IS IT CREDIBLE THAT HE WOULD COMMIT FRAUD?
Understanding a crime or a misdeed involves learning not only what was done and who did it, but also what the motivation was. With a clear motive, evidence of the "what" and "who" becomes much more credible. Allegations that Secretary of State Philander Knox was not merely in error, but committed fraud when he falsely declared the 16th amendment ratified in 1913, require us to look at who he was to understand why he would commit such an act. The following sketch was prepared by the We The People Foundation For Constitutional Education and is condensed from Bill Benson's research report on the ratification of the 16th Amendment, "The Law That Never Was," Volume II (1985), pages 122-135.
Philander Chase Knox was born in 1853 in western Pennsylvania, son of a bank cashier. While attending college in Ohio, he became closely acquainted with William McKinley, then the local district attorney, who was prosecuting a local tavern owner for selling alcohol to the college students. Knox took McKinley's advice and became a lawyer.
McKinley, having chaired the powerful House Ways and Means Committee in Congress, was elected governor of Ohio in 1891. Although he owed his election to support from both business and labor, he quelled the labor strike called by Eugene V. Debs against the Great Northern Railroad in 1894 by summoning federal troops.
McKinley won the 1896 presidential race with a great deal of support from Big Business, e.g., John D. Rockefeller's Standard Oil contributed $250,000 to the "front porch" campaign that defeated Bryan and his populist platform of returning to the constitutionally mandated monetary system and reform of McKinley's high tariffs that had allowed domestic manufacturers to raise their prices to a level that matched the artificially-induced higher prices of foreign goods, thus causing a severe depression. Knox helped in this financial and political effort that was directed by the wealthy Ohio industrialist Mark Hanna, who was appointed to a vacant U.S. Senate seat the following year by Ohio's governor. McKinley had already been saved from personal financial ruin by help from his old friend, Philander Knox, who had become wealthy as counsel to the very wealthy.
Knox came to be regarded as one of the ablest lawyers in the country, his repute due in no small measure to his being counsel for Carnegie and Vanderbilt and their corporate enterprises. He was instrumental in Carnegie's big victory in a crucial patent case in which the most important invention for the manufacture of crude steel was at stake. In 1892, he defended Henry Frick, Carnegie's steel plant manager, who was being sued by the steel workers who had been beaten up by Pinkertons brought in by Frick during the infamous Homestead strike, a strike that was provoked by two of Carnegie's presidents, one of whom was also an attorney for J.P. Morgan. Knox also deflected prosecution and civil suit against Carnegie in 1894 after it was shown to Congress that Carnegie had defrauded the Navy with inferior armor plate for U.S. warships. Morgan himself had defrauded the U.S. Army in arms sales during the Civil War. And Knox averted prosecution of Carnegie after the president of the Morgan-controlled Pennsylvania Railroad testified that Carnegie had regularly received illegal kickbacks from the railroad. Knox's other big client at the time, the Vanderbilt family, was connected to Carnegie primarily through the railroad industry.
President McKinley offered Knox the post of U.S. Attorney General in 1899, but Knox had to decline, because he was then and for two more years engaged in arranging the merger of the railroad, oil, coal, iron and steel interests of Carnegie, J.P. Morgan, Rockefeller, and other robber barons into the largest conglomerate in history - U.S. Steel. This immense corporation encompassed the interests of nearly all the robber barons in what Knox's new client, J.P. Morgan, referred to as a "community of interest." One important component of the conglomerate was Consolidated Iron Mines in the Mesabi Range of Minnesota, which Rockefeller had fraudulently swindled from the Merritt family, who later successfully sued John D. for fraud, but had to settle for a fraction of the award because they ran out of money during Rockefeller's appeals.
After the U.S. Steel merger, Knox accepted McKinley's offer to make him Attorney General, an appointment that was personally promoted by Carnegie in a letter to McKinley and by Morgan in a personal visit to the White House. The appointment was strenuously and loudly opposed by anti-trust forces, since it would then be up to Knox to prosecute anti-trust law violations against the very robber barons who had been his clients for many years and who had made him a wealthy man. Sure enough, the public outcry to investigate the big new U.S. Steel monster that Knox had created met with Knox's response that he knew nothing and could do nothing, and nothing is what he did.
After McKinley's assassination in 1901, Knox continued as Attorney General under Theodore Roosevelt. Even though Roosevelt labeled himself as a "trust-buster," Knox saw to it that very little harm came to his benefactors. U.S. Steel was unscathed, and most of the actions that were taken against the railroad companies were largely done with the urging of the railroad giants themselves, who were the strongest advocates of federal regulation of the industry, because that regulation, with their own agents working in the federal commissions, enabled them to gain greater control over the industry, be protected from competition, and maintain prices. The best-known anti-trust case was against Northern Securities, a railroad holding company formed by Morgan as a show of strength for the benefit of Hill, Harriman, Rockefeller, and their bankers, Kuhn, Loeb & Company. The dissolution of Northern by the Supreme Court in 1904 was deemed "inconsequential" by the financial press, since the two major railroads it encompassed had not been competing anyway, and the defendants ended up suffering no loss. Knox, of course, did not pursue any of the criminal sanctions that he should have undertaken against his former allies and clients, but the case gave the appearance that Roosevelt was doing something and was a public relations success for the president. But Roosevelt, while touting himself as an anti-trust champion, disparaged and labeled as "muckrakers" those journalists who actually investigated and exposed the corrupt activities of the robber barons.
Harriman's great fortune had been acquired through a series of fraudulent maneuvers, key of which was legislation signed by Roosevelt, at that time governor of New York, allowing New York banks to invest in railroad bonds being sold by Harriman and his partners at inflated prices. Hill profited enormously from fraud, deceit, and outright theft involving vast amounts of public lands that were given to the railroads and then resold, or raped and then traded to the government for new lands. The Vanderbilt fortune had also gained greatly from fraudulent maneuvers involving railroad securities and Cornelius's evasion of taxes. When all this was investigated after Cornelius's death, Morgan came to the Vanderbilt's rescue (managing to take control of their New York Central Railroad in the process).
Knox persuaded Roosevelt that the anti-trust laws should be accompanied by increased regulation of business. He advocated and drafted federal statutes that gave his rich and powerful friends even more power and control over interstate commerce - setting rates and eliminating competition in restraint of trade - all under federal authority and with agents of the conglomerates appointed to and sitting on the governmental boards and commissions. This plan derived from and implemented a strategy set by Morgan and the other robber barons at a meeting in 1889. Knox continued in this vein as a U.S. Senator from Pennsylvania, being appointed to a vacant seat by Pennsylvania's governor in 1904 at the behest of several powerful capitalists, including Carnegie's man, former client Frick (which showed they approved of Knox's handling of anti-trust matters as Attorney General).
Knox, by now a multi-millionaire, was in the Senate when the Morgan-controlled financial Panic of 1907 hit, which led to a congressional inquiry into the monetary and banking systems. Senator Nelson Aldrich (father of the wife of John D. Rockefeller, Jr. and namesake and god-father of Nelson A. Rockefeller) led the inquiry producing the 1912 report that recommended a national bank (controlled and owned by the robber barons) and ultimately resulted in the Federal Reserve Act of 1913, co-authored by Aldrich and Robert Owens. Owens later testified to Congress that the banking industry conspired to create financial panics like the one in 1907 in order to rouse the people to demand reform - reform that would be directed by, and to the benefit of, the very financial experts who had caused the panic.
Knox resigned from the Senate and became Secretary of State under President Taft from Ohio in 1909. He was the most powerful figure in the Taft administration, and drew up the lists from which Taft appointed his other cabinet members, many of whom were intimately concerned with the giant corporations. He was Taft's primary confidante.
Knox became active in organizing the international court at The Hague, and fought hard for the Rockefeller/Morgan-inspired concept of a League of Nations, although U.S. opposition to the Treaty of Versailles forced him to temper his public views on the League. He proclaimed the era of "Dollar Diplomacy," his legacy to U.S. foreign policy, under which the Secretary of State's office was used to promote and protect American commercial and industrial interests in foreign countries, especially in Latin America, but also in East Asia and even Europe. This period of U.S imperialism featured the annexation of Hawaii in the 1890s at the request of American businesses there despite the unanimous opposition by Hawaiians; the taking of Cuba and the Philippines from the Spanish as well as from the native rebels whom the U.S had ostensibly come to assist in gaining their liberty (this included the massive slaughter of a hundred thousand Filipinos by the U.S Army in a war in which the news media was censored. (even William Randolph Hearst, who had helped instigate the war with Spain, was aghast and disgusted.) Then came the Honduras financial crisis of 1909, in which Knox brokered a deal for J.P. Morgan & Company to make huge loans to that country, backed by the full faith and credit of the U.S., and for American bankers to take control of the Honduras taxing authority (to ensure adequate cash flow to make the loan payments). Knox's diplomatic maneuvers resulted in the U.S. Navy being sent to support and give victory to rebel forces in Nicaragua, who then made arrangements, again devised by Knox, to give control of Nicaraguan taxing authority and tax collection to Americans. American bankers then immediately made big loans to Nicaragua, once again guaranteed by the U.S. government, providing a risk-free investment environment for Knox's banker friends.
Knox tried to conduct the same kind of activity in the rest of Central America and much of South America as well, and used America's claim against the Chinese from the Boxer Rebellion to coerce China to deal with a syndicate of Harriman and his bankers Kuhn & Loeb, Morgan and his First National Bank, and the Rockefeller-controlled National City Bank, instead of with the British, French, and Germans, in a scheme to establish a round-the-world transportation system using American steamship and railroad lines. There was even action by Morgan's man in that syndicate, Henry Davidson, to supply arms to the Bolsheviks in hopes of gaining oil and commerce concessions in Russia if they were victorious.
At the international level, Knox has been criticized for oafish and heavy-handed diplomacy that caused ill will and damaged the reputation of the United States worldwide. His conduct was more that of a huckster than a diplomat. Domestically, Knox's influence extended to the Supreme Court, where he succeeded in having Taft appoint three justices who were extremely sympathetic to the big business trusts: Devanter, Lamar, and Pitney. The first two of these had formerly had clients among the big corporate trusts, including the railroads.
The 16th Amendment itself was given its decisive shove through Congress in 1909 by Sen. Nelson Aldrich of Rhode Island (co-author of the Federal Reserve Act of 1913), who spoke for the "community of interest' of both Morgan and Rockefeller. This represented and led to an astonishing reversal of attitudes among the old-line big-business conservatives in the Senate, who had long staunchly opposed an income tax. Obviously, something was afoot to change their minds. It was that the robber barons had already figured out how to avoid the proposed income tax, especially through the establishment and use of foundations, the number of which grew from 18 in 1910 to 94 by 1920 and 267 by 1930. The super-rich have avoided the income tax ever since, leaving it to be paid instead by the middle and lower classes.
Deceit and fraud were, for the robber barons, standard operating procedures - among the numerous underhanded methods they typically employed to achieve their objectives. Knox had protected them from fraud charges many times. His term as Attorney General was itself a big fraud in regard to enforcement of the anti-trust laws, especially against former clients to whom he owed so much of his own professional success.
Besides preying on the government with their fraudulent activities, the robber barons employed a strategy of locking in and stabilizing their advantageous positions by using government authority and regulations to reduce competition, keep prices at very profitable levels, control labor problems, minimize risk, and generally make themselves quite comfortable. They also expanded their scope of operations, including financing and extension of credit, to other countries and used government to aid them in these adventures. Knox, of course, was a key man, perhaps the key man, in the Administration in all of this, both as Attorney General and then as Secretary of State.
J.P. Morgan seems to have been the real genius and visionary behind much of this strategy. His background was more oriented to finance, and his financial acumen enabled him to make inroads against the other robber barons on their own turfs - a robber baron's robber baron. He was regarded as more cultured and cosmopolitan than most of the others, and perhaps that is why he was able to envision and plan on such an international scale. His financial perspective helped him to see the benefits of making monetary loans to governments and securing them with strong and reliable methods of tax collection.
One might wonder why Knox seemed to be in such a hurry in 1913 to declare the 16th amendment ratified. We can see that it was because of the Federal Reserve Act of 1913. It was important to the banking interests that would be lending money to the U.S government that there be an assured flow of revenue, especially since the robber barons would be removing themselves from the income tax system. Just as an ordinary bank wants to know that a borrower who is given a mortgage has a cash flow adequate to meet the payments, so the banks comprising the Federal Reserve System wanted to be sure the federal government had a dependable method of tax collection in place to provide ample money to pay its debts to them. The income tax and the Federal Reserve are inextricably tied together; it was not mere coincidence that they happened in the same year. The robber barons, their bankers, and Knox had developed this concept and practiced it in Latin America, and in 1913 they were ready to apply it to the United States.
In less than a month after proclaiming the 16th amendment ratified, Knox returned to private practice in Pittsburgh, resigning as Secretary of State so that the new president, Woodrow Wilson, could appoint his own man to the post.* One gets the distinct impression that getting the amendment through the ratification process had indeed been his ultimate goal; he wasn't just a disinterested public official objectively administering the procedure. If he hadn't declared it ratified before leaving office, there was no way to know or control what his successor would do.
The title of this piece asks whether it's credible that Knox would commit fraud in ratifying the 16th amendment. We leave it to readers to decide for themselves, but for us, it seems like a "no-brainer." He would and he did.
*Taft's brand of republicanism had upset Roosevelt enough that the latter ran again for President in 1912. His third party "Bull Moose" candidacy spoiled Taft's re-election, and Democrat Wilson won.