February 2017 – Page 2 – The Intelligent Collector Magazine

Gilded Age Created Super-Wealthy Americans and their Extremely Large Homes

Cornelius Vanderbilt at one point controlled 10 percent of all the money in circulation in the United States.

By Jim O’Neal

A recent New York Times edition has a follow-up story on America’s most expensive house – a 38,000-square-foot beauty listed at $250 million. The current all-time record is believed to be an East Hampton estate that sold for $147 million in 2014, followed by a California house that sold for $117.5 million in 2013. Apparently, there is another Bel Air project under construction that would dwarf all of these at $500 million.

This may seem like a modern-day phenomenon, but it hardly compares with the late 19th century – “The Gilded Age” – when truly vast fortunes were accumulated to the point it required “creative spending,” and real estate was a favored target. The Vanderbilts were a prime example, as shipping and railroad magnate Cornelius Vanderbilt stood out among other famous names of the day, such as Morgan, Astor, Rockefeller, Mellon and Carnegie. At one point, “Commodore” Vanderbilt (as he liked to be called) personally controlled 10 percent of all the money in circulation in the United States.

Naturally, all these wealthy Americans built homes on a grand scale. Grandest of all were the Vanderbilts. They built 10 mansions in New York alone, all on 5th Avenue, one with 137 rooms. And everyone built more palatial homes outside the city, particularly in Newport, R.I. The super-rich even had the nonchalance to call them “cottages,” despite the fact that they were so big even the servants needed to have servants.

This gaudy ostentation generated such widespread disapproval that a Senate committee seriously considered introducing legislation to limit how much a person could spend on a house (but not how many). These were the days when John D. Rockefeller made $1 billion a year (adjusted for inflation) and paid no income tax. No one did. Congress tried to introduce a 2 percent income tax over $4,000 in 1894 and the Supreme Court promptly ruled it unconstitutional.

Warren Buffet thinks we are better off today since rich folks back then couldn’t buy televisions, luxury cars (with GPS), cellphones, jet travel, microwaves, talking movies, air conditioners, Starbucks lattes … or lifesaving CT scans, organ transplants or statins/vaccines – since they didn’t exist. All they had was money.

So like the Commodore’s grandson George Washington Vanderbilt, they turned to real estate and homes. This Vanderbilt heir decided to build a cottage of his own in 1888, when he was still in his 20s. He bought 130,000 acres in North Carolina and built a rambling 250-room mansion. He hired 1,000 workers to build a dining room with a 75-foot ceiling that seated 76. The estate had 200 miles of road and included a town complete with schools, a hospital, churches, banks, a railroad station and shops for 2,000 employees and their families. The surrounding forests were logged for timber and the many farms produced fruit, vegetables, eggs, poultry and livestock.

He had planned to live there part-time with his mother, but she died before it was complete. So he lived there alone until he finally married and had a daughter. Then he died.

As F. Scott Fitzgerald supposedly once said to Ernest Hemingway: “The rich are different from you and me.” To which Hemingway replied, “Yes, they have more money.” (And thus a famous quote/counter-quote myth was born … with many variations.)

Intelligent Collector blogger JIM O’NEAL is an avid collector and history buff. He is president and CEO of Frito-Lay International [retired] and earlier served as chairman and CEO of PepsiCo Restaurants International [KFC Pizza Hut and Taco Bell].

Events Surrounding Rockefeller, AT&T Recall Story of Hydra

By Jim O’Neal

Few people who were alive when Martin Van Buren was president (1837-41) were still alive when Franklin Delano Roosevelt was inaugurated for his second term (1937). John Davison Rockefeller was, and he took advantage of every single day, even preferring to work on his many birthdays.

Were he still alive, it’s almost certain he would be mildly amused to see a modern company – AT&T – seeking approval from a government department for an $85.4 billion acquisition of media giant Time Warner. In 1974, this same agency – the U.S. Department of Justice – filed an anti-trust lawsuit against AT&T. Eight years later, “Ma Bell” was forced to break up by spinning off seven “Baby Bells.”

Perversely, one of these spinoffs, SBC Communications (named Southwestern Bell Corporation until 1995) started methodically reconsolidating and eventually bought the original AT&T and assumed its name. Next, they acquired BellSouth for $85.5 billion, with full FCC approval.

Big ’ins always eat little ’ins (old Texas maxim).

John D. Rockefeller became the world’s richest person (ever) in a similar fashion: consolidating an industry to avoid competition.

The great industrial revolution that transformed America after the Civil War sparked an inflationary boom that resulted in an oversupply of goods. Naturally, this led to price declines that caused a deflationary spiral. The balance of the 19th century was plagued by these boom-bust cycles. As new markets developed, inexperienced businessmen failed to recognize the dangers of supply-demand imbalances as they rushed to make their fortunes.

Crude oil was a classic example, since there was no way to predict increases in supply, and oil refiners proliferated due to low barriers to entry. “So many wells were flowing, the price of oil kept falling, yet they went right on drilling.” Rockefeller was one of the first to recognize there was a need for a systemic solution. He cited the years of 1869-1870 as the start of his campaign to replace competition with “cooperation.”

A Standard Oil Trust stock certificate with two John D. Rockefeller signatures, dated April 5, 1882, sold for $7,500 at an April 2014 auction.

By the early 1880s, his Standard Oil Company controlled 90 percent of U.S. refineries and pipelines. In 1882, his clever lawyers created an innovative new kind of corporation that controlled all of the holdings in a “trust.” The trust controlled over 40 companies and it became easy to control production, distribution and refining (and, obviously, prices).

In 1911, the Supreme Court ruled these were illegal monopoly practices and ordered that it be broken up into 34 new companies. In a twist, John D. Rockefeller ended up with stock in all 34 companies, and over the next 10 years their combined net worth increased fivefold, as did Rockefeller’s personal fortune. Today, ExxonMobil Corporation is the largest of the world’s Big Oil companies and is consistently among the top five companies in revenue and profits.

The Greeks had a myth about Hydra, a multi-headed monster that grew two heads every time one was cut off. You can draw your own parallels.

Winning a War is Difficult, Even with Vastly Superior Forces

The original movie poster art for Oliver Stone’s 1986 Vietnam war drama *Platoon*, by artist Mike Bryan, sold for $21,510 at a March 2014 Heritage auction.

By Jim O’Neal

The decision to mount a sustained bombing campaign was not made until Feb. 13, 1965 – two days after the Viet Cong had launched yet another attack on the U.S. barracks at Qui Nhon. The significance was that this decision, which had taken so long, had been kept completely separate from the decision on combat troops. It was to be an activity unto itself. But in their hearts, the military knew better and this was a crucial lapse in judgment. It differed sharply from the decision-making in 1954, when the Army staff cast serious reservations about U.S. aerial intervention in Indochina.

In 1954, Army Chief of Staff Matthew Ridgway had made one thing crystal clear: Air power and ground power could not be separated. If air power was used and failed, ground power would almost certainly be necessary. In 1965, no one made the comparable case as the pressure for bombing escalated too fast.

The bombing campaign was going ahead under the name of Rolling Thunder, designed to force the other side to start negotiating, thus avoiding the use of ground troops. In the intelligence community, the ones most knowledgeable about Vietnam knew with certainty that Hanoi would never negotiate or capitulate. However, the principals were convinced that bombings would preclude the use of any ground forces.

On Feb. 22, nine days after the decision to go ahead with the bombing, General William Childs Westmoreland – commander of U.S. forces in Vietnam – sent in a request for two battalions of Marine Corps, strictly to provide security for the U.S. air base in Danang. It was a modest request, just the two groups, and the mission was minor, as well. Just provide security.

This was the first time American combat units would arrive as units. There was a nagging fear among many in Washington and Saigon that this was not the end. However, it was a small request and it had to be done.

After all, slipping in the first troops was just an adjustment, an asterisk really, to the firm decision they had made to avoid sending in troops. Of course, there had to be protection for the airplanes and if there was bombing, then you needed airfields. And if there were airfields, then troops were needed for security. No one pointed out that a regiment is small and can’t really protect itself. Even as they were bombing, they were preparing for a new rationale: the protection of men and material. The expanding rationale would provide its own rhythm of escalation. The whole basis of the escalation and of providing ground troops hung on a slender hope; it would be brief.

Four short years later, in 1969, United States troops in Vietnam peaked at 549,500, with 16,592 KIA (killed in action).

It is hard to win a war, even with vastly superior forces, if the other side is determined to never quit. You can even leave the country, as we did in Iraq, but chances are you will be back. Especially in wars on “terrorism,” even if you choose to quit, who do you surrender to?

McCarthy Exploited Vulnerabilities of Frightened Public by Simplifying Complex Issues

A copy of Joseph McCarthy’s *McCarthyism: The Fight for America*, 1952, signed by the senator, sold for $206.25 at an October 2013 auction.

By Jim O’Neal

It’s rather interesting to compare the 1930s with the late 1940s and the transition from the era of the New Deal – when liberal ideas were ascendant, and communism, while not popular, was hardly the abhorrent demon it would become.

To Whittaker Chambers (whose 1952 book Witness became a bestseller) and many other Americans, communism was more than a system of government. It had morphed into a campaign for control of the mind and the masses.

Too many Americans seemed to have fallen victim to the “Soviet Experiment” and were infatuated by its promise of egalitarianism, while ignoring the crimes of its authoritarian leadership. Chambers was a gifted intellectual writer, but the anti-communists were to find their most vocal champion by accident. And he was a buffoon.

Senator Joseph McCarthy of Wisconsin was a hard-drinking, coarse man who later said he knew so little about his crusade that he would find it hard to distinguish Karl Marx from Groucho Marx. In a May 1950 speech to Republicans in West Virginia, he claimed to have a list of 205 communists working in the State Department. He had no list, but in subsequent speeches the number grew to thousands and then four.

But, with self-aggrandizement being his real personal goal, he soon realized he was onto something big when reporters started asking for more information. He played along and became anti-communism’s most captivating spokesman. By suggestion, innuendo and diversion, McCarthy pointed his finger at labor and liberals, at America’s elite, its prominent educational institutions, and at FDR and the New Deal.

Soon, he was not the only one ruining careers and smearing reputations. Around the country, untold numbers of civil servants, schoolteachers and scientists were driven from their jobs by witch-hunts just as vicious as the Wisconsin senator’s. The hysteria included schools banning the tale of Robin Hood for its communist themes; the Cincinnati Reds changing their name to the Redlegs; and Mickey Spillane having his tough private eye going after communist subversives instead of gangsters. Jackie Robinson was called before the House Committee on Un-American Activities to testify about communism’s influence in the black community. Even Hollywood had its own “blacklist” of writers, directors and actors.

Only when McCarthy challenged the character of President Truman’s Secretary of Defense George Marshall did his public opinion begin to sour.

There were plenty of communist agents or sympathizers in America, but it is unlikely that McCarthy or his followers ever found any. What they did was exploit the vulnerability of frightened or insecure people by simplifying complex international developments into language that tapped into cultural divisions. McCarthy helped them find someone to blame.

Fortunately, it didn’t last long after the Senate censored him … twice. He died a hopeless alcoholic at age 48.

The 2005 movie Good Night, and Good Luck with David Strathairn and George Clooney does a terrific job of capturing the era of McCarthyism through the lens of TV journalist Edward R. Murrow’s experience. It’s among my top 20 favorite movies.