1955

1955

In 1955 Jones and Laughlin[i] was a vibrant player in the steel industry.  A short time later J&L borrowed money[ii] from the Carnegie Mellon Bank[iii].  Had we truly though ahead on all the ramifications of exponential equations we might have predicted what would come next.  It world remain another decade for Al Bartlett[iv] to explain these to us in clear understandable ways.

This transfer of massive amounts of money did far more than shift ownership from a Steel Man to a Banker.  What Bartlett might have warned us, had he been two or three decades earlier, was the inevitable headship of major corporations by accountants[v], followed by lawyers[vi].  Any sensible person knows that growth is mathematically unsustainable, initially undetectable, and chronologically overwhelming, the clock is ticking.  This is why accountants would take over to manage the money growth; as well as why lawyers would be necessary to sort out the legal battles when it became clear that growth was unsustainable and collapsing under its own weight.

In spite of these preposterous impossibilities, nearly all business and government models are based on growth.  Federal budgets might range between 2 to 5% growth in conservative years, and even higher in progressive years.  This means that we can expect the economy to crash within fourteen to thirty-five years or sooner: it was planned that way.  In actual fact, the federal bailouts seem to be following election cycles, crashing roughly every eight years.

Still, around 1955, most of us understood business models in terms of agricultural[vii] cycles.  Those were heady times: The Great Depression (1929-39) and WWII (1939-45) were past; After the Stock Market Crash of 1929, Wall Street was not widely trusted[viii]; The Chevy short-block was starting to take over the drag strip, and men could feel the flow of power return to their muscles.  Big Steel would surely last forever.

Eventually, leverage[ix], would far outstrip the pittance J&L borrowed post-55.  Leverages of 90% would not be unheard-of.  The shift in ownership changed much more than ownership.

†       Banks now owned the corporations.
†       Steel Men ceased to run the Steel business.
†       The business emphasis shifted from making Steel to making Money.
†       Money shifted the value of hard capital to mythical paper and electronic treasures.
†       Usury soon made money outweigh real capital values by many magnitudes.
†       While money was growing due to usury, real capital was declining due to age related decay.
†       Money made business appear to be growing in a true downturn economy; so, market corrections became less and less obvious, less and less automatic.
†       The ability to offset downturns with money, made the eventual downturns larger and more disastrous; instead of annual corrections, decade corrections were put into play.

Business collapse still wiped out the “old” owner, but he was no longer relevant; the true owner was the “new” owner, the Bank.  The Bank didn’t get wiped out.  Why?

†       The true profits had been milked off through usury.  Having made and pocketed billions, a few million here and there is an affordable statistical loss, a cost of doing business: this is no different than a casino facing a big payout to a bid winner… and that can be managed too.
†       In contrast to the pseudo-capital gains created by usury, the hard capital losses are now insignificant.
†       The paper losses are now a tax-deductible line item; the Bank does not suffer: the tax paying public foots the bill.
†       While hard capital losses are also tax-deductible they are still a real business downturn: the stockholders foot the bill.
†       If paper losses spin out of control, as they eventually must, a federal bailout picks up the tab: again, the tax paying public foots the bill.
†       The true owners, the Banks, are rewarded with executive bonuses and raises.

As long as the federal government is committed to spinning off all down turn losses on the general public, on the backs of the hard-working poor, there is no true business risk to the true owners, the Banks: everybody else faces big risks and losses.

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[i] https://en.wikipedia.org/wiki/Jones_and_Laughlin_Steel_Company

https://en.wikipedia.org/wiki/NLRB_v._Jones_%26_Laughlin_Steel_Corp.

[ii] Around 21% of its gross worth, as I recall… the exact numbers don’t matter.

[iii] Today Mellon HQ’s from NYC; but as I recall, around 1955 it was Carnegie Mellon Bank of Pittsburgh, Carnegie Steel, Carnegie Mellon University… you get the connections.

[iv] University of Colorado, Boulder, Dept. of Physics, circa 1965 or later

http://www.albartlett.org/presentations/arithmetic_population_energy_video1.html
https://www.albartlett.org/presentations/arithmetic_population_energy.html

https://en.wikipedia.org/wiki/Albert_Allen_Bartlett

[v] 1975, to pull a number out of thin air.  Business historians could greatly sharpen these numbers for us: but, we’re simply trying to recapture a very general picture from memory.  If we err, you’ll forgive us: for, we’re merely painting, where neither memory, nor oil on canvas permit great precision… only, Monet like, in broad brush strokes….

[vi] 1985, in keeping with the theme of decades.  These are not real dates, just general tendencies… the tendencies are real enough: major business magazines of the era were filled with the discussions.

[vii] Agriculture is now defined as, “turning oil into food”.

We remember that in an agricultural economy, that the amazing growth of summer, must face the winter downturn, and begin again from zero, next spring.  Unlimited and unrestrained growth, year after year, was and still is a physical impossibility.  The lessons of “The Ant and the Grasshopper” were still in play; saving for winter and other future needs were still necessary.  “Waste not, want not.”  The bitter stings of the Stock Market crash (1929), reminded us all that conservation was essential to life.

[viii] In 1929, many corrupt and dangerous practices, such as churning money were still legal.  Even today, churning is still practiced, albeit secretly.  Few people realize that money is made by shorting in a Bear Market.  Insider trading is still legal for members of federal government.  There are many more ways to make money than in a Bull Market.  Churning is still possible through the manipulation of large volumes of commodities.  The digital age has reduced real money to split-second decisions.  The rest of us are happy to check our balances once a month.

[ix] Leverage is the practice of borrowing money to accelerate business.  When money is under limited supply, such as in a gold or silver economy, leverage is also limited, borrowing is a zero-sum game.  But under a paper or digital electronic economy, money is in unlimited supply: leverage has no boundaries… just print or digitize more.