Front Page Titles (by Subject) Chapter 21: The Later Years, 1960–1973 - The Goodriches: An American Family
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Chapter 21: The Later Years, 1960–1973 - Dane Starbuck, The Goodriches: An American Family 
The Goodriches: An American Family (Indianapolis: Liberty Fund, 2001).
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The Later Years, 1960–1973
It is inconceivable to me that businessmen generally, and utility managers almost consistently, think that by ignoring the effects of monetary inflation, they are somehow going to avoid the problem. If they did not ignore the subject but made an attempt to report it publicly—which they can do if their auditors, lawyers, and economists are willing to inform themselves—I am quite sure that they would be much farther along than they are now.
pierre f. goodrich, “Monetary Inflation, Growth and Accounting”
In the early 1960s, Goodrich decided that he had outgrown his office space on the seventh floor of the Electric Building, where he had been since 1935. He began to examine other business offices in downtown Indianapolis. Not finding any office quarters suitable, he decided to build his own office building. He purchased property at 3520 Washington Boulevard, which was owned and occupied by Mrs. Bertha Caldwell, Richard Lugar’s mother, and had been the United States senator’s childhood home.1 In 1962, Goodrich had the house demolished and the land rezoned, and replaced the home with a modern office building. The building, which still stands, is now occupied by an architectural firm.
The building served as the nerve center for Goodrich’s many corporate operations. But probably more important to Pierre, it was also the location for the early work of Liberty Fund. The care with which Goodrich oversaw the building’s construction is indicative of the time and thought he could put into a project once he became interested in it. Goodrich spared no expense. In landscaping the grounds, he had shrubs and trees transported from southern Indiana at a cost of thirty-five thousand dollars.2 Moreover, he duplexed the utilities of the building so that it could function in times of emergency. In addition to having the building connected to city water, he had a deep well dug. He also had both gas and oil boiler systems put in place for heat. An air-handling system regulated the air moisture content so that the office always had fifty percent humidity, and an electric generator was installed to serve in case of a power outage. Goodrich even had double ceilings and extra-thick walls constructed to add to the building’s sturdiness and soundproofing. He had a large oval conference table designed for Liberty Fund conferences and special chairs made to order.3
“He was a man of great thought,” said Robert Longardner, who purchased the building in the mid 1970s and still occupies it today. Goodrich obviously believed “the work of the [Liberty Fund] was very important and it had to be physically protected in case there was ever a catastrophe,” added Longardner.4
Goodrich’s partnership with John Raab Emison terminated in 1939. Emison returned to his hometown of Vincennes to practice with his family’s law firm, the oldest firm west of the Allegheny Mountains.5 Goodrich’s partnership with Albert Campbell continued intact, however, and in 1941 a young attorney by the name of Claude Warren joined the firm of Goodrich and Campbell. This relationship proved very fruitful, and the three attorneys practiced law together for the next twenty-one years. After Campbell left in 1962, Warren remained with Goodrich as a partner until Pierre passed away.
By the early 1960s, the Goodrich family companies were enjoying tremendous success. The country’s economy had flourished during the decades of the 1940s and 1950s, and so had Ayrshire Collieries Corporation, the Indiana Telephone Corporation, City Securities, Central Newspapers, and the many other smaller companies in which the Goodrich family held a large interest. Most of Goodrich’s legal work involved companies in which he had a financial stake, but the firm of Goodrich, Campbell, and Warren also took on a few outside clients, such as public utility companies. Warren became an expert in public utility law and was sought after for his expertise. While Albert Campbell and Claude Warren practiced with Goodrich at different times for the better part of three decades, a number of younger attorneys also practiced with the firm as associates, including John M. Kitchen, Carter W. Eltzroth, and Gilbert Snider.6
In March 1957, Goodrich hired a young woman by the name of Helen Schultz. Miss Schultz, as Pierre would always refer to her, became his top assistant. She had graduated from Culver-Stockton College in Missouri and had worked for Illinois Bell before beginning her apprenticeship under Goodrich. Schultz was an extremely capable person, and over the course of several years, her boss and mentor began to trust her more and more with the handling of top administrative duties. Schultz’s competency was evident to others as well. Martha Wharton, who met Goodrich and Helen Schultz only once, in 1966 for a job interview, recalled thirty years later that “Miss Helen Schultz ran that [office] and, indeed, gave orders to Mr. Goodrich! I may not have been in awe of him, but I was agape at her competence and commanding presence!”7 Indeed, after Goodrich’s death in 1973, Schultz replaced him as president of both the Indiana Telephone Corporation and Liberty Fund.
The 1960s marked a relatively stable period in Goodrich’s life. With the exception of the Acme-Goodrich failure, his businesses were doing well, and he enjoyed considerable satisfaction in his involvement with several educational organizations. Goodrich initiated a number of policy changes for his companies that only years later would be adopted by competing businesses. Because of his concern over inflation, he restricted the Peoples Loan and Trust Company’s ability to lend money at a fixed interest rate to five years. Goodrich believed that to predict what interest rates would be beyond that would be pure speculation. In essence, that had the effect of creating variable-rate mortgages, because borrowers had to renegotiate the interest rate of their mortgages every five years or seek financing elsewhere. Although variable-rate mortgages are now extremely common, they were unheard of in the 1960s. Of course, that conservative decision put Peoples Loan and Trust Company at a distinct disadvantage in competition with other banks, which made fixed-rate home loans for periods as long as thirty years. But the policy helped to save Peoples from the dire situation that many banks found themselves in during the late 1970s and early 1980s, when banks were holding long-term loans that yielded 6 to 8 percent interest but had to pay depositors interest at 15 to 16 percent.8 Goodrich also initiated fee-based services long before they became common in other banks. This reflected his belief, which he stated often in his memorandums to employees, that those who benefit from a service should pay for it, and that costs should not be passed on to all ratepayers or depositors.9
In the telephone industry, Goodrich advanced policies that reflected his awareness of how quickly the industry was changing. For example, he depreciated the expense of new equipment at a far faster rate than was allowed under the depreciation schedules of state and federal tax laws. This had the effect of enabling his telephone companies to deduct the expense of the new equipment from income sooner rather than later, therefore reducing annual corporate income and dividends to shareholders. Goodrich’s belief in the faster depreciation rates reflected his views about the true rate at which new equipment would become obsolete and need replacing. He used this logic (along with the argument about how inflation increased the expense of new equipment at a cost higher than was generally calculated) to justify higher rate increases before the Indiana Public Service Commission.10
At the same time, Goodrich also negotiated long-term contracts with telephone-equipment suppliers. Most generally, he required from these suppliers contractual commitments of up to twenty years. The normal commitment was less than half that time. In other words, if a company wanted to sell telephone equipment to the Indiana Telephone Corporation or the Public Telephone Corporation at Greensburg, then that supplier would have to agree to provide parts for that equipment for up to twenty years after the sale. Goodrich justified this “apparent conflict between our twenty year provision for parts and a nine year obsolescence plan” based on the ability of larger telephone companies (such as AT&T and Western Electric) to have “captive manufacturing companies” (meaning they, not the suppliers, could dictate the terms and price of new and repaired equipment).11
Throughout the 1950s and 1960s, the issue of labor unions continually was one that Goodrich had to confront. Goodrich strongly opposed unions: He believed that they protect poor employees at the expense of good employees and unnecessarily handcuff management in adopting work changes. He further believed that the call to unionize would succeed only if employees were not being treated right by the employing company. The Ayrshire Collieries Corporation was unionized by one or more of the miners’ unions, and the Indiana Telephone Corporation (ITC) was temporarily unionized for about two years before Goodrich’s death. The ITC employees later decertified the union. The existence and the threat of organized labor forced the boards of the various Goodrich companies to change their compensation packages. In the 1950s, ITC employees started to receive pension benefits after the threat of unionization was repeatedly made. Generally, Goodrich saw to it that his employees received a compensation package, complete with benefits as good as those of competing companies that were unionized. He believed that if he did that, there would be little chance for union efforts to succeed.12
The business practice that Goodrich took the greatest long-term interest in was the accounting of inflation. As a business executive overseeing companies that were constantly replacing expensive equipment, Goodrich was greatly concerned about inflation. He took on the analysis of the problem much as he took on anything that had stirred his curiosity, with almost obsessive attention. Goodrich recognized that inflation erodes profits because the replacement rate of equipment in today’s dollars does not accurately reflect the true cost when inflation is factored in.13 Goodrich was greatly concerned about the practical effects of inflation. In the late 1960s and early 1970s, inflation was high. On the basis of what he had observed in several South American countries, he knew that inflation could wreak havoc, not only on individual businesses, but on whole economies as well.14 Goodrich was so convinced in the 1940s that the United States was going to experience a period of substantial inflation that he refinanced the whole of the Indiana Telephone Corporation’s debt on a long-term basis at low fixed interest rates.15
In support of his warnings about inflation, Goodrich hosted Ludwig Erhard, chancellor of West Germany from 1963 to 1966, in Indianapolis on February 19, 1968. Erhard is credited with performing the “German economic miracle” when he was the German minister of economics. In that position, on Sunday, June 20, 1948, he abolished all wage and price controls and introduced a new German currency, the deutsche mark. These bold initiatives resulted in Germany’s having one of the strongest economies in Europe within a decade. Erhard and Goodrich had become friends through their mutual association with the Mont Pelerin Society. The former chancellor spoke at the Columbia Club about the evils of inflation and countries’ engaging in deficit financing to support ballooning budgets.16
Goodrich became an expert on inflation and spoke often about the need to control and properly account for it to anyone who would listen. He believed that most people (including many economists) simply did not understand how inflation could lead to political and social upheaval. Goodrich often discussed, with an economic historian’s knowledge, how past national crises such as the French Revolution and the rise in power of Napoleon in France and of Hitler in Germany had been brought about by the manipulation of money.17 A 1979 article in the Indianapolis Star paid a late tribute to Pierre for his recognition of the importance of accounting for the effect of inflation in a business context:18
Goodrich, noted for his financial genius and wide-ranging scholarship, urged other companies to [account for inflation], observing that people and firms might do well to chart financial progress two ways: In the common arithmetic language of current dollars that everyone uses and in constant dollars which have been adjusted for inflation.
. . . With double-digit inflation jolting the nation in the early 1970s, Goodrich began to get some attention for his theory. Nobel Laureate Milton Friedman, the University of Chicago economist who had long been acquainted with Goodrich’s work, began suggesting in national speeches that corporations might do well to follow the lead of Indiana Telephone in accounting for inflation.19
Goodrich knew that there is a built-in pressure for company officials not to report the effects of inflation: inflated figures look good to shareholders and mitigate the chance that financial analysts will spot a firm’s poor performance.20 Goodrich’s method of accounting (price-level accounting) eventually attracted national and even international attention. He corresponded with businessmen and academics from all over the country.21 Stanford University, the University of Pittsburgh, and the University of Michigan used Indiana Telephone Corporation’s annual reports in their graduate business courses. England’s largest news magazine, The Economist, favorably discussed ITC’s accounting methods in a January 1971 article. In 1978, the Shell Oil Company, a Dutch corporation, became the first major company to record inflationary dollars in its annual reports.22
In support of his theories, Goodrich employed top accountants and economists to appear before the Indiana Public Service Commission on behalf of the ITC. Experts such as Dr. William A. Paton, a professor of accounting at the University of Michigan; Dr. John K. Langum, former vice-president of the Federal Reserve Bank of Chicago; and Dr. Benjamin A. Rogge, Distinguished Professor of Political Economy from Wabash College, often represented Goodrich before rate hearings. Of course, Goodrich was attempting to justify rate increases. But it was just as important to him to enlist the testimony of these experts to educate the commission and orient them to his way of thinking.
“One of [Goodrich’s] pet projects was to devise an accounting system that would prevent the government from taxing away the so-called capital gains of business through the ravages of inflation,” wrote Paul L. Poirot, who knew Goodrich from their mutual involvement with the Foundation for Economic Education. “What [Goodrich] did not seem to realize is that there is no way to prevent inflation if the government is in charge of the monetary system,” Poirot added.23
It would seem inconceivable that Goodrich was not aware of the Federal Reserve’s role in controlling inflation through monetary policy, especially given Goodrich’s familiarity with the writings of Milton Friedman and other monetarists. Goodrich probably believed that it was only by educating others regarding the havoc that inflation could create that monetary policy would eventually be reviewed. Goodrich did not believe that a person had to be an elected official, a Washington, D.C., lobbyist, or an academic to influence governmental decisions. Ultimately, Goodrich’s unwavering attack against inflationary policies may have had a significant influence. On his periodic trips to Chicago in the late 1960s and early 1970s, Goodrich often visited Harris Bank and talked with the bank’s top economist, Dr. Beryl Sprinkel. The two men discussed a wide range of issues, and especially the pitfalls of inflation. Some years later, Sprinkel became a high-level official at the United States Treasury Department. Toward the end of Ronald Reagan’s first term, Sprinkel was named chairman of the Council of Economic Advisers. In this role, he had considerable influence in helping further anti-inflationary policies both with the administration and through discussions with Federal Reserve officials.
“Mr. Goodrich believed that preaching the correct doctrine about inflation might well have an effect on policy,” said Sprinkel. “He saw in me a kindred soul. We might each learn something from a discussion of these issues,” Sprinkel added.24
Pierre Goodrich was as much interested in the capital growth of the companies he and his family held controlling interests in as he was in their dividend income. One reason was that he hated paying taxes. He loathed the thought that the government would profit from his and his employees’ hard work, only to spend the money on boondoggles of one kind or another. Under United States tax law, the paying of corporate dividends amounts to double taxation. First, the company pays tax on the income as corporate tax. Second, whenever there is a distribution of dividends, the individual shareholder must report the dividend as personal income and pay tax on it. The top accounting firm of Arthur Andersen and Company, based in Chicago, established a branch office in Indianapolis in 1960, at first to advise Goodrich’s companies. William Fletcher, the managing partner of Arthur Andersen’s branch office, became a close adviser to Goodrich, spending hundreds of hours annually consulting him on business matters. Fletcher later served on the board of the Indiana Telephone Corporation and as an executive with the Peoples Loan and Trust Company. Goodrich went to extraordinary efforts to see that Uncle Sam’s share was as minuscule as possible, all within the confines of the law.25
Toward the end of each fiscal year, Goodrich would hire extra accountants and require existing employees to work overtime figuring out the maximum amount of charitable deduction vis-à-vis dividends that would result in the least tax liability.26 Goodrich would often contribute stock in one of his companies to Wabash College or to other charitable institutions. By contributing stock rather than cash, Goodrich was able to deduct the market value of the stock at the time it was given, not when it was purchased. By doing this, he avoided any capital gains taxes and was able to deduct the value of the stock from current income. At the same time, the educational institutions enjoyed the appreciated value of the stock. Goodrich used this to tremendous advantage in both reducing his tax liability and benefiting the charitable organizations he supported.27
Goodrich’s insistence on paying low dividends and investing profits back into his companies was not popular. Other directors in his companies were constantly informing Goodrich that shareholder interest would diminish if the policy of paying low dividends continued; moreover, those investors who needed the income from the shares in order to live were also extremely upset. Despite this opposition, Goodrich generally prevailed in maintaining the paying out of low dividends. Of course, those investors who did hold on to the stock until the time the company was sold enjoyed extremely handsome profits as a result of the huge capital appreciation of the stock.28
Toward the end of his life, the central and overriding business concern that Goodrich confronted was liquidating his many corporate interests and laying the foundation for the work of Liberty Fund, Inc. In 1968, Indiana Elevators, the successor to the Goodrich Brothers Hay and Grain Company, went into bankruptcy. On May 8 and May 9, 1969, respectively, Goodrich held shareholders meetings in Indianapolis to dissolve the holding companies of Engineers Incorporated and the Patoka Coal Company. Engineers Incorporated was the family company that was responsible for most of the corporate purchases in the 1930s and 1940s. Patoka Coal had merged with Ayrshire Collieries in 1939 but had technically remained a holding company of Ayrshire stock until its liquidation. Another holding company, the P. F. Goodrich Corporation, was also dissolved in the mid 1960s, dispensing the stock it held directly to investors, who were mostly Goodrich family members.29 In October 1969, Goodrich sold Ayrshire Collieries to American Metal Climax. Less than a year later, in August 1970, he sold the Goodrich family’s 51 percent ownership in City Securities to Dwight Peterson, who was already president.30 The Goodrich family, under Pierre’s management, continued to hold either a controlling or a large interest in the Indiana Telephone Corporation, Central Shares (the holding company for Central Newspapers stock), the Peoples Loan and Trust Company, and the Eastern Indiana Telephone Company in Winchester.
To what degree Goodrich had plans of selling off these other corporate interests before his death is unknown, but he acknowledged in Liberty Fund’s Basic Memorandum that the securities of a utility company (undoubtedly his own) would be one of the main assets of the foundation.31 He had hoped that Liberty Fund might be able to operate the businesses he still owned and apply the profits toward the purposes of the Liberty Fund.32 The tax problems that arose from this plan proved formidable, however, and were not totally resolved even at the time of his death (see chapter 29).33 Nonetheless, Goodrich’s desire to see Liberty Fund come to fruition under his guidance became an overriding concern.
In addition to liquidating the Goodrich holding companies, Goodrich stepped down from a number of foundation boards: the Great Books Foundation (1957), the Indianapolis Symphony Orchestra (late 1950s), the China Institute of America (1965), the Intercollegiate Studies Institute (1965), the Institute for Humane Studies (1963), and Wabash College (1969). Although only a handful of Liberty Fund conferences had been held by the early 1970s, Goodrich had laid the groundwork for his greatest contribution to society.
Pierre F. Goodrich
[1. ]Goodrich purchased the property from Bertha Caldwell in 1962. Richard Lugar, interview, October 29, 1992.
[2. ]Robert Longardner, interview, December 28, 1992. The trees and shrubs were purportedly moved from a garden near or in Tell City, Indiana. Longardner was told this by William H. Fletcher, who worked with Goodrich at the time as the Indianapolis manager of Arthur Andersen and Company.
[3. ]Robert Longardner, interview, December 28, 1992; William H. Fletcher, interview by William C. Dennis, January 25, 1991. According to Fletcher, Goodrich had the large oval conference table, which Liberty Fund still uses, designed for twenty-two people to sit around. Goodrich believed that no more than twenty-two people could converse at one time and expect to learn anything of substance. Goodrich wanted the chairs to be ones that participants could sit in comfortably for a long time and still be attentive. He called them his “Du Pont” chairs, for the large chemical company where he got the idea for them.
[4. ]Robert Longardner, interview, December 28, 1992.
[5. ]Mrs. John Raab (Kathryn) Emison, interview, November 24, 1992. Raab Emison (nephew of John Raab), telephone interview, April 12, 1993. The law firm was founded in 1819 and is now called Emison, Doolittle, Kalb and Roellgen. According to Kathryn Emison and John Raab’s son, James, another reason for Emison’s leaving the partnership was that the relationship between John Raab and Goodrich had soured because of Goodrich’s demands for perfection. “My dad could damn near get along with anyone, but he and Pierre just didn’t hit it off,” said James Emison (telephone interview, April 16, 1993).
[6. ]Gilbert Snider, interview, December 23, 1991.
[7. ]Letter from Martha Wharton to author, December 14, 1995. Schultz, now Helen E. Fletcher, lives in Jacksonville, Florida. She denies she ever gave orders to Pierre. She wrote to the author: “I appreciate the compliments which Martha Wharton paid to me but no one (except possibly Mrs. Goodrich) gave orders to Mr. Goodrich—suggestions or reminders, yes; orders, no” (letter, June 18, 1996).
[8. ]Chris Talley, interview, March 20, 1995.
[10. ]T. Alan Russell, interview, July 2, 1994.
[12. ]Ibid.; Walter “Guido” Seaton, interview, January 16, 1993; letter from Helen Fletcher to author, June 18, 1996.
[13. ]Gilbert Snider, interview, December 23, 1991; Don Welch, interview, December 16, 1991; William Fitts, interview, December 28, 1991.
[14. ]Don Welch, interview, December 16, 1991.
[15. ]Letter from Milton Friedman to author, December 19, 1991.
[16. ]Harrison J. Ullman, “Erhard Stresses Dangers of Deficit Financing,” Indianapolis Star, February 20, 1968, p. 2, col. 4; “Erhard Warns of World Inflation,” Indianapolis News, February 20, 1968, p. 2, col. 6; Columbian, April 1968, p. 2. See also “Erhard, Ludwig,” The New Encyclopaedia Britannica, vol. 4 (Chicago: Encyclopaedia Britannica, 1992), p. 540. For a brief discussion of Erhard’s “economic miracle,” see Milton and Rose Friedman, Free to Choose (New York: Harcourt Brace Jovanovich, 1979), p. 56. Erhard’s trip to speak in Indianapolis on February 19, 1968, was his lone appearance in the United States at that time. Goodrich had Erhard and three of Erhard’s assistants flown to Indianapolis from Bonn, Germany, for the speaking engagement. The total cost of the engagement was $7,000, including a speaking fee for Erhard of $1,500. The expenses were paid by Liberty Fund. See “Minutes of the Board of Directors of the Liberty Fund, Inc.,” November 10, 1967, p. 139 (in the possession of Liberty Fund).
[17. ]See “Pierre F. Goodrich Tours Company,” ITC Highlights, July 1971, pp. 1–2; “Indiana Telephone Corporation Annual Report,” December 31, 1972, pp. 3–5.
[18. ]John H. Lyst, “‘Real Dollar’ Statements Gain New Attention,” Indianapolis Star, September 12, 1979, p. 31, col. 1.
[21. ]Letter from Goodrich to Dr. Solomon Fabricant, Department of Economics, New York University, January 3, 1972, Pierre F. Goodrich Collection, Solomon Fabricant file, Archives, Wabash College, Crawfordsville, Indiana.
[22. ]See “How Inflation Warps Accounts,” The Economist, January 16, 1971, pp. 58–59. For a good discussion of Goodrich’s views on inflation, see Pierre F. Goodrich, “Monetary Inflation, Growth, and Accounting,” Public Utilities Fortnightly, October 28, 1971, pp. 79–81. In a 1973 letter to Indiana Telephone Corporation stockholders, Goodrich explained why not reporting the effects of inflation actually undermines many of the reasons that accounting practices are undertaken in the first place: It seems reasonable to state that the first and basic reason for accounting is to ascertain useful information for the management concerning the business and its operation, and that such information being available for management is then also available for shareholders, other security holders and regulatory bodies—tax authorities included. It is important that [businessmen] know the truth concerning the return of the purchasing power of the dollars their shareholders have invested in the business which they manage for the purpose of providing a product for a profit. . . . (John H. Lyst, “‘Real Dollar’ Statements Gain New Attention”)
[23. ]Letter from Paul L. Poirot to author, November 8, 1992.
[24. ]Beryl Sprinkel, telephone interview, January 22, 1993. Despite Goodrich’s desire to have inflation recognized from an accountancy perspective, the government’s objection to doing that seems to have some validity, at least from a practical perspective. Traditionally, the government has been opposed to recognizing inflation for fear of building it into people’s expectations and thereby accelerating it.
[25. ]Gilbert Snider, interview, December 23, 1991; William H. Fletcher, interview by William C. Dennis, January 25, 1991.
[26. ]Gilbert Snider, interview, December 23, 1991.
[29. ]Don Welch, interview, April 29, 1996.
[30. ]When Goodrich sold his family’s interest in City Securities to the Dwight Peterson family, they obtained an 84 percent share of the corporation’s ownership, and the remaining 16 percent was owned by other employees of City Securities Corporation. See E. Bruce Geelhoed, Indiana’s Investment Banker: The Story of City Securities Corporation (Muncie, Ind.: Ball State University, 1985), p. 117.
[31. ]Pierre F. Goodrich, Basic Memorandum, p. 91.
[32. ]Don Welch, interview, December 16, 1991.
[33. ]See Paul M. Doherty, “Foundations’ Status Scrutinized Closer,” Indianapolis Star, n.d. (copy in author’s possession).