Chapter One
“This is an impressive crowd—the haves and the have-mores. Some people call you the elites; I call you
my base.”
George Walker Bush and His
“Base”
There was no embarrassment evident in October of 2000 when
George Walker Bush flattered his campaign audience with the above quip. The “American Dream,” once defined as the
ability to achieve a better life through hard work and determination, has been redefined
through time by the political faction the Bush family represents (typically
investment bankers, who manage “other people’s money”). The new definition defines the dream within
the context of those who have already achieved (or inherited) success and are
only concerned with not going backward.
Thus both Bush presidents have worked to pass elimination of capital
gains taxes, lowering, if not eliminating, income taxes on the wealthiest
American taxpayers, eliminating the estate, inheritance and gift tax, as well
as giving investment banks the right to use the Social Security Trust fund in
their stock manipulations.
All of these schemes
have been designed to assist “the elites,” whom Bush called his base, in
preserving and increasing their wealth. This book is written in order to see
those “elite persons” more clearly. Who are
they? How do they create wealth?
The Bush family has never experienced poverty, at least in
recorded memory. Ann Richards perhaps
said it best in her speech before the Democratic Convention in 1988:
“Poor
George. He can’t help it. He was born with a silver foot in his mouth,”
thus
denigrating the elder George Bush, then seeking the Presidency, for his
inherited position in society as well as his tendency to misspeak. The same aspersion would also apply to
Governor Richards’ 1994 opponent in the race for Texas Governor, George Walker
Bush, who, like his father, had a mysterious access to capital that allowed him
to venture into any new business endeavor he desired.
The word “capital” can only be defined in terms of
surplus—having more than is necessary. In
an ongoing business, working capital is the amount of cash or liquidity
determined to exist when liabilities are subtracted from assets. When a person wants to create a new business,
he seeks “venture capital” from others who are looking for ways to make more
money than they could otherwise make by letting that capital sit idly in the
bank or in a fixed-rate account.
Much has been written about George Herbert Walker Bush’s decision
to create his own oil company in the 1950’s with his friends from Midland, Texas,
but less has been written about who put up the funds that bought equipment for
his operations and provided him a salary before he and his partners actually
struck oil. To whom did he report the
success or failure of his venture? The
same questions can be asked, twenty years later, as George Walker Bush entered
into his own business career—Arbusto, Harken, and the Texas Rangers Baseball
Club. Who put up the funds, and what do
we know about these capitalists? When
did the Bush family first become a part of the circle that gave them access to
this kind of capital?
The answers lie in history.
America’s
First Millionaire
The movement into politically influential circles was a
gradual one that occurred during the working life of Samuel W. Bush in Ohio, and, more
particularly, as a result of his marriage into the prominent and socially
conscious Sheldon family of Columbus,
Ohio. That marriage would give birth to the boy who
would grow up to become the role model for two U.S. presidents. But that’s a story
better saved for later. The most notable
of Samuel’s children was his eldest son, Prescott, father of the first Bush
president and grandfather of the second.
It is Prescott’s
entry into partnership in the newly created investment bank of Brown Brothers
Harriman (BBH), which best explains how his sons and grandsons attained their
access to capital. BBH
began doing
business in 1931, as a result of a merger between the old,
well-established
Brown Brothers & Co. and W.A. Harriman & Co., a deal put
together by Prescott Bush's father-in-law on behalf of the sons of
railroad tycoon E.H. Harriman, who had been Prescott's Skull and Bones
brothers while they were all at Yale during the years just prior to WWI.
The announcement of the planned merger was made the evening
of December 11, 1930
at the residence of
Thatcher Magoun Brown, 775 Park Avenue in New York City.
The 112-year old merchant banking firm would
be merging with an infantile bank, founded a mere eleven years when the Harriman brothers left Yale.
Whether
that merger made possible a continuation of the way Brown Brothers had always
done business, or whether it effected a change from the old order to the new, can
only be answered by comparing the way each bank conducted its business
operations.
Such a comparison requires a
study of the family named Brown, and the numerous branches of the Brown family
tree—both in America
and in England.
Capital Rooted in Opium
Both Thatcher M. Brown and his new partner, W. Averell Harriman, called
775 Park Avenue home—each having purchased apartments in the new upscale
building constructed in 1927.
Marketing
and sales for the high-rise were contracted to the real estate firm started by
Douglas Robinson, a cousin of William Waldorf Astor and a trustee in the Astor Trust
Company.
John Jacob Astor, progenitor of
the Astor fortune and often called “America’s first millionaire,” was a
mysterious magnet for money.
His
biographer, Axel Madsen, explained how German immigrant to America, John
Jacob, accumulated the original capital he would later invest in money-making
ventures:
 |
| John Jacob Astor |
Until 1816, no Astor ship had carried opium. On July 15, 1816, the
Macedonean arrived in Canton with, among other things, $110,000 in
specie, 27 metric tons of ebony, 8 tons of mercury, and nearly 2.4 tons of
opium. It was the first time an Astor vessel had gone to China without
furs. The quicksilver [mercury] had been picked up in Gibraltar,
the
papaver somniferum taken aboard in Smyrna, Turkey.
In February 1817, the Astor ship
Seneca reached Canton with a cargo that included
5.7 metric
tons of opium, also picked up in Smyrna.
During the next two years
the Astor vessels Boxer, Alexander, William and
John, and Peddler carried opium cargos to Canton.
The upper end of the opium trade, however, belonged to a
British monopoly. The East India Company devoted thousands of hectares of
fertile land in Bengal to the cultivation of
opium. The harvest was auctioned at Calcutta,
while the yields of individual growers were sold in Bombay. Chinese dealers preferred chests that
bore the stamp of the East India Company because the crops of independent
growers were often adulterated with molasses or cow dung. Turkish opium was
inferior to Bengal imports. Still, one picul—a
Malay unit of weight used throughout Southeast Asia
and equal to 60 kilograms—of unrefined Turkish opium fetched $500 in Canton. Here, dealers
used it to adulterate the high-grade opium from India. Horrified at the harm done
to China's
health, Emperor Daoguang, a reformer who came to the throne in 1821, ordered
that all those convicted of opium smoking be given one hundred strokes. A
sentence also stipulated that for two months an addict should wear a heavy
wooden collar through which the hands were locked. A number of dealers were
executed. These measures, however, proved futile.
Astor dabbled in the opium trade because nearly
everybody else did. Olyphant & Company, one American firm that refused to
carry opium in its vessels, was nicknamed “Zion's Corner.” J. J. didn't hide behind the
pieties of those who claimed they sent narcotics to China to accelerate the conversion
of the heathen Chinese to Christianity. He was in it because it increased
profits. [1]
Corporate Models and Nominees
Astor
had abandoned the opium trade by 1821, turning instead to the importation of
liquor to use in trade with Indians. With his profits he bought Manhattan leases and land
on the outskirts of the then-small city of New York, assets passed down to his family
for many generations, mostly in trusts in a generation-skipping fashion. These
trusts had to be managed by bankers,
with income available for the beneficiaries, while any surplus capital
could be reinvested by the managers or trustees, who, in the days before
the rise of corporate entities, often held title in their own names
pursuant to an underlying contract authorizing them to hold title as
nominees for the trust beneficiaries. Over the years laws have been
changed from one state to another to make it easier for the real owner
of property to be kept secret behind corporations, limited partnerships,
limited liability companies and other legal forms or models.
 |
| Reporters speculated that Robinson was bidding for Astor. |
The
trustees who managed the estate thus had the use of the funds at their own
discretion. Douglas Robinson attained his status as trustee because of his
relationship to the family circle—that “gold ring” that surrounded the Astor
family. Born in Scotland, Douglas in 1882 married Corinne Roosevelt, the sister of
Theodore Roosevelt, President of the United States from 1901-1909. The Robinsons’ daughter, also named Corinne,
would marry Joseph W. Alsop IV in 1909 and remain very close to her first cousin
Eleanor, who married another Roosevelt—fifth cousin, Franklin.
Was British Socialism Extracted from Poppies?
Both Corinne Robinson and Eleanor Roosevelt were
sent to Allenswood, a school near London,
where they were taught by
Marie Souvestre, a feminist educator who “sought to develop independent minds
in young women.”
Souvestre continued a
correspondence with Eleanor long after her departure from the school.
[2] One of Eleanor’s teachers at Allenswood was
Dorothy Strachey, sister to
Lytton Strachey, who helped organize the “Bloomsbury
Group,” in London
in 1905.
The
Stracheys were children of an
upper-middle-class family headed
by their father, Sir Richard Strachey, a colonial Indian civil servant and
civil engineer and British army general during Lord Robert Cecil Salisbury’s tenure in the India Office when Britain faced
the problem of maintaining a complex empire in South Asia
.[3] Lytton Strachey’s father and
one of his half a dozen uncles servicing in India civil service, Sir John
Strachey, were colleagues of Lord Cromer (of Barings Bank) on the Indian
Council, while Sir John was also Viceroy of India for a time.
[4] During
the years when Sir Stafford Northcote was Secretary of State for India, Sir John
and General Richard Strachey wrote
Finances
and Public Works of India, which stated at page 136:
For many years the ordinary financial condition of India had been
one of chronic deficit; and the main cause of this state of affairs was the
impossibility of resisting the constantly increasing demands of the local
governments for the means of providing every kind of improvement in the
administrations of their respective provinces. Their demands were practically
unlimited, because there was almost no limit to their legitimate wants, and the
local governments had no means of knowing the measure by which their annual
demands upon the Government of India ought to be regulated. They had a purse to
draw upon of unlimited, because of unknown, depth. . . . They found by
experience that the less economy they practised, and the more important their
demands, the more likely they were to persuade the Government of India of the
urgency of their requirements.[5]
This
same concern was also expressed by the utilitarian writer, John Stuart Mill, an
employee of the British East India Company for more than three decades, who
“drafted his Logic and Principles of Political Economy on the
Company's stationery while so employed. In spelling out his necessary
conditions of development for Indians, Mill stood amidst a long line of British
writers who addressed the question of India as a codicil of the European
invention of development.”[6] As early as 1804 when Thomas Malthus became a
charter member of the faculty of the newly established staff training college
of the East India Company at Haileybury, John S. Mill’s father, James Mill, was
hired as a Company administrator with help from Jeremy Bentham, with whom he
became associated in 1806, and John Stuart started his own 35-year career there
in 1823.
It was during the aftermath of the 1857 mutiny and revolt J.S.
Mill wrote
Memorandum of the Improvements in the Administration of India—a
defense of the East India Company against the revocation of its governmental
privileges.
The Strachey family had a
connection to the Indian civil service that was well over a century old by the
time Mill wrote his treatise.
In his 2004 book,
Doctrines Of Development,
M. P. Cowen
, writes:
“By the mid-nineteenth century, two scions of
this family, John and Richard Strachey, had risen to high office in India. In 1882
the Stracheys co-authored the retrospective of their lives' work, The Finances and Public Works of India from 1869 to 1881, and dedicated the
book to ‘the public servants of all classes the results of whose labours for
the people of India [were] herein recorded…by their fellow workers’. In their
final chapter, the Stracheys addressed the question of the ‘future requirements
of public works and finance in India’.
Here, they reflected that ‘the recent remarkable progress of India, which has
been placed beyond every reasonable doubt, may be traced up to the natural
productive powers of the country, for the development of which greatly
increased facilities have been given by the extension of railways and cheap
transport’. Yet, there was no time to cry, ‘Rest and be thankful.’ The
Stracheys argued that, as the famines of the 1870s had shown, much more needed
to be done. How was this work to be accomplished? Their answer was that
‘experience’ had ‘established beyond dispute that it is within our power both
to construct and work railways economically through state agency’. Moreover,
the Stracheys continued, it was in the financial interests of the Government of
India to do so:
for, it may without hesitation be said that in the case of
lines yielding a profit…the amount which would be carried out of the country by
a company of foreign capitalists…must be greater than the charge incurred under
Government management…since the profits, even if smaller, would all remain in
India.[7]
How Bankers and Accountants Hide the Source
At
the same time
Sir Stafford Northcote was contending with Indian provincials’
demands for more from the British government, similar pleas for money were
coming from Canadian colonials.
Sir
Stafford, who began heading
Hudson’s Bay Company in 1869, traveled to North America
to discuss a way to resolve the situation, using the
International Financial Society, set up in the early 1860’s, as one possible means to raise funds
outside the Government’s taxing mechanism.
By 1868 another new financing mechanism had been created—the investment
trust—the first of which was the
Foreign and Colonial Government Trust, which:
was very successful and soon had a number of imitators.
In 1873 the five trustees of the Foreign and Colonial Government Trust set up
the first trust company specifically devoted to investment in American railway
securities, the American Investment Trust.[8]... In
April the most famous of all these companies, the Scottish American Investment
Trust, was inaugurated.[9]... Most
of these companies also engaged in various other financial operations. They not
only undertook the flotation of American railway shares but also bought and
sold on such short terms that their operations came perilously close to the
borderline of speculation. Nevertheless, the investors were highly satisfied
with the returns. The trustees also profited, especially from the founders’
shares. Moreover, there were also intangible profits. The group of men who made
up the trustees of these various companies became a power in the City.[10]
It
is the Scottish American Trust that is most useful in understanding the connection
between Scottish capital and American enterprise in the decades following America’s civil
war, when another sort of war was going on within the British establishment
concerning the maintenance of the colonial empire:
Theories and attitudes to colonial development unfolded
only very slowly and uncertainly in this period, which is not surprising,
considering that it was a time when British attitudes to the empire as a whole,
and to the tropical colonies in particular, were still confused and incoherent.
On the one hand, there was what might be called the ‘unofficial orthodoxy’ of
the Manchester school of
laissez-faire dogmatism, based on the worship of free
trade, which believed that, provided Britain was powerful enough to enforce
free trade (or something approaching it) on tropical regions, formal colonial
rule was unnecessary: and on the other hand there was the whole tribe of
traders, merchants, missionaries and colonial administrators who had a vested
interest in maintaining the tropical colonies, and in some cases in expanding
them. Since possession is said to be nine-tenths of the law it is perhaps not
surprising in retrospect that those who represented the vested interests were
ultimately successful; and that the advocates of abandoning the colonies (the
settlement colonies as well as the tropical ones) were eventually defeated—as
much by the course of events—as by any determined new policy of expansion.
[11]
This
“Manchester
school” centered in the Lancashire
district—the heart of the textile industry—was also the location of many of the
investors of the International Financial Society formed by
Sir Edwin Watkin,
promoter of the Grand Trunk Railroad from the east to west coasts of Canada.
This financing mechanism was a separate
entity,
capitalized at three million pounds—divided into 150,000
shares—all of which were bought by the important London banking firms.
The sale of stock was closed in June 1863,
and the new shareholders (the London
banks) elected
Sir Edmund [Walker] Head as governor of the Company, with other board
members being Richard Potter, Daniel Meinertzhagen, James S. Hodgson and J.H.W.
Schroeder from the banks.
Shares in the
new company were then placed for sale on the open market.
However, almost a year later, the society
still owned a large block of stock.
The
Society's minutes reflect that by 1867 it owned a mere 3,000 shares.
The
Daniel Meinertzhagen named above headed the banking house owned by his
father-in-law, Frederick Huth.
In 1873
his son, also named Daniel, married one of the daughters of another board
member of the International Financial Society—Richard Potter—the wealthy father
of soon-to-be-famous
Beatrice Potter Webb, one of the founders of the Fabian
Socialists.
Potter was building the
Grand Trunk Railroad in Canada. Daniel was also
the
father-in-law of Alexander Frederick Richmond (“Sandy”) Wollaston, the second son of George
Hyde Wollaston, who was related by the marriage of Ann (daughter of
Frederick Eustace Arbuthnot Wollaston) into the family of Alexander
Brown of Baltimore.
 |
| Click to enlarge file. |
Alexander Brown's son James had gone to
New York after the Erie Canal opened in order to take advantage of the
trade that was opened up by that scientific wonder in 1825. James was
the senior partner in the Brown Brothers investment bank which after
the 1929 crash was in dire need of new capital. That was when the
Harriman boys came along and through Prescott Bush's father-in-law
George Herbert Walker, negotiated to take over the bank's investment
portfolio, as mentioned previously. We can only wonder at this point in
time how much of those investments still derived income from opium.
[3] “
Giles
Lytton Strachey (1880-1932),”
Encyclopedia of World
Biography, 2nd ed. 17 Vols. Gale Research, 1998. According to statistics reflected by
the “Statistical Abstract of British India,” presented annually to Parliament,
Sir John Strachey’s Financial Statement of 1877, (V/16/344), OIOC, and
Judith M. Brown
,
Modern India: The Origins of an Asian Democracy (Oxford, 1985),
p. 125:
Salisbury’s 1866 budget speech, for all the confidence with which it
was imbued, could not disguise the fact that Indian revenues could not be
counted upon for any extensive program of public works. The government drew its
revenue from six main sources: land, opium, stamps, salt, excise, and customs.
Of these the revenue from land was by far the largest, accounting for some 40
percent of a total net revenue in the 1870s of around £38,000,000 per annum.
Since this revenue was either permanently fixed or subject to only thirty-year
reassessments, it could not be raised to meet extraordinary costs or provide
for public works investment. Neither was the second largest source of revenue,
that from opium sales to China,
which accounted for around 15 to 17 percent of total revenue, a reliable or
expandable source. Unlike the Chancellor of the Exchequer who could rely on gin
sales in Britain,
Salisbury
noted, opium sales faced the risk that the Chinese government would look
elsewhere for its opium. Furthermore, although currently producing a high
return, it was subject to fluctuations in price. That made him look ‘with some
anxiety on the statement that the Indian budget depends on the yield of opium
not falling far short of the highest rate it has ever yet attained.’ (quoting Paul R. Brumpton
, Security and Progress: Lord
Salisbury at the India
Office (Westport, CT: Greenwood Press. 2002),
127.)
[4] John Loe Strachey
,
The Adventure of Living: A
Subjective Autobiography—1860-1922 (New York: G.P. Putnam’s Sons, 1922),
367.
Lytton’s father started his career as
a subaltern in the Honourable East India Company’s Corps of Sappers and Miners.
[5] Quoted
in
Andrew Lang
, Life, Letters and Diaries
of Sir Stafford Northcote, First Earl of Iddesleigh. Volume: 1 (Edinburgh
and London:
W. Blackwood and Sons,
1890), 276-277.
Strachey
,
The Finances and Public Works of India from 1869 to 1881 (London, 1882), 401-402.
[6] M. P.
Cowen and R. W. Shenton, Doctrines of
Development (London: Routledge,
1996), 42.
[7] Cowen
and Shenton, 54. Passages quoted therein
from Strachey and Strachey (1882), pp. 401-2.
[8] The five
trustees were: Lord Westbury, Lord Eustace
Cecil, G.M.W. Sandford, G.W. Currie, and Philip Rose. Philip Rose, it should be noted, was not a
member of the firm of Morton, Rose and Co. but of a firm of lawyers.
[9] According
to a footnote to the quoted text, the trustees were: James S. Fleming, cashier
of the Royal Bank of Scotland; James Syne, manager, British Linen Co.; W.J.
Duncan, manager, National Bank of Scotland; and William Thomas Thomson,
manager, Standard Life Assurance Co. An
additional reference recommends W. Turrentine Jackson, The Enterprising Scot: Investors
in the American West after 1873 (Edinburgh:
Edinburgh University Press, 1968) at 13 ff.
[10] Dorothy
R. Adler,
British Investment in American Railways 1834-1898
(Charlottesville, Va.: The University Press of Virginia,
1970), p. 92. Adler cites
The London
Times (March 20, 1868), as the first appearance of any mention of The
International Financial Society.
George Brown (second generation) kept up his partnership in all the Brown family firms until 1852, when he relinquished Brown Brothers & Co. in New York and Philadelphia and Brown Shipley business in Great Britain. In Partners in Banking,
John A. Kouwenhoven states he sold his interest in firms headed by
James and William in 1839, and they also relinquished their partnership
interests in Alex. Brown & Sons. George did, however maintain an
interest in the Philadelphia branch until 1859.
Baltimore - July 3. Miss Bessie Montague and Alexander Brown, Jr., were united in marriage this morning at Christ Episcopal Church. The bride has been an acknowledged belle here for two seasons. She is a daughter of General Charles P. Montague, a retired capitalist. Mr. Brown is a son of General George S. Brown, of the banking firm of Brown Brothers.
(New York:
(New York:
(New York: Routledge, 1993), 45.