m ore m oney (w heth er p aym ent fo r im ports ,
fo re ig n a id , in v estm ents , lo ans, to uris t e xp ense s, o r m ilita ry c o sts ) th an it ta kes in , th e re cip ie nts
fr e ely b uy th eir o w n c urre ncie s w ith th e n ew ly a cq uir e d d olla rs , th ere b y r a is in g th e d olla r p ric es o f
th eir o w n c urre ncie s; th e r is e i n p ric e e nab le s th eir c entr a l b anks to ta ke i n s ti ll m ore d olla rs , w hic h
th ey c an s e ll b ack to th e U nite d S ta te s f o r g o ld . T hus, w hen th e d olla r i s w eak th e U nite d S ta te s l o se s
go ld . F ra nce a lo ne— a c o untr y w ith a s tr o ng c urre ncy a nd n o p arti c ula r o ffic ia l lo ve o f th e d olla r— re q uir e d th ir ty m illio n d olla rs o r m ore in U nite d S ta te s g o ld r e gula rly e v ery m onth fo r s e v era l y ears
prio r to th e a utu m n o f 1 966, a nd b etw een 1 958, w hen th e U nite d S ta te s b egan r u nnin g a s e rio us d efic it
in its in te rn ati o nal a cco unts , a nd th e m id dle o f M arc h 1 968, o ur g o ld re se rv e w as h alv ed — fr o m
tw enty -tw o b illio n e ig ht h und re d m illio n to e le v en b illio n f o ur h und re d m illio n d olla rs . I f th e r e se rv e
ev er d ro pped to a n u naccep ta b ly l o w l e v el, th e U nite d S ta te s w ould b e f o rc ed to b re ak i ts w ord a nd
lo w er th e g o ld v alu e o f th e d olla r, o r e v en to s to p s e llin g g o ld e nti r e ly . E ith er a cti o n w ould i n e ffe ct
be a d ev alu ati o n— th e o ne d ev alu ati o n, b ecause o f th e d olla r’s p re em in ent p ositi o n, th at w ould b e
more d is ru p ti v e to w orld m oneta ry o rd er th an a d ev alu ati o n o f th e p ound .
HAYES
a nd C oom bs, n eith er o f w ho m is o ld e no ugh to h av e e xp erie nced th e e v ents o f 1 931 a t fir s t
hand a s a b anker b ut b oth o f w ho m a re s u ch d ilig ent a nd s e nsiti v e s tu d ents o f in te rn ati o nal b ankin g
th at th ey m ig ht a s w ell h av e d one s o , f o und th at a s th e h o t d ays o f 1 964 d ra gged o n th ey h ad o ccasio n
to b e in a lm ost
d aily c o nta ct b y tr a nsa tl a nti c te le p ho ne w ith th eir B ank o f E ngla nd c o unte rp arts — th e
Earl o f C ro m er, g o vern o r o f th e b ank a t th at ti m e, a nd R oy A . O . B rid ge, th e g o vern o r’s a d vis e r o n
fo re ig n e xchange. It b ecam e c le ar to th em fr o m th ese c o nv ers a ti o ns a nd fr o m o th er s o urc es th at th e
im bala nce in B rita in ’s in te rn ati o nal a cco unts w as fa r fr o m th e w ho le tr o ub le . A c ris is o f c o nfid ence
in th e s o und ness o f th e p ound w as d ev elo pin g, a nd th e m ain c ause o f i t s e em ed to b e th e e le cti o n th at
Brita in ’s C onse rv ati v e G overn m ent w as fa cin g o n O cto ber 1 5th . T he o ne th in g th at in te rn ati o nal
fin ancia l m ark ets h ate a nd f e ar a b ove a ll o th ers i s u ncerta in ty . A ny e le cti o n r e p re se nts u ncerta in ty , s o
th e p ound a lw ays h as th e jitte rs ju st b efo re B rito ns g o to th e p olls , b ut to th e p eo ple w ho d eal in
curre ncie s th is e le cti o n l o oked p arti c ula rly m enacin g, b ecause o f th eir e sti m ate o f th e c hara cte r o f th e
Lab our G overn m ent th at m ig ht co m e in to p ow er. T he co nse rv ati v e fin ancie rs o f L ond on, no t to
menti o n th o se o f C onti n enta l E uro pe, lo oked w ith a lm ost ir ra ti o nal s u sp ic io n o n H aro ld W ils o n, th e
Lab our c ho ic e fo r P rim e M in is te r; fu rth er, s o m e o f M r. W ils o n’s e co no m ic a d vis e rs h ad e xp lic itl y
exto lle d th e v ir tu es o f d ev alu ati o n o f th e p ound i n th eir e arlie r th eo re ti c al w riti n gs; a nd , f in ally , th ere
was a n a ll to o p at a nalo gy to b e d ra w n f r o m th e f a ct th at th e l a st p re v io us te rm o f th e B riti s h L ab our
Party i n p ow er h ad b een c o nsp ic uo usly m ark ed , i n 1 949, b y a d ev alu ati o n o f s te rlin g f r o m th e r a te o f
$4.0 3 to $ 2.8 0.
In th ese c ir c um sta nces, a lm ost a ll th e d eale rs in th e w orld m oney m ark ets , w heth er th ey w ere
ord in ary in te rn ati o nal b usin essm en o r o ut- a nd -o ut c urre ncy s p ecula to rs , w ere a nxio us to g et rid o f
pound s— at l e ast u nti l a fte r th e e le cti o n. L ik e a ll s p ecula ti v e a tta cks, th is o ne f e d o n i ts e lf. E ach s m all
dro p in th e p ound ’s p ric e r e su lte d in fu rth er lo ss o f c o nfid ence, a nd d ow n, d ow n w ent th e p ound in
th e in te rn ati o nal m ark ets — an o ddly d iffu se d s o rt o f e xchange, w hic h d oes n o t o pera te in a ny c entr a l
build in g b ut, r a th er, is c o nd ucte d b y te le p ho ne a nd c ab le b etw een th e tr a d in g d esk s o f b anks in th e
world ’s m ajo r c iti e s. S im ulta neo usly , d ow n, d ow n w ent B riti s h re se rv es, a s th e B ank o f E ngla nd
str u ggle d to s u p port th e p ound . E arly i n S ep te m ber, H ayes w ent to T okyo f o r th e a nnual m eeti n g o f th e
mem bers o f th e I n te rn ati o nal M oneta ry
F und . I n th e c o rrid ors o f th e b uild in g w here p arti c ip ants i n th e
Fund m et, h e h eard o ne E uro pean c entr a l b anker a fte r a no th er e xp re ss m is g iv in gs a b out th e s ta te o f
th e B riti s h e co no m y a nd th e o utl o ok fo r th e B riti s h c urre ncy. W hy d id n’t th e B riti s h g o vern m ent ta ke
ste p s a t h o m e to c heck i ts o utl a y a nd to i m pro ve th e b ala nce o f p aym ents , th ey a sk ed e ach o th er. W hy
did n’t i t r a is e th e B ank o f E ngla nd ’s l e nd in g r a te — th e s o -c alle d b ank r a te — fr o m i ts c urre nt f iv e p er
cent, s in ce th is m ove w ould h av e th e e ffe ct o f r a is in g B riti s h in te re st r a te s a ll u p a nd d ow n th e lin e,
and w ould th us se rv e th e doub le purp ose of dam pin g dow n dom esti c in fla ti o n and attr a cti n g
in v estm ent d olla rs to L ond on fr o m o th er fin ancia l c ente rs , w ith th e r e su lt th at s te rlin g w ould g ain a
so und er f o oti n g? Doub tl e ss th e C onti n enta l b ankers a ls o p ut s u ch q uesti o ns to th e B ank o f E ngla nd m en i n T okyo ; i n
any e v ent, th e B ank o f E ngla nd m en a nd th eir c o unte rp arts in th e B riti s h E xcheq uer h ad n o t fa ile d to
put th e q uesti o ns to th em se lv es. B ut th e p ro pose d m easu re s w ould c erta in ly b e u np opula r w ith th e
Briti s h e le cto ra te , a s u nm is ta kab le h arb in gers o f a uste rity , a nd th e C onse rv ati v e G overn m ent, lik e
many g o vern m ents b efo re it, a p peare d to b e p ara ly ze d b y fe ar o f th e im min ent e le cti o n. S o it d id
no th in g. I n a s tr ic tl y m oneta ry w ay, h o w ev er, B rita in d id ta ke d efe nsiv e m easu re s d urin g S ep te m ber.
The B ank o f E ngla nd h ad fo r s e v era l y ears h ad a s ta nd in g a gre em ent w ith th e F ed era l R ese rv e th at
eith er in sti tu ti o n c o uld b orro w fiv e h und re d m illio n d olla rs fr o m th e o th er, o ver a s h o rt te rm , a t a ny
ti m e, w ith v ir tu ally n o fo rm aliti e s; n o w th e B ank o f E ngla nd a ccep te d th is s ta nd by lo an a nd m ad e
arra ngem ents to su p ple m ent it w ith a no th er fiv e h und re d m illio n d olla rs in sh o rt- te rm c re d it fr o m
vario us E uro pean c entr a l b anks a nd th e B ank o f C anad a. T his to ta l o f a b illio n d olla rs , to geth er w ith
Brita in ’s la st- d itc h r e se rv es in g o ld a nd d olla rs , a m ounti n g to a b out tw o b illio n s ix h und re d m illio n,
co nsti tu te d a s iz a b le s to re o f a m muniti o n. If th e s p ecula ti v e a ssa ult o n th e p ound s h o uld c o nti n ue o r
in te nsify , a nsw erin g fir e w ould c o m e fr o m th e B ank o f E ngla nd in th e fo rm o f d olla r in v estm ents in
ste rlin g m ad e o n th e b attl e fie ld o f th e f r e e m ark et, a nd p re su m ab ly th e a tta ckers w ould b e p ut to r o ut.
As m ig ht h av e b een e xp ecte d , th e a ssa ult d id in te nsify a fte r L ab our c am e o ut th e v ic to r in th e
Octo ber e le cti o n. T he n ew B riti s h g o vern m ent re aliz e d a t th e o uts e t th at it w as fa ced w ith a g ra v e
cris is , and th at im med ia te and d ra sti c acti o n w as in o rd er. It has sin ce b een sa id th at su m mary
dev alu ati o n o f th e p ound w as se rio usly c o nsid ere d b y th e n ew ly e le cte d P rim e M in is te r a nd h is
ad vis e rs o n f in ance— Geo rg e B ro w n, S ecre ta ry o f S ta te f o r E co no m ic A ffa ir s , a nd J a m es C alla ghan,
Chancello r o f th e E xcheq uer. T he id ea w as r e je cte d , th o ugh, a nd th e m easu re s th ey a ctu ally to ok, in
Octo ber a nd e arly N ovem ber, w ere a fifte en-p erc ent e m erg ency su rc harg e o n B riti s h im ports (in
effe ct, a b la nket r a is in g o f ta riffs ), a n in cre ase d fu el ta x, a nd s ti ff n ew c ap ita l- g ain s a nd c o rp ora ti o n
ta xes. T hese w ere d efla ti o nary , c urre ncy-s tr e ngth enin g m easu re s, to b e s u re , b ut th e w orld m ark ets
were n o t re assu re d . T he sp ecific n atu re o f th e n ew ta xes se em s to h av e d is c o ncerte d , a nd e v en
enra ged , m any fin ancie rs , in a nd o ut o f B rita in , p arti c ula rly in v ie w o f th e fa ct th at u nd er th e n ew
bud get B riti s h g o vern m ent s p end in g o n w elfa re b enefits w as a ctu ally to b e in cre ase d , r a th er th an c ut
back, a s d efla ti o nary p olic y w ould n o rm ally re q uir e . O ne w ay a nd a no th er, th en, th e se lle rs — or
bears , i n m ark et j a rg o n— co nti n ued to b e i n c harg e o f th e m ark et f o r th e p ound i n th e w eeks a fte r th e
ele cti o n, a nd th e B ank o f E ngla nd w as k ep t b usy p otti n g a w ay a t th em w ith p re cio us s h ells fr o m its
borro w ed -b illio n-d olla r a rs e nal. B y th e e nd o f O cto ber, n early h alf th e b illio n w as g o ne, a nd th e
bears w ere s ti ll i n exo ra b ly a d vancin g o n th e p ound , a h und re d th o f a c ent a t a ti m e.
Hayes, C oom bs, a nd th eir f o re ig n-d ep artm ent c o lle agues o n L ib erty S tr e et, w atc hin g w ith m ounti n g
anxie ty , w ere a s g alle d a s th e B riti s h b y th e fa ct th at a c entr a l b ank d efe nd in g its c urre ncy a gain st
atta ck c an h av e o nly th e v aguest id ea o f w here th e a tta ck is c o m in g fr o m . S pecula ti o n is in here nt in
fo re ig n tr a d e, a nd b y its n atu re is a lm ost im possib le to is o la te , id enti fy , o r e v en d efin e. T here a re
degre es o f s p ecula ti o n; th e w ord its e lf, lik e “ se lfis h ness” o r “ gre ed ,” d eno te s a ju d gm ent, a nd y et
ev ery e xchange o f c urre ncie s m ig ht b e c alle d a s p ecula ti o n in fa v or o f th e c urre ncy b ein g a cq uir e d
and a gain st th e o ne b ein g d is p ose d o f. A t o ne e nd o f th e sc ale a re p erfe ctl y le giti m ate b usin ess
tr a nsa cti o ns th at
h av e s p ecific s p ecula ti v e e ffe cts . A B riti s h i m porte r o rd erin g A meric an m erc hand is e
may le giti m ate ly p ay u p in p ound s in a d vance o f d eliv ery ; if h e d oes, h e is s p ecula ti n g a gain st th e
pound . A n A meric an im porte r w ho h as c o ntr a cte d to p ay fo r B riti s h g o ods a t a p ric e s e t in p ound s
may le giti m ate ly in sis t th at h is p urc hase o f th e p ound s h e n eed s to s e ttl e h is d eb t b e d efe rre d fo r a
certa in p erio d; h e, to o, is sp ecula ti n g a gain st th e p ound . (T he sta ggerin g im porta nce to B rita in o f
th ese c o m mon c o m merc ia l o pera ti o ns, w hic h a re c alle d “ le ad s” a nd “ la gs,” r e sp ecti v ely , i s s h o w n b y th e fa ct th at if in no rm al ti m es th e w orld ’s b uyers o f B riti s h go ods w ere all to w ith ho ld th eir
paym ents fo r a s sh o rt a p erio d a s tw o a nd a h alf m onth s th e B ank o f E ngla nd ’s g o ld a nd d olla r
re se rv es w ould v anis h .) A t th e o th er e nd o f th e s c ale i s th e d eale r i n m oney w ho b orro w s p ound s a nd
th en c o nv erts th e l o an i n to d olla rs . S uch a d eale r, i n ste ad o f m ere ly p ro te cti n g h is b usin ess i n te re sts ,
is e ngagin g i n a n o ut- a nd -o ut s p ecula ti v e m ove c alle d a s h o rt s a le ; h o pin g to b uy b ack th e p ound s h e
ow es m ore cheap ly la te r o n, he is sim ply tr y in g to m ake a p ro fit o n th e d ecre ase in v alu e he
anti c ip ate s— and , w hat w ith th e lo w c o m mis sio ns p re v ailin g in th e in te rn ati o nal m oney m ark et, th e
maneuv er p ro vid es o ne o f th e w orld ’s m ost a ttr a cti v e f o rm s o f h ig h-s ta kes g am blin g.
Gam blin g o f th is s o rt, a lth o ugh i n f a ct i t p ro bab ly c o ntr ib ute d f a r l e ss to th e s te rlin g c ris is th an th e
se lf- p ro te cti v e m easu re s ta ken b y n erv ous i m porte rs a nd e xp orte rs , w as b ein g w id ely b la m ed f o r a ll
th e p ound ’s tr o ub le s o f O cto ber a nd N ovem ber, 1 964. P arti c ula rly in th e B riti s h P arlia m ent, th ere
were a ngry re fe re nces to s p ecula ti v e a cti v ity b y “ th e g no m es o f Z uric h”— Zuric h b ein g s in gle d o ut
because S w itz e rla nd , w ho se b ankin g l a w s r ig id ly p ro te ct th e a no nym ity o f d ep osito rs , i s th e b lin d p ig
of i n te rn ati o nal b ankin g, a nd c o nse q uentl y m uch c urre ncy s p ecula ti o n, o rig in ati n g i n m any p arts o f th e
world , is fu nnelle d th ro ugh Z uric h. B esid es lo w c o m mis sio ns a nd a no nym ity , c urre ncy s p ecula ti o n
has a no th er a ttr a cti o n. T hanks to ti m e d iffe re nti a ls a nd g o od te le p ho ne se rv ic e, th e w orld m oney
mark et, u nlik e s to ck e xchanges, r a ce tr a cks, a nd g am blin g c asin o s, p ra cti c ally n ev er c lo se s. L ond on
opens a n h o ur a fte r th e C onti n ent (o r d id u nti l
F eb ru ary 1 968, w hen B rita in a d opte d C onti n enta l
ti m e), N ew Y ork f iv e ( n o w s ix ) h o urs a fte r th at, S an F ra ncis c o th re e h o urs a fte r
th at
, a nd th en T okyo
gets u nd er w ay a b out th e ti m e S an F ra ncis c o c lo se s. O nly a n eed fo r s le ep o r a la ck o f m oney n eed
halt th e o pera ti o ns o f a r e ally h o pele ssly a d dic te d p lu nger a nyw here .
“It w as
not
th e g no m es o f Z uric h w ho w ere b eati n g d ow n th e p ound ,” a le ad in g Z uric h b anker
su b se q uentl y m ain ta in ed — sto ppin g s h o rt o f c la im in g th at th ere w ere n o g no m es th ere . N oneth ele ss,
org aniz e d s h o rt s e llin g— what tr a d ers c all a b ear r a id — was c erta in ly in p ro gre ss, a nd th e d efe nd ers
of th e p ound in L ond on a nd th eir sy m path iz e rs in N ew Y ork w ould h av e g iv en p le nty to c atc h a
glim pse o f th e i n v is ib le e nem y.
IT
w as in th is a tm osp here , th en, th at o n th e w eekend b egin nin g N ovem ber 7 th th e le ad in g c entr a l
bankers o f th e w orld h eld th eir re gula r m onth ly g ath erin g in B ase l, S w itz e rla nd . T he o ccasio n fo r
su ch g ath erin gs, w hic h h av e b een h eld r e gula rly s in ce th e n in ete en-th ir ti e s e xcep t d urin g th e S eco nd
World W ar, i s th e m onth ly m eeti n g o f th e b oard o f d ir e cto rs o f th e B ank f o r I n te rn ati o nal S ettl e m ents ,
whic h w as e sta b lis h ed i n B ase l i n 1 930 p rim arily a s a c le arin g h o use f o r th e h and lin g o f r e p ara ti o ns
paym ents a ris in g o ut o f th e F ir s t W orld W ar b ut h as c o m e to se rv e a s a n a gency o f in te rn ati o nal
moneta ry c o öpera ti o n a nd , in cid enta lly , a k in d o f c entr a l b ankers ’ c lu b . A s s u ch, it is c o nsid era b ly
more l im ite d i n r e so urc es a nd r e str ic te d a s to m em bers h ip th an th e I n te rn ati o nal M oneta ry F und , b ut,
lik e o th er exclu siv e clu b s, it is o fte n th e sc ene o f gre at d ecis io ns. R ep re se nte d o n its b oard o f
dir e cto rs are B rita in , Fra nce, W est G erm any, Ita ly , B elg iu m , th e N eth erla nd s, Sw ed en, and
Sw itz e rla nd — in s h o rt, th e e co no m ic p ow ers o f W este rn E uro pe— while th e U nite d S ta te s i s a r e gula r
month ly g uest w ho se p re se nce is c o unte d o n, a nd C anad a a nd J a p an a re le ss fr e q uent v is ito rs . T he
Fed era l R ese rv e is a lm ost a lw ays r e p re se nte d b y C oom bs, a nd s o m eti m es b y H ayes a nd o th er N ew
York o ffic ers a s w ell.
In th e n atu re o f th in gs, th e i n te re sts o f th e d iffe re nt c entr a l b anks c o nflic t; th eir f a ces a re s e t a gain st
each o th er alm ost as if
th ey w ere p la yers in a p oker gam e. E ven so , in v ie w o f th e fa ct th at
in te rn ati o nal tr o ub le s w ith m oney a t th eir ro ot h av e a lm ost a s lo ng a h is to ry a s sim ila rly c ause d
tr o ub le s b etw een in d iv id uals , th e m ost s u rp ris in g th in g a b out in te rn ati o nal m oneta ry c o öpera ti o n is th at i t i s s o n ew . T hro ugh a ll th e a ges p rio r to th e F ir s t W orld W ar, i t c anno t b e s a id to h av e e xis te d
at all. In th e nin ete en-tw enti e s, it exis te d chie fly th ro ugh clo se p ers o nal ti e s b etw een in d iv id ual
centr a l b ankers , o fte n m ain ta in ed in sp ite o f th e in d iffe re nce o f th eir g o vern m ents . O n a n o ffic ia l
le v el, i t g o t o ff to a h alti n g s ta rt th ro ugh th e F in ancia l C om mitte e o f th e L eague o f N ati o ns, w hic h w as
su p pose d to e nco ura ge jo in t a cti o n to p re v ent m oneta ry c ata str o phes. T he s te rlin g c o lla p se o f 1 931
and its g rim s e q uel w ere a m ple p ro of o f th e c o m mitte e’s fa ilu re . B ut b ette r d ays w ere a head . T he
1944 in te rn ati o nal fin ancia l co nfe re nce at B re tto n W oods— out of w hic h em erg ed no t only th e
In te rn ati o nal M oneta ry F und b ut a ls o th e w ho le s tr u ctu re o f p ostw ar m oneta ry r u le s d esig ned to h elp
esta b lis h a nd m ain ta in f ix ed e xchange r a te s, a s w ell a s th e W orld B ank, d esig ned to e ase th e f lo w o f
money fr o m ric h co untr ie s to p oor o r w ar-d ev asta te d o nes— sta nd s as a m ile sto ne in eco no m ic
co öpera ti o n c o m para b le to th e f o rm ati o n o f th e U nite d N ati o ns i n p oliti c al a ffa ir s . T o c ite j u st o ne o f
th e c o nfe re nce’s f r u its , a c re d it o f m ore th an a b illio n d olla rs e xte nd ed to B rita in b y th e I n te rn ati o nal
Moneta ry F und d urin g th e S uez a ffa ir i n 1 956 p re v ente d a m ajo r i n te rn ati o nal f in ancia l c ris is th en.
In s u b se q uent y ears , e co no m ic c hanges, l ik e o th er c hanges, te nd ed to c o m e m ore a nd m ore q uic kly ;
afte r 1 958, m oneta ry c ris e s b egan s p rin gin g u p v ir tu ally o vern ig ht, a nd th e In te rn ati o nal M oneta ry
Fund , w hic h is hin d ere d b y slo w -m ovin g m achin ery , so m eti m es p ro ved in ad eq uate to m eet su ch
cris e s a lo ne. A gain th e n ew s p ir it o f c o öpera ti o n r o se to th e o ccasio n, th is ti m e w ith th e r ic hest o f
nati o ns, th e U nite d S ta te s, ta kin g th e le ad . S ta rti n g in 1 961, th e F ed era l R ese rv e B ank, w ith th e
ap pro val o f th e F ed era l R ese rv e B oard a nd th e T re asu ry in W ash in gto n, jo in ed th e o th er le ad in g
centr a l b anks i n s e tti n g u p a s y ste m o f e v er-re ad y r e v olv in g c re d its , w hic h s o on c am e to b e c alle d th e
“sw ap n etw ork .” T he p urp ose o f th e n etw ork w as to c o m ple m ent
th e In te rn ati o nal M oneta ry F und ’s
lo nger-te rm c re d it f a ciliti e s b y g iv in g c entr a l b anks i n sta nt a ccess to f u nd s th ey m ig ht n eed f o r a s h o rt
perio d in o rd er to m ove fa st a nd v ig o ro usly in d efe nse o f th eir c urre ncie s. Its e ffe cti v eness w as n o t
lo ng i n b ein g p ut to th e te st. B etw een i ts i n iti a ti o n i n 1 961 a nd th e a utu m n o f 1 964, th e s w ap n etw ork
had p la yed a m ajo r p art i n th e tr iu m phant d efe nse a gain st s u d den a nd v io le nt s p ecula ti v e a tta cks o n a t
le ast th re e c urre ncie s: th e p ound , l a te i n 1 961; th e C anad ia n d olla r, i n J u ne, 1 961; a nd th e I ta lia n l ir a ,
in M arc h, 1 964. B y th e a utu m n o f 1 964, th e s w ap a gre em ents (
“L’a cco rd d e s w ap”
to th e F re nch,
“die S w ap-V erp flic h tu ngen ”
to th e G erm ans) h ad c o m e to b e th e v ery c o rn ers to ne o f in te rn ati o nal
moneta ry c o öpera ti o n. In d eed , th e fiv e h und re d m illio n A meric an d olla rs th at th e B ank o f E ngla nd
was f in d in g i t n ecessa ry to d ra w o n a t th e v ery m om ent th e b ank’s to p o ffic ers w ere h ead in g f o r B ase l
th at N ovem ber w eekend re p re se nte d part of th e sw ap netw ork , gre atl y exp and ed fr o m its
co m para ti v ely m odest b egin nin gs.
As fo r th e B ank fo r In te rn ati o nal S ettl e m ents , in its c ap acity a s a b ankin g in sti tu ti o n it w as a
re la ti v ely m in o r c o g in a ll th is m achin ery , b ut in its c ap acity a s a c lu b it h ad o ver th e y ears c o m e to
pla y a fa r fr o m u nim porta nt r o le . Its m onth ly b oard m eeti n gs s e rv ed ( a nd s ti ll s e rv e) a s a c hance fo r
th e c entr a l b ankers to ta lk in a n in fo rm al a tm osp here — to e xchange g o ssip , v ie w s, a nd h unches s u ch
as c o uld n o t c o m fo rta b ly b e in d ulg ed in e ith er b y m ail o r o ver th e in te rn ati o nal te le p ho ne c ir c uits .
Base l, a m ed ie v al R henis h c ity th at i s d om in ate d b y th e s p ir e s o f i ts tw elfth -c entu ry G oth ic c ath ed ra l
and h as lo ng b een a th riv in g c ente r o f th e c hem ic al in d ustr y , w as o rig in ally c ho se n a s th e s ite o f th e
Bank f o r I n te rn ati o nal S ettl e m ents b ecause i t w as a n o dal p oin t f o r E uro pean r a ilw ays. N ow th at m ost
in te rn ati o nal b ankers h ab itu ally tr a v el b y p la ne, th at a sse t h as b eco m e a l ia b ility , f o r th ere i s n o l o ng-
dis ta nce a ir s e rv ic e to B ase l; d ele gate s m ust d ep la ne a t Z uric h a nd c o nti n ue b y tr a in o r c ar. O n th e
oth er h and , B ase l h as s e v era l f ir s t- ra te r e sta ura nts , a nd i t m ay b e th at i n th e v ie w o f th e c entr a l- b ank
dele gate s th is ad vanta ge outw eig hs th e tr a v el in co nv enie nce, fo r centr a l bankin g— or at le ast
Euro pean c entr a l b ankin g— has a fir m ly e sta b lis h ed a sso cia ti o n w ith g o od liv in g. A
g o vern o r o f th e Nati o nal B ank o f B elg iu m o nce r e m ark ed to a v is ito r, w ith o ut a s m ile , th at h e c o nsid ere d o ne o f h is
duti e s to b e th at o f l e av in g th e i n sti tu ti o n’s w in e c ella r b ette r th an h e h ad f o und i t. A l u ncheo n g uest a t
th e B ank o f F ra nce i s g enera lly to ld a p olo geti c ally , “ In th e tr a d iti o n o f th e b ank, w e s e rv e o nly s im ple
fa re ,” b ut w hat fo llo w s is a re p ast d urin g w hic h th e co nsta nt d is c ussio n o f v in ta ges m akes any
dis c ussio n o f b ankin g a w kw ard , i f n o t i m possib le , a nd a t w hic h th e tr a d iti o n o f s im plic ity i s h o no re d ,
ap pare ntl y , b y th e se rv in g o f o nly o ne w in e b efo re th e c o gnac. T he ta b le o f th e B ank o f Ita ly is
eq ually e le gant (s o m e sa y th e b est in R om e), a nd its su rro und in gs a re e nhanced b y th e p ric ele ss
Renais sa nce p ain ti n gs, a cq uir e d a s d efa ulte d s e curity o n b ad lo ans o ver th e y ears , th at h ang o n th e
walls . A s fo r th e F ed era l R ese rv e B ank o f N ew Y ork , a lc o ho l in a ny fo rm is h ard ly e v er s e rv ed
th ere , b ankin g is hab itu ally d is c usse d at m eals , and th e m is tr e ss o f th e kitc hen ap pears alm ost
path eti c ally g ra te fu l w henev er o ne o f th e o ffic ers m akes a ny s o rt o f c o m ment, e v en a c riti c al o ne, o n
th e f a re . B ut th en L ib erty S tr e et i s n ’t E uro pe.
In th ese d em ocra ti c ti m es, c entr a l b ankin g in E uro pe is th o ught o f a s th e la st str o ngho ld o f th e
aris to cra ti c bankin g tr a d iti o n, in w hic h w it, gra ce, and cultu re co exis t easily w ith co m merc ia l
astu te ness, a nd e v en r u th le ssn ess. T he E uro pean c o unte rp arts o f th e s e curity g uard s o n L ib erty S tr e et
are a p t to b e a tte nd ants in m orn in g c o ats . U nti l le ss th an a g enera ti o n a go , fo rm ality o f a d dre ss
betw een c entr a l b ankers w as th e r u le . S om e th in k th at th e f ir s t to b re ak i t w ere th e B riti s h , d urin g th e
Seco nd W orld W ar, w hen, it is a lle ged , a s e cre t o rd er w ent o ut th at B riti s h g o vern m ent a nd m ilita ry
auth o riti e s w ere to a d dre ss th eir A meric an c o unte rp arts b y th eir f ir s t n am es; i n a ny e v ent, f ir s t n am es
are fr e q uentl y e xchanged b etw een E uro pean a nd A meric an c entr a l b ankers n o w , a nd o ne r e aso n fo r
th is , u nq uesti o nab ly , is th e p ostw ar ris e in in flu ence o f th e d olla r. (A no th er re aso n is th at, in th e
em erg in g e ra o f c o öpera ti o n, th e c entr a l b ankers s e e m ore o f e ach o th er th an th ey u se d to — no t j u st i n
Base l b ut in W ash in gto n, P aris , a nd B ru sse ls , a t re gula r m eeti n gs o f p erh ap s h alf a d oze n s p ecia l
bankin g c o m mitte es o f v ario us in te rn ati o nal o rg aniz a ti o ns. T he s a m e h and fu l o f to p b ankers p ara d es
so re gula rly
th ro ugh th e ho te l lo bbie s o f th o se citi e s th at o ne o f th em th in ks th ey m ust giv e th e
im pre ssio n o f b ein g h und re d s s tr o ng, l ik e th e s p ear c arrie rs w ho c ro ss th e s ta ge a gain a nd a gain i n th e
tr iu m phal s c ene o f “ A id a.” ) A nd l a nguage, l ik e th e m anner o f i ts u se , h as te nd ed to f o llo w e co no m ic
pow er. E uro pean c entr a l b ankers h av e a lw ays u se d F re nch ( “ b ad F re nch,” s o m e s a y) in ta lk in g w ith
each o th er, b ut d urin g th e lo ng p erio d in w hic h th e p ound w as th e w orld ’s le ad in g c urre ncy E nglis h
cam e to b e th e f ir s t l a nguage o f c entr a l b ankin g a t l a rg e, a nd u nd er th e r u le o f th e d olla r i t c o nti n ues to
be. I t i s s p oken f lu entl y a nd w illin gly b y a ll th e to p o ffic ers o f e v ery c entr a l b ank e xcep t th e B ank o f
Fra nce, a nd e v en th e B ank o f F ra nce o ffic ers a re fo rc ed to k eep tr a nsla to rs a t h and , in c o nsid era ti o n
of th e se em in g in tr a cta b le in ab ility o r unw illin gness o f m ost B rito ns and A meric ans to b eco m e
co m pete nt in any la nguage b ut th eir o w n. (L ord C ro m er, flo uti n g tr a d iti o n, sp eaks F re nch w ith
co m ple te a uth o rity .)
At B ase l, go od fo od and co nv enie nce co m e b efo re sp le nd or; m any o f th e d ele gate s fa v or an
outw ard ly h um ble r e sta ura nt in th e m ain r a ilr o ad s ta ti o n, a nd th e B ank fo r In te rn ati o nal S ettl e m ents
its e lf is m odestl y s itu ate d b etw een a te a s h o p a nd a h air d re ssin g e sta b lis h m ent. O n th at N ovem ber
weekend i n 1 964, V ic e-P re sid ent C oom bs w as th e o nly r e p re se nta ti v e o f th e F ed era l R ese rv e S yste m
on h and , a nd , in d eed , h e w as to b e th e k ey b ankin g re p re se nta ti v e o f th e U nite d S ta te s th ro ugh th e
early a nd m id dle p hase s o f th e c ris is th at w as th en m ounti n g. In a n a b str a cte d w ay, C oom bs a te a nd
dra nk h earti ly w ith th e o th ers — tr u e to h is in sti tu ti o n’s tr a d iti o ns, h e is le ss th an a g o urm et— but h is
re al i n te re st w as i n g etti n g th e s e nse o f th e m eeti n g a nd th e p riv ate f e elin gs o f i ts p arti c ip ants . H e w as
th e p erfe ct m an f o r th is ta sk , i n asm uch a s h e h as th e u nq uesti o nin g tr u st a nd r e sp ect o f a ll h is f o re ig n
co lle agues. T he o th er l e ad in g c entr a l b ankers h ab itu ally c all h im b y h is f ir s t n am e— le ss, i t s e em s, i n defe re nce to c hanged c usto m th an o ut o f d eep a ffe cti o n a nd a d m ir a ti o n. T hey a ls o u se i t i n s p eakin g o f
him a m ong th em se lv es; th e n am e “ C harlie co om bs” (ru n to geth er th us o ut o f lo ng h ab itu ati o n) is a
word to c o nju re w ith i n c entr a l- b ankin g c ir c le s. C harlie co om bs, th ey w ill te ll y o u, i s th e k in d o f N ew
Engla nd er (h e is fr o m N ew to n, M assa chuse tts )
w ho , a lth o ugh h is c lip ped sp eech a nd d ry m anner
make h im se em a b it c o ol a nd d eta ched , is re ally w arm a nd in tu iti v e. C harlie co om bs, a lth o ugh a
Harv ard g ra d uate (C la ss o f 1 940), is th e k in d o f u np re te nti o us g ra y-h air e d m an w ith h alf- rim med
sp ecta cle s a nd a p re cis e m anner w ho m y o u m ig ht e asily ta ke fo r a s ta nd ard A meric an s m all- to w n
bank p re sid ent, ra th er th an a m aste r o f o ne o f th e w orld ’s m ost co m ple x sk ills . It is genera lly
co nced ed th at i f a ny o ne m an w as th e g eniu s b ehin d th e s w ap n etw ork , th e m an w as th e N ew E ngla nd
sw ap per C harlie co om bs.
At B ase l, th ere w as, a s u su al, a s e rie s o f f o rm al s e ssio ns, e ach w ith i ts a gend a, b ut th ere w as a ls o ,
as u su al, m uch in fo rm al p ala v er in ru m p s e ssio ns h eld in h o te l ro om s a nd o ffic es a nd a t a fo rm al
Sund ay-n ig ht d in ner a t w hic h th ere w as n o a gend a b ut in ste ad a fr e e d is c ussio n o f w hat C oom bs h as
sin ce re fe rre d to a s “ th e h o tte st to pic o f th e m om ent.” T here c o uld b e n o q uesti o n a b out w hat th at
was; it w as th e c o nd iti o n o f th e p ound — and , in d eed , C oom bs h ad h eard littl e d is c ussio n o f a nyth in g
els e a ll w eekend . “ It w as c le ar to m e f r o m w hat I h eard th at c o nfid ence i n s te rlin g w as d ete rio ra ti n g,”
he h as sa id . T w o q uesti o ns w ere o n m ost o f th e b ankers ’ m in d s. O ne w as w heth er th e B ank o f
Engla nd p ro pose d to ta ke so m e o f th e p re ssu re o ff th e p ound b y ra is in g its le nd in g ra te . B ank o f
Engla nd m en w ere p re se nt, b ut getti n g an answ er w as no t a sim ple m atte r o f ask in g th em th eir
in te nti o ns; e v en i f th ey h ad b een w illin g to s a y, th ey w ould n o t h av e b een a b le to , b ecause th e B ank o f
Engla nd is n o t e m pow ere d to c hange its ra te w ith o ut th e a p pro val— whic h in p ra cti c e o fte n c o m es
clo se r to m eanin g th e i n str u cti o n— of th e B riti s h g o vern m ent, a nd e le cte d g o vern m ents h av e a n atu ra l
dis lik e fo r m easu re s th at m ake m oney ti g ht. T he o th er q uesti o n w as w heth er B rita in h ad e no ugh g o ld
and d olla rs to th ro w in to th e b re ach if th e s p ecula ti v e a ssa ult s h o uld c o nti n ue. A part fr o m w hat w as
le ft o f th e b illio n d olla rs f r o m th e e xp and ed s w ap n etw ork a nd w hat r e m ain ed o f i ts d ra w in g r ig hts o n
th e In te rn ati o nal M oneta ry F und , B rita in h ad o nly its o ffic ia l re se rv es, w hic h h ad d ro pped in th e
pre v io us w eek to s o m eth in g u nd er tw o a nd a h alf b illio n d olla rs — th eir l o w est p oin t i n s e v era l y ears .
Wors e th an th at w as th e f r ig htf u l r a te a t w hic h th e r e se rv es w ere d w in d lin g a w ay; o n a
s in gle b ad d ay
durin g th e p re v io us w eek, a cco rd in g to th e g uesse s o f e xp erts , th ey h ad d ro pped b y e ig hty -s e v en
millio n d olla rs . A m onth o f d ays l ik e th at a nd th ey w ould b e g o ne.
Even s o , C oom bs h as s a id , n o body a t B ase l th at w eekend d re am ed th at th e p re ssu re o n s te rlin g
co uld b eco m e a s in te nse a s it a ctu ally d id b eco m e la te r in th e m onth . H e re tu rn ed to N ew Y ork
worrie d b ut r e so lu te . It w as n o t to N ew Y ork , h o w ev er, th at th e m ain s c ene o f th e b attl e fo r s te rlin g
sh ifte d a fte r th e B ase l m eeti n g; it w as to L ond on. T he b ig im med ia te q uesti o n w as w heth er o r n o t
Brita in w ould r a is e its b ank r a te th at w eek, a nd th e d ay th e a nsw er w ould b e k no w n w as T hurs d ay,
Novem ber 1 2th . In th e m atte r o f th e b ank ra te , a s in s o m any o th er th in gs, th e B riti s h c usto m arily
fo llo w a r itu al. I f th ere i s to b e a c hange, a t n o on o n T hurs d ay— th en a nd th en o nly — a s ig n a p pears i n
th e gro und -flo or lo bby o f th e B ank o f E ngla nd anno uncin g th e new ra te , and , sim ulta neo usly , a
fu ncti o nary calle d th e G overn m ent B ro ker, d ecked o ut in a p in k co at and to p hat, hurrie s d ow n
Thro gm orto n S tr e et to th e L ond on S to ck E xchange a nd c ere m onia lly a nno unces th e n ew r a te fr o m a
ro str u m . N oon o n T hurs d ay th e tw elfth p asse d w ith n o c hange; e v id entl y th e L ab our G overn m ent w as
hav in g a s m uch tr o ub le d ecid in g o n a b ank-ra te r is e a fte r th e e le cti o n a s th e C onse rv ati v es h ad h ad
befo re . T he s p ecula to rs , w here v er th ey w ere , r e acte d to s u ch p usilla nim ity a s o ne m an. O n F rid ay th e
th ir te enth , th e p ound , w hic h h ad b een m odera te ly b uo yant a ll w eek p re cis e ly b ecause s p ecula to rs h ad
been a nti c ip ati n g a b ank-ra te r is e , u nd erw ent a f e arfu l b atte rin g, w hic h s e nt i t d ow n to a c lo sin g p ric e of $ 2.7 829— bare ly m ore th an a q uarte r o f a c ent a b ove th e o ffic ia l m in im um — and th e B ank o f
Engla nd , in te rv enin g fr e q uentl y to h o ld it e v en a t th at le v el, lo st tw enty -e ig ht m illio n d olla rs m ore
fr o m i ts r e se rv es. N ext d ay, th e f in ancia l c o m menta to r o f th e L ond on
Tim es
, u nd er th e b ylin e O ur C ity
Edito r, l e t h im se lf g o . “ T he p ound ,” h e w ro te , “ is n o t l o okin g a s f ir m a s m ig ht b e h o ped .”
TH E
fo llo w in g w eek s a w th e p atte rn r e p eate d , b ut in e xaggera te d fo rm . O n M ond ay, P rim e M in is te r
Wils o n, ta kin g a le af o ut o f W in sto n C hurc hill’s b ook, tr ie d rh eto ric a s a w eap on. S peakin g a t
a
pom p-a nd -c ir c um sta nce b anq uet at th e G uild hall in th e C ity o f L ond on b efo re an aud ie nce th at
in clu d ed , a m ong m any o th er d ig nita rie s, th e A rc hb is h o p o f C ante rb ury , th e L ord C hancello r, th e L ord
Pre sid ent o f th e C ouncil, th e L ord P riv y S eal, th e L ord M ayo r o f L ond on, a nd th eir w iv es, W ils o n
rin gin gly p ro cla im ed “ no t o nly o ur fa ith b ut o ur d ete rm in ati o n to k eep s te rlin g s tr o ng a nd to s e e it
rid in g hig h,” and asse rte d th at th e G overn m ent w ould no t hesita te to ta ke w hate v er ste p s m ig ht
beco m e necessa ry to acco m plis h th is purp ose . W hile ela b ora te ly av oid in g th e dre ad w ord
“d ev alu ati o n,” ju st a s a ll o th er B riti s h o ffic ia ls h ad a v oid ed it a ll s u m mer, W ils o n s o ught to m ake it
unm is ta kab le th at th e G overn m ent n o w c o nsid ere d s u ch a m ove o ut o f th e q uesti o n. T o e m phasiz e th is
poin t, h e i n clu d ed a w arn in g to s p ecula to rs : “ If a nyo ne a t h o m e o r a b ro ad d oub ts th e f ir m ness o f [ o ur]
re so lv e, le t th em be pre p are d to pay th e pric e fo r th eir la ck of fa ith in B rita in .” P erh ap s th e
sp ecula to rs w ere d aunte d b y th is v erb al v olle y, o r p erh ap s th ey w ere a gain m oved to le t u p in th eir
assa ult o n th e p ound b y th e p ro sp ect o f a b ank-ra te ris e o n T hurs d ay; in a ny c ase , o n T uesd ay a nd
Wed nesd ay th e p ound , th o ugh i t h ard ly r o de h ig h i n th e m ark etp la ce, m anaged to r id e a l ittl e l e ss l o w
th an i t h ad o n th e p re v io us F rid ay, a nd to d o s o w ith o ut th e h elp o f th e B ank o f E ngla nd .
By T hurs d ay, a cco rd in g to s u b se q uent re p orts , a s h arp p riv ate d is p ute h ad e ru p te d b etw een th e
Bank o f E ngla nd a nd th e B riti s h g o vern m ent o n th e b ank-ra te q uesti o n— Lord C ro m er a rg uin g, f o r th e
bank, th at a ris e o f a t le ast o ne p er c ent, a nd p erh ap s tw o p er c ent, w as a b so lu te ly e sse nti a l, a nd
Wils o n, B ro w n, a nd C alla ghan s ti ll d em urrin g. T he u p sh o t w as n o b ank-ra te r is e o n T hurs d ay, a nd th e
effe ct o f th e i n acti o n w as a s w ift i n te nsific ati o n o f th e c ris is . F rid ay th e tw enti e th w as a b la ck d ay i n
th e C ity o f L ond on. T he S to ck E xchange, its in v esto rs m ovin g in ti m e w ith s te rlin g, h ad a te rrib le
se ssio n. T he B ank o f E ngla nd h ad b y n o w re so lv ed to e sta b lis h its la st- lin e tr e nch o n th e p ound a t
$2.7 825— a q uarte r o f a c ent a b ove th e b otto m lim it. T he p ound o pened o n F rid ay a t p re cis e ly th at
le v el and re m ain ed th ere all d ay, fir m ly p in ned d ow n b y th e sp ecula to rs ’ hail o f o ffe rs to se ll;
meanw hile , th e b ank m et a ll o ffe rs a t $ 2.7 825 a nd , in d oin g s o , u se d
u p m ore o f B rita in ’s r e se rv es.
Now th e o ffe rs w ere c o m in g s o fa st th at littl e a tte m pt w as m ad e to d is g uis e th eir p la ces o f o rig in ; it
was e v id ent th at th ey w ere c o m in g fr o m e v ery w here — chie fly fr o m th e fin ancia l c ente rs o f E uro pe,
but als o fr o m N ew Y ork , and ev en fr o m L ond on its e lf. R um ors o f im min ent d ev alu ati o n w ere
sw eep in g th e b ours e s o f th e C onti n ent. A nd in L ond on its e lf a n o m in o us sig n o f c ra ckin g m ora le
ap peare d : d ev alu ati o n w as n o w b ein g m enti o ned o penly e v en th ere . T he S w ed is h e co no m is t a nd
so cio lo gis t G unnar M yrd al, in a lu ncheo n s p eech in L ond on o n T hurs d ay, h ad s u ggeste d th at a s lig ht
dev alu ati o n m ig ht no w b e th e o nly p ossib le so lu ti o n to B rita in ’s p ro ble m s; o nce th is exo geno us
co m ment h ad b ro ken th e ic e, B rito ns a ls o b egan u sin g th e d re ad w ord , a nd , in th e n ext m orn in g’s
Tim es
, O ur C ity E dito r h im se lf w as to s a y, in th e to ne o f a c o m mand er p re p arin g th e g arris o n fo r
possib le s u rre nd er, “ In d is c rim in ate g o ssip a b out d ev alu ati o n o f th e p ound c an d o h arm . B ut i t w ould
be e v en w ors e to r e gard u se o f th at w ord a s ta b oo.”
When n ig htf a ll a t l a st b ro ught th e p ound a nd i ts d efe nd ers a w eekend b re ath er, th e B ank o f E ngla nd
had a c hance to a sse ss its s itu ati o n. W hat it fo und w as a nyth in g b ut r e assu rin g. A ll b ut a fr a cti o n o f
th e b illio n d olla rs it h ad a rra nged to b orro w in S ep te m ber u nd er th e e xp and ed s w ap a gre em ents h ad go ne in to th e b attl e . T he r ig ht th at r e m ain ed to it o f d ra w in g o n th e In te rn ati o nal M oneta ry F und w as
vir tu ally w orth le ss, s in ce th e tr a nsa cti o n w ould ta ke w eeks to c o m ple te , a nd m atte rs tu rn ed o n d ays
and h o urs . W hat th e b ank s ti ll h ad — and a ll th at it h ad — was th e B riti s h re se rv es, w hic h h ad g o ne
dow n b y fifty -s ix m illio n d olla rs th at d ay and no w sto od at aro und tw o b illio n. M ore th an o ne
co m menta to r h as s in ce s u ggeste d th at th is s u m c o uld in a w ay b e lik ened to th e fe w s q uad ro ns o f
fig hte r p la nes to w hic h th e s a m e d ogged n ati o n h ad b een re d uced tw enty -fo ur y ears e arlie r a t th e
wors t p oin t i n th e B attl e o f B rita in .
TH E
a nalo gy is e xtr a v agant, a nd y et, in th e lig ht o f w hat th e p ound m eans, a nd h as m eant, to th e
Briti s h , it is n o t ir re le v ant. In a m ate ria lis ti c a ge, th e p ound h as a lm ost th e s y m bolic im porta nce th at
was o nce a cco rd ed to th e C ro w n; th e s ta te o f s te rlin g a lm ost
is
th e s ta te o f B rita in . T he p ound is th e
old est o f m odern c urre ncie s. T he te rm “ p ound s te rlin g” i s b elie v ed to h av e o rig in ate d w ell b efo re th e
Norm an C onq uest, w hen th e S axo n k in gs is su ed silv er p ennie s— calle d “ ste rlin gs” o r “ sta rlin gs”
because th ey s o m eti m es h ad s ta rs in sc rib ed o n th em — of w hic h tw o h und re d a nd fo rty e q ualle d o ne
pound o f p ure s ilv er. ( T he s h illin g, r e p re se nti n g tw elv e s te rlin gs, o r o ne-tw enti e th o f a p ound , d id n o t
ap pear o n th e s c ene u nti l a fte r th e C onq uest.) T hus, s iz a b le p aym ents i n B rita in h av e b een r e cko ned i n
pound s fr o m its b egin nin gs. T he p ound , h o w ev er, w as b y n o m eans a n u nassa ila b ly s o und c urre ncy
durin g its fir s t fe w c entu rie s, c hie fly b ecause o f th e e arly k in gs’ u nfo rtu nate h ab it o f r e lie v in g th eir
chro nic fin ancia l e m barra ssm ent b y d eb asin g th e c o in age. B y m elti n g d ow n a q uanti ty o f s te rlin gs,
ad din g to th e b re w s o m e b ase m eta l a nd n o m ore s ilv er, a nd th en m in ti n g n ew c o in s, a n i r re sp onsib le
kin g c o uld m agic ally c o nv ert a h und re d p ound s in to , s a y, a h und re d a nd te n, ju st lik e th at. Q ueen
Eliz a b eth I p ut a s to p to th e p ra cti c e w hen, i n a c are fu lly p la nned s u rp ris e m ove i n 1 561, s h e r e calle d
fr o m c ir c ula ti o n a ll th e d eb ase d c o in s is su ed b y h er p re d ecesso rs . T he re su lt, c o m bin ed w ith th e
gro w th o f B riti s h tr a d e, w as a r a p id a nd s p ecta cula r r is e i n th e p re sti g e o f th e p ound , a nd l e ss th an a
centu ry a fte r E liz a b eth ’s c o up th e w ord “ ste rlin g” h ad a ssu m ed th e a d je cti v al m eanin g th at i t s ti ll h as
—“th o ro ughly e xcelle nt, c ap ab le o f s ta nd in g e v ery te st.” B y th e e nd o f th e s e v ente enth c entu ry , w hen
th e B ank o f E ngla nd w as f o und ed to h and le th e g o vern m ent’ s f in ances, p ap er m oney w as b egin nin g to
be tr u ste d fo r g enera l u se , a nd it h ad c o m e to b e b acked b y g o ld a s w ell a s s ilv er. A s ti m e w ent o n,
th e m oneta ry p re sti g e o f g o ld r o se s te ad ily i n r e la ti o n to th at o f s ilv er ( in th e m odern w orld s ilv er h as
no s ta nd in g a s a m oneta ry r e se rv e m eta l, a nd o nly i n s o m e h alf- d oze n c o untr ie s d oes i t n o w s e rv e a s
th e p rin cip al m eta l in su b sid ia ry c o in age), b ut it w as n o t u nti l 1 816 th at B rita in a d opte d a g o ld
sta nd ard — th at is , p le d ged its e lf to r e d eem p ap er c urre ncy w ith g o ld c o in s o r b ars a t a ny ti m e. T he
go ld s o vere ig n, w orth o ne p ound , w hic h c am e to s y m boliz e s ta b ility , a fflu ence, a nd e v en j o y to m ore
Vic to ria ns th an B ageho t, m ad e i ts f ir s t a p peara nce i n 1 817.
Pro sp erity b egat e m ula ti o n. S eein g h o w B rita in f lo uris h ed , a nd
b elie v in g th e g o ld s ta nd ard to b e a t
le ast p artl y re sp onsib le , o th er nati o ns ad opte d it o ne afte r ano th er: G erm any in 1 871; S w ed en,
Norw ay, and D enm ark in 1873; F ra nce, B elg iu m , S w itz e rla nd , Ita ly , and G re ece in 1874; th e
Neth erla nd s i n 1 875; a nd th e U nite d S ta te s i n 1 879. T he r e su lts w ere d is a p poin ti n g; h ard ly a ny o f th e
new co m ers fo und th em se lv es im med ia te ly g etti n g ric h, a nd B rita in , w hic h in re tr o sp ect a p pears to
hav e f lo uris h ed a s m uch i n s p ite o f th e g o ld s ta nd ard a s b ecause o f i t, c o nti n ued to b e th e u nd is p ute d
monarc h of w orld tr a d e. In th e half centu ry pre ced in g th e F ir s t W orld W ar, L ond on w as th e
mid dle m an in in te rn ati o nal fin ance, a nd th e p ound w as its q uasi- o ffic ia l m ed iu m . A s D av id L lo yd
Geo rg e w as l a te r to w rite n o sta lg ic ally , p rio r to 1 914 “ th e c ra ckle o f a b ill o n L ond on”— th at i s , o f a
bill o f c re d it i n p ound s s te rlin g b earin g th e s ig natu re o f a L ond on b ank— “w as a s g o od a s th e r in g o f
go ld in a ny p ort th ro ugho ut th e c iv iliz e d w orld .” T he w ar e nd ed th is id yll b y d is ru p ti n g th e d elic ate bala nce o f fo rc es th at h ad m ad e it p ossib le a nd b y b rin gin g to th e fo re a c halle nger to th e p ound ’s
su p re m acy— th e U nite d S ta te s d olla r. In 1 914, B rita in , h ard p re sse d to fin ance its fig hti n g fo rc es,
ad opte d m easu re s to dis c o ura ge dem and s fo r go ld , th ere b y ab and onin g th e go ld sta nd ard in
ev ery th in g b ut n am e; m eanw hile , th e v alu e o f a p ound in d olla rs s a nk fr o m $ 4.8 6 to a 1 920 lo w o f
$3.2 0. In a n e ffo rt to re co up its lo st g lo ry , B rita in re su m ed a fu ll g o ld s ta nd ard in 1 925, ty in g th e
pound to g o ld a t a ra te th at re sto re d its o ld $ 4.8 6 re la ti o n to th e d olla r. T he c o st o f th is g alla nt
overv alu ati o n, h o w ev er, w as c hro nic d ep re ssio n a t h o m e, n o t to m enti o n th e p oliti c al e clip se fo r
so m e f ifte en y ears o f th e C hancello r o f th e E xcheq uer w ho o rd ere d i t, W in sto n C hurc hill.
The g enera l c o lla p se o f c urre ncie s d urin g th e n in ete en-th ir ti e s a ctu ally b egan n o t i n L ond on b ut o n
th e C onti n ent, w hen, in th e su m mer o f 1 931, a su d den ru n o n th e le ad in g b ank o f A ustr ia , th e
Cre d ita nsta lt, re su lte d in its fa ilu re . T he d om in o p rin cip le o f b ank fa ilu re s— if s u ch a th in g c an b e
sa id to e xis t— th en c am e i n to p la y. G erm an l o sse s a ris in g f r o m th is r e la ti v ely m in o r d is a ste r r e su lte d
in a b ankin g c ris is i n G erm any, a nd th en, b ecause h uge q uanti ti e s o f B riti s h f u nd s w ere n o w f r o ze n i n
bankru p t i n sti tu ti o ns o n th e C onti n ent, th e p anic c ro sse d th e E nglis h C hannel a nd
i n v ad ed th e h o m e o f
th e i m peria l p ound i ts e lf. D em and s f o r g o ld i n e xchange f o r p ound s q uic kly b ecam e to o h eav y f o r th e
Bank o f E ngla nd to m eet, e v en w ith th e h elp o f l o ans f r o m F ra nce a nd th e U nite d S ta te s. B rita in w as
fa ced w ith th e b le ak a lte rn ati v es o f s e tti n g a n a lm ost u su rio us b ank r a te — betw een e ig ht a nd te n p er
cent— in o rd er to h o ld f u nd s i n L ond on a nd c heck th e g o ld o utf lo w , o r a b and onin g th e g o ld s ta nd ard ;
th e f ir s t c ho ic e, w hic h w ould h av e f u rth er d ep re sse d th e d om esti c e co no m y, i n w hic h th ere w ere n o w
more th an tw o a nd a h alf m illio n u nem plo yed , w as c o nsid ere d u nco nsc io nab le , a nd a cco rd in gly , o n
Sep te m ber 2 1, 1 931, th e B ank o f E ngla nd a nno unced s u sp ensio n o f i ts r e sp onsib ility to s e ll g o ld .
The m ove h it th e f in ancia l w orld l ik e a th und erb olt. S o g re at w as th e p re sti g e o f th e p ound i n 1 931
th at J o hn M aynard K eynes, th e a lr e ad y f a m ous B riti s h e co no m is t, c o uld s a y, n o t w ho lly i n i r o ny, th at
ste rlin g h ad n’t l e ft g o ld , g o ld h ad l e ft s te rlin g. I n e ith er c ase , th e m oorin g o f th e o ld s y ste m w as g o ne,
and c hao s w as th e r e su lt. W ith in a fe w w eeks, a ll th e c o untr ie s o n th e v ast p orti o n o f th e g lo be th en
und er B riti s h p oliti c al o r e co no m ic d om in ati o n h ad le ft th e g o ld s ta nd ard , m ost o f th e o th er le ad in g
curre ncie s h ad e ith er l e ft g o ld o r b een d ra sti c ally d ev alu ed i n r e la ti o n to i t, a nd i n th e f r e e m ark et th e
valu e o f th e p ound i n te rm s o f d olla rs h ad d ro pped f r o m $ 4.8 6 to a ro und $ 3.5 0. T hen th e d olla r i ts e lf
—th e p ote nti a l new m oorin g— cam e lo ose . In 1 933, th e U nite d S ta te s, co m pelle d b y th e w ors t
dep re ssio n i n i ts h is to ry , a b and oned th e g o ld s ta nd ard . A y ear l a te r, i t r e su m ed i t i n a m odifie d f o rm
calle d th e g o ld -e xchange s ta nd ard , u nd er w hic h g o ld c o in age w as e nd ed a nd th e F ed era l R ese rv e
was p le d ged to s e ll g o ld in b ar fo rm to o th er c entr a l b anks b ut to n o o ne e ls e — and to s e ll it a t a
dra sti c d ev alu ati o n o f fo rty -o ne p er c ent fr o m th e o ld p ric e. T he U nite d S ta te s d ev alu ati o n r e sto re d
th e p ound to its o ld d olla r p arity , b ut B rita in fo und it s m all c o m fo rt to b e ti e d s e cure ly to a m oorin g
th at w as n o w s h aky i ts e lf. E ven s o , o ver th e n ext f iv e y ears , w hile b eggar-m y-n eig hb or c am e to b e th e
ru le i n i n te rn ati o nal f in ance, th e p ound d id n o t l o se m uch m ore g ro und i n r e la ti o n to o th er c urre ncie s,
and w hen th e S eco nd W orld W ar b ro ke o ut, th e B riti s h g o vern m ent b old ly p egged it a t
$ 4.0 3 a nd
im pose d c o ntr o ls to k eep i t th ere i n d efia nce o f th e f r e e m ark et. T here , f o r a d ecad e, i t r e m ain ed — but
only o ffic ia lly . I n th e f r e e m ark et o f n eutr a l S w itz e rla nd , i t f lu ctu ate d a ll th ro ugh th e w ar i n r e fle cti o n
of B rita in ’s m ilita ry f o rtu nes, s in kin g a t th e d ark est m om ents to a s l o w a s $ 2.
In th e p ostw ar e ra , th e p ound h as b een a lm ost c o nti n uo usly i n tr o ub le . T he n ew r u le s o f th e g am e o f
in te rn ati o nal fin ance th at w ere a gre ed u p on a t B re tto n W oods r e co gniz e d th at th e o ld g o ld s ta nd ard
had b een fa r to o rig id and th e v ir tu al p ap er sta nd ard o f th e nin ete en-th ir ti e s fa r to o unsta b le ; a
co m pro m is e a cco rd in gly e m erg ed , u nd er w hic h th e d olla r— th e n ew k in g o f c urre ncie s— re m ain ed
ti e d to g o ld u nd er th e g o ld -e xchange s ta nd ard , a nd th e p ound , a lo ng w ith th e o th er l e ad in g c urre ncie s, becam e ti e d n o t to g o ld b ut to th e d olla r, a t r a te s fix ed w ith in s ta te d lim its . In d eed , th e p ostw ar e ra
was v ir tu ally u sh ere d in b y a d ev alu ati o n o f th e p ound th at w as a b out a s d ra sti c in a m ount a s th at o f
1931, th o ugh f a r l e ss s o i n i ts c o nse q uences. T he p ound , l ik e m ost E uro pean c urre ncie s, h ad e m erg ed
fr o m B re tto n W oods fla gra ntl y o verv alu ed in re la ti o n to th e s h atte re d e co no m y it re p re se nte d , a nd
had b een k ep t th at w ay o nly b y g o vern m ent- im pose d c o ntr o ls . I n th e a utu m n o f 1 949, th ere fo re , a fte r a
year a nd a h alf o f d ev alu ati o n r u m ors , b urg eo nin g b la ck m ark ets in s te rlin g, a nd g o ld lo sse s th at h ad
re d uced th e B riti s h re se rv es to a d angero usly lo w le v el, th e p ound w as d ev alu ed fr o m $ 4.0 3 to
$2.8 0. W ith th e is o la te d e xcep ti o ns o f th e U nite d S ta te s d olla r a nd th e S w is s fr a nc, e v ery im porta nt
no n-C om munis t c urre ncy a lm ost i n sta ntl y f o llo w ed th e p ound ’s e xam ple , b ut th is ti m e n o d ry in g u p o f
tr a d e, o r o th er c hao s, e nsu ed , b ecause th e 1 949 d ev alu ati o ns, u nlik e th o se o f 1 931 a nd th e y ears
fo llo w in g, w ere no t th e unco ntr o lle d atte m pts of co untr ie s rid dle d by dep re ssio n to gain a
co m peti ti v e a d vanta ge a t a ny c o st b ut m ere ly r e p re se nte d r e co gniti o n b y th e w ar-d ev asta te d c o untr ie s
th at th ey h ad r e co vere d to th e p oin t w here th ey c o uld s u rv iv e r e la ti v ely f r e e i n te rn ati o nal c o m peti ti o n
with o ut a rti fic ia l p ro ps. I n f a ct, w orld tr a d e, i n ste ad o f d ry in g u p , p ic ked u p s h arp ly . B ut e v en a t th e
new , m ore r a ti o nal e v alu ati o n th e p ound c o nti n ued its c are er o f h air b re ad th e sc ap es. S te rlin g c ris e s
of v ary in g m agnitu d es w ere w eath ere d in 1 952, 1 955, 1 957, and
1 961. In its unse nti m enta l and
ta ctl e ss w ay, th e p ound — ju st a s b y its g yra ti o ns in th e p ast it h ad a ccura te ly c harte d B rita in ’s ris e
and fa ll a s th e g re ate st o f w orld p ow ers — no w , w ith its n aggin g re curre nt w eakness, s e em ed to b e
hin ti n g th at e v en s u ch r e tr e nchm ent a s th e B riti s h h ad u nd erta ken i n 1 949 w as n o t e no ugh to s u it th eir
re d uced c ir c um sta nces.
And in N ovem ber, 1 964, th ese h in ts , w ith th eir h um ilia ti n g im plic ati o ns, w ere n o t lo st o n th e
Briti s h p eo ple . T he e m oti o nal te rm s i n w hic h m any o f th em w ere th in kin g a b out th e p ound w ere w ell
illu str a te d b y a n e xchange th at to ok p la ce in th at c ele b ra te d fo ru m th e le tte rs c o lu m n o f th e
Tim es
when th e c ris is w as a t its h eig ht. A re ad er n am ed I. M . D . L ittl e w ro te d ep lo rin g a ll th e b re ast-
beati n g a b out th e p ound a nd p arti c ula rly th e u neasy w his p erin g a b out d ev alu ati o n— a m atte r th at h e
decla re d to b e a n e co no m ic ra th er th an a m ora l is su e. Q uic k a s a fla sh c am e a re p ly fr o m a C . S .
Had fie ld , a m ong o th ers . W as th ere e v er a c le are r s ig n o f s o ulle ss ti m es, H ad fie ld d em and ed , th an
Littl e ’s le tte r? D ev alu ati o n n o t a m ora l is su e? “ R ep ud ia ti o n— fo r th at is w hat d ev alu ati o n is , n eith er
more no r le ss— has b eco m e re sp ecta b le !” H ad fie ld gro aned , in th e unm is ta kab le to ne, as o ld in
Brita in a s th e p ound i ts e lf, o f th e o utr a ged p atr io t.
IN
th e te n d ays f o llo w in g th e B ase l m eeti n g, th e f ir s t c o ncern o f th e m en a t th e F ed era l R ese rv e B ank
of N ew Y ork w as n o t th e p ound b ut th e d olla r. T he A meric an b ala nce-o f- p aym ents d efic it h ad n o w
cre p t u p to th e a la rm in g r a te o f a lm ost s ix b illio n d olla rs a y ear, a nd i t w as b eco m in g c le ar th at a r is e
in th e B riti s h b ank r a te , i f i t s h o uld b e u nm atc hed b y A meric an a cti o n, m ig ht m ere ly s h ift s o m e o f th e
sp ecula ti v e a tta ck fr o m th e p ound to th e d olla r. H ayes a nd C oom bs a nd th e W ash in gto n m oneta ry
auth o riti e s— Willia m M cC hesn ey M arti n , c hair m an o f th e F ed era l R ese rv e B oard , S ecre ta ry o f th e
Tre asu ry D ougla s D illo n, a nd U nd er-S ecre ta ry o f th e T re asu ry R obert R oosa — cam e to a gre e th at if
th e B riti s h sh o uld ra is e th eir ra te th e F ed era l R ese rv e w ould b e co m pelle d , in se lf- d efe nse , to
co m peti ti v ely ra is e
its
r a te a b ove th e c urre nt le v el o f th re e a nd a h alf p er c ent. H ayes h ad n um ero us
te le p ho ne c o nv ers a ti o ns o n th is d elic ate p oin t w ith h is L ond on
c o unte rp art, L ord C ro m er. A d eep -
dyed a ris to cra t— a g o dso n o f K in g G eo rg e V a nd a g ra nd so n o f S ir E vely n B arin g, l a te r th e f ir s t E arl
of C ro m er (w ho , a s th e B riti s h a gent in E gyp t, w as C hin ese G ord on’s n em esis in 1 884–85)— Lord
Cro m er w as a ls o a b anker o f u niv ers a lly a ckno w le d ged b rillia nce a nd , a t fo rty -th re e, th e y o ungest
man, a s fa r a s a nyo ne c o uld re m em ber, e v er to d ir e ct th e fo rtu nes o f th e B ank o f E ngla nd ; h e a nd Hayes, i n th e c o urs e o f th eir f r e q uent m eeti n gs a t B ase l a nd e ls e w here , h ad b eco m e w arm f r ie nd s.
Durin g th e a fte rn o on o f F rid ay th e tw enti e th , a t a ny r a te , th e F ed era l R ese rv e B ank h ad a c hance to
sh o w i ts g o od i n te nti o ns b y d oin g s o m e f r o nt- lin e f ig hti n g f o r th e p ound . T he b re ath er p ro vid ed b y th e
Lond on c lo sin g p ro ved to b e illu so ry ; fiv e o ’c lo ck in L ond on w as o nly n o on in N ew Y ork , a nd
in sa ti a b le s p ecula to rs w ere a b le to g o o n s e llin g p ound s fo r s e v era l m ore h o urs in th e N ew Y ork
mark et, w ith th e r e su lt th at th e tr a d in g r o om o f th e F ed era l R ese rv e B ank te m pora rily r e p la ced th at o f
th e B ank o f E ngla nd a s th e c o m mand p ost f o r th e d efe nse . U sin g a s th eir a m muniti o n B riti s h d olla rs —
or, m ore p re cis e ly , U nite d S ta te s d olla rs le nt to B rita in u nd er th e sw ap a gre em ents — th e F ed era l
Rese rv e’s tr a d ers s ta unchly h eld th e p ound a t o r a b ove $ 2.7 825, a t e v er-in cre asin g c o st, o f c o urs e , to
th e B riti s h r e se rv es. M erc ifu lly , a fte r th e N ew Y ork c lo sin g th e b attl e d id n o t fo llo w th e s u n to S an
Fra ncis c o a nd o n a ro und th e w orld to T okyo . E vid entl y , th e a tta ckers h ad h ad th eir f ill, a t l e ast f o r th e
ti m e b ein g.
What f o llo w ed w as o ne o f th o se s tr a nge m odern w eekend s i n w hic h w eig hty m atte rs a re d is c usse d
and w eig hty d ecis io ns ta ken a m ong m en w ho a re o ste nsib ly s itti n g a ro und r e la xin g i n v ario us p arts o f
th e w orld . W ils o n, B ro w n, a nd C alla ghan w ere a t C heq uers , th e P rim e M in is te r’s c o untr y e sta te ,
ta kin g p art i n a c o nfe re nce th at h ad o rig in ally b een s c hed ule d to c o ver th e s u b je ct o f n ati o nal- d efe nse
polic y. L ord C ro m er w as a t h is c o untr y p la ce i n W este rh am , K ent. M arti n , D illo n, a nd R oosa w ere a t
th eir o ffic es o r th eir h o m es, in a nd a ro und W ash in gto n. C oom bs w as a t h is h o m e, in G re en V illa ge,
New J e rs e y, a nd H ayes w as v is iti n g fr ie nd s o f h is e ls e w here in N ew J e rs e y. A t C heq uers , W ils o n
and h is tw o fin ancia l m in is te rs , le av in g th e m ilita ry b ra ss to c o nfe r
a b out d efe nse p olic y w ith e ach
oth er, a d jo urn ed to a n u p sta ir s g alle ry to ta ckle th e s te rlin g c ris is ; i n o rd er to b rin g L ord C ro m er i n to
th eir d elib era ti o ns, th ey k ep t a te le p ho ne c ir c uit o pen to h im i n K ent, u sin g a s c ra m ble r s y ste m w hen
th ey ta lk ed o n it, s o a s to a v oid in te rc ep ti o n o f th eir w ord s b y th eir u nse en e nem ie s th e s p ecula to rs .
Som eti m e o n S atu rd ay, th e B riti s h re ached th eir d ecis io n. N ot o nly w ould th ey ra is e th e b ank ra te ,
and r a is e i t tw o p er c ent a b ove i ts c urre nt l e v el— to s e v en p er c ent— but, i n d efia nce o f c usto m , th ey
would d o s o th e f ir s t th in g M ond ay m orn in g, r a th er th an w ait f o r a no th er T hurs d ay to r o ll a ro und . F or
one th in g, th ey re aso ned , to p ostp one acti o n unti l T hurs d ay w ould m ean th re e and a half m ore
busin ess d ays d urin g w hic h th e d ead ly d ra in o f B riti s h r e se rv es w ould a lm ost c erta in ly c o nti n ue a nd
mig ht w ell a ccele ra te ; f o r a no th er, th e s h eer s h o ck o f th e d elib era te v io la ti o n o f c usto m w ould s e rv e
to d ra m ati z e th e g o vern m ent’ s d ete rm in ati o n. T he d ecis io n, o nce ta ken, w as c o m munic ate d b y B riti s h
in te rm ed ia rie s in W ash in gto n to th e A meric an m oneta ry o ffic ia ls th ere , a nd re la yed to H ayes a nd
Coom bs in N ew J e rs e y. T ho se tw o, k no w in g th at th e a gre ed -u p on p la n fo r a c o nco m ita nt r is e in th e
New Y ork b ank r a te w ould n o w h av e to b e p ut i n to e ffe ct a s q uic kly a s p ossib le , g o t to w ork o n th e
te le p ho ne lin in g u p a M ond ay-a fte rn o on m eeti n g o f th e F ed era l R ese rv e B ank’s b oard o f d ir e cto rs ,
with o ut w ho se in iti a ti v e th e ra te co uld no t b e changed . H ayes, a m an w ho se ts gre at sto re b y
polite ness, h as s in ce s a id , w ith c o nsid era b le c hagrin , th at h e fe ars h e w as th e d esp air o f h is h o ste ss
th at w eekend ; no t o nly w as he o n th e te le p ho ne m ost o f th e ti m e b ut he w as p re v ente d b y th e
cir c um sta nces f r o m g iv in g th e s lig hte st e xp la nati o n o f h is u nse em ly b ehav io r.
What had b een d one— or, ra th er, w as ab out to b e d one— in B rita in w as p le nty to flu tte r th e
doveco te s o f i n te rn ati o nal f in ance. S in ce th e b egin nin g o f th e F ir s t W orld W ar, th e b ank r a te th ere h ad
nev er g o ne h ig her th an s e v en p er c ent a nd h ad o nly o ccasio nally g o ne th at h ig h; a s fo r a b ank-ra te
change o n a d ay o th er th an T hurs d ay, th e l a st ti m e th at h ad o ccurre d , o m in o usly e no ugh, w as i n 1 931.
Anti c ip ati n g liv ely a cti o n a t th e L ond on o penin g, w hic h w ould ta ke p la ce a t a b out 5
A.M .
N ew Y ork
ti m e, C oom bs
w ent to L ib erty S tr e et o n S und ay a fte rn o on in o rd er to s p end th e n ig ht a t th e b ank a nd
be o n h and w hen th e tr a nsa tl a nti c d oin gs b egan. A s a n o vern ig ht c o m panio n h e h ad a m an w ho f o und it a d vis a b le to s le ep a t th e b ank s o o fte n th at h e h ab itu ally k ep t a p acked s u itc ase in h is o ffic e—
Tho m as J . R oche, a t th at ti m e th e s e nio r fo re ig n-e xchange o ffic er. R oche w elc o m ed h is b oss to th e
sle ep in g q uarte rs — a r o w o f s m all, m ote l- lik e r o om s o n th e e le v enth f lo or, e ach e q uip ped w ith m ap le
fu rn itu re , O ld N ew Y ork p rin ts , a te le p ho ne, a c lo ck ra d io , a b ath ro be, a nd a s h av in g k it— and th e
tw o m en d is c usse d th e w eekend ’s d ev elo pm ents fo r a w hile b efo re tu rn in g in . S ho rtl y b efo re fiv e in
th e m orn in g, th eir r a d io s w oke th em , a nd , a fte r a b re akfa st p ro vid ed b y th e n ig ht s ta ff, th ey r e p air e d to
th e f o re ig n-e xchange tr a d in g r o om , o n th e s e v enth f lo or, to m an th eir f lu o ro sc o pe.
At f iv e-te n, th ey w ere o n th e p ho ne to th e B ank o f E ngla nd , g etti n g th e n ew s. T he b ank-ra te r is e h ad
been anno unced p ro m ptl y at th e o penin g o f th e L ond on m ark ets , to th e acco m panim ent o f gre at
excite m ent; la te r C oom bs w as to le arn th at th e G overn m ent B ro ker’s entr a nce in to th e Sto ck
Exchange, w hic h is u su ally th e o ccasio n fo r a c erta in h ush , h ad th is ti m e b een g re ete d w ith s u ch a n
up ro ar th at h e h ad h ad d iffic ulty m akin g h is n ew s k no w n. A s f o r th e f ir s t m ark et r e acti o n o f th e p ound ,
it w as ( o ne c o m menta to r s a id l a te r) l ik e th at o f a r a ce h o rs e to d ope; i n th e te n m in ute s f o llo w in g th e
bank-ra te a nno uncem ent it s h o t u p to $ 2.7 869, fa r a b ove its F rid ay c lo sin g. A fe w m in ute s la te r, th e
early -ris in g N ew Y ork ers w ere o n th e p ho ne to th e D euts c he B und esb ank, th e c entr a l b ank o f W est
Germ any, in F ra nkfu rt, a nd th e S w is s N ati o nal B ank, in Z uric h, s o und in g o ut C onti n enta l r e acti o n. It
was e q ually g o od. T hen th ey w ere b ack i n to uch w ith th e B ank o f E ngla nd , w here th in gs w ere l o okin g
bette r a nd b ette r. T he s p ecula to rs a gain st th e p ound w ere o n th e r u n, r u sh in g n o w to c o ver th eir s h o rt
sa le s, a nd b y th e ti m e th e f ir s t g ra y l ig ht b egan to s h o w i n th e w in d ow s o n L ib erty S tr e et, C oom bs h ad
heard th at th e p ound w as b ein g q uo te d i n L ond on a t $ 2.7 9— its b est p ric e s in ce J u ly , w hen th e c ris is
sta rte d .
It w ent o n th at w ay a ll d ay. “ S ev en p er c ent w ill d ra g m oney fr o m th e m oon,” a S w is s b anker
co m mente d , p ara p hra sin g th e
g re at B ageho t, w ho h ad s a id , in h is e arth b ound , V ic to ria n w ay, “ S ev en
per c ent w ill p ull g o ld o ut o f th e g ro und .” In L ond on, th e se nse o f se curity w as so str o ng th at it
allo w ed a r e tu rn to p oliti c al b ic kerin g a s u su al; i n P arlia m ent, R egin ald M aud lin g, th e c hie f e co no m ic
auth o rity o f th e o ut- o f- o ffic e C onse rv ati v es, to ok th e o ccasio n to re m ark th at th ere w ould n’t h av e
been a c ris is in th e fir s t p la ce b ut fo r th e a cti o ns o f th e L ab our G overn m ent, a nd C hancello r o f th e
Excheq uer C alla ghan r e p lie d , w ith d ead ly p olite ness, “ I m ust r e m in d th e h o no ra b le g entl e m an th at h e
to ld u s [ re centl y ] w e h ad i n herite d h is p ro ble m s.” E very b ody w as c le arly b re ath in g e asie r. A s f o r th e
Bank o f E ngla nd , s o g re at w as th e s u d den c la m or fo r p ound s th at it s a w a c hance to re p le nis h its
dep le te d s u p ply o f d olla rs , a nd fo r a ti m e th at a fte rn o on it a ctu ally fe lt c o nfid ent e no ugh to s w itc h
sid es i n th e m ark et, b uyin g d olla rs w ith p ound s a t j u st b elo w $ 2.7 9. I n N ew Y ork , th e m ood p ers is te d
afte r th e L ond on c lo sin g. It w as w ith a c le ar c o nsc ie nce a b out th e p ound th at th e d ir e cto rs o f th e
Fed era l R ese rv e B ank o f N ew Y ork c o uld — and , th at a fte rn o on, d id — carry o ut th eir p la n to ra is e
th eir l e nd in g r a te f r o m th re e a nd a h alf p er c ent to f o ur p er c ent. C oom bs h as s in ce s a id , “ T he f e elin g
here o n M ond ay a fte rn o on w as: T hey’v e d one i t— th ey’v e p ulle d th ro ugh a gain . T here w as a g enera l
sig h o f r e lie f. T he s te rlin g c ris is s e em ed to b e o ver.”
It w asn ’t, th o ugh. “ I r e m em ber th at th e s itu ati o n c hanged v ery fa st o n T uesd ay th e tw enty -fo urth ,”
Hayes h as sa id . T hat d ay’s o penin g fo und th e p ound lo okin g fir m a t $ 2.7 875. S ub sta nti a l b uyin g
ord ers fo r p ound s w ere c o m in g in n o w fr o m G erm any, a nd th e d ay a head lo oked s a ti s fa cto ry . S o
th in gs c o nti n ued u nti l 6
A.M .
in N ew Y ork — no on o n th e C onti n ent. It is a ro und th en th at th e v ario us
bours e s o f E uro pe— in clu d in g th e m ost im porta nt o nes, in P aris a nd F ra nkfu rt— ho ld th e m eeti n gs a t
whic h th ey s e t th e d ay’s r a te fo r e ach c urre ncy, fo r th e p urp ose o f s e ttl in g tr a nsa cti o ns in s to cks a nd
bond s th at i n v olv e f o re ig n c urre ncy, a nd th ese p ric e-fix in g s e ssio ns a re b ound to i n flu ence th e m oney
mark ets , s in ce th ey g iv e a c le ar in d ic ati o n o f th e m ost in flu enti a l C onti n enta l s e nti m ent in r e gard to each c urre ncy. T he b ours e ra te s s e t fo r th e p ound th at d ay w ere s u ch a s to s h o w a re new ed , a nd
pro no unced , la ck of co nfid ence. A t th e sa m e ti m e, it ap peare d su b se q uentl y , m oney deale rs
ev ery w here , a nd p arti c ula rly in E uro pe, w ere h av in g s e co nd th o ughts a b out th e m anner o f th e b ank-
ra te ris e th e p re v io us d ay. A t fir s t, ta ken b y s u rp ris e , th ey h ad re acte d e nth usia sti c ally , b ut n o w , it
se em ed , th ey h ad b ela te d ly d ecid ed th at th e m akin g o f th e a nno uncem ent o n M ond ay in d ic ate d th at
Brita in w as lo sin g its grip . “W hat w ould it co nno te if th e B riti s h w ere to p la y a C up fin al o n
Sund ay?” a E uro pean b anker i s s a id to h av e a sk ed a c o lle ague. T he o nly p ossib le a nsw er w as th at i t
would c o nno te p anic i n A lb io n.
The e ffe ct o f th ese s e co nd th o ughts w as a n a sto nis h in gly d ra sti c tu rn ab out i n m ark et a cti o n. I n N ew
York b etw een e ig ht a nd n in e, C oom bs, i n th e tr a d in g r o om , w atc hed w ith a s in kin g h eart a s a tr a nq uil
pound m ark et co lla p se d in to a ro ut. S ellin g ord ers in unheard -o f quanti ti e s w ere co m in g fr o m
ev ery w here . T he B ank o f E ngla nd , w ith th e c o ura ge o f d esp era ti o n, a d vanced i ts l a st- lin e tr e nch f r o m
$2.7 825 to $ 2.7 860, a nd , b y c o nsta nt i n te rv enti o n, h eld th e p ound th ere . B ut i t w as c le ar th at th e c o st
would so on b eco m e to o h ig h; a fe w m in ute s a fte r 9
A.M .
N ew Y ork ti m e, C oom bs c alc ula te d th at
Brita in w as lo sin g re se rv es a t th e u np re ced ente d , a nd u nsu p porta b le , ra te o f a m illio n d olla rs a
min ute .
Hayes, a rriv in g a t th e b ank s h o rtl y a fte r n in e, h ad h ard ly s a t d ow n a t h is d esk b efo re th is u nse ttl in g
new s r e ached h im f r o m th e s e v enth f lo or. “ W e’re i n f o r a h urric ane,” C oom bs to ld h im , a nd w ent o n
to s a y th at th e p re ssu re o n s te rlin g w as n o w m ounti n g s o fa st th at th ere w as a re al lik elih o od th at
Brita in m ig ht be fo rc ed eith er to dev alu e or to im pose a sw eep in g— and , fo r m any re aso ns,
unaccep ta b le — sy ste m o f e xchange c o ntr o ls b efo re th e w eek w as o ut. H ayes im med ia te ly te le p ho ned
th e g o vern o rs o f th e le ad in g E uro pean c entr a l b anks— so m e o f w ho m , b ecause n o t a ll th e n ati o nal
mark ets h ad y et f e lt th e f u ll w eig ht o f th e c ris is , w ere s ta rtl e d to h ear e xactl y h o w g ra v e th e s itu ati o n
was— and p le ad ed w ith th em n o t to e xacerb ate th e p re ssu re o n b oth th e p ound a nd th e d olla r b y
ra is in g th eir o w n b ank r a te s. ( H is jo b w as s c arc ely m ad e e asie r b y th e fa ct th at h e h ad to a d m it th at
his o w n b ank h ad j u st r a is e d
its
r a te .) T hen h e a sk ed C oom bs to c o m e u p to h is o ffic e. T he p ound , th e
tw o m en a gre ed , n o w h ad its b ack to th e
w all; th e B riti s h b ank-ra te r is e h ad o bvio usly fa ile d o f its
purp ose , a nd a t th e m illio n-a -m in ute r a te o f l o ss B rita in ’s w ell o f r e se rv es w ould b e d ry i n l e ss th an
fiv e b usin ess d ays. T he o ne h o pe n o w l a y i n a m assin g, w ith in a m atte r o f h o urs , o r w ith in a d ay o r s o
at th e m ost, a h uge b und le o f c re d it f r o m o uts id e B rita in to e nab le th e B ank o f E ngla nd to s u rv iv e th e
atta ck a nd b eat it b ack. S uch r e sc ue b und le s h ad b een a sse m ble d ju st a h and fu l o f ti m es b efo re — fo r
Canad a i n 1 962, f o r I ta ly e arlie r i n 1 964, a nd f o r B rita in i n 1 961— but th is ti m e, i t w as c le ar, a m uch
big ger b und le th an a ny o f th o se w ould b e n eed ed . T he c entr a l- b ankin g w orld w as fa ced n o t s o m uch
with a n o pportu nity f o r b uild in g a m ile sto ne i n th e s h o rt h is to ry o f i n te rn ati o nal m oneta ry c o öpera ti o n
as w ith th e n ecessity f o r d oin g s o .
Tw o o th er th in gs w ere c le ar— th at, in v ie w o f th e d olla r’s tr o ub le s, th e U nite d S ta te s c o uld n o t
ho pe to r e sc ue th e p ound u nassis te d , a nd th at, th e d olla r’s tr o ub le s n o tw ith sta nd in g, th e U nite d S ta te s,
with a ll i ts e co no m ic m ig ht, w ould h av e to j o in th e B ank o f E ngla nd i n i n iti a ti n g a ny r e sc ue o pera ti o n.
As a fir s t s te p , C oom bs s u ggeste d th at th e F ed era l R ese rv e s ta nd by c re d it to th e B ank o f E ngla nd
ought to b e in cre ase d fo rth w ith fr o m fiv e h und re d m illio n d olla rs to s e v en h und re d a nd fifty m illio n.
Unfo rtu nate ly , fa st a cti o n o n th is p ro posa l w as h am pere d b y th e fa ct th at, u nd er th e F ed era l R ese rv e
Act, a ny s u ch m ove c o uld b e m ad e o nly b y d ecis io n o f a F ed era l R ese rv e S yste m c o m mitte e, w ho se
mem bers w ere s c atte re d a ll o ver th e c o untr y . H ayes c o nfe rre d b y l o ng-d is ta nce te le p ho ne ( a ll a ro und
th e w orld , w ir e s w ere no w hum min g w ith new s o f th e p ound ’s extr e m ity ) w ith th e W ash in gto n
moneta ry c o nti n gent, M arti n , D illo n, a nd R oosa , n o ne o f w ho m d is a gre ed w ith C oom bs’ v ie w o f w hat had to b e d one, a nd a s a r e su lt o f th ese d is c ussio ns a c all w ent o ut fr o m M arti n ’s o ffic e to m em bers
of th e k ey c o m mitte e, c alle d th e O pen M ark et C om mitte e, f o r a m eeti n g b y te le p ho ne a t th re e o ’c lo ck
th at a fte rn o on. R oosa , a t th e T re asu ry , s u ggeste d th at th e U nite d S ta te s’ c o ntr ib uti o n to th e k itty c o uld
be fu rth er in cre ase d b y a rra ngin g fo r a tw o-h und re d -a nd -fifty -m illio n-d olla r lo an fr o m th e E xp ort-
Im port B ank, a T re asu ry -o w ned a nd T re asu ry -fin anced i n sti tu ti o n i n W ash in gto n. H ayes a nd C oom bs
were n atu ra lly in
fa v or o f th is , a nd R oosa s e t in m oti o n th e b ure aucra ti c m achin ery to u nlo ck th at
parti c ula r v ault— a p ro cess th at, h e w arn ed , w ould c erta in ly ta ke u nti l e v enin g.
As th e e arly a fte rn o on p asse d i n N ew Y ork , w ith th e m illio ns o f d olla rs c o nti n uin g to d ra in , m in ute
by m in ute , f r o m B rita in ’s r e se rv es, H ayes a nd C oom bs, a lo ng w ith th eir W ash in gto n c o lle agues, w ere
busy p la nnin g th e n ext ste p . If th e sw ap in cre ase a nd th e E xp ort- Im port B ank lo an sh o uld c o m e
th ro ugh, th e U nite d S ta te s c re d its w ould a m ount to a b illio n d olla rs a ll to ld ; n o w , i n c o nsu lta ti o n w ith
th e b ele aguere d g arris o n a t th e B ank o f E ngla nd , th e F ed era l R ese rv e B ank m en b egan to b elie v e th at,
in o rd er to m ake th e o pera ti o n effe cti v e, th e o th er le ad in g centr a l b anks— sp oken o f in centr a l-
bankin g s h o rth and a s “ th e C onti n ent,” e v en th o ugh th ey in clu d e th e B anks o f C anad a a nd J a p an—
would h av e to b e a sk ed to p ut u p a d diti o nal c re d its o n th e o rd er o f o ne a nd a h alf b illio n d olla rs , o r
possib ly e v en m ore . S uch a s u m w ould m ake th e C onti n ent, c o lle cti v ely , a b ig ger c o ntr ib uto r to th e
cause th an th e U nite d S ta te s— a fa ct th at H ayes a nd C oom bs r e aliz e d m ig ht n o t s it to o w ell w ith th e
Conti n enta l b ankers a nd th eir g o vern m ents .
At th re e o ’c lo ck, th e O pen M ark et C om mitte e h eld its te le p ho ne m eeti n g— tw elv e m en s itti n g a t
th eir d esk s in six citi e s, fr o m N ew Y ork to S an F ra ncis c o . T he m em bers heard C oom bs’ d ry ,
unem oti o nal voic e desc rib in g th e situ ati o n and m akin g his re co m mend ati o n. T hey w ere quic kly
co nv in ced . I n n o m ore th an f ifte en m in ute s, th ey h ad v ote d u nanim ously to i n cre ase th e s w ap c re d it to
se v en h und re d a nd fifty m illio n d olla rs , o n c o nd iti o n th at p ro porti o nal c re d it a ssis ta nce c o uld b e
obta in ed f r o m o th er c entr a l b anks.
By la te a fte rn o on, te nta ti v e w ord h ad c o m e fr o m W ash in gto n th at p ro sp ects fo r th e E xp ort- Im port
Bank lo an lo oked g o od, a nd th at m ore d efin ite w ord c o uld b e e xp ecte d b efo re m id nig ht. S o th e o ne
billio n d olla rs in U nite d S ta te s c re d its a p peare d to b e v ir tu ally in th e b ag. It r e m ain ed to ta ckle th e
Conti n ent. It w as n ig ht n o w in E uro pe, s o n o body th ere c o uld b e ta ckle d ; th e z e ro h o ur, th en, w as
Conti n enta l o penin g ti m e th e n ext d ay, a nd th e c ru cia l p erio d fo r th e fa te o f th e p ound w ould b e th e
fe w h o urs
a fte r th at. H ayes, a fte r le av in g in str u cti o ns fo r a b ank c ar to p ic k h im u p a t h is h o m e, in
New C anaan, C onnecti c ut, a t f o ur o ’c lo ck i n th e m orn in g, to ok h is u su al c o m muti n g tr a in f r o m G ra nd
Centr a l s h o rtl y a fte r f iv e. H e h as s in ce e xp re sse d a c erta in r e gre t th at h e p ro ceed ed i n s u ch a r o uti n e
way a t s u ch a d ra m ati c m om ent. “ I le ft th e b ank r a th er r e lu cta ntl y ,” h e s a ys. “ In r e tr o sp ect, I g uess I
wis h I h ad n’t. I d on’t m ean a s a p ra cti c al m atte r— I w as ju st a s u se fu l a t h o m e, a nd , a s a m atte r o f
fa ct, I e nd ed u p s p end in g m ost o f th e e v enin g o n th e p ho ne w ith C harlie C oom bs, w ho s ta yed a t th e
bank— but j u st b ecause s o m eth in g l ik e th at d oesn ’t h ap pen e v ery d ay i n a b anker’s l ife . I ’ m a c re atu re
of h ab it, I g uess. B esid es, it’ s s o m eth in g o f a te net o f m in e to in sis t o n k eep in g a p ro per b ala nce
betw een p riv ate a nd p ro fe ssio nal l ife .” A lth o ugh H ayes d oes n o t s a y s o , h e m ay h av e b een th in kin g o f
so m eth in g e ls e , to o. It c an s a fe ly b e s a id to b e s o m eth in g o f a te net o f c entr a l- b ank p re sid ents o r
go vern o rs n o t to s le ep a t th eir p la ces o f b usin ess. If w ord w ere e v er to g et o ut th at th e m eth o dic al
Hayes w as d oin g s o a t a ti m e lik e th is , h e m ay h av e re aso ned , it m ig ht w ell b e c o nsid ere d ju st a s
much a s ig n o f p anic a s a B riti s h b ank-ra te r is e o n a M ond ay.
Meanw hile , C oom bs w as m akin g ano th er nig ht o f it o n L ib erty S tr e et; he had go ne ho m e th e
pre v io us n ig ht b ecause th e w ors t h ad m om enta rily a p peare d to b e o ver, b ut n o w h e s ta yed o n a fte r
re gula r w ork ho urs w ith R oche, w ho had n’t been ho m e sin ce th e pre v io us w eekend . Tow ard mid nig ht, C oom bs r e ceiv ed c o nfir m ati o n o f th e E xp ort- Im port B ank’s tw o-h und re d -a nd -fifty -m illio n-
dolla r cre d it, w hic h had arriv ed fr o m W ash in gto n durin g th e ev enin g, as pro m is e d . So no w
ev ery th in g w as bra ced fo r th e m orn in g’s effo rt. C oom bs again in sta lle d him se lf in one of th e
unin sp ir in g e le v enth -flo or c ub ic le s, a nd , a fte r a fin al m ars h allin g o f th e fa cts th at w ould b e n eed ed
fo r th e j o b o f p ers u ad in g th e C onti n enta l b ankers , s e t h is c lo ck r a d io f o r th re e-th ir ty a nd w ent to b ed .
A F ed era l R ese rv e m an w ith a lite ra ry b ent a nd a r o m anti c te m pera m ent w as la te r m oved to d ra w a
para lle l b etw een th e F ed era l R ese rv e B ank th at n ig ht a nd th e B riti s h c am p o n th e e v e o f th e B attl e o f
Agin co urt in S hakesp eare ’s v ers io n, in w hic h K in g H enry m use d s o e lo quentl y o n h o w p arti c ip ati o n
in th e c o m in g a cti o n w ould s e rv e to e nno ble e v en th e v ile st o f th e tr o ops, a nd h o w g entl e m en s a fe i n
bed a t h o m e w ould l a te r th in k th em se lv es a ccurs e d th at th ey h ad n o t b een a t th e b attl e s c ene. C oom bs,
a p ra cti c al m an, h ad n o s u ch h ig h-flo w n o pin io n o f h is s itu ati o n; e v en s o , a s h e d oze d f itf u lly , w aiti n g
fo r m orn in g to re ach E uro pe, h e w as w ell a w are th at th e e v ents h e w as ta kin g p art in w ere lik e
no th in g th at h ad e v er h ap pened i n b ankin g b efo re .
II
So th at ev enin g, Tuesd ay, N ovem ber 24, 1964, H ayes arriv ed at his ho m e, in N ew C anaan,
Connecti c ut, a t a b out s ix -th ir ty , e xactl y a s u su al, h av in g in exo ra b ly ta ken h is u su al 5 :0 9 fr o m G ra nd
Centr a l. H ayes w as a ta ll, s lim , s o ft- s p oken m an o f f ifty -fo ur w ith k een e yes f r a m ed b y o w lis h r o und
sp ecta cle s, w ith a s lig htl y s c ho olm aste ris h a ir a nd a r e p uta ti o n f o r u nfla p pab ility . B y s o m eth o dic ally
go in g th ro ugh fa m ilia r m oti o ns a t su ch a ti m e, h e re aliz e d w ith a m use m ent, h e m ust se em to h is
co lle agues to b e liv in g u p to h is re p uta ti o n ra th er s p ecta cula rly . A t h is h o use , a fo rm er c are ta ker’s
co tta ge o f c ir c a 1 840 th at th e H ayese s h ad b ought a nd re m odelle d tw elv e y ears e arlie r, h e w as
gre ete d , a s u su al, b y h is w ife , a p re tty a nd v iv acio us w om an o f A nglo -Ita lia n d esc ent n am ed V ilm a
but a lw ays c alle d B eb ba, w ho l o ves to tr a v el, h as a lm ost n o i n te re st i n b ankin g, a nd i s th e d aughte r o f
th e la te M etr o polita n O pera b arito ne T ho m as C halm ers . S in ce a t th at ti m e o f y ear it w as c o m ple te ly
dark w hen H ayes g o t h o m e, h e d ecid ed to f o rg o a f a v orite e arly -e v enin g u nw in d in g a cti v ity o f h is —
walk in g to th e to p o f a g ra ssy s lo pe b esid e th e h o use w hic h c o m mand s a f in e v ie w a cro ss th e S ound
to L ong Is la nd . A nyw ay, h e w as n o t re ally in a m ood to u nw in d ; in ste ad , h e fe lt k eyed u p , a nd
decid ed h e m ig ht a s w ell s ta y th at w ay o vern ig ht, s in ce th e c ar f r o m th e b ank w as s c hed ule d to c all a t
his d oor s o e arly th e n ext m orn in g to ta ke h im to w ork .
Durin g d in ner, H ayes a nd h is w ife d is c usse d s u b je cts lik e th e fa ct th at th eir s o n, T om , w ho w as a
se nio r a t H arv ard , w ould b e a rriv in g h o m e th e f o llo w in g d ay f o r h is T hanksg iv in g r e cess. A fte rw ard ,
Hayes se ttl e d d ow n in a n a rm chair to re ad fo r a w hile . In b ankin g c ir c le s, h e is th o ught o f a s a
sc ho la rly , in te lle ctu al ty p e, a nd , in d eed , h e
is
sc ho la rly a nd in te lle ctu al in c o m paris o n w ith m ost
bankers ; e v en s o , h is e xtr a -b ankin g r e ad in g te nd s to b e n o t c o nsta nt a nd a ll- e m bra cin g, a s h is w ife ’s
is , b ut s p ora d ic , c ap ric io us, a nd in te nsiv e— ev ery th in g a b out N ap ole o n fo r a w hile , p erh ap s, th en a
dry p erio d, th en a b in ge o n, s a y, th e C iv il W ar. J u st th en, h e w as c o ncentr a ti n g o n th e i s la nd o f C orfu ,
where h e a nd M rs . H ayes w ere p la nnin g to s p end s o m e ti m e. B ut b efo re h e h ad g o t v ery fa r in to h is
la te st C orfu b ook h e w as c alle d to th e te le p ho ne. T he c all w as fr o m th e b ank. T here w ere n ew
dev elo pm ents , w hic h C oom bs th o ught P re sid ent H ayes o ught to b e k ep t a b re ast o f.
To r e cap itu la te i n b rie f: d ra sti c a cti o n to s a v e th e p ound , w hic h th e F ed era l R ese rv e B ank n o t o nly
would b e in ti m ate ly in v olv ed in b ut w ould a ctu ally jo in in in iti a ti n g, w as g o in g to b e ta ken b y th e go vern m ent b anks— or centr a l b anks, as th ey are m ore co m monly calle d — of th e no n-C om munis t
world ’s le ad in g n ati o ns a s so on a s p ossib le a fte r th e n ext m orn in g’s o penin g o f th e L ond on a nd
Conti n enta l f in ancia l m ark ets , w hic h w ould o ccur b etw een 4 a nd 5
A.M .
N ew Y ork ti m e. B rita in w as
fa ce to f a ce w ith b ankru p tc y, th e r e aso ns b ein g th at a h uge d efic it i n i ts i n te rn ati o nal a cco unts o ver th e
pre v io us m onth s h ad r e su lte d in c o nco m ita nt lo sse s in th e g o ld a nd d olla r r e se rv es h eld b y th e B ank
of E ngla nd ; th at w orld w id e fe ar le st th e n ew ly e le cte d L ab our G overn m ent d ecid e, o r b e fo rc ed , to
ease th e s itu ati o n b y d ev alu in g th e p ound fr o m its d olla r p arity o f a b out $ 2.8 0 to s o m e s u b sta nti a lly
lo w er fig ure h ad c ause d a flo od o f s e llin g o f p ound s b y h ed gers a nd s p ecula to rs in th e in te rn ati o nal
money m ark ets ; th at th e B ank o f E ngla nd , f u lfillin g a n i n te rn ati o nal o blig ati o n to s u sta in th e p ound a t a
fr e e-m ark et p ric e n o lo w er th an $ 2.7 8, h ad b een lo sin g m illio ns o f d olla rs a d ay fr o m its r e se rv es,
whic h n o w s to od a t a b out tw o b illio n d olla rs , th eir l o w est p oin t i n m any y ears .
The r e m ain in g h o pe l a y i n a m assin g, i n a m atte r o f h o urs
b efo re i t w ould b e to o l a te , a n u nheard -o f
su m in s h o rt- te rm d olla r c re d its to B rita in fr o m th e c entr a l b anks o f th e w orld ’s ric h n ati o ns. W ith
su ch c re d its a t its d is p osa l, th e B ank o f E ngla nd w ould p re su m ab ly b e a b le to b uy u p p ound s so
aggre ssiv ely th at th e s p ecula ti v e a tta ck c o uld b e a b so rb ed , c o nta in ed , a nd f in ally b eate n b ack, g iv in g
Brita in ti m e to s e t i ts e co no m ic a ffa ir s i n o rd er. J u st w hat th e s u m n ecessa ry f o r r e sc ue s h o uld b e w as
an o pen q uesti o n, b ut e arlie r th at d ay th e m oneta ry a uth o riti e s o f th e U nite d S ta te s a nd B rita in h ad
co nclu d ed th at it w ould h av e to b e a t le ast tw o b illio n d olla rs , a nd p erh ap s e v en m ore . T he U nite d
Sta te s, th ro ugh th e F ed era l R ese rv e B ank o f N ew Y ork a nd th e T re asu ry -o w ned E xp ort- Im port B ank,
in W ash in gto n, h ad th at d ay c o m mitte d i ts e lf to o ne b illio n; th e ta sk th at r e m ain ed w as to p ers u ad e th e
oth er le ad in g c entr a l b anks— hab itu ally s p oken o f in th e c entr a l- b ankin g w orld a s “ th e C onti n ent,”
ev en th o ugh th ey i n clu d e th e B anks o f C anad a a nd J a p an— to l e nd m ore th an a b illio n i n a d diti o n.
Noth in g o f th e k in d h ad e v er b een a sk ed o f th e C onti n ent b efo re , th ro ugh th e s w ap n etw ork o r a ny
oth er w ay. I n S ep te m ber, 1 964, th e C onti n ent h ad c o m e th ro ugh w ith i ts b ig gest c o lle cti v e e m erg ency
cre d it s o fa r— half a b illio n d olla rs to th e B ank o f E ngla nd fo r u se in d efe nd in g th e p ound , a lr e ad y
em battl e d th en. N ow , w ith th is h alf- b illio n lo an s ti ll o uts ta nd in g a nd th e p ound in fa r w ors e s tr a its ,
th e C onti n ent w as a b out to b e c alle d u p on f o r m ore th an tw ic e th at s u m — perh ap s f iv e ti m es th at s u m .
Obvio usly , th e s p ir it o f c o öpera ti o n, i f n o t th e q uality o f m erc y, w as a b out to b e s tr a in ed . S o H ayes’
musin gs th at e v enin g m ay w ell h av e r u n.
With s u ch p orte nto us m atte rs c hurn in g a ro und i n h is h ead , H ayes f o und i t h ard to k eep h is m in d o n
Corfu . B esid es, th e p ro sp ect o f th e b ank c ar’s a rriv al a t f o ur o ’c lo ck m ad e h im f e el th at h e s h o uld g o
to b ed e arly . A s h e p re p are d to d o s o , M rs . H ayes c o m mente d th at s in ce h e w ould h av e to g et u p in
th e m id dle o f th e n ig ht, sh e su p pose d sh e o ught to fe el so rry fo r h im b ut sin ce h e w as o bvio usly
lo okin g fo rw ard w ith k een a nti c ip ati o n to w hate v er it w as th at w ould g et h im u p a t th at h o ur, s h e
env ie d h im i n ste ad .
DOW N
o n L ib erty S tr e et, C oom bs s le p t fitf u lly u nti l h e w as a w akened b y th e c lo ck r a d io in h is r o om
at a b out th re e-th ir ty N ew Y ork ti m e— th at is to s a y, e ig ht- th ir ty L ond on ti m e a nd n in e-th ir ty fa rth er
east on th e E uro pean C onti n ent. A se rie s of fo re ig n-e xchange cris e s in v olv in g E uro pe had so
accusto m ed h im to th e ti m e d iffe re nti a l th at h e w as in clin ed to th in k in te rm s o f th e E uro pean d ay,
re fe rrin g c asu ally to 8
A.M .
in N ew Y ork a s “ lu nchti m e,” a nd 9
A.M .
a s “ m id afte rn o on.” S o w hen h e
go t u p i t w as, i n h is te rm s, “ m orn in g,” d esp ite th e s ta rs th at w ere s h in in g o ver L ib erty S tr e et. C oom bs
go t d re sse d , w ent to h is o ffic e, o n th e te nth flo or, w here h e h ad so m e b re akfa st p ro vid ed b y th e
bank’s re gula r n ig ht k itc hen s ta ff, a nd b egan p la cin g te le p ho ne c alls to th e v ario us le ad in g c entr a l
banks o f th e n o n-C om munis t w orld . A ll th e c alls w ere p ut th ro ugh b y o ne te le p ho ne o pera to r, w ho hand le s th e F ed era l R ese rv e B ank’s s w itc hb oard d urin g o ff h o urs , a nd a ll o f th em w ere e lig ib le f o r a
sp ecia l go vern m ent- e m erg ency p rio rity th at th e b ank’s o ffic ers are enti tl e d to cla im , b ut o n th is
occasio n i t d id n o t h av e to b e u se d , b ecause a t f o ur-fifte en, w hen C oom bs b egan h is te le p ho nin g, th e
tr a nsa tl a nti c c ir c uits w ere a lm ost e nti r e ly c le ar.
The c alls w ere m ad e e sse nti a lly to la y th e g ro und w ork fo r w hat w as to c o m e. T he m orn in g n ew s
fr o m th e B ank o f E ngla nd , o bta in ed in o ne o f th e fir s t c alls fr o m L ib erty S tr e et, w as th at c o nd iti o ns
were u nchanged f r o m th e p re v io us d ay: th e s p ecula ti v e a tta ck o n th e p ound w as c o nti n uin g u nab ate d ,
and th e B ank o f E ngla nd w as s u sta in in g th e p ound ’s p ric e a t $ 2.7 860 b y th ro w in g s ti ll m ore o f its
re se rv es o n th e m ark et. C oom bs h ad re aso n to b elie v e th at w hen th e N ew Y ork fo re ig n-e xchange
mark et o pened , s o m e fiv e h o urs la te r, v ast a d diti o nal q uanti ti e s o f p ound s w ould b e th ro w n o n th e
mark et o n th is s id e o f th e A tl a nti c , a nd m ore B riti s h d olla rs a nd g o ld w ould h av e to b e s p ent. H e
co nv eyed th is ala rm in g in te llig ence to his co unte rp arts at su ch in sti tu ti o ns as th e D euts c he
Bund esb ank, in F ra nkfu rt; th e B anq ue d e F ra nce, in P aris ; th e B anca d ’Ita lia , in R om e; a nd th e B ank
of J a p an, in T okyo . ( In th e la st c ase , th e o ffic ers h ad to b e r e ached a t th eir h o m es, fo r th e fo urte en-
ho ur ti m e d iffe re nce m ad e i t a lr e ad y p ast 6
P.M .
i n th e O rie nt.) T hen, c o m in g to th e c ru x o f th e m atte r,
Coom bs in fo rm ed th e r e p re se nta ti v es o f th e v ario us b anks th at th ey w ere s o on to b e a sk ed , in b ehalf
of th e B ank o f E ngla nd , fo r a lo an fa r b ig ger th an a ny th ey h ad e v er b een a sk ed fo r b efo re . “ W ith o ut
go in g in to s p ecific fig ure s, I tr ie d to m ake th e p oin t th at it w as a c ris is o f th e fir s t m agnitu d e, w hic h
many o f th em s ti ll d id n’t r e aliz e ,” C oom bs h as s a id . A n o ffic er o f th e B und esb ank, w ho k new a s m uch
ab out th e e xte nt o f th e c ris is a s a nyo ne o uts id e L ond on, W ash in gto n, a nd N ew Y ork , h as s a id th at in
Fra nkfu rt th ey w ere “ m enta lly p re p are d ”— or “ b ra ced ” m ig ht b e a b ette r w ord — fo r th e h uge to uch
th at w as a b out to b e p ut o n th em , b ut th at r ig ht u p to th e ti m e o f C oom bs’ c all th ey h ad b een h o pin g th e
sp ecula ti v e a tta ck o n th e p ound w ould s u b sid e o f i ts o w n a cco rd , a nd e v en a fte r th e c all th ey h ad n o
id ea h o w m uch th ey m ig ht b e a sk ed fo r. In a ny e v ent, a s so on a s C oom bs w as o ff th e w ir e th e
Bund esb ank’s g o vern o r c alle d a b oard o f m anagers ’ m eeti n g, a nd , a s th in gs tu rn ed o ut, th e m eeti n g
was to r e m ain i n s e ssio n a ll d ay l o ng.
Sti ll, a ll th is w as p re p ara to ry . A ctu al r e q uests , i n s p ecific a m ounts , h ad to b e m ad e b y th e h ead o f
one c entr a l b ank o f th e h ead o f a no th er. A t th e ti m e C oom bs w as m akin g h is s o fte nin g-u p c alls , th e
head o f th e F ed era l R ese rv e B ank w as i n th e b ank’s l im ousin e, s o m ew here b etw een N ew C anaan a nd
Lib erty S tr e et, a nd th e b ank’s l im ousin e, i n f la gra nt n o nco nfo rm ity w ith th e J a m es B ond s ty le o f h ig h-
le v el i n te rn ati o nal d ealin gs, w as n o t e q uip ped w ith a te le p ho ne.
HAYES,
th e m an b ein g a w aite d , h ad b een p re sid ent o f th e F ed era l R ese rv e B ank o f N ew Y ork fo r a
littl e o ver eig ht years , hav in g b een cho se n fo r th e jo b, to his o w n and alm ost ev ery o ne els e ’s
bew ild erm ent, n o t fr o m s o m e p ositi o n o f c o m para b le e m in ence o r fr o m th e F ed era l R ese rv e’s o w n
ra nks but fr o m am ong th e sw arm in g le gio ns of N ew Y ork co m merc ia l- b ank vic e-p re sid ents .
Uno rth o dox a s th e a p poin tm ent s e em ed a t th e ti m e, in re tr o sp ect it s e em s p ro vid enti a l. A s tu d y o f
Hayes’ e arly life a nd y o uth fu l c are er g iv es th e im pre ssio n th at e v ery th in g w as s o m eho w in te nd ed to
pre p are h im f o r d ealin g w ith th is s o rt o f i n te rn ati o nal m oneta ry c ris is , j u st a s th e l ife o f a w rite r o r a
pain te r s o m eti m es s e em s to h av e c o nsis te d p rim arily o f p re p ara ti o n f o r th e e xecuti o n o f a s in gle w ork
of a rt. If D iv in e P ro vid ence, o r p erh ap s its fin ancia l d ep artm ent, w hen th e h uge s te rlin g c ris is w as
im min ent, h ad n eed ed a n a sse ssm ent o f H ayes’ q ualific ati o ns fo r c o pin g w ith th is ta sk a nd h ad h ir e d
th e cele sti a l eq uiv ale nt o f an executi v e re cru ite r to re p ort o n him , th e d ossie r m ig ht hav e re ad
so m eth in g l ik e th is :
“B orn i n I th aca, N ew Y ork , o n J u ly 4 , 1 910; g re w u p m ostl y i n N ew Y ork C ity . F ath er a p ro fe sso r of C onsti tu ti o nal la w at C orn ell, la te r a M anhatta n in v estm ent co unse llo r; m oth er a fo rm er
sc ho olte acher, e nth usia sti c s u ffr a gette , s e ttl e m ent- h o use w ork er, a nd p oliti c al lib era l. B oth p are nts
bir d w atc hers . F am ily atm osp here in te lle ctu al, fr e eth in kin g, and pub lic -s p ir ite d . A tte nd ed priv ate
sc ho ols i n N ew Y ork C ity a nd M assa chuse tts a nd w as u su ally h is s c ho ol’s to p-ra nkin g s tu d ent. T hen
went to H arv ard ( fr e sh m an y ear o nly )
and
Y ale ( th re e y ears : m ath em ati c s m ajo r, P hi B eta K ap pa in
ju nio r y ear, in effe ctu al o ar o n c la ss c re w , g ra d uate d 1 930 a s to p B .A . o f c la ss). S tu d ie d a t N ew
Colle ge, O xfo rd , a s R ho des S cho la r 1 931–33; th ere b ecam e fir m A nglo phile , a nd w ro te th esis o n
‘F ed era l R ese rv e P olic y a nd th e W ork in g o f th e G old S ta nd ard in th e Y ears 1 923–30,’ a lth o ugh h e
had n o th o ught o f e v er j o in in g th e F ed era l R ese rv e. W is h es n o w h e h ad th e th esis , i n c ase i t c o nta in s
blin d in g yo uth fu l illu m in ati o ns, b ut neith er he no r N ew C olle ge can fin d it. E nte re d N ew Y ork
co m merc ia l b ankin g i n 1 933, a nd r o se s lo w ly b ut s te ad ily ( 1 938 a nnual s a la ry tw enty -s e v en h und re d
dolla rs ). A tta in ed ti tl e ( a lb eit f e eb le ti tl e ) o f a ssis ta nt s e cre ta ry a t N ew Y ork T ru st C om pany i n 1 942;
afte r a N av y s ti n t, i n 1 947 b ecam e a n a ssis ta nt v ic e-p re sid ent a nd tw o y ears l a te r h ead o f N ew Y ork
Tru st’ s fo re ig n d ep artm ent d esp ite to ta l la ck o f p re v io us e xp erie nce in fo re ig n b ankin g. A ppare ntl y
le arn ed fa st; a sto und ed h is c o lle agues a nd s u p erio rs , a nd g ain ed re p uta ti o n a m ong th em a s fo re ig n-
exchange w iz a rd b y p re d ic ti n g p re cis e a m ount o f 1 949 p ound d ev alu ati o n ($ 4.0 3 to $ 2.8 0) a fe w
weeks b efo re i t o ccurre d .
“W as a p poin te d p re sid ent o f F ed era l R ese rv e B ank o f N ew Y ork i n 1 956, to h is u tte r a sto nis h m ent
and th at o f N ew Y ork b ankin g c o m munity , m ost o f w hic h h ad n ev er h eard o f th is ra th er s h y m an.
Reacte d c alm ly b y ta kin g h is fa m ily o n a tw o-m onth v acati o n in E uro pe. T he c o nse nsu s n o w is th at
Fed era l R ese rv e B ank’s d ir e cto rs h ad a lm ost im pla usib le p re sc ie nce, o r lu ck, in p ic kin g a fo re ig n-
exchange exp ert ju st w hen th e dolla r w as w eakenin g and in te rn ati o nal m oneta ry co öpera ti o n
beco m in g c ru cia lly im porta nt. Is lik ed b y E uro pean c entr a l b ankers , w ho c all h im A l (w hic h o fte n
co m es o ut so und in g m ore lik e A ll) . E arn s se v enty -fiv e th o usa nd d olla rs a year, m akin g him th e
se co nd -h ig hest- p aid fe d era l o ffic ia l a fte r th e P re sid ent o f th e U nite d S ta te s, F ed era l R ese rv e B ank
sa la rie s b ein g in te nd ed to b e m ore o r le ss c o m peti ti v e in b ankin g te rm s ra th er th an in g o vern m ent-
em plo yee te rm s. Is v ery ta ll a nd v ery th in . T rie s to o bse rv e re gula r c o m muti n g h o urs a nd k eep h is
priv ate life sa cro sa nct, as a m atte r of prin cip le ; co nsid ers re gula r ev enin g w ork at an offic e
‘o utr a geo us.’ C om pla in s th at his so n has a lo w opin io n of busin ess; attr ib ute s th is to ‘re v ers e
sn o bbery ’— but e v en th en r e m ain s c alm .
“C onclu sio n: th is is th e v ery m an fo r th e jo b o f r e p re se nti n g th e U nite d S ta te s’ c entr a l b ank in a
ste rlin g c ris is .”
And , in d eed , H ayes re ad ily fits th e p ic tu re o f a p erfe ctl y p la nned a nd p erfe ctl y to ole d p ie ce o f
machin ery to p erfo rm a c erta in c o m ple x ta sk , b ut th ere a re o th er sid es to h im , a nd h is c hara cte r
co nta in s as m any p ara d oxes as th e next m an’s . A lth o ugh hard ly anyo ne in b ankin g ev er tr ie s to
desc rib e H ayes w ith o ut usin g th e w ord s “sc ho la rly ” and “in te lle ctu al,” H ayes te nd s to th in k o f
him se lf a s a n i n d iffe re nt s c ho la r a nd i n te lle ctu al b ut a n e ffe cti v e m an o f a cti o n, a nd o n th e l a tte r s c o re
th e e v ents o f N ovem ber 2 5, 1 964, s e em to b ear h im o ut. A lth o ugh in s o m e w ays h e is th e c o m ple te
banker— in c o nfo rm ity w ith H . G . W ells ’ n o ti o n o f su ch a b anker, h e se em s to “ ta ke m oney fo r
gra nte d as a te rrie r ta kes ra ts ,” and to b e d ev oid o f p hilo so phic al curio sity ab out it— he has a
dis ti n ctl y u nb ankerlik e p hilo so phic al c urio sity a b out a lm ost e v ery th in g e ls e . A nd a lth o ugh c asu al
acq uain ta nces s o m eti m es p ro no unce h im d ull, h is c lo se f r ie nd s s p eak o f a r a re c ap acity f o r e njo ym ent
and a n i n ner s e re nity th at s e em to m ake h im i m mune to th e te nsio ns a nd d is tr a cti o ns th at f r a gm ent th e
liv es o f s o m any o f h is c o nte m pora rie s. D oub tl e ss th e i n ner s e re nity w as p ut to a s e v ere te st a s H ayes
ro de in th e b ank c ar to w ard L ib erty S tr e et. W hen h e a rriv ed a t h is d esk a t a b out fiv e-th ir ty , H ayes’ fir s t a ct w as to p unch C oom bs’ b utto n o n h is i n te ro ffic e p ho ne a nd g et th e f o re ig n-d ep artm ent c hie f’s
la te st a p pra is a l o f th e s itu ati o n. H e l e arn ed th at, a s h e h ad e xp ecte d , th e B ank o f E ngla nd ’s s ic kenin g
dolla r d ra in w as c o nti n uin g u nab ate d . W ors e th an th at, th o ugh; C oom bs s a id h is c o nta cts w ith lo cal
bankers w ho w ere a ls o o n e m erg ency e arly -m orn in g v ig il ( m en i n th e f o re ig n d ep artm ents o f th e h uge
co m merc ia l b anks l ik e th e C hase M anhatta n a nd th e F ir s t N ati o nal C ity ) i n d ic ate d th at o vern ig ht th ere
had a ccum ula te d a fa nta sti c p ile o f o rd ers to u nlo ad p ound s o n th e N ew Y ork m ark et a s s o on a s it
opened . T he B ank o f E ngla nd , a lr e ad y a lm ost in und ate d , c o uld e xp ect a n ew ti d al w av e fr o m N ew
York to h it in fo ur h o urs . T he n eed fo r h aste th us b ecam e e v en m ore u rg ent. H ayes a nd C oom bs
agre ed th at th e p ro je ct o f p utti n g to geth er a n in te rn ati o nal p ackage o f c re d its to B rita in s h o uld b e
anno unced a s s o on a s p ossib le a fte r th e N ew Y ork o penin g— perh ap s a s e arly a s te n o ’c lo ck. S o th at
th e b ank w ould h av e a s in gle c ente r f o r a ll i ts f o re ig n c o m munic ati o ns, H ayes d ecid ed to f o rs a ke h is
ow n o ffic e— a s p acio us o ne w ith p anelle d w alls a nd c o m fo rta b le c hair s g ro up ed a ro und a fir e p la ce
—and le t C oom bs’ q uarte rs , d ow n th e h all, w hic h w ere m uch s m alle r a nd m ore a uste re b ut m ore
effic ie ntl y a rra nged , s e rv e a s th e c o m mand p ost. O nce th ere , h e p ic ked u p o ne o f th re e te le p ho nes a nd
ask ed th e o pera to r to g et h im L ord C ro m er, a t th e B ank o f E ngla nd . W hen th e c o nnecti o n w as m ad e,
th e tw o m en— th e k ey fig ure s in th e p ro pose d re sc ue o pera ti o n— re v ie w ed th eir p la ns a fin al ti m e,
checkin g th e s u m s th ey h ad te nta ti v ely d ecid ed to a sk o f e ach c entr a l b ank a nd a gre ein g o n w ho w ould
call w ho m f ir s t.
In th e e yes o f s o m e p eo ple , H ayes a nd L ord C ro m er m ake a n o ddly a sso rte d p air. B esid es b ein g a
deep -d yed a ris to cra t, G eo rg e R ow la nd S ta nle y B arin g, th ir d E arl o f C ro m er, is a d eep -d yed b anker.
A sc io n o f th e fa m ous L ond on m erc hant b ank o f B arin g B ro th ers , th e th ir d E arl a nd g o dso n o f a
monarc h w ent to E to n a nd T rin ity C olle ge, C am brid ge, a nd s p ent tw elv e y ears a s a
m anagin g d ir e cto r
of h is fa m ily ’s b ank a nd th en tw o y ears — fr o m 1 959 to 1 961— as B rita in ’s e co no m ic m in is te r a nd
chie f r e p re se nta ti v e o f h is c o untr y ’s T re asu ry i n W ash in gto n. I f H ayes h ad a cq uir e d h is m aste ry o f th e
arc ana o f in te rn ati o nal b ankin g b y p ati e nt s tu d y, L ord C ro m er, w ho is n o s c ho la r, a cq uir e d h is b y
here d ity , in sti n ct, or osm osis . If H ayes, desp ite his unusu al physic al sta tu re , co uld easily be
overlo oked i n a c ro w d, L ord C ro m er, w ho i s o f a v era ge h eig ht b ut d eb onair a nd d ash in g, w ould c ut a
fig ure a nyw here . If H ayes is in clin ed to b e a b it h esita nt a b out c asu al in ti m acie s, L ord C ro m er is
kno w n fo r his hearty m anner, and has— doub tl e ss unin te nti o nally — both fla tte re d and obsc ure ly
dis a p poin te d m any A meric an b ankers w ho h av e b een a w ed b y h is ti tl e b y q uic kly e nco ura gin g th em
to c all h im R ow le y. “ R ow le y is v ery se lf- c o nfid ent a nd d ecis iv e,” a n A meric an b anker h as sa id .
“H e’s n ev er a fr a id to b arg e i n , b ecause h e’s c o nv in ced o f th e r e aso nab le ness o f h is o w n p ositi o n. B ut
th en h e’s a r e aso nab le m an. H e’s th e k in d o f m an w ho i n a c ris is w ould b e a b le to g ra b th e te le p ho ne
and d o s o m eth in g a b out it.” T his b anker c o nfe sse s th at u nti l N ovem ber 2 5, 1 964, h e h ad n o t th o ught
Hayes w as th at k in d o f m an.
Begin nin g a t a b out six o ’c lo ck th at m orn in g, H ayes d id g ra b th e p ho ne, rig ht a lo ng w ith L ord
Cro m er. O ne a fte r a no th er, th e le ad in g c entr a l b ankers o f th e w orld — am ong th em P re sid ent K arl
Ble ssin g, o f th e D euts c he B und esb ank; D r. G uid o C arli, o f th e B ank o f Ita ly ; G overn o r Ja cq ues
Bru net, o f th e B ank o f F ra nce; D r. W alte r S chw egle r, o f th e S w is s N ati o nal B ank; a nd G overn o r P er
Åsb rin k, o f th e S w ed is h R ik sb ank— pic ked up
th eir
p ho nes and d is c o vere d , so m e o f th em w ith
co nsid era b le s u rp ris e , th e d egre e o f g ra v ity th at th e s te rlin g c ris is h ad r e ached i n th e p ast d ay, th e f a ct
th at th e U nite d S ta te s h ad c o m mitte d its e lf to a s h o rt- te rm lo an o f o ne b illio n d olla rs , a nd th at th ey
were b ein g a sk ed to d ig d eep in to th eir o w n n ati o ns’ r e se rv es to h elp ti d e s te rlin g o ver. S om e fir s t
heard a ll th is fr o m H ayes, s o m e fr o m L ord C ro m er; in e ith er c ase , th ey h eard it n o t fr o m a c asu al o r
offic ia l a cq uain ta nce b ut fr o m a fe llo w -m em ber o f th at e so te ric fr a te rn ity th e B ase l c lu b . H ayes, who se p ositi o n a s re p re se nta ti v e o f th e o ne c o untr y th at h ad a lr e ad y p le d ged a h uge s u m c ast h im
alm ost a uto m ati c ally a s th e le ad er o f th e o pera ti o n, w as c are fu l to m ake it c le ar in e ach o f h is c alls
th at h is p art in th e p ro ceed in gs w as to p ut th e w eig ht o f th e F ed era l R ese rv e b ehin d a re q uest th at
fo rm ally c am e f r o m th e B ank o f E ngla nd . “ T he p ound ’s s itu ati o n i s c riti c al, a nd I u nd ers ta nd th e B ank
of E ngla nd is r e q uesti n g a c re d it lin e o f tw o h und re d a nd fifty m illio n d olla rs fr o m y o u,” h e w ould
sa y, in h is c alm w ay, to o ne C onti n enta l c entr a l- b ank g o vern o r o r a no th er. “ I’ m s u re y o u u nd ers ta nd
th at th is is a s itu ati o n w here w e a ll h av e to s ta nd to geth er.” ( H e a nd C oom bs a lw ays s p oke E nglis h ,
of c o urs e . D esp ite th e f a ct th at h e h ad r e centl y b een ta kin g F re nch r e fr e sh er l e sso ns, a nd th at a t Y ale
he m ad e o ne o f th e m ost i m pre ssiv e a cad em ic r e co rd s i n m em ory , H ayes d ogged ly r e m ain ed a d ub a t
la nguages a nd s ti ll d id n o t tr u st h im se lf to c arry o n a n i m porta nt b usin ess c o nv ers a ti o n i n a nyth in g b ut
Englis h .) I n th o se c ase s i n w hic h h e w as o n p arti c ula rly c lo se te rm s w ith h is C onti n enta l c o unte rp art,
he s p oke m ore i n fo rm ally , u sin g a c entr a l- b ankers ’ j a rg o n i n w hic h th e c o nv enti o nal n um eric al u nit i s
a m illio n d olla rs . H ayes w ould s a y s m ooth ly i n s u ch c ase s, “ D o y o u th in k y o u c an c o m e i n f o r, s a y, a
hund re d a nd fifty ?” R egard le ss o f th e d egre e o f fo rm ality o f th e a p pro ach H ayes m ad e, th e fir s t
re sp onse , h e s a ys, w as g enera lly c ageyness, n o t u nm ix ed w ith s h o ck. “ Is it r e ally a s b ad a s a ll th at,
Al? W e w ere s ti ll h o pin g th at th e p ound w ould re co ver o n its o w n” is th e k in d o f th in g h e re calls
hav in g h eard s e v era l ti m es. W hen H ayes a ssu re d th em th at it w as in d eed a s b ad a s a ll th at, a nd th at
th e p ound w ould c erta in ly n o t r e co ver o n i ts o w n, th e u su al r e sp onse w as s o m eth in g l ik e “ W e’ll h av e
to s e e w hat w e c an d o a nd th en c all y o u b ack.” S om e o f th e C onti n enta l c entr a l b ankers h av e s a id th at
what im pre sse d th em m ost a b out H ayes’ fir s t c all w as n o t s o m uch w hat h e s a id a s w hen h e s a id it.
Realiz in g th at i t w as s ti ll w ell b efo re d aw n i n N ew Y ork , a nd k no w in g H ayes’ a d dic ti o n to w hat a re
co m monly th o ught o f a s b ankers ’ h o urs , th ese E uro peans p erc eiv ed th at th in gs m ust b e g ra v e th e
mom ent th ey h eard h is v oic e. A s s o on a s H ayes h ad b ro ken th e i c e a t e ach C onti n enta l b ank, C oom bs
would ta ke o ver a nd g et d ow n to d eta ils w ith h is c o unte rp arts .
The f ir s t r o und o f c alls l e ft H ayes, L ord C ro m er, a nd th eir
a sso cia te s o n L ib erty a nd T hre ad need le
Str e ets r e la ti v ely h o pefu l. N ot o ne b ank h ad g iv en th em a f la t n o — no t e v en, to th eir d elig ht, th e B ank
of F ra nce, a lth o ugh F re nch p olic y h ad a lr e ad y b egun m ovin g s h arp ly a w ay fr o m c o öpera ti o n w ith
Brita in a nd th e U nite d S ta te s in m oneta ry m atte rs , a m ong o th ers . F urth erm ore , s e v era l g o vern o rs h ad
su rp ris e d th em b y s u ggesti n g th at th eir c o untr ie s’ s u b sc rip ti o ns to th e lo an m ig ht a ctu ally b e b ig ger
th an th o se s u ggeste d . W ith th is e nco ura gem ent, H ayes a nd L ord C ro m er d ecid ed to r a is e th eir s ig hts .
They had orig in ally been aim in g fo r cre d its of tw o and a half billio n dolla rs ; no w , on
re co nsid era ti o n, th ey s a w th at th ere w as a c hance f o r th re e b illio n. “ W e d ecid ed to u p th e a nte a l ittl e
here a nd th ere ,” H ayes s a ys. “ T here w as n o w ay o f k no w in g p re cis e ly w hat s u m w ould b e th e le ast
th at w ould d o th e jo b o f tu rn in g th e ti d e. W e k new w e w ould b e re ly in g to a la rg e e xte nt o n th e
psy cho lo gic al e ffe ct o f o ur a nno uncem ent— assu m in g w e w ould b e a b le to m ake th e a nno uncem ent.
Thre e s e em ed to u s a g o od, r o und f ig ure .”
But d iffic ulti e s la y a head , a nd th e b ig gest d iffic ulty , it b ecam e c le ar a s th e re tu rn c alls fr o m th e
vario us b anks b egan to c o m e i n , w as to g et th e th in g d one q uic kly . T he h ard est p oin t to c o nv ey, H ayes
and C oom bs f o und , w as th at e ach p assin g m in ute m eant a f u rth er l o ss o f a m illio n d olla rs o r m ore to
th e B riti s h r e se rv es, a nd th at i f n o rm al c hannels w ere f o llo w ed th e l o ans w ould u nq uesti o nab ly c o m e
to o l a te to a v ert d ev alu ati o n o f th e p ound . S om e o f th e c entr a l b anks w ere r e q uir e d b y l a w to c o nsu lt
th eir g o vern m ents b efo re m akin g a c o m mitm ent a nd so m e w ere n o t, b ut e v en th o se th at w ere n o t
in sis te d o n d oin g s o , a s a c o urte sy ; th is to ok ti m e, e sp ecia lly s in ce m ore th an o ne F in ance M in is te r,
unaw are th at h e w as b ein g so ught to a p pro ve a n e no rm ous lo an o n a n in sta nt’ s n o ti c e, w ith littl e
ev id ence o f th e n ecessity fo r it b eyo nd th e a ssu ra nce o f L ord C ro m er a nd H ayes, w as te m pora rily unav aila b le . ( O ne h ap pened to b e e ngaged in d eb ate in h is c o untr y ’s p arlia m ent.) A nd e v en in c ase s
where th e F in ance M in is te r w as a t h and , h e w as s o m eti m es re lu cta nt to a ct in s u ch a s h o tg un w ay.
Govern m ents m ove m ore d elib era te ly i n m oney m atte rs th an c entr a l b ankers d o. S om e o f th e F in ance
Min is te rs s a id , i n e ffe ct, th at u p on p ro per s u b m is sio n o f a b ala nce s h eet o f th e B ank o f
E ngla nd , a lo ng
with a fo rm al w ritte n a p plic ati o n fo r th e e m erg ency c re d it, th ey w ould g la d ly c o nsid er th e m atte r.
Furth erm ore , so m e o f th e centr a l b anks th em se lv es sh o w ed a m ad denin g in clin ati o n to sta nd o n
cere m ony. T he fo re ig n-e xchange c hie f o f o ne b ank is s a id to h av e re p lie d to th e re q uest b y s a yin g,
“W ell, i s n ’t th is c o nv enie nt! W e h ap pen to h av e a b oard m eeti n g s c hed ule d f o r to m orro w . W e’ll ta ke
th e m atte r u p th en, a nd a fte rw ard w e’ll g et in to uch w ith y o u.” T he r e p ly o f C oom bs, w ho h ap pened
to b e th e m an o n th e w ir e in N ew Y ork , is n o t r e co rd ed in s u b sta nce, b ut its m anner is r e p orte d to
hav e b een u nchara cte ris ti c ally v ehem ent. E ven H ayes’ c ele b ra te d i m pertu rb ab ility w as s h aken a ti m e
or tw o, o r s o th o se w ho w ere p re se nt h av e s a id ; h is to ne r e m ain ed a s c alm a nd e v en a s e v er, b ut its
volu m e r o se f a r a b ove th e u su al l e v el.
The pro ble m s th at th e C onti n enta l centr a l banks fa ced in m eeti n g th e challe nge are w ell
exem plifie d b y th e s itu ati o n a t th e r ic hest a nd m ost p ow erfu l o f th em , th e D euts c he B und esb ank. Its
board o f m anagers w as a lr e ad y s itti n g in e m erg ency s e ssio n a s a r e su lt o f C oom bs’ e arly c all w hen
ano th er N ew Y ork c all— th is o ne fr o m H ayes to P re sid ent B le ssin g— gav e th e B und esb ank its fir s t
in d ic ati o n o f e xactl y h o w m uch it w as b ein g a sk ed to p ut u p . T he a m ounts th e v ario us c entr a l b anks
were a sk ed fo r th at m orn in g h av e n ev er b een m ad e p ub lic , b ut, o n th e b asis o f w hat
has
b eco m e
kno w n, it is re aso nab le to a ssu m e th at th e B und esb ank w as a sk ed fo r h alf a b illio n d olla rs — th e
hig hest q uo ta o f th e lo t, a nd c erta in ly th e la rg est s u m th at a ny c entr a l b ank o th er th an th e F ed era l
Rese rv e h ad e v er b een c alle d u p on to s u p ply to a no th er o n a f e w h o urs ’ n o ti c e. H ard o n th e h eels o f
Hayes’ c all c o nv eyin g th is ja rrin g in fo rm ati o n, B le ssin g h eard fr o m L ord C ro m er, in L ond on, w ho
co nfir m ed e v ery th in g th at H ayes h ad s a id a b out th e s e rio usn ess o f th e c ris is a nd r e p eate d th e r e q uest.
Win cin g a b it, p erh ap s, th e B und esb ank m anagers a gre ed in p rin cip le th at th e th in g h ad to b e d one.
But rig ht th ere th eir p ro ble m s b egan. P ro per p ro ced ure m ust b e a d here d to , B le ssin g a nd h is a id es
decid ed . B efo re ta kin g a ny a cti o n, th ey m ust c o nsu lt w ith th eir e co no m ic p artn ers in th e E uro pean
Com mon M ark et a nd th e B ank f o r I n te rn ati o nal S ettl e m ents , a nd th e k ey m an to
b e c o nsu lte d , s in ce h e
was th en s e rv in g a s p re sid ent o f th e B ank fo r In te rn ati o nal S ettl e m ents , w as D r. M ariu s W . H oltr o p,
go vern o r o f th e B ank o f th e N eth erla nd s, w hic h, o f c o urs e , w as a ls o b ein g a sk ed to c o ntr ib ute . A r u sh
pers o n-to -p ers o n c all w as p ut th ro ugh fr o m F ra nkfu rt to A mste rd am . D r. H oltr o p, th e B und esb ank
managers w ere in fo rm ed , w asn ’t in A mste rd am ; b y c hance, h e h ad ta ken a tr a in th at m orn in g to T he
Hague to m eet h is c o untr y ’s F in ance M in is te r fo r c o nsu lta ti o n o n o th er m atte rs . F or th e B ank o f th e
Neth erla nd s to m ake a ny s u ch im porta nt c o m mitm ent w ith o ut th e k no w le d ge o f its g o vern o r w as o ut
of th e q uesti o n, a nd , s im ila rly , th e B ank o f B elg iu m , a n ati o n w ho se m oneta ry p olic ie s a re lin ked
in extr ic ab ly w ith th e N eth erla nd s’, w as r e lu cta nt to a ct u nti l A mste rd am h ad g iv en i ts O .K . S o f o r a n
ho ur o r m ore , a s m illio ns o f d olla rs c o nti n ued to d ra in o ut o f th e B ank o f E ngla nd a nd th e w orld
moneta ry o rd er sto od in je o pard y, th e w ho le re sc ue o pera ti o n w as hung up w hile D r. H oltr o p,
cro ssin g th e D utc h lo w la nd s b y tr a in , o r p erh ap s a lr e ad y in T he H ague a nd ti e d u p in a tr a ffic ja m ,
co uld n o t b e f o und .
ALL
th is , o f c o urs e , m eant a go niz in g fr u str a ti o n in N ew Y ork . A s m orn in g b egan h ere a t la st, H ayes’
and C oom bs’ c am paig n g o t a b oost f r o m W ash in gto n. T he l e ad in g g o vern m ent m oneta ry a uth o riti e s—
Marti n a t th e F ed era l R ese rv e B oard , D illo n a nd R oosa a t th e T re asu ry — had a ll b een in ti m ate ly
in v olv ed i n th e p re v io us d ay’s p la nnin g f o r th e r e sc ue, a nd o f c o urs e p art o f th e p la nnin g h ad b een th e decis io n to le t th e N ew Y ork b ank, a s th e F ed era l R ese rv e S yste m ’s a nd th e T re asu ry ’s n o rm al
opera ti n g a rm i n i n te rn ati o nal m oneta ry d ealin gs, s e rv e a s c am paig n h ead quarte rs . S o th e m em bers o f
th e W ash in gto n c o nti n gent h ad sle p t a t h o m e a nd c o m e to th eir o ffic es a t th e n o rm al h o ur. N ow ,
hav in g l e arn ed f r o m H ayes o f th e d iffic ulti e s th at w ere d ev elo pin g, M arti n , D illo n, a nd R oosa p itc hed
in w ith tr a nsa tl a nti c c alls o f th eir o w n to e m phasiz e th e e xte nt o f A meric a’s c o ncern o ver th e m atte r.
But no num ber o f calls fr o m anyw here co uld ho ld b ack th e clo ck— or, fo r th at m atte r, fin d D r.
Holtr o p— and H ayes a nd C oom bs f in ally h ad to a b and on th eir i d ea o f h av in g a c re d it b und le r e ad y i n
ti m e f o r a n a nno uncem ent to th e w orld a t o r n ear 1 0
A.M .
i n N ew Y ork . A nd th ere w ere o th er r e aso ns,
to o, f o r a f a d in g o f th e e arly h o pes. A s th e N ew Y ork m ark ets o pened , th e e xte nt o f th e a la rm th at h ad
sp re ad aro und th e fin ancia l w orld o vern ig ht w as o nly to o cle arly re v eale d . T he b ank’s fo re ig n-
exchange tr a d in g d esk , o n th e s e v enth flo or, r e p orte d th at th e a ssa ult o n th e p ound a t th e N ew Y ork
openin g had b een fu lly as te rrify in g as th ey had exp ecte d , and th at th e atm osp here in th e lo cal
exchange m ark et h ad r e ached a s ta te n o t fa r fr o m p anic . F ro m th e b ank’s s e curiti e s d ep artm ent c am e
an a la rm in g r e p ort th at th e m ark et f o r U nite d S ta te s g o vern m ent b ond s w as c o m in g u nd er th e h eav ie st
pre ssu re in y ears , r e fle cti n g a n o m in o us la ck o f c o nfid ence in th e d olla r o n th e p art o f b ond tr a d ers .
This i n te llig ence s e rv ed a s a g rim r e m in d er to H ayes a nd C oom bs o f s o m eth in g th ey k new a lr e ad y—
th at a fa ll o f th e p ound in r e la ti o n to th e d olla r c o uld q uite p ossib ly b e fo llo w ed , in a k in d o f c hain
re acti o n, b y a f o rc ed d ev alu ati o n o f th e d olla r i n r e la ti o n to g o ld , w hic h m ig ht c ause m oneta ry c hao s
ev ery w here . If H ayes a nd C oom bs h ad b een p erm itti n g th em se lv es a ny m om ents o f id le re v erie in
whic h to p ic tu re th em se lv es s im ply a s g o od S am arita ns, th is w as j u st th e n ew s to b rin g th em b ack to
re ality . A nd th en w ord arriv ed th at th e w ild ta le s fly in g aro und W all S tr e et sh o w ed sig ns of
cry sta lliz in g in to a sin gle ta le , d em ora liz in gly cre d ib le b ecause it w as so sp ecific . T he B riti s h
go vern m ent, i t w as b ein g s a id , w ould a nno unce a s te rlin g d ev alu ati o n a t a ro und n o on N ew Y ork ti m e.
Here w as s o m eth in g th at c o uld b e a uth o rita ti v ely r e fu te d , a t le ast in r e sp ect to ti m in g, s in ce B rita in
would o bvio usly n o t d ev alu e w hile th e c re d it n ego ti a ti o ns w ere u nd er w ay. T orn b etw een th e d esir e
to q uell a d estr u cti v e r u m or a nd th e n eed to k eep th e n ego ti a ti o ns s e cre t u nti l th ey w ere c o nclu d ed ,
Hayes c o m pro m is e d . H e h ad o ne o f h is a sso cia te s c all a fe w k ey W all S tr e et b ankers a nd tr a d ers to
sa y, a s e m phati c ally a s p ossib le , th at th e la te st d ev alu ati o n r u m or w as, to h is fir m k no w le d ge, fa ls e .
“C an y o u b e m ore s p ecific ?” th e a sso cia te w as a sk ed , a nd h e r e p lie d , b ecause th ere w as n o th in g e ls e
he c o uld r e p ly , “ N o, I c an’t.”
This unsu p porte d w ord w as so m eth in g, b ut it w as no t eno ugh; th e fo re ig n-e xchange and b ond
mark ets w ere o nly m om enta rily
r e assu re d . T here w ere ti m es th at m orn in g, H ayes a nd C oom bs n o w
ad m it, w hen th ey p ut d ow n th eir te le p ho nes, l o oked a t e ach o th er a cro ss th e ta b le i n C oom bs’ o ffic e,
and w ord le ssly e xchanged th e th o ught: It is n ’t g o in g to b e d one in ti m e. B ut— in th e b est tr a d iti o n o f
melo dra m a, w hic h s o m eti m es s e em s to s u rv iv e s tu b born ly i n n atu re a t a ti m e w hen i t i s d ead i n a rt—
ju st w hen th in gs l o oked d ark est, g o od n ew s b egan to a rriv e. D r. H oltr o p h ad b een tr a cked d ow n i n a
re sta ura nt i n T he H ague, w here h e w as h av in g l u nch w ith th e N eth erla nd s’ M in is te r o f F in ance, D r. J .
W. W itte v een; m ore o ver, D r. H oltr o p h ad e nd ors e d th e re sc ue o pera ti o n, a nd a s fo r th e m atte r o f
co nsu lti n g his go vern m ent,
th at
w as no pro ble m , sin ce th e re sp onsib le re p re se nta ti v e of his
go vern m ent w as s itti n g a cro ss th e ta b le fr o m h im . T he c hie f o bsta cle w as th us o verc o m e, a nd a fte r
Dr. H oltr o p h ad b een r e ached th e d iffic ulti e s b egan n arro w in g d ow n to a nno yances l ik e th e n ecessity
fo r c o nti n ually a p olo giz in g to th e J a p anese f o r r o uti n g th em o ut o f b ed a s m id nig ht a rriv ed a nd p asse d
in T okyo . T he ti d e h ad tu rn ed . B efo re n o on i n N ew Y ork , H ayes a nd C oom bs, a nd L ord C ro m er a nd
his d ep uti e s i n L ond on a s w ell, k new th at th ey h ad a gre em ent i n p rin cip le f r o m te n C onti n enta l c entr a l
banks— th o se in W est G erm any, Ita ly , F ra nce, th e N eth erla nd s, B elg iu m , S w itz e rla nd , C anad a, Sw ed en, A ustr ia , a nd J a p an— and a ls o f r o m th e B ank f o r I n te rn ati o nal S ettl e m ents .
There re m ain ed th e w ait w hile each centr a l b ank w ent th ro ugh th e p ain fu lly slo w p ro cess o f
co m ple ti n g w hate v er fo rm aliti e s w ere r e q uir e d to m ake its a cti o n le gal a nd p ro per. T he e p ito m e o f
ord erlin ess, th e B und esb ank, c o uld n o t a ct u nti l it h ad o bta in ed r a ti fic ati o n fr o m th e m em bers o f its
board o f d ir e cto rs , m ost o f w ho m w ere in p ro vin cia l o utp osts s c atte re d a ro und G erm any. T he tw o
le ad in g B und esb ank d ep uti e s d iv id ed u p th e j o b o f c allin g th e a b se nt d ir e cto rs a nd p ers u ad in g th em to
go a lo ng— a j o b th at w as m ad e m ore d elic ate b y th e f a ct th at th e a b se nt d ir e cto rs w ere b ein g a sk ed to
ap pro ve so m eth in g th at, in effe ct, th e bank’s ho m e offic e had alr e ad y und erta ken to do. A t
mid afte rn o on b y C onti n enta l ti m e, w hile th e tw o d ep uti e s w ere b usy a t th is e xerc is e in d oub le ta lk ,
Fra nkfu rt g o t a n ew c all fr o m L ond on. It w as L ord C ro m er, n o d oub t s o und in g a s e xasp era te d a s h is
situ ati o n p erm itte d
, a nd w hat h e h ad to s a y w as th at th e r a te o f B riti s h r e se rv e lo ss h ad b eco m e s o
ra p id th at th e p ound c o uld n o t s u rv iv e a no th er d ay. F orm aliti e s n o tw ith sta nd in g, i t w as a c ase o f n o w
or n ev er. (T he B ank o f E ngla nd ’s re se rv e lo ss th at d ay h as n ev er b een a nno unced . T he
Eco nom is t
la te r p asse d a lo ng a g uess th at it m ay h av e r u n to fiv e h und re d m illio n d olla rs , o r a b out a q uarte r o f
all th at re m ain ed in B rita in ’s re se rv e c o ffe rs .) A fte r L ord C ro m er’s c all, th e B und esb ank d ep uti e s
te m pere d th eir ta ct w ith b re v ity ; th ey g o t u nanim ous a p pro val f r o m th e d ir e cto rs , a nd s h o rtl y a fte r f iv e
o’c lo ck F ra nkfu rt ti m e th ey w ere r e ad y to te ll L ord C ro m er a nd H ayes th at th e B und esb ank w as i n f o r
th e r e q ueste d h alf- b illio n d olla rs .
Oth er c entr a l b anks w ere c o m in g in , o r w ere a lr e ad y in . C anad a a nd Ita ly p ut u p tw o h und re d
millio n d olla rs e ach, a nd d oub tl e ss w ere g la d to d o i t, i n asm uch a s th eir o w n c urre ncie s h ad b een th e
benefic ia rie s o f m uch sm alle r b ut o th erw is e sim ila r in te rn ati o nal b ailo ut o pera ti o ns in 1 962 a nd
earlie r in 1 964, r e sp ecti v ely . If a s u b se q uent r e p ort in th e L ond on
Tim es
is to b e a ccep te d , F ra nce,
Belg iu m , a nd th e N eth erla nd s, n o o ne o f w hic h e v er a nno unced th e a m ount o f its p arti c ip ati o n, e ach
co ntr ib ute d tw o h und re d m illio n d olla rs , to o. S w itz e rla nd is k no w n to h av e c o m e th ro ugh w ith a
hund re d a nd s ix ty m illio n d olla rs a nd S w ed en w ith a h und re d m illio n d olla rs , w hile A ustr ia , J a p an,
and th e B ank fo r In te rn ati o nal S ettl e m ents r o und ed o ut th e b und le w ith s ti ll u nd is c lo se d a m ounts . B y
lu nchti m e i n N ew Y ork , i t w as a ll o ver b ut th e s h o uti n g, a nd th e l a st p art o f th e ta sk w as to m ake th e
sh o uti n g a s e ffe cti v e a s p ossib le to g iv e i t th e f a ste st a nd m ost f o rc ib le i m pact o n th e m ark et.
The ta sk b ro ught to th e fo re a no th er F ed era l R ese rv e B ank m an, its v ic e-p re sid ent in c harg e o f
pub lic i n fo rm ati o n, T ho m as O la f W aage. W aage ( h is n am e r h ym es w ith “ sa ga”) h ad b een p re se nt a nd
acti v e i n C oom bs’ o ffic e a lm ost a ll m orn in g, c o nsta ntl y o n th e p ho ne a s l ia is o n m an w ith W ash in gto n.
A b orn -a nd -b re d N ew Y ork er, th e s o n o f a N orw egia n-b orn lo cal tu g p ilo t a nd fis h in g-b oat c ap ta in ,
Waage i s a m an o f b ro ad a nd u nfe ig ned o uts id e i n te re sts — am ong th em o pera , S hakesp eare , T ro llo pe,
and h is a ncestr a l h erita ge, s a ilin g— and o ne c o nsu m in g p assio n, w hic h is s tr iv in g to c o nv ey n o t o nly
th e fa cts b ut a ls o th e d ra m a, su sp ense , a nd e xcite m ent o f c entr a l b ankin g to a sk ep ti c al a nd o fte n
gla ssy -e yed p ub lic . In s h o rt, a b anker w ho is a h o pele ss r o m anti c . S o n o w h e w as o verjo yed w hen
Hayes assig ned to him th e jo b of pre p arin g a new s re le ase th at w ould in fo rm th e w orld , as
em phati c ally a s p ossib le , a b out th e r e sc ue o pera ti o n. W hile H ayes a nd C oom bs s tr u ggle d to ti e u p th e
lo ose e nd s o f th eir p ackage, W aage w as b usy c o örd in ati n g ti m in g w ith h is c o unte rp arts a t th e F ed era l
Rese rv e B oard a nd th e T re asu ry D ep artm ent in W ash in gto n, w hic h w ould s h are in th e is su in g o f th e
Americ an a nno uncem ent, a nd a t th e B ank o f E ngla nd , w hic h, H ayes a nd L ord C ro m er h ad a gre ed ,
would i s su e a s im ulta neo us a nno uncem ent o f i ts o w n. “ T w o o ’c lo ck i n th e a fte rn o on N ew Y ork ti m e
was th e h o ur w e a gre ed u p on f o r th e a nno uncem ents , w hen i t b egan to l o ok a s i f w e’d h av e s o m eth in g
to a nno unce b y th at ti m e,” W aage re calls . “ T hat w as to o la te to c atc h th e C onti n enta l a nd L ond on
mark ets th at d ay, o f c o urs e , b ut i t l e ft th e w ho le a fte rn o on a head u nti l th e N ew Y ork m ark ets c lo se d , at a ro und fiv e, a nd if th e s te rlin g m ark et c o uld b e d ra m ati c ally re v ers e d h ere b efo re c lo sin g ti m e,
chances w ere th e re co very w ould co nti n ue o n th e C onti n ent and in L ond on next d ay, w hen th e
Americ an m ark ets w ould b e c lo se d fo r T hanksg iv in g. A s fo r th e a m ount o f th e c o m bin ed c re d it w e
were p la nnin g to a nno unce, it s ti ll s to od a t th re e b illio n d olla rs . B ut I re m em ber th at a la st- m in ute
sn ag o f a p arti c ula rly e m barra ssin g s o rt d ev elo ped . V ery l a te i n th e g am e, w hen w e th o ught th e w ho le
package w as i n h and , C harlie C oom bs a nd I c o unte d u p w hat h ad b een p le d ged , j u st to m ake s u re , a nd
we g o t o nly tw o b illio n e ig ht h und re d a nd f ifty m illio n. A ppare ntl y , w e’d m is la id a h und re d a nd f ifty
millio n d olla rs s o m ew here . T hat’ s j u st w hat w e’d d one— we’d m is c alc ula te d . S o i t w as a ll r ig ht.”
The p ackage w as a sse m ble d in ti m e to m eet th e n ew s c hed ule , a nd s ta te m ents fr o m th e F ed era l
Rese rv e, th e T re asu ry , a nd th e B ank o f E ngla nd d uly w ent o ut to th e n ew s m ed ia s im ulta neo usly , a t 2
P.M .
in N ew Y ork a nd 7
P.M .
in L ond on. A s a re su lt o f W aage’s in flu ence, th e A meric an v ers io n,
th o ugh it fe ll so m ew hat sh o rt o f th e m ood o f, sa y, th e la st sc ene o f “D ie M eis te rs in ger,” w as
nev erth ele ss excep ti o nally sti r rin g as bank utte ra nces go , sp eakin g
w ith a certa in su b dued
fla m boyance o f th e u np re ced ente d n atu re o f th e su m in v olv ed a nd o f h o w th e c entr a l b anks h ad
“m oved q uic kly to m obiliz e a m assiv e c o unte ra tta ck o n s p ecula ti v e s e llin g o f th e p ound .” T he L ond on
re le ase h ad a d iffe re nt k in d o f d is ti n cti o n, a chie v in g s o m eth in g o f th e q uin te sse nti a l B riti s h ness th at
se em s to b e re se rv ed fo r m om ents o f h ig h c ris is . It re ad s im ply , “ T he B ank o f E ngla nd h av e m ad e
arra ngem ents u nd er w hic h $ 3,0 00M . a re m ad e a v aila b le f o r th e s u p port o f s te rlin g.”
APPA REN TLY ,
th e se cre cy o f th e o pera ti o n h ad b een su ccessfu lly p re se rv ed a nd th e a nno uncem ent
str u ck th e N ew Y ork f o re ig n-e xchange m ark et a ll o f a h eap , b ecause th e r e acti o n w as a s s w ift a nd a s
ele ctr ic a s a nyo ne c o uld h av e w is h ed . S pecula to rs a gain st th e p ound d ecid ed in sta ntl y a nd w ith n o
hesita ti o n th at th eir g am e w as u p . I m med ia te ly a fte r th e a nno uncem ent, th e F ed era l R ese rv e B ank p ut
in a b id f o r p ound s a t $ 2.7 868— a f ig ure s lig htl y a b ove th e l e v el a t w hic h th e p ound h ad b een f o rc ib ly
main ta in ed a ll d ay b y th e B ank o f E ngla nd . S o g re at w as th e r u sh o f s p ecula to rs to g et fr e e o f th eir
sp ecula ti v e p ositi o ns b y b uyin g p ound s th at th e F ed era l R ese rv e B ank f o und v ery f e w p ound s f o r s a le
at th at p ric e. A ro und tw o-fifte en, th ere w ere a s tr a nge a nd h earte nin g f e w m in ute s i n w hic h n o s te rlin g
was a v aila b le in N ew Y ork a t
any
p ric e. P ound s w ere e v entu ally o ffe re d fo r s a le a gain a t a h ig her
pric e, a nd w ere im med ia te ly g o bble d u p , a nd th us th e p ric e w ent o n c lim bin g a ll a fte rn o on, to a
clo sin g o f j u st a b ove $ 2.7 9.
Triu m ph! T he p ound w as o ut o f i m med ia te d anger; th e th in g h ad w ork ed . T rib ute s to th e s u ccess o f
th e o pera ti o n b egan to p our in fr o m e v ery w here . E ven th e m agis te ria l
Eco nom is t
w as to d ecla re
sh o rtl y , “ W hate v er o th er n etw ork s b re ak d ow n, it s e em s, th e c entr a l b ankers [h av e a n] a sto nis h in g
cap acity f o r i n sta nt r e su lts . A nd i f th eir s i s n o t th e m ost d esir a b le p ossib le m echanis m , g eare d a lw ays
to s h o rt- te rm s u p port o f th e s ta tu s q uo , i t h ap pens to b e th e o nly w ork in g o ne.”
So, w ith th e pound rid in g re aso nab ly hig h again , th e Fed era l R ese rv e B ank sh ut up fo r
Thanksg iv in g, a nd th e b ankers w ent
h o m e. C oom bs re calls h av in g d ru nk a M arti n i u naccusto m ed ly
fa st. H ayes, h o m e i n N ew C anaan, f o und th at h is s o n, T om , h ad a rriv ed f r o m H arv ard . B oth h is w ife
and h is s o n n o ti c ed th at h e s e em ed to b e i n a n u nusu al s ta te o f e xcite m ent, a nd w hen th ey a sk ed a b out
it h e re p lie d th at h e h ad ju st b een th ro ugh th e m ost c o m ple te ly s a ti s fy in g d ay o f h is e nti r e w ork in g
care er. P re sse d f o r d eta ils , h e g av e th em a c o nd ense d a nd s im plifie d a cco unt o f th e r e sc ue o pera ti o n,
keep in g c o nsta ntl y in m in d th e fa ct th at h is a ud ie nce c o nsis te d o f a w ife w ho h ad n o in te re st in
bankin g a nd a so n w ho h ad a lo w o pin io n o f b usin ess. T he re acti o n h e g o t w hen h is re cita l w as
co nclu d ed w as o f a s o rt th at m ig ht w arm th e h eart o f a W aage, o r o f a ny e arn est e xp lic ato r o f b ankin g
derrin g-d o to th e u nsy m path eti c l a ym an. “ It w as a l ittl e c o nfu sin g a t f ir s t,” M rs . H ayes h as s a id , “ b ut befo re y o u w ere f in is h ed y o u h ad u s o n th e e d ge o f o ur c hair s .”
Waage, h o m e i n D ougla sto n, to ld
his
w ife o f th e d ay’s e v ents i n
his
c hara cte ris ti c w ay. “ It w as S t.
Cris p in ’s D ay,” h e e xcla im ed a s h e b urs t th ro ugh h is d oorw ay, “ and I w as w ith H arry !”
III
HAVIN G
fir s t b eco m e in te re ste d in th e p ound a nd its p erils a t th e ti m e o f th e 1 964 c ris is , I fo und
myse lf h o oked b y th e s u b je ct. T hro ugh th e s u b se q uent th re e a nd a h alf y ears , I fo llo w ed its u p s a nd
dow ns i n th e A meric an a nd B riti s h p re ss, a nd a t i n te rv als w ent d ow n to th e F ed era l R ese rv e B ank to
re new m y a cq uain ta nce w ith its o ffic ers a nd s e e w hat a d diti o nal e nlig hte nm ent I c o uld g arn er. T he
who le exp erie nce w as a re so und in g vin d ic ati o n of W aage’s th esis th at centr a l bankin g can be
su sp ense fu l.
The p ound w ould n’t s ta y s a v ed . A m onth a fte r th e b ig 1 964 c ris is , th e s p ecula to rs r e su m ed th eir
assa ults , a nd b y th e e nd o f th at y ear th e B ank o f E ngla nd h ad u se d u p m ore th an h alf a b illio n o f its
new th re e-b illio n-d olla r c re d it. N or d id th e c o m in g o f th e n ew y ear b rin g s u rc ease . In 1 965, a fte r a
re la ti v ely b uo yant J a nuary , th e p ound c am e u nd er p re ssu re a gain in F eb ru ary . T he N ovem ber c re d it
had b een f o r a te rm o f th re e m onth s; n o w , a s th e te rm r a n o ut, th e n ati o ns th at h ad m ad e i t d ecid ed to
exte nd it fo r a no th er th re e m onth s, s o th at B rita in w ould h av e m ore ti m e to p ut its e co no m y in o rd er.
But l a te i n M arc h th e B riti s h e co no m y w as s ti ll s h aky, th e p ound w as b ack b elo w $ 2.7 9, a nd th e B ank
of E ngla nd w as b ack in th e m ark et. In A pril, B rita in anno unced a to ugher b ud get, and a ra lly
fo llo w ed , b ut th e r a lly p ro ved to b e s h o rt- liv ed . B y e arly s u m mer, th e B ank o f E ngla nd h ad d ra w n,
and c o m mitte d to th e b attl e a gain st th e sp ecula to rs , m ore th an a th ir d o f th e w ho le th re e b illio n.
Hearte ned , th e s p ecula to rs p re sse d th eir a tta ck. L ate in J u ne, h ig h B riti s h o ffic ia ls , le t it b e k no w n
th at th ey n o w c o nsid ere d th e s te rlin g c ris is o ver, b ut th ey w ere w his tl in g i n th e d ark ; i n J u ly th e p ound
sa nk a gain , d esp ite fu rth er b elt- ti g hte nin g in th e B riti s h d om esti c e co no m y. B y th e e nd o f J u ly , th e
world fo re ig n-e xchange m ark et h ad b eco m e c o nv in ced th at a n ew c ris is w as sh ap in g u p . B y la te
August, th e cris is had arriv ed , and in so m e w ays it w as a m ore d angero us o ne th an th at o f th e
pre v io us N ovem ber. T he tr o ub le w as th e m ark et s e em ed to b elie v e th at th e c entr a l b anks w ere ti r e d
of p ourin g m oney in to th e b attl e a nd w ould n o w le t ste rlin g fa ll, re gard le ss o f th e c o nse q uences.
About th at ti m e, I te le p ho ned a l e ad in g l o cal f o re ig n-e xchange m an I k no w to a sk h im w hat h e th o ught
of th e s itu ati o n, a nd h e re p lie d , “ T o m y k no w le d ge, th e N ew Y ork m ark et is o ne h und re d p er c ent
co nv in ced th at d ev alu ati o n o f s te rlin g is c o m in g th is fa ll— and I d on’t m ean n in ety -fiv e p er c ent, I
mean o ne h und re d p er c ent.” T hen, o n S ep te m ber 1 1 th , I re ad in th e p ap ers th at th e s a m e g ro up o f
centr a l b anks, th is ti m e w ith th e e xcep ti o n o f F ra nce, h ad c o m e th ro ugh w ith a no th er la st- m in ute
re sc ue p ackage, th e a m ount n o t b ein g a nno unced a t th e ti m e— it w as s u b se q uentl y re p orte d to h av e
been a ro und o ne b illio n— and o ver th e n ext fe w d ays I w atc hed th e m ark et p ric e o f th e p ound r is e ,
littl e b y l ittl e , u nti l b y th e e nd o f th e m onth i t w as a b ove $ 2.8 0 f o r th e f ir s t ti m e i n s ix te en m onth s.
The c entr a l b anks h ad d one i t a gain , a nd s o m ew hat l a te r I w ent d ow n to th e F ed era l R ese rv e B ank
to l e arn th e d eta ils . I t w as C oom bs I s a w , a nd I f o und h im i n a s a nguin e a nd e xtr a o rd in arily ta lk ati v e
mood. “T his year’s opera ti o n w as enti r e ly diffe re nt fr o m la st year’s ,” he to ld m e. “It w as an
aggre ssiv e m ove o n o ur p art, r a th er th an a l a st- d itc h-d efe nsiv e o ne. Y ou s e e, e arly th is S ep te m ber w e
cam e to th e co nclu sio n th at th e p ound w as gro ssly o vers o ld — th at is , th e am ount o f sp ecula ti o n
again st i t w as w ay o ut o f p ro porti o n to w hat w as j u sti fie d b y th e e co no m ic f a cts . A ctu ally , d urin g th e fir s t e ig ht m onth s o f th e y ear, B riti s h e xp orts h ad r is e n m ore th an f iv e p er c ent o ver th e c o rre sp ond in g
perio d in 1 964, a nd B rita in ’s 1 964 b ala nce-o f- p aym ents d efic it s e em ed lik ely to b e c ut in h alf in
1965. V ery p ro m is in g eco no m ic p ro gre ss, and th e b earis h sp ecula to rs se em ed no t to hav e ta ken
acco unt o f i t. T hey h ad g o ne r ig ht o n s e llin g th e p ound s h o rt, o n th e b asis o f te chnic al m ark et f a cto rs .
They w ere th e o nes w ho w ere in a n e xp ose d p ositi o n n o w . W e d ecid ed th e ti m e w as rip e fo r a n
offic ia l c o unte ra tta ck.”
The c o unte ra tta ck, C oom bs w ent o n to e xp la in , w as p lo tte d in le is u re ly fa sh io n th is ti m e— no t o n
th e te le p ho ne b ut fa ce to fa ce, o ver th e w eekend o f S ep te m ber 5 th in B ase l. T he F ed era l R ese rv e
Bank w as re p re se nte d b y C oom bs, a s u su al, a nd a ls o b y H ayes, w ho c ut sh o rt h is lo ng-p la nned
vacati o n o n C orfu to b e th ere . T he c o up w as p la nned w ith m ilita ry p re cis io n. It w as d ecid ed n o t to
anno unce th e a m ount o f th e c re d it p ackage th is ti m e, in o rd er to fu rth er c o nfu se a nd d is c o ncert th e
enem y, th e sp ecula to rs . T he p la ce c ho se n fo r th e la unchin g w as th e tr a d in g ro om o f th e F ed era l
Rese rv e B ank, a nd th e h o ur c ho se n w as 9
A.M .
N ew Y ork ti m e— early e no ugh fo r L ond on a nd th e
Conti n ent to b e s ti ll c o nd ucti n g b usin ess— on S ep te m ber 1 0th . A t z e ro h o ur, th e B ank o f E ngla nd f ir e d
a pre lim in ary sa lv o by anno uncin g th at new centr a l- b ank arra ngem ents w ould sh o rtl y enab le
“ap pro pria te a cti o n” to b e ta ken i n th e e xchange m ark ets . A fte r a llo w in g f ifte en m in ute s f o r th e i m port
of th is d em ure ly m enacin g m essa ge to s in k in , th e F ed era l R ese rv e B ank s tr u ck. U sin g, w ith B riti s h
co ncurre nce, th e n ew b und le o f in te rn ati o nal c re d it a s its a m muniti o n, it s im ulta neo usly p la ced w ith
all th e m ajo r b anks o pera ti n g i n th e N ew Y ork e xchange m ark et b id s f o r s te rlin g to ta llin g n early th ir ty
millio n d olla rs , a t th e th en p re v ailin g ra te o f $ 2.7 918. U nd er th is p re ssu re , th e m ark et im med ia te ly
moved u p w ard , a nd th e F ed era l R ese rv e B ank p urs u ed th e m ovem ent, ra is in g its b id p ric e s te p b y
ste p . A t $ 2.7 934, th e b ank te m pora rily c ease d o pera ti o ns— partl y to s e e w hat th e m ark et w ould d o o n
its o w n, p artl y ju st to c o nfu se th in gs. T he m ark et h eld s te ad y, s h o w in g th at a t th at le v el th ere w ere
no w a s m any i n d ep end ent b uyers o f s te rlin g a s th ere w ere s e lle rs , a nd th at th e b ears — sp ecula to rs —
were l o sin g th eir n erv e. B ut th e b ank w as f a r f r o m s a ti s fie d ; r e tu rn in g v ig o ro usly to th e m ark et, i t b id
th e p ric e o n u p to $ 2.7 945 in th e c o urs e o f th e d ay. A nd th en th e s n o w ball b egan to r o ll b y its e lf—
with th e r e su lts I h ad r e ad a b out i n m y n ew sp ap ers . “ It w as a s u ccessfu l b ear s q ueeze ,” C oom bs to ld
me w ith a c erta in g rim r e lis h , w hic h w as e asy to s y m path iz e w ith ; I fo und m yse lf m usin g th at fo r a
banker to r o ut h is o pponents , to s m ite th em h ip a nd th ig h a nd d riv e th em to c o ver, a nd n o t f o r p ers o nal
or i n sti tu ti o nal p ro fit b ut, r a th er, f o r th e p ub lic g o od, m ust b e a s o urc e o f r a re , u nallo yed s a ti s fa cti o n.
I la te r le arn ed fr o m a no th er b anker ju st h o w p ain fu lly th e b ears h ad b een s q ueeze d . M arg in s o f
cre d it o n c urre ncy s p ecula ti o n b ein g w hat th ey a re — fo r e xam ple , to c o m mit a m illio n d olla rs a gain st
th e p ound a sp ecula to r m ig ht n eed to p ut u p o nly th ir ty o r fo rty th o usa nd d olla rs in c ash — most
deale rs h ad m ad e c o m mitm ents r u nnin g i n to th e te ns o f m illio ns. W hen a d eale r’s c o m mitm ent w as te n
millio n p ound s, o r tw enty -e ig ht m illio n d olla rs , e ach c hange o f o ne-h und re d th o f a c ent i n th e p ric e o f
th e p ound m eant a c hange o f a th o usa nd d olla rs in th e v alu e o f h is a cco unt. B etw een th e $ 2.7 918 o n
Sep te m ber 1 0th , th en, a nd th e $ 2.8 010 th at th e p ound r e ached o n S ep te m ber 2 9th , s u ch a d eale r o n th e
sh o rt s id e o f th e p ound w ould h av e lo st n in ety -tw o th o usa nd d olla rs — eno ugh, o ne m ig ht s u p pose , to
make h im th in k tw ic e b efo re s e llin g s te rlin g s h o rt a gain .
An e xte nd ed p erio d o f c alm f o llo w ed . T he a ir o f i m pend in g c ris is th at h ad h ung o ver th e e xchanges
durin g m ost o f th e p re ced in g y ear d is a p peare d , a nd fo r m ore th an six m onth s th e w orld ste rlin g
mark et w as s u nnie r th an it h ad b een a t a ny ti m e in r e cent y ears . “ T he b attl e fo r th e p ound s te rlin g is
no w e nd ed ,” h ig h B riti s h o ffic ia ls ( a no nym ous, a nd w is e ly s o ) a nno unced in N ovem ber, o n th e fir s t
anniv ers a ry o f th e 1 964 r e sc ue. N ow , th e o ffic ia ls s a id , “ w e’re fig hti n g th e b attl e fo r th e e co no m y.”
Appare ntl y ,
th ey w ere w in nin g th at b attl e , to o, b ecause w hen B rita in ’s b ala nce-o f- p aym ents p ositi o n fo r 1 965 w as fin ally c alc ula te d , it s h o w ed th at th e d efic it h ad b een n o t m ere ly h alv ed , a cco rd in g to
pre d ic ti o ns, b ut
more
th an h alv ed . A nd m eanw hile th e p ound ’s s tr e ngth e nab le d th e B ank o f E ngla nd
no t m ere ly to p ay o ff a ll i ts s h o rt- te rm d eb ts to o th er c entr a l b anks b ut a ls o to a ccum ula te i n th e o pen
mark et, in e xchange fo r its n ew ly d esir a b le p ound s, m ore th an a b illio n fr e sh d olla rs to a d d to its
pre cio us r e se rv es. T hus, b etw een S ep te m ber, 1 965, a nd M arc h, 1 966, th o se r e se rv es r o se fr o m tw o
billio n s ix h und re d m illio n d olla rs to th re e b illio n s ix h und re d m illio n— a f a ir ly s a fe f ig ure . A nd th en
th e p ound b re eze d n ic ely th ro ugh a n ati o nal e le cti o n c am paig n— as a lw ays, a sto rm y ti m e fo r th e
curre ncy. W hen I s a w C oom bs i n th e s p rin g o f 1 966, h e s e em ed a s c o cky a nd b la sé a b out s te rlin g a s
an o ld -ti m e N ew Y ork Y ankee r o ote r a b out h is te am .
I h ad a ll b ut c o nclu d ed th at f o llo w in g th e f o rtu nes o f th e p ound w as n o l o nger a ny f u n w hen a n ew
cris is e xp lo ded . A s e am en’s s tr ik e c o ntr ib ute d to a r e curre nce o f B rita in ’s tr a d e d efic it, a nd i n e arly
Ju ne o f 1 966 th e q uo ta ti o n w as b ack b elo w $ 2.7 9 a nd th e B ank o f E ngla nd w as r e p orte d to b e b ack i n
th e m ark et s p end in g its r e se rv es o n th e d efe nse . O n J u ne 1 3th , w ith s o m eth in g o f th e in so ucia nce o f
vete ra n f ir e m en r e sp ond in g to a r o uti n e c all, b ack c am e th e c entr a l b anks w ith a n ew b und le o f s h o rt-
te rm c re d its . B ut th ese h elp ed o nly te m pora rily , a nd to w ard th e e nd o f J u ly , in a n e ffo rt to g et a t th e
ro ot o f th e p ound ’s tr o ub le s b y c urin g th e d efic it o nce a nd f o r a ll, P rim e M in is te r W ils o n i m pose d o n
th e B riti s h peo ple th e m ost str in gent se t of eco no m ic re str a in ts ev er ap plie d in his co untr y in
peaceti m e— hig h ta xes, a m erc ile ss sq ueeze on cre d it, a fr e eze on w ages and pric es, a cut in
go vern m ent w elfa re s p end in g, a nd a lim it o f a h und re d a nd fo rty d olla rs o n th e a nnual a m ount th at
each B rito n c o uld s p end o n tr a v el a b ro ad . T he F ed era l R ese rv e, C oom bs to ld m e la te r, h elp ed b y
movin g in to th e s te rlin g m ark et im med ia te ly a fte r th e B riti s h a nno uncem ent o f th e a uste rity p ro gra m ,
and th e p ound re acte d s a ti s fa cto rily to th is p ro ddin g. In S ep te m ber, fo r g o od m easu re , th e F ed era l
Rese rv e i n cre ase d i ts s w ap l in e w ith th e B ank o f
E ngla nd f r o m s e v en h und re d a nd f ifty m illio n to o ne
billio n th re e h und re d a nd f ifty m illio n d olla rs . I s a w W aage i n S ep te m ber, a nd h e s p oke w arm ly o f a ll
th e d olla rs th at th e B ank o f E ngla nd w as a gain a ccum ula ti n g. “ S te rlin g c ris e s h av e b eco m e a b ore ,”
th e
Eco nom is t
r e m ark ed a t a b out th is ti m e, w ith th e m ost r e assu rin g s o rt o f B riti s h p hle gm .
Calm a gain — and a gain f o r j u st a l ittl e m ore th an s ix m onth s. I n A pril o f 1 967, B rita in w as f r e e o f
sh o rt- te rm d eb t a nd h ad a m ple re se rv es. B ut w ith in a m onth o r so c am e th e fir s t o f a se rie s o f
heartb re akin g s e tb acks. T w o c o nse q uences o f th e b rie f A ra b -Is ra eli w ar— a h uge f lo w o f A ra b f u nd s
out o f s te rlin g in to o th er c urre ncie s, a nd th e c lo sin g o f th e S uez C anal, o ne o f B rita in ’s m ain tr a d e
arte rie s— bro ught on a new cris is alm ost overn ig ht. In Ju ne, th e B ank of E ngla nd (u nd er new
le ad ers h ip n o w , fo r in 1 966 L ord C ro m er h ad b een s u cceed ed a s g o vern o r b y S ir L eslie O ’B rie n)
had to d ra w h eav ily o n its s w ap lin e w ith th e F ed era l R ese rv e, a nd in J u ly th e B riti s h g o vern m ent
fo und its e lf fo rc ed to re new th e pain fu l eco no m ic re str a in ts of th e pre v io us year; ev en so , in
Sep te m ber th e p ound s lip ped d ow n to $ 2.7 830, its lo w est p oin t s in ce th e 1 964 c ris is . I c alle d m y
fo re ig n-e xchange e xp ert to a sk w hy th e B ank o f E ngla nd — whic h i n N ovem ber, 1 964, h ad s e t i ts l a st-
lin e tr e nch at $ 2.7 860, and w hic h, acco rd in g to its la te st sta te m ent, no w had o n hand re se rv es
am ounti n g to m ore th an tw o a nd a h alf b illio n d olla rs — was le tti n g th e p ric e s lid e s o d angero usly
near th e a b so lu te b otto m ( s h o rt o f d ev alu ati o n) o f $ 2.7 8. “ W ell, th e s itu ati o n i s n ’t q uite a s d esp era te
as th e f ig ure s u ggests ,” h e r e p lie d . “ T he s p ecula ti v e p re ssu re s o f a r i s n ’t a nyth in g l ik e a s s tr o ng a s i t
was i n 1 964. A nd th e f u nd am enta l e co no m ic p ositi o n th is y ear— up to n o w , a t l e ast— is m uch b ette r.
Desp ite th e M id dle E ast w ar, th e a uste rity p ro gra m h as ta ken h o ld . F or th e f ir s t e ig ht m onth s o f 1 967,
Brita in ’s in te rn ati o nal p aym ents hav e b een nearly in b ala nce. T he B ank o f E ngla nd is ev id entl y
ho pin g th at th is p erio d o f w eakness o f th e p ound w ill p ass w ith o ut i ts i n te rv enti o n.”
At ab out th at ti m e, ho w ev er, I b ecam e aw are o f a d is tu rb in g p orte nt in th e air — th e ap pare nt ab and onm ent by th e Briti s h of
th eir lo ng-s ta nd in g ta b oo again st band yin g ab out th e w ord
“d ev alu ati o n.” L ik e o th er ta b oos, th is o ne s e em ed to h av e b een b ase d o n a c o m bin ati o n o f p ra cti c al
lo gic ( ta lk a b out d ev alu ati o n c o uld e asily s ta rt a s p ecula ti v e s ta m ped e a nd th ere b y b rin g it o n) a nd
su p ers ti ti o n. B ut n o w I fo und d ev alu ati o n b ein g fr e ely a nd fr e q uentl y d is c usse d in th e B riti s h p re ss,
and , i n s e v era l r e sp ecte d j o urn als , a ctu ally a d vocate d . N or w as th at a ll. P rim e M in is te r W ils o n, i t i s
tr u e, c o nti n ued to fo llo w a c are fu l p ath a ro und th e w ord , e v en in th e v ery a ct o f p le d gin g, a s h e d id
over a nd o ver, th at h is g o vern m ent w ould a b sta in fr o m th e d eed ; th ere w ould b e “ no c hange in
exis ti n g p olic y” a s to “ o vers e as m oneta ry m atte rs ,” h e sa id , d elic ate ly , o n o ne o ccasio n. O n Ju ly
24th , th o ugh, C hancello r o f th e E xcheq uer J a m es C alla ghan s p oke o penly in th e H ouse o f C om mons
ab out d ev alu ati o n, c o m pla in in g th at a d vocacy o f it a s a n ati o nal p olic y h ad b eco m e fa sh io nab le ,
decla rin g th at s u ch a p olic y w ould r e p re se nt a b re ach o f f a ith w ith o th er n ati o ns a nd th eir p eo ple a nd
als o ple d gin g th at his go vern m ent w ould nev er re so rt to it. H is se nti m ents w ere fa m ilia r and
re assu rin g; h is s tr a ig htf o rw ard e xp re ssio n o f th em w as j u st th e o pposite . I n th e d ark est d ays o f 1 964,
no o ne h ad s a id “ d ev alu ati o n” i n P arlia m ent.
All th ro ugh th e a utu m n, I h ad a f e elin g th at B rita in w as b ein g o verta ken b y a f ie nd is h c o ncate nati o n
of c ru el m is c hances, s o m e s p ecific ally d am agin g to th e p ound a nd o th ers m ere ly c ru sh in g to B riti s h
mora le . T he p re v io us s p rin g, o il fr o m a w re cked , a nd w re tc hed , ta nker h ad d efile d th e b eaches o f
Corn w all; n o w a n e p id em ic w as d estr o yin g te ns, a nd u lti m ate ly h und re d s, o f th o usa nd s o f h ead o f
cattl e . The eco no m ic str a itj a cket th at B rita in had w orn fo r m ore th an a year had sw elle d
unem plo ym ent to th e h ig hest le v el in y ears a nd m ad e th e L ab our G overn m ent th e m ost u np opula r
go vern m ent in th e p ostw ar e ra . ( S ix m onth s la te r, in a p oll s p onso re d b y th e
Sunday T im es
, B rito ns
would v ote W ils o n th e f o urth m ost v illa in o us m an o f th e c entu ry , a fte r H itl e r, d e G aulle , a nd S ta lin , i n
th at o rd er.) A d ock s tr ik e in L ond on a nd L iv erp ool th at b egan in m id -S ep te m ber a nd w as to d ra g o n
fo r m ore th an tw o m onth s d ecre ase d s ti ll fu rth er th e a lr e ad y h o bble d e xp ort tr a d e, a nd p ut a n a b ru p t
end to B rita in ’s r e m ain in g h o pe
o f e nd in g th e y ear w ith i ts i n te rn ati o nal a cco unts i n b ala nce. E arly i n
Novem ber, 1 967, th e p ound s to od a t $ 2.7 822, its lo w est p oin t in a d ecad e. A nd th en th in gs w ent
dow nhill fa st. O n th e ev enin g o f M ond ay th e th ir te enth , W ils o n to ok th e o ccasio n o f his annual
ap peara nce a t th e L ord M ayo r o f L ond on’s b anq uet— th e v ery p la tf o rm h e h ad u se d fo r h is fie ry
co m mitm ent to th e d efe nse o f s te rlin g i n th e c ris is th re e y ears e arlie r— to i m plo re th e c o untr y a nd th e
world to d is re gard , as d is to rte d b y te m pora ry fa cto rs , his nati o n’s la te st fo re ig n-tr a d e sta ti s ti c s,
whic h w ould b e r e le ase d th e n ext d ay. O n T uesd ay th e f o urte enth , B rita in ’s f o re ig n-tr a d e f ig ure s, d uly
re le ase d , s h o w ed a n O cto ber d efic it o f o ver a h und re d m illio n p ound s— th e w ors t e v er r e p orte d . T he
Cab in et m et at lu nch o n T hurs d ay th e six te enth , and th at afte rn o on, in th e H ouse o f C om mons,
Chancello r C alla ghan, u p on b ein g a sk ed to c o nfir m o r d eny r u m ors o f a n e no rm ous n ew c entr a l- b ank
cre d it th at w ould b e c o nti n gent u p on s ti ll fu rth er u nem plo ym ent- b re ed in g a uste rity m easu re s, r e p lie d
with h eat, a nd w ith w hat w as la te r c alle d a la ck o f d is c re ti o n, “ T he G overn m ent w ill ta ke w hat
decis io ns a re a p pro pria te i n th e l ig ht o f o ur u nd ers ta nd in g o f th e n eed s o f th e B riti s h e co no m y, a nd n o
one e ls e ’s . A nd th at, a t th is s ta ge, d oes n o t i n clu d e th e c re ati o n o f a ny a d diti o nal u nem plo ym ent.”
With o ne a cco rd , th e e xchange m ark ets d ecid ed th at th e d ecis io n to d ev alu e h ad b een ta ken a nd th at
Calla ghan h ad in ad verte ntl y le t th e c at o ut o f th e b ag. F rid ay th e s e v ente enth w as th e w ild est d ay in
th e his to ry o f th e exchange m ark ets , and th e b la ckest in th e th o usa nd -y ear his to ry o f ste rlin g. In
ho ld in g it a t $ 2.7 825— th e p ric e d ecid ed o n th is ti m e a s th e la st- lin e tr e nch— th e B ank o f E ngla nd
sp ent a q uanti ty o f r e se rv e d olla rs th at i t m ay n ev er s e e f it to r e v eal; W all S tr e et c o m merc ia l b ankers
who h av e r e aso n to k no w h av e e sti m ate d th e a m ount a t s o m ew here a ro und a b illio n d olla rs , w hic h
would m ean a c o nti n uo us, d ay-lo ng re se rv e d ra in o f o ver tw o m illio n p er m in ute . D oub tl e ss th e Briti s h re se rv es d ro pped b elo w th e tw o-b illio n-d olla r m ark , a nd p erh ap s fa r b elo w it. L ate o n a
Satu rd ay— Novem ber 1 8th — fu ll o f c o nfu se d a la rm s, B rita in a nno unced i ts c ap itu la ti o n. I h eard a b out
it fr o m W aage, w ho te le p ho ned m e th at a fte rn o on a t fiv e-th ir ty N ew Y ork ti m e. “ A s o f a n h o ur a go ,
th e p ound w as d ev alu ed to tw o d olla rs a nd fo rty c ents , a nd th e B riti s h b ank ra te w ent to e ig ht p er
cent,” h e s a id . H is v oic e w as s h akin g a l ittl e .
ON
S atu rd ay n ig ht, b earin g in m in d th at sc arc ely a nyth in g b ut a m ajo r w ar u p se ts w orld fin ancia l
arra ngem ents m ore th an d ev alu ati o n o f a m ajo r c urre ncy, I w ent d ow n to th e c ap ita l o f w orld f in ance,
Wall S tr e et, to l o ok a ro und . A n asty w in d w as w hip pin g p ap ers th ro ugh e m pty s tr e ets , a nd th ere w as
th e u su al ra th er in ti m id ati n g o ff- h o urs s ti lln ess in th at p art- ti m e c ity . T here w as s o m eth in g u nusu al,
th o ugh: th e p re se nce o f r o w s o f lig hte d w in d ow s in th e o th erw is e d ark b uild in gs— fo r th e m ost p art,
one l ig hte d r o w p er b uild in g. S om e o f th e r o w s I c o uld i d enti fy a s th e f o re ig n d ep artm ents o f th e b ig
banks. T he h eav y d oors o f th e b anks w ere lo cked a nd b arre d ; fo re ig n-d ep artm ent m en e v id entl y r in g
to g ain e ntr a nce o n w eekend s, o r u se in v is ib le s id e o r re ar e ntr a nces. T urn in g u p m y c o at c o lla r, I
head ed u p N assa u S tr e et to w ard L ib erty to ta ke a l o ok a t th e F ed era l R ese rv e B ank. I f o und i t l ig hte d
no t i n a s in gle l in e b ut— more h o sp ita b ly , s o m eho w — in a n i r re gula r p atte rn o ver i ts e nti r e F lo re nti n e
fa çad e, y et it, to o, p re se nte d to th e s tr e et a fo rm id ab ly c lo se d fr o nt d oor. A s I lo oked a t it, a g ust o f
win d b ro ught a n i n co ngru o us b urs t o f o rg an m usic — perh ap s f r o m T rin ity C hurc h, a f e w b lo cks a w ay
—and I re aliz e d th at in te n o r fifte en m in ute s I h ad n’t se en a nyo ne. T he sc ene se em ed to m e to
ep ito m iz e o ne o f th e tw o fa ces o f c entr a l b ankin g— th e c o ld a nd h o sti le fa ce, su ggesti n g m en in
arro gant s e cre cy m akin g d ecis io ns th at a ffe ct a ll th e r e st o f u s b ut th at w e c an n eith er in flu ence n o r
ev en co m pre hend , ra th er th an th e m ore co ngenia l fa ce of ele gant and le arn ed m en of affa ir s
benefic entl y s a v in g fa lte rin g c urre ncie s o ver th eir tr u ffle s a nd w in e a t B ase l. T his w as n o t th e n ig ht
fo r th e l a tte r f a ce.
On S und ay a fte rn o on, W aage h eld a p re ss c o nfe re nce i n a r o om o n th e te nth f lo or o f th e b ank, a nd I
atte nd ed it, a lo ng w ith a d oze n o th er r e p orte rs , m ostl y r e gula rs o n th e F ed era l R ese rv e b eat. W aage
dis c o urs e d g enera lly o n th e d ev alu ati o n, p arry in g
q uesti o ns h e d id n’t w ant to a nsw er, s o m eti m es b y
re p ly in g to th em , l ik e th e te acher h e o nce w as, w ith q uesti o ns o f h is o w n. I t w as s ti ll f a r to o e arly , h e
sa id , to te ll h o w g re at th e d anger w as th at th e d ev alu ati o n m ig ht le ad to “ ano th er 1 931.” A lm ost a ny
pre d ic ti o n, h e s a id , w ould b e a m atte r o f tr y in g to o utg uess m illio ns o f p eo ple a nd th o usa nd s o f b anks
aro und th e w orld . T he n ext fe w d ays w ould te ll th e sto ry . W aage se em ed sti m ula te d ra th er th an
dep re sse d ; h is a tti tu d e w as c le arly o ne o f a p pre hensio n b ut a ls o o f r e so lu ti o n. O n th e w ay o ut, I a sk ed
him w heth er h e h ad b een u p a ll n ig ht. “ N o, l a st e v enin g I w ent to ‘ T he B ir th d ay P arty ,’ a nd I m ust s a y
Pin te r’s w orld m akes m ore s e nse th an m in e d oes, th ese d ays,” h e r e p lie d .
The o utl in es o f w hat h ad h ap pened T hurs d ay a nd F rid ay b egan to e m erg e d urin g th e n ext f e w d ays.
Most o f th e r u m ors th at h ad b een a b ro ad tu rn ed o ut to h av e b een m ore o r le ss tr u e. B rita in
had
b een
nego ti a ti n g f o r a no th er h uge c re d it to f o re sta ll d ev alu ati o n— a c re d it o f th e o rd er o f m agnitu d e o f th e
th re e-b illio n-d olla r 1 964 p ackage, w ith th e U nite d S ta te s a gain p la nnin g to p ro vid e th e l a rg est s h are .
Wheth er B rita in h ad d ev alu ed f r o m c ho ic e o r n ecessity r e m ain ed d eb ata b le . W ils o n, i n e xp la in in g th e
dev alu ati o n to h is p eo ple in a te le v is io n a d dre ss, s a id th at “ it w ould h av e b een p ossib le to r id e o ut
th is p re se nt ti d e o f fo re ig n sp ecula ti o n again st th e p ound b y b orro w in g fr o m centr a l b anks and
go vern m ents ,” b ut th at s u ch a cti o n th is ti m e w ould h av e b een “ ir re sp onsib le ,” b ecause “ o ur c re d ito rs
ab ro ad m ig ht w ell in sis t o n g uara nte es a b out th is o r th at a sp ect o f o ur n ati o nal p olic ie s” ; h e d id n o t
sa y e xp lic itl y th at th ey h ad d one s o . I n a ny e v ent, th e B riti s h C ab in et h ad — with w hat g rim r e lu cta nce
may b e im agin ed — decid ed in p rin cip le o n d ev alu ati o n a s e arly a s th e p re v io us w eekend , a nd th en dete rm in ed th e e xact a m ount o f th e d ev alu ati o n a t i ts T hurs d ay-n o on m eeti n g. A t th at ti m e, th e C ab in et
had als o re so lv ed to help in su re th e effe cti v eness o f th e d ev alu ati o n b y im posin g new auste rity
measu re s o n th e n ati o n, a m ong th em h ig her c o rp ora te ta xes, a c utb ack in d efe nse s p end in g, a nd th e
hig hest b ank r a te i n f ifty y ears . A s f o r th e tw o-d ay d ela y i n p utti n g th e d ev alu ati o n i n to e ffe ct, w hic h
had b een s o c o stl y to B riti s h r e se rv es, o ffic ia ls n o w e xp la in ed th at th e ti m e h ad b een
n ecessa ry fo r
co nfe re nces w ith th e o th er l e ad in g m oneta ry p ow ers . S uch c o nfe re nces w ere r e q uir e d b y i n te rn ati o nal
moneta ry ru le s b efo re a d ev alu ati o n, a nd , b esid es, B rita in h ad u rg entl y n eed ed a ssu ra nces fr o m its
le ad in g c o m peti to rs i n w orld tr a d e th at th ey d id n o t p la n to v iti a te th e e ffe ct o f th e B riti s h d ev alu ati o n
with m atc hin g d ev alu ati o ns o f th eir o w n. S om e lig ht w as n o w s h ed , to o, o n th e s o urc es o f th e p anic
se llin g o f p ound s o n F rid ay. B y n o m eans a ll o f it h ad b een w anto n s p ecula ti o n b y th o se fa m ous—
alth o ugh i n v is ib le a nd p erh ap s n o nexis te nt— gno m es o f Z uric h. O n th e c o ntr a ry , m uch o f i t h ad b een a
fo rm o f s e lf- p ro te cti o n, c alle d h ed gin g, b y la rg e in te rn ati o nal c o rp ora ti o ns, m any o f th em A meric an,
th at m ad e s h o rt s a le s o f s te rlin g e q uiv ale nt to w hat th ey w ere d ue to b e p aid in s te rlin g w eeks o r
month s la te r. T he e v id ence o f th is w as s u p plie d b y th e c o rp ora ti o ns th em se lv es, s o m e o f th em b ein g
quic k to a ssu re th eir sto ckho ld ers th at th ro ugh th eir fo re sig ht th ey h ad c o ntr iv ed to lo se littl e o r
no th in g o n th e d ev alu ati o n. In te rn ati o nal T ele p ho ne & T ele gra p h, fo r e xam ple , a nno unced o n S und ay
th at th e dev alu ati o n w ould no t affe ct its 1967 earn in gs, because “m anagem ent anti c ip ate d th e
possib ility o f d ev alu ati o n f o r s o m e ti m e.” I n te rn ati o nal H arv este r a nd T exas I n str u m ents r e p orte d th at
th ey had p ro te cte d th em se lv es b y m akin g w hat am ounte d to sh o rt sa le s o f ste rlin g. T he S in ger
Com pany s a id it m ig ht e v en h av e a ccid enta lly m ad e a p ro fit o n th e d eal. O th er A meric an c o m panie s
le t it b e k no w n th at th ey h ad c o m e o ut a ll r ig ht, b ut d eclin ed to e la b ora te , o n th e g ro und th at if th ey
re v eale d th e m eth o ds th ey had use d th ey m ig ht b e accuse d o f ta kin g ad vanta ge o f B rita in in its
extr e m ity . “ L et’ s ju st s a y w e w ere s m art” w as th e w ay a s p okesm an fo r o ne c o m pany p ut it. A nd
perh ap s th at, i f l a ckin g i n g ra ce a nd e le gance, w as f a ir e no ugh. I n th e j u ngle o f i n te rn ati o nal b usin ess,
hed gin g o n a w eak fo re ig n c urre ncy is c o nsid ere d a w ho lly le giti m ate u se o f c la w s fo r s e lf- d efe nse .
Sellin g s h o rt fo r s p ecula ti v e p urp ose s e njo ys le ss r e sp ecta b ility , a nd it is in te re sti n g to n o te th at th e
ra nks o f th o se w ho s p ecula te d a gain st s te rlin g o n F rid ay, a nd ta lk ed a b out i t a fte rw ard , i n clu d ed s o m e
who w ere f a r f r o m Z uric h. A g ro up o f p ro fe ssio nal m en i n Y oungsto w n, O hio — vete ra n s to ck-m ark et
pla yers , b ut n ev er b efo re i n te rn ati o nal c urre ncy
p lu ngers — decid ed o n F rid ay th at s te rlin g w as a b out
to b e d ev alu ed , and so ld sh o rt se v enty th o usa nd p ound s, netti n g a p ro fit o f alm ost tw enty -fiv e
th o usa nd d olla rs o ver th e w eekend . T he p ound s so ld h ad , o f c o urs e , u lti m ate ly b een b ought w ith
dolla rs b y th e B ank o f E ngla nd , th us a d din g a m in usc ule d ro p to B rita in ’s r e se rv e l o ss. R ead in g a b out
th e littl e c o up in th e
Wall S tr e et J o urn al
, to w hic h th e g ro up ’s b ro ker h ad re p orte d it, p re su m ab ly
with p rid e, I h o ped th e a p pre nti c e g no m es o f Y oungsto w n h ad a t le ast g ra sp ed th e im plic ati o ns o f
what th ey w ere d oin g.
So m uch fo r S und ay a nd m ora l s p ecula ti o n. O n M ond ay, th e fin ancia l w orld , o r m ost o f it, w ent
back to w ork , a nd th e d ev alu ati o n b egan to b e p ut to its te st. T he te st c o nsis te d o f tw o q uesti o ns.
Questi o n O ne: W ould th e d ev alu ati o n a cco m plis h its p urp ose fo r B rita in — th at is , s ti m ula te e xp orts
and r e d uce im ports s u ffic ie ntl y to c ure th e in te rn ati o nal d efic it a nd p ut a n e nd to s p ecula ti o n a gain st
th e p ound ? Q uesti o n T w o: W ould i t, a s i n 1 931, b e f o llo w ed b y a s tr in g o f c o m peti ti v e d ev alu ati o ns
of o th er c urre ncie s, le ad in g u lti m ate ly to a d ev alu ati o n o f th e d olla r in r e la ti o n to g o ld , w orld w id e
moneta ry c hao s, a nd p erh ap s a w orld d ep re ssio n? I w atc hed th e a nsw ers b egin nin g to ta ke s h ap e.
On M ond ay, th e b anks a nd e xchanges i n L ond on r e m ain ed f ir m ly c lo se d , b y g o vern m ent o rd er, a nd
all b ut a f e w tr a d ers e ls e w here a v oid ed ta kin g p ositi o ns i n s te rlin g i n th e B ank o f E ngla nd ’s a b se nce
fr o m th e m ark et, so th e answ er to th e q uesti o n o f th e p ound ’s str e ngth o r w eakness at its new valu ati o n w as p ostp oned ; O n T hre ad need le a nd T hro gm orto n S tr e ets , c ro w ds o f b ro kers , jo bbers ,
and c le rk s m ille d a ro und a nd ta lk ed e xcite d ly — but m ad e n o tr a d es— in a c ity w here th e U nio n J a ck
was fly in g fr o m a ll fla gsta ffs b ecause it h ap pened to b e th e Q ueen’s w ed din g a nniv ers a ry . T he N ew
York s to ck m ark et o pened s h arp ly lo w er, th en r e co vere d . ( T here w as n o r e ally r a ti o nal e xp la nati o n
fo r th e i n iti a l d ro p; s e curiti e s m en p oin te d o ut th at d ev alu ati o n j u st g enera lly s o und s d ep re ssin g.) B y
nig htf a ll o n M ond ay, it h ad b een a nno unced th at e le v en o th er c urre ncie s— th o se o f S pain , D enm ark ,
Is ra el, H ong K ong, M alta , G uyana, M ala w i, J a m aic a, F iji, B erm ud a, a nd Ir e la nd — were a ls o b ein g
dev alu ed . T hat
w asn ’t s o b ad , b ecause th e d is ru p ti v e e ffe ct o f a c urre ncy d ev alu ati o n is in d ir e ct
pro porti o n to th e im porta nce o f th at c urre ncy in w orld tr a d e, a nd n o ne o f th o se c urre ncie s w ere o f
gre at im porta nce. T he m ost om in o us m ove w as D enm ark ’s , because D enm ark m ig ht easily be
fo llo w ed b y its c lo se e co no m ic a llie s N orw ay, S w ed en, a nd th e N eth erla nd s, a nd th at
would
b e
pre tty s e rio us. E gyp t, w hic h w as a n in sta nt lo se r o f th ir ty -e ig ht m illio n d olla rs o n p ound s h eld in its
re se rv es a t th e ti m e o f d ev alu ati o n, h eld f ir m , a nd s o d id K uw ait, w hic h l o st e ig hte en m illio n.
On T uesd ay, th e m ark ets e v ery w here w ere g o in g f u ll b la st. T he B ank o f E ngla nd , b ack i n b usin ess,
se t th e n ew tr a d in g l im its o f th e p ound a t a f lo or o f $ 2.3 8 a nd a c eilin g o f $ 2.4 2, w here up on th e p ound
went str a ig ht to th e c eilin g, lik e a b allo on slip ped fr o m a c hild ’s h and , a nd sta yed th ere a ll d ay;
in d eed , fo r o bsc ure re aso ns in ap plic ab le to b allo ons, it sp ent m uch o f th e d ay slig htl y a b ove th e
ceilin g. N ow , in ste ad o f p ayin g d olla rs fo r p ound s, th e B ank o f E ngla nd w as s u p ply in g p ound s fo r
dolla rs , a nd th ere b y b egin nin g th e p ro cess o f r e b uild in g its r e se rv es. I c alle d W aage to s h are w hat I
th o ught w ould b e h is j u b ila ti o n, b ut f o und h im ta kin g i t a ll c alm ly . T he p ound ’s s tr e ngth , h e s a id , w as
“te chnic al” — th at i s , i t w as c ause d b y th e p re v io us w eek’s s h o rt s e lle rs ’ b uyin g p ound s b ack to c ash
in th eir p ro fits — and th e fir s t o bje cti v e te st o f th e n ew p ound w ould n o t c o m e u nti l F rid ay. S ev en
more s m all g o vern m ents a nno unced d ev alu ati o ns d urin g th e d ay. I n M ala ysia , w hic h h ad d ev alu ed i ts
old s te rlin g-b acked p ound b ut n o t its n ew d olla r, b ase d o n g o ld , a nd w hic h c o nti n ued to k eep b oth
curre ncie s i n c ir c ula ti o n, th e i n ju sti c e o f th e s itu ati o n l e d to r io ts , a nd o ver th e n ext tw o w eeks m ore
th an tw enty -s e v en p eo ple w ere k ille d in th em — th e fir s t c asu alti e s o f d ev alu ati o n. A part fr o m th is
pain fu l re m in d er th at th e co unte rs in th e engro ssin g gam e of in te rn ati o nal fin ance are peo ple ’s
liv elih o ods, a nd e v en th eir l iv es, s o f a r s o g o od.
But o n W ed nesd ay th e tw enty -s e co nd a l e ss l o caliz e d p orte nt o f tr o ub le a p peare d . T he s p ecula ti v e
atta ck th at h ad s o lo ng b atte re d a nd a t la st c ru sh ed th e p ound n o w tu rn ed , a s e v ery o ne h ad fe are d it
mig ht, o n th e d olla r. A s th e o ne n ati o n th at i s c o m mitte d to s e ll g o ld i n a ny q uanti ty to th e c entr a l b ank
of a ny o th er n ati o n a t th e
fix ed p ric e o f th ir ty -fiv e d olla rs a n o unce, th e U nite d S ta te s is th e k eysto ne
of th e w orld m oneta ry a rc h, a nd th e g o ld i n i ts T re asu ry — whic h o n th at W ed nesd ay a m ounte d to n o t
quite th ir te en b illio n d olla rs ’ w orth — is th e f o und ati o n. F ed era l R ese rv e B oard C hair m an M arti n h ad
sa id re p eate d ly th at th e U nite d S ta te s w ould u nd er a ny c o nd iti o n c o nti n ue to s e ll it o n d em and , if
necessa ry d ow n to th e la st b ar. D esp ite th is p le d ge, a nd d esp ite P re sid ent J o hnso n’s r e ite ra ti o n o f it
im med ia te ly a fte r B rita in ’s d ev alu ati o n, sp ecula to rs n o w b egan b uyin g g o ld w ith d olla rs in h uge
quanti ti e s, e xp re ssin g th e s a m e s o rt o f s k ep ti c is m to w ard o ffic ia l a ssu ra nces th at w as s h o w n a t a b out
th e s a m e ti m e b y N ew Y ork ers w ho to ok to a ccum ula ti n g a nd h o ard in g s u b w ay to kens. G old w as
su d denly in u nusu al d em and in P aris , Z uric h, a nd o th er fin ancia l c ente rs , a nd m ost p arti c ula rly in
Lond on, th e w orld ’s le ad in g g o ld m ark et, w here p eo ple im med ia te ly b egan to ta lk a b out th e L ond on
Gold R ush . T he d ay’s o rd ers f o r g o ld , w hic h s o m e a uth o riti e s e sti m ate d a t o ver f ifty m illio n d olla rs ’
worth , s e em ed to c o m e in fr o m e v ery w here — excep t, p re su m ab ly , fr o m c iti z e ns o f th e U nite d S ta te s
or B rita in , w ho a re fo rb id den b y la w to b uy o r o w n m oneta ry g o ld . A nd w ho w as to s e ll th e s tu ff to
th ese in v is ib le m ulti tu d es s o s u d denly r e p osse sse d b y th e a ge-o ld lu st fo r it? N ot th e U nite d S ta te s Tre asu ry , w hic h, th ro ugh th e F ed era l R ese rv e, s o ld g o ld o nly to c entr a l b anks, a nd n o t o th er c entr a l
banks, w hic h did no t pro m is e to se ll it at all. To fill th is vacuum , sti ll ano th er co öpera ti v e
in te rn ati o nal g ro up , th e L ond on g o ld p ool, h ad b een e sta b lis h ed i n 1 961. P ro vid ed b y i ts m em bers —
th e U nite d Sta te s, B rita in , Ita ly , th e N eth erla nd s, Sw itz e rla nd , W est G erm any, B elg iu m , and ,
orig in ally , F ra nce— with g o ld in go ts in q uanti ti e s th at m ig ht d azzle a C ro esu s ( fifty -n in e p er c ent o f
th e to ta l c o m in g fr o m th e U nite d S ta te s), th e p ool w as in te nd ed to q uell m oney p anic s b y s u p ply in g
go ld to n o n-g o vern m enta l b uyers in a ny q uanti ty d em and ed , a t a p ric e e ffe cti v ely th e sa m e a s th e
Fed era l R ese rv e’s , a nd th ere b y to p ro te ct th e s ta b ility o f th e d olla r a nd th e s y ste m .
And th at is w hat th e p ool d id o n W ed nesd ay. T hurs d ay, th o ugh, w as m uch w ors e , w ith th e g o ld -
buyin g f r e nzy i n b oth P aris a nd L ond on b re akin g e v en th e r e co rd s s e t d urin g th e C ub an m is sile
c ris is
of 1 962, a nd m any p eo ple , h ig h B riti s h a nd A meric an o ffic ia ls a m ong th em , b ecam e c o nv in ced o f
so m eth in g th ey h ad su sp ecte d fr o m th e fir s t— th at th e g o ld ru sh w as p art o f a p lo t b y G enera l d e
Gaulle a nd F ra nce to h um ble fir s t th e p ound a nd n o w th e d olla r. T he e v id ence, to b e s u re , w as a ll
cir c um sta nti a l, b ut it w as p ers u asiv e. D e G aulle and his M in is te rs had lo ng b een o n re co rd as
wis h in g to r e le gate th e p ound a nd th e d olla r to i n te rn ati o nal r o le s f a r s m alle r th an th eir c urre nt o nes.
A su sp ic io us am ount o f th e go ld b uyin g, ev en in L ond on, w as tr a ceab le to F ra nce. O n M ond ay
ev enin g, th ir ty -s ix h o urs b efo re th e s ta rt o f th e g o ld r u sh , F ra nce’s g o vern m ent h ad l e t s lip , th ro ugh a
pre ss le ak, th at it in te nd ed to w ith d ra w fr o m th e g o ld p ool (a cco rd in g to su b se q uent in fo rm ati o n,
Fra nce had n’t co ntr ib ute d anyth in g to th e p ool sin ce th e p re v io us Ju ne anyho w ), and th e F re nch
go vern m ent w as a ls o a ccuse d o f h av in g h ad a h and in s p re ad in g fa ls e r u m ors th at B elg iu m a nd Ita ly
were a b out to w ith d ra w , to o. A nd n o w it w as c o m in g o ut, b it b y b it, th at in th e d ays ju st b efo re th e
dev alu ati o n F ra nce h ad b een b y fa r th e m ost re lu cta nt n ati o n to jo in in a no th er c re d it p ackage to
re sc ue ste rlin g, and th at, fo r go od m easu re , F ra nce had w ith held unti l th e very la st m in ute its
assu ra nce th at it w ould m ain ta in its o w n e xchange ra te if B rita in d ev alu ed . A ll in a ll, th ere w as a
go od c ase f o r th e a lle gati o n th at d e G aulle & C o. h ad b een p la yin g a m is c hie v ous p art, a nd , w heth er
it w as tr u e o r n o t, I c o uld n’t h elp f e elin g th at th e a ccusa ti o ns a gain st th em w ere a d din g a g o od d eal o f
sp ic e to th e d ev alu ati o n c ris is — sp ic e th at w ould b eco m e m ore p iq uant a f e w m onth s l a te r, w hen th e
fr a nc w ould b e i n d ir e s tr a its , a nd th e U nite d S ta te s f o rc ed b y c ir c um sta nces to c o m e to i ts a id .
ON
F rid ay, in L ond on, th e p ound sp ent th e w ho le d ay ti g ht u p a gain st its c eilin g, a nd th us c am e
th ro ugh its fir s t re ally sig nific ant post- d ev alu ati o n te st w ith co lo rs fly in g. O nly a fe w sm all
go vern m ents had anno unced dev alu ati o ns sin ce M ond ay, and it w as no w ev id ent th at N orw ay,
Sw ed en, a nd th e N eth erla nd s w ere g o in g to h o ld fir m . B ut o n th e d olla r fr o nt th in gs lo oked w ors e
th an e v er. F rid ay’s g o ld b uyin g i n L ond on a nd P aris h ad f a r e xceed ed th e p re v io us d ay’s r e co rd , a nd
esti m ate s w ere th at g o ld s a le s i n a ll
m ark ets o ver th e p re ced in g th re e d ays a d ded u p to s o m eth in g n o t
fa r u nd er th e b illio n-d olla r m ark ; th ere w as n ear p and em oniu m a ll d ay i n J o hannesb urg a s s p ecula to rs
sc ra m ble d to g et th eir h and s o n s h are s in g o ld -m in in g c o m panie s; a nd a ll o ver E uro pe p eo ple w ere
tr a d in g in d olla rs n o t o nly fo r g o ld b ut fo r o th er c urre ncie s a s w ell. If th e d olla r w as h ard ly in th e
positi o n th at th e p ound h ad o ccup ie d a w eek e arlie r, a t le ast th ere w ere u nco m fo rta b le p ara lle ls .
Sub se q uentl y , it w as re p orte d th at in th e fir s t days afte r dev alu ati o n th e F ed era l R ese rv e, so
accusto m ed to le nd in g su p port to oth er curre ncie s, had been fo rc ed to
borro w
vario us fo re ig n
curre ncie s, a m ounti n g to a lm ost tw o b illio n d olla rs ’ w orth , i n o rd er to d efe nd i ts o w n.
Late F rid ay, hav in g atte nd ed a co nfe re nce at w hic h W aage w as in an unaccusto m ed m ood o f
nerv ous jo cula rity th at m ad e m e n erv ous, to o, I le ft th e F ed era l R ese rv e B ank h alf b elie v in g th at
dev alu ati o n o f th e d olla r w as g o in g to b e a nno unced o ver th e w eekend . N oth in g o f th e s o rt h ap pened ; on th e c o ntr a ry , th e w ors t w as te m pora rily o ver. O n S und ay, it w as a nno unced th at c entr a l- b ank
re p re se nta ti v es o f th e g o ld -p ool c o untr ie s, H ayes a nd C oom bs a m ong th em , h ad m et i n F ra nkfu rt a nd
fo rm ally agre ed to co nti n ue m ain ta in in g th e dolla r at its pre se nt go ld -e xchange ra te w ith th eir
co m bin ed re so urc es. T his s e em ed to re m ove a ny d oub t th at th e d olla r w as b acked n o t o nly b y th e
Unite d S ta te s’ th ir te en-b illio n-d olla r g o ld h o ard b ut a ls o b y th e a d diti o nal fo urte en b illio n d olla rs ’
worth of go ld in th e co ffe rs of B elg iu m , B rita in , Ita ly , th e N eth erla nd , S w itz e rla nd , and W est
Germ any. T he s p ecula to rs w ere a p pare ntl y im pre sse d . O n M ond ay, g o ld b uyin g w as m uch lo w er in
Lond on a nd Z uric h, c o nti n uin g a t a r e co rd p ace o nly i n P aris — and th is i n s p ite o f a s u lp huro us p re ss
aud ie nce g ra nte d th at d ay b y d e G aulle h im se lf, w ho , a lo ng w ith b em usin g o pin io ns o n v ario us o th er
matte rs , h aza rd ed th e v ie w th at th e tr e nd o f e v ents w as to w ard th e d eclin e o f th e d olla r’s i n te rn ati o nal
im porta nce. O n T uesd ay, g o ld s a le s d ro pped s h arp ly e v ery w here , e v en i n P aris . “ A g o od d ay to day,”
Waage to ld m e o n th e p ho ne th at a fte rn o on. “ A b ette r d ay to m orro w , w e h o pe.” O n W ed nesd ay, th e
go ld m ark ets w ere b ack to n o rm al, b ut, a s a r e su lt o f th e w eek’s d oin gs, th e T re asu ry h ad lo st s o m e
fo ur h und re d
a nd f ifty to ns o f g o ld — alm ost h alf a b illio n d olla rs ’ w orth — in f u lfillin g i ts o blig ati o ns
to th e g o ld p ool a nd m eeti n g th e d em and s o f f o re ig n c entr a l b anks.
Ten d ays a fte r d ev alu ati o n, e v ery th in g w as q uie t. B ut it w as o nly a tr o ugh b etw een s u cceed in g
sh o ck w av es. F ro m D ecem ber 8 th to 1 8th , th ere c am e a n ew s p ell o f w ild s p ecula ti o n a gain st th e
dolla r, l e achin g a no th er f o ur h und re d to ns o r s o o f g o ld o ut o f th e p ool; th is , l ik e th e p re v io us w av e,
was e v entu ally c alm ed b y r e ite ra ti o ns o n th e p art o f th e U nite d S ta te s a nd its g o ld -p ool p artn ers o f
th eir d ete rm in ati o n to m ain ta in th e s ta tu s q uo . B y th e e nd o f th e y ear, th e T re asu ry h ad lo st a lm ost a
billio n d olla rs ’ w orth o f go ld sin ce B rita in ’s d ev alu ati o n, re d ucin g its go ld sto ck to b elo w th e
tw elv e-b illio n-d olla r m ark fo r th e fir s t ti m e sin ce 1 937. P re sid ent Jo hnso n’s b ala nce-o f- p aym ents
pro gra m , a nno unced J a nuary 1 st, 1 968 a nd b ase d c hie fly o n re str ic ti o ns o n A meric an b ank le nd in g
and in d ustr ia l in v estm ents a b ro ad , h elp ed k eep s p ecula ti o n d ow n fo r tw o m onth s. B ut th e g o ld r u sh
was no t to be quelle d so sim ply . A ll ple d ges no tw ith sta nd in g, it had pow erfu l eco no m ic and
psy cho lo gic al fo rc es b ehin d it. In a la rg er se nse , it w as a n e xp re ssio n o f a n a ge-o ld te nd ency to
dis tr u st a ll p ap er c urre ncie s i n ti m es o f c ris is , b ut m ore s p ecific ally i t w as th e l o ng-fe are d s e q uel to
ste rlin g d ev alu ati o n, a nd — perh ap s m ost s p ecific ally o f a ll— it w as a v ote o f n o c o nfid ence in th e
dete rm in ati o n o f th e U nite d S ta te s to k eep i ts e co no m ic a ffa ir s i n o rd er, w ith p arti c ula r r e fe re nce to a
le v el o f c iv ilia n c o nsu m pti o n b eyo nd th e d re am s o f a v aric e a t a ti m e w hen e v er-in cre asin g b illio ns
were b ein g s e nt a b ro ad to s u p port a w ar w ith n o e nd in s ig ht. T he m oney in w hic h th e w orld w as
su p pose d to b e p utti n g its tr u st lo oked to th e g o ld sp ecula to rs lik e th at o f th e m ost re ckle ss a nd
im pro vid ent s p end th rift.
When th ey re tu rn ed to th e a tta ck, o n F eb ru ary 2 9th — cho osin g th at d ay fo r n o a ssig nab le re aso n
excep t th at a sin gle U nite d S ta te s se nato r, Ja co b Ja v its , had ju st re m ark ed , w ith eith er dead ly
se rio usn ess o r c asu al in d is c re ti o n, th at h e th o ught h is c o untr y m ig ht d o w ell to s u sp end te m pora rily
all g o ld p aym ents to fo re ig n c o untr ie s— it w as w ith s u ch fe ro city th at th e s itu ati o n q uic kly g o t o ut o f
hand . O n M arc h 1 st, th e g o ld p ool d is p ense d a n
e sti m ate d fo rty to fifty to ns in L ond on (a s a gain st
th re e o r fo ur to ns o n a n o rm al d ay); o n M arc h 5 th a nd 6 th , fo rty to ns p er d ay; o n M arc h 8 th , o ver
se v enty -fiv e to ns; a nd o n M arc h 1 3th , a to ta l th at c o uld n o t b e a ccura te ly e sti m ate d b ut r a n w ell o ver
one h und re d to ns. M eanw hile , th e p ound , w hic h c o uld n o t p ossib ly e sc ap e a f u rth er d ev alu ati o n i f th e
dolla r w ere to b e d ev alu ed i n r e la ti o n to g o ld , s lip ped b elo w i ts p ar o f $ 2.4 0 f o r th e f ir s t ti m e. S ti ll
ano th er r e ite ra ti o n o f th e n o w -fa m ilia r p le d ges, th is ti m e fr o m th e c entr a l- b ankers ’ c lu b a t B ase l o n
Marc h 1 0th , s e em ed to h av e n o e ffe ct a t a ll. T he m ark et w as in th e c la ssic s ta te o f c hao s, d is tr u stf u l
of e v ery p ub lic a ssu ra nce a nd a t th e m erc y o f e v ery p assin g r u m or. A le ad in g S w is s b anker g rim ly calle d th e situ ati o n “th e m ost dangero us sin ce 1931.” A m em ber of th e B ase l clu b , te m perin g
desp era ti o n w ith c harity , s a id th at th e g o ld s p ecula to rs a p pare ntl y d id n’t re aliz e th eir a cti o ns w ere
im perillin g th e w orld ’s m oney. T he N ew Y ork
Tim es
, in a n e d ito ria l, s a id , “ It is q uite c le ar th at th e
in te rn ati o nal p aym ents s y ste m … i s e ro din g.”
On T hurs d ay, M arc h 1 4th , p anic w as a d ded to c hao s. L ond on g o ld d eale rs , i n d esc rib in g th e d ay’s
acti o n, u se d th e u n-B riti s h w ord s “ sta m ped e,” “ cata str o phe,” a nd “ nig htm are .” T he e xact v olu m e o f
go ld s o ld th at d ay w as u nanno unced , a s u su al— pro bab ly i t c o uld n o t h av e b een p re cis e ly c o unte d , i n
any c ase — but e v ery o ne a gre ed th at it h ad b een a n a ll- ti m e re co rd ; m ost e sti m ate s p ut th e to ta l a t
aro und tw o h und re d to ns, o r tw o h und re d a nd tw enty m illio n d olla rs ’ w orth , w hile th e
Wall S tr e et
Jo urn al
p ut i t tw ic e th at h ig h. I f th e f o rm er e sti m ate w as r ig ht, d urin g th e tr a d in g d ay th e U nite d S ta te s
Tre asu ry h ad p aid o ut th ro ugh i ts s h are o f th e g o ld p ool a lo ne o ne m illio n d olla rs i n g o ld e v ery th re e
min ute s and fo rty -tw o se co nd s; if th e
Jo urn al
fig ure w as rig ht (a s a su b se q uent Tre asu ry
anno uncem ent m ad e it a p pear to b e), a m illio n e v ery
one
m in ute a nd
fifty -o ne
s e co nd s. C le arly , th is
would n’t d o. L ik e B rita in in 1 964, a t th is ra te th e U nite d S ta te s w ould h av e a b are c up board in a
matte r o f d ays. T hat a fte rn o on, th e F ed era l R ese rv e S yste m r a is e d its d is c o unt r a te fr o m fo ur a nd a
half to fiv e p er cent— a d efe nsiv e m easu re so ti m id and in ad eq uate th at o ne N ew Y ork b anker
co m pare d it to a p opgun, a nd th e F ed era l R ese rv e B ank o f N ew Y ork , a s th e
S yste m ’s fo re ig n-
exchange a rm , w as m oved to p ro te st b y r e fu sin g to g o a lo ng w ith th e to ken r a is e . L ate in th e d ay in
New Y ork , a nd to w ard m id nig ht in L ond on, th e U nite d S ta te s a sk ed B rita in to k eep th e g o ld m ark et
clo se d th e n ext d ay, F rid ay, to p re v ent fu rth er c ata str o phe a nd c le ar th e w ay to th e w eekend , w hen
fa ce-to -fa ce in te rn ati o nal co nsu lta ti o ns co uld b e held . T he b ew ild ere d A meric an p ub lic , la rg ely
unaw are o f th e go ld p ool’s exis te nce, p ro bab ly fir s t se nse d th e genera l sh ap e o f th in gs w hen it
le arn ed o n F rid ay m orn in g th at Q ueen E liz a b eth II h ad m et w ith h er M in is te rs o n th e c ris is b etw een
mid nig ht a nd 1
A.M .
On F rid ay, a d ay o f nerv ous w aiti n g, th e L ond on m ark ets w ere clo se d , and so w ere fo re ig n-
exchange d esk s n early e v ery w here e ls e , b ut g o ld s h o t u p to a b ig p re m iu m i n th e P aris m ark et— a s o rt
of b la ck m ark et, f r o m th e A meric an s ta nd poin t— and i n N ew Y ork s te rlin g, u nsu p porte d b y th e f ir m ly
lo cked B ank o f E ngla nd , b rie fly f e ll b elo w i ts o ffic ia l b otto m p ric e o f $ 2.3 8 b efo re r a lly in g. O ver th e
weekend , th e c entr a l b ankers o f th e g o ld -p ool n ati o ns (th e U nite d S ta te s, B rita in , W est G erm any,
Sw itz e rla nd , Ita ly , th e N eth erla nd s, and B elg iu m , w ith F ra nce sti ll co nsp ic uo usly m is sin g and ,
in d eed , u nin v ite d th is ti m e) m et in W ash in gto n, w ith C oom bs p arti c ip ati n g fo r th e F ed era l R ese rv e
alo ng w ith C hair m an M arti n . A fte r tw o fu ll d ays o f rig id ly s e cre t d is c ussio ns, w hile th e w orld o f
money w aite d w ith b ate d b re ath , th ey a nno unced th eir d ecis io ns l a te o n S und ay a fte rn o on. T he th ir ty -
fiv e-d olla r-a n-o unce o ffic ia l m oneta ry p ric e o f g o ld w ould b e k ep t fo r u se in a ll d ealin gs a m ong
centr a l b anks; th e g o ld p ool w ould b e d is b and ed , a nd th e c entr a l b anks w ould s u p ply n o m ore g o ld to
th e L ond on m ark et, w here p riv ate ly tr a d ed g o ld w ould b e a llo w ed to fin d its o w n p ric e; s a ncti o ns
would b e ta ken a gain st a ny c entr a l b ank se ekin g to p ro fit fr o m th e p ric e d iffe re nti a l b etw een th e
centr a l- b ank p ric e a nd th e fr e e-m ark et p ric e; a nd th e L ond on g o ld m ark et w ould r e m ain c lo se d fo r a
co up le o f w eeks, u nti l th e d ust s e ttl e d . D urin g th e f ir s t f e w m ark et d ays u nd er th e n ew a rra ngem ents ,
th e p ound r a llie d s tr o ngly , a nd th e fr e e-m ark et p ric e o f g o ld s e ttl e d a t b etw een tw o a nd fiv e d olla rs
ab ove th e c entr a l- b ank p ric e— a d iffe re nti a l c o nsid era b ly s m alle r th an m any h ad e xp ecte d .
The c ris is h ad p asse d , o r
th at
c ris is h ad . T he d olla r h ad e sc ap ed d ev alu ati o n, a nd th e i n te rn ati o nal
moneta ry m echanis m w as in ta ct. N or w as th e s o lu ti o n a p arti c ula rly r a d ic al o ne; a fte r a ll, g o ld h ad
been o n a tw o-p ric e b asis in 1 960, b efo re th e g o ld p ool h ad b een fo rm ed . B ut th e s o lu ti o n w as a
te m pora ry , s to pgap o ne, a nd th e c urta in w as n o t d ow n o n th e d ra m a y et. L ik e H am le t’ s g ho st, th e pound , w hic h h ad sta rte d th e a cti o n, w as o ffs ta ge n o w . T he p rin cip al a cto rs o nsta ge a s su m mer
ap pro ached w ere th e F ed era l R ese rv e a nd th e U nite d S ta te s T re asu ry , d oin g w hat th ey c o uld in a
te chnic al w ay to k eep th in gs o n a n e v en k eel; th e C ongre ss, c o m pla cent w ith p ro sp erity , p re o ccup ie d
with c o m in g e le cti o ns, a nd th ere fo re re sis ta nt to h ig her ta xes a nd o th er u nco m fo rta b le re tr e nchin g
measu re s ( o n th e v ery a fte rn o on o f th e L ond on p anic , th e S enate F in ance C om mitte e h ad v ote d d ow n
an in co m e-ta x s u rc harg e); a nd , fin ally , th e P re sid ent, c allin g fo r “ a p ro gra m o f n ati o nal a uste rity ” to
defe nd th e d olla r, y et a t th e s a m e ti m e c arry in g o n a t e v er-in cre asin g e xp ense th e V ie tn am w ar, w hic h
had b eco m e a s m enacin g to th e h ealth o f A meric a’s m oney a s, in th e v ie w o f m any, it w as to th at o f
Americ a’s so ul. U lti m ate ly , it a p peare d , th e n ati o n h ad ju st th re e p ossib le e co no m ic c o urs e s: to
so m eho w e nd th e V ie tn am w ar, ro ot o f th e p aym ents p ro ble m a nd th ere fo re h eart o f th e m atte r; to
ad opt a f u ll w arti m e e co no m y, w ith s k y-h ig h ta xes, w age a nd p ric e c o ntr o ls , a nd p erh ap s r a ti o nin g; o r
to f a ce f o rc ed d ev alu ati o n o f th e d olla r a nd p erh ap s a d ep re ssio n-b re ed in g w orld m oneta ry m ess.
Lookin g b eyo nd th e V ie tn am w ar a nd its in cre d ib ly b ro ad w orld w id e m oneta ry im plic ati o ns, th e
centr a l b ankers w ent o n p lu ggin g a w ay. T w o w eeks a fte r th e s to pgap s o lu ti o n o f th e d olla r c ris is ,
th o se o f th e te n m ost p ow erfu l in d ustr ia l c o untr ie s m et in S to ckho lm a nd a gre ed , w ith o nly F ra nce
dis se nti n g, o n th e g ra d ual c re ati o n o f a n ew in te rn ati o nal m oneta ry u nit to s u p ple m ent g o ld a s th e
bed ro ck u nd erly in g a ll c urre ncie s. I t w ill c o nsis t ( if a cti o n f o llo w s o n r e so lu ti o n) o f s p ecia l d ra w in g
rig hts o n th e In te rn ati o nal M oneta ry F und , a v aila b le to n ati o ns in p ro porti o n to th eir e xis ti n g r e se rv e
ho ld in gs. In b ankers ’ ja rg o n th e r ig hts w ill b e c alle d S .D .R .’ s ; in p opula r ja rg o n th ey w ere a t o nce
calle d pap er go ld . T he su ccess of th e pla n in achie v in g its end s—
av erti n g dolla r dev alu ati o n,
overc o m in g th e w orld s h o rta ge o f m oneta ry g o ld , a nd th us p ostp onin g i n d efin ite ly th e th re ate ned m ess
—will d ep end o n w heth er o r n o t m en a nd n ati o ns c an so m eho w a t la st, in a tr iu m ph o f re aso n,
achie v e w hat th ey h av e f a ile d to a chie v e i n a lm ost f o ur c entu rie s o f p ap er m oney: th at i s , to o verc o m e
one o f th e o ld est a nd le ast r a ti o nal o f h um an tr a its , th e lu st fo r th e lo ok a nd fe el o f g o ld its e lf, a nd
co m e to g iv e tr u ly e q ual v alu e to a p le d ge w ritte n o n a p ie ce o f p ap er. T he a nsw er to th at q uesti o n
will c o m e i n th e l a st a ct, a nd th e o utl o ok f o r a h ap py e nd in g i s n o t b rig ht.
AS
th e la st a ct w as b egin nin g to u nfo ld — afte r th e s te rlin g d ev alu ati o n b ut b efo re th e g o ld p anic — I
went d ow n to L ib erty S tr e et a nd s a w C oom bs a nd H ayes. I f o und C oom bs l o okin g b one-ti r e d b ut n o t
so und in g d is h earte ned a b out th re e y ears s p ent la rg ely in a lo sin g c ause . “ I d on’t s e e th e fig ht fo r th e
pound a s a ll h av in g b een in v ain ,” h e s a id . “ W e g ain ed th o se th re e y ears , a nd d urin g th at ti m e th e
Briti s h p ut th ro ugh a lo t o f in te rn al m easu re s to str e ngth en th em se lv es. If th ey’d b een fo rc ed to
dev alu e i n 1 964, th ere ’s a g o od c hance th at w age-a nd -p ric e i n fla ti o n w ould h av e e ate n u p a ny b enefit
th ey d eriv ed a nd p ut th em b ack in th e s a m e o ld b ox. A ls o , o ver th o se th re e y ears th ere h av e b een
fu rth er g ain s in in te rn ati o nal m oneta ry c o öpera ti o n. G oodness k no w s w hat w ould h av e h ap pened to
th e w ho le sy ste m w ith dev alu ati o n in 1964. W ith o ut th at th re e-y ear in te rn ati o nal effo rt— th at
re arg uard a cti o n, y o u m ig ht s a y— ste rlin g m ig ht h av e c o lla p se d in m uch g re ate r d is o rd er, w ith fa r
more d am agin g r e p erc ussio ns th an w e’v e s e en e v en n o w . R em em ber th at, a fte r a ll, o ur e ffo rt a nd th e
effo rt o f th e o th er c entr a l- b anks w asn ’t to h o ld u p s te rlin g f o r i ts o w n s a ke. I t w as to h o ld i t u p f o r th e
sa ke o f p re se rv in g th e s y ste m . A nd th e s y ste m h as s u rv iv ed .”
Hayes, o n th e s u rfa ce, s e em ed e xactl y a s h e h ad w hen I l a st s a w h im , a y ear a nd a h alf e arlie r— as
pla cid a nd u nru ffle d a s if h e h ad b een sp end in g a ll th at ti m e stu d yin g u p o n C orfu . I a sk ed h im
wheth er h e w as s ti ll l iv in g u p to h is p rin cip le o f k eep in g b ankers ’ h o urs , a nd h e r e p lie d , s m ilin g v ery
slig htl y , th at th e p rin cip le h ad lo ng s in ce y ie ld ed to e xp ed ie ncy— th at, a s a ti m e
c o nsu m er, th e 1 967
ste rlin g c ris is h ad m ad e th e 1 964 c ris is s e em lik e c hild ’s p la y, a nd th at th e s u b se q uent d olla r c ris is was tu rn in g o ut to b e m ore o f th e s a m e. A s id e b enefit o f th e w ho le th re e-a nd -a -h alf- y ear a ffa ir, h e
sa id , w as th at its fr e q uentl y excru cia ti n g m elo dra m a had co ntr ib ute d so m eth in g to M rs . H ayes’
in te re st i n b ankin g, a nd e v en s o m eth in g, i f n o t s o m uch, to th e p ositi o n o f b usin ess i n T om ’s s c ale o f
valu es.
When H ayes s p oke o f th e d ev alu ati o n, h o w ev er, I s a w th at h is p la cid ity w as a m ask . “ O h, I w as
dis a p poin te d , a ll r ig ht,” h e s a id q uie tl y . “ A fte r a ll, w e w ork ed lik e th e d ev il to p re v ent it. A nd w e
nearly d id . In m y o pin io n, B rita in c o uld h av e g o t e no ugh a ssis ta nce fr o m a b ro ad to h o ld th e r a te . It
co uld h av e b een d one w ith o ut F ra nce. B rita in c ho se to d ev alu e. I th in k th ere ’s a g o od c hance th at th e
dev alu ati o n w ill ev entu ally b e a su ccess. A nd th e gain fo r in te rn ati o nal co öpera ti o n is b eyo nd
questi o n. C harlie C oom bs a nd I c o uld f e el th at a t F ra nkfu rt i n N ovem ber, a t th e g o ld -p ool m eeti n g— a
se nse e v ery o ne th ere h ad th at n o w i s th e ti m e to l o ck a rm s. B ut s ti ll … ” H ayes p ause d , a nd w hen h e
sp oke a gain h is v oic e w as f u ll o f s u ch q uie t f o rc e th at I s a w th e d ev alu ati o n th ro ugh h is e yes— no t a s
ju st a se v ere p ro fe ssio nal re v ers e b ut a s a n id eal lo st a nd a n id ol fa lle n. H e sa id , “ T hat d ay in
Novem ber, h ere a t th e b ank, w hen a c o urie r b ro ught m e th e to p-s e cre t B riti s h d ocum ent i n fo rm in g u s
of th e d ecis io n to d ev alu e, I f e lt p hysic ally s ic k. S te rlin g w ould n o t b e th e s a m e. I t w ould n ev er a gain
co m mand th e s a m e a m ount o f f a ith a ro und th e w orld .” In d ex
A. B . D ic k C om pany,
145
,
146
,
147
Abad an r e fin ery ,
271
Acco unt n um ber, ta xp ayer,
90
Adria n H . M ulle r & S on,
245
Akro n B ea co n J o urn al
,
304
,
307
Ala sk a,
272
Allie d C ru d e V egeta b le O il & R efin in g C o.,
178
,
179
,
181
Allis -C halm ers M fg . C o.,
217
,
218
Americ an B ar A sso cia ti o n,
312
; ta xati o n s e cti o n o f,
112
Americ an B ro ad casti n g C om pany,
156
Americ an E ducati o n P ub lic ati o ns,
156
,
165
Americ an L aw I n sti tu te ,
303
Americ an P ho to co py C o.,
148
Americ an P ota sh & C hem ic al C orp .,
312
Am eric a n P ublic F in ance
( S chultz & H arris s),
78
Am eric a n S ch ola r
,
162
,
164
Americ an S ocie ty o f C orp ora te S ecre ta rie s,
278
Americ an Tele p ho ne and Tele gra p h C o.,
8 ,
9 ,
15–28
,
278
; co ntr ib uti o ns by,
154
; sto ckho ld ers ’
meeti n g,
279–285
Am eric a n W ay i n T axa tio n, T he
( D oris , e d .) ,
92
Anti- In te lle ctu alis m i n A m eric a n L ife
( H ofs ta d te r),
108
Anti - T ru st D iv is io n, D ep artm ent o f J u sti c e,
268
Arc h ite ctu re
,
315
Ark in , F ra nces,
282
,
284
Arn o ld , F orta s & P orte r,
94
Arro w S to re s,
243
Arth ur Y oung a nd C o.,
291
Asb rin k, P er,
358
Asto r, J o hn J a co b,
119
Atla ntic M onth ly
,
11
Ato m ic E nerg y C om mis sio n,
250
Atta p ulg us M in era ls & C hem ic als C orp .,
256
,
257
,
258
Auchin clo ss, L ouis ,
80
Austr a lia , i n co m e ta x i n ,
82
Austr ia , b ank f a ilu re i n ,
338
Auto m obile d eale rs ,
44
,
71
Auto m otiv e N ew s
,
60
,
65
Auth o rs L eague o f A meric a,
109
,
163
B. F . G oodric h C o.,
297
,
304
,
306
,
310
Bageho t, W alte r,
317
,
345
Baile y, H erb ert S ., J r.,
163
Bala nce o f p aym ents ,
319
,
322 Bald w in -L im a-H am ilto n,
223
Bank f a ilu re s, d om in o p rin cip le o f,
338
Bank o f I n te rn ati o nal S ettl e m ents ,
328
,
329
,
332
,
364
,
365
Bank o f A ustr ia ,
338
Bank o f B elg iu m ,
362
Bank o f E ngla nd ,
194
,
316
,
320–326
,
333–375
,
380
Bank o f F ra nce,
316
,
332
,
360
Bank r a te ( B rita in ),
334
,
335
,
343
,
347
,
376
,
377
Bar A sso cia ti o n o f th e C ity o f N ew Y ork ,
312
Barin g, S ir E vely n,
342
Barin g, G eo rg e R . S . (
se e
C ro m er, 3 rd E arl o f)
Barin g B ro th ers ( L ond on),
357
Barre tt, E m ers o n P .,
302
Barro n’s
,
156
Base l, S w itz e rla nd ,
329
,
332
,
333
,
334
Basic S yste m s,
156
Batte lle M em oria l I n sti tu te ,
150–153
,
168
Baze lo n, D av id T .,
78
Bear r a id s,
227
,
328
Becker, H ora ce W .,
169
,
170
Belg iu m , ta x c o lle cti n g i n ,
88
Bell T ele p ho ne C o.,
268
Berle , A . A .,
276
,
277
,
285
Bic ks, R obert A .,
201
,
202
Bid -rig gin g,
200
Big B usin ess: A N ew E ra
( L ilie nth al) ,
251
,
267
,
269
Bis h o p, R obert M .,
177
,
180–184
,
187
,
191
Bla ck, E ugene R .,
255
Bla ck T hurs d ay, N .Y . S to ck E xchange,
18
Ble ssin g, K arl,
358
,
361
Blu m e, N eil L .,
52
Board o f T ra d e ( C hic ago ),
178
Bonsa l, D ud le y J .,
120
,
132
,
136–144
Bow ers S to re s,
243
Bra d fo rd , E . W .,
238
Bra nd , M arth a,
291
Bre ech, E rn est R .,
27
,
30
,
32
,
41
,
53
,
54
Bre tto n W oods a gre em ent,
320
,
322
,
329
,
340
Brid ge, R oy A . O .,
324
Bro m berg er, A lle n,
265
Bro m berg er, D anie l,
265
Bro m berg er, N ancy,
265
Bro m berg er, S ylv ain ,
265
,
266
Bro w n, G eo rg e,
326
,
335
,
342
Bro w n, R oy A .,
30
,
32
,
43
,
52
,
56
,
63
,
68
,
73 Bru net, J a cq ues,
358
Bru sa ti , L ouis A .,
287
,
288
Buckin gham , D oolittl e & B urro ughs,
306
Burc h, J o hn C ,
246
Bure au o f A pplie d S ocia l R ese arc h, C olu m bia U niv ers ity ,
35
Bure ns, G eo rg e E .,
213
,
217
,
218
,
219
Burk e, C la re nce E .,
217
,
218
Busin ess W eek
,
68
,
278
Calla ghan, J a m es,
326
,
335
,
342
,
345
,
374
,
375
Cam pbell, A le xand er,
210
Canad a: C urre ncy c re d it to ,
347
; ta x c o lle cti n g i n ,
88
Canad ia n I n sti tu te o f M in in g a nd M eta llu rg y,
130
Canad ia n S hie ld ,
121
Cap ita l g ain s,
96
,
101
,
103
; ta xes o n,
86
,
87
,
102
Cap lin , M orti m er M .,
88–97
Carb on p ap er, e arly u se o f,
147
Carli, G uid o,
358
Carls o n, C heste r F .,
150
,
151
,
153
,
168
Carrie r C orp ora ti o n,
255
Cary , W illia m L .,
197
Casc ad e P ic tu re s,
46
Case , J o se p hin e Y oung,
292
Cauca V alle y ( C olo m bia ),
250
,
267
Centr a l b ankin g,
330
,
331
,
332
Ceylo n, e xp end itu re ta x i n ,
115
Cham pio n, G eo rg e,
187
Charita b le c o ntr ib uti o ns, a s ta x d ed ucti o n,
110
Charita b le f o und ati o ns, ta x e xem pti o ns o n,
109
Chary k, J o se p h V .,
295
Chase M anhatta n B ank,
186
,
187
,
192
,
193
,
315
Cheno w eth , R ic hard A .,
306
,
307
Chile ,
272
Chry sle r C orp ora ti o n,
149
Churc hill, W in sto n,
338
Cla p p, G ord on R .,
250
,
270
,
271
Cla rk , H aro ld E .,
167
,
168
Cla yto n, R ic hard H .,
122–139
,
143
,
144
Cla yto n A nti tr u st A ct ( 1 914),
201
Cle v ela nd , G ro ver,
84
Cle v ela nd P la n o f c harita b le c o ntr ib uti o n,
154
Coate s, F ra ncis G .,
131–136
,
140–143
Cohan, G eo rg e M .,
105
Cohan r u le ,
105
,
108 Cohen, S held on S .,
91–97
Collie r’s
,
255
Colo m bia ,
250
,
267
,
272
Colu m bia U niv ers ity ,
35
Com merc e C le arin g H ouse ,
107
Com modity f u tu re s,
178
Com munic ati o n, p ro ble m o f,
199–223
Com munic ati o ns S ate llite C orp .,
278
,
293
Com munis t c o untr ie s, i n co m e ta x i n ,
88
Com munity p ro perty l a w s,
116
Cond uct a nd C om pla in ts D ep artm ent N .Y . S to ck E xchange,
189
Cone, F air fa x M .,
43
,
44
Confu sio n o f C onfu sio ns
( D e l a V ega),
2
Conso lid ate d E dis o n,
278
Consu m er R ep orts
,
58
,
59
,
66
Consu m ers U nio n,
60
Conti n enta l c entr a l b anks,
364
Conti n enta l I llin o is N ati o nal B ank & T ru st C o.,
189
,
190
,
191
Cooke, M orris ,
267
Coom bs, C harle s A .,
319
,
323
,
326
,
328
,
332–334
,
341–354
,
359
,
361–372
,
383
,
386
,
388
Copela nd , R obert F . G .,
48
Copie rs , a s o ppose d to d up lic ato rs ,
147
“C opy” a s “ co unte rfe it,”
146
Copyrig ht l a w s,
163
,
164
Cord in er, R alp h J .,
208
,
210
,
211
,
215
,
219
,
221
,
222
,
223
Corn er, g am e o f,
224–248
Corp ora te p ensio n p la ns,
103
Corp ora ti o ns, i n co m e ta xes o n,
86
Coyle , F ra nk J .,
176
,
177
,
180
,
189
Cra nle y, J o hn J .,
18
Cra w fo rd , D av id M .,
131–139
,
143
,
144
Cre d ita nsta lt ( B ank o f A ustr ia ),
338
Cro m er, 3 rd E arl o f,
324
,
332
,
335
,
342–343
,
357–361
,
364–366
,
373
Cro oks, R ic hard M .,
182
,
183
,
184
,
198
Cru so e, L ew is D .,
28
Curre ncy d ev alu ati o n,
321
Curre ncy w eakness,
321
Curti s P ub lis h in g C o.,
126
Curz o n, L ord ,
271
Dalla s, A le xand er J .,
83
Dark e, K enneth ,
122–139
Dariu s, K in g o f P ers ia ,
270
Dav is , E vely n,
282–284
,
290–295 De A ngelis , A nth o ny,
179
De l a V ega, J o se p h,
2 ,
3 ,
4 ,
5 ,
6 ,
7 ,
8 ,
11
,
13
,
15
,
22
,
24
Dep le ti o n a llo w ance o n p etr o le um ,
86
,
96
,
103
,
104
Dep re cia ti o n, a s ta x d ed ucti o n,
103
Dessa uer, J o hn H .,
165
,
166
,
167
Detr o it F re e P re ss
,
58
Deuts c he B und esb ank,
361
,
364
,
365
Dev alu ati o n,
321
,
322
; o f p ound s te rlin g,
374
,
376
; b y v ario us c o untr ie s,
379–380
Dev elo pm ent & R eso urc es C orp .,
250
,
267–275
Dia l- A -M ati c A uto sta t,
148
Dia m ond , W alte r H .,
88
Dic k, C . M atth ew s, J r.,
146
Dic k m im eo gra p h,
148
Dillo n, D ougla s,
341
,
342
,
347
,
362
Dis c o unt r a te , F ed era l R ese rv e S yste m ,
385
Div id end s, w ith ho ld in g o f ta xes o n,
96
Dolla rs : g o ld e xchangeab ility o f,
320
,
323
; w eakenin g o f,
347
,
382–388
Doris , L illia n,
92
Dougla s, P aul H .,
117
Dow -J o nes a v era ge,
2
Dow -J o nes N ew s S erv ic e,
4 ,
13
,
14
,
15
,
134
Doyle , A rth ur W .,
311
Doyle , J . C . ( L arry ),
45
,
48
,
61–64
,
69
,
72
,
73
Dre w , D anie l,
119
Dre yfu s & C o.,
18
Dre yfu s F und ,
18
Dry w riti n g,
152
Dutc h C ookie M achin e C o.,
303
Dup lic ato rs , a s o ppose d to c o pie rs ,
147
DuP ont d e N em ours & C o., E .I .,
312
DuP ont, H om se y & C o.,
185
E. F . H utto n & C o.,
132
E. I . d uP ont d e N em ours & C o.,
312
E. L . B ru ce C om pany,
224
Eastm an K odak,
148
,
150
Ebers ta d t, F erd in and ,
260
Ebte haj, A bolh asse n,
270
Eco nom is t
,
365
,
367
,
373
Edgar B ro th ers ,
258
Edis o n M im eo gra p h,
147
Edis o n, T ho m as A .,
145
Edse l a uto m obile ,
26–75
Effle r, C arl,
299
,
300
,
302
,
306 Eis e nste in , L ouis ,
113
Ele ctr ic al- m anufa ctu rin g i n d ustr y , p ric e-fix in g a nd b id -rig gin g i n ,
200
Ele ctr o pho to gra p hy,
150
Ellis , R id sd ale ,
309
Ente rta in m ent d ed ucti o ns,
104
,
105
,
106
,
107
Erb en, H enry V . B .,
207–211
,
221
ETC : A R evie w o f G en era l S em antic s
,
65
Euro dolla rs ,
192
Euro pean c o untr ie s, i n co m e ta x i n ,
82
Excis e ta xes,
114
Exp end itu re ta x,
115
“E xp ense A cco unts 1 963,”
107
Exp ort- Im port B ank l o an,
347
,
348
,
349
,
352
F. E bers ta d t & C o.,
257
Fair m an, F ra ncis ,
207
,
208
Fair -u se d octr in e,
164
Fed era l i n co m e ta x,
76–117
Fed era l l o tte rie s,
114
Fed era l P acific E le ctr ic C o.,
217
Fed era l R ese rv e A ct,
347
Fed era l R ese rv e B ank,
329
,
341
Fed era l R ese rv e B ank o f N ew Y ork ,
314
,
315
Fed era l R ese rv e B oard ,
316
,
329
Fed era l R ese rv e s ta nd by c re d it,
347
Fed era l R ese rv e S yste m ,
316
; d is c o unt r a te ,
385
Feiffe r, J u le s,
222
Felle r, M ax,
299
,
301
Fin ancia l C om mitte e o f L eague o f N ati o ns,
329
Fir s t N ati o nal C ity B ank,
186
Flo or s p ecia lis ts , N .Y . S to ck E xchange,
16
Fogarty , C harle s F .,
122–138
Foodele ctr ic ,
248
Fool’ s g o ld ,
121
Foote , C one & B eld in g,
40
,
42
,
43
,
59
,
71
Forb es, H arla nd C .,
278
Ford , H enry , I I,
27
,
30
,
32
,
41
,
51
,
54
,
63
Ford F ound ati o n,
67
Ford M oto r C om pany,
26–75
Ford M oto r C om pany, L td . ( E ngla nd ),
73
Fore ig n T ax & T ra de B rie fs
,
88
Fortu ne
,
149
,
153
,
203
Forw ard P ro duct P la nnin g C om mitte e, F ord M oto r C o.,
28
Fra nce: i n co m e ta x i n ,
81
,
82
; ta x c o lle cti n g i n ,
88
; v alu e a d ded ta x i n ,
114 Fra nk, W alte r N .,
187
Funsto n, G . K eith ,
181
,
185–188
,
191
,
194–198
Gallo w ay, W ayne,
300
,
306
Ganey, J . C ulle n,
202–205
,
213
,
217
,
223
Genera l E le ctr ic C o.,
203–207
,
212–214
,
217
,
221
,
222
,
278
,
279
,
286–289
Genera l F oods,
72
Germ any: b ank f a ilu re i n ,
338
; r e v alu ati o n o f c urre ncy i n ( 1 961),
322
; v alu e a d ded ta x i n ,
114
Gezo n, L . B .,
213
,
214
,
219
Ghana,
250
,
272
Gifts , ta xes o n,
109
Gilb ert, J o hn,
290
Gilb ert, L ew is D .,
280–282
,
290–295
Gille sp ie , S . H aza rd ,
142
,
143
Gin n, W illia m S .,
207–212
,
215
,
219
,
221
,
223
Gold ,
317
,
337
; i n e xchange f o r d olla rs ,
320
,
323
,
381
Gold -e xchange s ta nd ard ,
339–340
Gold p ool, L ond on,
381–386
Gold s ta nd ard : a b and oned i n U .S .,
339
; a d opti o n o f b y E uro pean c o untr ie s,
338
; i n G re at B rita in ,
337
Gold m an, S achs & C o.,
192
Goodric h C o. (
se e
B .F . G oodric h C o.)
Goodric h
v .
Wohlg em uth
,
304
,
305
Gore , A lb ert,
117
Gra p hite ,
121
Gre a t A sc en t, T he
( H eilb ro ner),
12
Gre at B rita in : b ala nce o f p aym ents o f,
319
,
372
; b ank r a te o f,
334
,
335
,
376
,
377
; g o ld s ta nd ard in ,
337
; in co m e ta x in ,
81
,
82
; in tr o ducti o n o f x ero gra p hy in ,
170
; ra is in g o f in te re st ra te s in ,
325
;
ste rlin g c ris is i n ,
315–389
; ta x c o lle cti n g i n ,
88
; ta x l a w o f,
103
Gre a t T re a su ry R aid , T he
( S te rn ),
117
“G re ate r T ax S av in gs— A C onstr u cti v e A ppro ach,”
110
Gre ene, N ath an,
260
,
264
,
265
Gre enew alt, C ra w fo rd ,
263
Gre go ry , S eth ,
256
,
257
Haem is e gger, H . F re d ,
134
,
142
Halo id C o.,
150
,
152
Halo id X ero x, I n c.,
149
,
153
Harc o urt, B ra ce & W orld ,
162
Hard in g, B ertr a nd M .,
91
Harle m R ailw ay,
228
Harris s, C . L ow ell,
78
Hart, P hilip A .,
205
,
212
Harv a rd B usin ess R evie w
,
278
,
281
,
286 Harv ey, F ra nk H .,
305
,
308
,
310
,
311
Haup t & C o. (
se e
I r a H aup t & C o.)
Hayakaw a, S .I .,
65
Hayes, A lfr e d ,
319
,
323–326
,
328
,
341–370
,
383
,
388
,
389
Head ta xes,
80
Hea rt o f J a pan, T he
( C am pbell) ,
210
Heilb ro ner, R obert L .,
12
Helle rs te in , J e ro m e,
85
,
95
,
102
,
107
Henry A nsp acher & C o. ( L ond on),
189
,
194
Hents c hel, H . F ra nk,
217
,
218
Hic kenlo oper, B ourk e,
253
Hin to n, L ongstr e et,
135
,
140–142
Hofs ta d te r, R ic hard ,
108
Holm es, O liv er W end ell,
303
Holtr o p, M ariu s W .,
362
,
364
Holy k, W alte r,
122–126
,
130
,
133
,
136
,
138
House J u d ic ia ry C om mitte e,
164
Hovde, F re d eric k L .,
287
Id eo lo gie s o f T axa tio n, T he
( E is e nste in ),
113
In d ia ,
255
; d ev alu ati o n o f r u p ee i n ,
322
; e xp end itu re ta x i n ,
115
; i n co m e ta x i n ,
82
In d us R iv er,
255
In gra ham , J o se p h C .,
57
In ju ncti o n, o rig in o f,
305–306
In co m e ta x,
80–82
; a v oid ance o f,
100
; in C om munis t c o untr ie s,
88
; in F lo re nce ( 1 5th c entu ry ),
80
; in
vario us c o untr ie s,
88
In co m e-ta x l a w ,
97
In sid e i n fo rm ati o n, l e giti m ate u se o f,
118–144
In sid er T ra din g a nd t h e S to ck M ark et
( M anne),
120
In te lle ctu al w ork , a nd ta xes,
108
In te rd ic t, d efin ed ,
306
In te re st, w ith ho ld in g o f ta xes o n,
96
In te re st r a te s,
316
,
325
In te rn al R ev enue C ode: ( 1 954),
79
,
96
,
98
; ( 1 964),
100
,
101
,
102
,
108
,
113
; c o m ple xity o f,
111
In te rn al R ev enue S erv ic e,
89–97
; a nd ta xp ayer e d ucati o n,
112
In te rn ati o nal B usin ess M achin es,
8 ,
9 ,
14
,
18
,
152
In te rn ati o nal H arv este r,
378
In te rn ati o nal L ate x C orp .,
298
,
299
,
301
,
306–311
In te rn ati o nal M oneta ry F und ,
322
,
324–325
,
329
,
330
; m em bers o f,
328
; s p ecia l d ra w in g rig hts o n
(S .D .R .) ,
387
In te rn ati o nal T ele p ho ne & T ele gra p h,
378
Ir a H aup t & C o.,
176–189
Ir a n,
250
,
270
,
274
Ita ly ,
250
,
272
,
347 I- T -E C ir c uit B re aker C o.,
213
,
217
Iv ory C oast,
250–251
,
272
J. R . W illis to n & B eane,
177
,
179
,
181
,
182
,
185
Ja p an, i n co m e ta x i n ,
82
Ja v its , J a co b,
384
Je ffe rs o n, T ho m as,
260
Je te r, R . G .,
302
,
306–308
,
311–313
Jo hn B ir c h S ocie ty ,
155
Jo hnso n, L ynd on B .,
80
,
197
,
381
,
384
Ju d ge, J . E m met,
48
,
49
,
50
Kais e r, H enry J .,
29
Kald or, N ic ho la s,
115
Kam erm an, M orto n,
176–180
,
183
Kap pel, F re d eric k R .,
278
,
280–285
Karp , I r w in ,
163
Kash m ir ,
255
Keed oozle s to re s,
247
,
248
Kefa uv er, E ste s,
200
,
207
,
210
,
214
,
216
,
218
,
221–223
Kefa uv er S ub co m mitte e,
205
Kennam er, F ra nk E ., J r.,
136
,
142
Kenned y, J o hn F .,
3 ,
80
,
104
,
105
,
177
Keynes, J o hn M .,
339
Khuzis ta n,
250
,
270–274
Kid d-5 5 s e gm ent,
121–136
Kle in w ort, B enso n, L td .,
189
,
192
,
194
Korn ei, O tto ,
150
,
151
Kra fv e, R ic hard ,
28–74
Kre is le r, C harle s,
46
,
63
La B ra nche, G eo rg e M . L ., J r.,
15
,
16
,
17
,
18
La B ra nche a nd W ood & C o.,
15
La R ochefo ucauld , F ra nço is ,
146
Lam ont, T ho m as S .,
128
,
133
,
135
,
136
,
140–143
Lask er, A lb ert,
255
Lasse r T ax I n sti tu te ,
107
Late x (
se e
I n te rn ati o nal L ate x C orp .)
Laza rd F rè re s & C o.,
254–257
,
269
,
272
,
275
League o f N ati o ns, F in ancia l C om mitte e o f,
329
Lev er B ro th ers ,
72
Lev y, G usta v e L .,
192
,
193
,
194
Lib ra rie s, p ho to co pyin g a cti v iti e s o f,
161
Lilie nth al, D av id , J r.,
266
Lilie nth al, D av id E .,
249–275 Lilie nth al, H ele n L am b,
252
,
253
,
254
Lin o w itz , S ol M .,
151
,
152
,
165
,
171
,
172
,
175
Liv erm ore , J e sse L .,
231–235
Llo yd G eo rg e, D av id ,
338
Locke, J o hn,
147
Lond on g o ld p ool,
381–386
London T im es
,
334
,
336
,
341
,
365
Long, L . W .,
218
Loopho le s, ta x,
100
,
104
,
116
Louis X IV , K in g,
81
Luncheo n C lu b ( N . Y . S to ck E xchange),
132
McC ahill, T om ,
58
McC arth y, E ugene J .,
117
McC olo ugh, C . P ete r,
172
,
173
McC orm ack, J a m es,
293
,
294
,
295
McK een, J o hn E .,
289
McK ella r, K enneth D .,
251
McL uhan, M ars h all,
162
,
164
McN am ara , R obert S .,
72
Magnav ox C orp .,
157
Maho ney, J a m es P .,
196
,
197
Mais tr e , J o se p h d e,
97
Manne, H enry G .,
120
Manufa ctu re rs H ano ver T ru st C o.,
186–187
Marg in c alls , N . Y . S to ck E xchange,
9 ,
10
Marti n , W illia m M cC hesn ey,
341
,
342
,
347
,
362
,
381
,
396
Marti n sb urg M onste r,
91
Maud lin g, R egin ald ,
345
Maxim s
( L a R ochefo ucauld ),
146
Mech anix I llu str a te d
,
58
Meko ng V alle y,
275
Mem phis C om merc ia l A ppea l
,
238
,
242
,
243
Merrill, L ynch, P ie rc e, F enner & S m ith ,
6 ,
7 ,
15
,
141
,
182
Meyer, A nd ré ,
254
,
256
,
260
,
269
,
272
Mim eo gra p h m achin e,
145
Mim eo gra p hin g, e arly u se o f,
147
Min era ls & C hem ic als C orp ora ti o n o f A meric a,
251
,
256
,
259
Min era ls & C hem ic als P hilip p C orp .,
256
Min era ls S ep ara ti o n N orth A meric an C orp .,
256
,
258
Min neso ta M in in g & M anufa ctu rin g C o.,
148
Mollis o n, R ic hard D .,
122–138
Morg an, A rth ur,
268
Morg an, J . P .,
1
Morg an G uara nty T ru st C o.,
135
,
186 Morg an L ib ra ry ,
39
Morg enth au, H enry , J r.,
115
Moore , M aria nne,
39
,
40
,
41
Moth ner, S am uel,
6
Moto r T re n d
,
58
Mulla ney, T ho m as E .,
191
Munic ip al A rt S ocie ty o f N ew Y ork ,
315
Murra y, A rth ur,
303
Mutu al f u nd s,
23
; s e llin g b y,
10
Myrd al, G unnar,
336
Nance, J a m es J .,
64
,
65
Nati o nal A uto m obile D eale rs A sso cia ti o n,
71
Nati o nal B ro ad casti n g C o.,
291
Nati o nal E ducati o n A sso cia ti o n,
163
Nati o nal S ta te B ank o f N ew ark ,
189
Neth erla nd s, r e v alu ati o n o f c urre ncy i n ( 1 961),
322
New R ep ublic
,
202
New Y ork H era ld T rib une
,
128
,
129
New Y ork P ro duce E xchange,
178
,
181
New Y ork P ub lic L ib ra ry ,
161
New Y ork S to ck E xchange,
1–25
,
176–198
New Y ork T im es
,
12
,
57
,
128
,
129
,
183
,
197
,
230
,
241
,
250
,
385
New Y ork U niv ers ity L aw S cho ol, ta x d ep artm ent o f,
112
New Y ork er
,
39
New Z eala nd , i n co m e ta x i n ,
82
New man, G eo rg e H .,
177
North ern M in er, T he
( C anad a),
128
,
130
,
131
,
132
,
141
North ern P acific R ailw ay,
228
O’B rie n, S ir L eslie ,
373
Offic e r e p ro ducin g m achin es,
147
,
149
Offs e t p rin ti n g p re ss,
147
Oliv er, J o hn,
270
Olm ste ad , F re d ,
58
“O ne-p er-c ent p ro gra m ,” o f c harita b le c o ntr ib uti o ns,
154
Open M ark et C om mitte e,
347
,
348
Overc o pyin g,
160
P. R . M allo ry & C o.,
150
Page, J e rry ,
219
,
220
Pakis ta n,
255
Pap er g o ld ,
387 Paxto n, R obert,
206–215
,
219–223
Peel, S ir R obert,
82
Pers o nal h o ld in g c o m panie s,
103
Pfiz e r & C o.,
289
Phase -o f- th e-m oon f o rm ula ,
218
Philip pin es,
272
Phillip pe, G era ld L .,
278
,
286–289
Pho to sta ts , e arly u se o f,
147
Pig gly W ig gly S to re s,
225
,
229
,
230
,
235
,
236
,
238
Pla yte x G old en G ir d le ,
306
,
307
Plu m le y, H . L ad d,
19
Pound s te rlin g,
314–389
; b ours e r a te s o f,
345
; d ep artu re o f fr o m g o ld s ta nd ard ,
322
; d ev alu ati o n o f,
336
,
340
,
374
,
376
; o rig in ati o n o f,
337
; s y m bolic i m porta nce o f,
336
Pow ers , J o hn J .J r.,
290
Pow ers o f A tto rn ey
( A uchin clo ss),
80
Pre nti c e-H all, I n c.,
91
Pric e-fix in g,
200
,
201
Pro fe ssio nal s to ckho ld ers ,
280–296
Prin ceto n U niv ers ity P re ss,
163
Pro cte r & G am ble ,
149
Pro fe ssio nal a th le te s, a nd ta xes,
109
Puerto R ic o ,
251
,
272
Pyrite s,
121
Rad io C orp ora ti o n o f A meric a,
149
,
255
; c harita b le c o ntr ib uti o ns b y,
154
; s to ckho ld ers ’ m eeti n g,
290–291
Regula ti o ns o f ta x l a w ,
95
Resta te m en t o f t h e L aw o f T orts
,
303
Restr ic te d s to ck o pti o n,
87
Rev enue A ct ( 1 964),
98
,
104
Rev olv in g c re d its ,
329
Rho de I s la nd , c o lo nia l r e v enue s y ste m o f,
83
Roche, T ho m as J .,
344
,
349
Rocheste r, N ew Y ork ,
171
Rocheste r C om munity C hest,
154
Rolo , C harle s J .,
11
Roosa , R obert,
341
,
342
,
347
,
348
,
362
Roose v elt, T heo dore ,
201
Roth sc hild , N ath an,
119
Rule 1 0B -5 , o f S .E .C .,
119
,
120
,
139
,
141
Rusk in , J o hn,
146
Ryan, A lla n A .,
228
Ryan, T ho m as F ortu ne,
228
,
229 S. J a p het & C o., L td .,
189
,
194
Sarn o ff, D av id ,
291
,
292
Sarn o ff, R obert W .,
291
Satu rd ay R evie w
,
163
Saund ers , C la re nce,
226
,
229–238
,
240–248
Saxo n, O . G le nn, J r.,
278
,
281
,
286
Schle sin ger, A rth ur M ., J r.,
95
Schultz , W illia m J .,
78
Schw egle r, W alte r,
358
Sco tt, M ax,
213
Sco tt, W alte r D .,
291
Securiti e s a nd E xchange C om mis sio n,
120
,
136–143
,
177
,
232
,
240
,
241
Securiti e s E xchange A ct ( 1 934),
119
,
120
Security a naly sis , a nti p eris ta sis s y ste m o f,
22
Sele niu m ,
168
,
169
Selig m an, E dw in R . A .,
81
,
87
Sellin g s h o rt,
227
,
328
Seym our, W alto n,
270
Shep ard , L eo nard ,
299
Sherm an, J o hn,
84
Sherm an A nti tr u st A ct ( 1 890),
84
,
201
Shillin g, i n tr o ducti o n o f,
337
Sho rt s e llin g,
227
,
328
Silv er,
337
Sin ger C o.,
378
Six te enth A mend m ent, U .S . C onsti tu ti o n,
85
Sm ith , R aym ond W .,
214–217
,
220
Sole O w ner s to re s,
247
Sole O w ner T ig ers f o otb all te am ,
247
Soss, W ilm a,
280–287
,
292–295
Specia l d ra w in g r ig hts ( S .D .R .) , o n I n te rn ati o nal M oneta ry F und ,
387
Specia l- in te re st p ro vis io ns o f U .S . ta x l a w (
se e
L oopho le s)
Spin o ff,
257
Sta nd ard O il o f N ew J e rs e y,
8 ,
18
Sta te a nd m unic ip al b ond s, ta x e xem pti o ns o n,
100
Sta tis tic s o f I n co m e
( I.R .S .) ,
99
Ste hlik , F ra nk E .,
212–219
Ste p hens, C la ud e O .,
124
,
128–138
Ste rn , P hilip M .,
117
Sto ck c ra sh ( 1 962),
2 ,
4
Sto ck m ark et f lu ctu ati o ns,
1–24
Sto ck-o pti o n p ro vis io n,
101
Sto ck o pti o ns,
103
Sto ck tr a d ers ,
120
Sto ckho ld er m eeti n gs,
276–296 Stu tz M oto r C o.,
228–229
Sty lin g, o f a uto m obile s,
30
Suez c ris is ( 1 956),
329
Sulp hid es,
121
Sunday T im es
( L ond on),
374
Sussk in d , D av id ,
101
Sw ap n etw ork ,
329
,
330
,
372–373
Sw itz e rla nd , b ankin g l a w s o f,
327
Sw ope, G era rd ,
219
T.V .A . ( T ennesse e V alle y A uth o rity ),
250
,
268
T.V .A .: D em ocra cy o n t h e M arc h
( L ilie nth al) ,
251
Tap e d ela ys, o n N . Y . S to ck E xchange,
5
Tax a d vic e,
112
Tax r a te s,
79
Tax-c heckin g, a uto m ati o n o f,
91
Tax d ed ucti o ns,
104–107
Tax-fr e e f o und ati o ns,
103
“T ax h o m e,”
106
Tax l a w s,
95
Taxp ayer’s a cco unt n um ber,
90
Tele co pie r,
157
Territo ria l E nte rp ris e
,
83
Texas G ulf S ulp hur C o.,
120
,
121
,
123–140
Therm o-F ax m achin e,
148
This I D o B elie ve
( L ilie nth al) ,
251
Tim e M agazin e
,
68
Tim min s, O nta rio ,
121
Toro nto D aily S ta r
,
128
Tra ns W orld A ir lin es,
72
Tra v el d ed ucti o ns,
104
,
105
,
106
Tre asu ry D ep artm ent,
117
Tru sts , a nd ta xes,
111
Tw ain , M ark ,
83
Typ ew rite r, e arly u se o f,
147
Tra d e s e cre ts ,
302–312
Tra de s e cre ts
( E llis ),
309
Unite d N ati o ns, s u p port o f b y X ero x,
155
Unite d S ta te s: a b and onm ent o f g o ld s ta nd ard b y,
339
; A rm y C orp s o f E ngin eers ,
272
; g o ld b ase in ,
381
; g o ld s u p ply i n ,
381
; ta x c o lle cti n g i n ,
88
; w eakenin g o f d olla r i n ,
347
,
382–388
Unite d S ta te s S te el C orp .,
18
,
149
,
279
Unite d S to re s,
229 Univ ers ity M ic ro film s,
156
,
162
,
165
Univ ers ity o f R ocheste r,
152
,
153
,
154
,
171
Use r ta xes,
114
Valu e-a d ded ta x,
114
Vand erb ilt, C orn eliu s,
228
Verifa x m achin e,
148
Vie tn am ,
275
Vin so n, A rth ur F .,
214–220
Volu nta ry c o m plia nce i n ta xati o n,
92–95
Voord uin , W . L .,
270
,
271
Waage, T ho m as O la f,
365–366
,
368
,
373
,
376–377
,
380
,
383
Wagner, W ie la nd ,
132
Wall S tr e et J o urn al
,
64
,
68
,
69
,
195
,
203
,
379
,
385
Walla ce, D av id ,
34–42
,
62–73
Wallis , W . A lle n,
171
Wals to n & C o.,
182
Warn o ck, C . G ayle ,
47
,
48
,
51–54
,
62
,
72
,
74
Warre n, E arl,
223
Wats o n, R usse ll,
195
Watts , H enry M ., J r.,
181
,
186
,
187
,
191
Welc h, L eo D .,
293
,
295
Westi n gho use E le ctr ic C o.,
4 ,
203
,
204
,
217
Wherry , J o e H .,
58
Whitn ey, R ic hard ,
18
,
203
Willia m B ra nd t’ s S ons & C o., L td .,
189
,
193
,
194
Willis to n & B eane (
se e
J . R . W illis to n & B eane)
Willk ie , W end ell L .,
249
Wils o n, H aro ld ,
324
,
334
,
335
,
342
,
372
,
374
,
375
,
377
Wils o n, J o se p h C ., J r.,
149–156
,
164–166
,
170–175
Wils o n, J o se p h C ., S r.,
150
With ho ld in g ta x,
96
Witte v een, J . W .,
364
Wohlg em uth , D onald W .,
297–313
World B ank,
255
,
329
Xero gra p hy,
148–152
; c o pyrig ht i n fr in gem ents b y,
161
; i n tr o duced i n G re at B rita in ,
170
; a nd o ffs e t
pre ss,
163
; p ro ble m s o f,
160
; u se o f s e le niu m i n ,
168
; u se s o f,
159
“X ero X ” ( tr a d em ark ),
153
Xero x C opyflo ,
157
Xero x C orp .,
145–175
; c o m munity ’s a tti tu d e to w ard ,
171
; d onati o ns to e d ucati o nal a nd c harita b le
in sti tu ti o ns b y,
154
; U nite d N ati o ns s u p port b y,
155 Xero x 8 13 c o py m achin e,
157
Xero x L D X,
157
Xero x 9 14 c o py m achin e,
157
,
158
,
159
,
169
,
170
Xero x 2 400 c o pym achin e,
157
“Y our F ed era l I n co m e T ax,”
89
“Y our I n co m e T ax,”
107
Yuko n,
272 All r ig hts r e se rv ed, in clu din g w it h out lim it a tio n th e r ig ht to r e pro duce th is e book o r a ny p ortio n th ere of in a ny f o rm o r b y a ny m eans,
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