Koch Family Empire Building

By Yasha Levine, The Texas Observer

12 November 11

The Koch brothers have bankrolled a broad attack on progressive government programs. Their grandfather's history in Texas helps explain why.

harles and David Koch are the most powerful right-wing billionaires of our time. They have spent hundreds of millions bankrolling a broad attack against Social Security, organized labor, financial regulations, environmental protection and public education. The brothers plan to spend at least $200 million trying to elect right-wing, anti-government Republicans in 2012, according to Politico. They seem hell-bent on dragging America back to the dark days of unregulated capitalism. The history of their grandfather in Texas may help explain why.

Little has been written about Harry Koch. He's the least-known member of the Koch family, which has been marching under the same laissez-faire banner for the past three generations. Harry Koch emigrated to America in 1888, settled in a North Texas railroad town and became a newspaper publisher and aggressive corporate booster. He advocated for railroad and banking interests, amassing wealth and helping big business fight organized labor and squelch reforms.

Much of the Koch brothers' ideology can be found in Harry Koch's newspaper editorials of nearly a century ago. Take, for instance, the Kochs' current fight against Social Security. Harry Koch took part in a multi-year right-wing propaganda campaign to shoot down New Deal programs. Grandfather and grandsons employ eerily familiar talking points to bash government pension and welfare programs.

"No political system can possibly guarantee either a national economic security or an individual standard of living. Government can guarantee no man a job or a livelihood," Harry Koch wrote on February 1, 1935, nine months before Charles Koch was born.

Fast-forward 75 years and you can see Charles Koch using the same lines of attack in his company's newsletter: "government actions ... stifle economic growth and job creation, which in turn will significantly reduce the standard of living of American families."

This summer I traveled to Quanah, the dusty North Texas railroad town that Harry Koch called home, to find out more about the life of the man who spawned the two most powerful oligarchs of our time. After spending days hunkered over newspaper archives and rifling through a century's worth of county records in the town's tiny courthouse, I began to see a picture emerge of a man who spent his life learning how to use newspapers and media for ideological manipulation and as a platform for pro-business agendas. As I strained to read the battered microfilm, I was constantly surprised at the degree to which Harry's views - on everything from the economy to the role of government in a democratic society - have been passed on nearly unchanged through two generations, and are now being pushed by Charles and David Koch.

Harry Koch was born in Holland in 1867 to a wealthy German-Dutch family of merchants, farmers and doctors. After apprenticing to a newspaper publisher, he decided to seek his fortune in America. At 21, he set off on a steamer and arrived in New York on Dec. 5, 1888. He spent his first few years in America working for various Dutch newspapers in Chicago, New Orleans, Grand Rapids and Austin until, in 1891, he finally settled down in Quanah, a town that the railroad had established just a few years before. Harry always remained curiously vague and evasive about why he decided to stake his claim in a remote North Texas town, but there is no real mystery to it: he came because of the railroads.

In the second half of the 19th century, America was in the grip of a massive railroad boom. Boosted by eager investors, lucrative subsidies and free land, railroads sprung up connecting every corner of the United States without much thought for demand or necessity. America's rail mileage quadrupled from 1870 to 1900, with enough track laid down by the end of the century to stretch from New York to San Francisco 66 times.

In those wild early days of the railroad age, real estate speculation was a central plank of the business plan. The U.S. government had given vast stretches of public land to railroad companies, and the companies needed to sell that land to settlers to create customers and pay off debts. That meant railroads needed local publishers to trigger real estate booms in the multitude of railroad towns that had been planned and parceled across the country, luring settlers with exaggerated stories of fertile soil and incipient prosperity.

Dutch investors were heavily involved in several railroad lines in the North Texas area, including the Fort Worth and Denver Railway Company, which had spawned Quanah in 1887 and owned just about all the land in town. County records show Harry provided advertising services and worked directly for the Fort Worth and Denver for nearly 20 years, sometimes receiving payment in the form of land transferred directly from the legendary railroad builder Grenville M. Dodge, who helped lay the Union Pacific and more than a dozen other lines across the country.

Harry bought up two of the town's newspapers, apparently with his own money, merged them into the Quanah Tribune-Chief, and began printing beguiling stories of Western prosperity.

When Harry moved to Quanah, it was little more than a dusty settlement with a patchwork of dirt lots, a few rudimentary buildings and a railroad platform - a get-rich-quick scheme laid out on paper. It was his job to create the demand, bring people in and make the town a reality. He ran his paper like a chamber of commerce newsletter, cramming it full of stories about growth, expansion and the limitless possibilities of life on the frontier. He helped inflate a real estate bubble that, along with the presence of the railroad, nearly quadrupled Hardeman County's population to more than 11,000.

Harry Koch worked hard to bring a number of railroad spurs to Quanah, and he helped make the town a major transportation hub by the early 1900s. As the town grew, so did Harry's fortune. He amassed substantial real estate holdings in and around Quanah, which allowed him to cash in on the real estate boom he had helped to create.

Harry enjoyed his success. He got married, had two sons, traveled regularly to New York and Europe, and was proud of having crossed the Atlantic nine times. He even described being in Berlin, caught in a huge crowd that had gathered to hear "der Fuhrer" make a speech.

By the time he retired, Harry Koch was not just a respected newspaper publisher in Texas, but a powerful and highly connected regional business player. He was also extremely well liked. "There is no more popular member of the Association than Harry Koch," read his bio by the Texas Press Association, where he served as president in 1918.

But the bustling city he helped create was mostly made of hype. Today, Quanah's population has sunk back to 1890 levels and has little industry left. A gypsum plant on the outskirts of town is the only major employer, and it happens to be owned by the Koch family.

Harry Koch's rise from immigrant small-town newspaper publisher to entrenched business heavyweight might seem like a classic coming-to-America story, confirming that through hard work, perseverance and luck, anything is possible. But that narrative would be misleading. Harry may have lived among settlers who struggled to eke out a living on the frontier, but he was never really one himself. The difference was right there on the surface for everyone to see: While Harry Koch prospered, almost everyone else in North Texas descended into poverty.

On top of the crippling boom-and-bust cycles that gripped the country from the 1890s through the late 1920s, settlers faced crop failures, low agricultural prices and real estate booms that made it impossible for new farmers to afford land. Many sunk into deep debt and poverty.

The misery and hopelessness of frontier life sparked a powerful new grassroots populist movement, which sought to reform and curb the worst of corporate abuses. Harry Koch was not sympathetic to the cause. (In 1897, while the country was still in the grips of one of the worst economic depressions in its history, Harry Koch penned a long, gushing account of a luxurious trip to a convention thrown for boosters and businessmen in Galveston. Between detailed descriptions of all the oysters eaten and champagne bottles emptied at swanky parties, Harry expressed shock and outrage that the street railway union organized a strike during the convention and forced attendees to temporarily move about on foot. But not for long. "Santa Fe officials took pity on the suffering newspaper men and made up a train to Woolman's lake where the oyster roast was to be held," Koch wrote approvingly.)

In a series of early editorials, Harry Koch scoffed at the idea that land rents should be regulated, and ridiculed the plight of heavily indebted farmers, writing that while they might find indebtedness unpleasant, a much bigger problem was their laziness and inability to take care of the farm equipment they had purchased on credit. He patronized Quanah farmers with platitudes about honesty and success: "Be honest. Dishonesty seldom makes one rich, and when it does riches are a curse. There is no such thing as dishonest success." He delighted in the fact that unlike other cities and towns across America - filled with strikes, riots, political agitation and violent unrest - the people of Quanah largely steered clear of politics, concerning themselves with what they understood best: hard, honest labor. "A very commendable trait among western people," Harry wrote, "is that they have no time to give to politics."

Throughout the 1890s, Harry never shied from using his newspaper to promote specific business interests and as a platform to express his aristocratic views on society.

But something began to change at the turn of the century. Koch shed his abrasive attitude toward the masses and began reinventing himself as a champion of the common man.

In 1901, Koch published a long editorial that hinted at this transformation. In the piece, he defends popularly embattled trusts and monopolies with the counterintuitive argument that such protectors of wealth were a force for the common good. He based his argument on the false notion that trusts lowered the price of consumer goods:

"Let this thing be borne in mind as significant, that all real trusts, all that are destined to succeed and endure, are established on a basis of permanent lower prices for their products. Everybody knows that sugar and oil have been considerably cheaper since these industries have been under trust control. And the same is true, barring periods of fluctuation, of all industries under effective monopoly, from steel rails to cigarettes."

Harry Koch's transformation was remarkable: Not only was he attempting to convince readers of his point of view by appealing to their own best interests, but he was fleshing out economic arguments in language that his grandsons continue to use today. Harry's defense of trusts reads exactly like the pro-monopoly propaganda regularly cranked out by scholars at The Cato Institute - a libertarian think tank founded by Harry's grandson Charles Koch in 1977. University of California-Irvine Professor Richard McKenzie recently published an article in Cato's Regulation magazine titled "In Defense of Monopoly," in which he echoes Harry's 110-year-old editorial, including this claim: "The monopolist does not charge higher prices; it lowers them."

This new rhetorical approach was not Harry Koch's invention. Rather, Harry was being swept up in a larger national revolution in the way American business elites communicated with the public.

At the turn of the 20th century, growing public outrage at the way financial elites were handling the economy, combined with a rapid expansion of voting enfranchisement that increased participation in the democratic process from 15 percent of the population in 1890 to 50 percent in 1920, began posing a real threat to the entrenched interests of American corporations.

To protect itself, corporate America began experimenting with modern public relations techniques and developing strategies to manipulate and manage public perceptions.

Harry Koch was right in the thick of it.

In 1910, Koch became the founding director, as well as one of the biggest shareholders, of a small North Texas railroad company called the Quanah, Acme & Pacific. After two decades of laboring to promote other people's railroad interests, he had finally come into his own. The Tribune-Chief became the de facto advertising arm of the QA&P, extolling the region's bright future and certain prosperity while hawking company shares and promoting land in towns created and owned by the line. He had his own railroad and his own newspaper to promote it.

In the 1930s, corporations were forced to ramp up their pro-business public relations campaigns to deal with the violent backlash in public opinion caused by the Great Depression.

Harry Koch rolled out an aggressive multi-year attack on Roosevelt's New Deal. Tribune-Chief criticisms of the program echoed the propaganda of corporate boosters like the National Association of Manufacturers. The paper slammed public pensions, regulations, tariffs, unions, muckrakers, labor laws and deficits, and filled its op-ed space with pro-business opinion pieces delivered fresh from New York lobby groups like the American Bankers Association, whose president, R.S. Becht, wrote to assure Quanah readers that there was no need for the government to regulate banks. Industry self-regulation - or "voluntary self reform," as he called it - would be enough.

Despite, or because of, overwhelming public support for FDR's pension and welfare programs, they became major targets, with Harry Koch publishing two or three op-eds in a single day attacking them. "Some ten million old folks are wanting to draw $200 a month from the government, and one hundred million stand ready to quit work when they do. Why not pension all of them?" Koch wrote in a February 1935 editorial, while claiming in a different editorial that the "idea of an old age pension is a splendid idea ... such a pension is proper. But great care should be taken...in preparing old age pension laws."

His editorials contained the same familiar right-wing claims that we hear today: that there is not enough money to support "entitlement" programs, that government will tax industry into ruin, that similar programs in other countries have failed, that regulation is unconstitutional and workers, given the opportunity, will quit en masse and live off government charity.

In a 1934 editorial titled "Democracy's Problem," Harry rejected "mobocracy," which had "been discarded as undesirable, even if attainable." Mobocracy was the right's popular name for "tyranny of the majority," and remains a favorite whipping horse of Koch-funded libertarians, who increasingly promote the idea that America is not a democracy and was never intended to be one. Here's Steve H. Hanke, senior fellow at the Cato Institute, writing in a 2011 editorial: "Contrary to what propaganda has led the public to believe, America's Founding Fathers were skeptical and anxious about democracy. They were aware of the evils that accompany a tyranny of the majority. The Framers of the Constitution went to great lengths to ensure that the federal government was not based on the will of the majority and was not, therefore, democratic."

Harry Koch passed away in 1942, not long after business' epic battle against the New Deal reforms. The Quanah Tribune-Chief was passed on to his eldest son, who took over the paper with his wife and kept it in the family until the 1970s. Meanwhile, Harry's other son, Fred Koch, used the fortune he made building refineries for Stalin in the 1930s Soviet Union to ramp up his own business in Wichita, Kansas. He would build a successful oil transportation empire that would one day grow into Koch Industries, the largest privately held oil company in the country.

But even after the family's base of operations moved away from Quanah, Harry Koch's ghost would never be far removed. His life at the intersection of news media, big business, public relations and ideological warfare would be passed on as a family tradition from father to son to grandson, elevating his offspring to ever higher levels of wealth and influence.

Yasha Levine is an investigative journalist and a founding editor of The eXiled Online. He lives in Venice, California.