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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
The Voice of Militant Labor
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.
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