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Full text of "Wrecking the labor banks; the collapse of the labor banks and investment companies of the Brotherhood of locomotive engineers,"

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WRECKING THE LABOR BANKS 

Labor Herald Library 

No. 20 



LABOR HERALD LIBRARY 



No. 1 THE RAILROADERS' NEXT STEP — 

AMALGAMATION— Wm. Z. Foster 25 

No, 2 THE RUSSIAN REVOLUTION— Wm. Z. 

Foster 50 

No. 3 THE REVOLUTIONARY CRISIS OF 1 9 1 8- 
21 IN GERMANY, ENGLAND, ITALY 
FRANCE— Wm. Z. Foster .25 

No. 5 AMALGAMATION— Jay Fox 15 

No. 6 RESOLUTIONS AND DECISIONS 2nd 

WORLD CONGRESS, R. I. L. U 15 

No. 7 RUSSIAN TRADE UNIONS IN 1923— 

M. Tomsky 10 

No. 8 THE STRUGGLE OF TRADE UNIONS 

AGAINST FASCISM— Andreas Nin 15 

No. 9 WM. F. DUNNE'S SPEECH AT THE 
PORTLAND (1923) A. F. of L. CON- 
VENTION 05 

No. 1 THE WORLD'S TRADE UNION MOVE- 
MENT — A. Losovsky 50 

No. 11 RUSSIA IN 1924— Wm. Z. Foster 10 

No. 12 RESOLUTIONS AND DECISIONS OF 
THE THIRD WORLD CONGRESS R. I. 
L- U 15 

No. 13 LENIN— The Great Strategist of the Class 

War — A. Losovsky 15 

No. 14 LENIN AND THE TRADE UNION 

MOVEMENT— A. Losovsky 15 

No. 15 COMPANY UNIONS— Robt. W. Dunn. . . .25 

No. 16. RUSSIAN WORKERS AND WORKSHOPS 

IN 1926— Wm. Z. Foster .25 

No. 17 ORGANIZE THE UNORGANIZED— Wm. 

Z. Foster 10 

No. 18 STRIKE STRATEGY— Wm. Z. Foster. . . .25 

No. 19 THE WATSON-PARKER LAW— The Lat 
est Scheme to Hamstring the Railroad Unions 
1 — Wm. Z. Foster ,15 




COMPOSED AND PRINTED BY UNION LABOR 






Labor Herald Library No. 20 



WRECKING THE 
LABOR BANKS 

The Collapse of the Labor Banks and 
Investment Companies of the Brother- 
hood of Locomotive TLngineers 

By WM.Z. FOSTER 



TRADE UNION EDUCATIONAL LEAGUE 
156 W. Washington St, Chicago, III. 



r^ 



PRINTED IN THE V. S. A. 

First Edition — November 15, 1927 
NEW YORK, N. Y. 






library 

University of Texas 

Austin, Texas 



CHAPTER I 

A Golden Dream 

A BOUT 1920 the trade unions began to go into business on 
a large scale. From then on for five years there was organ- 
ized by them an imposing array of labor banks, labor invest- 
ment companies, trade union life insurance companies, etc. 
At present writing there are 36 labor banks, 11 investment 
corporations, 3 trade union life insurance companies, and 
various other concerns, with combined assets, at least on paper, 
of about $150,000,000. 

The basis of this movement is the assembling by the trade 
union leaders of such meager savings as the workers are able 
to make out of their slim wages and then to invest them in 
industry. Although calling itself a cooperative movement, 
trade union capitalism is in reality nothing of the kind. The 
control of the various financial institutions rests entirely in 
the hands of the reactionary officialdom of the unions who, 
in the name of the unions, vote a majority of the stock. 
Similarly, the business practices and ideals of the movement 
have nothing in common with real cooperation. The whole 
thing is saturated from top to bottom with capitalistic aims 
and methods. The present writer dubbed the system "trade 
union capitalism," and that describes it correctly. 

The spectacular rise of trade union capitalism was accom- 
panied by a whole series of illusions, which the bureaucrats 
spread widely among the workers. The essence of these is 
, that struggle against the employers, by strikes and aggressive 
political action, is unnecessary — all that the workers have to 
do is to save their pennies, invest them in industry, and thereby 
^ become capitalists. The slogan of the movement is "Labor 
1% is becoming Capital." Professor Carver of Harvard gave 

539251 



I, 



8 WRECKING THE LABOR BANKS 

authentic voice to the whole movement in his recent book, 
The Present Economic Revolution in the United States. He 
says (p. 118): 

"The saving power of American workingmen is so great that if 
they would save and carefully invest their savings in ten years they 
would be one of. the dominating financial powers of the world." 

As for the railroad workers, says Carver (p. 124): 

"It the railroad workers would save merely the increase which 
they have recently received in their wages . . . (and) if they bought 
railroad stocks at par, they could ... buy $3,490,000,000 in five 
years. This would give them a substantial majority of all the out- 
standing stock." 

The most extravagant estimates were made on all sides 
regarding the future of labor banking and other phases of 
trade union capitalism. In the Saturday Evening Post of 
Nov. 6, 1926, Frank Stockbridge, in an article directly in- 
spired by B. of L. E. officials, says typically: 

"New labor banks are being projected and organized at the rate 
of dozens a year. I was told in one place of fifty which are expected 
to be in operation before the end of 1927." 

The B. of L. E. Leads the Way 

Undisputed leader in this capitalistic banking movement 
was the Brotherhood of Locomotive Engineers. Its vast 
financial structure and dizzy array of banks and investment 
companies dwarfed all the rest. Its officials set the pace for 
the whole movement. It was a pioneer in every branch. Its 
word on labor banking was gospel to the trade union official- 
dom. 

The question of establishing a labor bank was first proposed 
to the B. of L. E. at its convention in 1912, but it was voted 



WRECKING THE LABOR BANKS 9 

down. In the 1915 convention, however, the delegates voted 
to set up a bank to handle the union's growing funds. But 
the war situation prevented definite action until 1920, when 
the Brotherhood of Locomotive Engineers Cooperative Na- 
tional Bank was opened in Cleveland. Its popularity was 
instantaneous. A "miraculous flow of gold came in from 
every side." Within a couple of years its resources totalled 
$27,'000,000. 

Their appetites whetted by this golden success, the B. of 
L. E. officials, under the thumb of the Czarlike Warren S. 
Stone, launched headlong into a program of frenzied finan- 
ciering such as has seldom been seen in this country. Declaring 
that it was as easy to operate a bank as to run a peanut stand, 
Grand Chief Engineer Stone proceeded to establish labor 
banks all over the country. All that was necessary was money 
to float them, then riches would come. The engineers scraped 
together their savings and, trusting their officials implicitly, 
poured their money into the various financial schemes one 
after the other. The following are the principal banks and 
other companies and investment projects organized in this 
campaign : 

Labor Banks 



City Capital 

Cleveland $ 1,000,000 

Hammond, Ind 25,000 

Spokane 200,000 

Hillyard, Wash 25,000 

Seattle 250,000 

Tacoma 200,000 

San Francisco 500,000 

Nottingham, Ohio 75,000 

Boston 500,000 

Philadelphia 500,000 

Birmingham . r . .... r .,...,.,,,,,.., . . 4(00,000 



Resources 

S27,000,000 

1,750,000 

3,000,000 

236,286 

1,126,621 

2,929,338 

2,500,000 

823,694 

4,135,828 

1,942,339 

^57^591 



10 WRECKING THE LABOR BANKS 

New York 7 00 > 000 

Portland 20O > 000 

Minneapolis (with other unions) 200,000 

Three Forks, Mont, (with other unions) 25,000 

Sarasota, Fla 100,000 



7,250,000 
2,327,207 

200,000 



Holding Companies and Investment Corporations 

Capital 

Brotherhood Holding Company $1,000,000 

Brotherhood Investment Company 10,000,000 

New York Empire Company 700,000 

B. of L. E. Securities Corp. of N. Y 3,000,000 

California Bro. Investment Company 1,000,000 

B. of L. E. Securities Corp. of New England 2,000,000 

Pacific Bro. Investment Company 4,000,000 

B. of L. E. Securities Corp. of Pennsylvania 3,000,000 
Southern B. of L. E. Securities Company. . 2,000,000 

Brotherhood Realty Company 1,000,000 

United Holding Company 

Subsidiaries, Industrial Companies, etc. 



Brotherhood Watch Company 
Scudder Furnace Company 
Universal Finance Company 
Fuel Distributors, Inc. 
Sandusky Stone Products Co. 
Sunbeam Groceries Company 
Hobert-Stone Company 

Etc., 



California Brotherhood Invest. Co. 
Pacific Empire Company 
Pacific Insurance Company 
Brotherhood Safe Deposit Co. 
Assured Thrift Agency 
Assured Thrift Corporation 
Universal Mortgage Corp. 
etc., etc. 



Real Estate and Other Investments 

B. of L. E. Office Building (cost) $1,176,751 

B. of L. E. Bank Building (cost) 6,600,934 

' Park Lane Villa (cost and debts) 2,800,000 

Coal River Collieries (invested) 2,800,000 

Equitable Life Building (invested) 2,394,000 

Venice, Florida, .(approximate investment) 16,000,000 

In addition to the above-listed institutions and investments, 



WRECKING THE LABOR BANKS i l 

the B. of L. E. has or has had many other companies and 
interests which have more or less remained unknown publicly. 
For example, there was the investment in the Empire Trust 
Co. of New York, a $90,000,000 corporation. Stockbridge 
says that "It was not much less than a half interest." Besides, 
there were many side issues, where the officials plunged into 
various companies on their own account, drawing the member- 
ship after them, a case in point being the $10,000,000 Radio 
Corporation of which Stone was president. 

All told, banks, investment corporations, real estate projects, 
industrial companies, etc., the financial enterprises of the B. 
of L. E. amounted to the imposing total of $100,000,000. 

Through Rose-Colored Glasses 

For a time everything went lovely. Fulsome praise was 
poured out upon Stone and his associates for their "wonderful" 
financial achievements. They were the idols of every labor 
bureaucrat who itched to get his hands on the workers' slim 
savings. The capitalists welcomed the whole development, 
which they were quick to see worked entirely against militant 
unionism. Stockbridge, in his enthusiastic article in the ultra- 
scab Saturday Evening Post, said: 

"Capital simply cannot afford to let the Brotherhood fail; it would 
be too serious a setback to the growing amity between capital and 
labor." 

Wall Street opened its doors to Stone. Praise for him 
filled the capitalist press. He was the herald of a new day 
of no strikes and a docile working class. Stone declared that 
a new era had dawned for the labor movement. He divided 
labor history into three epochs. The first was the beginning 
of class consciousness and organization; the second was a 
general struggle for the right of collective bargaining, and 
the third, now beginning, is to be an era of cooperation with, 
rather than war against, the employers. Of the new devel- 



12 



WRECKING THE LABOR BANKS 



opment the most striking manifestation is the labor bank. 
This theory of Stone's, seized upon by Matthew Woll and 
other reactionary leaders, has been developed by them into 
the so-called "Higher Strategy of Labor," the theory that it is 
not necessary to struggle against the employers, but to co- 
operate with (that is, surrender to) them. 

Other B. of L. E. officials parrotted Stone's ideas. Pren- 
ter said: 

"In America there is no such thing as a working class as distin- 
guished from a capitalist class. Men pass too readily from one group 
into the other to be tagged with class labels. It is the Brotherhood's 
aim in its financial enterprises to show its members and workers 
generally how they can become capitalists as well as workers." 

And again, that in labor banking: 

"We have demonstrated American labor's complete answer to the 
theories of Marx and Lenin." 

Listen to the voice of Professor Carver coming from the 
mouths of B. of L. E. leaders in the Engineers' Journal of 
August, 1925: 

"Labor banking is the only revolution in the world worth a peck 
of beans. Once let a majority of the workers and farmers of America 
learn to concentrate their savings and their credit power in their own 
banks and they can control the resources of the world's richest nation 
within one generation." 

And harken to the words of wisdom of H. V. Boswell, a 
labor banker of the B. of L. E. (American Labor Year 
Book, 1926; p. 323): 

"Instead of standing on a corner soapbox screaming with rage be- 
cause the capitalists own real estate, bank accounts, and automobiles, 
the engineer has turned in and become a capitalist himself." 






Library 
University of Texas 
Austin, !"- 



WRECKING THE LABOR BANKS 



13 



In the midst of such an atmosphere of wild promises of 
wealth and power the B. of L. E. financial institutions devel- 
oped. Stone became absolute dictator. He reorganized the 
union on the basis of the new conceptions. He made himself 
President at $25,000 a year, with almost as much more in 
expenses. The financial side of the union became dominant. 
The Protective Department, the section dealing with wages 
and working conditions, was relegated to a minor phase of the 
union's make-up and activities. The Grand Chief Engineer 
at the head of it was reduced to fourth ranking officer. 

The rank and file of the union for the most part were 
hypnotized by Stone's "successes" and his sophistries. They 
believed his promises of riches to be won in industry, in 
finance, in real estate. They gathered together their hard- 
earned dollars and poured them unquestioningly into his vari- 
ous enterprises one after another as they were launched. So 
great was their confidence, for example, that only one circular 
letter to the membership sufficed to sell the $1,000,000 capital 
stock of the Brotherhood Holding Co. The other companies 
were similarly accepted and financed. A deaf ear was turned 
to the more conscious, more clear-sighted elements in the 
union who warned against these developments. For the most 
part their warnings were scoffed at as the complaints of 
incurable radicals altogether out of touch with the realities 
of life. The union lived in a golden dream. 

CHAPTER II 

A Rude Awakening 

npHE golden dream is now quite at an end. The disillu- 
sionment came during the B. of L. E. convention held 
in Cleveland from June 6 to July 21, 1927. The delegates 
got the shock of their lives. They suddenly discovered their 
union to be plunged into one of the greatest financial fail- 

539251 



14- 



WRECKING THE LABOR BANKS 



ures in American history. The vast network of banks and 
investment companies, which they had thought to be such a 
glowing success, turned out to be nothing but a ghastly ruin, 
the whole thing tottering on the brink of bankruptcy, with 
sheriffs knocking on the door and lawsuits menacing from all 
sides. Their trusted and "brilliant" leaders they found out 
to be charlatans and grafters when not incredibly stupid and 
incompetent. They learned that not only were their banks 
and other financial concerns broke, but also that the union 
funds were gutted, and that they, personally, could be held 
liable for millions of dollars squandered in the incredible 
financial debauch. They confronted a desperate situation 
threatening the very life of their organization. It was indeed 
a rude awakening. 

Faced by this crisis, the deepest in the 64 years' history of 
the B. of L. E., the delegates practically turned the conven- 
tion over to a receivership, the Committee of Ten with an 
attorney, Judge Newcomb, at its head, to find a way out of 
the shambles. Then for six and a half weeks, the longest 
convention ever held by the B. of L. E., and at a cost of 
about $1,000,000, they struggled to rid themselves of the herd 
of financial white elephants thrust upon them by their leaders 
and to find a way to save their organization. 

Finance a la Peanut Stand 

The convention showed practically every enterprise of the 
B. of L. E. to be bankrupt. Judge Newcomb said (p. 1405) :* 
"The building of the home for the Brotherhood in Cleveland 
we think could be regarded as a wise move. Every other 
movement since that time impresses us as of very doubtful 
character." The lawyer, Squires, employed by the Brother- 
hood, condemned the whole system of financing in what 
Newcomb called (p. 1408) "the sternest arraignment from 

* Where such page numbers are given in this pamphlet it refers to the page 
in the printed convention proceedings. 



WRECKING THE LABOR BANKS 



15 



lawyer to client I have ever read in my experience." Dele- 
gate Mcllvenny of the Committee of Ten sounded the gen- 
eral opinion when he said (p. 369), "Some years ago a man 
came out here on this platform (Stone) and said that banking 
was just as easy as running a peanut stand and, by God boys, 
that's the way she has been run." 

The loss from the many wrecked institutions runs into 
the millions. No very definite totals were developed. The 
Committee of Ten submitted no general balance sheet. After 
studying the financial maze for several weeks Del. Van Pelt 
of the Committee of Ten said (p. 1888), "Does anybody 
know what we owe? Does the Committee of Ten know? 
Not by a damned sight." Some approximation of the loss 
can be made, however, from the emergency measures adopted 
by the convention to meet pressing obligations. First, the 
convention plastered a $4,000,000 mortgage on the two 
Cleveland office buildings; then it put on a $7,200,000 
assessment on the membership. After all this, Chairman 
Myers of the Committee of Ten said (p. 2061): "I want to 
say that at the end of two years the committee will be badly 
mistaken if we don't find ourselves with an indebtedness of 
approximately $8,000,000 hanging over us." 

Thus the loss would be at least $19,000,000. And this 
does not take into account millions lost by members in buying 
stock for which the B. of L. E. cannot be made directly 
responsible. Del. Merriman (p. 2015) even suggested a total 
loss of $30,000,000, and no one rose to contradict him. That 
the losses are huge, possibly as much as $20,000,000, was 
further indicated by the proposals of Mitten (to be dealt with 
later) which required that the B. of L. E. raise $25,000,000 
to cover its bad investments. How hard the erstwhile rich 
union is hit was indicated by a statement of Del. Huff, a 
Financial Trustee (p. 1983), "On July 19th we owed 
$300,000 to the Corn Exchange Bank in New York and we 
didn't have a thin dime to pay it with." 



16 WRECKING THE LABOR BANKS 

Business institutions wrecked, union finances gutted, offi- 
cials discredited, themselves tricked and robbed, the union 
itself menaced, — it was not a beautiful picture for the dele- 
gates. Judge Newcomb rubbed more salt into their wounds 
when he pointed out that the individual union members were 
responsible for all the bankrupt institutions in which the 
Brotherhood held a majority of the stock or where it had 
guaranteed the investments and loans. He said they were 
in the same position as the Danbury hatters, and declared 
(p. 2002): 

"If there is any default on any of these guarantees which have been 
made they can track you back to your homes and follow you down 
personally and individually to your last dollar." 

The Morning After 

As the full force of the disaster hit the delegates they 
began to get an inkling of what the left wing meant when 
it had declared in season and out that trade union capitalism 
is fatal to trade unionism. Let a few quotations illustrate 
the way the convention was flattened by the news: 

"I liken this situation a great deal to the San Francisco earthquake, 
when the city was shaken down and burnt up. It has hit us something 
like that earthquake." Del. Burbank (p. 2130). 

"You are still, in my opinion, going to have to pass through a bap- 
tism of fire; you are simply in the midst of it at the present time. 
Del. Smith, (p. 2132). 

"We have been in the worst condition it was possible for us to get 
into." Del. Hedges (p. 2133). 

"We have had a bitter, bitter experience." Del. Johnston, (2133). 

"We are broke and we know we are broke. What is the use of 
finding out any more about being broke. We are in the soup and the 
more of the committee (of Ten) we get, the more we will find out 
about being broke. The idea is to get everybody at the pumps, get 
the lifeboats out and save the day." Del. Nelson (p. 392). 

"There never was a bunch of men in the history of this organization 



WRECKING THE LABOR BANKS 



17 



or any other that went out (from convention) with such a task." Del. 
Barret, (p. 1959). 

"You stand here today confronted with a situation that I do not be- 
lieve a labor organization at any time before this, in all the history 
of the world, had to combat." Del. McGuire (p. 672). 

Although the delegates were manifestly determined to save 
their union at all costs, something of a panic hit the conven- 
tion as disaster piled on disaster. The lawyers, with their 
own financial plans in mind, cultivated this panicky feeling. 
Said a letter from Attorney Squires (p. 1408): 

"We do want to impress upon you that in our judgment you are 
rapidly running to ultimate destruction of your Brotherhood itself and 
that no measures can be too heroic to be taken by you at once to save 
the situation." 



And Judge Newcomb (p. 1761): 

"If in this matter I was representing a private corporation I would 
say 'Let the law take its course,' but I say to you men that I believe 
you will never under heaven save this organization unless you protect 
the financial end of it." 

One thing the delegates learned — that they have had a 
sufficiency of trade union capitalism. All voiced that senti- 
ment. It would have taken a brave "labor-banker" to face 
that disillusioned and enraged body of engineers and spin to 
them the fairy tales, formerly gospel in the organization, 
about labor becoming capital and the workers winning a 
competence by investing in labor banks and similar concerns. 
Even the most reactionary of the leaders had to yield to the 
spirit of disgust towards labor financiering that animated the 
rank and file. Del McGuire of the Committee of Ten 
sounded the keynote when he said (p. 2002) : 

"I have been giving -all my time for several weeks to studying this 
problem and it has resolved itself into three or four words, and they 



18 



WRECKING THE LABOR BANKS 



are: 'Get out of it, and the quicker you get out of it, why the better 
off you will be.' " 

The leaders who managed to save their skins in the house 
cleaning which took place all came forth, for convention 
purposes at least, as strong opponents of trade union capitalism 
and its works. They tried to get a fresh hold upon the rank 
and file by capitalizing the indignation and resentment in the 
latter's hearts. Thus, Assistant Grand Chief Engineer Ed- 
rington, himself all involved in the financial disasters, put into 
voice the determination of the body of delegates when he 
said (p. 2132): 

"I hope to see the day come when we can forget about investment 
companies, holding companies, realty companies . . . and get back to the 
old Brotherhood as a labor organization." 

CHAPTER III 



A Survey of the Wreckage 

T)ARTLY because of confusion in the tangled records and 
partly because of efforts of the leaders to cover up, full 
details of the wrecking of the B. of L. E. financial institu- 
tions and resources were not brought out at the convention. 
But at least enough was exposed to give a definite picture of 
the general devastation wrought by the labor Ponzis. In the 
ensuing paragraphs will be pointed out the state of affairs in 
which the various investment concerns and projects found 
themselves at the opening of the convention, before the "labor- 
bankers" got to work upon them desperately in efforts to 
salvage some of the pieces of the shattered financial system. 

The Cleveland Bank 

The Cleveland bank was the clearing house for all the wild- 
cat speculations of Stone, Webb, and their crowd of frenzied 



WRECKING THE LABOR BANKS 



19 



financiers. As fast as it would get loaded up with bad paper 
coming from the criminally incompetent and reckless invest- 
ments new holding or investment corporations would be or- 
ganized, the stock of these being sold to the trusting Brother- 
hood members, and then the worthless paper exchanged for 
the new company's good money. 

Through wild jugglery the Cleveland bank got into grave 
difficulties. When the convention opened it was in a grave 
crisis. It was in the hole with "frozen assets" (a polite term 
for worthless paper) to the tune of $1,600,000. The bank 
examiners were literally standing at the door ready to close 
it. As soon as its precarious condition became generally 
known, through the sensational convention disclosures, a run 
on the bank started. Not only individuals but also sections of 
the B. of L. E. fell over each other in their eagerness to take 
out their funds from the tottering bank. So low had Stone's 
"wonder institution" fallen in prestige. It is stated that over 
$2,000,000 was withdrawn within a few days. The bank 
trembled on the verge of bankruptcy, a collapse which would 
pull down with it the whole flimsy financial house of cards 
of the B. of L. E. It had to be given a dose of oxygen 
immediately. 

Various others of the banks were in trouble or had been. 
For example, the New York bank found itself with $500,000 
of worthless paper, and threatened with foreclosure. The 
Cleveland bank took up this junk, thereby increasing its own 
difficulties, and the New York bank was sold. The Phila- 
delphia bank also got into similar trouble. It fell into the 
clutches of the Mitten interests. The Birmingham bank 
was similarly wrecked and then sold. 

The Brotherhood Holding and Investment C omf antes 

These two companies were the financial refuse heap of the 
B. of L. E. "financiers." Said Del. McDermand, Com. of 
Ten (p. 1306): 



20 



WRECKING THE LABOR BANKS 



"What were these companies organized for? Just to furnish a dump 
to wash out the bad paper of the banks . . . the first holding company 
(B. of L. E. Holding Co.) was organized for $1,000,000 for that 
purpose. When they got it organized and got the stock sold it was not 
big enough, they had more paper that had to be gotten out of the banks. 
So they organized a $10,000,000 corporation (B. of L. E. Investment 
Co.) They said, 'Let's make it big enough this time.' Then they 
started to fill that up if you please." 

The $10,000,000 of preferred stock of the B. of L. E. 
Investment Co. was gobbled up by the union members, even 
as the $1,000,000 of its predecessor, the B. of L. E. Holding 
Co. It cost $1,500,000 to float the Investment Company. 
The rest was invested in various wildcat advantures. Del. Mc- 
Dermand said that the Investment Company would have had 
to earn from 15% to 20% in order for the engineers to get 
a cent out of it. And it could earn nothing. Among the 
"assets" of the Investment Company were one item of 
$5,231,176 interest in the mad Florida land venture, and 
another of $1,775,000 in the equally foolish Coal River 
Collieries, neither of which notes are worth much more than 
the beautifully lithographed paper upon which they are in- 
scribed. The B. of L. E. auditors reported that with "few 
exceptions" the assets of these two companies were "frozen." 

Coal River Collieries 

This project constitutes not only a heavy financial loss but 
also a deep shame to the B. of L. E. It was capitalized at 
$5,000,000. But let Judge Newcomb tell about it (p. 1410) : 

"$2,800,000 worth of stock in the Coal River Collieries has been 
issued. The Coal River Collieries owes your Investment Company 
$1,650,000, to other creditors it owes approximately $300,000. It 
needs for immediate equipment, if that property is to function as it 
should, an expenditure of $500,000. That is Coal River ... if you 
tried to save Coal River Collieries you would be sending good money 
after bad. That is a wipe out, men." 



WRECKING THE LABOR BANKS 21 

Now let John L. Lewis, President of the United Mine 
Workers, tell how this shameful piece of union wrecking was 
carried on — The Nation, Mar. 18, 1925: 

"Immediately, Coal River Collieries, whose mines are in the non- 
union territory of southern West Virginia and northeastern Kentucky, 
joined in an assault upon the Jacksonville agreement. Up to that time 
Coal River Collieries had employed union miners and paid the union 
scale in the West Virginia mines, but had operated its Kentucky mine 
non-union. Mr. Stone, like other non-union operators, demanded that 
his employees take a reduction in wages. The United Mine Workers 
refused. Mr. Stone closed down his West Virginia mines rather than 
pay the union scale. Next Coal River Collieries imported strike-break- 
ers from the non-union fields of Virginia, Kentucky, and Alabama. . . . 
Then the union miners were evicted from their homes. The U. M. 
W. A. has made not only repeated but continuous efforts to adjust this 
matter with Mr. Stone and his company, but it has met with the same 
identical refusals and opposition that it has many times experienced with 
cold-blooded, hard-boiled, non-union coal companies." 

Coal River Collieries is a noisome example of the degen- 
erating and disastroiis influence of trade union capitalism. 

Park Lane Villa 

"We have another little investment out here called Park Lane 
Villa." — Judge Newcomb. 

Park Lane Villa was one of Stone's financial fantasies. 
It was a gorgeous apartment hotel in one of Cleveland's 
most aristocratic sections, hard by Rockefeller Park. It turned 
out to be unrentable and had to be rebuilt at a cost of several 
hundred thousand dollars. Stone lived there, in an apartment 
costing $1,100 per month. During the convention other 
officials of the union were accused of paying as much as $600 
per month rent there. The report of the Committee of Ten 
(p. 10) says of Park Lane Villa: 



T 



22 



WRECKING THE LABOR BANKS 



"Park Lane Villa is obligated to the extent of $1,000,000 on first 
mortgage to the B. of L. E. Investment Co., $600,000 on second mort- 
gage to the B. of L. E. Holding Co., and $1,000,000 in other obliga- 
tions, make this venture what might, with propriety, be called a losing 
game." 

During the convention this $2,600,000 investment was 
sold for $1,250,000, after five minutes' consideration by the 
delegates. 

The Equitable Building 

This was one investment from which the B. of L. E. 
made some money, but it left a terrible stench behind. Some 
discrepancies exist as to how much the Brotherhood gained 
in this venture. Judge Newcomb (p. 1402) said the profit 
was $967,000. But Del. McDermand, Committee of Ten, 
said (p. 1306), "They sold the Equitable Building and the 
Empire Trust and they made a profit of approximately 
$1,500,000." Out of this $1,500,000, he said, a fake divi- 
dend of $700,000 was declared and the rest was chucked 
into the vast Florida land speculation. 

Shortly after this sale, Mr. Baldwin, the purchaser, made 
a "present" of $35,000, through Mr. Webb, the B. of L. E. 
financial "expert," to the fourteen head officials of the union, 
amounting to $2,500 each. He appeared to be very grateful 
for their services. One explanation might be found in the 
fact that the stock advanced from $53 to $91 per share after 
he bought it. Did he know of the coming advance when be 
bought the stock? Did the union officials know it? Seeing 
their clean record in this whole financial debauch, of course 
no one would accuse them of such collusion. But they 
pocketed Mr. Baldwin's "present." Later, when the matter 
was made an issue at the convention, some of them turned 
it into the union. Others kept it. When Prenter, Stone's 
successor as President of the union, was questioned about his 



WRECKING THE LABOR BANKS 25 

share, he said defiantly, "I took mine and it's nobody's damned 
business" (p. 1335). 

The B. of L. E. Buildings 

The B. of L. E. has two big office buildings in Cleveland. 
The first one built, known as the B. of L. E. Office Building, 
cost $1,176,751. It is fairly successful, producing a net 
earning of $105,339 in 1926. The second one, the B. of 
L. E. Bank Building, is a big white elephant. It was built 
on an extravagant, cost plus basis, costing the enormous amount 
of $6,600,934. From one-half to two-thirds of its offices 
constantly stand idle, the building being badly located. It 
operates at a loss. Up to date it has made a total deficit of 
$276,289. 

These two buildings, which together cost $7,777,685 and 
which are worth probably $6,000,000, were, at the opening 
of the convention, already blanketted with mortgages total- 
ling $7,500,000. As a result of the convention, by a finan- 
cial juggle which we will explain later, another $4,000,000 
was added in mortgages, making $11,500,000 all told. This 
would seem to "settle the hash" financially of these two 
debt-laden structures. They are both bankrupt. They can- 
not pay interest, much less principal. 

The Insurance , Pension, and General Funds 

Rich pickings for the labor-bankers were the organization 
funds of the B. of L. E. This was one of their two main 
sources of money supply, the other being the selling of gold 
brick stock to the union membership. They bled all the 
union's funds white. Especially they gutted the insurance 
and pension funds. 

The B. of L. E. is based heavily upon the principle of 
insurance. The average age of its members is more than 



24 



WRECKING THE LABOR BANKS 



50 years. The insurance and pension features are organized 
in separate societies, the Locomotive Engineers Mutual Life 
and Accident Insurance Association, and the B. of L. E. 
Pension Association. The benefits are high and a minimum 
of $1,500 life insurance is compulsory. The union has 
$189,000,000 of insurance on its books. At the close of 
1925 there was in the insurance and pension funds $10,694,- 
000, after paying out $4,394,000 during the year. 

These funds have been used up to finance the various "blue- 
sky" propositions of Stone and Co. Without even a shadow 
of authority, the official clique poured vast sums of this 
insurance money into Florida and other financial sink holes. 
The biggest slab went into mortgages on the two Cleveland 
office buildings; namely, $7,500,000. But the convention, 
in its wild search for money to save the many sinking finan- 
cial ships, added another mortgage of $4,000,000 to the 
buildings, as pointed out above. This mortgage was placed 
ahead of the $7,500,000 mortgages owned by the insurance 
and pension funds, thus rendering the latter mortgages, in 
view of the low earning power of the buildings, largely 
worthless. The insurance and pension funds are virtually 
bankrupt and can only be replenished by taxation of the 
membership. Del. Henry struck a popular note when, refer- 
ring to the guilty officials, he said (p. 1935): 

"We have to clean those people out if we expect to live. We have 
to do it right. We have to put them where they belong. They have 
robbed the widows and orphans. They have robbed the poor old men 
of my division." 

The B. of L. E. Realty Co. — Venice 



The greatest financial disaster of the B. of L. E. was its 
vast land speculation at Venice, Florida, on the Gulf Coast 
below Tampa. In May, 1925, a month before he died, 
Stone called together the union leaders and informed them 



WRECKING THE LABOR BANKS 



25 



that the union was in the hole at least $4,000,000 as a result 
of its ill-fated business enterprises. (Grand Chief Johnston 
said [p. 1765] that the deficit was then $6,000,000.) Then 
George T. Webb, the shyster lawyer-banker from North 
Dakota who was chief financial man for the B. of L. E., 
proposed that the union take a flyer in Florida land and 
recoup its fading fortunes. At that time Florida was experi- 
encing its tremendous boom, the wildest orgy of land specula- 
tion in the history of America, with lots on the main street 
in Miami selling for almost as much as lots on Broadway, 
New York, and with other real estate in proportion. Stone 
agreed, but died before the actual gamble with the workers' 
funds began. In The Railroad Amalgamation Advocate y 
July, 1927, Jack Kennedy thus describes the program: 

"Florida! Magic word! That was in 1925 when Florida was El 
Dorado indeed. Fortunes were being coined by mere signatures of the 
pen. Land values were soaring higher than real estate sharks had ever 
dreamed they could — even in the palmiest California days. The 
Brotherhood should plunge in Florida, clean up ten, twenty, thirty 
millions in a year. And Webb could be sure that he would clean up 
also. Accordingly it was announced to the world that the B. of L. E. 
had bought 30,000 acres of choicest Florida land. Here a model city 
— Venice — would arise. This year a swamp and a wilderness 20 miles 
from the nearest town. Next year the Miami of the Florida Gulf 
Coast." 



Thus Gen. Sec'y Lindquist explained this wild speculative 
plunge (p. 702) : 

"Someone conceived the idea that Florida was booming and that we 
might be able to invest down there and turn it over in 90 days and 
thereby make sufficient money to take care of one or two dividends of 
the Investment Company." 

The officially inspired article by Stockbridge in the Satur- 
day Evening Post (written before the blow-up) says: 



26 WRECKING THE LABOR BANKS 

"With capital pouring into Florida from almost every big pool of 
wealth in America ... the Brotherhood was not to be left out of that 
golden opportunity for profits." 

Del McGuire, Com. of Ten, thus describes the adventure 
(p. 360): 

"Why not go into Florida, reap a harvest over night, replenish our 
finances, and move out again after sacking the spoils. Florida laid 
a heavy toll on us and it was impossible to extricate ourselves." 

The plan for a quick gamble and getaway with a few 
millions of easy Florida money developed into the proposition 
of building Venice into a city, a great new winter resort. 
Eventually 50,000 acres of land were purchased. For the 
promotion of this scheme, the B. of L. E. Realty Co., capi- 
talized at $1,000,000, was organized. Then a flood of 
money was poured into it, from insurance and pension funds, 
from the banks and investment companies, from the sale of 
stock to the membership. All the tricks of the sky-blue real 
estate sharks were used to inveigle the workers into this finan- 
cial morass. To lure them visions of waving palm trees, 
tropical breezes, golden strands, marvellous climate, incompar- 
able fishing, hunting and other features of a heaven on earth 
were spread before their eyes. "Come to Venice, the resort 
supreme on Florida's West Coast. There ten acres and inde- 
pendence await you," screamed the gaudy multi-colored cir- 
culars with which the members were deluged. Or they 
purred thus: 

"While northerners are enduring all the unpleasant, costly, and actu- 
ally dangerous results of cold weather, the happy sunbrowned people of 
Venice are enjoying their morning round of January golf, or bathing 
in the warm waters of the Gulf of Venice, or fishing in the Gulf, or 
picking their breakfast dish of winter-grown strawberries, oranges, or 
grapefruit." 



WRECKING THE LABOR BANKS 



27 



Money poured into Florida. The building of Venice went 
ahead in an unparalleled maze of speculation, extravagance, 
and graft, when suddenly the bottom fell out of the entire 
Florida land boom. Real estate values fell to a half or a 
third of their former figures. The B. of L. E. was left 
holding the sack. Thus Jack Kennedy describes it: 

"Blooie — and the bubble of Florida real estate promotion collapsed 
over night. The roads were clogged with autos seeking to escape the 
ruins. Grass began to grow on the "streets" of million dollar promo- 
tions. The real estate gentry escaped Florida in a flood which swamped 
all the Pullmans which could be rushed from the North. And there 
was Venice — disconsolate by the waters. Millions sunk in the city, 
millions more to be sunk before a penny could be realized." 



At least $16,000,000 of the union's and bank's money 
went into this wildcat venture. Besides many more millions 
were invested directly by the membership. Many an engineer 
invested his last dollar. All told, at least $20,000,000 is 
involved. The crash of this project precipitated the union 
crisis. A couple of months before the convention, Attorney 
Squires thus sized up the situation (p. 1408): 

"In my judgment the (Florida) matter has proceeded too far already 
and for the salvation of the Brotherhood must be stopped immedi- 
ately. . . . Your first aim should be to save the Brotherhood, if pos- 
possible, by finding somebody who will take your various investments, 
especially the Florida one, off your hands." 

At the convention Judge Newcomb conservatively stated 
the Florida disaster as follows (p. 1408): 

"There is your Florida situation. There isn't a saving sentence in 
that whole situation. ... As near as your Committee of Ten can figure 
it out, it is somewhere around 11 or 12 millions in Florida. You are 
going to lose a very large substantial part of that 12 millions." 



28 



WRECKING THE LABOR BANKS 



Dr. Mitten estimated the investment as high as $20,000,- 
000. The Committee of Ten report says: "By sworn testi- 
mony the Florida investment is set at $16,000,000." Imme- 
diate debts, mortgages, and other Florida obligations to the 
amount of $2,885,000 stared the convention in the face. 
Judge Newcomb optimistically calculated that with the in- 
vestment of several millions more in Florida for develop- 
ment purposes probably "five or six millions" could be rescued 
of the original investment after several years. 

That is Florida. A holocaust of defeat. Dreams of 
wealth turned into nightmares of debt. Promised dividends 
changed into a flood of financial burdens. The very life of 
the union was threatened. 

CHAPTER IV. 

Graft, Extravagance, Jugglery, Autocracy, 
Incompetency 



TN previous chapters there has been pointed out the general 
gutting of the financial institutions and resources of the 
B, of L. E. In this chapter will be indicated the wrong 
tendencies and practices which inevitably grew out of and 
accompanied the B. of L. E. trade union capitalism, the 
corruption, wastefulness, chicanery, suppression of democracy, 
stupidity, etc., etc., and how these developments re-acted to 
further corrupt that leadership, to delude and demoralize the 
rank and file, to undermine the whole union, and to ruin the 
organization's financial enterprises. 

Graft 

The convention showed the B. of L. E. and its financial 
organizations to be saturated with graft and corruption of 
every description. The famous $2,500 bribes in connection 
with the Equitable Building sale were but small time stuff 



WRECKING THE LABOR BANKS 



29 



compared with others that developed. The various financial 
deals gave the greedy union officials ample opportunity to 
feather their nests at the expense of the union. Thus, for 
example, said the Committee of Ten report: 

"It was stated to your committee that the purchase of the leasehold 
from a bankrupt concern by the Coal River Collieries Co. netted a profit 
to the promoters of possibly $550,000. It was also stated by witnesses 
that the stock transactions netted Brothers Stone and Prenter in the form 
of bonuses, a personal profit estimated from $60,000 to $100,000 to 
each of these gentlemen." 

Venice was full of such graft, most of which, in pursuance 
of the general policy of making matters look as good as 
possible, was not exposed at the convention. But the follow- 
ing item gives an inkling of what went on there: 

"Up till March (1927) we had only $7,000,000 at the most in 
Venice and Webb and his gang- (the Empire Trust crowd) sold this 
organization about $7,000,000 worth of land in 18,000 acres." Del. 
Abbott (p. 1974). 



Speaking of this deal, Financial Trustee Huff wrote, Dec. 
14, 1926 (p. 1284): 

"The biggest thing before us now is in my opinion the matter of buy- 
ing a lot of additional land that we do not need at all. It is simply a 
question of some people wanting to make a sale. One deal has already 
been put over and we have paid a big profit for some land owned by 
Mr. Webb and his friends, and there is a lot more under consideration, 
if not bought." 

All this means that Webb and his labor leader cronies 
bought up Florida land cheaply and then palmed it off upon 
the union at greatly advanced prices. The $7,000,000 worth 
in question was foisted upon the union just a couple or three 
months before the convention, when these officials knew that 



30 



WRECKING THE LABOR BANKS 



WRECKING THE LABOR BANKS 



31 



the whole financial system was bankrupt. They depended 
upon the rank and file of the engineers to make good the 
financial obligations incurred by their leaders. How many 
hundreds of thousands, if not millions, the B. of L. E. 
"financiers" made out of this criminal swindle was not devel- 
oped at the convention. 

With such deals in mind it becomes easy to understand how 
Florida soaked up so many millions of the workers' money. 
It also grows clear how Mr. Prenter about this time could 
purchase a $250,000 Cleveland estate and how his crony, 
Webb, could possess a $750,000 mansion on Magnolia Drive, 
Cleveland's "Gold Row." Small wonder that Chairman 
Myers of the Committee of Ten declared that the printing 
of the 2,000 pages of evidence submitted in the private hear- 
ings of his committee "would be a history unparalleled by 
anything that has ever come to light" (p. 1340). 

Salaries in the financial institutions provided a prolific 
source of graft. The union officials loaded up the payroll 
everywhere with their relatives and friends, incompetent and 
crooked, at enormous salaries. Thus Stone put his nephew, 
A. R. Stone, at the head of the New York bank. He ruined 
things. Upon Stone's death, said Del. Huff (p. 1344), they 
requested "that he would please leave the bank and not take 
anything with him but his hat, and he did." Webb, with 
Prenter's O. K., gave his North Dakota friend, Davis, a 
$10,000 a year job in the New York bank. Another of his 
friends, Cass, he stuck at the head of the financial concerns 
on the Pacific Coast. J. P. Dunigan, President of Coal 
River Collieries, is a brother of Assistant Secretary Dunigan, 
and so on for hundreds of similar cases. The bureaucracy 
was built to the limit. Even Government officials protested 
at the shameful condition. Said the Federal Examiner (p. 
1403), "Your salaries have gone from $41,000 in the first 
six months that you operated this bank until today they are 
$181,000 for six months." The Comptroller of the Currency 



\ 



told Secretary Lindquist (p. 1272), "My God, Lindquist, 
look at the employees and officers you have in this bank, 
eighteen officers, you ought to run it with eight. Your over- 
head is double what it ought to be." 

Webb got $48,000 per year, aside from expenses and "what 
he could make." Many officials drew salaries from both the 
bank and the union. Said Del. Mcllvenny (p. 2004), "We 
find Brother Fehr receiving a salary of a thousand dollars 
a month from the Investment Company and of $5,400 a 
year from the B. of L. E. on a purely clerical job." Mr. 
Smith, head cashier of the Cleveland bank (another relative), 
received a monthly salary of $800 and deposited $1,000 each 
month to his savings account, an economical man ; and "clerks 
are receiving as high as $6,500 per year." Del. Huff declared 
(p. 1345) that the high paid people "paraded around here 
drawing their breath and their salary and not rendering any 
useful service." The conditions in the Cleveland bank were 
typical of all the financial institutions of the B. of L. E. 
throughout the country. They cannot be called wastefulness 
or inefficiency, they are unadulterated graft. 

In the matter of union salaries and expenses the grossest 
graft existed, and continues to exist. Such salaries as Stone's 
$25,000 per year and as much more for expenses is sheer 
looting of the treasury. The same can be said of the $15,000 
salary now being paid to Johnston, the new head of the 
union, and the $10,000, and $8,500 salaries paid to the 
dozen other "Grand" Assistants. Even the convention dele- 
gation itself was contaminated with the salary graft, the 
delegates voting themselves the extravagant amount of $10 
per day wages and $8 expenses. The faker leaders, when 
charged with dishonesty, were able to accuse the delegates 
themselves of living on $4.50 per day and putting the re- 
maining $3.50 of expense money in their pockets, thus further 
bleeding the gutted union treasury. 

The case of Vice President Wills illustrates the official 



32 



WRECKING THE LABOR BANKS 



corruption. Wills, Legislative Representative at Washington, 
has been an official of the union for almost 50 years. His 
salary was $8,500 per year. Not content with this, plus a 
large political slush fund for which he was not required to 
make accounting, he charged the union $6.00 per day for 
hotel expenses although he was living at home. At present 
he is 79 years old. At the age of 70 he became eligible for 
pension, 20% of his salary. For nine years he drew this 
pension money although he was on full time salary. Mr. 
Wills, a typical black reactionary, is reputed to be worth 
$400,000. He was fired from active service by the con- 
vention. 

The Committee of Ten's report says: "Some of your offi- 
cers have lost all regard or appreciation of the fact that their 
expenses are drawn out of the funds of the organization or 
its subsidiary companies. . . . Some of your officers in travel- 
ling require a section of a sleeping car, others require drawing 
rooms, and in some few instances a special car was attached 
for their accommodation." 

Judge Newcomb said (p. 1991), "Hundreds of thousands 
of dollars have gone into expense accounts that were unfair 
and untrue." Del. Van Pelt, Committee of Ten, said (p. 
368), "This organization can save $200,000 a year right 
upon an efficiency management in connection with its affairs." 
That is, by the elimination of payroll graft. 

Extravagance 

The B. of L. E. officials and their capitalistic partners 
squandered the money of the engineers like drunken sailors. 
On all sides they engaged in the most lavish and reckless 
expenditure. Said Del. Myers, Committee of Ten, "Our 
officers that we put all the confidence in the world in, have 
badly fallen down and wasted our millions." Just a couple 
of items out of hundreds — the San Francisco bank has 
$215,000 in furniture and vault equipment, whereas even 



^ 



WRECKING THE LABOR BANKS 



33 



the golden Cleveland bank, with all its graft and extrava- 
gance, has only $187,000, — "I see where the manager here 
of the office building last year drew $13,034 and $10,933 
for the bank building, $23,969 charged to that department 
for handling of the offices of this building." Del. Crawford 
(p. 1911). 

What proportion of such expenditures is graft and what 
sheer extravagance cannot be determined. Suffice to say that 
undoubtedly the graft element is large. Consider the follow- 
ing item (p. 10, Com. of Ten report): 

"The expense for furnishing Park Lane Villa was $300,000. A 
Mr. Biskin, who negotiated the furnishings of the building, was given 
a bonus of $65,000. Mr. Biskin later "served time" because he failed 
to make a return in his income tax for the amount of money involved 
in this transaction." 

What portion of this bonus went to the union leaders for 
their "services" was not made clear. Venice, of course, bristles 
with examples of wild expenditures. Speaking of the two 
hotels built there, Del. Simpson said (p. 1282): 

"Two hotels, built on a cost plus basis, at a cost of approximately 
$900,000 — hotels that have never paid one cent overhead expenses and 
probably never will. . . . They are so flimsily built that you can't carry 
on a private conversation in any part of them without being heard all 
over the hotel." 

As for one of them, the "elegant Hotel Venice" of the 
circulars, Webb estimated that it would cost from $175,000 
to $200,000. He reported that it did cost $425,000. But 
investigation showed that the actual cost of it was $633,000. 
Del. Huff (p. 1285) considered this "an enormous cost for 
what we have." He said the real cost was about $300,000. 
One scandalous item of expense was $35,000 to the archi- 
tects. Of this Del. Huff said: "This is outrageous. Plenty 






3* WRECKING THE LABOR BANKS 

of architects would have done the work for less than half 
the money. These people have the greatest graft I ever heard 
of. We are actually paying them a substantial fee on every 
building that goes up here. They do nothing but say whether 
they like the looks of the exterior or not." 

An auditor's report said, "The affairs of the B. of L. E. 
Realty Co. have been managed in a most inefficient, extrava- 
gant, and unbusinesslike manner" (p. 358). Judge New- 
comb declared (p. 1411), "Oh, the expenditures have been 
terrific! Your whole organization has been operated as if 
over here at the rainbow's end there was a pot of gold which 
would never run out." The promotion methods were equally 
extravagant. Money meant nothing to the blue sky artists 
in charge of Venice. One sample of methods was cited by 
Del. Kilburne (p. 695): 

"On this Venice proposition, I saw a letter where they are offering 
free rides, free board, and everything to go down there. Who is 
paying for it? We have got brothers here on the floor of this conven- 
tion who have received letters asking them to come to Chicago to take 
this free ride and have all the pleasures of the world in Venice." 

Del. McGuire, Committee of Ten, declared (p. 360), 
"The B. of L. E. venture in Florida presents one of the most 
lavish expenditures of funds in the history of realty develop- 
ment." Small wonder that one delegate facetiously demanded 
to know at least how many millions had been squandered on 
building gondolas in Venice. Another said, "We own a city 
and all that goes with it. You have heard about feeding a 
white elephant. We have a whole herd of them." Del. 
Mcllvenny, Committee of Ten, gave the following lurid 
but conservative picture of the graft and extravagance in the 
B. of L. E. institutions (p. 2005): 

"The extravagance in Florida surpasses the understanding or com- 
prehension of the common lay member of any civilized community. 



WRECKING THE LABOR BANKS 



35 



Hotels built on a cost plus basis, and we thought the war was over in 
1918. A hotel that cost $638,000 which was testified by one witness 
could have been built for less than $400,000, and the actual cost re- 
port sent in by Bro. Huff to Cleveland was mislaid or lost. I wonder 
why? I don't know what it costs to build a city . . . but why should 
we maintain a fleet of busses, Buicks and Lincolns if you please, with 
an officer's nephew as superintendent of transportation at $400 per 
month, with paid outside drivers, superintendents of farms, bathing 
beaches, sewers, ditches, hotel managers, bosses, and incidental help, 
tarpon boats, high-pressure salesmen, ad women with a 10% rake-off 
on sales divided up with the Mayor, certain superintendents, and 
Heavens knows who else. When we think of having paid a firm or 
realty company $190,000 to cancel a contract because of their question- 
able methods without a protest or legal action of any kind, when we 
go across the street to our bank and see the waste and extravagance in 
this building, with our electric plant big enough to supply a city and 
not used, we paying for electricity to an outside company, when we 
go forty feet below the street and find an elaborate toilet room fur- 
nished in Italian marble and never used, you cease to wonder where 
some of our money has gone in extravagance. . . . Over in your bank 
you have 143 employees with salaries ranging from $200 per month 
to $10,000 per year." 

Jugglery 

The B. of L. E. "financiers" used every imaginable kind 
of deceit, chicanery, and manipulation in order to use the 
workers' funds as they saw fit and to inveigle the union 
membership into backing their speculations. For weeks the 
convention delegates were lost in a maze of tangled financial 
transactions worthy of Ponzi. Even Judge Newcomb was 
stumped. He said (p. 504), "When I follow some of these 
business transactions through their different companies into 
this company and on to another I am dizzy." Illustrating 
methods used, Del. Myers, Com. of Ten, said (p. 1292): 

"Here you have every asset that we have frozen as tight as the North 
Pole. They have shuffled the loans from one thing to another in the 



1 



36 



WRECKING THE LABOR BANKS 



Investment Co. and back from the Investment Co., into the Realty Co. 
Why talk about Kellar, the juggler? They have got him beat 100%. 
It is pretty near enough to make a man insane to try to fathom out the 
conjuring and conniving that was done. . . ." 

Del. Van Pelt, Com. of Ten, said (p. 366): 

"The B. of L. E. Investment Co. bought the land in Florida. . . . 
It was found that the B. of L. E. Investment Co. under its charter 
rights could not hold real estate, so they organized the B. of L. E. 
Realty Co. The B. of L. E. Realty Co. gave its stock to the Invest- 
ment Co. for the land. The Investment Co. sold the stock to the B. 
of L. E. proper, for which the B. of L. E. gave them notes. The 
Investment Co. goes down to New York and hypothecates these notes 
and gets the money and lends it to the Realty Co. That statement 
multiplied by a hundred will give you something of a picture of the 
situation across the street (in the bank)." 

When the delegates, lost in such mazes, tended to con- 
centrate upon and discuss the bad $1,600,000 paper in the 
bank, Assistant Grand Chief Engineer Edrington interrupted, 
saying (p. 1973): 

"I wonder why we should worry over a million and a half invest- 
ment over here when we have a ten million dollar Investment Co., 
about thirteen million in Venice, and other things." 

The labor financiers engaged in various shady and illegal 
practices. They carried too low bank balances; they made 
huge loans, contrary to law, between their various related 
institutions; they paid fake dividends to mislead depositors 
and stockholders; they voted the insurance and pension funds 
into their speculative companies; they hid the bankrupt condi- 
tion of their enterprises by fake reports and the suppression 
of real reports. Thus Prenter tried to tell the Committee 
of Ten that there was but $7,000,000 in vested in Venice 
(p. 1402) whereas the records show at least $16,000,000, 



WRECKING THE LABOR BANKS 



37 



without counting private investments. Thus Attorney Squires 
declared ( p. 1405) that their efforts to investigate Florida 
for the union were being blocked by union officials. Thus 
they overvalued by several hundred thousand dollars the stock 
carried on their books as assets. And thus the Committee of 
Ten (p. 355) pointed out a discrepancy of a million dollars 
in the report of the Treasurer on the union's obligations; 
the Investment Co. made a "paper profit" of $2,500,000 by 
selling the Florida land to the Realty Co.; etc., etc. But the 
worst were the lies spun to make the engineers cough up their 
money to finance the wildcat banks and investment companies. 
To quote a few ads and statements, issued after the officials 
knew that the various investments were bankrupt: 

"The B. of L. E. does not do things by halves. Its banks, its 
buildings, its Insurance and Pension Associations are as good as trained 
brains can create. Venice is being built upon the same high standard 
of achievement." (Venice promotion circular). 

"Sales to the membership are made entirely by mail. The member- 
ship list is carefully guarded, and before the bond department can 
send out an offering to the members the approval of the Advisory 
Board of the Brotherhood has to be obtained and its members satisfied 
that the securities we offer are precisely what locomotive engineers and 
firemen ought to invest their money in." (A. B. Green, Vice-Pres. 
Cleveland Bank, Saturday Evening Post, Nov. 6, 1926.) 

"The Investment Co. began to make money immediately and has 
continued to do so, paying its preferred dividends regularly and accu- 
mulating a substantial surplus." 

"(The Cleveland office building) brings in an income which in 
fifteen years has paid the entire cost of building and land, enabling 
the organization in 1925 to finance another building, 21 stories and 
covering an equal area across the street (which is) a still more prolific 
source of income." (Inspired article by Stockbridge in Saturday 
Evening Post, Nov. 6, 1926.) 

Judge Newcomb read the following fake advertisement, 



1 



38 



WRECKING THE LABOR BANKS 



saying (p. 1407), "What a far cry from that prospectus to 
the situation in your Investment Co. That describes anything 
in the world. It does not describe your Investment Co.": 

"The holdings in the Investment Co. will consist of carefully selected 
investment securities of the highest grade, all of which have a sub- 
stantial value pledged to their redemption in excess of the price paid 
for them. Proceeds of the present (stock) offering to be used for 
the purpose of various types of income-producing investment securities, 
such as Government, municipal, public utility, real estate, corporation 
bonds and the like and for investment in stocks of banks and trust 
companies." 

Del. McGuire, Committee of Ten, paints this picture of 
the whole financial jugglery (p. 360): 

"His (Stone's) idea in his lifetime was to be President of all these 
institutions, but the Comptroller cut his wings. He said, 'You can't 
do it; under the banking law an officer or director cannot hold a 
position as an officer or director in other than three banks, and then 
only when allowed by the Federal Reserve Board in his District..' 

"Even the law can be circumvented. The thirst for power remained 
unappeased. A way out was provided through the state law. A 
holding company was set up. Every agency known was used as a 
lure to the unwary. With the success of the bank dangling before 
their eyes, was it any wonder that the saleable stock was quickly 
disposed of, particularly when such exciting titbits even appeared in 
the prospectus as this: 'Please remember that the rule is, First come, 
first served. Do not blame anybody if you fail to secure some of the 
bonus common stock.' 

"Gentlemen, it was ever thus. The spider will continue to spin the 
web for the fly. Again a success was registered. The Brotherhood 
Holding Co., with its paltry million, must give way to greater things — 
why not move on — the multi-million succeeds the million. 

"The state law was convenient, yes inviting. The Brotherhood 
Investment Co. blossomed out shortly thereafter as a $10,000,000 
institution. Money came in easy. Why not control the coal market? Why 
not indeed? $2,500,000 was placed in Coal River Collieries. Then 



WRECKING THE LABOR BANKS 



39 



came in quick succession many other institutions, all of which have 
since gone into decay." 

Autocracy 

The convention disclosures showed to the engineers how 
autocratically the officialdom ran the B. of L. E. In his day 
Stone was an absolute dictator. Read what a few delegates 
said: 

"Warren Stone was a Czar. He told us what companies we should 
be directors of. He said, 'You will be a director of this, you will be 
vice-president of this.'" (Grand Chief Engineer Johnston, p. 1763.) 

"Warren Stone between conventions was practically the convention." 
(Del. Waite, p. 689.) 

"Nobody at the last convention or prior to that time could come 
in here and express himself as he wanted to or as he knew the exact 
situation was at that time, because he was sat down so hard that he 
would scrouge in his seat and was afraid to get up. It was ruled by 
an iron hand and strong arm." (Del. Mayfield, p. 1305.) 

"When they wanted to buy a building up on Euclid Ave. (later 
Park Lane Villa), a $1,400,000 transaction, Brothers Stone and Prenter 
bought that building without ever coming to the convention for 
authority. He (Stone) didn't even consult the other resident mem- 
bers of the Advisory Board that were in the building at the same 
time." (Del. Simpson, p. 1283.) 

Stone's word was law. He was a sort of uncrowned king. 
Those who opposed him he crushed, such as he did Futch of 
the Pension Association, who was arbitrarily removed because 
he was against some of Stone's wild ventures. Surrounded 
by cringing syncophants, he was irresponsible. Prenter was 
his man Friday. Del. Huff (p. 1344) said: 

"Between May 15th and perhaps the 25th of May, 1925, we were 
called together here and coming like a bolt of thunder out of a 
clear sky, the report of our terrible plight was thrust upon us. At 
that time Brothers Stone and Prenter made certain confessions about 
having withheld information from us that should have been ours, and 




40 



WRECKING THE LABOR BANKS 



told us what we must do to save the situation. They said the only 
thing to do was to underwrite, if you please, I think about $4,000,000 
worth of stuff that was in bad shape here in the Investment Co." 

Upon receipt of this news Johnston, Huff, and Bissett 
made a weak fight to have a convention called. But upon 
Stone's opposition they gave up their demand and allowed him 
to go ahead with his criminal speculations at the expense of 
the membership. Stone died shortly afterward. His clique 
went right ahead on the same lines, even outdoing Stone for 
recklessness and irresponsibility. They went into Florida, 
spending millions of dollars, without so much as a by-your- 
leave from the members. They asked no permission for that 
any more than they did for dozens of other deals, many of 
them contrary to the union constitution, and involving mil- 
lions of dollars. Thus said Del. Van. Pelt, Committee of 
Ten (p. 1305): 

"On the same day (in Venice, Nov. 6, 1926) they (four members 
of the Advisory Board) turned over to (session) of the membership 
of the Board of Governors of the Pension Association and lent them- 
selves $200,000. It was not a quorum of the Advisory Board, not a 
quorum of the Board of Governors, and not a single one of them was 
a Trustee of the Pension Association, if you please." 

Incomfetency 

The fakers at the B. of L. E. convention had two favorite 
methods of creeping out of responsibility for the terrific 
debacle. One was to blame it all on Stone, and the other 
was to plead ignorance of banking as a cause for their 
"mistakes." As we shall see later, the capitalistic "saviors" 
who appeared at the convention with plans to rescue the 
union, skillfully played upon this conviction of the delegates 
that engineers cannot become bankers. 

To try to explain away their wild speculations and their 
organized graft on the basis that they did not understand bank- 






WRECKING THE LABOR BANKS 



41 



ing was worse than ridiculous. No doubt ignorance played 
some part, but it was not the decisive factor. Venice, with 
all its corruption and waste, was not the result of stupidity, 
but primarily of crooked manipulation. And so it was with 
the B. of L. E. trade union capitalism generally. The whole 
thing constitutes the greatest mass of grafting in the history 
of the American labor movement. Stone and Prenter make 
Brindell and O'Donnel, the New York and Chicago building 
trades fakers, look like tyros. 

CHAPTER V 

Some "Saviors" Appear 

"IX7TTH the B. of L. E. in such dire straits financially and 
with its various properties virtually on the auction block, 
it was not surprising that there should develop capitalistic 
"friends" eager to "help" the workers through their crisis. 
There were two such "saviors" at the B. of L. E. convention: 
Dr. A. A. Mitten, son of the head of the Philadelphia Rapid 
Transit Co., Thomas E. Mitten; and Judge A. G. Newcomb, 
member of a Cleveland law firm and attorney for the Com- 
mittee of Ten. Both presented plans to the convention to 
save the shattered financial institutions. 

The Mitten Flan 

The Mittens are Czars of the Philadelphia traction situa- 
tion. They operate a company union among their employees 
to more completely chain them to the company's interests. 
Their institution is equipped with all the up-to-date welfare 
systems, insurance plans, and especially employee-stock-buying 
schemes, calculated to demoralize the workers and to prevent 
their organization in real trade unions. Dr. Mitten had the 
crust to boast in the convention about his breaking the Buffalo 
street car strike. And many delegates actually applauded the 




42 WRECKING THE LABOR BANKS 

remarks of this union crusher, the convention being made up 
largely of paid union officials. Dr. Mitten is an outstanding 
advocate of the theory that the workers can become capitalists 
by investing their savings in industrial stocks. He used this 
line as an approach to the delegates, saying (p. 387): 

"I have been preaching the same philosophy that you fellows have 
been preaching — labor must become capital. The B. of L. E. flashed 
a banner across the world, 'Labor has become Capital.' You are in. 
You are on the front seat and everybody is looking at you. If the 
B. of L. E., who are the headliners, the prima donna in this show, 
flunk, what the hell do you think I am going to say?" 

The main outlines of Mitten's plan were as follows (p. 
493): 

"First, I should expect that you would adopt as your own policy 
the Mitten industrial philosophy of increased compensation for in- 
creased efficiency, to the end that labor become capital. 

"Second, I should require that the financial reorganization of your 
investment companies be so arranged that such of your assets as re- 
quired considerable time to be successfully worked out, be trusteed, 
and the immediate cash required to be supplied through or by your 
own organization. 

"Third, I should expect the entire membership of the Brotherhood, 
and especially their elected representatives on the boards of directors, 
to so cooperate in the development of the banks — which are to be 
financed and operated under my direction — as to make them a great 
chain of powerful financial interests," 

Pursuant to this scheme, Dr. Mitten proposed the organiza- 
tion of the "B. of L. E.-Mitten Banking Corporation," with 
a capital stock of $10,000,000, of which $5,000,000 was to be 
paid in immediately, $2,500,000 by the B. of L. E. and the 
same amount by the Mitten interests. The new corporation 
should buy all the shares of the banks, trusts, and distributing 
companies controlled by the B. of L. E. The B. of L. E. 



WRECKING THE LABOR BANKS 



43 




should guarantee all inter-company debts, all inter-company 
investments, and all questionable assets, as Mitten would 
require. To govern the banking corporation there should 
be a board of directors of 13, of these 6 from the B. of L. E. 
and 7 from the Mitten interests, giving Mitten control. 

This would take care of the banking institutions. As for 
the investments in real estate, industry, etc., Mitten proposed 
the formation of a second corporation to be known as the 
Investment Development Company, with authorized capital 
of $5,000,000, of which $1,000,000 was to be put in imme- 
diately by the B. of L. E. companies. Debentures to the 
extent of $25,000,000 should be sold to the B. of L. E. 
members (Mitten expressly forbade their sale to the general 
public) to finance Venice, Coal River, Park Lane Villa, etc. 
Of the board of directors, the Mitten interests should have 
7 out of 13, the controlling interest. 

Dr. Mitten presented his plan enthusiastically. He declared 
it meant the salvation of the union and its financial invest- 
ments. He added that only by labor becoming capital could 
Communism be defeated. He said that in five years the 
engineers would have $500,000,000 in their banks. Failure 
to accept his plan would bring stark ruin on all fronts. 

Mitten's plan comprised nothing short of a brazen attempt 
to capture not only the B. of L. E. financial institutions, but 
also the union itself. He aimed to become dictator of the 
whole situation. Financially the B. of L. E. would have 
been helpless. It would have had all the obligations, and 
Mitten all the control. Mitten could have bought, sold, and 
traded, just as he pleased and then forced the B. of L. E., 
which had guaranteed everything, to pay as he directed. The 
union would have been enslaved for years trying to buy the 
$25,000,000 of debentures to put into their dead invest- 
ments. Meanwhile, what a golden field of graft these would 
have remained. Mitten's plan was especially a scheme to 
grab off the banks. He was willing to put his name and 



44 



WRECKING THE LABOR BANKS 



WRECKING THE LABOR BANKS 



45 



money into them. But he would have nothing to do with 
the real estate, and other investments. No name, no money 
for them. Just push them off in a side company with him 
in control and the B. of L. E., hogtied, to pour endless 
millions into them as he directed. He would even have 
dictated the industrial policy of the union, the acceptance of 
his "labor becoming capital" ideas being one of the considera- 
tions for the adoption of the whole program. Mitten's plan 
was a gigantic scheme to company-unionize the B. of L. E. 
The most monstrous part of this attempt of Mitten to 
enslave the B. of L. E. was that it came before the conven- 
tion with the connivance of the "Grand" officers of the 
union. Undoubtedly, as Judge Newcomb said (p. 1407), 
Prenter's aim was "that the Mitten plan would come out here 
and slip through quietly and you would elect your officers 
and go your way." Webb was openly for acceptance. The 
Advisory Board welched under the attacks made on the Mitten 
plan at the convention and denied endorsing it. But Mitten 
said they had, stating (p. 381): 

"They (the Advisory Board) came to us, I think, feeling that the 
same ideals that we represented here in Philadelphia (labor becomes 
capital) were those that you represented nationally in labor circles and 
we perhaps might get together to the advantage of both." 

Further, he declared (p. 388) : 

"We originally, as your Grand Advisory Board will bear me out, 
were interested in entering into this from the point of view of the 
bank, but at the earnest insistence of President Prenter and the mem- 
bers of the Advisory Board [italics mine — W. Z. F.] we respectfully 
agreed . . ." (to take up the second phase about the real estate, indus- 
tries, etc.) 

Mitten had grabbed off the Philadelphia labor bank. He 
had his understanding with Prenter, Webb, et al. The com- 
bined engineers' unions of Philadelphia had endorsed his 



proposals (p. 488), and Del. Moraghan (p. 2016) asserted 
that a bribe of $40,000 was in prospect for certain members 
"if they could have rammed the Mitten plan down our 
throats." It looked like easy sailing for Mitten. But the 
opposition was too strong. Mitten was "given the mitten." 
His co-conspirators against the union turned him down and 
said they knew him not. Disconsolate, he left, saying (p. 
509): 

"I felt that I was coming here with the full approval of the 
Advisory Board, the only authority for the Brotherhood that I 
know of." 

The Newcomb Plan 

Judge Newcomb, representing local Cleveland capitalists, 
also had his plan. His first job was to smash Mitten, and he 
did it with neatness and dispatch. He, not the union officials 
or delegates, exposed and blocked the Mitten schemes. But 
he did it in order to foist upon the union another "plan" 
about equally bad. Being attorney for the Committee of 
Ten, he had Mitten at a disadvantage. Mitten had to submit 
his proposition in detail to the convention. Newcomb then 
shot it full of holes. Mitten lacked the wit to force New- 
comb to bring forth his own scheme, which Mitten could 
likewise have destroyed. Newcomb was able to spread it 
before the convention a bit at a time, so that the whole 
pattern did not at once appear. It remained a mystery to 
most of the delegates. The struggle between the Mitten 
and Newcomb cajitalistic interests for control was the 
high light of the convention. The delegates were lost in the 
financial fog. Mitten was overwhelmingly defeated, and 
Newcomb's proposals went over complete. The union was 
saved from the Mitten frying pan only to fall into the 
Newcomb fire. As expressed in convention decisions, the 
main outlines of Judge Newcomb's proposals were as follows: 

The first step was to bow to the strong sentiment of the 






46 



WRECKING THE LABOR BANKS 



rank and file by adopting the following resolution condemn- 
ing the policy of trade union capitalism: 

"Whereas our endeavors in the banking, investment and realty 
development since 1915 have not been what with propriety might be 
termed as entirely successful, 

Resolved, that it be the policy of the B. of L. E. to liquidate our 
banking, investment and realty interests at the earliest possible moment 
and in such a manner as to occasion the least possible loss." 

The next step was to separate the union's financial business 
from its regular trade union activities. Thus the union ad- 
ministration was divided into two sections, (1) Protective, 
(2) Financial. The Protective Department, directed by the 
Advisory Board, shall devote itself to ordinary trade affairs; 
the Financial Department, with jurisdiction over all invest- 
ments, buildings, insurance and pension funds, etc., except 
the Cleveland bank, is headed by three Financial Trustees. 
These Trustees, who have large freedom of action in finan- 
cial matters, report occasionally to the Advisory Board. Over 
the Trustees, to check them up from time to time (applause 
from the delegates) stand the Committee of Eight. This 
division of trade matters from union finance, while satisfying 
the universal demand of the delegates for such separation, 
also fitted in very nicely with Judge Newcomb's plans for 
control. 

Judge Newcomb, like Dr. Mitten, was out especially to 
"save" the Cleveland bank. Like Mitten again, he agreed 
that engineers could not be bankers and that the only way to 
"save" the bank was to turn it over to a group of idealistic 
capitalists, but his capitalists, not Mitten's. Therefore, he 
proposed and it was accepted that while the B. of L. E. should 
own 5 1 % of the stock, to be voted by Grand Chief Johnston, 
"the Board of Directors of the B. of L. E. Cooperative Na- 
tional Bank be filled as rapidly as possible by a majority of 
directors who are not members of the B. of L. E." Then 



WRECKING THE LABOR BANKS 



47 



he had the convention guarantee the bank's deposits and other 
obligations. He hastened to assure the rank and file, who 
wanted complete separation of the Protective and Financial 
departments (p. 1887), that "Grand Chief Engineer Johns- 
ton will not have to spend a minute in that bank after you 
are able to get the proper set of directors." Johnston is 
being put in, he said, "because he will attract deposits from 
all over the country" (p. 1877). Judge Newcomb said, "We 
are building up scenery, that's all." The Financial Trustees 
are made to keep "hands off," so they can not put any phony 
paper through the bank. All of which efforts to perpetuate 
the bank, as well as other of the financial institutions, were 
contrary to the resolution which instructed that they be dis- 
posed of "at the earliest possible moment." 

Now let us see what this amazing bank proposition means. 
First, the engineers shall turn their bank control over to 
Judge Newcomb's Board of Directors so they can carry on 
such business as they see fit. Second, the B. of L. E. shall 
own a majority of the stock so that it is responsible for all 
losses. Third, Johnston will be only a dummy President to 
pull in the poor fish and shall not "spend a minute" in looking 
into the affairs of the bank. What a golden opportunity for 
speculation and graft, with the open-hearted, soft-headed B. 
of L. E. guaranteeing all the bank deposits. And for this 
golden opportunity Newcomb's capitalists will pay nothing, 
except to purchase a few shares of stock which the law 
requires them to have in order to be bank directors, an esti- 
mated total of $20,000. Mitten, whose basic plan was iden- 
tical, was at least willing to put up $2,500,000 in order to 
get into the gravy. 

Regarding the various investment projects — Venice, Park 
Lane Villa, etc.: Mitten's plan to handle this herd of white 
elephants by organizing a couple of new companies and sell- 
ing $25,000,000 or so stock, was a stupid one to present to 
a union membership so badly disillusioned and disgusted with 






4-8 



WRECKING THE LABOR BANKS 



such companies and stock-selling. Newcomb was cleverer. 
He formed no new companies. He simply loaded the entire 
outfit, except the Cleveland bank, upon the Financial Trus- 
tees, to let them worry over the huge deficits. Then, instead 
of trying to make them carry the whole load of worthless 
investments, he sold Park Lane Villa during the convention 
and forced Coal River Collieries into bankruptcy by having 
the Investment Co. bring suit for $1,775,000. 

As for Venice, the Judge manifestly wants to stay in there, 
in spite of the convention resolution to liquidate such invest- 
ments. That is too good a golden goose to give up. In the 
Chicago Tribune, August 9, Newcomb's dummy bank presi- 
dent, Grand Chief Johnston, makes reference "to the Florida 
holdings of the Brotherhood, to the continued development 
of which the Brotherhood is definitely committed." So the 
suave Judge will try to feed that elephant with the workers' 
money. As for raising money to meet debts, the Judge sold 
no stock, and made no promises. He simply told the workers 
they were legally responsible for the deficits, and that if they 
did not pay willingly the sheriff would collect from them. 
Never tired of waving the Danbury Hatters' decision in their 
faces, he talked assessments and further pledging of the 
organization's resources. He warned against suits and the 
destruction of the union. 

Judge Newcomb's plan, especially the proposition regarding 
the Cleveland bank, met with considerable opposition. Del. 
Stockwell struck a popular chord when he said the proposal 
is (p. 1878) "to hand over the bank to a hand-picked crowd 
of Cleveland business men and give them ten shares apiece 
so they can exploit the bank. Do you suppose they will be 
loyal to that bank They have been against it ever since it 
has been set up." Many delegates were skeptical of the plan. 
But as Del. Shumaker put it (p. 1856), their attitude was, 
"Let's take another chance for three years." Or, as another 
delegate said, "Let's shoot the whole works." 



WRECKING THE LABOR BANKS 



49 



But opponents and doubters were swept aside. Judge New- 
comb and the Johnston crowd were in the ascendancy; Mitten 
and the Prenter gang were on the skids. The suave and 
eloquent Judge was made quite a hero, the savior of the 
union. Chairman Myers of the Committee of Ten said 
(p. 2128), "Newcomb has been a father to us." So the 
Judge was thanked and made an honorary member of the 
union. And his plan, which takes the Cleveland bank from 
union control and which ties the B. of L. E. to a lot of 
hopeless investments, was adopted practically 100%. 



CHAPTER VI 



Paying the Piper 



TN the hope of clearing away the financial wreckage caused 
by the untrustworthy leaders, the convention adopted a whole 
series of financial and organizational measures, some of which 
have already been indicated. These followed the lines of 
Judge Newcomb's plan. 

The General Program 

Although the convention clearly and correctly instructed 
the leadership to extricate the union from the morass of trade 
union capitalism by selling out the many business enterprises 
"at the earliest possible moment," Judge Newcomb and the 
new leaders have found ways to balk this will of the mem- 
bership. They are not getting rid of these institutions as a 
whole, but only certain ones of them. They still cling to 
trade union capitalism. Park Lane Villa was sold during the 
convention for $1,250,000 and Coal River Collieries, a total 
loss, was forced into the hands of the receivers through the 
Brotherhood Investment Company bringing suit against it 
for $1,77S,000, 



50 



WRECKING THE LABOR BANKS 



WRECKING THE LABOR BANKS 



51 



As for the various banks and other financial institutions, a 
few of the smaller ones, hopelessly involved financially, may 
be liquidated to relieve the pressure somewhat. But the 
central institution, the Cleveland bank, Judge Newcomb is 
determined to perpetuate. He gave it a new financial founda- 
tion by having the B. of L. E. guarantee its deposits and then 
dig up $1,700,000 to take care of its bad paper. He also 
gave it a new management by drawing into the Board of 
Directors a body of capitalists under the head of C. H. 
Huston, former assistant to Herbert Hoover, and also Secre- 
tary of the National Republican Ways and Means Committee. 
So the bank is safe — in the hands of the capitalists. 

Venice, the Judge intends to have the union hang on to. 
Fresh millions will be poured into that sink hole. Grand 
Chief Johnston has publicly stated that the B. of L. E. is 
committed to its development project in Florida. So that's 
that, notwithstanding the clear determination of the member- 
ship to get out of Florida as quickly as possible, and the sooner 
the better. Those who object to continuing in Florida are 
told the sophistry that they are financially bound already and 
they must stick or lose all they have. 

Financial First Aid- 
To breathe the breath of life again into the wrecked B. of 
L. E. institutions vast sums of money are necessary. The 
banks and investment companies are loaded with "frozen 
assets," or worthless paper; the realty projects are encumbered 
with debts. Suits menace from all sides. At present writing 
the Brotherhood Investment Co. faces four suits from stock- 
holders. Venice confronts a suit for $7,500,000. In a suit 
against the New England B. of L. E. Securities Co. the bill, 
charging illegitimate and illegal practices, states that "the 
stockholders were led to invest by gross misrepresentations and 
promises of ridiculously high profits." 

The B. of L. E. membership is the good milch cow from 



which to squeeze the many millions required for Newcomb's 
plan of saving the banks, investment companies, Venice, etc. 
The biggest stroke to raise money was to slap a $5.00 month- 
ly assessment upon the entire union membership for two years. 
The B. of L. E. has 90,000 members, of whom 60,000 are 
active and they are supposed to pay the assessment. This 
would give a total of approximately $7,200,000. Never did 
a union have to face such a huge tax. Already the dues and 
insurance fees in this union often run as high as $30 monthly. 
Or, if the members do not like the assessment they can volun- 
tarily buy "Loyalty Bonds" at $100 apiece. So that there 
may be plenty to go round, $10,000,000 of these have been 
issued. 

In addition to this, $4,000,000 more, needed to meet press- 
ing needs to buy up worthless paper, was raised by placing a 
new first mortgage on the two office buildings, which makes 
practically worthless the $7,000,000 mortgages already held 
by the insurance and pension departments. Then there was 
a further bleeding of the already anaemic insurance and pen- 
sion funds to the extent of several hundred thousand dollars. 
An additional $5.00 assessment ($300,000) to pay part of the 
$1,000,000 convention expense was only a detail of this high 
finance convention. 

Then, after all these huge burdens, totalling a minimum of 
$11,500,000, were loaded on the members, there was the 
statement of Myers, Chairman of the Committee of Ten, 
that the organization can look forward to owing at least 
$8,000,000 at the end of two years. 

The delegates took with ill grace the piling of these fresh 
obligations upon their previous losses. Huge losses were re- 
ported by hundreds of delegates. One said (p. 57) "the 
members of (lodge) 565 lost $55,000. Another said (p. 63) 
"$50,000 wouldn't scratch the surface in my neck of the 
woods." And another (p. 84) "I represent 250 members and 
they have over $100,000 invested." Only the fear of com- 



I 



52 



WRECKING THE LABOR BANKS 



pletely losing these investments, which in hundreds, if not 
thousands of cases, represented the savings of a life time, to- 
gether with Judge Newcomb's warnings that the members 
were legally responsible for all the financial obligations of 
the B. L. E., led the delegates to assume these additional 
enormous monetary burdens in Newcomb's futile plan of try- 
ing to make the various banks and investment projects stand 
up. 

Del. Quinlan (p. 1974) thus sized up the financial situa- 
tion of the union: 



"Now we are going back and tell our members that we have 
mortgaged everything here . . . but the wife and children, and if 
they were any good (financially) by God we would have mortgaged 
them, too." 

Punishing the Guilty 

Someone, of course, had to be blamed for the terrific B. of 
L. E. financial debacle. Warren S. Stone was the center of 
attack. His reputation as a great labor leader and banker, so 
widely cultivated in the trade union and capitalist press, was 
irretrievably shattered. His personal character was excoriated. 
In the traditions of the B. of L. E. he will be remembered 
as an arch wrecker of the union. Del. Waite (p. 2038) 
voiced the general rank and file opinion when he said: 

"We all know that Brother Stone died just in time to save his 
reputation with the outside world. He didn't save it with us." 

But Stone is dead, and after his death the officials carried 
on even wilder speculations than did Stone himself. The 
guilty ones had to be singled out and punished. The conven- 
tion therefore blamed W. B. Prenter, Pres. ; L. G. Griffing, 
1st V. P.; H. P. Daugherty, 2nd V. P.; and C. E. Lindquist, 
Gen. Secy. They, together with the financial "expert," G. 
T. Webb, were made to carry the whole responsibility. On 



WRECKING THE LABOR BANKS S3 

the other hand, Johnston, Bissett, Edrington, Huff, and 
others, members of the former Advisory Board, were white- 
washed by the convention, considered as saviors of the union, 
and given the leadership of the organization, Johnston getting 
a salary increase from $13,000 to $15,000. 

The real fact is that Johnston and his group were just about 
as deep in the mud as the Prenter crowd were in the mire. 
They knew what was going on and participated in it. It 
would take a Philadelphia lawyer to explain where they are 
less guilty than the others. For example, when Stone, in 
1925, revealed the $6,000,00 deficit in the union finances, 
Johnston and his group, after mildly proposing the calling of 
a convention, acquiesced when their proposal was voted down. 
They permitted the situation to go from bad to worse without 
saying a word of warning to the organization. They could 
have forced the calling of a convention easily had they been 
so desirous. But they condoned the whole business. They, 
too, are responsible for the debacle. But their group had con- 
trol of the convention. They now are in charge of the 
union. A splendid prospect indeed for the B. of L. E. 

The culprits, with the exception of Prenter, whose trial 
was laid over till next convention because he was too "ill" to 
appear, were tried in open convention. The days' long trials, 
together with the weeks' long effort to untangle the financial 
maze, made the convention cost at least $500,000 additional 
— a last little bill of expense for these fakers. 

Griffing, Daugherty, and Lindquist were variously charged 
with "such carelessness, laxity, and indifference" as to unfit 
them to hold union office; with illegally obligating the B. of 
L. E. for debts; spending without authorization over $2,000,- 
000 of B. of L. E. money; guaranteeing without authority 
the indebtedness of the Brotherhood Investment Co.; permit- 
ting extravagance and mismanagement in the bank; lending 
without sanction the funds of the insurance and pension de- 
partments; receiving $2500 from Baldwin through Webb for 



54 



WRECKING THE LABOR BANKS 



selling the Equitable stock; misrepresenting the true state of 
affairs to the membership, etc. 

The accused officials defended themselves, but unsuccess- 
fully. By a vote of about five to one they were condemned. 
The positions of President and 1st and 2nd Vice Presidents 
were abolished. The following resolution was adopted: 

"Resolved, that L. G. Griffing, H. P. Daugherty, and C. E. Lind- 

quist be forever barred from holding office in or under the jurisdiction 
of the Grand International Division (convention) of the B. of L. E." 

They were not expelled from the union, although their 
criminal activities had almost wrecked it. They were not 
directly convicted of dishonesty or graft, although the whole 
situation reeked with it. Had not the union come to the rescue 
financially of the wrecked banks and investments, doubtless 
the officials would have been jailed by their victims for illegal 
practices. The convention let them off lightly. Grand Chief 
Johnston even ruled that the sentence against them, while 
barring them from holding office in the Grand International 
Division, did not prevent them from occupying the fat jobs 
"in their own division, such as General Chairman, etc." 

Much opposition developed among the delegates against this 
mild treatment of the corrupt officials. Del Kelsey said 
(p. 1935): 

"If we leave here without prosecuting these Brothers who have 
defrauded our membership by appropriating certain sums of money, 
by turning them over to the U. S. authorities, who will put them 
where they belong, we will not have performed our duty." 

Kelsey's sentiments were widely echoed among the rank 
and file delegates. But Newcomb and Johnston, for reasons 
best known to themselves, were out to protect Prenter and his 
crowd as far as possible. They prevented all drastic action. 
The convention, however, forbade all officers and members 



WRECKING THE LABOR BANKS 



55 



from using the name of the B. of L. E. "to promote any 
business scheme" on their own hook. Dire threats were made 
against future grafters by the adoption of a resolution which 
warned that in the future all "officers of this organization 
found guilty of the mishandling of funds or any criminal 
actions will be prosecuted." 



CHAPTER VII 



A FEW USEFUL LESSONS 



'"pHE experiences of the B. of L. E. with its labor banks 
and investment companies emphasizes dramatically the de- 
structive effects that trade union capitalism has upon the labor 
movement. In previous chapters we have pointed out these 
many bad results and their significance. Here our task is to 
summarize them and to develop a corrective program. 

The Harmful Effects 

Trade union capitalism militates directly against the growth 
and development of the labor movement in various ways, but 
chiefly by killing in the unions the idea of struggle against 
the employers and setting up instead theories and practices 
based upon the false conception that in order for the workers 
to make progress they must collaborate with, or more properly, 
subordinate themselves to, the employers. The class collab- 
oration policy of which it is a part denies the fundamental 
conflict of interests between the working class and the capital- 
ist class. 

Labor banks and similar institutions divert the attention of 
the unions away from their proper functions as organs of direct 
struggle against the employers and turn their activities into 
enervating and corrupting capitalist business channels. The 
real tasks of building the unions and defending the workers' 



56 



WRECKING THE LABOR BANKS 



interests are forgotten. Thus Grand Chief Johnston said 
correctly (p. 2133) "Ninety per cent of our time has been 
spent discussing the financial activities and no time has been 
given to the Brotherhood." Such neglect saps the unions at 
their very foundations. 

The misdirecting of the unions into capitalistic business 
draws them inevitably, or rather their leaders, into the most 
demoralizing alliances with the employers. The B. of L. E. 
banks and investment projects are tied up with all sorts of 
labor-crushing capitalists. Inevitably the union leadership thus 
falls under the control of these enemies of the workers and 
does their bidding. Thus we see such shameful spectacles as 
Warren Stone endorsing, in 1924, the great multi-millionaire 
labor exploiter, Coleman Dupont, as a "friend" of labor in 
the Delaware senatorial elections. Thus we see the union 
leaders cheek by jowl with the great Wall St. capitalists, as in 
the Equitable deal. And so long as the union engages in 
capitalistic business, just that long the employers will control 
the various banks. Significant was it that at the B. of L. E. 
convention the choice presented was whether to turn the banks, 
etc., (and with them a large share of union control) over to 
the Mitten capitalists or to the Newcomb capitalists. 

Trade Union capitalism inevitably cultivates among the 
workers demoralizing illusions that the workers, by thrift and 
the investment of their funds in capitalistic stock, can actually 
buy control of the industries. This is a rank fallacy. The 
great masses of workers, with the exception of some categories 
of favored skilled workers who can lay aside a few dollars of 
savings in this period of "prosperity," live at the poverty line. 
The average weekly wage of adult male workers is only $29. 
What can the workers save on such wages? What little 
money the workers are able to set aside is largely the equiva- 
lent of the unemployment, old age, and sick benefits the Euro- 
pean workers receive from their governments. American 
Workers are very much unprotected by social insurance. They 



WRECKING THE LABOR BANKS 



57 



are compelled, as individuals, to make provision for old age, 
sickness, and unemployment. The theory the workers can be- 
come capitalists is a delusion and a snare for the workers. It 
prevents the workers from building militant labor organiza- 
tions, industrial and political. 

We have seen sufficiently how trade union capitalism under- 
mines and corrupts the trade union leaders. It turns them 
into conscienceless grafters, speculators, and swindlers whose 
chief thought is to exploit the funds of the workers for their 
personal enrichment. The B. of L. E. has had more than 
plenty of experience with their exorbitant salaries, their crook- 
ed expense accounts, and their padded payrolls loaded down 
to the sinking point with parasitic friends and relations. Trade 
union capitalism builds a powerful and reactionary bureaucracy 
in the union and its auxiliary financial institutions which 
stands like a rock in the way of every step forward by the 
workers. 

Lastly, to cite no more of the destructive effects, trade 
union capitalism leads to robbing the workers of their savings 
and to the looting of the union's funds. For proof, look at 
the B. of L. E., with its estimated loss of $20,000,000 and the 
hundreds of its members who have lost their life savings. 
Labor unions as such, and as distinct from the working class in 
control of industry through its own government, cannot run 
business institutions, despite Stone's "peanut stand" theory. 
Experience shows that where it is tried under capitalism the 
union officials, who control autocratically, either steal the thing 
to death or wreck it by incompetency. Where the workers 
will organize their savings, where they will start industrial 
enterprises of any kind, they must do it, not directly through 
their labor unions, but through real cooperatives organized 
apart from the unions and controlled democratically by the 
rank and file. This is the constructive way. The system of 
building trade union capitalist institutions now in vogue ruins 
both the workers industrial enterprises and their unions as well. 



58 



WRECKING THE LABOR BANKS 



Prenter says that labor banking "has demonstrated Labor's 
complete answer to the theories of Marx and Lenin." But we 
have seen what a false alarm labor banking is, with all its 
visionary promises and action-killing illusions. Intelligent 
workers will be inclined to look a little more closely at the 
"theories of Marx and Lenin" which manifestly labor bank- 
ing has failed signally to refute. 

The B. of L. E.'s Problems 

The B. of L. E. convention did not meet its task squarely. 
It did not cut loose from trade union capitalism; it did not 
remove from leadership the type of men responsible for this 
unprecedented debacle; it did not take proper steps to strength- 
en the union; it piled sky high useless and impossible debts 
for the members to pay. To correct these failures is now 
the task of the membership. 

The most necessary step is to demand imperatively the im- 
mediate liquidation of the financial companies and invest- 
ments in the sense of the convention resolution. The union 
must cut loose from trade union capitalism and its destructive 
theories. So long as these bankrupt organizations and false 
ideas are maintained the poison sore will exist. To continue 
to pay the huge assessments and to buy "Loyalty Bonds" to 
finance Venice and similar ventures would be a useless folly. 
The way to get rid of these heavy burdens is to absolutely 
insist upon the whole wild cat business being disposed of as 
quickly as practicable, even though it takes a special convention 
to achieve these ends. No permission, no secessionism should 
be allowed to creep into the ranks. The B. of L. E. must be 
cleansed and built. 

A new and progressive type of leadership must be devel- 
oped. The Johnstons, Huffs, Edringtons, and Bissetts are 
not qualified to lead the union. Their failure to stop Stone's 
and Prenter's wild speculations or to advise the rank and file 
of them is sufficient proof of their unfitness for union office. 



WRECKING THE LABOR BANKS 



59 



I 'renter, Griffing, Daugherty and Lindquist should be unani- 
mously expelled. 

The B. of L. E. needs, moreover, to be modernized in many 
other respects. It must become more of a labor union and 
less of an insurance society. It should get rid of its class 
collaboration ideas and adopt a more militant policy. It should 
combine with the Firemen, as a prelude to a general amalga- 
mation of all railroad unions into one gigantic organization, 
to include every railroad worker. It should democratize it- 
self from top to bottom and be done once for all with the 
autocratic practices of Stone and Prenter. It should drastically 
cut the salaries and expense accounts of its officials. It should 
support the progressive elements who condemn the infamous 
Watson-Parker railroad laws and its arbitration traps. It 
should declare for the nationalization of the railroads and 
for the formation of a labor party. Such a program, realized 
would make the B. of L. E. what it should be — a powerful, 
militant and progressive labor organization. 

In Conclusion 

Not only the locomotive engineers, but all of organized 
labor should learn from the bitter experiences of the B. of 
L. E. trade union capitalism, its institutions and its false 
theories, are widespread in the labor movement. And they 
tend in the same general direction as in the B. of L. E. to- 
wards the spreading of class collaboration illusions, the fur- 
ther corruption of the leaders through speculating, graft, de- 
structive alliances with the capitalists, and to the general weak- 
ening of the labor movement. Although not so dramatically 
evident as in the case of the B. of L. E., similar disintegrating 
tendencies are at the work in the labor banks, investment cor- 
porations and trade union life insurance companies of other 
unions (see for example the collapse, through "frozen assets" 
of the Philadelphia and Pittsburgh labor banks). The situa- 
tion is so dangerous that even the ultra-reactionary A. F. of 



60 



WRECKING THE LABOR BANKS 



L. Executive Council has had to issue a sharp note of warning 
against it. In the report to the 1927 Convention of the A. 
F. of L. in Los Angeles, the Executive Council said: 

"Experience in this field has now sufficiently cumulated to make a 
solemn warning imperative. Great care and sound judgment should 
be exercised before labor unions and members of labor unions put their 
money into labor bank promotions, or into investment companies . . . 
Since the recent development in the B. of L. E. financial activities, 
more and more attention is being directed to the manner in which 
labor banks are financed and conducted. ... In our judgment the 
time has come to stop expansion in the field of labor banking until 
experience with those labor banks already organized shall have been 
critically studied and evaluated." 

This cautious statement admits the deep crisis in the trade 
union capitalism movement. But it does not indicate the 
remedy. The way out is not for the unions to try the hope- 
less task of seeing to it that their banks and investment com- 
panies are honestly and efficiently run. The evil goes much 
deeper. The whole system is wrong, in theory and practice. 
The theory of labor becoming capital is false, and the practice 
of the unions to build labor banks and investment companies 
is wrong. 

The unions must cut loose from the labor banks and their 
destructive influences and be re-developed as fighting organiza- 
tions. Not the gathering together of the workers' dimes by 
the trade union capitalist institutions and the cultivation of 
illusions that the workers can buy their way out of wage slav- 
ery, but the building up of the workers' organizations, by or- 
ganizing the unorganized, by amalgamation, by democratiza- 
tion, by adopting a militant policy of struggle, by launching 
a labor party — that is what the labor movement needs. The 
B. of L. E. financial debacle dealt a heavy blow at trade union 
capitalism. If considerable portions of the workers can get 
even an inkling of the lessons of this important event, the 
harsh experiences of the B. of L. E. will not have been in 
vain. 

The End 



Two Announcements of Interest Follow 




Labor Unity 

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STABLISHED thru the 
efforts of progressive, 
fighting trade unionists, 
Labor Unity is today 
the spokesman of the 
progressive forces thru- 
out the trade union movement. 

Each number of Labor Unity in a 
brief, pointed fashion presents a view of 
the most vital problems in the various 
trades ... in the American and world 
trade movement. Other features of in- 
terest to all workers are included. 

One Dollar A Year 

LABOR UNITY 

156 W. Washington St. Chicago, III. 



Organize Your Struggles! 

T EFT WINGERS and Progressive trade unionists 
" L/ who know what they want and how to get it are 
organized in the Trade Union Educational League, a 
non-partisan organization of informal committees cover- 
ing the entire trade union movement, whose purpose 
is to infuse the mass with spirit and understanding for 
struggle against the employing class. 

The Trade Union Educational League asks all work- 
ers, regardless of political belief, to join it to realize the 
following program: 1. Organization of the Unorgan- 
ized. 2. Amalgamation of craft unions, 3. Class 
struggle against class collaboration. 4. Fight against 
company unionism. 5. The formation of a Labor 
Party based on the trade unions. 6. Elimination of 
corruption and gang rule in the unions and for demo- 
cratic rule by the membership. 7. No racial, sex or 
age bar to admission of workers to unions. 8. For 
Recognition of the Soviet Union. 9. Support of all 
workers' struggles and all workers' organizations, eco- 
nomic, political, co-operative, etc., against capitalism. 
10. An alliance of American laor with peoples oppressed 
by American imperialism in a common fight for mutual 
interests. 11. Trade Union Unity, nationally and 
internationally. 

The Trade Union Educational League is in no sense 
a dual union or affiliated with dual unions. It is opposed 
to such movements as take militant workers out of trade 
unions and form "perfect" little so-called unions with 
few members as rivals to large trade unions. The T. U. 
E. L. is an educational body seeking to develop the trade 
unions into more effective organizations for the workers. 
For further details apply to the 

TRADE UNION EDUCATIONAL LEAGUE 
156 W. Washington St. Chicago, III.