WEBVTT NOTE Protectionist Origins of Antitrust 1 00:00:00.000 --> 00:00:12.000 The next three lectures that I have planned is, they're all about what I consider some of the major economic myths that are out there. 2 00:00:12.000 --> 00:00:20.000 So we're going to shift gears a bit, and of course there are so many of them that I could stand up here for the next five years talking about economic myths. 3 00:00:20.000 --> 00:00:49.900 But the myth of antitrust is one of them, the myth of the New Deal is another one, and labor union myths is a third, and these myths all generally have behind them what is going on is a condemnation of the free market and an explanation of why historically government has come to the rescue of the free market and saved capitalism from itself. 4 00:00:49.900 --> 00:00:52.900 That's generally the theme of all these myths. 5 00:00:52.900 --> 00:00:57.900 And so the myth of antitrust is why we need government to protect us from monopolists. 6 00:00:57.900 --> 00:01:05.900 The myth of the New Deal is the myth that capitalism caused the Great Depression and the New Deal, 7 00:01:05.900 --> 00:01:09.900 massive interventionism cured it. 8 00:01:09.900 --> 00:01:15.900 And then with regard to labor unions, there are all kinds of myths that are used to prop up the notion 9 00:01:15.900 --> 00:01:23.900 and the notion that there should be special governmental privileges to promote unionism over a free market and labor. 10 00:01:23.900 --> 00:01:27.900 And so, like I said, there could be many more myths that we could talk about. 11 00:01:27.900 --> 00:01:30.900 Those are three prominent ones that I've written about quite a bit. 12 00:01:30.900 --> 00:01:40.900 And so I'm going to try to explain this, understanding that not everyone has studied antitrust economics or microeconomics necessarily that much, 13 00:01:40.900 --> 00:01:43.900 but I can explain it, I think, in fairly plain English. 14 00:01:43.900 --> 00:01:51.340 and the way I'm going to do it is start off with the original anti-trust law or anti-monopoly law. 15 00:01:51.340 --> 00:01:57.980 It was called the Sherman Antitrust Act that the U.S. Congress passed in 1890 and there's old Sherman 16 00:01:57.980 --> 00:02:03.180 again. I quoted him this morning on banking policy. He was a champion of central banking 17 00:02:03.900 --> 00:02:13.260 and he was chairman of the Senate Finance Committee in the 1860s and he was still 18 00:02:43.260 --> 00:03:12.260 The story about antitrust is that there was supposedly rampant monopolization occurring in the 1880s, rampant monopolization, and if you look at almost any book, economics, an economics book, a law book that covers antitrust, a history book, a social studies book, it'll say this, it'll give some version of this story, and even some of the better, more reputable economics textbooks. 19 00:03:12.260 --> 00:03:22.260 One example, and if you were to major in economics 20 years ago, and you took a course called Industrial Organization, 20 00:03:22.260 --> 00:03:26.960 chances are the textbook you would use would be one by a man named Friedrich Scherer. 21 00:03:26.960 --> 00:03:30.760 And he had the best-selling textbook in this area for several decades. 22 00:03:30.760 --> 00:03:33.760 I mean, he's still around. I think he still teaches at Harvard now. 23 00:03:33.760 --> 00:03:36.360 He's been in and out of Harvard for a while. 24 00:03:36.360 --> 00:03:38.360 And this book said this, 25 00:03:39.360 --> 00:03:43.360 In the United States, the enforcement of the antitrust laws is the main weapon 26 00:03:43.360 --> 00:03:46.360 wielded by government in its effort to harmonize 27 00:03:46.360 --> 00:03:50.360 the profit-seeking behavior of private enterprise with the public interest. 28 00:03:50.360 --> 00:03:53.360 So the idea is it's necessary to have these laws 29 00:03:53.360 --> 00:03:57.360 to have competition to harmonize things. 30 00:03:57.360 --> 00:04:00.360 And why is that? Well, historically they say 31 00:04:00.360 --> 00:04:04.360 there was monopolization. Let me see some classic quotes here. 32 00:04:04.360 --> 00:04:12.360 Richard Posner, who is now a judge, a federal judge, is one of the prominent scholars in the whole law and economics movement. 33 00:04:12.360 --> 00:04:15.360 He used to teach at the University of Chicago, did that for many years. 34 00:04:15.360 --> 00:04:21.360 He wrote a book on antitrust law, widely used at universities for a long time. 35 00:04:21.360 --> 00:04:25.360 And he said this in his book on antitrust. 36 00:04:25.360 --> 00:04:33.360 The Sherman Act was passed in 1890 against a background of rampant cartelization and monopolization of the American economy. 37 00:04:33.360 --> 00:04:57.360 and so I picked him because he was a major critic of antitrust. His whole book is a book of criticisms on the misuse of antitrust but even Posner, one of the bigger critics of antitrust, says well there's a need for these laws because after all there was rampant cartelization and how are we going to stop that? How are we going to stop rampant cartelization? 38 00:04:57.360 --> 00:05:03.600 Another textbook author named Marshall Howard called the Sherman Antitrust Act the magna 39 00:05:03.600 --> 00:05:09.000 carta of free enterprise and so that's the kind of language that you get. 40 00:05:09.000 --> 00:05:14.680 And so now I've been reading this stuff for a long time as an economic student and then 41 00:05:14.680 --> 00:05:21.240 after I finished my Ph.D. I was doing research in this area and it struck me that I had never 42 00:05:21.240 --> 00:05:28.240 I've never seen in any of these books proof. Where's the evidence? The rampant cartelization. 43 00:05:28.240 --> 00:05:34.340 I've seen all these statements. And so I just got the idea of doing a survey. And so I had 44 00:05:34.340 --> 00:05:40.320 a research assistant working for me. I was at George Mason at the time. And I had a graduate 45 00:05:40.320 --> 00:05:45.600 student working for me. So I said, let's gather up all the antitrust economics books we can 46 00:05:45.600 --> 00:05:50.880 find. I had about a dozen of them on my bookshelf. And he went to the library and went through 47 00:05:50.880 --> 00:06:00.880 And we did not find one single statistic that was used to back up this claim in any of the law books, economics books, there was no data. 48 00:06:00.880 --> 00:06:08.880 It was just bold statements, rampant cartelization, monopolization, thank God for the Magna Carta, free enterprise, on and on and on. 49 00:06:08.880 --> 00:06:12.880 And where's the evidence? None. There was none. 50 00:06:12.880 --> 00:06:24.880 And so that made me a little curious whenever you have all these statements like this, but backed up by absolutely nothing, not even bad statistics. 51 00:06:24.880 --> 00:06:34.880 Sometimes they're bad or feeble statistics. The statistical analysis is incorrect. There was never even any attempt there. 52 00:06:34.880 --> 00:06:39.440 And so we gathered these statistics ourselves. 53 00:06:39.440 --> 00:06:43.040 What I did was I had this student of mine 54 00:06:43.040 --> 00:06:46.000 go and read through the Congressional Record of 1889 55 00:06:46.000 --> 00:06:47.520 and 1890. 56 00:06:47.520 --> 00:06:50.680 And back in those days, this was all on microfilm. 57 00:06:50.680 --> 00:06:52.280 So you had to go to the library and read 58 00:06:52.280 --> 00:06:53.480 on this microfilm machine. 59 00:06:53.480 --> 00:06:56.080 You had to crank them up and make the little film go 60 00:06:56.080 --> 00:06:57.000 around in a circle. 61 00:06:57.000 --> 00:07:00.000 And it's, oh, you can hardly read it. 62 00:07:00.000 --> 00:07:01.520 I send him a check every year. 63 00:07:01.520 --> 00:07:04.640 He's in a home for the blind in Arlington, Virginia. 64 00:07:04.640 --> 00:07:34.640 and I wrote through all this and I said write down the industries that were being accused of being monopolies during the congressional debates over the Sherman Act, he wrote all these down and then the next step was well let's see if we can gather the data on what all these economics books say and monopolies do is they somehow conspire to restrain trade that's what everybody says that these monopolies do and what they were doing they were restricting production in order 65 00:07:34.640 --> 00:07:38.640 in order to prop up prices. Less supply will prop up the price. 66 00:07:38.640 --> 00:07:44.640 And so we went and we found that in the historical, there's a publication called 67 00:07:44.640 --> 00:07:49.640 Historical Statistics of the United States, and I think the Commerce Department just 68 00:07:49.640 --> 00:07:53.640 published a new version of it. It was in print for about 30 or 35 years, 69 00:07:53.640 --> 00:07:57.640 they just came out with a new version. And then there were other scattered statistics 70 00:07:57.640 --> 00:08:02.640 here and there that we dug up every source we could think of or find 71 00:08:02.640 --> 00:08:08.560 and they would have data on production of all these things, like some of the industries 72 00:08:08.560 --> 00:08:19.080 of salt, petroleum, zinc, steel, bituminous coal, steel rail, sugar, lead, liquor, twine, 73 00:08:19.080 --> 00:08:20.080 castor oil. 74 00:08:20.080 --> 00:08:24.640 Could you imagine members of Congress in a debate on the floor of the House of Representatives 75 00:08:24.640 --> 00:08:29.520 with all the flags behind them and everything arguing over the price of castor oil? 76 00:08:29.520 --> 00:08:36.520 They apparently were doing that. Leather. These were all the things that they were arguing about at the time. Monopolies. 77 00:08:36.520 --> 00:08:47.520 And so we did that. We got a lot. I think we got 17 of these industries. There were just some data we just couldn't find for a lot of these industries that were mentioned in the Congressional debates. 78 00:08:47.520 --> 00:08:51.520 But we got pretty good data on a lot of them. 79 00:08:51.520 --> 00:08:59.680 And so what I found was that during the decade prior to the Sherman Act, this was 1880 to 1890, 80 00:09:00.640 --> 00:09:05.680 real gross national product, back in those days we called it gross national product, not gross 81 00:09:05.680 --> 00:09:11.680 domestic product, has adjusted for inflation, increased by about 24 percent during that decade. 82 00:09:12.400 --> 00:09:17.280 But these industries, my sample of industries that were being excoriated as monopolies, 83 00:09:17.280 --> 00:09:29.280 In the early days, restricting output and driving up prices, on average, their production grew by 175%, on average, seven times the rate of growth of the rest of the economy. 84 00:09:29.280 --> 00:09:40.280 So these industries that were supposedly restricting production in a cartel fashion were growing seven times faster than the economy as a whole. 85 00:09:40.280 --> 00:09:44.280 So that continued to pique my interest in this whole thing. 86 00:09:44.280 --> 00:09:50.280 And then, of course, what happened to prices? The ultimate test is what happens to consumers. 87 00:09:50.280 --> 00:10:00.280 The ultimate test, according to any economics book that talks about monopoly, is, well, does it harm consumers? 88 00:10:00.280 --> 00:10:04.280 And one thing to look at is, well, what happens to prices? 89 00:10:04.280 --> 00:10:10.280 Okay, so we were using the standard neoclassical framework. We weren't even getting into Austrian economics. 90 00:10:10.280 --> 00:10:15.280 We were just saying, on your own standards, well, you know, how does this meet the test of monopoly? 91 00:10:15.280 --> 00:10:20.280 And so we did the same thing. We gathered what data we could on prices. 92 00:10:20.280 --> 00:10:27.280 And this was a period of deflation, the decade between 1880 and 1890. 93 00:10:27.280 --> 00:10:36.280 And so prices, measured prices were falling by, not by much, was 7 percent or something like that, I think. 94 00:10:36.280 --> 00:10:47.280 But again, what I found was that in every single case, except castor oil, I think, no, except coal, now coal was the one exception. 95 00:10:47.280 --> 00:10:53.280 In every single item, the price was falling faster than the price level, and sometimes it was falling pretty rapidly. 96 00:10:53.280 --> 00:11:01.280 For example, the price of steel rails fell by 53% compared to a 7% reduction in the price level. 97 00:11:01.280 --> 00:11:12.960 level, price of refined sugar, 22% decline, lead drop by 12%, zinc 20%, bituminous coal 98 00:11:12.960 --> 00:11:22.880 remained about steady per pound, although it fell by 29% from 1890 to 1900, so after 99 00:11:22.880 --> 00:11:26.200 the Sherman Act was passed, it really went through the floor. 100 00:11:26.200 --> 00:11:33.680 So all these prices fell much faster than the general price level. 101 00:11:33.680 --> 00:11:39.240 So these are some facts that if they don't prove that the Sherman Act was misguided, 102 00:11:39.240 --> 00:11:43.200 at least it should lead anyone to call into question the standard story that there was 103 00:11:43.200 --> 00:11:48.520 rampant cartelization because all of these theorists I mentioned at the beginning would 104 00:11:48.520 --> 00:11:54.040 all agree that rampant cartelization should have led to output restrictions and higher 105 00:11:54.040 --> 00:11:55.040 prices. 106 00:11:55.040 --> 00:12:01.860 And what they could say to weasel their way out of it would be, well, yes, the price fell 107 00:12:01.860 --> 00:12:11.080 by 52 percent and production increased by 300 percent, but if they weren't monopolized, 108 00:12:11.080 --> 00:12:13.080 prices would have fell even faster. 109 00:12:13.080 --> 00:12:19.000 And that's one of those unprovable arguments that could usually be made, but it's not very 110 00:12:19.000 --> 00:12:20.680 convincing to me. 111 00:12:20.680 --> 00:12:24.800 And another thing I found is that the members of Congress who were arguing over this and 112 00:12:54.800 --> 00:13:00.760 the price of oil immensely, that does not alter the wrong of the principle of any trust. 113 00:13:00.760 --> 00:13:02.520 So in principle they're wrong. 114 00:13:02.520 --> 00:13:04.600 What principle could that be? 115 00:13:04.600 --> 00:13:07.560 It's the principle that they didn't want prices to go down. 116 00:13:07.560 --> 00:13:11.920 That's the only principle I could determine is the principle that they're in favor. 117 00:13:11.920 --> 00:13:13.360 They're in favor of higher prices. 118 00:13:13.360 --> 00:13:14.360 That's their principle. 119 00:13:14.360 --> 00:13:16.520 And so they recognized that. 120 00:13:16.520 --> 00:13:20.200 They actually complained about lower prices. 121 00:13:20.200 --> 00:13:22.360 And why were they complaining about lower prices? 122 00:13:22.360 --> 00:13:35.860 Well, it's for the same reason, in my view, why politicians have always used the antitrust laws to prosecute various companies for dropping their prices. 123 00:13:35.860 --> 00:13:46.860 They have businesses in their districts or their states who are not as efficient as the price-dropping companies, and they want to protect them from competition. 124 00:13:46.860 --> 00:13:56.860 So in other words, what I'm talking about with my research here is that antitrust has always been a protectionist plot. 125 00:13:56.860 --> 00:14:00.860 It has never been the Magna Carta free enterprise. It has always been exactly the opposite. 126 00:14:00.860 --> 00:14:08.860 It has always been a government intervention that was always meant to stop competition, to be a barrier to competition. 127 00:14:08.860 --> 00:14:21.860 I mentioned Posner being a big critic. Well, he studied various antitrust cases for a 100-year period and has come to the conclusion that in most cases, these are decided wrongly. 128 00:14:21.860 --> 00:14:31.860 These are decided where these companies were not monopolizing. But he seems to see it as just a 100-year record of goof-ups, mistakes. 129 00:14:31.860 --> 00:14:37.860 I don't see it that way. I see it as that was always the intent. It was always the intent to thwart competition. 130 00:14:37.860 --> 00:14:41.860 And so these laws for a hundred years did exactly what they were intended to do. 131 00:14:41.860 --> 00:14:44.860 They weren't intended to protect consumers from competition. 132 00:14:44.860 --> 00:14:50.860 They were always intended to protect politically connected competitors from competition. 133 00:14:50.860 --> 00:14:55.860 That's my story and I'm sticking to it. 134 00:14:55.860 --> 00:15:12.860 And so further evidence of the political hanky-panky that was going on here that I offer is that these prices fell for a decade prior to the Sherman Act pretty precipitously. 135 00:15:12.860 --> 00:15:19.860 And they continued to fall for the next decade. So I gathered data for the next decade after the Sherman Act in the same trend. 136 00:15:19.860 --> 00:15:30.860 Because there were, you know, manufacturing was being developed, there were economies of scale, mass production was being fine-tuned and more and more used. 137 00:15:30.860 --> 00:15:39.860 There were technological advances such as in the steel industry and the cement industry were causing lower and lower and lower cost of production. 138 00:15:39.860 --> 00:15:43.860 And as a result, you had lower and lower and lower prices for all these things. 139 00:15:43.860 --> 00:15:57.860 It was a great thing for the American consumer and for American industry that had to buy steel and cement to make things, to make housing, buildings, and whatever, bridges, whatever you're making out of steel. 140 00:15:57.860 --> 00:15:59.860 And so this was a great thing. 141 00:15:59.860 --> 00:16:07.060 But most of the complaints came, as they always do, from companies or, in some cases, farmers 142 00:16:07.060 --> 00:16:11.500 who were selling things and who were either unable or unwilling to drop their prices as 143 00:16:11.500 --> 00:16:13.860 fast as the so-called trust did. 144 00:16:13.860 --> 00:16:17.060 Therefore, the law was meant to stop that, and they all understood that. 145 00:16:17.060 --> 00:16:21.620 And this could not have been predatory pricing, you know, there's this old, I call predatory 146 00:16:21.620 --> 00:16:24.900 pricing the unicorn of economic theory. 147 00:16:24.900 --> 00:16:26.860 You all know what a unicorn is. 148 00:16:26.860 --> 00:16:28.860 The Theory of Money and Credit 149 00:16:56.860 --> 00:17:04.860 The Theory of Money will charge a monopolistic price, and it's sort of an appealing theory although it's not very logical when you think about it for a minute. 150 00:17:04.860 --> 00:17:18.860 I put this to one of my MBA classes. I have students in these MBA classes who are like the vice president of marketing at McCormick Spice Company, which is in Baltimore, or the Black & Decker Tool Company. 151 00:17:18.860 --> 00:17:23.420 and I would ask these guys well what if you went back to work on Monday these are Saturday classes 152 00:17:23.420 --> 00:17:30.140 and told your boss like the CEO of McCormick Spice Company or Black & Decker well I learned something 153 00:17:30.140 --> 00:17:36.220 in school on Saturday I learned that how we can corner the drill markets you say you're 154 00:17:36.220 --> 00:17:42.700 Black & Decker here's what we're going to do it costs us $25 the marginal cost of manufacturing 155 00:17:42.700 --> 00:17:56.700 We're going to sell this drill for $5, and we're going to do this, it might take three, four, five years, but we think we can drive all the competition out of the market, if we can just hang in there for maybe five years. 156 00:17:56.700 --> 00:18:04.700 And I asked them, well, what do you think your boss would say of that? And they all said, well, we'd be fired on the spot. Do they think we lost our minds? 157 00:18:04.700 --> 00:18:14.700 If you think about this for a minute, it doesn't make sense, and there's never been a proven example of a monopoly created this way, but it's part of the folklore. 158 00:18:14.700 --> 00:18:25.700 And so when you come up with data like this, as I did, with a 20-year price decline, the critics will say, well, predatory pricing. 159 00:18:25.700 --> 00:18:31.700 But doesn't it sound kind of ridiculous to think that these businesses like Standard Oil, John B. Rockefeller, 160 00:18:31.700 --> 00:18:41.700 One of the smartest businessmen in world history would purposely lose money for 20 years in hopes of some day making a killing. 161 00:18:41.700 --> 00:18:47.700 Why would you think that's how to make money? It's absurd. So that didn't happen. That's not what was going on. 162 00:18:47.700 --> 00:18:58.700 This was competitive price cutting. And another part of the real political hanky-panky that I ran across was three months after the Sherman Act was passed, 163 00:18:58.700 --> 00:19:13.700 This was July of 1890, the Sherman Act was passed. October, early October, was the passage of the McKinley Tariff, which at the time was one of the biggest tariff increases in history in the US. 164 00:19:13.700 --> 00:19:24.700 And the sponsor of the McKinley Tariff was Senator John Sherman himself. So here's the guy who supposedly is the savior of the consumer. His name is on the Sherman Antitrust Act. 165 00:19:24.700 --> 00:19:34.700 Three months later, he sponsors, as chairman of the Senate Finance Committee, the McKinley Tariff increase, which at that time, everybody knew. 166 00:19:34.700 --> 00:19:42.700 You couldn't argue that Adam Smith was hot off the press in 1890. The Wealth of Nations was written in 1776. 167 00:19:42.700 --> 00:19:48.700 And so everybody knew that protectionist tariffs caused higher prices. 168 00:19:48.700 --> 00:20:00.700 A. A. Blinken didn't think that, but by then everybody knew this. It had been proven time and again because we were in the era of Republican protectionism for decades at this point. 169 00:20:00.700 --> 00:20:10.700 And so doesn't that smell rotten? Supposedly the champion of the consumer is raising everybody's prices by raising tariffs on imports. 170 00:20:10.700 --> 00:20:17.700 And so that was another sort of smoking gun type of piece of evidence that I found. Sherman himself said this. 171 00:20:17.700 --> 00:20:32.700 He said he attacked these businesses that I just cited, some of them, by saying they have subverted the tariff system, they have undermined the policy of government to protect American industries by levying duties on imported goods, end quote. 172 00:20:32.700 --> 00:20:46.700 That's Senator Sherman. He was saying these guys are dropping prices, they're subverting our high price tariff system, and he's more or less calling them outlaws because the law created higher prices, the tariff law created higher prices. 173 00:20:46.700 --> 00:20:55.700 These guys come around and they're not raising their prices like they're supposed to, they're cutting their prices because they're figuring out how to cut their costs and they're competing. 174 00:20:55.700 --> 00:21:02.700 They're not sitting back and saying, let's just let the government keep the competition away from us and get fat and happy. 175 00:21:02.700 --> 00:21:13.700 They weren't doing that. These were some of the great entrepreneurs of American history that were developing all these new industries and cutting costs and competing internationally. 176 00:21:13.700 --> 00:21:17.700 They weren't on board with this protectionist scam. 177 00:21:17.700 --> 00:21:20.700 And so Sherman himself was complaining about that. 178 00:21:20.700 --> 00:21:26.700 And the next thing I had my now barely able to read former graduate student do 179 00:21:26.700 --> 00:21:31.700 is I wanted to know, you know, I'd read in all these books stories about the muckrakers, 180 00:21:31.700 --> 00:21:35.700 the press, the muckraking media and what they were saying, what they were doing. 181 00:21:35.700 --> 00:21:39.700 So I thought, well, let's read firsthand what was being said in the major media. 182 00:21:39.700 --> 00:22:09.700 and so I had him read through the New York Times on microfilm in 1889, 1890, anything he could find, you could do this all online now, but these were the old days where we were barely out of the stone tablet age, the internet didn't exist back at this time when I was doing this research and so Al Gore hadn't invented it yet, he was working on it, he was in graduate school working on it, but so he read through 183 00:22:09.700 --> 00:22:15.700 Let me know what the New York Times, the paper of record, was saying about this, the whole of the Sherman Act business. 184 00:22:15.700 --> 00:22:22.700 Let's not take these left-wing muckrakers at their word, why should we believe them, all these quotes of them. 185 00:22:22.700 --> 00:22:27.700 And so anyway, it was kind of interesting. The New York Times was originally for the Sherman Antitrust Act, 186 00:22:27.700 --> 00:22:33.700 but then they just watched what was going on and they totally reversed themselves and came out against it. 187 00:22:33.700 --> 00:22:41.300 And here's what they said, on October 1st, 1890, the New York Times, it's like the day 188 00:22:41.300 --> 00:22:48.780 the law was passed, they called it the Campaign Contributor's Tariff Bill, that is, the McKinley 189 00:22:48.780 --> 00:22:49.780 Tariff. 190 00:22:49.780 --> 00:22:53.900 They called the McKinley Tariff the Campaign Contributor's Tariff Bill. 191 00:22:53.900 --> 00:22:57.420 And they got the connection between what was going on here with the McKinley Tariff and 192 00:22:57.420 --> 00:22:58.420 the Sherman Act. 193 00:22:58.420 --> 00:23:03.660 They said, the Campaign Contributor's Tariff Bill now goes to the President for his signature, 194 00:23:03.660 --> 00:23:08.820 which will speedily be affixed to it, and the favored manufacturers, many of whom proposed 195 00:23:08.820 --> 00:23:13.900 and made the tariff rates, which affect their products, will begin to enjoy the profits 196 00:23:13.900 --> 00:23:15.700 of this legislation. 197 00:23:15.700 --> 00:23:19.420 So they're complaining about that, there's something rotten here. 198 00:23:19.420 --> 00:23:26.260 And then they go on to say something about Sherman, in one of his speeches, they say 199 00:23:26.260 --> 00:23:33.100 it should not be overlooked, his speech on Monday, for it was one of confession, okay, 200 00:23:33.100 --> 00:23:49.100 We direct attention to those passages of Sherman's speech relating to combinations of protected manufacturers designed to take full advantage of high tariff duties by exacting from consumers prices fixed by agreement after competition has been suppressed by the tariff. 201 00:23:49.100 --> 00:23:55.100 Mr. Sherman closed his speech with some words of warning and advice to the beneficiaries of the new tariff. 202 00:23:55.100 --> 00:24:01.100 He was earnest enough in his manner to indicate that he is not at all confident as to the outcome of the law. 203 00:24:01.100 --> 00:24:14.100 The great thing that stood in the way of the success of the tariff bill was whether or not the manufacturers of this country would permit free competition in the American market. 204 00:24:14.100 --> 00:24:20.100 Sherman was trying to get off the hook for being the sponsor of the tariff bill. 205 00:24:20.100 --> 00:24:26.100 He knew prices were going to go up, but he wanted to blame it on the trusts. 206 00:24:26.100 --> 00:24:30.140 and so he couldn't blame it on his own legislation he had to blame it on the 207 00:24:30.140 --> 00:24:36.120 trust if consumers complained he wanted the Republican Party wanted all the 208 00:24:36.120 --> 00:24:40.800 campaign bribes the money and the support from the manufacturers who has 209 00:24:40.800 --> 00:24:44.560 benefited but they didn't want to take the heat from consumers who had to pay 210 00:24:44.560 --> 00:24:48.760 more for all this stuff in case they caught on and so he was getting off his 211 00:24:48.760 --> 00:24:52.980 hook and so here's what the New York Times concluded with which I think is 212 00:24:52.980 --> 00:25:06.980 The so-called anti-trust law was passed to deceive the people and to clear the way for the enactment of this law relating to the tariff. 213 00:25:06.980 --> 00:25:14.980 It was projected in order that the party organs might say to the opponents of tariff extortion and protected combinations, 214 00:25:14.980 --> 00:25:20.420 Behold, we have attacked the trusts. The Republican Party is the enemy of all such rings. 215 00:25:20.420 --> 00:25:25.940 And now the author of it, Sherman, can only hope that the rings will somehow dissolve of their own accord. 216 00:25:25.940 --> 00:25:30.820 And so it was a fig leaf. The New York Times was saying this was a fig leaf, the Sherman Act. 217 00:25:30.820 --> 00:25:36.820 The real monopoly was being created by the tariff, the McKinley Tariff, but they needed something to cover this up. 218 00:25:36.820 --> 00:25:43.060 And so they railed against the evil trusts to cover this all up. 219 00:25:43.060 --> 00:25:52.060 And so, that's why I'm convinced, and why I made this statement earlier, that antitrust, from the very beginning, was a protectionist racket. 220 00:25:52.060 --> 00:26:01.060 And that the textbooks are all basically wrong about this Magna Carta of free enterprise business, and they're wrong because they never looked into it. 221 00:26:01.060 --> 00:26:10.060 It's one of these things where they just took the words of somebody in the 1890s and just kept repeating this mantra about cartelization. 222 00:26:10.060 --> 00:26:18.060 The most generous thing you can say about the textbook writers is that how this came about was a confusion on what monopoly is. 223 00:26:18.060 --> 00:26:28.060 If you define monopoly as just bigness, big business, well, yeah, they were becoming very big and successful, like Standard Oil, if you define monopoly in that way. 224 00:26:28.060 --> 00:26:38.060 That's why the Austrians define monopoly as necessarily be created by government, government intervention, a government franchise, like in the so-called public utilities, for example. 225 00:26:38.060 --> 00:26:47.060 Another thing I did in this era is to research what the economics profession was saying, and there weren't that many professional economists back then. 226 00:26:47.060 --> 00:26:57.060 So it was possible to survey just what almost every professional economist who had earned a living as an economist said about this at the time. 227 00:26:57.060 --> 00:27:02.060 You couldn't do that now. It would be a gigantic survey. It would be very costly. 228 00:27:02.060 --> 00:27:08.500 very costly but fortunately I ran this was a miracle that I found this in the 229 00:27:08.500 --> 00:27:13.000 library but I found a doctoral dissertation that was written in 1964 230 00:27:13.000 --> 00:27:18.200 that did exactly this it did a survey of the economist opinions of the Sherman 231 00:27:18.200 --> 00:27:23.640 Act in 1890 and in fact I even found this on microfilm I didn't even find it 232 00:27:23.640 --> 00:27:29.220 in the stacks in the library and that's why so and I've always been a library 233 00:27:59.220 --> 00:28:05.980 The guy's name was Sanford Gordon and he did this survey and I'll just read you his conclusion 234 00:28:05.980 --> 00:28:10.540 because I ended up publishing an article in a journal called Economic Inquiry on this 235 00:28:10.540 --> 00:28:13.140 a couple years after I did this. 236 00:28:13.140 --> 00:28:18.380 But Gordon says, a big majority of economists at the time conceded that the combination 237 00:28:18.380 --> 00:28:24.980 movement was to be expected, that high fixed costs made large scale enterprises economical, 238 00:28:24.980 --> 00:28:30.140 That competition under these new circumstances frequently resulted in cutthroat competition, 239 00:28:30.140 --> 00:28:35.060 that agreements among producers was a natural consequence, and the stability of prices usually 240 00:28:35.060 --> 00:28:37.300 brought more benefit than harm to society. 241 00:28:37.300 --> 00:28:43.780 They seemed to reject the idea that competition was declining or showed no fear of decline, 242 00:28:43.780 --> 00:28:44.780 which they didn't. 243 00:28:44.780 --> 00:28:52.420 I did my own research on this a little later and found that almost exclusively the economists 244 00:28:52.420 --> 00:28:59.700 at Wharton, Chicago, Yale, who were studying this at the time, were not afraid that there 245 00:28:59.700 --> 00:29:03.100 was anything anti-consumer going on here. 246 00:29:03.100 --> 00:29:09.180 So it's a myth that the economics profession provided guidance to the politicians to deal 247 00:29:09.180 --> 00:29:15.260 with this form of so-called market failure, antitrust, but that never happened. 248 00:29:15.260 --> 00:29:20.460 The economist rationale for antitrust came along several decades later, and the late 249 00:29:20.460 --> 00:29:25.260 George Stigler, from the University of Chicago, wrote an article about this, about why economists 250 00:29:25.260 --> 00:29:31.380 came to embrace antitrust regulation. And the main reason he gave is that they realized, 251 00:29:31.380 --> 00:29:36.140 I could paraphrase Stigler, they realized that they could make considerably more than 252 00:29:36.140 --> 00:29:42.460 the minimum wage as antitrust consultants. That's the reason Stigler gave for this. And 253 00:29:42.460 --> 00:29:48.260 so they became, this is not so bad after all. But this article that I wrote co-authored 254 00:29:48.260 --> 00:29:55.860 with Jack High in Economic Inquiry, way back in 1988, we surveyed all these economists 255 00:29:55.860 --> 00:30:00.220 who were against antitrust, and the argument we made is that the reason they were against 256 00:30:00.220 --> 00:30:06.020 it is not because they were paid whores, like Stickler said, although many of them were 257 00:30:06.020 --> 00:30:14.220 and are, that's undeniable, was that their theory of competition changed, the theory 258 00:30:14.220 --> 00:30:35.220 The Theory of Competition, at the time the Sherman Act was passed, all these economists, John Bates Clark, George Gunton, Simon Patton, one of the founders of the Wharton School, David Wells, Richard T. Ely, when they thought of competition, they thought of competition just like the Austrian economists did and do. 259 00:30:35.220 --> 00:30:42.020 Competition was a dynamic, rivalrous process of entrepreneurship that involved price cutting, 260 00:30:42.020 --> 00:30:48.380 product differentiation, innovation, advertising, these are all elements of competition. 261 00:30:48.380 --> 00:30:53.180 Competition is an ongoing process and these mergers that were occurring were just a part 262 00:30:53.180 --> 00:30:58.140 of that ongoing process of a competitive market and they saw the proof, they saw the lower 263 00:30:58.140 --> 00:31:02.140 prices and lower cost and they looked at this at the time and said, well, this is a good 264 00:31:02.140 --> 00:31:03.140 thing. 265 00:31:03.140 --> 00:31:05.700 is just how we think competition ought to operate. 266 00:31:05.700 --> 00:31:07.860 And so they were dead set against it. 267 00:31:07.860 --> 00:31:11.220 We found one prominent economist 268 00:31:11.220 --> 00:31:12.820 who was against anti-trust laws. 269 00:31:12.820 --> 00:31:16.740 Even Richard T. Ely, who was a self-described socialist 270 00:31:16.740 --> 00:31:19.540 and the co-founder of the American Economic Association 271 00:31:20.980 --> 00:31:22.580 was against the anti-trust laws. 272 00:31:22.580 --> 00:31:24.160 He thought they were a bad idea. 273 00:31:24.160 --> 00:31:26.280 They were for competition. 274 00:31:26.280 --> 00:31:31.200 And in fact, I have a statement by Ely here. 275 00:31:31.200 --> 00:31:35.980 to show what a socialist he was he said this this is the founding statement of 276 00:31:35.980 --> 00:31:40.500 the American Economic Association when it was founded and people wonder why 277 00:31:40.500 --> 00:31:46.420 Mises called called the AEA a bunch of socialists and he would never join have 278 00:31:46.420 --> 00:31:50.020 anything to do with it here's the founding statement we hold that the 279 00:31:50.020 --> 00:31:55.300 doctrine of laissez-faire is unsafe in politics and unsound in morals that's 280 00:31:55.300 --> 00:32:00.300 part of it and so that's how the AEA was founded and so and so when Mises 281 00:32:00.300 --> 00:32:05.100 He's never joined. People say, well, he's a crank and an eccentric and an outsider. 282 00:32:05.100 --> 00:32:08.300 What is he talking about? Well, that's what he's talking about. 283 00:32:08.300 --> 00:32:11.300 Why would he want to be a part of that? 284 00:32:11.300 --> 00:32:14.600 And so the economics profession was against it, but that's the reason we give. 285 00:32:14.600 --> 00:32:18.100 And so you see that the theory of competition changed. 286 00:32:18.100 --> 00:32:22.500 Any of you who have ever taken a course in microeconomics were taught the newer theory 287 00:32:22.500 --> 00:32:27.100 that came around in the 1920s and 30s called perfect competition. 288 00:32:27.100 --> 00:32:38.100 and it had these assumptions about what defines a competitive market and the key assumption is many firms, many firms, many firms is good, fewer firms is bad. 289 00:32:38.100 --> 00:32:46.100 That was new, that wasn't a part of Adam Smith's definition of competition or anybody really up until the 1920s and 30s. 290 00:32:46.100 --> 00:32:54.100 And so if you define competition as requiring many firms and you see mergers occurring, 291 00:32:54.100 --> 00:33:00.100 Even if the mergers are resulting in lower prices, a lot of people started to say, well, this is monopoly. 292 00:33:00.100 --> 00:33:09.100 Even though the effect was lower prices and better products, more products, greater volume and so forth, it didn't matter. 293 00:33:09.100 --> 00:33:13.100 That definition changed the opinion of economists. 294 00:33:13.100 --> 00:33:22.100 And so Jack Hyne and I argued that that's a more likely reason than just the fact that antitrust consultants are paid whores. 295 00:33:22.100 --> 00:33:28.600 Although we don't deny that that's a truth out there, okay? 296 00:33:28.600 --> 00:33:34.600 And so, that's my story about the origins of antitrust. 297 00:33:34.600 --> 00:33:42.100 And another thing that I knew about when I was doing all this work some years ago 298 00:33:42.100 --> 00:33:47.100 was that there were state antitrust laws before the federal antitrust law. 299 00:33:47.100 --> 00:33:51.600 And so if you want to understand the real origins of this whole area of regulation, 300 00:33:51.600 --> 00:34:21.600 They come at the state level and in my research is that basically the same thing was going on that prices were falling and so businesses and farmers who could not match the lower prices complained to their legislatures that we've got to do something about this and one of the most blatant examples I'll just give you one quick example of what was going on here was there were all of a sudden there was talk of this beef trust 301 00:34:21.600 --> 00:34:26.720 The Beef Trust, there was a menace to society, okay, the Beef Trust. 302 00:34:26.720 --> 00:34:33.040 And how is this Beef Trust menacing? Well, there was all this talk about the Big Four, the Big Four 303 00:34:33.760 --> 00:34:39.760 Armour, Swift, and a couple of other companies, or the Big Four beef companies, beef packing 304 00:34:39.760 --> 00:34:47.360 companies. Well, now that the railroad industry was pretty well developed by the 1880s, Chicago 305 00:34:47.360 --> 00:34:51.140 So it became the center of the beef packing industry. 306 00:34:51.140 --> 00:34:56.500 And so they were chopping up the cattle. 307 00:34:56.500 --> 00:35:03.380 And when they originally invented refrigeration, what it was, was open train cars in the wintertime. 308 00:35:03.380 --> 00:35:09.300 But still, it enabled them to ship dressed beef, ready to go to the supermarket, for 309 00:35:09.300 --> 00:35:12.340 hundreds and hundreds of miles all over the country. 310 00:35:12.340 --> 00:35:16.400 And then, of course, they figured out other ways of keeping the beef from spoiling, and 311 00:35:16.400 --> 00:35:19.280 and Refrigeration came along later. 312 00:35:19.280 --> 00:35:23.400 But in the meantime, all of a sudden you had little towns 313 00:35:23.400 --> 00:35:25.960 and cities all over America, especially the Midwest 314 00:35:25.960 --> 00:35:29.680 and as far east as Pittsburgh and places like that, 315 00:35:29.680 --> 00:35:33.480 where you had sort of mom and pop meat monopolies. 316 00:35:33.480 --> 00:35:38.000 The local butcher shop was charging a certain price for beef. 317 00:35:38.000 --> 00:35:40.820 And all of a sudden here comes mass production, 318 00:35:40.820 --> 00:35:43.440 mass production with economies of scale, 319 00:35:43.440 --> 00:35:48.960 lower cost of production enabling the big four to under price everybody. All of a sudden these 320 00:35:48.960 --> 00:35:54.320 train cars show up with beef that's half the price of what the local mom and pop butcher monopolies 321 00:35:54.320 --> 00:35:59.840 are selling meat for and they did not like that and they all banded together with their trade 322 00:35:59.840 --> 00:36:04.160 associations and went to the state legislatures and said we've got to do something about this 323 00:36:04.160 --> 00:36:10.800 beef trust. They're cutting prices and so in another article that I authored with, co-authored 324 00:36:10.800 --> 00:36:19.140 with Don Boudreau. It was in the Review of Austrian Economics some years ago. We found 325 00:36:19.140 --> 00:36:23.900 basically the same thing was going on with beef and other farm goods in Missouri, especially 326 00:36:23.900 --> 00:36:30.040 in your state of Missouri. There was a Senator Vest from Missouri who took the lead here 327 00:36:30.040 --> 00:36:35.720 and had a commission, the Vest Commission to investigate lower beef prices, what's causing 328 00:36:35.720 --> 00:36:40.360 it and what can be done about it. And so they had this big commission and here's what they 329 00:36:40.360 --> 00:37:00.360 The principle cause of the depression in the prices paid to the cattle raiser and of the remarkable fact that the cost of beef has not fallen in proportion comes from the artificial and abnormal centralization of markets and the absolute control by a few operators thereby made possible. 330 00:37:00.360 --> 00:37:07.640 So we admitted that all of this, this abominable centralization of manufacturing, if you will, 331 00:37:07.640 --> 00:37:14.060 or the beef dressing industry, caused a depression in prices, lower prices, and so the commission 332 00:37:14.060 --> 00:37:19.040 recommended federal legislation to put an end to this, and that was an impetus to the 333 00:37:19.040 --> 00:37:21.080 Sherman Act eventually at the federal level. 334 00:37:21.080 --> 00:37:28.040 They used the so-called research for this to help support the Sherman Act. 335 00:37:28.040 --> 00:37:33.200 And so, no matter where you look, what was going on was this was an anti-price-cutting 336 00:37:33.200 --> 00:37:39.040 law, state level, federal level, and on and on. 337 00:37:39.040 --> 00:37:43.240 And the same thing, the same type of thing continued to happen with antitrust regulation 338 00:37:43.240 --> 00:37:44.240 to this very day. 339 00:37:44.240 --> 00:37:56.600 I'll give you just a few examples of this, of what we've had to live with for what, 116 340 00:37:56.600 --> 00:38:06.600 In the beginning of 1969, the federal government spent 13 years prosecuting IBM for being a monopoly. 341 00:38:06.600 --> 00:38:14.600 In the meantime, IBM was eclipsed by companies like Microsoft and quite a few others. 342 00:38:14.600 --> 00:38:19.600 The judge in the case died, so the government in 1982 just said, 343 00:38:19.600 --> 00:38:41.600 And they gave up with it, because if they appointed a new judge, to be credible, he would have to go through 13 years of all this litigation and hearings and everything to be up to snuff, and that would take years for a new judge to be credible, and all that went on, so they just dropped it. 344 00:38:41.600 --> 00:38:53.600 But in the meantime, you know, they seriously crippled IBM because it was very costly, it was very time consuming, it's an unmeasurable amount of man hours, it had to be put toward complying with all the requests. 345 00:38:53.600 --> 00:39:00.600 Friends of mine who have worked at the Federal Trade Commission, for example, told me Bill Shugart is one of them who teaches at Ole Miss. 346 00:39:00.600 --> 00:39:09.600 He worked at the FTC for a while. He said on a typical merger case, not the big IBM case or the big Microsoft case, but a typical merger case, some bank, 347 00:39:09.600 --> 00:39:21.600 The FTC will put in so many requests for information and paperwork that he said, for several days, 348 00:39:21.600 --> 00:39:26.320 the biggest U-Haul trucks you can rent will back up to the back door of the Federal Trade 349 00:39:26.320 --> 00:39:31.880 Commission building on Constitution Avenue and unload box after box after box of paperwork 350 00:39:31.880 --> 00:39:37.680 from the company's files somewhere, and that has to be very time consuming to do that. 351 00:39:37.680 --> 00:39:44.680 And of course, a lot of this ends up in the hands of the competition paperwork, the more proprietary information, so that can be pretty damaging. 352 00:39:44.680 --> 00:39:51.680 In 1962, the government forced the Schwinn Bicycle Company to divorce itself from its network of dealers. 353 00:39:51.680 --> 00:40:00.680 It said it was giving Schwinn an unfair advantage being a manufacturer of bikes if it also had its own dealerships. 354 00:40:00.680 --> 00:40:06.680 Schwinn went bankrupt after that. They made a recovery, but they went bankrupt. 355 00:40:06.680 --> 00:40:15.680 During the 1950s, RCA was prohibited from charging royalties to American licensees, 356 00:40:15.680 --> 00:40:19.680 which was supposedly a monopolistic practice. 357 00:40:19.680 --> 00:40:30.680 So RCA licenses products to Japanese companies, and that helped the Japanese microelectronics industry take over the market, so to speak. 358 00:40:30.680 --> 00:40:35.680 Pan Am Airlines, and most of you have probably never heard of Pan American World Airways, 359 00:40:35.680 --> 00:41:05.680 But they only flew international routes, and this is in the 1960s, and they decided that since air travel was becoming more popular, there were a lot of people, say they flew from New York City to London, well there were a lot of people in Ohio who would want to go to London, you know, a European vacation, and they had a hard time getting from Ohio to New York City, so they wanted to fly from, you know, let's have feeder routes, let's have some flights from Columbus to New York, New York to London. 360 00:41:05.680 --> 00:41:09.680 Since they had a big share of the market, the government said, no, you can't do that. 361 00:41:09.680 --> 00:41:13.680 We won't allow you to have feeder routes to bring customers to your international flights. 362 00:41:13.680 --> 00:41:17.680 They went bankrupt because they couldn't do that, because their competition could. 363 00:41:17.680 --> 00:41:21.680 Their competition did do that, but since they had a big market share, they weren't allowed. 364 00:41:21.680 --> 00:41:25.680 General Motors was never prosecuted under the antitrust laws, 365 00:41:25.680 --> 00:41:30.680 but if you read a history of, there are several histories of General Motors, 366 00:41:30.680 --> 00:41:36.000 and you know scholars management scholars have been studying them for decades and 367 00:41:36.000 --> 00:41:43.820 decades but from 1937 until 1956 it was company policy to never let its market 368 00:41:43.820 --> 00:41:50.040 share go above 45 percent for any reason for fear of an antitrust lawsuit and so 369 00:41:50.040 --> 00:41:54.280 they instructed all their managers don't make the cars too good and don't price 370 00:41:54.280 --> 00:41:58.580 them too low or else we'll get too big a market share and we'll be 371 00:41:58.580 --> 00:42:03.260 and we prosecuted it and we'll have to go through maybe 10 years of litigation and who 372 00:42:03.260 --> 00:42:08.940 wants to do that and so I just wanted to give you a few examples of since some of you I 373 00:42:08.940 --> 00:42:14.980 assume haven't really studied this or don't know much about antitrust sort of a you know 374 00:42:14.980 --> 00:42:21.020 not the top topic on your mind but this is what I was referring to when I said a hundred 375 00:42:21.020 --> 00:42:26.020 in 2016 years of misguided regulation. 376 00:42:27.420 --> 00:42:28.780 I don't think it's ever been misguided. 377 00:42:28.780 --> 00:42:30.620 I think it always has a purpose there. 378 00:42:30.620 --> 00:42:35.620 And it's usually with one company sues another. 379 00:42:36.820 --> 00:42:40.260 In fact, about 90% of all antitrust lawsuits are private. 380 00:42:40.260 --> 00:42:43.380 They don't involve the government agencies. 381 00:42:43.380 --> 00:42:44.660 They involve the government courts, 382 00:42:44.660 --> 00:42:46.700 but it's one company using the antitrust laws 383 00:42:46.700 --> 00:42:47.980 to sue another company. 384 00:42:47.980 --> 00:42:50.340 Now think about that for a minute. 385 00:42:50.340 --> 00:42:56.460 If one company is acting like a monopoly in your industry and raising prices, is that 386 00:42:56.460 --> 00:43:02.260 good or bad for you? 387 00:43:02.260 --> 00:43:04.580 It's good no matter how you look at it. 388 00:43:04.580 --> 00:43:10.300 If your competitor is raising his prices, that means you can raise your price too, or 389 00:43:10.300 --> 00:43:14.780 if you don't raise your price, you'll gain market share, you'll be more competitive. 390 00:43:14.780 --> 00:43:16.820 So either way, you're going to like this. 391 00:43:16.820 --> 00:43:21.320 So why on earth would you sue if they really are acting monopolistically? 392 00:43:21.320 --> 00:43:24.900 You would only sue if they're cutting their price by saying they're gaining market share 393 00:43:24.900 --> 00:43:26.840 and I suspect monopoly. 394 00:43:26.840 --> 00:43:33.820 So with all these private lawsuits, they're typically over against a company that is being 395 00:43:33.820 --> 00:43:34.820 too good at competing. 396 00:43:34.820 --> 00:43:39.880 They're either introducing new products, they're catching on, they're dropping their prices 397 00:43:39.880 --> 00:43:42.480 or they're doing both of that sort of thing. 398 00:43:42.480 --> 00:43:46.240 It just doesn't make sense that you would sue a company for acting like a monopolist 399 00:43:46.240 --> 00:43:50.880 in your industry, because it would benefit. A higher price could create an umbrella effect 400 00:43:50.880 --> 00:43:55.920 for every firm in the industry. Everybody can make more money if the leading company, 401 00:43:55.920 --> 00:44:01.160 the biggest company, is doing that. And so typically, an antitrust lawsuit will be, by 402 00:44:01.160 --> 00:44:09.240 definition, anti-competitive. The best book to read on this is Dominic Armantano's Antitrust 403 00:44:09.240 --> 00:44:14.980 and Monopoly. It's probably for sale outside the door over there, if it's not sold out. 404 00:44:14.980 --> 00:44:20.660 It's a little dated. It ended, I think, in 1982, something like that, when it was actually 405 00:44:20.660 --> 00:44:31.900 first published. But it's a good history book. It covers 55 of the most famous federal antitrust 406 00:44:31.900 --> 00:44:40.680 cases in American history during that period, 1892, basically 90 years. And there's a lot 407 00:44:40.680 --> 00:45:05.680 The Anti-Trust Policy in America is a misleading myth that has served to draw public attention away from the actual process of monopolization that has been occurring throughout the economy. 408 00:45:05.680 --> 00:45:16.680 The General Public has been deluded into believing that monopoly is a free market problem and that the government, through antitrust enforcement, is on the side of the angels. 409 00:45:16.680 --> 00:45:24.680 The facts are exactly the opposite. Antitrust served as a convenient cover for an insidious process of monopolization in the marketplace. 410 00:45:24.680 --> 00:45:30.680 And so I like that quote because it confirms my interpretation of the origins of antitrust. 411 00:45:30.680 --> 00:45:34.680 And if he agrees with me, he must be a very smart guy, in my opinion. 412 00:45:34.680 --> 00:45:38.680 But one final quote is one of my favorites. Maybe you've heard this before. 413 00:45:38.680 --> 00:45:44.680 This is from a famous central planner who said, 414 00:45:44.680 --> 00:45:48.680 The world of antitrust is reminiscent of Alice's Wonderland. 415 00:45:48.680 --> 00:45:52.680 Everything seemingly is, yet apparently isn't, simultaneously. 416 00:45:52.680 --> 00:45:58.680 It is a world in which competition is lauded as the basic axiom and guiding principle, 417 00:45:58.680 --> 00:46:13.680 It is a world in which actions designed to limit competition are branded as criminal when taken by businessmen, yet praised as enlightened when initiated by government. 418 00:46:13.680 --> 00:46:25.680 It is a world in which the law is so vague that businessmen have no way of knowing whether specific actions will be declared illegal until they hear the judge's verdict after the fact. 419 00:46:25.680 --> 00:46:29.680 Anybody want to guess who the central planner was that said that? 420 00:46:29.680 --> 00:46:33.680 It was Alan Greenspan. The graduate students know it. 421 00:46:33.680 --> 00:46:37.680 It was Alan Greenspan in 1962 in a book 422 00:46:37.680 --> 00:46:41.680 edited by Ayn Rand called Capitalism of the Unknown Ideal. 423 00:46:41.680 --> 00:46:45.680 This was back long before he became a central planner. This was when he was still 424 00:46:45.680 --> 00:46:49.680 a pretty good guy. He also had another essay in that same book 425 00:46:49.680 --> 00:46:53.680 in defense of the gold standard. Congressman Ron 426 00:46:53.680 --> 00:46:58.680 Ron Paul, when Greenspan was still the head central planner at the Fed, 427 00:46:58.680 --> 00:47:03.680 would have to go in front of the House Banking Committee, where Ron is on the committee, 428 00:47:03.680 --> 00:47:09.680 and Ron would badger him at every meeting, and they would ignore Ron, of course, but they would badger him anyway. 429 00:47:09.680 --> 00:47:17.680 And Ron told the story of the speech he gave here, that he brought a copy of this essay, Greenspan's essay on the gold standard, 430 00:47:17.680 --> 00:47:21.680 to him and asked him, do you still believe everything in this essay? 431 00:47:21.680 --> 00:47:34.080 and he says Greenspan said, yes I do, every word of it, and then he got Greenspan to autograph his essay, but he was very good on antitrust, what's that? 432 00:47:34.080 --> 00:47:47.080 Yeah, no disclaimer, he has an unabridged signature on that, so that's all I'm going to say for now about antitrust, 433 00:47:47.080 --> 00:48:03.640 Dr. Woods has an example of failure of predatory pricing in the politically incorrect side of American history. 434 00:48:03.640 --> 00:48:15.640 Murray talks about this American entrepreneur who put out a product in the United States that was, say, $5, and he wanted to put that product into the German market, but the German market had also another company. 435 00:48:15.640 --> 00:48:28.640 He wanted to put it out $5 over there, too, but they were selling it at $10, so the German company said, if you don't get out of Germany, we're going to sell the same oil or the same product in your country at a lower price. 436 00:48:28.640 --> 00:48:41.640 Right. So they went ahead and did that, but the American entrepreneur bought up all the products that they were selling in America and sold it at a higher price in Germany about the cartel out of business. 437 00:48:58.640 --> 00:49:08.640 One article, there's a publication called the Antitrust Bulletin. If you work in this area, you might be familiar with the Antitrust Bulletin. 438 00:49:08.640 --> 00:49:18.640 And there was one article in it that I cited in some of my work that claimed that the authors said, okay, we're going to look at all the antitrust cases 439 00:49:18.640 --> 00:49:26.640 that have ever been filed by the federal government for predatory pricing, and we're going to take a close look and decide, was there really predatory pricing? 440 00:49:26.640 --> 00:49:39.240 And they look at hundreds and hundreds of cases and they said, well, there are seven of them that could conceivably be construed over the past 70 years as predatory pricing, as monopoly power gained by predatory pricing. 441 00:49:39.240 --> 00:49:48.640 But then if you keep reading, they said that, you know, but in no case was there fewer than a dozen competitors in these industries. 442 00:49:48.640 --> 00:49:55.880 So they never, they never were able to do what predatory pricing says and create a monopoly, which is a single seller. 443 00:49:55.880 --> 00:50:00.840 All they did was cut their prices and drive the higher price, enough higher price competitors 444 00:50:00.840 --> 00:50:06.520 out of the market so that there were only a dozen left instead of maybe 25 as five years earlier. 445 00:50:06.520 --> 00:50:11.480 So there's never really been any evidence at all of any kind of anybody gaining a monopoly 446 00:50:11.480 --> 00:50:16.120 power of any kind by this method. But like Armantano said, it's all a diversion. 447 00:50:17.560 --> 00:50:21.160 Economists have spent entire careers sitting at their desks 448 00:50:21.160 --> 00:50:37.520 and so forth. And there are hundreds of models of oligopoly, and they're all theoretical 449 00:50:37.520 --> 00:50:43.940 conspiracies. And so you have these economists spending their entire careers writing theoretical 450 00:50:43.940 --> 00:50:49.960 models, not based on reality, but theoretical models like this. When they send their kids 451 00:50:49.960 --> 00:50:55.000 to the monopoly government schools, the monopoly trash collector run by the city government 452 00:50:55.000 --> 00:51:04.000 picks up their trash, just pick any agency of government, they're all a monopoly, they 453 00:51:04.000 --> 00:51:08.960 watch cable TV at night from the monopoly franchise company given a monopoly by the 454 00:51:08.960 --> 00:51:15.280 government and they pretty much, apart from some of the Chicago schoolers and the Austrians, 455 00:51:15.280 --> 00:51:45.280 The Economist profession ignored that for generations. They're surrounded by monopoly power, the farm lobby that creates a farm cartel through the Department of Agriculture. They ignore that, and they focus on their theoretical models of oligopoly, and so they've demonized the market by creating a faux market. It's a fake market. It's a theoretical market, while largely ignoring the real market. That's what has always appealed to me, and appealed to me 456 00:51:45.280 --> 00:51:52.080 by the Austrian School that, like Joseph Salerno said earlier, von Mises and others always, 457 00:51:52.080 --> 00:51:56.880 they were good theorists but they always focused on real world markets and events and wrote 458 00:51:56.880 --> 00:51:57.880 about them. 459 00:51:57.880 --> 00:52:01.640 I mean you can't really understand the real world events without some theoretical guide. 460 00:52:01.640 --> 00:52:05.800 You have to understand economic theory and especially Austrian economics I think is the 461 00:52:05.800 --> 00:52:11.120 best theory but you have to look out the window once in a while. 462 00:52:11.120 --> 00:52:17.120 So there are all these theories, there are hundreds of them, and if you take microeconomics you'll be taught a lot of them. 463 00:52:17.120 --> 00:52:23.120 But the thing about these oligopoly theories, as long as there's the ability for entry to occur, they all break down. 464 00:52:23.120 --> 00:52:31.120 They all ultimately have to assume no entry, because if entry can occur, you don't have any more oligopoly power, monopoly power. 465 00:52:31.120 --> 00:52:38.120 And in today's world, that's almost universally the case, even with government regulation. 466 00:52:38.120 --> 00:52:43.120 You know, satellites have broken up the cable monopoly to a large degree. 467 00:52:43.120 --> 00:52:47.120 You can use satellites. You don't have to buy cable TV anymore. 468 00:52:47.120 --> 00:52:57.120 And then computers and the internet, pretty soon you're going to be able to combine television and your PC pretty cheaply and easily. 469 00:52:57.120 --> 00:53:01.120 Other questions, comments? 470 00:53:01.120 --> 00:53:05.120 Everybody's always worn out by the end of the day here. You people are weak. 471 00:53:05.120 --> 00:53:09.120 What are you, drinking too much at night or something? 472 00:53:09.120 --> 00:53:12.120 You're all younger than me with the exception of maybe one or two people. 473 00:53:12.120 --> 00:53:14.120 I don't know. 474 00:53:14.120 --> 00:53:17.120 And you're all worn out by the end of the day. 475 00:53:17.120 --> 00:53:20.120 There's a robust young man in the back. 476 00:53:20.120 --> 00:53:34.120 Question asked, sometimes when you have the mergers, the cost of the innovation, and that the mergers are a body-wide sell, and an increase in the cost of the company is big amounts, is it possible that that could change the debt around someone? 477 00:53:34.120 --> 00:53:38.120 Is it the high cost for quickly the planet after mergers? 478 00:53:50.120 --> 00:53:57.320 Merger Happens, and so what a lot of economists do who are opposed to mergers, like the more 479 00:53:57.320 --> 00:54:02.480 interventionist minded economists, they fall into what Friedrich Hayek called the pretense 480 00:54:02.480 --> 00:54:03.480 of knowledge. 481 00:54:03.480 --> 00:54:08.040 They claim to know in advance, before the merger happens and before the market reveals 482 00:54:08.040 --> 00:54:13.440 to us what the costs are going to be, that we shouldn't allow this merger to happen because 483 00:54:13.440 --> 00:54:17.240 it's going to raise costs or it's going to do something bad to consumers. 484 00:54:17.240 --> 00:54:18.240 There's no way of knowing that. 485 00:54:18.240 --> 00:54:22.240 The only way to know is to let the market work and reveal to us what happens. 486 00:54:22.240 --> 00:54:26.240 That's how we find out what the most efficient structure of industry is. 487 00:54:26.240 --> 00:54:34.240 For example, there's a big study done by the guy I mentioned, Scherer, Friedrich Scherer, and a guy named David Ravenscraff. 488 00:54:34.240 --> 00:54:43.240 They wrote this into a book and they studied, I forget the number, it was over 500 mergers over about a 30, 35 year period. 489 00:54:43.240 --> 00:55:00.240 And they found that over half of them, half of these companies, within 10 years, spun off a company that they had previously acquired, so that the merger didn't work out, like you're suggesting, the cost went up, and so on that basis they conclude we need more government regulation of mergers. 490 00:55:00.240 --> 00:55:12.240 But the assumption there is that government bureaucrats, aided by economists like Scherer and Ravenscroft, have a crystal ball and can look at these mergers and say, 491 00:55:12.240 --> 00:55:22.240 no, that one's not going to work out, we'll allow this one, we won't allow that. There's no way of doing it. It's all pretentious. It's hubris. They have no way of knowing that. 492 00:55:22.240 --> 00:55:28.180 And the way I would look at it, which I think is the way most Austrian economists would look at this, 493 00:55:28.180 --> 00:55:37.060 is that these mergers that fail to reduce costs do have some value in that they tell us what doesn't work. 494 00:55:37.060 --> 00:55:39.500 And that it's the only way to know what doesn't work. 495 00:55:39.500 --> 00:55:42.500 And so if they don't work, they won't be imitated. 496 00:55:42.500 --> 00:55:46.420 The mergers that do work, those will be imitated and will be repeated. 497 00:55:46.420 --> 00:55:51.340 And so the whole industry will become more efficient by merging in that way. 498 00:55:51.340 --> 00:56:21.340 For example, a company that has a lot of production engineering expertise, merging with another company that has little engineering expertise but is great on marketing, so they'll have some sort of a synergy there, you know, good marketing and good engineering, that might work, but other types of mergers maybe not, it won't work, but so mergers, you know, mergers are a process, they're part of the competitive market, and the market reveals information to us. 499 00:56:21.340 --> 00:56:26.940 And that's one important kind of information is what the most efficient structure of industry is. 500 00:56:26.940 --> 00:56:34.740 So, in fact, Hayek's Nobel Prize speech when he accepted the award, the award was called the pretense of knowledge. 501 00:56:34.740 --> 00:56:40.440 It was all about this. It was published in the American Economic Review and when was it? 502 00:56:40.440 --> 00:56:43.640 Probably around 1976 in the May issue, I think. 503 00:56:43.640 --> 00:56:50.440 And so, the theme is that this is all pretentious that some central planner could know in advance what's going to happen. 504 00:56:50.440 --> 00:57:19.440 Too much prestige, yeah. Yeah, that's true. You know, the Nobel Prize in Economics is funded by the Swedish Central Bank. It's not funded by Alfred Nobel's money. That was the science, you know, but the Swedish Central Bank started the Nobel Prize in Economics. 505 00:57:19.440 --> 00:57:25.440 Hayek won the Nobel Prize in Economics, so it's a prize given out by central bankers. 506 00:57:25.440 --> 00:57:31.440 So that's probably another reason why Hayek, he took the money though, he took the money, he didn't turn down the money. 507 00:57:31.440 --> 00:57:39.440 His co-winner was the Kami Pinko Gunnar Myrdal, a Swedish communist. 508 00:57:39.440 --> 00:57:52.440 And so the Nobel Committee at that time was in 1975, 1974, and they lose track of time anymore, but they couldn't stomach giving it just to Hayek, they had to give it to a communist also. 509 00:57:52.440 --> 00:58:06.440 Well, they started with a commie, Paul Samuelson, right? No, he wasn't a commie, he just idolized the Soviet economy a lot, as these guys were telling me. 510 00:58:06.440 --> 00:58:10.920 telling me, one of their professors at GMU, for those of you who don't know about Paul 511 00:58:10.920 --> 00:58:20.240 Samuelson's textbooks, for decades he had a graph in it, maybe I can imitate the graph, 512 00:58:20.240 --> 00:58:37.800 Comparing, it looks something like this. Here's a U.S. economic growth. And here's a U.S.S.R. 513 00:58:37.800 --> 00:58:45.120 And then this year would be, say, 2000. Then in the 1990 issue of the book, they erase 514 00:58:45.120 --> 00:59:15.120 and then they sit and say, well, 2020, and then, you know, the later edition, well, it's not looking, it's not working out that way, eh, 2050, and so, beginning with the 1948 version, he had a graph kind of like this, just taking as truth statistics published by Stalin on economic growth in Russia, Soviet Union, and claiming that they're growing so fast that, you know, at a certain 515 00:59:15.120 --> 00:59:30.120 They're going to be bigger than us, and I don't know when the last one was. Was it 1988? You guys remember that, around there? 1988 or 89? Somewhere around there, yeah. 516 00:59:30.120 --> 00:59:41.120 Okay, so any other questions, comments? Oh, worn out, worn ragged. Okay, well I don't want to keep you here against your will then. We'll call it a day.