How the creator of Social Security was destroyed by his fellow capitalists: The story of Alfred Dolge
For thirty years Republicans have claimed that cutting taxes on the wealthy will benefit working people. The rich, we have been told, will invest in businesses that create jobs. Of course that never happened. Rich people, by and large, make their investment decisions based on profit and the well-being of workers is not a consideration. Even so, our Democratic president went along with big tax breaks for the wealthiest Americans in December.
And lately, we’ve been told over and over that the Social Security system is in deep trouble, and that drastic cuts are needed. Our Democratic president appointed a bipartisan commission that came back with this very same message a few months ago.
Such lies are not new, and in fact go back for generations, back to when an early model of social security was created by a capitalist who really did believe that his mission was to create an economic system which enriched not just himself but also the lives of his workers. But after he had built an entire village based on his own version of enlightened capitalism, the other millionaires of the Mohawk Valley whom he had regarded as his colleagues conspired to force him into bankruptcy.
This man, a German immigrant named Alfred Dolge, is almost completely forgotten beyond the tiny industrial village of Dolgeville, NY which he founded, and but he is mentioned on the Social Security website:
One of the first formal company pension plans for industrial workers was introduced in 1882 by the Alfred Dolge Company, a builder of pianos and organs. Dolge withheld 1% of each workers’ pay and placed it into a pension fund, to which the company added 6% interest each year. Dolge viewed providing for older workers as being a business cost like any other, arguing that just as his company had to provide for the depreciation of its machinery, he should also “provide for the depreciation of his employees.” Despite Mr. Dolge’s progressive ideas and his best intentions, the plan proved largely unsuccessful since it required a worker to spend many years in continuous employment with the company, and labor mobility, then as now, meant that relatively few workers spend their whole working career with one company. Not only was the Dolge Plan one of the first formal company pension systems in industrial America, it was also one of the first to disappear when the company went out of business a few years later.
Pensions had been awarded to veterans of the Revolution and the Civil War, but it was Dolge who first made employee and employer contributions the source of funding, and made all workers eligible. He wrote that he had been consulted by the German government when Bismarck set up the system in 1889 that was the direct prototype for the rest of the world, including the Social Security Act of 1935.
Dolge was not a philanthropist like Andrew Carnegie or Bill Gates, making a fortune and then giving it away to pet causes as a retirement project. But he was also not quite what his most virulent enemy called him: “an anarchist, an atheist and a communist.”
However, it is easy to see how Judge George Hardin, who engineered the plot that forced Dolge’s bankruptcy in 1898, could get this idea. Dolge was very much an intellectual, and spoke fondly of his teacher Wilhelm Leibknecht, founder of the German Socialist Party, who introduced him to the ideas of Karl Marx. But Dolge, unlike Wilhelm’s son Karl who was killed with Rosa Luxembourg in the communist uprising of 1919, could not be called a Marxist. Adam Smith, the great apostle of the free market, was also someone he claimed as a major influence in his economic thinking.
The industrialist came to New York City as a young man, having apprenticed as a piano-maker with his father in Germany. (His father Christian was himself a noted radical, imprisoned for five years for his role in the uprising of 1848)At first specializing in the import of felts and wires for the manufacture of pianos, he decided to create his own industrial village for the production of the piano components he had been importing. After an extensive search though the north east, he settled in 1874 on what was then the tiny hamlet of Brocketts Bridge because it offered both water power for his machinery and the water quality needed for washing felt.
For twenty-four years he maintained a large shop on 13th street in Manhattan and commuted by the night train each week, walking the final six miles from the depot in Little Falls before he built his own railway in 1892. Starting operations in an old tannery, he was soon at work on the beautiful limestone factory that is still the heart of the village, drawing skilled craftsmen and their families, many from Germany.
As his work force grew into the hundreds by 1876, Dolge initiated a profit-sharing system for his employees, providing for disability payments, life insurance and an old age pension. He was an admirer of Thomas Edison and put into operation the first electric dynamo run by waterpower in 1879, which provided electric lighting for his mills, later extending it to the entire village.
As the need for lumber expanded, he built two sawmills and acquired 18,000 acres of the Adirondack forest. Complete pianos were being built by 1890 and a woolen factory was opened. A unique musical instrument, the autoharp, was another industry in the growing village now known as Dolgeville.
And in 1892 a railroad, largely financed by Dolge, linked the village with the main line at Little Falls, replacing the 50 teams of horses that had previously been the only means to move raw materials and finished products.
Each business success led him to introduce another step in his social and economic plan. Within two years of arrival in Brocketts Bridge, Dolge had set up a pension plan, the first of its kind, for his employees. Benefits ranged from 50% of wages for disability after ten years to 100% after ten years. If disability was work-related, fifty percent would be paid even without ten years of service. He provided life insurance, also unknown for working people at that time, on a prorated scale based on years of service. Sick pay and death benefits were part of the plan. In 1890 he introduced his “Earning-Sharing” Plan under which employees received a percentage of the company’s profits, to be reinvested back into the company until retirement. Losses were also charged against employee accounts. (Franz, chapter 3)
Dolge spoke frequently on other major social and economic issues of his day. When the Knights of Labor agitated for an eight hour day in 1886, he reduced work hours in his factories from ten to nine, explaining that further reductions would be possible with increased productivity. He worked hard for the Republican party and was among the strongest voices for a protective tariff, arguing that his well-paid workers should not be expected to compete against Germans or Frenchmen earning far less.
He was an advocate for public education, endowing a new school and later becoming deeply embroiled in controversies over such issues as the mandated teaching of German as a foreign language. (Many of his workers were German immigrants) At the school’s dedication in 1887, he spoke of public education as essential to democracy and the only sure bulwark against radical agitation:
The future of this great country, the inviolability of our free and liberal institutions, can be guarded only by a rising generation, which by means of an excellent education, will not only keep the unruly element in check, but raise it up, elevate it, so that it will generate good and worthy citizens able to analyze and understandingly resist the false teachings of adventurous agitators and revolutionists.
He was far ahead of his time in calling for better education of teachers, at a time when many were teenage girls only a bit ahead of their pupils:
To build school houses, equip them properly, to hire the very best teachers at such a liberal salary that it is worth their while to spend their lives in this arduous and most responsible of all professions, is the duty of every community, may it be ever so small or poor .
Dolge was also ahead of his time in advocating physical education in the school curriculum and did much to promote a form of gymnastics popular in Germany, known as turnverein. He built a gymnasium and clubhouse for the workers and their families. Many athletic competitions and celebrations, known as turnfests, were held in High Falls Park, which Dolge developed and donated to the village. At such festivities, he made sure that plenty of beer was on hand, but was against saloons and stronger drink.
Alfred Dolge enjoyed his wealth and built a mansion just across the East Canada Creek from his limestone factories. He was always a workman at heart and spent much of the day on the factory floor, but he was also a great reader and writer. He spoke widely and wrote on subjects ranging from education and physical fitness to socialism and the protective tariff. (He saw the tariff as an absolutely essential way to protect his workers from unfair competition by low wage workers overseas – a position that no modern politician is willing to take.)
His many writings on economic and social issues were published by him in two, somewhat overlapping collections, now available via google books: The Just Distribution of Earnings and The Practical Application of Economic Theory. The books reveal his desire to spread his ideas, evidenced by the many speeches he made in the US and in Europe, as well as by the letters he wrote to numerous newspapers.
And yet within the space of a week, in April 1898, all of Dolge’s enterprises collapsed. He was branded as a bankrupt and a fraud, compelled to hand over his thriving industries to strangers, and to leave Dolgeville forever.
Richard Buckley, in his history of nearby Little Falls, describes an incident from exactly one year before his forced bankruptcy that may have made Dolge a marked man. Speaking at a meeting of the exclusive University Club, Dolge stated that “almost every conflict between capital and labor originates in the demand of laborers for a betterment of their condition.” He said that too many manufacturers subscribed to the notion that “profits rise as wages fall,” and argued that the recession of 1892 was due to a collapse in demand caused by the failure of Congress to pass a protective tariff that would safeguard high wages for workers. In a remarkably prescient observation, Dolge said that “Capitalists must learn that wage earners of today are of greater importance to the community as consumers than as producers.” (Buckley 114)
One can imagine the shocked countenances of the wealthy gentlemen of Little Falls as Dolge made these pronouncements. And their mouths must have dropped even further when he went on to suggest a national industrial/labor senate, which would serve to arbitrate all disputes between workers and owners.
One year later the Herkimer County Bank, on whose board Judge George Hardin sat, forced Dolge to declare insolvency and to place his assets into receivership. The factories were closed for several months, a fraud suit was initiated against Dolge, and all the contracts with his workers were declared void. The promised pensions vanished and those already being paid stopped suddenly.
Although The Little Falls Evening Times depicted the failure as a temporary adjustment, reflecting uncertainty in the money markets due to the Spanish-American War, the key role of Judge George A. Hardin as the named plaintiff for the Herkimer County Bank against Dolge & Son points to a conspiracy to bring down the one local capitalist who seemed to be an enemy of his class.
In a farewell address to his workers Dolge explicitly accused Hardin and Schuyler Ingham, another member of the bank’s board, of causing the bankruptcy for their own profit. The rapid selling off of the properties, including the 18,000 Adirondack acres, for pennies on the dollar and the appointment of Ingham as director of a newly constructed felt trust suggests that it was more than Dolge’s anger speaking. And the venom of that unguarded comment by Hardin to the Little Falls Journal & Courier reveals a deep personal and political motivation: “Dolge is an anarchist, an atheist and a communist.” He also attacked Dolge personally for backing the village newspaper, the Dolgeville Herald, and for building an expensive mansion. And when Hardin died three years later, Dolge wrote from California that the man was clearly a thief since he left a fortune of $800,000 although during the last 28 years of his life he never earned more than $10,000 a year as a judge. (Buckley, chapter 7)
Dolge gave his version of the events in a self-published book, The Story of a Crime, which Eleanor Franz quotes in her biography. The book is very rare and, according to Franz, most copies were destroyed. In the book Dolge blamed himself for trusting Ingham and Hardin, with whom he had been in business since the very costly Dolgeville railroad was first proposed in 1882. He maintained that the two told him they would handle the cash flow problem, and then foreclosed on him, even though his assets were twice what he owed. He said that he soon obtained loans from New York backers that would satisfy the Herkimer County Bank and the American Exchange Bank in New York, but when he informed Ingham that he had the funding, Ingham told him to get lost.
Dozens of attorneys were soon handling the mass of suits and countersuits that followed the collapse. A case of fraud against Dolge was dismissed, but not before a very revealing hearing was held in March, 1899. At that hearing Schuyler Ingham was questioned about a power of attorney that Dolge’s son Rudolf had given, at the urging of Hardin and Ingham, to a mysterious figure by the name of Robinson, associated with the American Exchange Bank. The default was triggered by a joint action of the Herkimer County Bank, on whose board Ingham and Hardin sat, and the New York bank where Hardin and Ingham’s man Robinson had a major interest. A report in the April 12, 1898 New York Times stated that that while Rudolf was in South America, “his representative made application at Utica for dissolution of the firm and the appointment of a receiver.” This was evidently the mysterious Robinson. The Times writer voiced the general surprise at the proceeding, citing Dolge’s assets which far exceeded his liabilities.
It is not clear how the Dolge enterprises were structured but it may have been a simple partnership between Alfred and Rudolph, the oldest of his five sons, who was then 29. Why Rudolf would give Robinson the power to initiate a suit against his father’s firm is not known. Perhaps there was a falling out between Rudolf and Alfred that led the son to go to Venezuela. Or perhaps he was simply naive. Or perhaps Rudolf had some secret which allowed the two men to blackmail him.
At the heart of the collapse is a family drama which may never really be known. Rudolf was clearly a beloved son, given major business responsibilities in his early 20s, and his wedding in 1893 was celebrated in grand style. At his wedding, grandfather Christian Dolge called Rudolf “the crown prince of Dolgeville.” Strangely, however, he left the US for Venezuela four years later, claiming poor health, yet lived on in good health for many years, becoming active in the nascent Venezuelan oil industry.
The question of what happened was a source of intense controversy in Dolgeville for decades, and although some citizens turned against Dolge, his loyalists, such as the volunteer firemen of the Alfred Dolge Hose Co., would not hear a word against him. Whether the plot to destroy him was motivated by greed or personal hatred, or a mix, will probably never be clear. He may well have been over-extended in terms of loans, but it was the actions of the Herkimer County and the American Exchange banks, both under the influence of Ingham and Hardin, that brought him down – and profited both men.
As to Dolge’s immediate reaction to the plot, he had no choice but surrender. Although he called Wilhelm Liebknecht his mentor, he never really shared in Marx’s revolutionary dream of placing the means of production (and defense) in the hands of the workers. On the contrary, he took pride in keeping labor agitators out of Dolgeville, and did not share his power with workers in any real way.
Despite Hardin’s bitter prediction, Dolge did not commit suicide. He went on to California where he founded a second Dolgeville in what is now Alhambra, continued to write, and made a sufficient financial recovery to live comfortably, dying in 1922 on a round-the-world trip with his beloved Anna.
The destruction of his dream had much to do with his own faith in the system which had brought him such prosperity. He trusted men like himself who had made great fortunes, but they set a trap into which he fell. And although he left Dolgeville in sorrow and never returned, his sunny spirit has, I am convinced, persists in the village that he created and which I recently visited. Hard-working people continue to lead productive lives The famed Adirondack bats are a Dolgeville product and the village is also the proud home of the African violet, as well as a host of lumber and wood-working industries.
The lesson of this forgotten tale is, as I see it, that capitalism can truly be what our lying politicians tell us it is – a source of prosperity for both employers and workers – but only if we follow the example of Alfred Dolge and pay equal respect to the visions both of Karl Marx and Adam Smith. And learn from his experience to watch our backs when dealing with millionaires.
Cross posted in more detail and with extensive illustrations at Upstate Earth
Eleanor Franz, Dolge, available from the Herkimer County Historical Society
Richard Buckley, Unique Place, Diverse People, a history of Little Falls available from the Little Falls Historical Society
Works by Alfred Dolge, available on google books
The Just Distribution of Earnings, So-called Profit Sharing (1889)
The Practical Application of Economic Theories in the Factories of Alfred Dolge & Son (1895)
Pianos and Their Makers (1911)