George Santayana – The Intelligent Collector Magazine

Today’s business tycoons would be wise to not forget the past

A statement on Union Iron Mills stationary signed by Andrew Carnegie and dated Sept. 29, 1870, sold for $6,572 at an April 2013 auction.

By Jim O’Neal

It may come as no surprise to learn that virtually all the major cities in California were incorporated in the same year. 1850 was also the year California became the 31st state to join the United States. It is now the most populous state and supports a $3 trillion economy, which ranks No. 5 in the world … larger than Great Britain. However, you probably don’t know that, in terms of land area, the three largest cities are Los Angeles, San Diego and (surprisingly) California City.

This large chunk of land was formed in the boomlet following World War 2 with the intent of rivalling Los Angeles. Southern California was flourishing due to temperate weather, Pacific Ocean beaches and nearby mountains. It seemed logical that with a large influx of people, all that was lacking were lots of affordable housing, automobiles, streets, freeways and plenty of water to drink and as irrigation for the orange groves.

An ambitious land developer spotted this unique opportunity and bought 82,000 acres of prime California City land just north of the SoCal basin. He commissioned a high-power, architectural master-plan community with detailed maps of blocks, lots and streets. Next was hiring a small army of 1,300 salesmen to promote land sales to individuals, while building a 26-acre artificial lake, two golf courses and a four-story Holiday Inn.

This was land speculation on a grand scale; they sold 50,000 lots for $100 million before the market dried up. Some reports claim that only 175 new homes were actually built. The fundamental reason was that Southern California land development primarily evolved south along the coastline toward San Diego and the prime ocean-front property in Malibu, Long Beach and Orange County. Although the scheme failed, California City was finally incorporated in 1965. Today, the 15,000 inhabitants, many from Edwards Air Force base, are sprinkled liberally over 204 square miles.

A prominent No. 4 on the list is San Jose, which narrowly escaped being destroyed in a 1906 earthquake that nearly leveled nearby San Francisco. When we lived there (1968-71), it was a small, idyllic oasis with plum trees growing in undeveloped lots in the shadow of the Santa Cruz Mountains. There were nice beaches an hour away and for $14.15, PSA would fly you 400 miles to LAX in 45 minutes. In addition to the short drive to San Francisco with all its wonders, Lake Tahoe offered gambling, except when it snowed on the Sierra Nevada, a mere 200 miles away.

Nobody dreamed that the miracle of Silicon Valley was on the horizon and the enormous impact of the Internet would result in the boom-bust of the dot.com era in the late 1990s. The stock market was up 400% and then down 80%, wiping out most of the gains. However, post 2002, and the proliferation of the personal computer, there was another technology revolution that would create more wealth than anyplace in the history of the world.

Apple, Google, Facebook, eBay, Intel, Cisco and Instagram are at the core of a technological society that has revolutionized our economy and communications, our lives and, by extension, the world. Smart phones, search engines and social-media giants – plus a community of 2,000 tech firms and venture capitalists – have generated enormous fortunes. Electric vehicles have morphed into driverless cars and trucks that will result in more creative destruction. AI and robotics will obsolete large swaths of production and elevate privacy and anti-trust concerns that will rival early 20th century government action to break up trusts.

Consider when Andrew Carnegie sold his Carnegie Steel Company to J.P. Morgan in 1901 for an astounding $303 million. He became the richest man in America, surpassing even John D. Rockefeller for several years. JPM then merged it with two other steel companies to form the first billion-dollar U.S. company, U.S. Steel. While Rockefeller continued to expand his oil monopoly, Carnegie devoted the last 18 years of his life to large-scale philanthropy. He literally lived by his credo: “The man who dies rich dies disgraced.” President Teddy Roosevelt would lead the trust-busting that became necessary.

Tim Cook, Mark Zuckerberg, the Google gang and Jeff Bezos would be wise to heed George Santayana’s aphorism: “Those who cannot remember the past are condemned to repeat it.” Especially when social media becomes more addictive than crack cocaine.

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 chair and CEO of PepsiCo Restaurants International [KFC Pizza Hut and Taco Bell].

Let’s not forget the horrors spawned by Russia’s dictators

“How Stalin Hopes We Will Destroy America” is a 1951, 16-page anti-communism giveaway comic book published by Joe Lowe Co.

By Jim O’Neal

It is (almost) painful to watch otherwise bright and eloquent activists attempt to explain the basic tenets underpinning their infatuation with democratic-socialism. Even a casual reading of 20th century history should be more than enough to convince the naive of its fatal flaws. I sometimes wonder if philosopher George Santayana was anticipating this situation and trying to find a kind, diplomatic way to explain that “Those who cannot remember the past are condemned to repeat it.”

Yet socialism is back with a presidential election on the horizon (will Bernie Sanders run?) and another generation thirsty for change. The old warhorses of populism and capitalism will do battle again as advocates field their best warriors to convince others. My only hope is that we don’t have to repeat the tired, discredited concepts of Marxism, Leninism and communism that co-mingled with early 20th century socialism.

It is far too easy to pick from any number of fuzzy thinkers to make a compelling case to indict and convict them of naïveté, or to find a country in the Western Hemisphere that is disintegrating in front of our eyes (e.g. Venezuela). A bit more challenging is to link two historic names, familiar to all, who went from bad to disastrous.

Throughout the 20th century, renowned historians debated whether Vladimir Lenin’s successor – Joseph Stalin – was his rightful heir or simply an opportunistic usurper. After the collapse of the USSR in 1991, they finally had their answer. Evidence that had been locked away for decades in secret files eliminated any lingering doubts. The two dictators were like evil twins, starting with Lenin’s obsession to shoot, hang or destroy anyone who resisted the Bolsheviks agenda. The world’s experts agreed that Lenin spawned Joseph Stalin.

Lenin was born into a life of luxury, a normal child with a curiosity satisfied by reading. That phase of his life changed dramatically when his brother was hanged in 1887 after involvement in a plan to kill Czar Alexander III. Perhaps even worse was the family ostracism from polite society. Later, he would write, “The bourgeois will always be cowards and traitors.” He then dedicated his life to destroying the czarist system and its members.

Withdrawn and intensely focused, Lenin developed a maniacal passion for revolution that drove him to the brink of a nervous breakdown even after being exiled in Western Europe. He was a ruthless debater with the familiar “win at any cost” strategy that radicals invariably adopt. One of the Mensheviks summed it up nicely: “I hope there is no afterlife. Can you imagine arguing with Lenin after death? And then thereafter listening to his gutter abuse?”

From the moment of the Bolshevik coup in October 1917, he crushed any threat to his party’s hold on power, eliminating political parties, jailing opponents and unleashing terror using the political police.

In the aftermath of Lenin’s death in January 1924, Joseph Stalin – Secretary General of the Communist Party – emerged as the outright leader of the Soviet Union. Impatient with dictatorship, Stalin set out to forge a despotism in mass bloodshed. It included the forced collectivization of Soviet agriculture, the linchpin of the first five-year plan. He set draconian quotas for the confiscation of “surplus” food and violently repressed those he then exterminated. The consequent famine killed more than 5 million in Ukraine, Kazakhstan and the Northern Caucasus.

It is estimated that he was responsible for 50 million deaths. The rest of the story is available through dozens of books that chronicle his “Reign of Terror.”

To the well-intentioned, this is the road to socialism and then worse. It is an oft-traveled route that will ensure destruction of the many good things we enjoy. Travel at your own peril.

Do We Risk Forgetting the Past … Again?

An illustration of Jimmy Carter and Gerald Ford, dated 1977 and attributed to Al Hirschfeld, sold for $4,500 at an October 2015 auction.

By Jim O’Neal

People of my generation recall the 1970s as a decade of chronic financial instability. A lethal combination of rising inflation, slower growth and unpredictable economic policies resulted in a level of volatility that made the stock market a tricky place to navigate. Although the Dow Jones Industrial Average had closed near $1,000 in 1966, it went sideways for the next 17 years. 1972 produced a boomlet for “Nifty Fifty” stock prices that was followed by a steep decline. By spring 1980, the Dow Jones was back below $800.

Risk-averse investors piled into Money Market Funds (MMF) with high yields and low risk. Ross Perot supposedly bought $1 billion of 30-year Treasury Notes and locked in a 15 percent yield. Others chose to speculate in commodities or precious metals as a hedge against the pernicious effects of high inflation. President Ford waged a war on inflation with his WIN (Whip Inflation Now) program that was more of a slogan than a tangible set of financial policies. Cash was something to convert into tangible assets before it lost its buying power.

One prominent example in 1978 was the wife of the governor of Arkansas. The future first lady turned a modest bankroll of $1,000 into $100,000 in 10 short months by trading in cattle futures, soybeans and live hogs. She explained her market prowess was due to reading The Wall Street Journal. Perhaps even more remarkable was that her trades were mostly “shorts” at a time when cattle prices doubled.

But all commodities were generally on the rise and after the Soviets invaded Afghanistan in 1979, the price of gold rose to $875 an ounce. Nelson Bunker Hunt and his brothers tried to corner the silver market and bought control of 200 million ounces – equivalent to 50 percent of the world’s supply. In the process, silver prices shot up tenfold to $50. The Commodities Exchange (COMEX) and the Federal Reserve stepped in and changed the rules and the price quickly plummeted to $10 in March 1980. Despite losing over a billion dollars, they seemed to be mildly amused and still ended up in Johnny’s BBQ for the usual. Later, they were forced into bankruptcy, but a lot of silverware in Dallas homes got melted down, along with jewelry, teapots and other silver-based objects.

I lost a $20 gold coin when gold was at $430 and I bet it would fall to $400 before it hit $500. I had won it on a different bet by knowing a horse had to run 3 15/16th miles to win the Triple Crown. The Wall Street Journal was not involved in either case.

Then the 1980s gave way to the rise of the professional market trader after several leading investment banks had gone public; transforming cautious partners with limited capital to anonymously secret shareholders with large capital resources. “Proprietary Trading” produced quick profits and large bonuses that offset the elimination of fixed commissions by the NYSE. The flashy trader became a symbol of Wall Street – “Masters of the Universe” as chronicled in Tom Wolfe’s The Bonfire of the Vanities. It was now the era of greed and it became an international phenomenon as deregulation and globalization exploded.

Capital whirled around the globe in 24-hour trading and the remnants of conservatism from the Great Depression had quietly vanished. Debt was now viewed as a tax-efficient way to finance corporate takeovers and deregulation replaced supervision. Hedge funds and private partnerships proliferated like George Soros’ Quantum Fund, which generated 25 percent returns with highly leveraged bets on stocks, currency or “risk arbitrage.” In summer 1982, the Federal Reserve reduced the discount rate and incentivized the leveraged buyouts of public companies (LBO).

Falling interest rates and rising stock prices created a perfect setting for “junk bonds” and leverage became a strategy rather than a risk. Eventually it relied on trading on illegal proprietary insider information. Corporate raiders had a field day until 1986, when Ivan Boesky was arrested and the action moved to the federal courts. Naturally, the virus spread into the large home mortgage market and the savings and loan bubble collapsed.

It took a while for a new generation of greedy financiers to come along, and this time the leverage almost took down the world’s financial system in 2008.

Philosopher George Santayana was right: “Those who do not remember the past are condemned to repeat it.” What’s in your wallet?

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 chair and CEO of PepsiCo Restaurants International [KFC Pizza Hut and Taco Bell].

After Napoleon and Nazi Germany, Russia Lives with Paranoia of Conflict

A 1953 Russian propaganda poster showing Karl Marx, Friedrich Engels, Vladimir Lenin and Joseph Stalin sold for $2,629 at a July 2016 Heritage auction.

By Jim O’Neal

Joseph Stalin died on March 5, 1953, after ruling the Soviet Union for 25 years and leading the country in its transformation into a major world power. Born Iosif Dzhugashvili in 1878, while in his 30s he took the name “Stalin” meaning “Man of Steel.” After studying at a theological seminary, he read the works of revolutionary socialist Karl Marx, which inspired him to join the 1917 Bolshevik Revolution.

He was a protégé of Vladimir Lenin and after Lenin’s death, Stalin earned a reputation as one of the most ruthless and brutal dictators in world history (“Ideas are more powerful than guns,” he once said. “We don’t let our people have guns. Why should we let them have ideas?”).

After an extended Cold War with the West, the Soviet Union started to unravel when its eighth and final leader, Mikhail Gorbachev, assumed control in 1988. He seemed eager to “destroy the apparat” – weaken the Stalinist structure of the Communist Party and the Soviet state. Only then could he take the bold economic steps to revamp a bankrupt system that was crumbling fast.

The West hailed Gorbachev as the tsar liberator, a political magician, or as Time magazine editorialized in January 1990: “The Copernicus, Darwin and Freud of communism all wrapped into one.” A year earlier, he was Time’s “Man of the Decade.” But in early 1990, Lithuania demanded outright independence and a crowd of 200,000 in the capital of Vilnius demonstrated to get the entire Lithuanian territory returned. This was quickly followed by an Azerbaijani Popular Front rally that escalated into a civil war along the Armenian-Azerbaijani border, with both sides clamoring for independence.

In August 1991, Latvia and Estonia declared restoration of full independence, followed by the Ukraine on Dec. 1. On Dec. 25, Christmas Day, Gorbachev resigned and the following day the Supreme Soviet voted itself and the Soviet Union out of existence.

I first met current Russian President Vladimir Putin in Saint Petersburg in 1992 when he was head of the Committee for External Relations, a group in the mayor’s office responsible for promoting international relations and foreign investment. We started shipping Lays potato chips from Warsaw and soon built a Frito-Lay plant near Moscow. I totally underestimated him and thought he was just another thug, a feeling that was reinforced when we started Pizza Hut in Moscow.

According to Henry Kissinger, Putin has always blamed Gorbachev for the dissolution of the Soviet Union due to his policies of glasnost (openness) and perestroika (reform). “The greatest geopolitical tragedy of the 20th century.” It has always been a mystery to me why they gave up so much when the United States and others were willing to negotiate a softer landing. I haven’t read Putin’s autobiography, but I suspect the Russians will never be satisfied until there is an east-west buffer zone along the Ukrainian border.

After Napoleon and then Nazi Germany, there is an inherent paranoia that will only be exacerbated if Poland ever joins NATO. As philosopher George Santayana so wisely observed, “Those who cannot remember the past are condemned to repeat it.”

American Forces Quickly Rallied to Face German Aggression

Tom Lovell’s *World War I Soldiers on Horseback*, painted for a magazine story illustration, sold for $8,750 at a March 2012 Heritage auction.

By Jim O’Neal

At the start of 1917, only four months before the United States declared war on the German Empire, the U.S. army totaled 107,641 men. Sixteen other nations had larger armies. Another major weakness was the lack of recent experience in large-scale military operations. It had been a full 51 years since the armistice at Appomattox had ended the Civil War and many things had become rusty in the interim.

Also, somewhat remarkably, there was no modern military equipment heavier than medium-size machine guns!

Even the National Guard was larger (132,000 men), but this part-time militia was dispersed among the 48 states, generally poorly trained, and any federal oversight was unusually lax. One sparkling exception was the U.S. Marine Corps, over 15,000 first-class troops. However, they were scattered throughout the Western Hemisphere in America’s possessions and in Central American republics, acting as police in the aftermath of the 1898 Spanish-American War.

Despite this bleak situation, and because the Germans had committed far too many acts of war, on April 2, President Woodrow Wilson requested a joint session of Congress. On April 6, the U.S. Congress voted overwhelmingly to go to war. The vote in the Senate was 82-6 in favor (with eight abstentions) and 373-50 in the House, with Jeannette Rankin of Montana in the minority. In 1941, she would become the only member of Congress to vote against declaring war on Japan after Pearl Harbor.

Yet, by June 1917, the commander of the American Expeditionary Force, General John J. Pershing, had arrived in France and on July 4, American Independence Day, elements of his 1st Division paraded in the streets of Paris. Throughout the following months, fresh units of an Army designed to reach a strength of 80 divisions – nearly 3 million men – continued to arrive. By March 1918, 318,000 men had reached France, the vanguard of 1.3 million to be deployed, and not a single one had been lost to enemy action in oceanic transport.

Rare are the times in great wars when the fortunes of one side are transformed by the sudden accretion of reinforcements. Napoleon’s enemies in 1813 when the Russian army joined Britain/Austria … the North in our Civil War when the adoption of conscription added millions versus the South’s hundreds of thousands … 1941 when Adolf Hitler’s stupid declaration of war on the United States, followed by Japan’s ill-advised action, saved an isolated Britain and an almost defeated Soviet Union.

This was another of those times, when Germany had declared unrestricted war in the Atlantic in the flawed calculation that the war would be over in Europe before the United States could mobilize.

As philosopher George Santayana so wisely observed, “Those who cannot remember the past are condemned to repeat it” and “Only the dead have seen the end of war.”

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].