WEBVTT NOTE The Progressive Era Triple Alliance: Government as Cartellizer (continued) 1 00:00:00.000 --> 00:00:20.000 So the Federal Trade Commission, and I'd refer to COCO for more detail. This seems to me an extremely important legislation in the corporatist development, and was considered as such as the analog for the ICXP, federal versus the intercultural, substantive subgroup. 2 00:00:20.000 --> 00:00:26.000 There's also an interesting development during the Wilson administration, started during the Taft administration. 3 00:00:26.000 --> 00:00:30.000 This is pushing the social welfare and the welfare of the corporate state. 4 00:00:30.000 --> 00:00:39.000 This is the United States Commission on Industrial Relations, which was set up in late 1912 by Taft, 5 00:00:39.000 --> 00:00:45.000 but really it hardly got started before Wilson takes over and Wilson points to people and so forth. 6 00:00:45.000 --> 00:00:54.000 The U.S. Commission on Industrial Relations, which was stimulated by industrial violence, worker violence and what to do about it, 7 00:00:54.000 --> 00:01:02.000 I guess it has, again, this is the first time really on a federal scale we have this tripartite arrangement referring to three labor representatives, 8 00:01:02.000 --> 00:01:10.000 three corporation representatives, all of whom, incidentally, were national civic federation types, the NAM was squeezed out of this arrangement, 9 00:01:10.000 --> 00:01:16.000 and three so-called public representatives who are our public busybody types, social engineers. 10 00:01:16.000 --> 00:01:25.000 Among the public representatives is our old friend John R. Comma, who plays an extremely important role in this whole business. 11 00:01:25.000 --> 00:01:39.000 Also, Mrs. J. Borden Harriman, one of the famous Harriman families, who becomes one of the upper-class female social worker busybody types, 12 00:01:39.000 --> 00:01:51.560 The Chairman of the Commission was a genuine left-winger named Frank Walsh, to the left 13 00:01:51.560 --> 00:01:58.640 of the corporate common types. He was a lawyer and social worker. He was put on because he 14 00:01:58.640 --> 00:02:04.840 was supposed to be a friend of John R. Cummings. That was his cache in this thing. So he was 15 00:02:04.840 --> 00:02:06.840 and the National Civil Federation. 16 00:02:06.840 --> 00:02:09.840 And it turns out they split later on during the work of the commission. 17 00:02:09.840 --> 00:02:12.840 The forces were too leftish for the rest of them. 18 00:02:12.840 --> 00:02:21.840 And Cummins put then as the research director, head of research for the commission, Charles B. McCarthy, another Wisconsin progressive. 19 00:02:21.840 --> 00:02:23.840 McCarthy is a very interesting guy. 20 00:02:23.840 --> 00:02:26.840 McCarthy was essentially a student of Cummins, a student and a disciple. 21 00:02:26.840 --> 00:02:32.840 He was the head of the Legislative Reference Bureau of Wisconsin, engaged in many of the cross-dining activities. 22 00:02:32.840 --> 00:02:47.400 Act, the Federal Trade Commission Act, the Great Example of Planning, the World, and 23 00:02:47.400 --> 00:02:52.040 particularly the role of business market, one of the great economists, or so-called 24 00:02:52.040 --> 00:02:57.400 economists, theoreticians, Otto Wagner, one of the historical school economists. 25 00:02:57.400 --> 00:03:07.400 and he thought of the, he did his work on the industrial commission, he thought of the industrial commission as trying to bring the German model, the Wismark model, to the United States. 26 00:03:07.400 --> 00:03:13.400 He's one of the big figures in workman's compensation, pushing workman's compensation, pushing the whole Wisconsin idea and so forth. 27 00:03:13.400 --> 00:03:25.400 One of the McCarthy's lucrative ratios that I found some interest in, when he was reminiscing one day, he said, quote, the backbone, the backbone was his thought on political economy. 28 00:03:25.400 --> 00:03:32.400 The State must invest in human beings in the same way as you invest in cattle on a farm. 29 00:03:55.400 --> 00:04:03.400 The U.S.A. has two great labor historians in the early part of the century. 30 00:04:03.400 --> 00:04:20.400 There were the American Labor Union, the official A.F. and L.L. line, the craft union, monopoly union, and the corporateist framework. 31 00:04:20.400 --> 00:04:23.400 I'll get more to that when I get more to humans later on. 32 00:04:23.400 --> 00:04:27.400 John D. McCarthy, this should be a corporatist, a progressive, a commons associate, and everything else. 33 00:04:27.400 --> 00:04:32.400 It's also turned out to have been a friend and a classmate of John D. Rockefeller Jr. at Brown University. 34 00:04:32.400 --> 00:04:36.400 Classmates keep popping up all the time. It's probably something incredible. 35 00:04:36.400 --> 00:04:39.400 It can't be a coincidence. I don't believe it. 36 00:04:39.400 --> 00:04:45.400 By this time, Rockefeller, I think maybe, this is a little bit, this is kind of spiky, 37 00:04:45.400 --> 00:05:05.920 Rockerfeller sets up an industrial relations department as part of a fairly newly set up 38 00:05:05.920 --> 00:05:08.120 Rockerfeller Foundation. 39 00:05:08.120 --> 00:05:13.000 One of the big shots in this, by the way, was Sir William Lyon Mackenzie King, who was 40 00:05:13.000 --> 00:05:34.000 The relationship between the Rockefeller Foundation and McCarthy is quite close. 41 00:05:34.000 --> 00:05:41.000 Jerome Green, who was a personal Rockefeller aide, writes to McCarthy in October 1914. 42 00:05:41.000 --> 00:05:48.360 He says, under William Lyon Mackenzie King's direction, the Rockefeller Foundation might 43 00:05:48.360 --> 00:05:52.480 quote, gradually convince the public both of our disinterestedness and of our strictly 44 00:05:52.480 --> 00:05:53.480 scientific methods. 45 00:05:53.480 --> 00:05:59.120 Again, you have this idea of, in a sense, you have the Rockefellers, okay, I'm going 46 00:05:59.120 --> 00:06:01.640 to turn to science too, in quotes. 47 00:06:01.640 --> 00:06:07.520 These guys can do it, I can do it. 48 00:06:07.520 --> 00:06:10.840 Which I guess is the beginning of the great Rockefeller Foundation career, in a sense. 49 00:06:10.840 --> 00:06:17.080 career of finding and developing promising scholars. We now have the last, the latest 50 00:06:17.080 --> 00:06:23.440 fruits of the Rockefeller interest and scholarship, of course, is Henry Kissinger, our beloved 51 00:06:23.440 --> 00:06:38.080 foreign policy czar. So, what happens is there's a split in the commission. McCarthy is kicked 52 00:06:38.080 --> 00:06:47.720 out under Walter Zeges, and we have three reports basically, several reports, Cummins 53 00:06:47.720 --> 00:06:52.520 Rights Report and other very independent reports of the commission. 54 00:06:52.520 --> 00:06:56.120 One of the key people in the commission, one of the things about Cummins is he becomes 55 00:06:56.120 --> 00:07:03.560 a, he promotes a Cummins Report, presages a new deal almost one by one. 56 00:07:03.560 --> 00:07:16.560 He sets forth a situation which will later become very similar to the Nash NRA, the Wagner Act, the WPA, the CCC, all these things are pre-figured of a Cummins report in 1915. 57 00:07:16.560 --> 00:07:20.560 The Industrial Commission reports are written in 1915. 58 00:07:20.560 --> 00:07:30.560 Cummins' sidekick, the Assistant Director of Research, who was Assistant to McCarthy, is another guy who appears among all rulers from then on. 59 00:07:30.560 --> 00:07:34.200 Well, an amazing number of people start around this period and continue ever since. They 60 00:07:34.200 --> 00:07:39.680 sort of live to the age of 110 or something. They've only died out fairly recently. And 61 00:07:39.680 --> 00:07:44.440 they start around this World War I period. One of them, Billy Lizerson, who was the labor 62 00:07:44.440 --> 00:07:51.240 economist, student of commonivid, post-associated McCarthy, who's pushing here, state public 63 00:07:51.240 --> 00:07:55.240 works for depressions and state unemployment services. And he comes up with a new deal 64 00:07:55.240 --> 00:08:05.480 and so on, one of the largest flour millers in the world at the time, and Ballard's report 65 00:08:05.480 --> 00:08:09.560 outlines the following steps that should be taken to cure the industrial problem and so 66 00:08:09.560 --> 00:08:10.560 forth. 67 00:08:10.560 --> 00:08:20.240 He's talking about raising wages, various government steps to raise wages, one, you 68 00:08:20.240 --> 00:08:24.280 should restrict immigration in the way of raising wages, if your interest is in raising 69 00:08:24.280 --> 00:08:30.280 and the American Wage Rates, one of the ways to do is to keep everybody out, two to have 70 00:08:30.280 --> 00:08:35.960 a national minimum wage law to raise wages, three workman's compensation laws, four factory 71 00:08:35.960 --> 00:08:41.520 inspection laws, which we've seen with meatpacking impose higher costs on cartelized assistance, 72 00:08:41.520 --> 00:08:48.120 impose higher costs on small competitors, next the federal eight hour a day law to make 73 00:08:48.120 --> 00:09:02.120 The Federal Employment Service and the Federal Republic works during recessions. 74 00:09:02.120 --> 00:09:10.120 And also, in all of this is practically the entire deal, not only 33-35 but really also 33-38. 75 00:09:10.120 --> 00:09:15.120 The whole spiel I think is set out in the Commons report, the Ballard report, etc. 76 00:09:15.120 --> 00:09:21.120 One of the things, kind of a cute thing, which prefigures the CCC and maybe a few other institutions in the world, 77 00:09:21.120 --> 00:09:29.120 is the cause for, quote, government concentration camps, where workers, where work with a small wage would be provided, 78 00:09:29.120 --> 00:09:32.120 supplemented by agricultural and industrial training. 79 00:09:32.120 --> 00:09:38.120 And we see here the beginning of the great CCC concept of, out there in the great forestry or mainly, 80 00:09:38.120 --> 00:09:43.120 The whole idea of forced government labor. 81 00:09:43.120 --> 00:09:47.120 They used the word concentration camps those days. 82 00:09:47.120 --> 00:09:51.120 It had not yet been rendered inoperable. 83 00:09:51.120 --> 00:09:56.120 The word, not so much as a policy. 84 00:09:56.120 --> 00:10:01.120 So who runs against, who runs against Wilson in 1916? 85 00:10:01.120 --> 00:10:04.120 In fact, past corporate reform has been put in. 86 00:10:04.120 --> 00:10:08.120 I haven't mentioned the Federal Reserve System yet because I'm going to go back to coming with that. 87 00:10:08.120 --> 00:10:12.120 That had plus the Federal Reserve System. Only fantastic corporatist reforms were coming. 88 00:10:12.120 --> 00:10:19.120 Who is going to be found to run against this great man, Charles Evans Hughes, 1916, Wall Street lawyer, 89 00:10:19.120 --> 00:10:25.120 who turns up, at least after his defeat, as the attorney for Standard Oil Company in New Jersey? 90 00:10:25.120 --> 00:10:31.120 I cannot refrain from saying that Hughes was a Rockefeller person. I cannot stop myself from saying that. 91 00:10:31.120 --> 00:10:39.120 He's also a member of the same Baptist Bible class as John D. Rockefeller, Jr. 92 00:10:39.120 --> 00:10:43.120 And he, of course, he was beaten. He was only almost won, but he was finally beaten. 93 00:10:43.120 --> 00:10:49.120 Okay, so it shows the Morgan, the Wilson-Morgan continuation of power. 94 00:10:49.120 --> 00:10:58.120 Okay, what's the Federal Reserve System, and we'll come back to that, of course, later on. 95 00:10:58.120 --> 00:11:16.120 The thing about the Federal Reserve System, basically, was it succeeded, well, first of all, it was backed by almost every banker. 96 00:11:16.120 --> 00:11:25.120 I really don't know, there might have been bankers that opposed it in detail, certainly, but the concept, certainly the big bankers all favored it. 97 00:11:25.120 --> 00:11:28.120 There were pretty few people that were against it anyway, in general. 98 00:11:28.120 --> 00:11:33.120 I think the major reason for that is the fact that the Federal Reserve System succeeds the National Banking System. 99 00:11:33.120 --> 00:11:37.120 The National Banking System was kind of an abortion. 100 00:11:37.120 --> 00:11:44.120 The National Banking System is a halfway house from free banking, hard money free banking, at least free banking kind of system, 101 00:11:44.120 --> 00:11:48.120 system, which we had before the Civil War, to a central bank on the other hand. 102 00:11:48.120 --> 00:11:55.480 In other words, what we have, basically what we have before the Civil War is a free banking 103 00:11:55.480 --> 00:11:58.960 setup, with the exception of the first and second banks in the United States, but after 104 00:11:58.960 --> 00:12:02.640 Jackson got rid of the second bank in the United States, we had a decentralized banking 105 00:12:02.640 --> 00:12:04.720 system. 106 00:12:04.720 --> 00:12:10.680 Much of it was hard money, the free entry into the banking system. 107 00:12:10.680 --> 00:12:15.160 Some western states banks were declared unconstitutional, and they put some no-banks in that area, but 108 00:12:15.160 --> 00:12:22.400 there was considerably less inflation under the free banking system, even though, quote, 109 00:12:22.400 --> 00:12:25.160 wild-cannon, quote, than there was later on. 110 00:12:25.160 --> 00:12:30.880 Anyway, this is one system, and the free banking kind of system, the hard-money position, the 111 00:12:30.880 --> 00:12:37.320 pure-gold position of the Jacksonians, and previously that of the Jeffersonians, really, 112 00:12:37.320 --> 00:12:42.040 And we at least had a fighting chance, and what you have is you have a continuing drive 113 00:12:42.040 --> 00:12:49.080 by the Jacksonians for outlawing banks altogether, for ensuring that they pay specie immediately. 114 00:12:49.080 --> 00:12:56.000 One of the reasons why it's always been said that free banking leads to wildcat banking 115 00:12:56.000 --> 00:12:57.000 and runaway inflation. 116 00:12:57.000 --> 00:13:01.080 One of the reasons why there was, it didn't, but one of the reasons why there was more 117 00:13:01.080 --> 00:13:04.560 inflation than there would have been under a real free banking system is that every time 118 00:13:04.560 --> 00:13:09.760 When the banks got into any kind of real trouble, massive trouble, thought about by their over-expansion, 119 00:13:09.760 --> 00:13:14.840 the government, state and federal, got them off the hook by allowing them to suspend specie 120 00:13:14.840 --> 00:13:15.840 payments. 121 00:13:15.840 --> 00:13:19.520 In other words, to stop paying their debts until this crisis is over. 122 00:13:19.520 --> 00:13:21.840 In the meantime, of course, they could collect the debts, they could enforce the collection 123 00:13:21.840 --> 00:13:24.280 of their debts, the debts to them and the courts. 124 00:13:24.280 --> 00:13:30.520 But while all this was going on, the moratorium was declared, so they wouldn't have to pay 125 00:13:30.520 --> 00:13:59.520 This great tradition of letting the banks off the hook begins in the War of 1812, the largest center of capital investment in New England, which we all know as the post of the War of 1812 against Britain. 126 00:13:59.520 --> 00:14:06.520 So in order to finance the war effort, the administration had to turn to the new banks popping up, the new banks inflated like mad. 127 00:14:06.520 --> 00:14:11.520 The government spends the money on munitions and so forth, and manufactured goods produced in New England. 128 00:14:11.520 --> 00:14:16.520 The New England banks call upon the new banks of Pennsylvania and Kentucky, et cetera, for redemption. 129 00:14:16.520 --> 00:14:20.520 They ain't got the money, they ain't got the gold, so they have to go bankrupt. 130 00:14:20.520 --> 00:14:25.520 It was the end of the modern banking system, so to speak, the origins of it. 131 00:14:25.520 --> 00:14:28.520 The Federal Government says, okay, we suspend species banking. 132 00:14:28.520 --> 00:14:31.520 This is the Black Month of August 1814 habit. 133 00:14:31.520 --> 00:14:34.520 Not only does this continue for the duration of the war, 134 00:14:34.520 --> 00:14:38.520 but it went on from then on until early 1817. 135 00:14:38.520 --> 00:14:43.520 So for two and a half years, the banks were let off the hook. 136 00:14:43.520 --> 00:14:47.520 There were two ways out. I won't go into detail. 137 00:14:47.520 --> 00:14:52.520 There were two ways out, faced at the time by the congressmen and theoreticians. 138 00:14:52.520 --> 00:15:01.520 One way was to get rid of the banks, the banks who couldn't pay, the bank crop banks, and go back to a gold system, or a gold-silver system, I should say. 139 00:15:01.520 --> 00:15:09.520 And the other was to set up a new bank in the United States which would inflate enough to keep these banks afloat, which was the solution that was adopted. 140 00:15:09.520 --> 00:15:19.520 At any rate, after the second bank in the United States was eliminated, we have a free banking system, with hard money as a viable trend, let's say. 141 00:15:19.520 --> 00:15:33.520 After the Civil War, the whole system changes with two things. One, the greenbacks, which are fiat money, not redeemable, gold or silver. It took them 14 more years to get rid of the greenbacks. They got the greenbacks back on a gold basis. 142 00:15:33.520 --> 00:15:47.520 And the National Banking Act, which won outlawed state banknotes, that was banknotes produced by state banks, outlawing by producing an extra tax of 10% on state banknotes, 143 00:15:47.520 --> 00:15:53.540 And it's setting up a whole new national banking system where reserve requirements, et cetera, 144 00:15:53.540 --> 00:15:59.240 deliberately centralizing Wall Street, the national banks of Wall Street, and then permitting 145 00:15:59.240 --> 00:16:05.280 on top of that smaller city banks having deposits in the Wall Street banks and the rural banks 146 00:16:05.280 --> 00:16:08.520 having deposits in the smaller city banks. 147 00:16:08.520 --> 00:16:13.720 So it's got a permanent expanded credit kind of system based on the central Wall Street 148 00:16:13.720 --> 00:16:20.040 Bank is a major reserve, separate reserve cities, and their reserves, their money supplies 149 00:16:20.040 --> 00:16:25.760 they were allowed to issue was based on federal government bonds, a very peculiar kind of 150 00:16:25.760 --> 00:16:26.760 system. 151 00:16:26.760 --> 00:16:35.320 In other words, the more government bonds they bought, the more credit they could issue. 152 00:16:35.320 --> 00:16:41.360 So this was a system which didn't satisfy really anybody too well. 153 00:16:41.360 --> 00:16:49.520 The, for one thing, so they looked around for reform. It was very difficult at this point 154 00:16:49.520 --> 00:16:53.520 to go back to, first of all it took them 14 years to get back to gold even, to get back 155 00:16:53.520 --> 00:16:58.240 to the gold standard. So this sort of exhaust of the hard money people, besides the hard 156 00:16:58.240 --> 00:17:02.960 money people sort of dying out by this time. And it becomes very, to go back to the free 157 00:17:02.960 --> 00:17:07.440 banking system and full of civil war would have made a titanic revolutionary kind of 158 00:17:07.440 --> 00:17:12.880 change in the system, in which whatever gold bugs were left were not in the position to 159 00:17:12.880 --> 00:17:14.760 try to accomplish. 160 00:17:14.760 --> 00:17:20.720 So with this sort of alternative kind of dead and defunct, or forgotten, increasingly forgotten 161 00:17:20.720 --> 00:17:26.800 by the general public, by economists, by bankers, the next alternative looming up was the pressing 162 00:17:26.800 --> 00:17:31.560 on of a fully centralized banking system with the Federal Reserve, with the imitation of 163 00:17:31.560 --> 00:17:37.200 the Bank of England, which pioneered in this thing, and so forth. 164 00:17:37.200 --> 00:17:44.060 Now most of us think, looking back, most textbooks think of, say the central bank is extremely 165 00:17:44.060 --> 00:17:48.200 important and we must have a central bank in order to restrict the banks, the commercial 166 00:17:48.200 --> 00:17:51.040 banks from expanding credit and inflating the credit excessively. 167 00:17:51.040 --> 00:17:55.200 This is the usual way in which the, this kind of thing is sold to the general public. 168 00:17:55.200 --> 00:17:59.160 You should be surprised by this time that this is sort of again an Orwellian system 169 00:17:59.160 --> 00:18:00.160 in reverse. 170 00:18:00.160 --> 00:18:03.840 This is not the way the bank, this is not the arguments of the bankers themselves and 171 00:18:03.840 --> 00:18:07.760 and the economists themselves promoting it, used for the Federal Reserve system. 172 00:18:07.760 --> 00:18:11.600 The argument was, this darn national banking system is too inelastic. 173 00:18:11.600 --> 00:18:16.760 The money supply is quote inelastic in quote-unquote, in other words, we ain't got enough of it. 174 00:18:16.760 --> 00:18:20.300 Banks are not allowed to expand credit enough, especially during recessions. 175 00:18:20.300 --> 00:18:26.400 So we need some kind of instrument to ensure more and better inflation, more and better 176 00:18:26.400 --> 00:18:29.880 expansion of money and bank credit. 177 00:18:29.880 --> 00:18:31.440 There were several problems. 178 00:18:31.440 --> 00:18:36.480 One was, we need Walter Badgett, the Mephistophenean figure, who was the theoretician of the Bank 179 00:18:36.480 --> 00:18:38.400 of England in the 19th century. 180 00:18:38.400 --> 00:18:42.440 So the central bank has one very important function of being a lender of what we call 181 00:18:42.440 --> 00:18:43.440 a lender of last resort. 182 00:18:43.440 --> 00:18:49.140 Lender of last resort meaning that there always should be a government-sponsored bank out 183 00:18:49.140 --> 00:18:52.640 there in the sort of a Deus Ex market, that want to bail out any bank that is really getting 184 00:18:52.640 --> 00:18:56.080 into trouble. 185 00:18:56.080 --> 00:19:00.320 So every bank knows deep in its heart, there's always a central bank there to bail it out, 186 00:19:00.320 --> 00:19:04.240 to Lend It Money and so forth, to tie it over any kind of real emergency. 187 00:19:04.240 --> 00:19:12.920 This was accepted as a brilliant stroke, master stroke in banking theory. 188 00:19:12.920 --> 00:19:17.120 And then they felt it was necessary, also as Coco points out here, under the national 189 00:19:17.120 --> 00:19:22.040 banking system, decentralization was popping up, the Chicago banks now were becoming part 190 00:19:22.040 --> 00:19:26.520 of the Central Reserve, and the more and more state banks, in other words, they had less 191 00:19:26.520 --> 00:19:29.200 Less and less centralization was felt by the larger bankers. 192 00:19:29.200 --> 00:19:33.520 They had to re-centralize again and impose a central control, which would seem to be 193 00:19:33.520 --> 00:19:36.520 getting out of hand. 194 00:19:36.520 --> 00:19:40.880 Also, we had the growth of the Bank of America, a state bank, which was completely outside 195 00:19:40.880 --> 00:19:47.800 the establishment in those days. 196 00:19:47.800 --> 00:19:55.080 So we had, in this situation, once again, the economists have punked out, in other words, 197 00:19:55.080 --> 00:19:59.880 The economists which previously to this period had been hard-money people, and they'd also 198 00:19:59.880 --> 00:20:05.360 been gold bugs to one extent or another. 199 00:20:05.360 --> 00:20:10.640 By this time, the old hard-money economists had dropped out, had died off. 200 00:20:10.640 --> 00:20:14.520 And then it was just a question of sort of jockeying, which kind of central bank should 201 00:20:14.520 --> 00:20:15.520 we have? 202 00:20:15.520 --> 00:20:19.640 We've accepted almost on every hand that we have to imitate advanced countries like England 203 00:20:19.640 --> 00:20:22.520 and Germany, et cetera, and have our own central bank. 204 00:20:22.520 --> 00:20:35.520 And there's a whole litany here, which I need not repeat, as Coco mentioned, of all the guys who are pushing for some kind of Federal Reserve bank. 205 00:20:35.520 --> 00:20:39.520 And there's all sorts of jockeying back and forth, and I don't think in the long run they were very important. 206 00:20:39.520 --> 00:20:44.520 The point is almost everybody has one of their own kind of separate bank, and we wind up with something. 207 00:20:44.520 --> 00:20:54.400 Some of the key figures, again, in this, the famous Jekyll Island Conference, which figured 208 00:20:54.400 --> 00:20:59.880 in Westbrook Puggler's demonology from then on until the day he died, one of the things 209 00:20:59.880 --> 00:21:03.680 which was one of the sources for the writing of the Federal Reserve System, at this conference 210 00:21:03.680 --> 00:21:08.040 were Paul Warburg from King Moab, Frank Vanderlip from the National City Bank, who becomes very 211 00:21:08.040 --> 00:21:12.440 important throughout this thing as a great theoretician of inflation, Henry P. Davison 212 00:21:12.440 --> 00:21:18.440 Morgan-Partner, Charles Norton of the First National Bank, and of course Milton Aldrich. 213 00:21:18.440 --> 00:21:22.480 And anyway, with all this jockeying back and forth, we wind up with the Federal Reserve 214 00:21:22.480 --> 00:21:23.480 System. 215 00:21:23.480 --> 00:21:39.240 Before I get to the essence of what happens there for the Federal Reserve System, I want 216 00:21:39.240 --> 00:21:44.040 I want to mention a few words about the man whom I will turn to later, later lectures. 217 00:21:44.040 --> 00:21:49.560 The man who becomes the ritual king of the Federal Reserve system until the day he died, 218 00:21:49.560 --> 00:21:53.240 not exclusively at the beginning, but enough to establish working control, and by the mid-20s, 219 00:21:53.240 --> 00:21:57.480 the early 20s, he has absolute control until he died at the end of 1928. 220 00:21:57.480 --> 00:22:02.320 Benjamin Strong, governor of the Federal Reserve Bank in New York. 221 00:22:02.320 --> 00:22:05.400 And it was all during the 20s, by the way, the constant battle between the Federal Reserve 222 00:22:05.400 --> 00:22:09.400 in Washington, which one would have thought would be the head of the system. 223 00:22:09.400 --> 00:22:13.400 And Strong, who was the head of the Federal Reserve Bank in New York, Strong wins out. 224 00:22:13.400 --> 00:22:17.400 In addition to having a lot of clout and being in New York 225 00:22:17.400 --> 00:22:21.400 and buying and selling bonds and the rest of it, close to the source, 226 00:22:21.400 --> 00:22:25.400 he also had a lot of political and economic clout. 227 00:22:25.400 --> 00:22:29.400 In addition to being a charismatic figure. I don't think we should, usually 228 00:22:29.400 --> 00:22:33.400 historians interpret Strong's ascendancy in the Federal Reserve System 229 00:22:33.400 --> 00:22:56.400 Benjamin Strong was the head of Bankers Trust Company, a Morgan Trust Company, set up in 1903, and second of all, his closest friends in the world. 230 00:22:56.400 --> 00:23:07.400 I mean, not only business friends and people who have pushed him all along the way, but also social friends and golf club pals and all the rest of it, or Henry P. Davison, Morgan partner, and Dwight Morrow, Morgan partner. 231 00:23:07.400 --> 00:23:17.400 Strong, when he got the call to be head of the Federal Reserve System, he's also an old pal of Elihu Root, just to sort of cement the whole thing, and Thomas W. Lamont, another Morgan partner. 232 00:23:17.400 --> 00:23:25.400 At any rate, it comes to the core from the Muslim administration to appoint Benjamin Strong as head of the Federal Reserve Bank in New York. 233 00:23:25.400 --> 00:23:28.400 He sort of hangs back in a shy and modest manner. 234 00:23:28.400 --> 00:23:30.400 He's probably not really competent to do this. 235 00:23:30.400 --> 00:23:38.400 He was implicated with, and so forth and so on, by Davidson and Morrow to accept the post. 236 00:23:38.400 --> 00:23:46.400 Okay, so our hypothesis from now on, which we will test as we go along, is that Benjamin Strong is essentially parenthesis Morgan. 237 00:23:46.400 --> 00:24:06.400 Essence of Federal Reserve System. Here I refer to a great book, which is published by Macmillan, published by several distinguished co-authors, the senior author of whom was one of the most distinguished banking theoreticians of the 20th century, Charles A. Phillips. 238 00:24:06.400 --> 00:24:11.480 It was a book published in the 30s by Macmillan, an distinguished publishing company, yet the 239 00:24:11.480 --> 00:24:16.320 book bombed totally. It was never heard from again, either by economists or by anybody else. 240 00:24:16.320 --> 00:24:21.680 Yet it's one of the best books on this whole period, starting both theoretically and empirically, 241 00:24:21.680 --> 00:24:28.120 starting in 1914 and continuing on down through the 20s and the early 30s. So I refer you 242 00:24:28.120 --> 00:24:33.520 to this for further elucidation of this whole thing, plus other books on bibliography. 243 00:24:33.520 --> 00:24:42.960 The Banking and Business Cycle by Felix McManus and Miltz Gehring. 244 00:24:42.960 --> 00:24:43.960 What do we do here? 245 00:24:43.960 --> 00:24:44.960 We have a situation. 246 00:24:44.960 --> 00:24:45.960 Well, this way. 247 00:24:45.960 --> 00:24:50.960 Supposing we have a bunch, we start off with a bunch, let's say, of independent banks. 248 00:24:50.960 --> 00:24:51.960 Forget a minute about the national bank permitting. 249 00:24:51.960 --> 00:24:52.960 That makes it just more complicated. 250 00:24:52.960 --> 00:24:53.960 We have a bunch of independent banks, each of which are required, the average reserve 251 00:24:53.960 --> 00:24:54.960 requirement before the Federal Reserve Act. 252 00:24:54.960 --> 00:24:58.960 They have a bunch of independent banks, each of which are required. 253 00:24:58.960 --> 00:25:10.960 The average reserve requirement for the Federal Reserve Bank, the average reserve requirement was 10%. 254 00:25:10.960 --> 00:25:20.960 In other words, the banks could pyramid, the national bank notes could issue notes, the national banks could issue notes. 255 00:25:20.960 --> 00:25:34.960 Let's take a pyramid note on the deposits, 10 to 1 on top of the reserves, which were either gold or government bonds or other banks, depending on where they stand on the pyramid. 256 00:25:34.960 --> 00:25:38.960 Let's say they're gold in the simplify effect. 257 00:25:38.960 --> 00:25:46.960 So we have the 10 to 1 on top of this. 258 00:25:46.960 --> 00:25:57.960 Excuse me, it wasn't 10%. It was 20%. I'm giving away the punch line. 20%. It was 5 to 1 permitting. 259 00:25:57.960 --> 00:26:02.960 So these banks are now allowed, and the average is really 21, but I'll make it 20 to make it simpler. 260 00:26:02.960 --> 00:26:07.960 We have been allowed a 5 to 1 permitting by each bank. 261 00:26:07.960 --> 00:26:14.960 We centralize the reserve. We take all the government forces my left will induce and the cousins in many other ways. 262 00:26:14.960 --> 00:26:21.960 The Federal Reserve Bank gets the banks to yield most of their reserves to the Federal Reserve Bank, and then we create the Federal Reserve Bank. 263 00:26:21.960 --> 00:26:29.960 Let's say they get all the reserves, and now the Federal Reserve Bank, the reserves of the national banks become the deposits with the Federal Reserve Bank. 264 00:26:29.960 --> 00:26:32.960 Checking accounts, so to speak, of the Federal Reserve Bank. 265 00:26:32.960 --> 00:26:40.960 So now we have a gold centralized Federal Reserve Bank. This is one of the arguments that's constantly being used. 266 00:26:40.960 --> 00:26:53.960 The National Banking System is too inelastic, in other words, not enough money, not inflationist enough, but also we need centralization of reserves, so we economize on reserves as the slogan. 267 00:26:53.960 --> 00:27:06.960 What this meant, economizing on reserves, was here we have, if they just put reserves into the central bin here, we still have a 5 to 1 setup, 5 to 1 ratio. 268 00:27:06.960 --> 00:27:36.960 However, now we have the Federal Reserve system, Federal Reserve Banks themselves are allowed to expand 3 to 1, 35%, so let's say it's 3 to 1, 3 to 1 on top of their gold, so now in other words, the gold, let's say the gold, the amount of gold centralized is the same, now the Federal Reserve Banks are allowed to expand 3 to 1 on top of that, so this means that by this process of centralizing and having this 35% limit, we have an allowed 3 to 1 expansion 269 00:27:36.960 --> 00:27:43.640 The bank credit supply can go up by 3 to 1, permitted to go up by 3 to 1, and usually 270 00:27:43.640 --> 00:27:47.880 in banking history, if the government permits banks to expand money on top of reserves, 271 00:27:47.880 --> 00:27:51.640 they'll do it, except in deep depressions, when they can't find anybody to lend money 272 00:27:51.640 --> 00:27:56.920 to because they might go bankrupt, but generally, this is either immediately or in a couple 273 00:27:56.920 --> 00:28:02.400 of years, if they permit a 3 to 1 expansion of reserves, they can expand 3 to 1. 274 00:28:02.400 --> 00:28:07.400 This allows for a 3 to 1 expansion of money and bank credit. 275 00:28:07.400 --> 00:28:18.400 In addition to that, as if this weren't enough, this engineered inflationary potential of 3 to 1, by inflation, by the way, I mean an increase in money supply, despite money and bank deposit. 276 00:28:18.400 --> 00:28:25.400 In addition to that, the Federal Reserve Act reduced the average reserve requirements by statute in half, from 21% to 10%. 277 00:28:25.400 --> 00:28:32.080 And actually it was 11% in 1914 and 10% later, but basically it was reducing in half, possibly 278 00:28:32.080 --> 00:28:38.640 20% to possibly 10%, which means that instead of, before you get a permit, the banks could 279 00:28:38.640 --> 00:28:42.360 permit 5 to 1 on top of reserves, now they can permit 10 to 1 on top of reserves. 280 00:28:42.360 --> 00:28:51.840 We now have an extra twofold inflation on top of a threefold by the centralization process. 281 00:28:51.840 --> 00:28:55.800 The mechanism of the Federal Reserve Act immediately ensured a potential 6 to 1 inflation on top 282 00:28:55.800 --> 00:29:06.800 of the previous supported money, an enormous inflationary engine, sold to the public to 283 00:29:06.800 --> 00:29:14.160 diluted college students in a sense as a restriction on inflation, as a way of combating these 284 00:29:14.160 --> 00:29:17.160 evil commercial banks, the private banks that are out there inflicting, we need the Federal 285 00:29:17.160 --> 00:29:34.400 This 6 to 1 potential was limited. It starts off fortuitously at the end of 1913, so it 286 00:29:34.400 --> 00:29:39.320 was just about time for the war effort. Only a couple of years into the war effort. This 287 00:29:39.320 --> 00:29:43.280 6 to 1 potential was limited by money in circulation by the public. In fact, the public can take 288 00:29:43.280 --> 00:29:47.040 Get some money out once in a while. This is a limiting factor. It's always a limiting 289 00:29:47.040 --> 00:29:51.140 factor in bank credit inflation. If all of us, for example, if the entire country suddenly 290 00:29:51.140 --> 00:29:55.200 cashed in their bank deposit tomorrow, it would be an excellent, this would be, if I 291 00:29:55.200 --> 00:29:58.000 were asked to give advice to the general public, how can we stop inflation? I wouldn't say 292 00:29:58.000 --> 00:30:02.840 don't eat meat, I'd say cash in your bank deposits. It would be a very effective, if 293 00:30:02.840 --> 00:30:09.840 a little disturbing way of limiting inflation. Get your money out of the banks. And, you 294 00:30:13.280 --> 00:30:21.240 and also the 35% was altered, it was 40% against Federal Reserve notes, anyway these are minor 295 00:30:21.240 --> 00:30:23.740 considerations. 296 00:30:23.740 --> 00:30:29.280 The other problem is that there's a disturbing potential, we're still on the gold standard, 297 00:30:29.280 --> 00:30:33.200 there's still a disturbing potential that the public might cash in all this stuff, not 298 00:30:33.200 --> 00:30:37.320 only the Federal Reserve notes and the National Bank's deposit for gold. 299 00:30:37.320 --> 00:30:39.220 This could wreck the whole thing. 300 00:30:39.220 --> 00:30:43.860 So a big campaign is launched by the Federal Reserve System in various ways to get the 301 00:30:43.860 --> 00:30:49.080 public not to use gold anymore, to reduce gold to the sort of thing, gold coins, the 302 00:30:49.080 --> 00:30:53.580 sort of thing that you give to kids on Christmas, like one gold coin, here's your gold dollar 303 00:30:53.580 --> 00:30:59.420 and you'll find all people get it, to reduce it to this sort of ceremonial status. 304 00:30:59.420 --> 00:31:06.340 One of the things they did is to stop issuing gold certificates and replacing gold certificates. 305 00:31:06.340 --> 00:31:11.540 The gold certificates had been issued by the Treasury. They were 100% backed by gold, so 306 00:31:11.540 --> 00:31:16.100 they were extremely sound and hard, etc., etc. These were replaced by Federal Reserve 307 00:31:16.100 --> 00:31:20.940 notes, which were backed, you know, 40%, like two and a half to one on top of gold, and 308 00:31:20.940 --> 00:31:27.300 which then replaced as a general cash in circulation. Gold certificates were retired and replaced 309 00:31:27.300 --> 00:31:34.460 by these Federal Reserve notes. Incidentally, one of the ways by which... How does the government 310 00:31:34.460 --> 00:31:42.460 How does it get its power over the commercial bank? How does it ensure the Federal Reserve has all its power to regulate, control and inflate together? 311 00:31:42.460 --> 00:31:47.460 Basically two ways. One is all the national banks were forced to become members of the Federal Reserve system. 312 00:31:47.460 --> 00:31:56.460 But more important than that, the state banks were not. But more important than that, the real guts, the real heart of the Federal Reserve control was the Federal Reserve now had a monopoly and the issue was of cash, the issue was of paper money. 313 00:31:56.460 --> 00:32:02.460 Before that, as I said, the national banks, the private national banks like Chase National Bank, could issue their own bank notes. 314 00:32:02.460 --> 00:32:10.460 Now this is prohibited. It becomes illegal on the pain of death torture and whatever for any private bank issue. Only the Federal Reserve banks can do that. 315 00:32:10.460 --> 00:32:20.460 So this means that if you want to get your money from the Chase or Chem bank or whatever, the Chem bank has to use their reserves to go to the Federal Reserve and buy cash from the Federal Reserve system. 316 00:32:20.460 --> 00:32:27.460 So this becomes the control. So this means that everything pyramid on top of the Federal Reserve bank would have the supply of cash in its mitt. 317 00:32:27.460 --> 00:32:44.260 In 1913, the same 21% requirement was levied by the federal government to time deposits 318 00:32:44.260 --> 00:32:45.620 as it was to demand deposits. 319 00:32:45.620 --> 00:32:51.620 This was changed now, and the time deposit minimum requirement was lowered first to 5% 320 00:32:51.620 --> 00:32:56.020 and then to 3% by 1917, which is almost zero, practically almost unlimited. 321 00:32:56.020 --> 00:33:02.020 The whole controversy among economists about time deposits isn't really part of the money supply, isn't it? 322 00:33:02.020 --> 00:33:10.020 I contend that it is part of the money supply. For one reason, you can get your money out right away. 323 00:33:10.020 --> 00:33:14.020 There might be a little clause there in fine print saying you can put the bank in a wait of 30 days. 324 00:33:14.020 --> 00:33:21.020 But if a bank ever really tries, if a savings bank, a commercial bank, is trying to make you wait 30 days, they'd be bankrupt very quickly. 325 00:33:21.020 --> 00:33:47.180 The Time Deposit Method becomes a very interesting way, all during World War I and during the 326 00:33:47.180 --> 00:34:11.180 The result of this titanic change in the banking system, which I'd say came along very fortuitously 327 00:34:11.180 --> 00:34:16.260 to finance our war effort, and the post-war war effort as far as I said, a lot of the war 328 00:34:16.260 --> 00:34:36.500 We have this kind of situation in Wallops, 1914, this is bank deposit, I think it's only 329 00:34:36.500 --> 00:35:05.100 Bank deposits, total bank deposits, 1914, $18.6 billion, 1920, $37.7 billion, a doubling 330 00:35:05.100 --> 00:35:09.100 Bank of the total money supply in the form of bank deposits. 331 00:35:09.100 --> 00:35:17.100 I would like to talk about the 100% increase in a 6-year period, which is a heck of a lot. 332 00:35:17.100 --> 00:35:27.100 Home sale price level, setting 1913 equal to 100. 333 00:35:27.100 --> 00:35:47.100 1914 was 1997, 1920 243, which means a 2.5 fold increase in the wholesale price level. 334 00:35:47.100 --> 00:35:54.900 So we have inflationary prices fueled in the classic manner by inflationary money supply. 335 00:35:54.900 --> 00:36:01.900 World War I was very badly financed on any kind of conservative or sound criterion. 336 00:36:01.900 --> 00:36:09.900 The usual conservative criterion for financing a war effort is, you've got to finance a war effort, you should finance most of it, at least, by taxes, by levying taxes. 337 00:36:09.900 --> 00:36:14.900 Because if you don't do that, you're going to have to finance it by inflation, which is considered to be kind of a bad thing to do. 338 00:36:14.900 --> 00:36:20.900 The Napoleonic Wars, to give a kind of comparative analysis here. 339 00:36:20.900 --> 00:36:28.900 The England Finance Award and the Napoleon Awards went on for a long, long time for us. 63% by tax revenue, by levying taxes for expenditure. 340 00:36:28.900 --> 00:36:38.900 World War I, in the United States, World War I financed 25% of its expenditures by taxes, the rest of it by inflationary debt. 341 00:36:50.900 --> 00:37:02.900 There are other details about what happens each couple of years, etc., but I don't really think it's necessary to go into it, because I think this is kind of the basic framework. 342 00:37:02.900 --> 00:37:17.540 Well, this sets the stage for the World War I inflation and the post-war period coming 343 00:37:17.540 --> 00:37:18.540 on. 344 00:37:18.540 --> 00:37:24.060 I think there's still some time to, a little bit at least, to another aspect of progressivism, 345 00:37:24.060 --> 00:37:29.580 which is very important, which has been alluded to here and there. 346 00:37:29.580 --> 00:37:34.340 Local Progressivism or municipal or urban city local progressivism. 347 00:37:34.340 --> 00:37:38.060 Here I refer you to the classic, just a classic article by Samuel Hayes called The Politics 348 00:37:38.060 --> 00:37:43.220 of Reform in Municipal Government, The Progressive Era, which has been anthologized all over 349 00:37:43.220 --> 00:37:48.580 the place and several other things which I'll mention. 350 00:37:48.580 --> 00:37:53.340 The, what you have here, and this is alluded to, I think for us, alluded to Lindsay, the 351 00:37:53.340 --> 00:37:57.380 essence of John Lindsay, and I really think this fits in beautifully in this whole setup. 352 00:37:57.380 --> 00:38:04.900 What you have basically is a great drive for an urban reform really to smash the, and this 353 00:38:04.900 --> 00:38:09.580 runs through the whole set-up, to smash the power of the local ward healer machine-type 354 00:38:09.580 --> 00:38:17.900 politicians, the old politics, to smash their power and replace this power by new technician-expert 355 00:38:17.900 --> 00:38:25.060 upper-class centralized government, as compared to the older politics of essentially decentralized 356 00:38:25.060 --> 00:38:31.260 Award-Oriented Neighborhood Community Control, as we call it, kind of set up. 357 00:38:31.260 --> 00:38:35.860 We place this by out of politics, taking municipal government out of politics, and into this 358 00:38:35.860 --> 00:38:41.060 new, great new, into the light, into the limited light. 359 00:38:41.060 --> 00:38:46.460 The essence of this, before getting into any details on this, not only, incidentally, in 360 00:38:46.460 --> 00:38:50.940 addition to being an economic determinist, which I proclaim, I'm also an ethnic determinist, 361 00:38:50.940 --> 00:39:03.940 The two of them often, of course, jive. But you have here, during this whole period, of course, one of the things you have is massive immigration from southern and eastern Europe. 362 00:39:03.940 --> 00:39:13.940 And as far as I mentioned, the original native people, the Wasp, the Wasp who had been here are kind of scared by this whole setup. 363 00:39:13.940 --> 00:39:20.600 New Invasion, so to speak, and in many aspects of life, and I'll be getting later on probably 364 00:39:20.600 --> 00:39:24.840 undoubtedly tomorrow night, the public school revisionism, which is also a great new thing 365 00:39:24.840 --> 00:39:27.700 which has popped up in the last couple of years, public school revision in the progressive 366 00:39:27.700 --> 00:39:36.700 period, all these things mesh in, the whole thing is an attempt to take urban politics 367 00:39:36.700 --> 00:39:42.180 out of the hands of the new immigrant groups, well, old immigrants, Irish, Italian, Jewish, 368 00:39:42.180 --> 00:40:07.180 One of the key bases of neighborhood control by the local ward-healer politicians was the saloon. The neighborhood saloon was a key social center. 369 00:40:07.180 --> 00:40:15.180 The other thing is the Catholic Americans drank a lot. At least in contrast to the Protestants who drank hardly at all, at least in the public way. 370 00:40:15.180 --> 00:40:21.180 This whole thing about drinking, which comes all the way back, I guess, at least to the 18th century and probably before that. 371 00:40:21.180 --> 00:40:28.180 At any rate, this whole thing about drinking, and the Catholics usually drank, and also Germans drank, I guess, in general. 372 00:40:28.180 --> 00:40:34.180 I suppose German Protestants also. So you have the whole thing about the evil Germans, the evil Irish, the evil Italians, and they're drinking. 373 00:40:34.180 --> 00:41:04.180 And here you have a loss to Don Frank, at least supposedly Don Frank. And fortuitously, along with this, you have the neighborhood saloon and the saloon keepers being the key ward politician. They go to him for favors and he's sort of the beloved figure and they all say hi Joe, Joe, and that sort of stuff. He often gets elected to the board of aldermen. And so part of the idea of smashing a local neighborhood is the idea of smashing the saloon and the brewery industry, which is anyway in the hands of the evil Germans we're beginning with. So you can bust them along with the saloon keepers. 374 00:41:04.180 --> 00:41:34.180 and added grace. So all these things that are happening together, it's really almost like a systematic, systemic kind of approach on every level, social and settlement house level, and the city commissioner concept which comes in, and the city manager concept which comes in, and prohibition which comes in, and I regard prohibition as really once a form of corporatist framework, and the public school, tightening up of the public school thing which comes in, and crushing 375 00:41:34.180 --> 00:41:40.180 and Immigrants, which also comes in in this period. 376 00:41:40.180 --> 00:41:47.180 Part of this, I was very interested in, I was talking to Ligio after Forrest's talk this morning, 377 00:41:47.180 --> 00:41:50.180 because he mentioned the whorehouse question. 378 00:41:50.180 --> 00:41:56.180 And it seemed to me, he and I had a flash of insight, 379 00:41:56.180 --> 00:42:01.180 creative flash of insight in this whole thing, because in addition to the saloon, 380 00:42:01.180 --> 00:42:10.180 The Warhouse is even more important than the Warhouse, but also the Warhouse is kind of a neighborhood, ethnic, old politics kind of setup. 381 00:42:10.180 --> 00:42:19.180 And I have thought that my analysis of the Man Act, and here I feel there's a correction, I'm going to deal with this more in the morning, 382 00:42:19.180 --> 00:42:22.180 a correction of my revered mentor H.L. Mencken in this whole period. 383 00:42:22.180 --> 00:42:49.180 period. H. L. Mencken, for example, saw the Man Act and Prohibition as a purely moral morality thing with what he called cow country Baptists and Protestants rising up from their ranches and dung heaps or whatever to impose these moral morality laws on their betters, on the urban folk. 384 00:42:49.180 --> 00:43:04.180 In this context, of course, Mencken defined Puritanism, and one of the great definitions of Puritanism in our UPC, which is that Puritanism is the haunting fear that somebody somewhere might be happy. 385 00:43:04.180 --> 00:43:10.180 And, uh, but I think, I think more, and it wasn't about thinking about economic, he had essentially an economic analysis of that, too. 386 00:43:10.180 --> 00:43:19.180 Especially what he, I think what he said about the Mann Act, was that, well, this is a formula, an agrarian farmer, Methodist Baptist imposition, 387 00:43:19.180 --> 00:43:26.180 because what the, what the farmers are saying is, they don't have the money, you see, to transport women across state lines for immoral purposes. 388 00:43:26.180 --> 00:43:46.180 The Man Act becomes the former smashing of urban wealthier and more affluent and more cosmopolitan and more mobile urban types. 389 00:43:46.180 --> 00:44:03.180 In addition to that, he also had an economic analysis of the former in Prohibition, he said that the urban person has to buy his liquor from somewhere, this is interstate and so on and so on, it's visible and can be outlawed, the former makes his own moonshine, he can never really outlaw that very successfully, so out there in the backyard. 390 00:44:03.180 --> 00:44:11.180 So here again you have this sort of former orientation, but I think there's more to it than that, it's not just the former. 391 00:44:11.180 --> 00:44:31.680 It's also, for various reasons, our centralizers and our corporate reform types moving in an alliance, obviously, with the former Methodist Baptist ideologists, so to speak, moving in for their own purposes to smash the saloon, to smash the brewers, to smash the evil German conspiracy. 392 00:44:31.680 --> 00:44:40.680 Certainly, during World War I, and Leonard and Lydia have done more research on this than I have, during World War I, there's a whole thing, not only about this hysteria by George Creel, etc., about the German conspiracy, 393 00:44:40.680 --> 00:44:44.560 The German Conspiracy is part of the brewing industry in general is part of the German 394 00:44:44.560 --> 00:44:49.880 international Kaiser Conspiracy. The very act of drinking beer is a sign of loyalty 395 00:44:49.880 --> 00:44:54.880 to the Kaiser, and therefore you're stamping it out as part of the patriotic war effort. 396 00:44:54.880 --> 00:44:59.880 Of course, prohibition really comes in during World War I. 397 00:44:59.880 --> 00:45:09.880 Let me do the prohibition thing. I was going to do the Samuel Hayes thing. We've gotten 398 00:45:09.880 --> 00:45:15.880 Here I refer you to James Timberlake's work on prohibition of the rest of the movement. 399 00:45:15.880 --> 00:45:25.880 What you had in prohibition, and presumably also in the Mana Act, in the prohibition we have an alliance of forces. 400 00:45:25.880 --> 00:45:31.880 What Mencken always referred to as the uplift, and William Graham Summer referred to the uplift, 401 00:45:31.880 --> 00:45:35.880 the idea that you, you, and you out there should be uplifted. 402 00:45:35.880 --> 00:45:44.880 If you don't like to be uplifted, you don't like the idea of being freed of the curse of demon John Barleycorn, you're going to jolly well be compulsorily uplifted. 403 00:45:44.880 --> 00:45:55.880 This idea for William Graham Sumner and his great essay, What Social Classes Ode to Each Other, his concept of forgotten man, I think is a definitive statement on this, 404 00:45:55.880 --> 00:46:04.880 his description of moral uplift was that A and B put their heads together to decide what C should be made to do for D. 405 00:46:04.880 --> 00:46:11.380 And in the prohibition case, it works something like this. A and B are reformers, are moral uplifters. 406 00:46:11.380 --> 00:46:17.880 They get their heads together and say, you know, you have more accidents and all that sort of stuff, and people are getting liver ailments, etc. 407 00:46:17.880 --> 00:46:22.880 Therefore, because a lot of people become alcoholic, therefore we should outlaw liquor. 408 00:46:22.880 --> 00:46:29.880 So the essence of this is that A and B, who don't drink anyway, are forcing C, who's a forgotten man, 409 00:46:29.880 --> 00:46:31.880 he's the poor schnooker who takes a drink once in a while, 410 00:46:31.880 --> 00:46:37.880 First, depriving him of liquor in order to say B, the minority, small minority of alcoholics or potential alcoholics. 411 00:46:37.880 --> 00:46:43.880 So he goes on from there to say, well, what happens is A and B, you pass the prohibition law, whatever other similar legislation. 412 00:46:43.880 --> 00:46:50.880 And A and B, of course, are very happy. They don't drink anyway, and they're imposing their moral standards on everybody else, so they're in great shape. 413 00:46:50.880 --> 00:46:57.880 B, the potential alcoholic, can get the liquor anyway. He knows all sorts of sources, you know, you knock on the window three times, and Joe, you know, Joe's sentencing, he gets his liquor. 414 00:46:57.880 --> 00:47:01.880 This is liquor. So he gets his liver ailments and dies in the concoction anyway. 415 00:47:01.880 --> 00:47:06.880 So the person who's really harmed by this is the poor schnook C, the forgotten man, 416 00:47:06.880 --> 00:47:09.880 the poor, humble, average American, middle American, if you want to call it. 417 00:47:09.880 --> 00:47:12.880 But like I said, Rick wants it in a while. He doesn't know the illegal sources. 418 00:47:12.880 --> 00:47:14.880 He doesn't know how to speak easy or whatever. 419 00:47:14.880 --> 00:47:20.880 And he's the one who's not being helped anyway, even in terms of reformers. 420 00:47:20.880 --> 00:47:22.880 He's the one who gets shafted by this whole system. 421 00:47:22.880 --> 00:47:36.880 Anyway, we have the moral uplifters, we have the, particularly led incidentally, we think again of prohibitionists, we think of prohibitionists as being sort of a right-wing fundamentalist thing. 422 00:47:36.880 --> 00:47:42.880 I mean, especially in these days, the Prohibition Party is sort of a right-wing prohibitionist party. In those days it was pretty different. 423 00:47:42.880 --> 00:47:47.120 But as we have, for example, the social gospel movement, which everybody knows as the great 424 00:47:47.120 --> 00:47:52.520 left-wing, in quotes, of the Protestant movement, bringing a message, applying a message of Christianity 425 00:47:52.520 --> 00:47:57.600 to social affairs, as almost always socialistic in nature, these guys were very hip on prohibition, 426 00:47:57.600 --> 00:47:58.600 outlawing the liquor industry. 427 00:47:58.600 --> 00:48:02.600 This was part of the social gospel. 428 00:48:02.600 --> 00:48:08.640 Walter Rauschenbusch, his great work, Christianizing the Social Order, I told Leonard I was going 429 00:48:08.640 --> 00:48:21.640 In 1912, Walter Rauschenbusch is again held up by any old discussions of the social gospel as being the big theoretician of the left-wing Protestantism of this period. 430 00:48:21.640 --> 00:48:25.640 Walter Rauschenbusch in Christianity and Social Order writes of the liquor industry quote, 431 00:48:25.640 --> 00:48:38.640 is seeking to fasten on an angry people a relic of barbarism, which the awakened conscience and the scientific intellect of the world are combining to condemn. 432 00:48:38.640 --> 00:48:46.640 Here's the key phrase. It's this great alliance, you see, of the awakened conscience, that's the fundamentalist crazy, so to speak, 433 00:48:46.640 --> 00:48:53.640 that's the moral argument against liquor, combined with the scientific intellect, and this is the new scientific technician, 434 00:48:53.640 --> 00:49:23.640 The scientific technicians, while all this was taking place, were also in favor of prohibition using scientific arguments, using statistics, you know, more alcoholics die in the gutter, more alcoholics get blind, and you can say statistically it's very true, more alcoholics have cirrhosis in the liver, more alcoholics don't want to meal as much, more alcoholics have one of a meal accident, and on and on, more alcoholics go crazy and so forth. And so here we have the scientific reformer, our expert, our technician, our social worker, 435 00:49:23.640 --> 00:49:28.760 and Social Sciences. Combined with the social gospel, we have this magnificent fusion of 436 00:49:28.760 --> 00:49:35.720 Christian theology and science. I mean, what could be more powerful than that? The Reverend 437 00:49:35.720 --> 00:49:42.240 Josiah Strong, for example, another eminent social gospeler in 1909 writes that industrial 438 00:49:42.240 --> 00:49:44.960 work, they're coping with the industrial system. They came to the conclusion that industrial 439 00:49:44.960 --> 00:49:49.760 work increases one's desire for alcohol. Presumably what they mean by this is you work, you know, 440 00:50:19.760 --> 00:50:23.440 They're congested, they're tired after a hard day's work in the assembly line, and they 441 00:50:23.440 --> 00:50:26.720 unfortunately have high wages. This is very interesting for a left-wing social-loss bowler. 442 00:50:26.720 --> 00:50:31.440 Their high wages leave them to be a little more affluent, and so they're led then, quote, 443 00:50:31.440 --> 00:50:36.360 to buy, drink, and acquire the liquor habit before they had developed a more refined taste 444 00:50:36.360 --> 00:50:40.800 of a higher civilization. So obviously what the conclusion for this is, you stop them, 445 00:50:40.800 --> 00:50:44.200 you outlaw the liquor, you refine them up. It's sort of like this is Galbraith in the 446 00:50:44.200 --> 00:51:07.800 The Gospel of the Kingdom magazine writes in 1914, hailing this great drive for a prohibition 447 00:51:07.800 --> 00:51:28.240 Personal liberty is at last an uncrowned, dethroned king with no one to do him reverence. 448 00:51:28.240 --> 00:51:32.640 We are no longer frightened by that ancient bogey paternalism in government. 449 00:51:32.640 --> 00:51:37.000 We affirm boldly it is the business of government to be just that, paternal. 450 00:51:37.000 --> 00:51:46.360 Having human can be foreign to a true government. I like that. It's a certain ring to it. 451 00:51:46.360 --> 00:51:52.360 One of the problems is perhaps fortuitously that Catholics tend to drink in at least moderate 452 00:51:52.360 --> 00:51:58.760 amounts. Part of this whole thing is an anti-Catholic drive. Catholics were not shaping up in this 453 00:51:58.760 --> 00:52:04.760 is a great drive toward purity and temperance. 454 00:52:04.760 --> 00:52:07.760 Catholics are largely immigrants. 455 00:52:07.760 --> 00:52:10.760 This is largely true. 456 00:52:10.760 --> 00:52:14.760 So in addition to the uplifts in the Gospel of the Kingdom magazine, 457 00:52:14.760 --> 00:52:17.760 Walter Rauschenbücher, Owen Josiah Storm, and some of my other favorites, 458 00:52:17.760 --> 00:52:22.760 we have the scientific argument, the uplifts argument, 459 00:52:22.760 --> 00:52:26.760 the harmful effects of alcohol, at least the crime, the poverty, etc., etc. 460 00:52:26.760 --> 00:52:32.760 We have this interesting twist. I wonder how some of our current social workers are caught into this. 461 00:52:32.760 --> 00:52:36.760 They had this kind of an attitude, the scientists. They said, the scientists gave me social worker types. 462 00:52:36.760 --> 00:52:41.760 They said, a man is determined by his environment. If a person is poor and he's unhappy and so forth and so on, 463 00:52:41.760 --> 00:52:45.760 it's not because he doesn't have a job or whatever, it's not because he's personally at fault. 464 00:52:45.760 --> 00:52:48.760 That's an ancient reactionary 19th century laissez-faire attitude. 465 00:52:48.760 --> 00:52:53.760 It's his personal character that's at fault. No, no, it's his environment that's at fault. 466 00:52:53.760 --> 00:52:58.760 He is determined by his environment. He is a poor puppet creature of the environment. 467 00:52:58.760 --> 00:53:04.760 So the way to help him out, the way to cure his poverty and his slum conditions and his unemployment, etc., etc., is to change the environment. 468 00:53:04.760 --> 00:53:11.760 What's the environment? The environment is liquor. The saloon, the neighborhood saloon, standing there with evil temptations, etc., etc. 469 00:53:11.760 --> 00:53:19.760 And so therefore the way to help his environment, the outlaw of the saloon, the outlaw of liquor, and so forth. 470 00:53:19.760 --> 00:53:25.760 All the progressive social scientists, our beloved friends from our other meetings here. 471 00:53:25.760 --> 00:53:28.760 Edward A. Ross, one of the great founders of scientific sociology. 472 00:53:28.760 --> 00:53:31.760 Simon Nelson Patton, the progressive economist. 473 00:53:31.760 --> 00:53:35.760 Irving Fischer, now beloved and then beloved. 474 00:53:35.760 --> 00:53:39.760 A compulsory vegetarian as well as compulsory prohibitionist. 475 00:53:39.760 --> 00:53:44.760 All these people pushing the idea of outlawing liquor as part of this great new social science 476 00:53:44.760 --> 00:53:48.760 and applying the lessons of social science to the public. 477 00:53:48.760 --> 00:53:54.760 and the social workers, as I said, going on very neatly with this. 478 00:53:54.760 --> 00:54:03.760 There's also, in addition to this, interestingly enough, I've already talked about religio-ethnic determinism and a little bit of our friends as social scientists again, 479 00:54:03.760 --> 00:54:07.760 we also have some economic determinism in work, more directly. 480 00:54:07.760 --> 00:54:11.760 And that's many big businessmen, back to our big business friends again, 481 00:54:11.760 --> 00:54:17.760 who believe it was necessary for workers to be sober. 482 00:54:17.760 --> 00:54:47.760 There's this whole tradition, by the way, in Western civilization, for example, in England, the mercantilists, many of the mercantilist theoreticians in England in the 17th, 18th century were constantly saying, we shouldn't have higher wages, higher wages is a bad why, because we increase wage rates, the workers will just get drunk on Monday as well as Sunday, and on Friday as well as Sunday they just won't work. And economics is known as the theory of the backward sloping supply curve of labor, which as far as I know has never been substantiated. At any rate, they just won't work, they just work less, they may as well pay them lower wages, 483 00:54:47.760 --> 00:54:52.400 make them work harder. Part of this thing is, again, this evil drunkenness. These guys 484 00:54:52.400 --> 00:54:56.600 will go out there, they'll be relaxed a little bit, and this will reduce their hard work 485 00:54:56.600 --> 00:55:01.800 and their efficiency. So many businessmen now get to the point of favoring prohibition 486 00:55:01.800 --> 00:55:06.240 in order to sober the workers up. They won't have the temptation, they'll be on the job 487 00:55:06.240 --> 00:55:12.520 more rapidly, and then they're working harder, and so on. Also, there'll be more safety at 488 00:55:12.520 --> 00:55:17.400 work. Here we have, you see, the triumph of the workman's compensation was, now that employers 489 00:55:17.400 --> 00:55:25.400 Employers are liable by law for the accidents on the job. If you keep liquor away from you guys, they won't have so many accidents. It will cut down the cost of the employer. 490 00:55:25.400 --> 00:55:31.400 It's a beautiful reinforcement of one state as impiling up on top of another. 491 00:55:31.400 --> 00:55:36.400 And we begin to have a situation where many businessmen engage in voluntary prohibition. 492 00:55:36.400 --> 00:55:44.400 In other words, as a condition of employment, no worker should be, first of all, drinking on the job, and many of the more far-out employers, 493 00:55:44.400 --> 00:55:49.480 No worker should be drank, period, even off the job. The railroads were pioneering this 494 00:55:49.480 --> 00:55:55.800 great effort. The railroads had negligence laws, again, special liability laws to worry 495 00:55:55.800 --> 00:56:02.380 about too. The railroads began to lay down the rule that no worker can drink either on 496 00:56:02.380 --> 00:56:08.400 duty or off duty, ever, period. The next step, of course, then, if you really want to enforce 497 00:56:08.400 --> 00:56:11.960 this with some of the employers, it is kind of expensive to do it, as well as a little 498 00:56:11.960 --> 00:56:16.960 is the higher groups of agents that go around and see what the guy is drinking or not. 499 00:56:16.960 --> 00:56:19.960 Otherwise, what's the point of having a rule? 500 00:56:19.960 --> 00:56:24.960 And they found out, you see, in the railroads, it's true, I'll have to give the devil a layer to do here, 501 00:56:24.960 --> 00:56:28.960 that when the railroads passed this rule of no drinking either on or off the job, 502 00:56:28.960 --> 00:56:31.960 there was a decline in railway accidents, no question about it. 503 00:56:31.960 --> 00:56:38.960 This was sort of a model and inspiration for other employers in manufacturing. 504 00:56:38.960 --> 00:56:54.960 And the scientific management movement which comes in around this period, Frederick M. Taylor, pushing the idea also, in addition to firming up the assembly line and so on, of eliminating alcohol because alcohol lowers efficiency. 505 00:56:54.960 --> 00:57:24.960 and so you have this other aspect to the prohibition movement and in addition to that we have special regional kind of situation for example the dry, there are many dry states in the south for example, many states which have state prohibition, still is, still are, almost, at any rate, the businessmen in the dry states want to impose national prohibition so the wet state people wouldn't have this advantage, we can impose this throughout the country 506 00:57:24.960 --> 00:57:38.960 and the American business in general also wanted national prohibition in order to firm up the American labor force and be able to compete against these drunken people, drunken workers abroad. 507 00:57:38.960 --> 00:57:44.960 This will increase our productivity in the world markets. 508 00:57:44.960 --> 00:57:53.960 In addition to the sort of general business sympathy toward prohibition, we had certain specific businesses which are even more economically determined to be in favor of prohibition. 509 00:57:53.960 --> 00:58:21.960 In other words, economics is known as substitutes. I wouldn't say close, it's hard to say close substitutes, but sort of substitutes. The closest we can think of to liquor. Grape juice and Coca-Cola. Most grape juice company and Coca-Cola company push very hard for prohibition for the outlawing of liquor. And again, I think it could not be purely coincidence that they were the closest, at least the closest substitutes we have to liquor. 510 00:58:21.960 --> 00:58:35.960 The anti-saloon league, for example, was the major pressure group for prohibition, had a committee of industrialists on it, and many of these people were in this system. 511 00:58:35.960 --> 00:58:44.960 On the other hand, you see there were, of course, certain businesses which were strongly anti-prohibition. The majority were probably in favor of prohibition. 512 00:58:44.960 --> 00:58:51.960 There were a few businesses that were opposed to Prohibition, for example, obviously the brewing industry and the rest of the liquor industry, for that question. 513 00:58:51.960 --> 00:59:01.960 And also, the DuPonts, of course, being Catholic, again, were very unsympathetic of Prohibition on religious grounds, and so we had this kind of a breakdown. 514 00:59:01.960 --> 00:59:09.960 Labor unions tended to be in favor of Prohibition, and although they had a problem with that, for example, the Brewers, their brewing brothers would be thrown out of work. 515 00:59:09.960 --> 00:59:15.960 There wasn't too much distilling going on. Most of the liquor industry in those days was beer brewing. 516 00:59:15.960 --> 00:59:22.960 The labor unions, aside from, of course, the problem about the brewing brothers when we kicked out of work, 517 00:59:22.960 --> 00:59:26.960 labor unions also tend to be favored prohibitions. Some of the arguments are kind of cute. 518 00:59:26.960 --> 00:59:31.960 We'll be reminiscent of certain current trends on the Maoist left. 519 00:59:31.960 --> 00:59:39.320 For example, one of the unions claimed that, many of the unions claimed that alcohol, quote, 520 00:59:39.320 --> 00:59:47.680 does class consciousness, unquote, on par with workers, and alcohol is the opium of the masses, 521 00:59:47.680 --> 00:59:51.640 and it does that fighting spirit, so if you have prohibition, this means that the workers 522 00:59:51.640 --> 00:59:54.280 will be on the TV and be able to fight the bosses better. 523 00:59:54.280 --> 01:00:00.280 Drinking, in other words, is a class enemy. 524 01:00:00.280 --> 01:00:06.280 The Knights of Labor, who were, I guess, still in remnantism around these days, 525 01:00:06.280 --> 01:00:18.280 fired any organizers who drank on the job or even off it, and excluded any liquor traffickers or liquor industry workers from membership. 526 01:00:18.280 --> 01:00:23.280 The Railroad Brotherhoods, the big four, were all in favor of prohibition. 527 01:00:23.280 --> 01:00:32.280 The AF Development did not take a stand because of the split in the liquor industry, et cetera, liquor workers, obviously. 528 01:00:32.280 --> 01:00:41.280 But there were many unions, however, which opposed it on other bases. They didn't like the whole idea. 529 01:00:41.280 --> 01:00:44.280 Some of them actually worry about personal liberty. 530 01:00:44.280 --> 01:00:52.280 And the loss of the saloons, especially the foreign-born workers and those, you know, the ethnic-laborhood types, the Catholic workers, et cetera, who were in this thing 531 01:00:52.280 --> 01:01:03.800 The Socialist Party, as usual, was split somewhere down the middle between the pro-prohibitionist 532 01:01:03.800 --> 01:01:05.960 and anti-prohibitionist. 533 01:01:05.960 --> 01:01:10.400 The John Spargo, later termed the Great Theoretician of the Socialist Party, later termed up as 534 01:01:10.400 --> 01:01:17.040 a pro-war socialist, and was one of the great cows in the war effort, was in favor of Prohibition 535 01:01:17.040 --> 01:01:27.040 Another interesting argument by Spargel in favor of Prohibition was this. 536 01:01:27.040 --> 01:01:32.040 Okay, you guys are worried because Prohibition interferes with personal liberty, but he says, 537 01:01:32.040 --> 01:01:39.040 well, all legislation interferes with personal liberty. So what are you griping about? 538 01:01:39.040 --> 01:01:42.040 Most Socialist Party members are probably against Prohibition. 539 01:01:42.040 --> 01:01:48.360 German influence, the Germans were heavily involved in the Socialist Party and from the 540 01:01:48.360 --> 01:01:59.560 great brewing tradition were opposed to it. 541 01:01:59.560 --> 01:02:09.240 The saloons were a basic part of local control, the saloon setups were largely owned by the 542 01:02:09.240 --> 01:02:12.960 The Brewer's, the brewing industry, the situation there was like Rheingold would own their saloons 543 01:02:12.960 --> 01:02:14.960 and peel it on its saloons and so forth. 544 01:02:14.960 --> 01:02:20.240 There were an enormous number of retail outlets, they were all over the place, especially in 545 01:02:20.240 --> 01:02:22.280 those cities. 546 01:02:22.280 --> 01:02:27.240 And they had, they were closely involved, again, the saloons, and I'll get to this 547 01:02:27.240 --> 01:02:33.800 tomorrow night when I talk about urban crime and ethnic problems, etc. 548 01:02:33.800 --> 01:02:37.960 One of the problems is that usually the saloons were tightly licensed. 549 01:02:37.960 --> 01:02:38.960 and so on. 550 01:02:38.960 --> 01:02:42.920 In order to get the licenses and pay the taxes and all the rest of it, you had to dicker 551 01:02:42.920 --> 01:02:43.920 with local politicians. 552 01:02:43.920 --> 01:02:49.600 So the symbiotic relationship between local board meeting politicians and local saloons 553 01:02:49.600 --> 01:02:53.200 and the brewing industry, in the middle of which we have so-called corruption and crime 554 01:02:53.200 --> 01:02:54.200 rampant. 555 01:02:54.200 --> 01:02:59.000 In order to get it to be in business, you have to pay off the politician in order to 556 01:02:59.000 --> 01:03:01.000 keep your competitor out and so forth and so on. 557 01:03:01.000 --> 01:03:07.000 The whole kind of symbiosis also, most of these brewers, most of the saloons confronted 558 01:03:07.000 --> 01:03:22.000 and the Sunday Closing Laws, which is one of the elements of puritanism here, and the saloons wanted to stay open on Sunday, which was not part of the German Catholic Ethnic Addition to have any kind of Sunday Closing. 559 01:03:22.000 --> 01:03:28.000 In order to stay open on Sunday, they had to pay off the politicians and they won't close you down. So this whole thing was involved in this. 560 01:03:28.000 --> 01:03:31.600 also, and you had to pay off the police, of course, so the whole police and local government 561 01:03:31.600 --> 01:03:37.480 machines were wrapped up in the whole saloon caper. 562 01:03:37.480 --> 01:03:43.720 In return for the politician favoring the local saloonkeeper, the saloonkeeper in addition 563 01:03:43.720 --> 01:03:46.560 to paying, had another of course very important function, which was to pull out the votes 564 01:03:46.560 --> 01:03:49.160 of the re-elected politician who was his friend. 565 01:03:49.160 --> 01:03:54.040 The saloonkeeper being looked up to by the urban ethnic in the neighborhood was able 566 01:03:54.040 --> 01:04:05.040 Many of the saloon keepers became all of them in themselves, or city councilmen, and so forth. 567 01:04:05.040 --> 01:04:11.040 Another thing, of course, which increased the symbiosis with local corrupt machines, in quotes, 568 01:04:11.040 --> 01:04:19.040 and increases the political incentive for the upper class, lost business establishment, reforming corporators' establishment, to smash the saloons. 569 01:04:19.040 --> 01:04:45.040 Another element here is that since the saloons were sort of quasi-illegal, because they were only someday closing and licensing and all the rest of it anyway, along with the saloons came other services which urban ethnic immigrants etc. enjoyed openly, which drove Baptist Methodists to wash up the wool, namely gambling and prostitution. 570 01:04:45.040 --> 01:04:49.040 So the saloons became sort of centers of gambling and prostitution and allied to it. 571 01:04:49.040 --> 01:05:00.040 So we have this whole set then of this kind of rural conflict, symbiotic with political, ethnic and all the rest of conflict emerging in the progressive period. 572 01:05:00.040 --> 01:05:09.040 The progressive party naturally, naturally of course, this is kind of to be deduced from our analysis, but wholeheartedly in favor of prohibition. 573 01:05:09.040 --> 01:05:13.040 And finally there's the progressive war that put prohibition over the top. 574 01:05:13.040 --> 01:05:27.120 The German brewers in this country have rendered thousands of men inefficient, thus crippling 575 01:05:27.120 --> 01:05:36.920 the republic in its war on Prussian militarism. 576 01:05:36.920 --> 01:05:39.280 John the Prohibitionist writes, quote, 577 01:05:39.280 --> 01:05:44.160 We have German enemies in this country too, and that was not just abroad. 578 01:05:44.160 --> 01:05:51.160 And the worst of all our German enemies, the most treacherous, the most menacing, are Paps, Schlitz, Blass, and Miller.