Sanctions Didn’t Stop Germany from Roaring Back After WWI

A 1939 political cartoon by Charles Werner (1909-1997) for Time magazine comments on the worldwide mood 20 years after the Treaty of Versailles. The original art sold for $836 at a February 2006 Heritage auction.

By Jim O’Neal

From 1939 to the winter of 1941, the German military won a series of battles rarely equaled in the history of warfare. In rapid succession, Poland, Norway, France, Belgium, Holland, Yugoslavia, Denmark and Greece all fell victim to the armed forces of the Third Reich. In the summer and fall of 1941, the USSR came close to total defeat at the hands of the Wehrmacht, losing millions of soldiers on the battlefield and witnessing the occupation of a large portion of Russia and the Ukraine. The German air force, the Luftwaffe, played a central role in this remarkable string of victories.

It was even more startling to those countries that had participated in WWI and taken draconian anti-war measures when it ended. This was simply something that was NEVER supposed to happen again, much less a mere 20 years later. How was it even possible?

The Allied powers had been so impressed with the combat efficiency of the German Luftwaffe in WWI that they made a concerted effort to eliminate Germany’s capability to wage war in the air. Then they crippled their civilian aviation capability just to be certain. The Allies demanded the immediate surrender of 2,000 aircraft and rapid demobilization of the Luftwaffe. Then in May 1919, the Germans were forced to surrender vast quantities of aviation material, including 17,000 more aircraft and engines. Germany was permanently forbidden from maintaining a military or naval air force.

No aircraft or parts were to be imported, and in a final twist of the knife, Germany was not allowed to control their own airspace. Allied aircraft were granted free passage over Germany and unlimited landing rights. On May 8, 1920, the Luftwaffe was officially disbanded.

Other provisions of the Versailles Treaty dealt with the limits of the army and navy, which were denied tanks, artillery, poison gas, submarines and other modern weapons. Germany was to be effectively disarmed and rendered militarily helpless. An Inter-Allied Control Commission was given broad authority to inspect military and industrial installations throughout Germany to ensure compliance with all restrictions.

However, one critical aspect got overlooked in the zeal to impose such a broad set of sanctions. They left unsupervised one of the most influential military thinkers of the 20th century … former commander-in-chief of the German Army Hans von Seeckt. He was the only one who correctly analyzed the operational lessons of the war, and accurately predicted the direction that future wars would take. Allied generals clung to outdated principles like using overwhelming force to overcome defensive positions, while Von Seeckt saw that maneuvers and mobility would be the primary means for the future. Mass armies would become cannon fodder and trench warfare would not be repeated.

The story of the transformation of the Luftwaffe is a fascinating one. Faced with total aerial disarmament in 1919, it was reborn only 20 years later as the most combat-effective air force in the world. Concepts of future air war along with training and equipment totally trumped the opposition, which was looking backward … always fighting the last 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 chair and CEO of PepsiCo Restaurants International [KFC Pizza Hut and Taco Bell].

Cuban Missile Crisis ‘News’ Gave Us a Preview of the Internet Age

An original October 1962 news photograph of President John F. Kennedy and Robert Kennedy taken as tensions grew during the Cuban Missile Crisis sold for $527 at an August 2015 Heritage auction.

By Jim O’Neal

“I am prepared to wait for my answer until hell freezes over.”

An unusual statement, especially at an emergency session of the somber United States Security Council, and uncharacteristically bellicose for the speaker, U.N. Ambassador Adlai E. Stevenson. It simply was the most dangerous time in the history of the world … the 1962 Cuban Missile Crisis.

Stevenson

Ambassador Stevenson was interrogating Soviet U.N. representative Valerian Zorin while accusing them of having installed nuclear missiles in Cuba, a mere 90 miles from the U.S. coastline. Tensions were sky high. The Joint Chiefs had recommended to President John F. Kennedy an airstrike, followed by an immediate invasion of Cuba using U.S. military troops.

Then with the world’s two superpowers eyeball to eyeball, as Dean Rusk commented, the other guy blinked. Cuba-bound Soviet ships stopped, turned back, and the crisis swiftly eased.

Over much of the world, and especially in Washington and New York, there was relief and rejoicing. With crucial backing from the United Nations and the Organization of American States (OAS), nuclear war was averted. Success in avoiding a war of potential global devastation has gradually clouded the fact that the United States came perilously close to choosing the military option.

The arguments of those who fought for time and political negotiations have been blurred and gradually obscured by widespread euphoria. Even for Ambassador Stevenson, the sweet taste of success soon turned sour. First, there was the death of his dear friend Eleanor Roosevelt, quickly followed by a vicious personal attack on him that he never fully recovered from.

When Mrs. Roosevelt reluctantly entered the hospital, it was thought she was suffering from aplastic anemia. But on Oct. 25, 1962, her condition was diagnosed as rare and incurable bone-marrow tuberculosis. She was prepared and determined to die rather than end up a useless invalid. Her children reluctantly decided Stevenson should be allowed one last visit to his old friend, although daughter Anna warned she might not recognize him.

On Nov. 9, two days after her death, the U.N. General Assembly put aside other business and allowed delegate after delegate to express their personal grief and their country’s sorrow. It was the first time any private citizen had been so honored. Adlai told friends that his speech at the General Assembly and the one he gave at her memorial service were the most difficult and saddest times of his life.

Then a harbinger of a brewing storm started on Nov. 13 when Senator Barry Goldwater issued a sharp attack on Stevenson by implying he had been willing to take national security risks to avoid a showdown with the Soviets. The Saturday Evening Post followed with an article on Cuba that portrayed Stevenson as advocating a “Caribbean Munich.” The headlines at the New York Daily News screamed “ADLAI ON SKIDS OVER PACIFIST STAND ON CUBA.”

For months, Washington was abuzz with rumors that it was all a calculated effort by JFK and Bobby to force Stevenson to resign as U.N. ambassador. It was all innuendo, half-facts and untrue leaks, but it was still reverberating a quarter of a century later when the Sunday New York Times magazine, on Aug. 30, 1987, published a rehash of all the gossip.

In truth, all we were witnessing was a preview of things to come: the internet age of “Breaking News” (thinly veiled opinions parading as facts), 24/7 cable TV loaded with panels of “talking heads,” and a torrent of Twitter gibberish offering a full banquet of tasty goodies for any appetite.

Stevenson, born in Los Angeles in 1900 – the year his grandfather ran for vice president on a losing ticket with William Jennings Bryan – lost his own bid for the presidency twice (1952 and 1956). He died of a heart attack in 1965 in London while walking in Grosvenor Square – finally getting some peace.

The rest of us will have to wait.

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].

Artists Recognized James Monroe as a True American Hero

A charcoal sketch of George Washington aide Lt. Col. Robert Hanson Harrison that artist John Trumbull did for his epic painting The Capture of the Hessians at Trenton sold for $8,962 at a May 2009 Heritage auction.

By Jim O’Neal

John Trumbull (1756-1843) deservedly earned the sobriquet as the “Painter of the Revolution.” He actually started out as an aide to General George Washington, but ended up in London, where he developed into a highly respected artist. One of his paintings, which illustrates the signing of the Declaration of Independence, graces the $2 bill that features Thomas Jefferson. The bill was issued in 1976 to observe the bicentennial of that historic event.

Another of his numerous works is the The Capture of the Hessians at Trenton on Dec. 26, 1776. This one naturally features General Washington again, but there is also a depiction of future president, Lieutenant James Monroe, being treated for a near-fatal damaged artery.

An even more famous painting of the times is an 1851 oil on canvas that also features Washington – Washington Crossing the Delaware on Dec. 25-26, 1776. It was painted by Emanuel Leutze (1816-1868), a German-American immigrant. Once again, we find James Monroe holding the American flag – the Stars and Stripes – which critics are always quick to remind was a flag not adopted until the following year, 1777. Some nitpickers also harp that the time of day is wrong, the ship is incorrect, and (sigh) even the chunks of ice in the river aren’t right.

But the role of James Monroe as a true hero is beyond any doubt.

Often called the “Last of the Founding Fathers,” he was the fifth president of the United States and like Washington, Jefferson and Madison, the son of a Virginia planter. It is sometimes overlooked that in the first 36 years of the American presidency, the Oval Office was occupied almost exclusively by men from Virginia. Somehow, John Adams (Massachusetts) managed to squeeze in a quick four years as president (1797-1801) before sneaking out of Washington, D.C., when Thomas Jefferson ousted him.

James Monroe entered politics after his service in the Revolutionary War and systemically worked his way up after serving in the Virginia legislature. He was a U.S. senator, a minister to France, and then governor of Virginia. After helping negotiate the Louisiana Purchase, he served as minister to Britain, followed by another stint as Virginia’s governor. But after only four months, President Madison offered him an appointment as secretary of state to help draft the recommendation to Congress that led to the declaration of war against Great Britain in 1812.

When the war got off to a poor start, Madison wisely appointed him secretary of war and Monroe held both of these critical Cabinet positions until the war ended. After the war, the prosperity of the country improved dramatically and with Madison’s strong support, Monroe easily was elected president in 1816.

Taking office when the country finally had no unusual problems, the 58-year-old Monroe was bold enough to declare during his inaugural address: “Never did a government commence under auspices so favorable, nor ever was success so complete. If we look to the history of other nations, ancient or modern, we find no example of a growth so rapid, so gigantic, of a people so prosperous and happy … the heart of every citizen must expand with joy … how near our government has approached to perfection…”

It was truly the “Era of Good Feelings!”

Things change … and they will again.

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].

Cotton Gin Extended America’s Abhorrent Practice of Slavery

The 1796 patent signed by George Washington for “new machinery called the Cotton Gin” realized $179,250 at a May 2011 Heritage auction.

By Jim O’Neal

In 1776, Scottish economist, philosopher and teacher Adam Smith wrote The Wealth of Nations, a book that helped create a new understanding of modern economics. A pervasive theme was the idea that any economic system could be automatic and self-regulating if it was not burdened by monopolies or artificial trade barriers. This theory has become widely known as “the invisible hand.” It heavily influenced my favorite economist Milton Friedman and his Free to Choose basic philosophy.

One highly topical insight was that slavery was not economically viable and contributed to inefficient markets. Aside from the obvious moral issue, Smith believed slave owners would benefit by switching to a wage-labor model, since it was much more inexpensive to hire workers than own them and provide decent conditions. Buying slaves was much more costly due to ongoing expenses of feeding, housing and caring for workers with a high mortality rate, workers who eventually would have to be replaced.

In the United States, there was also a major disconnect between the concepts of all men being created equal and the cruel practice of slavery, which was prevalent especially in the agrarian states of the South. Although many sincerely believed that slavery would gradually die out, powerful Southern states needed some kind of assurances before they agreed to the new federal Constitution. Section 9 Article 1 of the Constitution barred any attempt to outlaw the slave trade before 1808. Other provisions prohibited states from freeing slaves who fled from other states, and further required them to return “chattel property” (slaves) to their owners. Kicking the issue down the road 20 years enabled the delegates to reach a consensus.

Historian James Oliver Horton wrote about the power slaveholder politicians had over Congress and the influence commodity crops had on the politics and economy of the entire country. A remarkable statistic is that in the 72 years between the election of George Washington (1788) and Abraham Lincoln (1860), in 50 of those years, the president of the United States was a slaveholder; as was every single two-term president.

The passage in 1807 of the Act of Prohibiting Importation of Slaves in America, and the Slave Trade Act in Great Britain marked a radical shift in Western thinking. Even as late as the 1780s, the trade in slaves was still regarded as natural economic activity. Both U.S. and European colonies in the Caribbean depended on slave labor, which was relatively easily obtained in West Africa.

However, it was really the invention of the cotton gin by Eli Whitney in 1793 that dramatically extended the abhorrent practice of slavery. Cotton was suddenly transformed from a labor intensive, low-margin commodity with limited demand into a highly lucrative crop. Production in Southern states exploded as demand skyrocketed. The number of slaves grew concurrently from 700,000 in 1790 to 3.2 million by 1850. The United States quickly grew into the largest supplier in the world and snagged 80 percent of the market in Great Britain, whose appetite seemed insatiable.

As an economist, Adam Smith was undoubtedly right about hiring workers versus owning them, but everybody was too busy getting rich to worry about optimizing labor costs. And the more demanding abolitionists in the industrializing North denounced slavery the more Southern states were determined to retain it. It would take a bloody four-year Civil War and 630,000 casualties to settle it.

Harry Truman once explained why he preferred one-armed economists: It was because they couldn’t say “On the other hand…”

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].

Roosevelt’s Courage, Determination Made Him a Remarkable Man

A President Theodore Roosevelt “Equality” pin, produced after Booker T. Washington visited the White House in 1901, sold for $8,962 at a November 2010 Heritage auction.

By Jim O’Neal

President Theodore Roosevelt Jr. was born on Oct. 27, 1858. His mother, Martha Bulloch “Mittie” Roosevelt, was a Southern Belle socialite and family members were wealthy Southern planters and part of the Georgia elite. In 1850, they had over 30 slaves, most of whom worked in the cotton fields. Many believe that the character Scarlett O’Hara in Gone With the Wind was at least partially based on Mittie.

The Roosevelt family moved north to New York, however Mittie remained fiercely loyal to the South and when the Civil War finally started, it caused a schism in the family. Mittie and her sister Anna, unbeknownst to Theodore Sr. or the neighbors, spent many afternoons putting together relief packets for relatives and friends in the South. They were shipped to the Bahamas and then by blockade-runner to Georgia.

Exactly 22 years later in 1880, Teddy Roosevelt celebrated his birthday by marrying 19-year-old Alice Hathaway Lee, a cousin of a Harvard classmate. After spending a few weeks at the Roosevelt home in Oyster Bay, they moved to New York City along with Theodore’s (now) widowed mother Mittie. When Alice discovered in July 1883 that she was pregnant, T.R. was predictably thrilled, as he fully endorsed the traditional American ideal of large families. His life seemed ideal since his political career was going so well as a member of the state legislature in Albany.

However, he soon became concerned when Alice fell sick as her due date grew near. The nature of her illness was hard to pinpoint, but the family doctor didn’t seem too concerned. Alice was well enough to worry more about Theodore’s mother than herself. Mittie had contracted something virulent and was not improving. Her high fever raised the possibility of typhoid, which, although not contagious, was also not treatable.

At 8:30 on the evening of Tuesday, Feb. 12, Alice gave birth to a healthy 8-pound girl. The good news was telegraphed to T.R. in Albany, who passed out cigars and proceeded to clean up some details before heading home. Then a second telegraph arrived; Alice had taken a turn for the worse. T.R. dropped everything and rushed back to Manhattan on the next train. Arriving home, he was dismayed to find Mittie burning up with typhoid fever and Alice battling what was vaguely described as Bright’s disease (a potentially fatal kidney condition). A beleaguered Roosevelt spent the next 16 hours at one bedside and then the other.

Mittie went first in the darkest predawn hours of Thursday, Feb. 14, and Alice breathed her last 11 hours later in the early afternoon on the same day. Stunned and disoriented, Roosevelt managed to inscribe a thick black X in his diary for Feb. 14, followed by a single sentence: “The light has gone out of my life.”

It is a testament to his courage and fierce determination that he was able to regroup after such tragedy, losing his wife and mother on the same day and in the same house. He was somehow able to resume his life, with his most important contributions yet to come.

Simply a truly remarkable man.

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].

Harvard-Educated Adams Cracked Down on Non-Citizens, Free Speech

An 1805-dated oil on canvas portrait of John Adams, attributed to William Dunlap, sold for $35,000 at a May 2017 Heritage auction.

By Jim O’Neal

When Barack Obama was sworn in on Jan. 20, 2009, he became the eighth president to have graduated from Harvard, which has educated more U.S. presidents than any other university. Yale is second with five, with George W. Bush counting for both Yale and Harvard (where he earned an MBA).

The first of the “Harvard Presidents” goes all the way back to 1796, when John Adams narrowly defeated Thomas Jefferson 71 to 68 in the electoral vote count. It was the only election in history in which a president and a vice president were elected from opposing parties.

However, Jefferson bounced back four years later in a bitter campaign characterized by malicious personal attacks. Alexander Hamilton played a pivotal role in sabotaging President Adams’ attempt to win a second term by publishing a pamphlet that charged Adams was “emotionally unstable, given to impulsive decisions, unable to co-exist with his closest advisers, and was generally unfit to be president.”

When all the votes were counted in 1800, Adams actually ended up third behind both Jefferson and Aaron Burr (who eventually became vice president). John and Abigail Adams took the loss very emotionally and it alienated their relationship with Jefferson for 20-plus years. Adams departed the White House before dawn on Inauguration Day, skipped the entire inauguration ceremony and headed home to Massachusetts. The two men ultimately reconciled near the end of their lives (both died on July 4, 1826).

Adams had been an experienced executive-office politician after serving eight years as vice president for George Washington. However, his four years as president were controversial. It started when the Federalist-dominated Congress passed four bills, collectively called the Alien and Sedition Acts, which President Adams signed into law in 1798. The Naturalization Act made it harder for immigrants to become citizens, and the Alien Friends Act allowed the president to imprison and deport non-citizens deemed dangerous or from a hostile nation (Alien Enemy Act). And finally, the Sedition Act made it a crime to make false statements that were critical of the federal government.

Collectively, these bills invested President Adams with sweeping authority to deport resident non-citizens he considered dangerous; they criminalized free speech, forbidding anyone to “write, print, utter or publish … any false, scandalous and malicious writing or writing against the government of the United States … or either House of Congress of the United States … with intent to defame … or bring them into contempt or dispute … or to excite against them or either of them … the hatred of the good people of the United States.”

Editors were arrested and tried for publishing pieces the Adams administration deemed seditious. Editors were not the only targets. Matthew Lyon, a Vermont Congressman, was charged with sedition for a letter he wrote to the Vermont Journal denouncing Adams’ power grab. After he was indicted, tried and convicted, Lyon was sentenced to four months in prison and fined $1,000.

For Vice President Jefferson, the Alien and Sedition Acts were a cause of despair and wonderment. “What person, who remembers the times we have seen, could believe that within such a short time, not only the spirit of liberty, but the common principles of passive obedience would be trampled on and violated.” He suspected that Adams was conspiring to establish monarchy again.

It would not be the last time Americans would sacrifice civil liberties for the sake of national security. More on this later.

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].

While Dewey Focused on Election, Truman Dealt With Soviets

An original copy of the Chicago Daily Tribune’s famously wrong “DEWEY DEFEATS TRUMAN” edition from Nov. 3, 1948, sold for $1,493 at a June 2008 Heritage auction.

By Jim O’Neal

In 1948, Republicans selected New York Governor Thomas E. Dewey (Alice Roosevelt thought he looked like the groom on a wedding cake) to be their presidential candidate. He had lost in 1944 to FDR, but it was the closest anyone had come in four elections. Four years later, Dewey defeated a tough group of competitors that included Minnesota Governor Harold E. Stassen. In fact, Stassen was so close that Dewey challenged him to a debate just before the Oregon Republican primary.

The May 17 Dewey-Stassen debate was the first audio-recorded debate between presidential candidates in U.S. history. The debate centered primarily on the issue of criminalization of the Communist Party of the United States and was broadcast over the radio to the entire country. About 40 million people tuned in and Dewey was thought to be the winner. The real winner may have been voters, since this set a precedent that is still considered important today.

Dewey finally won the Republican nomination on the third ballot on June 24, 1948.

            Thomas E. Dewey

President Harry S. Truman had little interest in the Republicans or their convention since on the same date, June 24, the Russians decided to make a move in post-war Germany by blockading all rail, highway and water traffic in and out of Berlin. It seemed clear that Joseph Stalin was intent on forcing the Allies to withdraw from the partitioned city. Except for air, the Allied sectors were entirely cut off and nothing could come in or out of this critical German hub. About 2.5 million people were facing starvation and Truman was asked bluntly if American forces would remain in Berlin or pull out. In typical Midwest-style candor, Truman answered, “We stay in Berlin. Period.”

Four days later on June 28, while Dewey tried to rally voters to look beyond the crisis, Truman acted by ordering a full-scale airlift to Berlin. He sent to Germany two squadrons of B-29s, the giant planes associated with dropping the two atomic bombs on Japan. However, these particular planes were not equipped to carry atomic weapons, a small detail the Russians were unaware of.

Truman didn’t bother to consult with either the White House staff or any of his numerous political advisors in making the decision. He and Secretary of State General George C. Marshall were convinced that the future of Western Europe hinged on the Berlin issue and that leaving the Russians alone in Berlin could lead to a resumption of war. The numbers were sobering. The Allies had 6,500 soldiers in the city, while the Russians had 18,000. In addition, those 18,000 were backed up by 300,000 more in Germany’s Eastern Zone.

Politicians and newspapers editorialists thought it would be impossible to supply 2.5 million people with food, clothing and other essentials, especially when winter rolled around. However, by the fourth week of the airlift, American and British transports were roaring in by the hundreds each day. More pilots were being trained in Montana, flying blindfolded through extremely narrow mock routes, similar to Berlin routes. The New York Times even wrote in atypical tones, “We were proud of our Air Force during the war. We are prouder of it today.”

The effort was heroic, but it was not enough. So Truman stepped up and increased the number of planes, and 30,000 Berliners volunteered in the building of a new airfield. Voila! By October, the airlift was succeeding and Truman sent yet another 26 C-54 transports into the rotation. This increase helped guarantee supplies for the winter. Realizing their blockade ploy had failed, Stalin blinked and backed down!

“To do more would have been a direct threat to peace. To have done less would have been an abdication of our American honor and traditions,” said General Lucius Clay, the top U.S. official in occupied Germany. The 277,804 flights delivered more than 2.32 million tons of food and supplies, almost one ton for every man, woman and child in Berlin, the third-largest city in the world, behind Chicago and New York. Truman called off his airlift on May 12, 1949 … the same day Allied Powers approved the establishment of a new German Federated Republic, where the German people would rule themselves with their own government in Bonn.

They are once again the brightest country in all of Europe and dominate the E.U.

Note: I never met General Lucius Clay while he served as chairman and CEO of Continental Can Company from 1950-62 … although I received a short note from his office when I became plant manager of Continental’s South Gate, Calif., flexible packing group in 1962 at age 25. (I was told that was a record, but there is no proof.)

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].

Best Way to Revamp Income Tax Might Be a Do-Over

A 1917 World Series Program, featuring President Woodrow Wilson on the cover, sold for $4,800 at a May 2017 Heritage auction.

By Jim O’Neal

In 1912, after 16 years in the wilderness, Democrats seized control of Congress and the White House, with Woodrow Wilson as their leader. To their disappointment, the new president kept celebrations to a minimum. He delivered a brief inaugural address on March 4, 1913, canceled the inaugural ball, and reviewed the parade with stoic forbearance. This is not a day of triumph, he declared, but a day of dedication. And it was a day to muster the forces of humanity, not the forces of party.

Wilson went on to produce the greatest outpouring of social legislation Americans had ever experienced, during a brief period when the ruling class would use Hamiltonian means of a strong federal government to bring about Jeffersonian ideals of egalitarianism. His presidency would transform the American banking and currency system, create new industrial and farm policies, and expand the protection of America’s natural resources. But the first accomplishment was lowering tariffs and enacting an income tax – reforms aimed directly at middle-class pocketbooks.

Wilson and his associates sincerely believed that the federal government needed to serve as a counterweight to corporate wealth and an aggressive agent to help ordinary citizens. Wilson’s legacy is often cited as a fateful turning point when “do-gooders” harnessed the income tax to both raise revenues to grow government and to redistribute the wealth of Americans in a way they viewed as more fair. Yet at the outset, no one could foresee that war, not social justice, would start an inexorable rise in taxes that would thwart all the moral absolutism dreamed about.

Starting the day after his inauguration, Wilson called Congress into an extraordinary session for a historic assault on the tariff system by delivering his message personally in the first presidential appearance inside the Capitol since the days of President Jefferson. Although he recognized the challenge he faced due to conservative committee barons who dominated Congress, despite being Democrats, Wilson stood with his progressives and intended to use his executive power to the fullest. By September, the Senate actually passed a tariff bill that helped consumers … a historical first.

However, there was the small issue of how to plug the $100 million loss of revenue that was created. And so we now meet the federal income tax, which turned employers into tax collectors. New York’s The Sun summed up the opposition by arguing that income taxes were repugnant except in times of great national emergency and charged “it amounted to taxation of the few for the benefit of the many.” Advocates claimed it was merely a way to tap the “surplus” income of the rich – “over and above the amount necessary for good living.”

On May 8, 1913, the House approved the first income tax that would actually take effect since 1872, when Congress repealed Civil War-era taxes. But the Senate disagreed, with some senators opposing the “confiscation of property under the guise of taxation” and others saying “No honest man can make war upon great fortunes per se.” The war of words continued until a law was passed that affected fewer than 4 percent of Americans, with working-class people virtually excluded. A 1 percent rate on $20,000-$50,000 graduated up to 6 percent on $500,000 and above. There was also a 1 percent flat tax on corporations.

After two years, everyone seemed angry at Wilson for doing either too much or too little. Feeling besieged, he entertained a fantasy of putting on a beard and sneaking out of the White House prison, or putting a sign in front of his office: “Don’t shoot! He’s doing his best.” The reform agenda was mobilizing to act when…

In June, a shot rang out at Sarajevo.

World War I would eventually cost the United States $50 billion and the federal budget grew from $742 million in 1916 to nearly $14 billion in 1918. Excise taxes and tariffs had been providing 90 percent of federal revenue and this was limited. What to do?

Thus started the long story of the U.S. income tax, which at one point grew to 90 percent and has become so complex not even the IRS knows with certainty what lurks on all 50,000 pages of highly technical jargon (or even if 50,000 pages is accurate!). It grows each day … as does the debt that is back in the news.

My recommendation to President Trump is to simply start over, since every effort to reform only adds more pages and complexity. Take a blank piece of paper and write down “Need 18 to 20 percent of GDP to run federal government. Question: What is the best way to get this money and do the least damage in the process?” Answer: Find three smart people to figure it out, then just do it … fast.

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].

Labor Secretary Perkins Did Her Part to Make Sure Social Security Endures

A Feb. 27, 1935, memo by President Roosevelt to Francis Perkins regarding Social Security went to auction in December 2008.

By Jim O’Neal

President Theodore “Teddy” Roosevelt created the U.S. Department of Commerce and Labor on Feb. 14, 1903. It was renamed the Department of Commerce in 1913 and various bureaus and agencies specializing in labor were shifted to a new Department of Labor.

Until 1920, women were prohibited from having Cabinet-level positions since they were not allowed to vote. President Franklin D. Roosevelt broke this barrier in 1933 by appointing Francis Perkins as Secretary of Labor. She was instrumental in aligning labor with the New Deal.

The New Deal was a complex integrated plan to provide present relief, future stability and permanent security in the United States. Much of the president’s thinking about security – which would soon come to be called “social security” – rested on a premise that overcompetition in the labor market depressed wages, spread misery rather than income, curtailed the economy and worked special hardship on the elderly.

Roosevelt was determined to find a way to “dispose of surplus workers,” in particular those over the age of 65. The federal government could provide immediate relief to able-bodied workers as the employer of last resort, while returning welfare functions to the states. Unemployment insurance would relieve damage from economic downturns by sustaining workers’ living standards, and removing older workers (permanently) through government paid old-age pensions would create broad economic stability.

The longer-term features of Roosevelt’s grand design were incorporated into a landmark measure whose legacy endured and reshaped the texture of American life: the Social Security Act. No other New Deal measure proved more lastingly consequential or is more emblematic of the very essence of the New Deal. No one was better prepared to thread the needle of the tortuous legislative process than Secretary of Labor Francis Perkins and FDR personally assigned her the task of chairing a Cabinet committee to prepare the legislation for submission to Congress.

Madame Secretary (as she preferred to be called) brought to her task the commonsense practicality of her New England forebearers; compassion of the special milieu from her time at social-work pioneer Jane Addams’ Hull House; and a dose of political expertise gained as a labor lobbyist and industrial commissioner in New York. Perkins had evolved from a romantic Mount Holyoke College graduate, who tried to sell “true love” stories to pulp magazines, into a mature, deadly serious battler for the underprivileged.

She owed her position to a comrade-in-arms relationship with New York Governor Al Smith and FDR in New York reform battles and also the spreading influence of an organized women’s faction in the Democratic Party. She wisely believed that enlightened middle-class reformers could do more for themselves through tough legislation than union organization; and without the distraction of industrial conflict and social disruption.

Meanwhile, the American labor movement, led by the stubborn Samuel Gompers, relied exclusively on protection of labor’s right to organize. Even after his death, his American Federation of Labor (AFL) spurned legislation and continued to bargain piecemeal, union by union, shop by shop … a strategy that collapsed as the depression deepened.

We know how this ended on Jan. 17, 1935, when President Roosevelt unveiled his Social Security program. Today, 61 million people – or one family in four – receive benefits. However, there is no “lockbox” for Social Security and the flow of taxes and benefit payments are co-mingled with all General Obligations; which includes Medicare, military spending, food stamps and foreign aid. Everything is dependent on the federal government’s ability to levy taxes and borrow money to fund the unsustainable debts backed by “the full faith and credit of the United States.”

Some say that when it comes to global sovereign debt, we live in the best house on Bankrupt Street. However, I am willing to bet that FDR’s cherished Social Security program will never be touched. Francis Perkins did a superb job of getting this concept engrained in a special way and she must still be smiling. She liked her work and served for 12 years and one month – almost a record. James “Tama Jim” Wilson holds that distinction, serving as Secretary of Agricultural from 1897 to 1913, the only Cabinet member to serve under four consecutive presidents, counting the one day he served under Woodrow Wilson.

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.”

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].