When the son of the Armco founder graduated from Cornell University in 1911, the steel company had a well established management team that was growing the company into the newly expanded East Side Works. Young Calvin Verity had stiff competition for a leadership role in the company as his father assembled a formidable management team. He was up against the likes of his brother-in-law Charlie Hook and the then emerging John Tytus, among many others.
Fortunately for the young Calvin, the world was preparing a place for him in the business of finance. One hundred years ago the federal government enacted two pieces of legislation that would set the stage for the rise of a massive financial industry in the United States and the rest of the world. An industry that would absorb then surpass the manufacturing might that created the country’s wealth.
The first piece of legislation was the 16th Amendment to the US Constitution, ratified in February 1913, that established the Federal Income Tax. Prior to this amendment, government could not tax income. The 16th amendment was intended not to tax wages but “unearned income” such as the capital gains acquired through investment. The country’s leaders felt that acquiring enormous sums of wealth by consolidating industry then using the resulting monopoly to the advantage of singular ownership demanded taxation.
The second piece of legislation was the Federal Reserve Act which established a private bank as the sole source of US currency, this occurred a century ago this month, in December 1913. The degree to which the government capitulated to private banking interests 100 years ago is little known among the American people even today. The term “Federal Reserve” leaves the impression that it is an institution that operates at the behest of the US national government but this is not the case. The Federal Reserve acts in the interests of its private owners, the central banks. This act now required the government to begin making interest payments on money it had to borrow instead of issue.
Calvin Verity’s career in finance provides an appropriate metaphor for how the wealth from manufacturing was preserved to maintain its value at the expense of the very innovative spirit that created it.
Dr. Smith’s Tome
Fifty years ago, a professor of history at Miami University in Oxford Ohio, William E. Smith, Ph. D., completed a three volume set called “History of Southwestern Ohio.” The first two volumes of over 1,000 pages is a chronicle of the human activity that occurred in “The Miami Country” – the 14 counties of Southwestern Ohio. The last volume is 500 pages of biographical sketches about the regions most prominent members.
The first five biographies of the book are the men who founded then led the American Rolling Mill Company in the first half of the twentieth century: George M. Verity, Charles R. Hook, Ralph Gray, William W. Sebald and Logan Johnston. Only by the bottom of page 6 does the president of Proctor & Gamble show up. Richard Deupree and chairman of the board Neil McElroy are mentioned with 4 more credited with the success of the soap maker from Cincinnati. Armco’s founders got top billing.
Calvin Verity makes his appearance on page 423 of the total 428 pages. At the time of publishing, the junior Verity is chairman of the board of the First National Bank of Middletown. Born in Newport KY in 1889, he attended local public schooling before graduating from Cornell with a mechanical engineering degree.
The record indicates that he paid his dues as a workingman in the mill before being elected to the executive team as treasurer in 1921 then on to vice president and director of the finance committee in 1930 then chairman of finance in 1937. This is about the same time that renown innovator Tad Sendzimir established a formal relationship with the company.
Calvin Verity was president of the First National Bank of Middletown from 1943 to 1958 during which time he also served as Gen. MacArthur’s industrial adviser during Japanese reconstruction in 1949-50. He sat on several boards including regional companies Aeronca, Cincinnati Gas & Electric, Wrenn Paper and as chairman of the board for Business International of New York, California and Switzerland.
the FIRE that destroyed Manufacturing
By the middle of the 20th century, Calvin Verity enjoyed a vibrant manufacturing environment in Middletown. As described, he sat on the boards of several diverse manufacturing companies and, along with Charlie Hook, was sought to assist US interests abroad.
The small city was home to over 50 international headquarters of various industries. But by the end of the 1990s, there were only a few left. Armco Incorporated had been acquired by its offspring AK Steel Holding Company and by the end of the next decade, moved its headquarters to West Chester, Ohio from Middletown. The only vestige of the company along Curtis Street today is the Research building – the rest was demolished.
The decline of manufacturing in Middletown reflected economic trends throughout Ohio and the rest of the US. In 1950, roughly 50% of US corporate profits were generated by manufacturing, finance (as a hybrid of Fiance, Insurance & Real Estate) was at about 10%. By 2001, the share of corporate profits were reversed, FIRE exceeded 40% and manufacturing at about 10%.
Greta R. Krippner, “The financialization of the American economy“, Socio-Economic Review (2005), 173–208
It’s interesting to note that Ms. Krippner’s paper was written and published prior to the financial crash of 2008.
But what were the forces behind the displacement of manufacturing for finance? Did succeeding generations of industrial ownership work to preserve wealth or invest in the innovation that would maintain the strength of manufacturing?