Conception of National Interest with Disastrous Implications

The Americans were marvelously ingenious in their exploitation of the commerce. They managed to circumvent both the East India Company's franchise and the Chinese Government's prohibition and carried on a very lucrative, if antisocial and ultimately ruinous trade. Finally, the fact of American participation in the [opium] traffic fundamentally altered the American posture in the Far East. It grew like the Southern view of slavery -- what began as an economic necessity ultimately developed into a conception of national interest with disastrous implications for the future.

Quoted from an article by Professor Jacques M. Downs, "American Merchants and the China Opium Trade, 1800-1840," published in The Business History Review, Vol. 42, No. 4 (Winter, 1968), pp. 418-442. Downs was professor of history at St. Francis College in Biddeford, Maine. (See his obituary in the September 17, 2006 Portland Press Herald / Maine Sunday Telegram.)

The entire 26-page research article (available for purchase at various websites or free from JSTOR in libraries which subscribe), from which the above quote is taken, appeared in print the same year that the assassinations of Martin Luther King, Jr. and Robert F. Kennedy ripped apart the United States. I remember that year with both horror and awe, as my own life suffered a violent philosophical wrenching so alien to what was occurring all around me. As a sophomore in high school when President Kennedy had died from assassins' bullets, I had almost completed my college courses as a major in history and government in my West Texas home by 1968. While friends and family carried on as though nothing had occurred, my life was changed forever.

Courtesy of Gnostic Center

The previous year my English lit class had studied Plato's Republic, and I felt as though I were living the scene where Socrates describes the cave-like prison where inhabitants face a wall where they view only the shadows of what is going on behind them, created by a light behind the events being played out in reality.

It was not unlike the mirror image of a world into which Alice had climbed--almost real, but not quite real. And the sound track was being provided for us daily to describe the events, that we couldn't quite trust as truth. My education was only just beginning, but it was interrupted for quite a few years of angry cynicism that kept me off-track. I did not know where to turn. I began to distrust everyone and everything. Finding my way back was a long, hard road. I watched as many of my contemporaries were sucked into Vietnam, either as war or anti-war participants. Little did we know at the time that the history about which Professor Downs had written was coming to pass.

Excerpts from "American Merchants and the China Opium Trade, 1800-1840," by Jacques M. Downs

An Existing Business Model

Most of our knowledge comes from the accounts of Europeans visiting or residing in Smyrna in the late century. More complete information apparently must await the systematic exploitation of Turkish records. [See - By far the best sources I have found to date are Salaheddin Bey, La Turquie a l'exposition universelle de 1867 (Paris, 1867) 48-56, and Carl von Scherzer, Smyrna (Vienna, 1873), 136-140. Scherzer was Austrian Consul at Smyrna for many years and should know his subject. See also O. Blau, "Etwas fiber das Opium" in the Zeitschrift der Deutschen Morgenliindischen Gesellschaft (1869), 280-281. The latter article, though very brief, cites several earlier sources in German and French. Unfortunately, neither Blau nor many of his references are readily available in this country.]

Opium was planted in late October and November and began to grow during the winter. Although the cold weather kept the plants small, the root-system developed considerably. Thus with the coming of spring, the plants would grow rapidly, each sending up from one to four stalks three or four feet high. At the end of April the poppies bloomed, and about two weeks after the petals fell, the poppy-head was fully developed and ready for harvesting....

Map of Ottoman Empire, circa 1792

The crop began arriving in Smyrna toward the end of July or the first of August and continued until the following spring. [See a letter from Thomas H. Perkins to John P. Cushing, January 15, 1825, Samuel Cabot Collection, Massachusetts Historical Society, Boston.]  Merchants resident at Smyrna purchased the raw opium for shipment overseas, most importantly to the Orient, though one-quarter to one-half seems generally to have gone to Europe and elsewhere.

In the early days of this commerce most Americans employed the good offices of the British Levant Company, since it was customary to use "the flag and the protection" of a nation which had a trade agreement with the Sublime Porte. [fn. - The United States had no formal agreement with the Porte until the Rhind Treaty of 1830. For further information, see Samuel Eliot Morison, "Forcing the Dardanelles in 1810," New England Quarterly, I (April, 1928), 208-225.] For this service, they paid "a light consulage and dragomange duty, roughly about one per cent on the value of goods imported and exported." Although the British Consul-General in Constantinople reported as late as 1809 that Americans still preferred to consign their goods to the Levant Company, the trading pattern soon began to change.

As early as the late 1790's, American vessels were calling at Smyrna but it was not until 1804 that Philadelphia and Baltimore ships began the trade in earnest. [See Charles C. Stelle, "American Opium Trade to China prior to 1820," Pacific Historical Review, IX (Dec., 1940), 430-431. See also letter from R. Wilkinson to James Madison, January 15, 1806, U.S. Department of State, Despatches from Consuls in Smyrna, I, National Archives, Washington, D.C.] Probably the first figures of any consequence in the American drug trade from Smyrna to China were James and Benjamin C. Wilcocks. The former arrived in Smyrna in 1804 as supercargo of the brig Pennsylvania. They cleared for Batavia, but both were in China by the following October. Benjamin remained, but James appears to have gone home with the ship, to return via Smyrna on the Sylph the following year with more opium. [Note:  The Wilcockses sailed for their kinsmen, William Waln and R. H. Wilcocks of Philadelphia, who continued to send ships to Canton consigned to the brothers. See letter from Wilkinson to Madison, January 15, 1806; Despatches from Consuls in Smyrna. Benjamin Wilcocks remained in Canton until 1807 or 1808. He then returned home and established a business in Philadelphia but "was obliged to return . . . in 1811." See letter from John R. Latimer to Mary R. Latimer, March 30, 1830, John R. Latimer Papers, Library of Congress, Washington, D.C.]

Apparently the commerce paid, for several other American China merchants immediately showed an interest. Willings & Francis sent opium aboard the Bingham in the spring of 1805, [See letters from the supercargo, William Read, in the Willings & Francis Collection, Historical Society of Pennsylvania, Philadelphia.

The brig Eutaw, Captain Christopher Gantt, of Baltimore was in Smyrna from July to November, 1805, and then sailed for Canton with 26 chests and 53 boxes of opium aboard, and in January of the following year, Stephen Girard seems to have become excited by the possibilities of the trade. He wrote two of his supercargoes in the Mediterranean:

"I am very much in favor of investing heavily in opium. While the war lasts, opium will support a good price in China .... " [See letter from Girard to Mahlon Hutchinson, Jr., & Myles McLeveen, January 2, 1805, Stephen Girard Papers, Girard College Library, Philadelphia, Pa. on microfilm at the American Philosophical Society Library, Philadelphia.]

James & Thomas H. Perkins of Boston, who had relatives in Smyrna, had inquired of their nephew at Canton as to the market for Turkish opium in China. [Note: Extracts from two letters from J. & T. H. Perkins to John P. Cushing June 19, September 23, 1805, quoted in J[ames] E[lliott] C[abot], "Extracts from the Letterbooks of J. & T. H. Perkins..." (See typewritten Manuscript, Massachusetts Historical Society, n.d.] John Cushing [See Biographical Dictionary of American Business Leaders by John N. Ingham] had gone to Canton as clerk to Ephraim Bumstead, a former apprentice in the Perkins house. Bumstead fell ill and died, and Cushing, age 16, took over. When he came of age, he was made a partner in the firm, Perkins & Company, which he had organized and run since his arrival. He proved to be a merchant of rare ability and amassed a fortune of nearly one million dollars before he finally sailed for home in 1831. Others soon joined them, and the first of a series of "opium rushes" was reported at Smyrna by Girard's disappointed agents. [See letter from Mahlon Hutchinson, Jr., & Myles McLeveen to Girard, March 30, 1806, Girard Papers.] In 1807, another Philadelphian, George Blight, reported from China that while opium "at times paid very well," it had "disappointed many the past season" because the trade had been far overdone. [See letter from Blight to Girard, March 4, November 21, 1807, Girard Papers.]
 

Opium As a Specie Substitute

Here was a pattern which was typical in the American China trade. Precisely the same configuration had appeared in the commerce in ginseng, sealskins, sandalwood, and just about every other specie-substitute American merchants discovered. The first ships would make a killing, the scent of which would draw others into the trade until the market was saturated, and the trade ceased to pay. Thereafter, periodic gluts would occur until the supply became exhausted (as with sandalwood and fur) or until a few of the stronger firms established some sort of loose organization of the market. In the Turkish opium trade, the organizers were Perkins & Company and its allied concerns in Boston.

America's War on Drugs

What we had begun to see by 1968 was a phony war against drugs. We were being told that marijuana was a gateway drug, not only highly addictive, but which would lead to even worse opiate addictions--primarily heroin. A war was necessary. Not only should all these narcotics be "controlled," but anyone who used or possessed them should be prosecuted as criminals. I was rebellious only in mind and spirit but quite conservative where behavior was concerned. I avoided all drugs, including tobacco, and had never even tasted beer or wine until after graduating college in 1970.

I lived and operated within a strange world of half-life, where I did what a good girl would do, while at the same time held those who would try to control my beliefs or actions in total and utter contempt. I knew in my gut that Lee Harvey Oswald, for example, had not killed President Kennedy, that Sirhan Sirhan was also a mind-controlled patsy, and that there was something much bigger and uglier than James Earl Ray who was responsible for killing Martin Luther King. I could not explain how I knew, but I did.

I had completed law school by 1975, while maintaining a deprecatory  opinion of lawyers and a fear of being co-opted if hired by a firm of them. I shunned the adversary system which I saw as a sham that required sophistry of the highest register. I refused to argue on behalf of or support people or principles with which I disagreed. Thus I eventually found a niche within the land title and abstract industry, which seemed so close to my love of history. In time, I prospered, grew ever confident within myself, and began to meet others who shared my point of view--thanks, of course, to the internet.

It was only after meeting such folks as Kris Millegan and Catherine Austin Fitts, hearing their stories, reading and researching with them in the mid-1990's, that I was able to free the restraints that kept me from changing my position in the cave. Only with their helpful insight did I begin to look at reality head on. I can never thank them enough for allowing me to step into the world of truth where we now reside together.

We had started to realize by that time that the drug war was being fought to benefit a secret intelligence group who wanted to eliminate their competition and thus effectively create a price support floor under the commodity which paid for America's "national security" infrastructure.

So many of our research community referred to this phenomenon as "CIA Drugs," but I knew it began much earlier than the year 1947, when the CIA was born. Little did I know that Professor Downs had already discovered in 1968 that elements within our government had conceived of this use of opium as a substitute specie as being in the "national interest," or national security interest as it became to be called, and that conception would have ever more disastrous  implications for us and our world.

Model for Funding Covert Ops

JESSE JONES, “THE GREAT FINANCIAL BRIDGE”

©2006 by Linda Minor (all rights reserved)

“Squandering the people’s money even in wartime is no proof of patriotism.” 

-Jesse H. Jones [1]

“He [Jesse H. Jones] was, through the New Deal and through the war, the great financial bridge between the purposes of the New Deal, and particularly the purposes of the war, and the sources of the funds to do it. It was an extraordinary grant of power. He had more control over the flow of money to the executive branch and its purposes than any congressman or any congressional committee.”

--John Kenneth Galbraith, Economist (Nov. 22, 1996)

   

An Extraordinary Grant of Power 
Jesse Jones served as the “financial bridge” between the New Deal and the war as well as the funding bridge for covert operations and propaganda that would later wage the cultural cold war.

 The real story of Jesse Jones, however, begins in the closing days of World War I when Jones was appointed by Woodrow Wilson (no doubt at the instigation of fellow Texan E.M. House) to serve as Director General of Military Relief for the American Red Cross. In that role he became a protégé of Herbert C. Hoover—whose career to that point had been spent working for gold producing corporations in attempts to stabilize American currency while making lots of money. 

Hoover, who would serve as U.S. President from 1929 to 1933, headed the American Commission for Relief in Belgium from London (the “Belgian Relief Fund”), the goal of which was to feed war-ravaged victors of the war without at the same time upsetting the international balance of payments.

The Brown and Root of the matter

Incredibly, there are more people who have heard of the Brown brothers (George and Herman) than there are people who know who Jesse Jones was. Herman Brown built a road-construction business in central Texas, totally dependent upon city and county government contracts. In 1926 he was joined by his brother, George R. Brown, who took Herman’s Austin-based business two hundred miles east into Houston, a virtual promise-land of dusty streets waiting to be covered by asphalt.

George quickly began moving in the right circles in Houston, while older brother Herman was hobnobbing with politicians in the State capital of Austin. For more than a decade they were content simply to pave streets and roads and build small bridges and drainage systems. Then, through Herman’s relationship with Lyndon Johnson, ambitious young New Dealer in Franklin Roosevelt’s administration, and through George’s growing contacts with friends of Jesse Jones in Houston, they succeeded in making it to the big time—contracting with the federal government.

Without the necessary experience to build dams, ships or naval air stations, all they had to do was financially support the proper public officials and work with an experienced contractor to learn the ropes. Contacts made in Suite 8F—the suite Brown & Root leased at Jesse's Lamar Hotel—would make it all possible.

Jesse Jones and Suite 8F

The Lamar Hotel was one of dozens of commercial buildings Jesse Jones built in the growing Texas city of Houston, but it was in the Lamar’s penthouse where he resided after its completion in 1927. The Brown suite, eight floors below Jones’ home, became the home away from home for some of the wealthiest power brokers in Texas, who began fraternizing there in the 1930’s.

Jesse H. Jones first arrived in Houston from Tennessee in 1898 to work in his uncle’s lumber company, which he managed after his uncle (Milford T. Jones) died. T.W. House, Jr. had been president of M.T. Jones Lumber company and trained young Jesse to take over the management. Four years later, after his uncle's death, Jesse escorted his aunt Louisa Jones on a tour of Europe and London, where they attended the Coronation of King Edward VII. Before departing the U.S., they had stopped off in New York, however, to see Jesse's former Houston neighbor and erstwhile attorney at the Houston law firm Baker & Botts; Robert Scott Lovett—E.H. Harriman’s second in command at the Union Pacific and Southern Pacific Railroads—offered Jesse a financing arrangement for his future business enterprises. The Harriman empire promised to loan money to Jones at four percent interest, and in exchange for that loan, Jesse would give Harriman fifty percent of his profits.  [2]

What a deal that would have been—for Harriman, at least! The documents were drawn up to be executed upon Jones' return from Europe. 

Jones’ Inner Circle and Col. E.M. House

However, by the time of his return to New York, Jones declined to sign, instead announcing his plan to enter business completely on his own, foregoing partners or outside capital. That announcement, however, contains little truth. In 1907, when the economic panic hit, Jones’ lumber company owed the T.W. House Bank, which financed the construction, $500,000, mostly in long-term real estate loans.

Jones had also been an investor in 1905—alongside Col. E.M. House and his brother Thomas W. House, Jr., members of Houston’s wealthy Rice family, and Andrew Mellon of Gulf Oil in Pittsburgh—in a nationally chartered bank in Houston, the Union National Bank and Trust. [3]

From the John T. Jones, Jr. collection

The vague explanations of Jesse Jones’ ability to pull himself up from his bootstraps and create a Texas commercial empire all on his own never rang quite true. [4] He rose too high, too quickly—not even slowed by the Panic of 1907, which placed the family of fellow Houstonian “Colonel” Edward M. House in receivership. With the majority of the T.W. House private bank’s investments in illiquid property—mostly real estate, not readily convertible to cash—a receiver had to be appointed to give the bank time to sell assets in order to pay demands. The experience made Col. House a great believer in establishing a central bank—like the Federal Reserve System, which he helped create during Woodrow Wilson’s presidency. [5]

Already a millionaire by 1912 when Woodrow Wilson was elected President (an election Wilson owed entirely to the behind-the-scenes manipulations of Col. House), Jones turned down several offers to serve in the administration, finally agreeing in 1917 to become director of general military relief for the American Red Cross. In that capacity he worked closely in concert with Herbert Hoover of the Belgian Relief Fund.  In those two years Jones would learn how to recreate that model into the Marshall Plan when called upon at the end of World War II. 

Jesse Jones and the New Deal

Appointed first by President Hoover to head the Reconstruction Finance Corporation (RFC) in 1932, Jones continued into Franklin D. Roosevelt’s administration until 1940, when he was appointed Secretary of Commerce. [6] The RFC had been empowered by Congress to establish subsidiaries, and it expanded under Jones’ tenure by creating a plethora of government-owned corporations, including:

•    Defense Plant Corporation
•    Defense Supplies Corporation
•    Metals Reserve Company
•    Rubber Reserve Company
•    United States Commercial Company
•    War Damage Corporation
•    Petroleum Reserves Corporation
•    Defense Homes Corporation

By 1939 the war production corporations had been removed from RFC’s lending program, which by then consisted of domestic subsidiaries, such as the:

•    Federal Loan Administration
•    Federal Housing Administration
•    Electric Home and Farm Authority
•    Export-Import Bank
•    Home Owners Loan Corporation
•    Federal Home Loan Bank System.  

It was Jones’ own protégé at the RFC, yet another Houstonian, William L. Clayton, [7] who would help to administer the European Recovery Program, known as the Marshall Plan, after World War II. [8]

Jesse's Break with the New Deal

Jones returned to Houston in 1945, still with a decade left to devote to his commercial activities.  His first act, however, was to publish an editorial in his own Houston Chronicle, voicing what he felt was wrong with the methods being followed by his replacement at the Commerce Department, the former Vice President, Henry A. Wallace (often accused of socialism), whom Jones accused of making an unsecured loan of almost four billion dollars to Great Britain without giving thought to the effect on America’s economy. 

Notwithstanding the disaster Jones predicted (see inset box to the right), his former deputy Will Clayton, testified in hearings before the House Banking and Currency Committee several months later that Jones “did not understand the full implications of world-wide bilateral commerce as it would affect the trade of this country,” adding that “the figures Mr. Jones used in his letter to the committee earlier this week were based on a 1941 Treasury report, and that since then $1,000,000 of the assets referred to were spent ‘to keep the flag of freedom waving.’ ”  [9]

Clearly, something was very wrong with the global economy in 1946. It was an age of desperation. That desperation must be fully recognized and understood in order to understand what was to follow. Less than six months after the United States dropped two atomic bombs on Japan, 1946 would become a watershed year—the beginning of an age of fear of nuclear war and continued fear of Communism for decades to come. 

Back in Texas, Jesse Jones and his associates were in their heyday at the Lamar Hotel’s Suite 8F — planning how best to take advantage of those fearful times, while at the same time using all the inside information they had acquired working for the government.

That was when Brown & Root really took off, as we will see in the next episode. 




ENDNOTES:

[1]  Quoted in obituary appearing in the Washington Post and Times Herald (June 2, 1956).

[2]  Baker & Botts is the same law firm eventually headed by James A. Baker III, (See “Course of Deception”), whose family has controlled it since Civil War days. After 1902 Harriman would be required to divest himself of ownership of the Southern Pacific stock, which a court found violated anti-trust legislation.

[3]  The bank’s president, Jonas Shearn Rice, was a nephew of William Marsh Rice (for whom the Rice Institute was named), and the father-in-law of W.S. Farish, Sr., a founder of Humble Oil.  J.S. Rice was also chairman of Jesse Jones’ Bankers Trust, which had been incorporated during that decade by the same law firm (Andrews, Kurth, Campbell & Jones) which represented both Humble Oil Company and another Houstonian, Howard R. Hughes, Jr., and with which James A. Baker III would spend much of his career because of an anti-nepotism policy that prevented him from working at Baker & Botts while his father was there.

[4]  The Dictionary of American Biography, for example, states:  “Through his shrewd handling of money and management, Jones was general manager of the firm by 1898.  Not satisfied with working for someone else, he organized the South Texas Lumber Company four years later. His experience in the lumber business led to a combination of real estate, construction, and banking ventures—all centered in Houston. His firm erected numerous office buildings, and his real estate dealings soon made him a millionaire.”

[5]  Col. House helped to assemble Nelson Aldrich, J.P. Morgan’s bankers with the elite group of millionaires who frequented Jekyll Island, Georgia—in combination with Paul Warburg, who drafted legislation creating the Federal Reserve Banking System.  (See “Membership by Inheritance Only.”) 

[6]  The Washington Post and Times Herald (June 2, 1956).  The names and directors of executive agencies and corporations were forever changing.  For example, in January 1941 an executive order established the Office of Production Management, which was replaced a few months later by the Supply Priorities Allocation Board, itself replaced by the Office for Emergency Management (OEM) in January 1942. OEM was responsible for coordinating the supply and allocation of defense-related materials and commodities.

[7]  According to Dictionary of American Biography, Supplement 8: 1966-1970 (American Council of Learned Societies, 1988):  "Clayton’s firm, Anderson-Clayton—the largest cotton-trading enterprise in the world—made its expansion into markets formerly controlled by European cotton brokers when it moved into the vacuum created at the close of World War I.  Clayton’s first government role was in 1918 as a member of the Cotton Distribution Committee of the War Industries Board, headed by Bernard Baruch.  In 1940 he became deputy federal loan administrator in the RFC and vice-president of the Export-Import Bank under Jesse Jones, which in 1942 was placed under the Commerce Department. In the summer of 1943 he was placed under the authority of Vice-President Henry Wallace, who headed the Board of Economic Warfare. Unable to get along with Wallace, Clayton resigned in January 1944."

[8]  The European Recovery Program is often referred to as the “Marshall Plan,” the program discussed in “Hustlers and Hucksters”).

[9]  John H. Crider, special to The New York Times (June 8, 1946).