WEBVTT

NOTE Pietism and the Power Brokers

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The Republican Party, which used to be called, in the previous party system, the Party of Great Moral Ideas, is now called the Party of Prosperity.

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In other words, this is, as McKinley calls, the Party of the Full Dinner Pail.

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Notice the shift from so-called, what we now call social issues, prohibition, crushing Catholics and all that,

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to a much more modest, stressing the economic issues, protective power, things like that.

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The Democrats now become the party of piety, the great moral crusade against the saloon.

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And over the, as the years go by, the pietists begin to shift back to the Republican Party.

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They begin to, first of all, pietism, they begin to have second thoughts or whatever

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and we wind up with the Republican Party as a major party, as I say.

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Look at the, here's a table of partisan leads, in other words, party, party leads and percentage

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points.

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For example, if one party gets 51% of the vote, let's say the Democrats get 51%, the

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Republicans get 49, this means a two percentage point lead, okay?

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So in a close election you'll have leads of 2%, 3%, 4%, when the leads get much bigger

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it means you're really crushing the opposition.

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Now here we have for each region in the country, average of 1882 to 92, and the average 1894 to 1904, in other words, before and after the Great Change.

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Yeah, good Hans, cut out the gigglers.

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Also we've got plenty of air coming up from the broken window, we don't really need that.

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New England, before the change, was moderately Republican, fairly heavily Republican, a very piousist, as we know, Yankee area, plus 8.1% lead, in other words Republican lead.

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Afterward, it becomes plus 23.6%, in other words becomes very heavily Republican, overwhelmingly Republican.

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The Middle Atlantic states, which are neck and neck, New York, Pennsylvania, New Jersey, etc., where it was 0.1% Republican, that was really tied, very close elections, now becomes plus 16.9% Republican, overwhelmingly Republican.

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In other words, we now have, and this is true, up until 1932, well it's 1896, except for

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Woodrow Wilson's election, which is a fluke, East-North-Central, which is what we call

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the Midwest, in other words, Michigan, Ohio, Indiana, Illinois, Wisconsin, basically, which

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had been 1.1% Republican, it was almost tied again, now becomes 14.8% Republican, so overwhelmingly

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And then we have the South, which had been heavily democratic, is more democratic, becoming

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more pietist, plus 32.6% Democrat, now becomes plus 39. What happened in the South was that

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So as the so-called progressives take over, we'll get to the progressives, of course,

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very soon now. Progressive era, possibly 1900, 1918, or 1900, 1920, whatever you want to

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call it, when both parties become progressives or statists, the southern progressivism meant

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this progressive disfranchisement of blacks. What happened after the Civil War was the

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The White Voters voted Democratic, the Blacks voted Republican, almost automatically.

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There began a progressive disfranchisement of Black voters, so that almost no Blacks

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in the South voted by saying that by about 1900.

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Various ways of, for example, in order to vote in the South, you had to interpret the

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state constitution to the satisfaction of the election official, who was always white.

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So, you know, it's very subjective, first of all, who knows what the state constitution

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is?

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Who knows the New York state constitution?

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So you can always claim that the black can't really interpret the constitution properly and that was the end of that.

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Also there was a poll tax fairly heavy which disfranchised most poor white voters.

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So the result was a restricted suffrage in one party and one party region.

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The border states, which was essentially Kentucky, Tennessee, Missouri, etc. places like that,

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which had been 10.9% Democrat, now become neck and neck, in other words, 0.6.

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This again shows the shift toward the Republican, except for the South, shift toward the Republican Party.

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And the mountain states, which are essentially the three silver states that I talked about, Idaho, Wyoming, etc., which had been 11.7% Republican,

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Excuse me, you have been, yeah, and now 3.8% Democratic, this is the attraction of Brianism

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and Puppets and the free silver.

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And the Pacific states, California, Oregon, Washington, which had been 3.5% Republican

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are now 15.5% Republican.

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So we have a basic shift throughout.

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States which are slightly Republican become heavily Republican, states which were tied,

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especially Middle Atlantic and Midwest now become heavily Republican.

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So we wind up, as I say, with essentially South as a democratic region and a few big

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cities.

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Even the big cities are now neck and neck.

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We're the only, the Irish, as I said last time, are dedicated Democrats.

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The others begin to shift over.

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As a whole, we now have U.S. total and U.S. outside the South, non-South.

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The previous 1882-1992 average had been 2.4% Republican, and now becomes shifts from 2.4% Republican to 14.5% Republican, overwhelming.

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including the South, with 3.7% Democrats, now 7.7% Republicans.

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So we have, in other words, essentially a one-and-a-half party system, basically a Republican

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system, with the South as a one-party region, and some big cities.

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Even the big cities, however, begin to shift, for example, Boston, which had been heavily

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democratic, is now more or less tied, sort of even, Brooklyn, which used to be an important

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separate city, by the way, until about after 1900, was heavily Democratic, is now about

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tied with Republicans. I'm not talking about now, of course, I'm talking about after 1896.

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Baltimore, which had been heavily Democratic, is now heavily Republican, and Chicago, which

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had been heavily Democratic, is now heavily Republican. So even the big cities shift.

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We're not used to that now, not used to the idea of Republican big cities, but I can say

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were there before 1932. So along with this comes a drop in the turnout rate. Now we hear

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a lot about the drop in the turnout rate now, and people act as if the turnout rate only

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started dropping after 1950 or so. In other words, turnout rate means the percentage of

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eligible voters actually turn out and vote. I'm not talking about registered voters, those

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who could vote, those over 21 and that sort of stuff. It's now down to about 38%, very

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very low, of course. Back in the old days, the third party system was about 80-90%, a

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higher force in presidential election. Turnout rate begins to drop very quickly. The drop

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starts in 1896. It starts when the party system shifts to a non-ideological, not much contest

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either because heavily Republican and non-ideological, but there's not too much difference between

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in the Parties. And so people being faced with an echo rather than a choice, take the

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words of Barry Goldwater, famous words of Goldwater's campaign in 1964, we offer the

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public a choice, not an echo. Essentially, parties have been echoes of each other since

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1900. And the turnout rate begins to drop very quickly after 1896. For example, this

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So, this is the turnout rate, as a percentage of eligible voters, I mean percentage of,

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yeah, voters who couldn't vote, which drops, it only increases, by the way, in the border

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states, which now become close contests, and the mountain states, all the others drop sharply.

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Here we have 1874 to 92, average turnout for all elections, 1900 to 1918.

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New England, this includes presidential and non-presidential, so it's lower than it would

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be for presidential as we'll see in a minute.

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56% this period drops to 48, that's a drop of 8 points, 8 percentage points.

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Central Atlantic States, which on average 68% turn out, drops to 55, minus 13.

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East North Central, which had been 75% turn out, drops to 61.

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West North Central, which had been 65%, drops to 62.

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South, of course, drops very heavily, because half the people are disenfranchised, blacks

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are disenfranchised and poor whites are disenfranchised.

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That rate drops from 56% to 25%, 32%, 31%.

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Border states drop from, well actually, about the same, 66-66% is more intense party competition

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now.

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Mountain states go up with an increased competition, 55-74%, not many people in the border mountain

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states, however.

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Pacific drops from 53 to 44. Again, U.S. non-south drops from 67 to 57, and the U.S. total, including

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the South, drops from 65 to 51. So here's a big shift right there after 1900. Now it's

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down to about 38. Also another thing happens. Some historians say it was due to the fact

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of Registration comes in. In other words, see, before the 1900s, before the so-called

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progressive period, we'll talk about it at some length. By the way, the progressives claimed,

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progressive historians, claimed that the progressive era was an era of expanding democracy, right,

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with government regulation increasing and all that. If it's expanding democracy, how

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come the turnout rate drops? How come the number of people voting drops? What kind of

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expanding democracy is that? Anyway, the orthodox explanation for this drop in the turnout rate

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is that registration requirements increase. Before 1900 you didn't have to register,

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you just showed up and voted. The whole idea of having to register three months in advance

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of course cuts down the number of votes. It was deliberately designed to do that, by the

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way. However, it does not explain the low turnout, the drop in the turnout rate, because

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the drop in the turnout rate took place in urban areas and rural areas. The registration

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only came in in urban areas for a long time. In other words, if you're a farmer who lives

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in upstate New York, you didn't have to register, only city people had to register. There was

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and an attack on the city voters by Republican wasps against Democratic ethnics in the city.

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That was the whole point, immigrants and so forth.

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But this particular drop in the turnout rate had nothing to do with registration requirements,

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because it was just as heavy in the rural areas as it was in the cities.

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Also, as I say, the turnout increase in the border and mountain states,

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some people had something to vote about. They had some competition, at least, between the parties.

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And more severe drop we can see in the presidential turnout, which of course is of the greatest interest of people.

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The turnout rate in presidential elections, this is for oral elections, this first table.

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And now we come to turnout rate presidential elections.

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Before the party system, before the third party system, in other words, from 1826 to 38

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In the second party system period, the presidential turnout rate averaged from 55 to 58 percent.

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In 1840, which was the beginning of a very hot election between the Democrats and the Whigs, it was up to 80 percent.

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And between 1844 and 92, in other words, the heartland, the period of the third party system, more or less,

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it was 70 to 84 percent, more on this end of it.

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And we get 1896 election at 78% and after that it begins to decline, in other words 1900, 72%, 1904, 1965, 1908, 1968, 1912 with 56, a hotly contested election by the way, but people began to lose interest.

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1960s, 1960s, it was 60. So what you have is a basic drop from about 80% during the third party system to about 60, or 55, 60 before World War I, and it's been dropping ever since, of course, too.

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Another thing I have is in addition to the overall drop, particularly drop concentrated in church members.

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Notice, before this, this again boasters the idea that the whole thing is SL religious in origin.

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Church members voted much more heavily, whether it's catholic or protestant or pietist or

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liturgical, voted much more heavily than non-church members, because they were much more fired

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up. The drop in church members was much greater. In other words, the big turnout rate drop,

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voting rate drop for church members, and a big drop among the poor. Before 1900, poor

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people voted even more heavily than wealthy people. This, of course, is now, has been

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a big drop among poor people. Let's go to this day. Poor people are not interested.

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This is the turnout rate for all elections. This is the turnout rate for presidential elections, where the interest is always at a peak, contrasted with all key elections.

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The reason is the same, but I'm saying they're concentrated more heavily among church members

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and poorer people where the interest is fired up in an ideological issue.

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Many middle class people vote because they think it's their civic duty, they learn in

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a school that it's their duty to vote, they don't really care, it's sort of an obligation.

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But in those days voting was not an obligation.

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people were fired up, they were intensely interested, especially if they were church members, either

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pietists or liturgical, and they had something to vote about, you know, it makes a great deal of sense.

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Also, we look at the newly eligible voters, another interesting statistic, those who either became 21 or

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just, you know, became naturalized aliens or whatever, they didn't have the habit of voting,

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so the first people to drop off and not vote are those who've never voted anyway,

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So if you look at first voters, those who are newly eligible to vote, from 1876 to 1992, 62% voted.

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In other words, 62% of the newly eligible voters voted that year.

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From 1900 to 1916, it's 41%.

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You have a big drop in first voters.

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And as I say, people have always voted, and might continue to vote anyway,

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even if they had no choices anymore, they've always voted in elections.

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and the new voters are those who haven't picked up the habit yet, so they are the people who were first hit by the drop in interest, you know, the drop in the basic choices available.

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Okay, McKinley is now president and we have the McKinley cabinet, examine the McKinley cabinet, comes in 1896 in this new party revolution, so to speak.

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The cabinet is almost solidly a Rockefeller cabinet. Before I get to that for a second, I have to point out, by this time, by the late 1890s, there were two big financial groups in the country, power groups, the Morgans and the Rockefellers.

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The Rockefellers, as I say, run the Republican party through an Ohio party. The Morgans are in the process of shifting the Democrat to Republican or shifting their emphasis.

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Each one is a collection of financial groups. The Rockefellers, as I said before, always

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are together with a whole bunch of families, not just one guy. It's a whole bunch of families.

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The Prats, the Boswicks, the Bedfords, the Rogers, all these people have ever since then

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moved with, invested with the Rockefellers. They have a whole powerful complex. Also each

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one begins to get their investment back. In other words, investment banks become important.

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Commercial banks are important. These are depositing, checking banks, etc. So each

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group begins to get their own insurance companies, their own commercial banks, their own investment

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banks. Life insurance companies in particular, as I mentioned before, ways of voting a lot

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of capital, amassing a lot of capital which is run by trustees who get control by either

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Morgan's or Rockefeller's and they vote for their guys and their companies. So we now

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have the following sort of financial group. In the J.P. Morgan group, of course the headquarter

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This is part of the J.P. Morgan & Company which ships from Philadelphia to New York

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around somewhere before this period with Morgan Partners, these are all private partnerships

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and they get partners who are important close to Morgan and they run the biggest financial

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groups all over the country but the Bankers Trust Company which was set up to engage in

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trust certificates in trust form, we'll see a little later how that becomes important

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The big commercial bank is the Chase National Bank, which is run by Morgan, which shifts

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in control, by the way, in 1930, shifts to the big Rockefeller bank, it's been the big

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Rockefeller commercial bank ever since.

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David Rockefeller was the chairman of the board until very recently.

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The first national bank in New York, which is headed by George F. Baker, probably the

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closest Morgan ally, long old friend, associate, whatever, another big commercial bank.

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By the way, the Rockefellers, I'll say in a minute, control national city bank, that

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That changed to Morgan Control in the late 1930s and after that merged with National

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City to become First National City and finally of course now City Bank, which has been a

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Morgan Bank since the 30s, guaranteed trust company, commercial bank, which is now Morgan

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Guaranteed Trust, so it's officially Morgan, not just in reality, mutual life insurance

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Company, which is their big life insurance, future life and National Bank of Commerce.

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Anyway, these are the major, there are a whole bunch of other companies and railroads and

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all that, but these are the basic financial agglomeration.

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The Rockefellers, of course, had Standard Oil as their basic, Standard Oil trust as

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their basic, as their base of operation.

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And then they had Rockefeller, you know, Rockefeller himself lasted until the age of 98, I still

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remember.

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He was still alive when I was growing up and he had seen sort of a mummy-type, he was short

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in BDI anyway, began to look more mummy-ish as time went on, but he was sort of semi-retired

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by about 1900 or so, I mean he wasn't really retired, but he was beginning to phase out

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a bit.

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His brother, William Rockefeller, becomes a key figure and who takes charge of the National

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The City Bank, which was run by James Stillman. So, Stillman and Rockefeller form an alliance.

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Commercial City Bank comes to their big commercial bank.

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And if the alliance was even more personal than that, because,

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William Rockefeller, by the way, is president of Standard Oil in New York, which then later became Soconi Vacuma,

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The two sons of William Rockefeller marry the two daughters of Stillman, the two Rockefellers

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marry two Stillmans.

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This is what happens, by the way, in dynastic marriages, of course it happens with kings

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and queens and all that.

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It also happens with the top power elite in the United States where you have intermarriages,

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you try not to have a situation.

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Bobo Rockefeller and one of the Rockefeller daughters married a coal miner, I think, back

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in the 50s.

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It's frowned on.

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Usually what happens is you're married, your social institution is you're marrying your

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own set.

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And here you have two Rockefellers marrying two Stillmans, which sort of cements the Rockefeller-Stillman

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alliance and the Coal-National-City Bank.

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U.S. Trust Company, I think was in Boston, was Rockefeller, was a few Boston financial.

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Farmers Loan and Trust Company, etc. and Rockefeller still needs an investment bank,

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you see he's got a couple commercial banks, he's got a national city, he needs some kind

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of alliance with an investment banker, obviously it's not going to be Morgan, because Morgan

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and Rockefeller hate each other, they've got their engaging economic and later we'll see

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and Political Clashes, Rockefeller hooks up with Kuhn Loeb as a basic financial advisor.

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We have coming up in the late 19th century a group of German Jewish investment banks

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in New York, Kuhn Loeb, Lehman Brothers, a bunch of others, Loeb Roads and so forth

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and so on.

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Kuhn Loeb was a major one and it was connected with German banking firms, Warburg and company,

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and Global Interrelated in Germany, and Jacob Schiff was the maximum leader of the Tumulo.

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Schiff formed an alliance with Rockefeller against Morgan.

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Obviously, there was a big conflict between the Morgans and Tumulo, etc.

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Schiff formed an alliance with Rockefeller in this mighty, titanic economic financial struggle.

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Another person becomes important in this whole period,

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to understand both the economic and political end of it.

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The last of the great tycoons, I've already mentioned some of the great tycoons, Hill,

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Gould, Rockefeller, Carnegie, super tycoon types who start with almost nothing and wind

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up with real big shots, and Morgan at some extent, although his father was quite a wealthy

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British banker.

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This is Edward H. Harriman, another very important figure who has been underestimated by historians

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both in his economic and his political influence.

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The New Deal, for example, the Roosevelt New Deal was really a Harriman New Deal, and the

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role of the Harriman family is underrated.

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W. Averell Harriman, former governor of New York, was the political arm of the Harriman

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financial group.

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He's still beloved, he's about 90 years old or something, he's still very powerful politically

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in the Democratic Party, at any rate.

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Edward H. Harriman started as a, was also short, thin, this enters, by the way, in a

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personal context, since Morgan was tall and beefy and, you know, charismatic or whatever,

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one of the reasons he hated Harriman was because he preferred him as little Harriman.

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Rockefeller's also short, Hill is short too and he formed an alliance with Morgan, so

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it doesn't work, it's not a one-to-one correlation, it's part of the, at any rate, Harriman grows

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He grows up as a fairly poor, I think he grew up, I think he was born in Long Island, and

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becomes a young, a young clerk in Wall Street, he becomes like a runner, whatever it is,

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I forget what they call him, bulletin boy or something, he posts a stock like, he starts

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at the age of 14 or something as a bulletin boy, and becomes very, he's poor, he's son

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He was kind of a minister, no education, none of these guys went to college of course, didn't waste time going to college, I keep stressing this.

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He becomes, yeah, quotation boy is what it's called, you know, chalking up, there was no computers in that of course, chalking up the quotations.

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He rises very quickly to become a top stockbroker, a brilliant financial, real financial genius, and very good at stock manipulation and stockbroking.

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Okay, he marries in 1879, he's born in 1848, marries Miss Averill, I don't know her first name, I suppose I could dig it out if I'm really interested, her father owned a small railroad in upstate New York, and he buys the railroad out, becomes head of it, buys it out, and from this he starts becoming a railroad tycoon, he's really brilliant, I mean, he just goes from one railroad, starts with a small railroad line, ends up with a bigger railroad, medium sized railroad, and he starts, he winds up

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Strolling, first he gets control of Illinois Central in 1881. He clashes with Morgan. Now,

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here's Morgan running the whole railroad world, not used to the young upstart, suddenly buying

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railroads out from under him. The Buick and Sioux City Railroad, a very important Morgan

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railroad in the Midwest, and even though not too big, Morgan loved it and all of his pals

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were running it. Harriman takes it away from him and buys it out from under him using what

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In 1886, he grabs control over Morgan of the Buchan City Railroad, and here's Morgan, the

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whole railroad world was supposed to be his oyster, so to speak, and here's this young

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pup, young upstart, grabbing it away from him, and he hated Harriman from then on.

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So Harriman begins to take over railroad after railroad, he takes over, as they become bankrupt

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Morgan takes over the Union Pacific, takes over the Southern Pacific, which includes

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the Central Pacific.

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He's now running the whole schtick, all the trash can't run over except the Northern Pacific

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and Hill's Great Northern.

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So Hill, also in the 1890s, Hill completed the Great Northern without competing in the

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Northern Pacific.

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The Northern Pacific was sort of bankrupt.

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Morgan takes over the Northern Pacific in the form of an alliance with Hill.

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Steve Hill is a very good railroad man and he forms a big Morgan-Hill alliance and tries

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to get control of Burlington and Quincy, which goes from, you know, is the way to get from

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Omaha or whatever to Chicago, and Harriman beats him out for that, and again a big, big

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Titanic clashes, and Harriman now moves to try to get control of the Northern Pacific

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from Morgan, the Titanic struggle, huge amount of money involved. Who gets control of the

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Northern Pacific? Big stock fight, big hysteria involved here in the late 1890s. And Herman

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gets a lot of, gets, forms an alliance with Rockefeller and Kuhn-Loeb as against Morgan

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and Hill for the control of the Northern Pacific. And this becomes politically very important

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because part of, I'm convinced this is part of the reason for the Titanic struggle politically

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which starts with Teddy Roosevelt's administration, we'll get to it very shortly now, after we

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talk about the mergers and their failure, but politically what's happening here is we have

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the Harriman Rockefeller-Kuhn-Lowell alliance which continues from then on, in other words

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what basically the, to look at it very simply, Teddy Roosevelt was a McKinley administration

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was Rockefeller, Teddy Roosevelt was a Morgan person, almost from birth as we'll see, and

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We begin to have the two struggles that go on politically are essentially reflections

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of the struggle between Rockefeller-Kunlob-Harriman alliance versus the Morgans.

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And the New Deal, Franklin Roosevelt New Deal, was essentially a bitter attack on the Morgans

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with the alliance of Rockefellers and Harriman, especially Harriman, who was a powerful Democratic

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party person at this point.

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Anyway, so these are some of the behind the scenes struggles which make sense out of alleged political, at least lend clarity to alleged political struggles.

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At any rate, this is beginning, building up with the end of the McKinley administration, the fight over Northern Pacific, I'll get back to that, just hold that in your mind as a great Northern Pacific struggle.

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Okay, McKinley has a cabinet in 1896. It was mostly Rockefeller with a couple of sops for the Morgans. After all, Rockefeller was the winning combo.

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Rockefeller-McKinley was the winning combination of the Republican Party, but the Morgans were now Republicans or mostly, and so they had to have a certain sop.

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Let's go down the list of some of the top cabinet officials and general administration stalwarts.

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Works. Secretary of State under McKinley was John Sherman of Ohio, therefore of course

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Rockefeller, basically a Rockefeller payroll for many years. When you say Ohio you say

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Rockefeller, at least in the Republican Party. Secretary of the Treasury, of course a key

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The key spot was a certain Lyman J. Gage. Lyman Gage had been a Chicago banker and had

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been a Cleveland Democrat, as a matter of fact, before the great Brianite takeover.

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But he was not a Morgan person. He was definitely a Rockefeller person. He was president of

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He was one of the first national bank of Chicago before he became Secretary of the Treasury.

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And he was also a big corporatist as we'll see.

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Weinstein, stop reading by the way, in addition to Kogo, the first couple of chapters of Weinstein

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is especially dealing with the National Civic Federation which was the, I think that's the

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first chapter.

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A big corporatist of corporate liberal institution moving towards statism, representing big business

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of Interest, an alliance of intellectuals and a few labouring leaders, moving towards

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state control, state regulation, etc.

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Gage was the head of the Chicago Civic Federation, which was the initial, sort of the birth,

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the birth of the National Civic Federation, I'll get to that later.

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Anyway, he was former president of the American Banking Association, and the first National

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Bank of Chicago was the, essentially a subsidiary of the Chase of the National City Bank in

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New York.

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close to the ally to it, which of course is Rockefeller.

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When Gage leaves the Secretary of Treasury's ship, the question is,

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always you have to look at what were these guys before they were Secretary of the Treasury and what were they afterwards?

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They didn't just pop out of thin air, they didn't descend from heaven in a vacuum.

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So I just say before that he was head of the First National Bank of Chicago, which was in the Rockefeller National City Bank ambit,

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and after he gets out of there he becomes president of the U.S. Trust Company, which is a Rockefeller company.

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The Assistant Secretary of the Treasury, you have to realize in those days government departments were much smaller, there was no undersecretary, deputy secretaries, there was just one assistant secretary and that was it, a great era.

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So the Assistant Secretary of the Treasury was a certain Frank Vanderlip, in addition to being a banker, was also a pain in the neck intellectual.

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and he's always issuing pronouncements, reformed pronouncements about banking, as we'll see,

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he's a theoretician in other words. Frank Vanderlip, after leaving, what does he do

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after he leaves the Assistant Secretary of Treasury post, he becomes president of the

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National City Bank itself. In other words, the top Rockefeller man in the banking business.

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So you have a solid Rockefeller treasury department under McKinley.

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Secretary of War was Russell Alger of Michigan, who was the former governor, head of the Republican

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Party of Michigan, and wealthy lumber man, and director of the U.S. Express Company,

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which is controlled by Boss Platt.

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We'll get to Boss Platt in a minute.

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So as we'll see later, by the way, he was head of the Diamond Match Company, which was

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The Secretary of War was Russell Alger of Michigan, an ally of Boston Platt, the Secretary

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of Navy was John Davis Long, but he was the director of the U.S. Trust Company, which

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was Rockefeller.

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So once again we have a lot of certain Morgan connections, I mean basically rock-a-thawing.

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The ambassador to Great Britain, which is also a very important post in the state and

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the foreign service, it still is, the top power elite post was none other than Joe Choate,

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was a top lawyer for Standard Oil and for Rockefeller personally. In other words, Rockefeller and Standard Oil.

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Okay, the Speaker of the House, now looking at the legislature that McKinley was working with, the Congress,

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was Thomas Reed of Maine, who was a very close and all-time friend of Henry Rogers, who was

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one of the top standard oil executives in Rogers' family and standard oil Rockefeller,

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so Reed was essentially Rockefeller.

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Boss Platt, who was the friend of Alger, was a Republican boss in New York State.

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Platt was an old high school chum and schoolmate and chum of Dondi Rockefeller in Owego, New

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York.

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Before he moved to Cleveland, he was a couple of years in high school in Owego, upstate

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New York.

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It's a very good thing there would have been a high school chum of Rockefeller with us

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in Cleveland and New York.

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Rockefeller class chum. There was one other guy, his name I forget now, who was also a chum, a tallard Rockefeller, because they were both teaching in Baptist Sunday School. I forget who that one was. Anyway, that was a good thing too.

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The one way to get ahead in the world is to be a high school classmate of Rockefeller. Unfortunately, most of us are not going to make it.

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Alright, the Senator, the Majority Leader of the U.S. Senate, very powerful figure for

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many years, Senator from Rhode Island, Nelson W. Aldrich, Nelson W. Aldrich entered the Senate

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in 1881 as a sort of a middle class wholesale grocer, fairly well off and not spectacular.

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He retired 30 years later, he died in office 30 years later, with assets of 12 million dollars, which is equivalent now to about 100 million.

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The question is, how did he do it, because he didn't have a, salary wasn't very high.

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How did he get this money? It's like Lyndon Johnson, spending all of his life as congressman and senator or president, winding up as a multimillionaire.

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Well, one thing is he bought the legislation of Rhode Island legislature, he got himself public utility franchises of big, of course.

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and of course, who gets the contract to have an electric company and provenance run out?

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Either himself or his brother or his friends.

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So essentially he bought out the whole Rhode Island legislature.

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Anyway, who was he? Who was Senator Aldrich?

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Senator Aldrich happened to be the father-in-law of John D. Rockefeller Jr.

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In other words, John...

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If he can't be the high school chum of Rockefeller, be his father-in-law, would be the father-in-law of his son.

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He's the father-in-law of John D. Jr., making him an distinguished member of the family.

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Abbey Oldrich, whatever the name is.

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Governor Rockefeller died recently, Nelson Rockefeller's middle name was Oldrich.

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In other words, he was named after a beloved family member and kinsman, Nelson Oldrich.

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His name was Nelson Oldrich Rockefeller.

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Winthrop W. Oldrich, son of Nelson, became head of the Chase National Bank when Rockefellers

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took it over from the Morgans.

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One great moment, sometime in the 1950s, I forget the exact year, a marvelous moment

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to see how the power elite really runs politics, Thomas Dewey, who was a beloved governor of

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New York for many years, was obviously really a tool of the Rockefeller machine.

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So one year he decided he was going to quit, he was tired of being governor, he wanted

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to make some money, he wanted to go into private law practice and make millions.

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He announced that he was going to quit, and the guy who would have been the Republican

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candidate was Lieutenant Governor Hanley, some upstate New Yorker, no prominent, nobody

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He was called to the office, he had a New York World Telegram, a paper now in law, and got a hold of this thing, the story, and published it.

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He was called to the offices, that was Winter of Aldrich, head of the Chase National Bank, member of the Rockefeller family, called Dewey into his offices for a meeting.

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Issued a summons, you will appear next Thursday at noon. Dewey meekly appeared and he ordered Dewey to run for re-election, and Dewey accepted it.

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It's very interesting, it sort of gives you a little window on the two, what really happens in American politics.

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His master's voice, okay, yes sir, I will run for governor again.

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They finally allowed him to retire after four more years or something, he finally made some money before he corked off.

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But he, so the Republican Party in New York for many years was essentially a Rockefeller party,

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and when Nelson actually ran for governor and then for president, it was an open drive for power by the family itself.

392
00:39:15.720 --> 00:39:29.720
As a matter of fact, John D. Sr. and his brother William had one son, John D. Jr., who died I think either before Sr. or just a year or two afterwards.

393
00:39:29.720 --> 00:39:36.720
And then there was the famous brothers, getting a little old now, but running things until very recently.

394
00:39:36.720 --> 00:39:41.800
Johnson, the political arm, David, who was head of the Chase Manhattan National Bank,

395
00:39:41.800 --> 00:39:50.800
Chase Manhattan Bank, the financial power, Lawrence is in charge of recreation and land

396
00:39:50.800 --> 00:39:55.960
conservation, buys up resorts and then turns everything else over to public parks, there

397
00:39:55.960 --> 00:39:56.960
wouldn't be any competition.

398
00:39:56.960 --> 00:40:04.280
He's in charge of recreation, John D. Junior, John D.'s third or something, I forget what

399
00:40:04.280 --> 00:40:06.320
he's in charge, I guess he's just regular with business.

400
00:40:06.320 --> 00:40:36.320
and then it was Winthrop who sort of got drunk a lot so he shipped him off to Arkansas, he became governor of Arkansas for a while, he sort of exiled in Arkansas, the black sheep of the Rockefeller brothers, now we have of course a whole bunch of Rockefellers, the cousins as I call them, you know, dozens of them, of course they all operate together, they have a family investment team, Rockefeller brothers, at any rate, in this Rockefeller domination of the government, there were certain stops on the

401
00:40:36.320 --> 00:40:49.320
One of the SOPs, slightly was John Hay, became Secretary of State after Sherman. Hay was basically a Rockefeller person. He was a former journalist and other theoretician. You always have to watch out for theoreticians in politics.

402
00:40:49.320 --> 00:40:57.320
He was Secretary of State after 1899, or 1998. He was from Cleveland, Ohio, he was a higher Republican, and all the rest of it.

403
00:40:57.320 --> 00:41:05.320
His brother-in-law was Samuel Masser, who was a big businessman in Cleveland, and he was also, however, connected also with the Morgan Federal Steel Company.

404
00:41:05.320 --> 00:41:08.280
certain ties with the Morgans, which we'll do in a good stead later.

405
00:41:08.280 --> 00:41:17.780
Anyway, he was basically a Rockefeller, and the Attorney General later on, two or three

406
00:41:17.780 --> 00:41:20.800
years into the administration, was a guy named Gregson New Jersey, who was essentially a

407
00:41:20.800 --> 00:41:21.800
Morgan person.

408
00:41:21.800 --> 00:41:23.280
Basically, he was a solid Rockefeller administration.

409
00:41:23.280 --> 00:41:26.480
There was one, however, that stopped, but what always happens is the other faction gets the

410
00:41:26.480 --> 00:41:27.480
vice presidential nomination.

411
00:41:27.480 --> 00:41:32.120
So the vice president under McKinley was a guy named Garrett Hobart, who I'm sure none

412
00:41:32.120 --> 00:41:33.120
of you have ever heard of.

413
00:41:33.120 --> 00:41:37.120
Here he was, distinguished vice president of the United States, nobody's ever heard of him.

414
00:41:37.120 --> 00:41:46.120
Garrett A. Hobart, who was a Morgan man from New Jersey.

415
00:41:46.120 --> 00:41:50.120
He was a New Jersey politician, senator and so forth and so on.

416
00:41:50.120 --> 00:41:56.120
And he was the director of Morgan's Liberty National Bank in New York.

417
00:41:56.120 --> 00:42:06.120
and also in, I think, with Morton Soil Company, which is a Morgan company and a couple of other Morgan directorates.

418
00:42:06.120 --> 00:42:18.120
So he was essentially in the Morgan stable, New York Life Insurance Company, which is Morgan, and he was the basic stop for the Morgans.

419
00:42:18.120 --> 00:42:24.680
Morgan. In 1899, Gary Hobart died, died feeling young, at the age of 53 or something, and

420
00:42:24.680 --> 00:42:29.320
there's a vacancy for the Morgan person in the vice presidential nomination. McKinley

421
00:42:29.320 --> 00:42:32.840
of course is going to be re-nominated in 1900, he's going to win the landslide against the

422
00:42:32.840 --> 00:42:37.760
idiot Brian who's been put up again by a Democrat. The question of who should be vice president,

423
00:42:37.760 --> 00:42:44.000
and of course it had to be a Morgan person, and it's a very fateful day because Morgan

424
00:42:44.000 --> 00:42:46.960
insisted, he offered it to almost everybody, everybody in the Morgan came, he offered it

425
00:42:46.960 --> 00:43:16.960
The only Morgan man who would take it was Theodore Roosevelt, who everybody in the McKinley administration hates as a guts doll, they all thought he was nuts anyway, they said he was crazy, insane, there's a certain justification for that, I don't think he's crazy, he's certainly a wild man type, so we get to Theodore Roosevelt, who will be our next political discussion person here, we have to get to the merger stuff and how it failed,

426
00:43:16.960 --> 00:43:19.120
political discussion being about Teddy Roosevelt.

427
00:43:19.120 --> 00:43:22.400
The thing you have to realize about who was Assistant Secretary of the Navy, he was the

428
00:43:22.400 --> 00:43:28.200
Morgan person in the Navy Department under Long.

429
00:43:28.200 --> 00:43:35.320
And when McKinley launched the war against Spain in 1898 for the possession of Cuba,

430
00:43:35.320 --> 00:43:41.800
Teddy Roosevelt sent a telegram when the Secretary was out of town commanding the Admiral to

431
00:43:41.800 --> 00:43:42.800
start fighting.

432
00:43:42.800 --> 00:43:47.760
It was not overruled by McKinley, but essentially he was an extreme war hawk, then and later.

433
00:43:47.760 --> 00:43:52.680
He loved war for its own sake, Teddy Roosevelt. He was half-blind, Teddy Roosevelt. He always

434
00:43:52.680 --> 00:43:58.240
wanted to fight. And when he finally fought in the Spanish-American War, he led his troops

435
00:43:58.240 --> 00:44:05.240
up to the Rough Riders in Cuba, and he almost got shot. Everybody else got shot. His forces

436
00:44:05.240 --> 00:44:09.840
were decimated. It was a total disaster. The guy couldn't see. But anyway, he made it because

437
00:44:09.840 --> 00:44:15.280
A lot of influence in the press and the Morgan-dominated press, he came out a big hero and rode that

438
00:44:15.280 --> 00:44:17.280
to the presidential nomination later.

439
00:44:17.280 --> 00:44:20.920
The thing about the Roosevelt family, you have to realize that two wings of the Roosevelt

440
00:44:20.920 --> 00:44:24.560
family, very different wings.

441
00:44:24.560 --> 00:44:30.520
One wing of the Oyster Bay Roosevelt, come from Oyster Bay, Long Island, descendants

442
00:44:30.520 --> 00:44:36.600
of the two Roosevelt brothers back in the 17th century, first came here very early.

443
00:44:36.600 --> 00:44:42.560
This was, I think, John Roosevelt, the original 17th century Roosevelt, who moved to Oyster

444
00:44:42.560 --> 00:44:43.560
Bay.

445
00:44:43.560 --> 00:44:44.560
There was a whole Oyster Bay group.

446
00:44:44.560 --> 00:44:48.160
There were merchants and lots of other things.

447
00:44:48.160 --> 00:44:53.120
They were much wealthier generally, Cornelius Roosevelt, James A. Roosevelt, whatever.

448
00:44:53.120 --> 00:44:58.160
And then there was the Hyde Park Roosevelts, this was Brother James back in the 17th century,

449
00:44:58.160 --> 00:45:01.680
settled in upstate New York, from which Franklin emerged.

450
00:45:01.680 --> 00:45:10.440
This is a Theodore Roosevelt branch of the family, and this is the Franklin branch.

451
00:45:10.440 --> 00:45:15.040
The Hyde Park branch got in very early with the Harriman's and the Astors, who were their

452
00:45:15.040 --> 00:45:23.040
neighbors basically, and became Harriman types, so to speak, Harriman and of course by extension

453
00:45:23.040 --> 00:45:26.360
Kuhl, Lowell and Lockerthaler starting in 1900.

454
00:45:26.360 --> 00:45:30.600
The Oyster Bay Roosevelt from early in the game in the late 19th century became Morgan

455
00:45:30.600 --> 00:45:37.500
Morgan Connected, you see we're already in a conflict, okay?

456
00:45:37.500 --> 00:45:43.680
The Teddy Roosevelt's father and Uncle James, I've got his father's name anyway, both in

457
00:45:43.680 --> 00:45:51.120
with the Morgans financially, his Uncle James Roosevelt was the director of the Buick and

458
00:45:51.120 --> 00:45:59.160
Sissi Iorara, I already told you it was Morgan until Harriman captured it, so to speak, his

459
00:45:59.160 --> 00:46:02.400
His uncle James was also the director of the New York, Chicago and St. Louis Railroad,

460
00:46:02.400 --> 00:46:04.920
which was a Vanderbilt-Morgan railroad.

461
00:46:04.920 --> 00:46:07.920
And so they grew up as Morgan people.

462
00:46:07.920 --> 00:46:12.440
As a matter of fact, two of Teddy Roosevelt's, not only cousins, but very close financial

463
00:46:12.440 --> 00:46:19.040
advisors, one of them was W. M. Lund Roosevelt, who was the first cousin, but also a very

464
00:46:19.040 --> 00:46:23.760
close friend and financial advisor of Teddy before he became president, while he was president,

465
00:46:23.760 --> 00:46:33.000
and afterward, WM1, was connected with a whole bunch of Morgan board, the Astor National Bank,

466
00:46:33.000 --> 00:46:38.200
which was head with George Baker, a Morgan person, the Astor Trust Company, which is

467
00:46:38.200 --> 00:46:42.720
a Morgan, and a member of the board of the Central and Southern American Telegraph Company,

468
00:46:42.720 --> 00:46:46.800
which is a very close Morgan thing, the board consisted of William P. Hamilton as a son-in-law

469
00:46:46.800 --> 00:46:52.440
of Morgan, Charles Lanier, a long-time associate of Morgan, another guy who had married into

470
00:46:52.440 --> 00:46:57.120
of the Vanderbilt family. In other words, W. M. Linn, close financial advisor and friend

471
00:46:57.120 --> 00:47:06.120
of Teddy, was very close to the Morgan Embitt. And his other top friend and relative was

472
00:47:06.120 --> 00:47:12.920
Douglas Robinson, Teddy Roosevelt's brother-in-law, was also in the real estate operator in New

473
00:47:12.920 --> 00:47:18.600
York, was also in the Astrid bank, also in the Morgan Embitt. So we have, in other words,

474
00:47:18.600 --> 00:47:25.600
Teddy Roosevelt's whole family and friends, close friends and relatives were all tied in with the Morgan Ambit from early on.

475
00:47:25.600 --> 00:47:33.600
So Teddy Roosevelt grew up as a Morgan person, so to speak, and we'll see next time, or next time after that, continuing on, accelerating the Morgan Ambit.

476
00:47:33.600 --> 00:47:40.600
His first wife was a Boston financial person associated with the Morgan, et cetera, et cetera, and the whole, this grows.

477
00:47:40.600 --> 00:47:43.600
Okay, this is way over time, right?

478
00:47:43.600 --> 00:47:50.600
The beginnings of Teddy Roosevelt. We'll be coming back to Teddy Roosevelt next time.

479
00:47:50.600 --> 00:47:56.840
His two major advisors, financial advisors, personal financial advisors all of his life

480
00:47:56.840 --> 00:48:03.840
were two close relatives. His first cousin W.M. Roosevelt. These are all Oyster Bay wing

481
00:48:03.840 --> 00:48:11.520
of the family, you know, it's not the Hyde Park wing, W.M. one, was a member of the board

482
00:48:11.520 --> 00:48:41.520
The board of directors of many, the Astor National Bank, which was Morgan to George Baker, the Central and Southern American Trading Company, which was, on which board was also the son-in-law of J.P. Morgan, named Hamilton, and so forth, and then there's Douglas Robertson, who was Teddy Roosevelt's brother-in-law, who was a big real estate operator, and also on the same Morgan network,

483
00:48:41.520 --> 00:48:47.920
Network. Later on, as we'll see, you'll see a teaser for later on, the real key of the

484
00:48:47.920 --> 00:48:55.520
Panama Canal caper, which I did some work on when the Panama Canal treaty was signed,

485
00:48:55.520 --> 00:49:02.920
and where Teddy Roosevelt, it was kind of interesting, Panama, I'm really skipping ahead

486
00:49:02.920 --> 00:49:08.680
a bit, Panama was simply a section of Columbia, it was Columbia in South America, Panama was

487
00:49:08.680 --> 00:49:15.360
up here in Venezuela. Originally it was supposed to be a Nicaraguan canal which fell through

488
00:49:15.360 --> 00:49:22.940
for some reason and so the French had opened up a canal company called the Panama Canal

489
00:49:22.940 --> 00:49:27.840
Company which was crazy bankrupt, really was bankrupt. They had the yellow fever problem

490
00:49:27.840 --> 00:49:31.840
which you've probably seen in the movies. There was a lot of the yellow fever there

491
00:49:31.840 --> 00:49:35.120
and the mosquitoes and whatever and they could never lick the problem so they couldn't dig

492
00:49:35.120 --> 00:50:05.120
and the big the canal and at any rate the United States was negotiating to get a Panama Canal Company with a French Panama Canal Company and the Colombian government and I think they had agreed, I think it was 30 million dollars, I have to check back, but anyway, I'd say 30 million dollars that the United States government would give to French Panama Canal Company

493
00:50:05.120 --> 00:50:09.120
and the rights to operate a canal. I think, of course, they were really bankrupt.

494
00:50:09.120 --> 00:50:12.120
Probably shouldn't have gotten anything. Let's say they got 30 million.

495
00:50:12.120 --> 00:50:17.120
And the Colombian government said, now we want to get, you know, we want to get a piece of the action here.

496
00:50:17.120 --> 00:50:20.120
And they insisted on 10 million out of the 30.

497
00:50:20.120 --> 00:50:23.120
In other words, the 10 million dollars would go to the Colombian government.

498
00:50:23.120 --> 00:50:29.120
And 20 would go to the, to the canal, the French Canal Company.

499
00:50:29.120 --> 00:50:34.120
Petty Rosa, at that point, decided to organize a fake revolution in Panama

500
00:50:34.120 --> 00:50:47.120
and the person, the reason why I'm talking about this now is the person who was hired by the French Panama Canal Company to negotiate all this stuff

501
00:50:47.120 --> 00:50:56.120
was a guy named William Nelson Cromwell, later became the major partner of Sullivan and Cromwell, now one of the top law firms in Wall Street

502
00:50:56.120 --> 00:51:26.120
Cromwell was hired, with a huge sum, to lobby for the interests of the Panama Canal Company to get, essentially to get 30 million instead of 20 million, so that was a big thing, of course, and Teddy Roosevelt, Cromwell was sitting in the White House issuing the orders for Teddy Roosevelt, and Roosevelt signed them, and Cromwell essentially was running this whole operation, created a fake revolution in Panama, organized the finance by the U.S. government,

503
00:51:26.120 --> 00:51:56.120
by the Panama Railroad Company, which was an American company, through them, the U.S. Navy then intercepting, threatening, intercepting any Colombian ships, but you see, you couldn't walk, you couldn't go over a land, it was a little jungle, so you had to go by sea to get from Columbia proper to Panama, and the U.S. Navy would shoot any, you know, sink any ship, Colombian ship would try to suppress the revolution, so essentially it was a fake revolution, it was not a popular revolution by the Panama masses, there were no Panama masses, essentially the American agents down there,

504
00:51:56.120 --> 00:52:01.760
Getting these people to revolt created a phony independent state of Panama, which then signed

505
00:52:01.760 --> 00:52:07.440
the treaty with the U.S. government to turn over the full 30 million to the Panama oil

506
00:52:07.440 --> 00:52:09.600
company, to the Panama Canal Company.

507
00:52:09.600 --> 00:52:13.080
The U.S. government's official line was the Colombian government was trying to hold us

508
00:52:13.080 --> 00:52:16.440
up, the American taxpayer, for an extra 10 million, but that wasn't, that was a total

509
00:52:16.440 --> 00:52:17.440
lie.

510
00:52:17.440 --> 00:52:21.200
What they were trying to do was give the whole 30 million to the French company rather than

511
00:52:21.200 --> 00:52:22.200
the 20 million.

512
00:52:22.200 --> 00:52:25.440
In other words, the whole idea would have been no extra amount of money to the American

513
00:52:25.440 --> 00:52:29.200
The question is who should get the 30 million, should the whole 30 million go to the French

514
00:52:29.200 --> 00:52:32.360
Canal Company or should 10 million of it go to the Colombian government, that was the

515
00:52:32.360 --> 00:52:33.360
real issue.

516
00:52:33.360 --> 00:52:37.360
Anyway, Teddy Roosevelt created this fake revolution and immediately recognized it of

517
00:52:37.360 --> 00:52:45.120
course 24 hours after they proclaimed the new Panama State.

518
00:52:45.120 --> 00:52:48.560
And the interesting issue was that most historians still haven't discovered it because it's

519
00:52:48.560 --> 00:52:54.600
an obscure book by a guy who was involved in this and finally sets the whole thing straight.

520
00:52:54.600 --> 00:53:24.600
The question is, who is the French Panama Canal Company? It turns out, the French Panama Canal Company, when they're going bankrupt or semi-bankrupt, all their shares were bought up by a syndicate headed by J.P. Morgan, including all the Morgan people, a couple of Rockefeller people, a couple of Cunloa people, a guy named Douglas Robinson, who was Teddy Roosevelt's brother-in-law, all involved in this operation. They bought the shares when the French Canal Company was bankrupt for half, you know, just 50 cents on the dollar.

521
00:53:24.600 --> 00:53:54.600
And of course, when the American government created the phony Panama Revolution and gave the whole 30 million to the French Panama Council, they had doubled the value of their shares, and they sold it at a doubling amount, in other words, they held the shares for a year, the Morgan Syndicate, and then doubled their price by then selling it, so they got a lot of money out of this, it was the Morgan people. So essentially the whole operation, the whole Panama Revolution was a Roosevelt-Morgan, Teddy Roosevelt-Morgan deal, and most of the money that the syndicate had gone out of,

522
00:53:54.600 --> 00:53:59.800
of it, was invested in New York City real estate with Robinson as the real estate broker and

523
00:53:59.800 --> 00:54:00.800
land owner.

524
00:54:00.800 --> 00:54:06.200
So, most of it then, much of it was funneled into Robinson, but that was the, this is still

525
00:54:06.200 --> 00:54:11.720
not known to most historians of the Panama Canal Company, and if you're interested in

526
00:54:11.720 --> 00:54:18.680
the book on this, this guy named Earl Harding wrote a book called The Untold Secrets of Panama.

527
00:54:18.680 --> 00:54:22.600
Earl Harding was an elderly, when he wrote this book, he was about 80 years old, he was

528
00:54:22.600 --> 00:54:27.160
For a young reporter from New York World Telegram, Scripps Howard, New York World, I should say,

529
00:54:27.160 --> 00:54:39.560
which exposed this about 1910, and Teddy Roosevelt, I think the school president, maybe in 1908,

530
00:54:39.560 --> 00:54:43.080
filed a libel suit for criminal libel against the New York World to try to suppress this

531
00:54:43.080 --> 00:54:47.520
information, a seditious libel, and it went to the Supreme Court and they said it's unconstitutional,

532
00:54:47.520 --> 00:54:51.480
because those were saying it's a seditious libel against the president, the government.

533
00:54:51.480 --> 00:54:55.280
And so, when Harding was a young reporter who did most of the work on that, and he finally,

534
00:54:55.280 --> 00:54:58.760
about 60 years later, disclosed the fact that 50 years later, that was a...

535
00:54:58.760 --> 00:55:03.760
Anyway, this is the untold story of Panama, the whole thing, not only engineered by Teddy

536
00:55:03.760 --> 00:55:09.320
Roosevelt, which was generally accepted, but done in order to benefit the Morgan syndic

537
00:55:09.320 --> 00:55:11.440
and his bosom or connected with it.

538
00:55:11.440 --> 00:55:16.440
That's what I mean by being in the Morgan ambit, one of the things.

539
00:55:16.440 --> 00:55:25.040
Okay, we're getting to industry, we're getting now to the merger movement, and before I get

540
00:55:25.040 --> 00:55:31.560
to that, I want to just mention the fact that I'm dealing with federal politics and industry

541
00:55:31.560 --> 00:55:37.320
in this period, that the iron and steel industry has always been, since 1820, the big major

542
00:55:37.320 --> 00:55:42.680
fountainhead of protective power movement, and largely because much of it is inefficient,

543
00:55:42.680 --> 00:55:46.680
And so, they're always trying to keep out cheap foreign iron and steel.

544
00:55:46.680 --> 00:55:51.680
In 1820, which was the first organized protective tariff movement in the country, it was started by

545
00:55:51.680 --> 00:55:56.680
Representative Henry Baldwin of Pittsburgh, Congressman from Pittsburgh, who himself was a big iron manufacturer,

546
00:55:56.680 --> 00:56:01.680
Pittsburgh being the center of the iron and steel industry for a century or so.

547
00:56:01.680 --> 00:56:09.680
And after the Civil War, and the big propagandist for protective tariff, from about 1815 on,

548
00:56:09.680 --> 00:56:24.680
Matthew Carey, a Philadelphia printer, also of course, especially wanted to get a protective tariff on printing, a sale of printing from a newsprint, et cetera, from abroad.

549
00:56:24.680 --> 00:56:34.680
His son, Henry C. Carey, becomes an economist and the major lobbyist and propagandist for protective tariff.

550
00:56:34.680 --> 00:56:42.680
Carey became himself a Pennsylvania iron manufacturer and was a big theoretician for the iron and steel interests

551
00:56:42.680 --> 00:56:47.680
during the whole, well, 10 or 15 years after the Civil War period.

552
00:56:47.680 --> 00:56:52.680
The interesting thing about the Civil War, post-Civil War period is that he had a situation where he had, as I said,

553
00:56:52.680 --> 00:56:58.680
greenbacks, in other words, fiat money, which was not the redeemable and gold of silver.

554
00:56:58.680 --> 00:57:28.680
You have fiat money, inflationary fiat money, for the first time really, and then you have protective tariff, and Kerry is a theoretician that saw immediately that you benefit, the U.S. steel industry benefits twice from having inflation plus protective tariff, in other words you have fiat money and protective tariff, and inflation acts like a double protective tariff, in other words here you have the American dollar,

555
00:57:28.680 --> 00:57:36.680
As you inflate dollars, the quantity of dollars, the value of the dollar in terms of foreign currency goes down.

556
00:57:36.680 --> 00:57:39.680
In other words, you have floating exchange rates as you have now.

557
00:57:39.680 --> 00:57:44.680
If the United States inflates, it lowers the value of the dollar.

558
00:57:44.680 --> 00:57:54.680
As you lower the value of the dollar, say the American dollar, let's say the American dollar used to be worth four francs, four French francs.

559
00:57:54.680 --> 00:58:02.400
So, if you're lower than America, you inflate dollars, and you raise prices, you lower the value of dollars, say to two francs.

560
00:58:02.400 --> 00:58:08.000
This means that now the dollar is worth less abroad, so Americans can't buy as much...

561
00:58:08.000 --> 00:58:11.600
French prices are now much higher in the United States in terms of francs.

562
00:58:11.600 --> 00:58:14.280
American prices are lower in terms of dollars.

563
00:58:14.280 --> 00:58:23.160
So, inflation, when you have fluctuating exchange rates, inflation acts as a subsidy to exports, to U.S. exports.

564
00:58:23.160 --> 00:58:26.920
and a tax on American imports.

565
00:58:26.920 --> 00:58:35.920
So, in other words, essentially what inflation does when reflected in foreign currency is

566
00:58:35.920 --> 00:58:39.920
you subsidize American exporters at the expense of American consumers.

567
00:58:39.920 --> 00:58:44.920
It's really a roundabout but effective manner of screwing American consumers for the benefit

568
00:58:44.920 --> 00:58:50.080
of the American exporter so that we can't buy foreign steel because it's more expensive

569
00:58:50.080 --> 00:59:20.080
This is why American exporters, exporters in any country, always want inflation. If the inflation is reflected in falling exchange rates, this is why, by the way, the whole gang got together recently, about three months ago, a gang by the United States government and all the other governments, Western European governments, to try to push the dollar down, as you remember. The dollar had been magnificently expensive.

570
00:59:20.080 --> 00:59:22.640
I am going to Europe in a couple of weeks.

571
00:59:22.640 --> 00:59:27.720
This is always my luck, by the way. When I go to Europe, the dollar is always at its weakest.

572
00:59:27.720 --> 00:59:30.800
If I go on last year, the dollar was worth like one pound almost.

573
00:59:30.800 --> 00:59:33.520
And now I think it's a buck fifty per pound.

574
00:59:33.520 --> 00:59:35.400
English pounds and all the rest.

575
00:59:35.400 --> 00:59:37.600
They all got together to drive the dollar down

576
00:59:37.600 --> 00:59:40.560
in order to shaft the American consumer for the benefit of

577
00:59:40.560 --> 00:59:42.480
American exporters, basically.

578
00:59:42.480 --> 00:59:44.160
And so,

579
00:59:44.160 --> 00:59:45.720
the

580
00:59:45.720 --> 00:59:49.840
iron and steel people are getting, in other words, carrying, and the iron and steel people realize that

581
00:59:49.840 --> 00:59:54.560
They get a protective tariff that benefits, of course, the subsidizers of American steel

582
00:59:54.560 --> 00:59:59.360
and also inflation and greenbacks subsidize them, so you have a double subsidy.

583
00:59:59.360 --> 01:00:05.880
Now, historians used to believe until about the 1950s, I say, the standard historical

584
01:00:05.880 --> 01:00:11.120
view was that inflation was always, the farmers are always pushing for inflation and manufacturers

585
01:00:11.120 --> 01:00:14.200
and merchants are always in favor of hard money, but it doesn't work that way at all.

586
01:00:14.200 --> 01:00:18.680
As a matter of fact, what happened in this period, for example, was the iron and steel

587
01:00:18.680 --> 01:00:25.680
The gold manufacturers were very powerful and the Republican Party, in particular, favored both greenback inflation and protective tariffs.

588
01:00:25.680 --> 01:00:32.680
And the Republican Party, as I said, part of it was due to the pious support, but this was the economic argument for it.

589
01:00:32.680 --> 01:00:43.680
In other words, the elite industrialist types, big business types, favored inflation because they realized that greenbacks and the dollar could go down faster than American prices would go up and they were therefore in great shape.

590
01:00:43.680 --> 01:00:50.680
and so it took it until 1879 before we got back to the gold standard and the republicans fought against it

591
01:01:02.800 --> 01:01:06.760
Exporters like it when the dollar is very cheap

592
01:01:06.760 --> 01:01:08.960
the dollar is worth only two francs

593
01:01:08.960 --> 01:01:10.560
because it means that exporters

594
01:01:10.560 --> 01:01:14.720
American goods now are cheap in terms of foreign currency.

595
01:01:14.720 --> 01:01:17.880
In other words, the dollar is worth very little.

596
01:01:17.880 --> 01:01:22.880
It means that American prices have become cheaper in terms of France or Germany or England or whatever.

597
01:01:22.880 --> 01:01:26.880
Yeah, in the foreign country.

598
01:01:26.880 --> 01:01:34.360
Yeah, the dollar is high and then America starts importing more.

599
01:01:34.360 --> 01:01:37.140
So exporters are always in favor of a cheap dollar.

600
01:01:37.140 --> 01:01:41.540
importers in favor of an expensive dollar

601
01:01:41.540 --> 01:01:43.140
consumers

602
01:01:43.140 --> 01:01:46.780
always benefit, the average consumer always benefits when the dollar rate is very high

603
01:01:46.780 --> 01:01:50.340
because it means we get cheap farm products

604
01:01:50.340 --> 01:01:54.620
and so in order to shaft us, it works like another tariff

605
01:01:54.620 --> 01:01:59.020
we get, we can't buy as much abroad and we have to turn it in

606
01:01:59.020 --> 01:02:01.780
for our inefficient American producers

607
01:02:01.780 --> 01:02:03.260
so it acts as if

608
01:02:03.260 --> 01:02:07.180
Cheap dollar acts as if equivalent to a tariff.

609
01:02:07.180 --> 01:02:11.100
You can see how that works. It's sort of like a double tariff coming on.

610
01:02:11.100 --> 01:02:14.140
It makes dollars artificially cheap.

611
01:02:14.140 --> 01:02:15.900
You have balance.

612
01:02:15.900 --> 01:02:21.180
First of all, each individual country doesn't need a balance. If you have any balance, it should be overall.

613
01:02:21.180 --> 01:02:25.500
Whole balance of payments. You can import stuff from Japan and then export stuff from other countries.

614
01:02:25.500 --> 01:02:27.180
The whole balance is that.

615
01:02:27.180 --> 01:02:31.140
Overall, you don't have to have an equal balance of payments for each country.

616
01:02:31.140 --> 01:02:34.380
that was refuted by the 18th century

617
01:02:34.380 --> 01:02:37.680
that kind of nonsense went out about 1720

618
01:02:37.680 --> 01:02:42.060
but even the overall balance now is irrelevant because there's no gold standard

619
01:02:42.060 --> 01:02:45.880
you don't pay anything, in other words, see there's a lot of complaint about the fact that America spends about

620
01:02:45.880 --> 01:02:50.540
$150 billion more in imports than we sell in exports overall

621
01:02:50.540 --> 01:02:53.620
but see what happens is $150 billion doesn't flow out of the country, it doesn't disappear

622
01:02:53.620 --> 01:02:57.420
somewhere because nobody else uses dollars, basically what it means is

623
01:02:57.420 --> 01:03:02.420
As foreigners are willing to invest $150 billion worth in dollars and hold them,

624
01:03:02.420 --> 01:03:09.420
which really means buying investments in the United States, either real estate or stocks or bank accounts or bonds or something.

625
01:03:09.420 --> 01:03:12.420
There's nothing wrong with that. As a matter of fact, it's great from the point of view of the American.

626
01:03:12.420 --> 01:03:16.420
It means that foreigners are willing to invest in our cheap imports. Super. I hope that continues.

627
01:03:16.420 --> 01:03:20.420
It's not going to continue forever. As long as it does, it's like a great bonanza.

628
01:03:20.420 --> 01:03:26.420
As if they're helping us, they're financing us with cheap food and whatever, cheap products.

629
01:03:26.420 --> 01:03:56.420
And they're holding dollars for various reasons, much of it is because the United States is the safest country to invest in, you know, you're not going to get confiscated, for example, it was important, you know, some new dictator is not going to come and suddenly grab your dough, okay, it's not going to be hyperinflational as we presume, and so the last few years there's been a big increase in foreign investments in the United States, which is great, as I say, it should flow in. The United States had an overall deficit in the balance of payments in the entire 19th century, basically England, Englishmen were

630
01:03:56.420 --> 01:04:02.420
financing, American Railroads, and all sorts of other stuff, you know, it's great, it helps everybody, there's no big injury.

631
01:04:02.420 --> 01:04:06.420
Especially if there's no gold standard, there's no problem with banks collapsing or anything, there's no problem at all.

632
01:04:06.420 --> 01:04:10.420
There's nothing actually flowing out, since it's somehow leaking out of the system.

633
01:04:10.420 --> 01:04:18.420
The whole thing is trumped up, trumped up by exporters who want to subsidize their exports, want us to subsidize their exports, basically what it is.

634
01:04:18.420 --> 01:04:25.420
Anyway, so Kerry used to hold, Kerry's an interesting figure, older than 1860s, 70s or so,

635
01:04:25.420 --> 01:04:41.420
He was holding what was called Cary Vespers. Once a week at his home, palatial home, top-level elite people would come in the evening and he would hold forth his own private seminar.

636
01:04:41.420 --> 01:04:52.420
And the members of the seminar were mostly iron manufacturers called Iron Masters, Joseph Wharton of Philadelphia, Thomas Scott was also vice president of Pennsylvania Railroad.

637
01:04:52.420 --> 01:05:22.420
Representative Morel is a big shot, Careyite, Eder Ward is a very wealthy, Eber Ward I should say, President of the Iron and Steel Association, these are the people hanging around Carey and getting the theoretical poop that they can then pop in their eyes for what? For protective tariffs and greenback inflation, so in other words, behind the greenback and inflation agitation, not just pietists and farmers and general crazies

638
01:05:22.420 --> 01:05:30.420
Also, at the power relief stage, iron manufacturers knew exactly what they were doing, were getting economic benefits from this.

639
01:05:30.420 --> 01:05:36.420
By the way, Carey is an interesting character, because it also fits in with the whole piousness versus liturgical personally.

640
01:05:36.420 --> 01:05:40.420
Matthew Carey's father was an Irish Catholic, Irish Catholic immigrant.

641
01:05:40.420 --> 01:05:48.420
Henry Carey, he got to be a big shot, converted to Protestantism, forgot his Irish, not only his Catholic background, his Irish background,

642
01:05:48.420 --> 01:05:52.420
became assimilated and also, of course, a partisan pietist.

643
01:05:52.420 --> 01:05:56.420
He also had tremendous influence, Henry Carey, on

644
01:05:56.420 --> 01:06:00.420
Friedrich List, who was a German emigrant at one point, who came to the United States and

645
01:06:00.420 --> 01:06:04.420
embodied the protective power of doctrine and brought it back to Germany.

646
01:06:04.420 --> 01:06:08.420
He was in many ways responsible for the whole protectionist movement in Germany.

647
01:06:08.420 --> 01:06:12.420
It was an international flow of influence.

648
01:06:12.420 --> 01:06:16.420
Carey is also a friend of

649
01:06:16.420 --> 01:06:22.420
a friend of a columnist from the New York Tribune, Henry Greeley, a socialist pietist

650
01:06:22.420 --> 01:06:28.420
again, they're both of course agreeing on protective terror as being a key element

651
01:06:28.420 --> 01:06:33.420
and also another guy I must mention here, a charming character I think I might have mentioned before

652
01:06:33.420 --> 01:06:40.420
the major political arm of this guy in Congress was Representative William D. Kelly of Pennsylvania

653
01:06:40.420 --> 01:06:51.420
He was also a, I think it was an iron manufacturer himself. Anyway, he had the nickname of Pig Iron, he was known as Pig Iron Kelly because of his undying fealty to the iron and steel interests.

654
01:06:51.420 --> 01:06:59.420
Hi there, Pig Iron! Anyway, that was his general nickname.

655
01:06:59.420 --> 01:07:08.420
Okay, we're getting now to the merger movements of the late 19th century.

656
01:07:08.420 --> 01:07:13.340
The one thing I should say also is that the merger movements, which are both ideological

657
01:07:13.340 --> 01:07:18.260
and economic, a set of businessmen or manufacturers became convinced that the way to get a monopoly

658
01:07:18.260 --> 01:07:22.420
price, they tried it with cartels and it didn't work, the railroads didn't work, they figured

659
01:07:22.420 --> 01:07:26.300
it's better to merge, if you really have a merger, then at least you won't have internal

660
01:07:26.300 --> 01:07:27.300
cheating.

661
01:07:27.300 --> 01:07:33.300
In other words, you have eight companies all producing refining sugar, let's say, or producing glucose.

662
01:07:33.300 --> 01:07:39.300
The eight companies band together in one company, then you can't have one company cheating under secret price cutting because there will be one company.

663
01:07:39.300 --> 01:07:48.300
In other words, a merger becomes presumably an easier way of arriving at a cartel price than having a cartel.

664
01:07:48.300 --> 01:07:56.300
In other words, then you can push the supply to the left and raise prices without worrying about going up the industry demand curve,

665
01:07:56.300 --> 01:08:06.300
A cartel is also one of the interesting aspects of the Anti-Trust Act, which comes in 1990,

666
01:08:06.300 --> 01:08:21.300
for reasons I won't go into in a minute, so-called Sherman Anti-Trust Act, which in essence

667
01:08:21.300 --> 01:08:26.460
If you look at these outlawed cartels, that means they go into mergers, which are even

668
01:08:26.460 --> 01:08:29.340
worse from the point of view of the consumer, because it means you're eliminating... cartels

669
01:08:29.340 --> 01:08:31.860
at least can both fall apart very easily in a free market.

670
01:08:31.860 --> 01:08:35.060
If you have a merger, it's more difficult to fall apart.

671
01:08:35.060 --> 01:08:40.700
The result of the Anti-Trust Act, in a sense, was to stimulate mergers.

672
01:08:40.700 --> 01:08:43.100
But another thing about the Anti-Trust Act is that it was really a dead letter.

673
01:08:43.100 --> 01:08:47.900
It was not enforced until Teddy Roosevelt came in by 1902.

674
01:08:47.900 --> 01:08:54.900
In other words, all during the 1890s, even though it was on the books, it was generally known as not being enforced, and the merger, the great merger movement

675
01:08:54.900 --> 01:09:03.900
in 1898, 1901, 1900, when these mergers were being put together, no corporate lawyer worried about the antitrust law.

676
01:09:03.900 --> 01:09:05.900
Nobody said, gee, we're going to have to worry about the Sherman Act.

677
01:09:05.900 --> 01:09:11.900
It was a dead letter, considered, you know, sort of a dead law which nobody paid attention to.

678
01:09:11.900 --> 01:09:15.900
The reason the Sherman Act came in, by the way, is kind of interesting.

679
01:09:15.900 --> 01:09:20.900
Here's a big business group, a Republican party dominated by big business. Why are they putting through an antitrust act?

680
01:09:20.900 --> 01:09:22.900
Do they suddenly get religion or whatever?

681
01:09:22.900 --> 01:09:25.900
What happened was this, well, two factors.

682
01:09:25.900 --> 01:09:28.900
The personal factor, which we should never omit in history.

683
01:09:28.900 --> 01:09:33.900
Sherman, Senator Sherman, always wanted to be president. He was getting pretty old by this time.

684
01:09:33.900 --> 01:09:37.900
His last shot was in 1888. It was the Republican convention in 1888.

685
01:09:37.900 --> 01:09:43.900
Which, as we know, Benjamin Harrison came through the nomination and won the presidency in 1888.

686
01:09:43.900 --> 01:09:48.900
It was an open convention. It was no one favorite. As a matter of fact, Harrison was sort of a dark horse.

687
01:09:48.900 --> 01:09:53.900
There were a lot of ballots in those days. Harrison came in with whatever, 28 ballots or something.

688
01:09:53.900 --> 01:09:57.900
The Sherman was running for president. One of the people running against him was General Russell Alger,

689
01:09:57.900 --> 01:10:06.900
whom I've already mentioned, I think it was McKinley Cabinet later, governor of Michigan and head of the Michigan party.

690
01:10:06.900 --> 01:10:11.900
Alger was trying to get the nomination. Alger was also head of chairman of the board, I think, of the Diamond Match Company,

691
01:10:11.900 --> 01:10:19.900
which is, in those days at least, was a quote, monopoly unquote. I think it was the only match producing company maybe in the world, certainly in the United States.

692
01:10:19.900 --> 01:10:27.900
So, General Alger played dirty pool. He was competing with the same sort of delegates as Sherman.

693
01:10:27.900 --> 01:10:32.900
He bought out a lot of Sherman delegates. I mean, literally bribed them. Sherman, let's say, had 25 delegates pledged to him.

694
01:10:32.900 --> 01:10:36.900
He found out when he gets to the convention that he only has 15, the others had been bought out by Alger.

695
01:10:36.900 --> 01:10:41.780
and Alger. He's very bitter at Alger, Sherman, from then on. He was convinced that Alger

696
01:10:41.780 --> 01:10:46.180
was the prize winner of the nomination. But Sherman was out to get Alger, and the Diamond

697
01:10:46.180 --> 01:10:53.660
Match Company gets under anti-trust, state anti-trust problems after that, in Michigan.

698
01:10:53.660 --> 01:10:57.060
Sherman gets up there on the floor of Congress and reads the entire, like, I think there's

699
01:10:57.060 --> 01:11:02.700
some Michigan court which says the Diamond Match Company was violating common law anti-trust.

700
01:11:02.700 --> 01:11:05.580
And Sherman's there cackling at the decision, reads the whole decision in the congressional

701
01:11:05.580 --> 01:11:09.900
and the record, cackling, every time they attack Algeria and the Diamond Match Company.

702
01:11:09.900 --> 01:11:18.900
So when President Harrison signed the Sherman Act, he turned to the secretary and said,

703
01:11:18.900 --> 01:11:23.500
he chuckled, he said, I see Senator John Sherman has gotten to Russell Alger.

704
01:11:23.500 --> 01:11:26.540
In other words, this was Sherman's revenge against Algeria.

705
01:11:26.540 --> 01:11:29.900
He figured if he passed the Sherman Act, if any company is broken up on there, it'll be

706
01:11:29.900 --> 01:11:30.900
the Diamond Match Company.

707
01:11:30.900 --> 01:11:35.540
So the idea was to smash Alger, it was Sherman's personal schtick.

708
01:11:35.540 --> 01:11:41.420
And interestingly enough, the orthodox historian of the history of the Sherman Act, the crummy

709
01:11:41.420 --> 01:11:45.580
book is the only good, you know, full books written on by Hans Pirelli, and he gets to

710
01:11:45.580 --> 01:11:50.620
this point, this charge, he has a footnote on this, a charge that Sherman did this in

711
01:11:50.620 --> 01:11:55.340
order to pass it in order to kind of get back at Alger, and he said he couldn't believe

712
01:11:55.340 --> 01:12:01.420
that any American statesman had this kind of a petty motive, that was supposed to dispose

713
01:12:01.420 --> 01:12:02.420
of the charge.

714
01:12:02.420 --> 01:12:07.920
Those of us who believe in the American statement are capable of petty motives and have a different view of it.

715
01:12:07.920 --> 01:12:12.920
At any rate, the reason why the Republican Party passed it in general, not just Sherman, of course,

716
01:12:12.920 --> 01:12:18.920
is another broader reason for this, namely that the Democrats kept charging, as we'll see in a minute.

717
01:12:18.920 --> 01:12:23.420
Their big argument against the tariff was, the tariff is the mother of trusts.

718
01:12:23.420 --> 01:12:33.420
In other words, it was a phrase that was stated by Henry Habermeyer, the sugar of trust person.

719
01:12:33.420 --> 01:12:37.420
And the Democrats then repeated this, the power of the mother of trusts.

720
01:12:37.420 --> 01:12:43.420
In other words, it's impossible to have any cartel or any trust or any merger system that's going to work at all,

721
01:12:43.420 --> 01:12:50.420
unless you have a protective power which keeps out foreign competition, which creates a wall so that you can have a monopoly price.

722
01:12:50.420 --> 01:12:55.180
In other words, you won't be able to have a cartel arrangement restricting production

723
01:12:55.180 --> 01:13:02.900
and pushing out prices unless you keep out cheaper foreign imports, create a wall to enforce

724
01:13:02.900 --> 01:13:06.140
the tariff.

725
01:13:06.140 --> 01:13:11.140
So therefore, the foreign tariff is the only way a trust can work or a monopoly or cartel

726
01:13:11.140 --> 01:13:15.620
can work at all, which if you keep out foreign competition.

727
01:13:15.620 --> 01:13:22.080
As a matter of fact, when you read in the old days, in the 30s and 40s and 50s, you used to read

728
01:13:22.080 --> 01:13:27.020
the tax on American business being monopolistic. They'd say three companies have an 80% share of the market,

729
01:13:27.020 --> 01:13:32.720
but the share of all these was only American companies that have to leave out all foreign producers.

730
01:13:32.720 --> 01:13:37.220
General Motors and Ford were supposed to be a duopoly of the American automobile industry.

731
01:13:37.220 --> 01:13:40.220
It was only a duopoly. In other words, it was only a two-firm industry.

732
01:13:40.220 --> 01:13:44.220
If you leave out Honda and Toyota and everybody else, you see, and Mercedes,

733
01:13:44.220 --> 01:13:51.220
If you leave out imports, it looks like a big monopoly concentration. If you realize that you can always import stuff, you have a completely different picture.

734
01:13:51.220 --> 01:13:58.220
The Democrats, the laissez-faire Democrats had a very effective charge against the tariffs, mainly it's the mother of trusts.

735
01:13:58.220 --> 01:14:04.220
The Republicans committed to protecting the tariffs and said, okay, we'll shut them up. We'll shut up the Democrats by saying, we're going to break up trusts.

736
01:14:04.220 --> 01:14:12.220
We're going to go you one better. We're not going to just create trust. It's true. We'll create trust by the tariffs and then we'll break them up.

737
01:14:12.220 --> 01:14:18.220
That was the way they could answer the Democrats' charges and have the Sherman Act on the books.

738
01:14:18.220 --> 01:14:28.220
As we'll see later, when Teddy Roosevelt began to enforce this, the thing became part of a titanic struggle between the Rockefeller and the Morgan financial empires,

739
01:14:28.220 --> 01:14:34.220
breaking up the other guy's company using antitrust law as the ideological weapon.

740
01:14:34.220 --> 01:14:40.220
Okay, well before we get to that we have to talk about the merger movements, the great merger movement of 1898 and 1901.

741
01:14:40.220 --> 01:14:52.220
The idea was this, if business is big, a bigger business is better. If a big business is more efficient, which in many cases it was, why don't we have one firm for the entire industry, and then we can cut production and raise prices.

742
01:14:52.220 --> 01:15:00.220
And hundreds, literally hundreds of industries did this in one small period, 1888, 1901.

743
01:15:00.220 --> 01:15:10.220
COCO deals a lot of that, and again I commend you to read the first chapter of COCO and also the first chapter of Weinstein dealing with the National Civic Federation.

744
01:15:10.220 --> 01:15:14.220
The first two chapters of COCO ought to deal with this.

745
01:15:14.220 --> 01:15:19.220
At length I'm going to repeat some of this and deal with a couple of others.

746
01:15:19.220 --> 01:15:29.220
The iron and steel industry, for example, in 1889, there were 719 iron and steel companies in the United States.

747
01:15:32.220 --> 01:15:40.220
And there were constant attempts, all during the 1880s and 90s, at pools and cartels, at the strict production rates, probably because they didn't work, all swap-a-roos.

748
01:15:40.220 --> 01:15:44.220
And finally there was a series of mammoth mergers, okay, we'll merge everybody.

749
01:15:44.220 --> 01:15:53.220
And finally, in 1901, the Mammoth U.S. Steel Corporation was founded.

750
01:15:53.220 --> 01:15:57.220
The idea of U.S. Steel was supposed to be a monopoly of the entire steel industry.

751
01:15:57.220 --> 01:16:00.220
That was the objective, to include every steel company.

752
01:16:00.220 --> 01:16:08.220
It was put through, of course, by J.P. Morgan & Company, financed, underwritten and organized by Morgan,

753
01:16:08.220 --> 01:16:11.220
and also including Carnegie. By this time, Carnegie was getting old and wanted to sell out.

754
01:16:11.220 --> 01:16:18.220
In 1899 there were still, even with a bunch of mergers, 668 steel companies, and in February 1901 they set up a U.S. Steel, by the way I should mention here one of the key companies,

755
01:16:41.220 --> 01:16:46.220
The key Morgan partners, which put most of these things together, the major merger partner

756
01:16:46.220 --> 01:16:53.340
and the major political partner, George W. Perkins, a very important figure for the Morgan's.

757
01:16:53.340 --> 01:17:02.740
And uh, George W. Perkins, and so you have in this, you have the chairman of the board

758
01:17:02.740 --> 01:17:07.460
of the USDA with Judge Gary, a famous figure in the film industry who was, well these are

759
01:17:07.460 --> 01:17:13.460
These are Morgan people, Judge Gary, I forget his first name, Olsen or something like that,

760
01:17:13.460 --> 01:17:20.460
Elbert, I think Elbert, and the idea is to kind of merge all of them, they weren't able to merge all of them.

761
01:17:20.460 --> 01:17:24.460
Once again, there's no government coercion here, there's no government saying you have to merge.

762
01:17:24.460 --> 01:17:33.460
So they wind up, US Steel, merging 138 companies, still an impressive number, with 60% of them still in the steel market.

763
01:17:33.460 --> 01:17:51.460
In other words, US Steel starts a 60% share of their land and steel business and you'd think, you see, if you believe in it, most people think, well, big business can always out-compete small business. It doesn't work. Not at all. Especially if it's an artificial kind of thing like this.

764
01:17:51.460 --> 01:18:00.460
And as I said about Rockefeller, Standard Oil couldn't see the importance of gasoline, it couldn't see the importance of Texas crude oil and the rest of it.

765
01:18:00.460 --> 01:18:07.460
Well, USDL has been a flop-a-roof from the very beginning. It's been heartwarming, those of us who are in favor of competitive markets.

766
01:18:07.460 --> 01:18:12.460
USDL has been a total flop-a-roof from the beginning until the present time.

767
01:18:12.460 --> 01:18:17.460
In other words, it's always been a crummy company. It started as a crummy company. It's still a crummy company.

768
01:18:17.460 --> 01:18:22.460
It's been the last...its share of the market has been declining steadily since 1901.

769
01:18:22.460 --> 01:18:26.460
It's been losing money most of the time. It lost an enormous amount of money for its promoters.

770
01:18:26.460 --> 01:18:32.000
In other words, for the initial stockholders who lost money throughout, the only people

771
01:18:32.000 --> 01:18:35.820
made money was Morgan and his people, because if you're an underwriter, you're a promoter,

772
01:18:35.820 --> 01:18:39.420
you get money off the top, you get a big fee putting the whole thing together, and then

773
01:18:39.420 --> 01:18:43.140
the suckers who buy the stock are stuck.

774
01:18:43.140 --> 01:18:47.800
So the last company to put in innovation, the US deal, was the last company in the world

775
01:18:47.800 --> 01:18:51.660
to put in the oxygen process, whatever the current one is, the oxygen, basic oxygen

776
01:18:51.660 --> 01:18:53.180
process I think it's called.

777
01:18:53.180 --> 01:18:56.940
It started again in Europe with small companies and other companies took it up.

778
01:18:56.940 --> 01:19:01.940
U.S. Steel was the most monopolist, the most backward company, etc., etc.

779
01:19:01.940 --> 01:19:09.020
And it started, for example, as a share of the market, U.S. Steel, share of Ingots and

780
01:19:09.020 --> 01:19:20.140
Castings, which was a major product, in 1901, it had 63% of the market, it kept declining

781
01:19:20.140 --> 01:19:31.140
from 1950s, 1920s, 46% of the market, 1950s, 32% of the market, it's probably less, undoubtedly less now

782
01:19:31.140 --> 01:19:41.140
1955 is the last figure I have for this, but it's steadily declining, every asset, ingots and castings, pig iron, wire and nails, it's the same story

783
01:19:41.140 --> 01:19:51.140
The overall total for the whole business in 1901 was 62% total, in 1920 it was 40% of the market.

784
01:19:51.140 --> 01:20:00.140
So, again, partly due to technological conservators, you've got a big company like that, small and artificially big, so to speak,

785
01:20:00.140 --> 01:20:03.140
they've slowened in adopting new inventions.

786
01:20:03.140 --> 01:20:10.140
In 1900 and 1919, for example, a big shift in the industry was from Bessemer's steel to open-heart steel.

787
01:20:10.140 --> 01:20:12.240
again it starts in small companies

788
01:20:12.240 --> 01:20:16.700
U.S. Steel continued as Bessemer till almost the end

789
01:20:16.700 --> 01:20:18.220
continued and

790
01:20:18.220 --> 01:20:21.320
stuck in their old technology

791
01:20:21.320 --> 01:20:22.880
also

792
01:20:22.880 --> 01:20:27.760
as the time went on in the 1920s the shift was from heavy, start with heavy steel products

793
01:20:27.760 --> 01:20:32.620
later you get lighter and lighter steel, structural steel, so forth and so on. U.S. Steel was the last company that

794
01:20:32.620 --> 01:20:34.780
started going into these new fields

795
01:20:34.780 --> 01:20:39.100
stuck with them, we always produced heavy steel, that sort of thing

796
01:20:39.100 --> 01:20:44.060
They're behind on the scrap metal field and alloys, stainless steel, the last big

797
01:20:44.060 --> 01:20:46.980
mass steel company adopted stainless steel,

798
01:20:46.980 --> 01:20:53.980
the continuous rolling mill, the whole bit, structural steel, they didn't think that was important either.

799
01:20:55.780 --> 01:21:01.620
So they're constantly, you start off with lots of plants, you're sort of stuck with those obsolete plants,

800
01:21:01.620 --> 01:21:08.680
you're not geared to new equipment because you're stuck with these fifty plants, those are equipment.

801
01:21:08.680 --> 01:21:14.560
US Steel was a holding company operation, you sort of have 10 quasi independent companies

802
01:21:14.560 --> 01:21:18.040
with stocks that were merged into the US Steel Company, so it's a very inefficient way of

803
01:21:18.040 --> 01:21:19.680
doing it anyway.

804
01:21:19.680 --> 01:21:23.640
The shares of US Steel, the share prices, reflect of this.

805
01:21:23.640 --> 01:21:25.680
For example, US Steel started

806
01:21:25.680 --> 01:21:27.200
1901,

807
01:21:27.200 --> 01:21:30.180
the price of each share on the stock market

808
01:21:30.180 --> 01:21:33.000
was $55, so you say,

809
01:21:33.000 --> 01:21:37.000
hey, this is a new monopoly, they're going to make lots of money, right? So you buy their shares for $55 a piece,

810
01:21:37.000 --> 01:21:42.600
share, 55 bucks apiece. By 1904, they're going down a nine dollars a share.

811
01:21:42.600 --> 01:21:45.880
Typically, you know, you have steel and work.

812
01:21:45.880 --> 01:21:49.240
And their profits drop precipitately.

813
01:21:49.240 --> 01:21:53.960
1902, they had 16% profits. By 1904, they had 7% profits.

814
01:21:53.960 --> 01:21:59.040
And they kept the price of steel low. Another thing is that they found out

815
01:21:59.040 --> 01:22:02.200
even with mergers, it works the same as cartels in a sense.

816
01:22:02.200 --> 01:22:05.880
If you raise the price, you're going to induce other companies to come in. You have new competitors.

817
01:22:05.880 --> 01:22:09.520
They still can't keep out of new competitors without government coercion.

818
01:22:09.520 --> 01:22:18.520
They were afraid to raise the price of steel, I had to keep it low anyway, and the costs were high because they were an inefficient company, so their profits started going down very rapidly.

819
01:22:18.520 --> 01:22:21.340
So what the reaction then was, well,

820
01:22:21.340 --> 01:22:27.380
Judge Gary, the beloved leader, chairman of the board of the

821
01:22:27.380 --> 01:22:33.920
US Steel Company, organized what were called Gary Dinners, 1907, 1908.

822
01:22:33.920 --> 01:22:40.920
These were dinners, banquets, which included all the steel and the top industrials in the iron and steel industry.

823
01:22:42.680 --> 01:22:51.680
And they got together and they said, let's raise the price. You know, the idea was to cut production and raise price. Let's have a cartel again, because US Steel's share of the market was declining anyway.

824
01:22:52.720 --> 01:22:59.720
And they said, yes, yes, we'll do it. Yes, yes, we should cut price, cut production, raise price, right, we all agree, and then go out and cut prices some more, take advantage of it.

825
01:22:59.720 --> 01:23:02.520
The other suckers are raising their price, I'm going to lower mine.

826
01:23:02.520 --> 01:23:08.520
So the Gary dinners, he had 20 guys get together at dinner and they make an agreement, they break it within three months.

827
01:23:08.520 --> 01:23:18.520
Once again, mergers didn't work, and instead of that you had price cuts, you had intense competition, recrimination and hatred because they broke the agreement and that sort of stuff.

828
01:23:18.520 --> 01:23:24.520
So informal cartels, once again, didn't work. It had nothing to do with antitrust laws that were not applied to this.

829
01:23:24.520 --> 01:23:36.520
And only in World War I, as we'll see later on in the course, where it culminated, organized cartellism by the Federal Government, was the government able to cartelize the system.

830
01:23:36.520 --> 01:23:46.520
So, at any rate, as I've said, in recent years, the U.S. was the last company to adopt the basic oxygen process, which was one of the latest technological advances.

831
01:23:46.520 --> 01:23:54.620
In 1909, by the way, after, forget this, after this attempt at a merger, and after this cartels

832
01:23:54.620 --> 01:24:00.640
and breakage of the cartels, in 1909 there was still 654 R&S steel companies, after all

833
01:24:00.640 --> 01:24:07.240
this frantic attempts at a merger, they're still stuck with over 600 companies.

834
01:24:07.240 --> 01:24:13.200
So this is a record, this flop-a-roo of US Steel was repeated literally hundreds, almost

835
01:24:13.200 --> 01:24:20.200
almost hundreds of times throughout every industry, almost every attempted merger was a flop, a very quick flop

836
01:24:20.200 --> 01:24:26.200
I'm going to quote from Koko, I usually don't do this because I'm supposed to read it, but I think it's an important quote from page 39 of Koko

837
01:24:26.200 --> 01:24:28.200
summing this up

838
01:24:28.200 --> 01:24:33.200
quote, the steel industry was competitive before the World War and the efforts of the House of Morgan

839
01:24:33.200 --> 01:24:38.200
to establish control and stability, he calls it control and stability, I would call it cartel of course

840
01:24:38.200 --> 01:24:42.200
control and cartel over the steel industry by voluntary private economic means had failed

841
01:24:42.200 --> 01:24:54.200
Having failed in the realm of economics, having failed in the realm of economics, the efforts of the U.S. Steel Group were to be shifted to politics.

842
01:24:54.200 --> 01:24:59.200
This sums up the entire progressive period from 1900 to 1918.

843
01:24:59.200 --> 01:25:06.200
Namely, big businesses, especially the Morgans, tried to establish cartels and mergers and monopoly prices in the free market.

844
01:25:06.200 --> 01:25:07.200
They couldn't do it.

845
01:25:07.200 --> 01:25:37.200
The real point is, if they couldn't achieve monopolies and cartels in the free market they turned the government to do it for them, but the government, they couldn't do it in the name of establishing a monopoly, they couldn't say to the public, we want a monopoly, we want a cartel, we want the government to enforce it, they had to say this is democracy, this is modernization, it's bringing us into the modern world and all the rest of the junk, they had to use different ideologies.

846
01:25:37.200 --> 01:25:42.200
But the essence of the process was to politicize the system in order to cartelize it

847
01:25:42.200 --> 01:25:47.200
He had a call expanding democracy and all that, we'll see as time goes on

848
01:25:47.200 --> 01:25:51.200
I'm just stating the fact, I'm going to demonstrate this time and again as we get to the progressive period

849
01:25:51.200 --> 01:25:54.200
In other words, what we've been dealing with so far is up to 1900

850
01:25:54.200 --> 01:25:59.200
When we get to the progressive era, this will become more evident

851
01:25:59.200 --> 01:26:06.200
And so by 1900, also, business sentiment in general was swinging

852
01:26:06.200 --> 01:26:10.200
They begin to realize, when these mergers begin to flop, they begin to realize they have to turn to the government

853
01:26:10.200 --> 01:26:13.200
to enforce cartels and mergers for them.

854
01:26:13.200 --> 01:26:15.200
That's the point.

855
01:26:15.200 --> 01:26:19.200
So what happens is every time the US Steel organizes a merger and pushes things up a bit,

856
01:26:19.200 --> 01:26:21.200
new steel firms come into the picture.

857
01:26:21.200 --> 01:26:24.200
You see, they say, huh, steel prices are going up, we'll compete.

858
01:26:24.200 --> 01:26:28.200
They come in with better new equipment, they out-compete US Steel, and the price goes down again,

859
01:26:28.200 --> 01:26:34.200
and they're back with new firms, 654 firms, lower prices and lower profits.

860
01:26:34.200 --> 01:26:39.400
there's no percentage in that

861
01:26:39.400 --> 01:26:43.120
and then they have to buy out

862
01:26:43.120 --> 01:26:47.560
the competitor, and of course a lot of money to buy out a new profitable competitor

863
01:26:47.560 --> 01:26:50.920
so it's sort of like rolling back the ocean, you can't do it

864
01:26:56.040 --> 01:27:00.560
as Iron Age, the magazine of the Iron and Steel Association, said in September 1900

865
01:27:00.560 --> 01:27:04.420
It's especially true, in other words, to try to buy up a new firm coming in,

866
01:27:04.420 --> 01:27:09.080
but the combination, namely U.S. Steel, is naming confessively high prices

867
01:27:09.080 --> 01:27:12.220
for its goods and at the same time under heavy expenses that are kind of buying out

868
01:27:12.220 --> 01:27:13.240
competitors

869
01:27:13.240 --> 01:27:17.920
or subsidizing them to keep out of the market. So it's like an endless loss process.

870
01:27:17.920 --> 01:27:21.120
You try to maintain a high price, a new competitor comes in, you try to buy them out,

871
01:27:21.120 --> 01:27:25.840
you're spending money like water, you're making losses.

872
01:27:25.840 --> 01:27:29.520
Okay, so that was the Iron and Steel Trust. This is repeated time and time again in other

873
01:27:29.520 --> 01:27:30.900
companies

874
01:27:30.900 --> 01:27:35.200
the whiskey trust for example, you get the whiskey

875
01:27:35.200 --> 01:27:41.280
eighty small midwestern firms in 1887 combined into the stillers, cattle and feeders trust

876
01:27:41.280 --> 01:27:44.000
try to have a whiskey trust, a whiskey monopoly

877
01:27:44.000 --> 01:27:50.280
uh... in 1887

878
01:27:50.280 --> 01:27:52.080
in the middle west

879
01:27:52.080 --> 01:27:57.080
as I say, the late 1890s was the peak of this, but it starts a little earlier than that

880
01:27:57.080 --> 01:27:59.920
and uh...

881
01:27:59.920 --> 01:28:03.920
and they have twenty-one plants, they bring them to cut production and raise price immediately

882
01:28:03.920 --> 01:28:07.480
they keep the price of whiskey up for a few years, and of course new whiskey distilleries come in

883
01:28:07.480 --> 01:28:09.540
what the hell, you can't keep them out

884
01:28:09.540 --> 01:28:12.280
so new firms come in, distilleries

885
01:28:12.280 --> 01:28:16.920
distilleries trust buys them up, and they finally go bankrupt, they can't keep buying stuff, they haven't got unlimited funds

886
01:28:16.920 --> 01:28:18.640
to buy up new distilleries

887
01:28:18.640 --> 01:28:20.560
and so in 1896

888
01:28:20.560 --> 01:28:23.600
this cartel goes bust

889
01:28:23.600 --> 01:28:27.400
That was the end of that

890
01:28:27.400 --> 01:28:28.540
and uh...

891
01:28:28.540 --> 01:28:32.440
they tried again by 1903 and it doesn't work either

892
01:28:32.440 --> 01:28:35.400
the same thing happened to a charming company, a national biscuit company

893
01:28:35.400 --> 01:28:37.400
national biscuit companies you all know are the

894
01:28:37.400 --> 01:28:39.500
producers of different packaged biscuits

895
01:28:39.500 --> 01:28:41.880
but they were the first ones to do it. In the old days

896
01:28:41.880 --> 01:28:43.320
you didn't have packages

897
01:28:43.320 --> 01:28:45.800
there were no packages, you'd go into a general store and you'd buy

898
01:28:45.800 --> 01:28:50.880
bins with stuff in it, bins with malomars, probably that way in Europe now, in Asia

899
01:28:50.880 --> 01:28:55.040
and you get, you know, it's kind of charming to get these, you know, I want 20 malomars or something

900
01:28:55.040 --> 01:28:58.360
so the National Biscuit Company is the first company to package

901
01:28:58.360 --> 01:29:02.440
I think they package almost anything, not just cookies or crackers, I think it might have been the first

902
01:29:02.440 --> 01:29:05.000
retail packaging of food

903
01:29:05.000 --> 01:29:06.280
and uh...

904
01:29:06.280 --> 01:29:08.600
because you can imagine how to feed one of the poison

905
01:29:08.600 --> 01:29:14.120
bins would be much more effective than Tylenol means, they don't package at all, they just have bins of stuff in it

906
01:29:14.120 --> 01:29:14.880
anyway

907
01:29:14.880 --> 01:29:20.120
yeah, the National Biscuit Company and so forth, you need a biscuit, I think, is the first one

908
01:29:20.120 --> 01:29:25.600
and this of course is a big hit because it means the customers can out-buy and know what you're getting and you're getting a certain fixed amount and so forth and so on

909
01:29:25.600 --> 01:29:28.760
The National Biscuit Company was originally supposed to be a monopoly

910
01:29:28.760 --> 01:29:32.400
In 1898, they formed

911
01:29:32.400 --> 01:29:40.320
with a giant regional combination of three other giant regional combinations. They wanted to have a big monopoly of the entire biscuit field, the entire cookie and biscuit field

912
01:29:40.320 --> 01:29:44.680
and they tried to then push, cut production

913
01:29:44.680 --> 01:29:46.920
and raise prices

914
01:29:46.920 --> 01:29:49.680
and as soon as they did it, this was in 1898

915
01:29:49.680 --> 01:29:51.160
as soon as they did it

916
01:29:51.160 --> 01:29:54.560
new companies kept coming in, they had to buy them up

917
01:29:54.560 --> 01:29:57.440
you know, it's too expensive to buy it up, where are they going to get the money from?

918
01:29:57.440 --> 01:30:01.040
and finally the whole thing collapses, they almost go bankrupt

919
01:30:01.040 --> 01:30:02.640
in 1901

920
01:30:02.640 --> 01:30:05.880
the uh...

921
01:30:05.880 --> 01:30:07.800
National Biscuit Company

922
01:30:07.800 --> 01:30:12.280
I wish I had used to have a quote from this, a charming quote

923
01:30:12.280 --> 01:30:15.800
the National Biscuit Company report

924
01:30:15.800 --> 01:30:17.880
I still have it here

925
01:30:17.880 --> 01:30:22.760
where they say they're changing their policy. Yeah, here it is.

926
01:30:22.760 --> 01:30:26.440
They're giving up the idea of a monopoly and they're going to just go to competition.

927
01:30:26.440 --> 01:30:30.680
This is an annual report from 1901. It's in

928
01:30:30.680 --> 01:30:33.740
a book by Alfred Chandler on

929
01:30:33.740 --> 01:30:38.840
big business in America, sort of a paperback book.

930
01:30:38.840 --> 01:30:43.480
They're announcing the change. Why? It is before antitrust, by the way. I mean, the antitrust was not being enforced.

931
01:30:43.480 --> 01:30:45.600
Nothing to do with it.

932
01:30:45.600 --> 01:30:47.660
After three years of this

933
01:30:47.660 --> 01:30:50.860
trying to have a monopoly and constantly being out-competed, almost going bankrupt

934
01:30:50.860 --> 01:30:56.140
issue a report to their stockholders, changing their whole policy, this is what they say, it's charming

935
01:30:56.140 --> 01:31:00.700
quote, when we look back over the four years, I mean 1898, 1901

936
01:31:00.700 --> 01:31:06.100
when we look back over the four years, we find that a radical change has been wrought in our methods of business

937
01:31:06.100 --> 01:31:08.500
when this company started, it was thought

938
01:31:08.500 --> 01:31:12.720
we must control competition, in other words, have a cartel, have a monopoly

939
01:31:12.720 --> 01:31:16.140
and to do this, we must either fight competition or buy it

940
01:31:16.140 --> 01:31:21.720
This first meant, when I was fighting it, a ruinous war of prices and a great loss of profit.

941
01:31:21.720 --> 01:31:25.460
The second, the constantly increasing capitalization, and we're constantly spending more money to

942
01:31:25.460 --> 01:31:27.740
buy up new competitors.

943
01:31:27.740 --> 01:31:32.260
Experience soon proved to us that instead of bringing success, either of these courses,

944
01:31:32.260 --> 01:31:35.760
if persevered in, must bring disaster.

945
01:31:35.760 --> 01:31:40.700
This led us to reflect whether it was necessary to control competition, and we'll all know

946
01:31:40.700 --> 01:31:41.700
the words.

947
01:31:41.700 --> 01:31:45.700
We soon satisfied ourselves that within the company itself we must look for success.

948
01:31:45.700 --> 01:31:50.700
We turn our attention and bent our energy to improving the internal management of our business,

949
01:31:50.700 --> 01:31:54.700
to getting full benefit from purchasing our raw materials in large quantities,

950
01:31:54.700 --> 01:32:00.700
to economizing the expenses of manufacture, to systematizing and rendering more effective our selling department,

951
01:32:00.700 --> 01:32:09.700
and above all things and before all things, and above all things and before all things to improve the quality of our goods

952
01:32:09.700 --> 01:32:12.700
and the condition in which they should reach the customer.

953
01:32:12.700 --> 01:32:16.700
It became the subtle policy of this company to buy at, no competition.

954
01:32:16.700 --> 01:32:21.700
It's a beautiful clear statement, they try monopoly, it didn't work and now they're going to compete,

955
01:32:21.700 --> 01:32:25.700
they're going to cut costs and try to improve their products, forget about it, they're going to try to get a monopoly.

956
01:32:25.700 --> 01:32:29.700
This is repeated in really every industry in this whole period.

957
01:32:29.700 --> 01:32:41.700
Agriculture machinery the same way, agriculture machinery, Morgan and Perkins got together to try to get a monopoly in farm equipment manufacturing.

958
01:32:41.700 --> 01:32:44.080
Farmer Equipment Manufacturing

959
01:32:44.080 --> 01:32:45.120
McCormick

960
01:32:45.120 --> 01:32:48.720
was the leading farm equipment manufacturer, McCormick Reaper

961
01:32:48.720 --> 01:32:53.420
McCormick, I guess, was retiring or dying, instead of the original McCormick, they decided to

962
01:32:53.420 --> 01:32:58.040
get together and merge all farm equipment manufacturing into one giant Morgan-type

963
01:32:58.040 --> 01:33:01.740
monopoly called International Harvester

964
01:33:01.740 --> 01:33:04.980
which was formed in 1902

965
01:33:04.980 --> 01:33:09.100
It was supposed to be the only company in the farm equipment business, and once again, of course, other companies

966
01:33:09.100 --> 01:33:39.100
and go along with it. New companies came in to out-compete. Again, Morgan Perkins, Morgan Perkins and McCormick's, and so they formed in 1902 a giant alleged monopoly. From the very beginning, they were a singularly unprofitable international harvester. The management was no good, the orc was bad, they were overconfident,

967
01:33:39.100 --> 01:33:44.300
The share of their profits declines at the very beginning, the share of the market declines, the share of output.

968
01:33:44.300 --> 01:33:47.580
I'll let you go in a minute for a break.

969
01:33:47.580 --> 01:33:52.180
For example, the International Harvester began, I get this, for example, with

970
01:33:52.180 --> 01:33:54.980
Binders, which is one of the top

971
01:33:54.980 --> 01:33:57.700
farm machinery.

972
01:33:57.700 --> 01:34:00.780
Binders

973
01:34:00.780 --> 01:34:05.260
International Harvester begins in 1903

974
01:34:05.260 --> 01:34:11.260
With 96% of the market, now think about that, I'm like USDA with 60, 96% of the market.

975
01:34:11.260 --> 01:34:17.260
By 1911 they're down to 87% and counting downward, in other words they lose money from the very beginning there.

976
01:34:17.260 --> 01:34:34.260
They lose business shares, mowers drops from 91% to 75% and harvesters themselves

977
01:34:34.260 --> 01:34:47.580
dropped from 85% to 80% and then finally 64% by 1918, so all of these are constantly declining,

978
01:34:47.580 --> 01:34:51.180
they start almost a monopoly, almost get their monopoly, almost, they're not quite and then

979
01:34:51.180 --> 01:34:58.220
I keep going, even in 1909 there were still 640 farm equipment manufacturing companies

980
01:34:58.220 --> 01:35:06.340
Even small ones are able to compete, and if an international harvester tries to raise

981
01:35:06.340 --> 01:35:11.380
the price and cut production, they can be out-competed very easily.

982
01:35:11.380 --> 01:35:25.260
In total farm machinery, in 1922 as a total, international harvesters down to 44%, they

983
01:35:25.260 --> 01:35:40.260
They started with about 90 in 1902. In 1922 they got 44%. In 1948 they got 23%. It's been declining, in other words, steadily ever since they started. They started with virtual monopoly. They keep falling constantly since then.

984
01:35:40.260 --> 01:35:53.260
Again, they're behind on a lot of stuff. They were behind on rubber tires, things like that, you know. They stay stuck with the old stuff for quite late.

985
01:35:53.260 --> 01:36:23.260
Okay, we will just take a 10 minute break and we will press on industries which we won't be able to do full credit to, so maybe later, but one of the most important industries in the country is of course the automobile industry, and I just want to say one of the, there's a very interesting new book that is interested in pursuing history of technology in particular, American technology, it's by a guy named Hounshell, David Hounshell, it's in paperback.

986
01:36:23.260 --> 01:36:32.260
called, it's a terrible title, I think Princeton University Press, John Hopkins, one of the top presses, it's called

987
01:36:32.260 --> 01:36:39.260
From the American System to Mass Production, it's sort of technological history revisionism, it's a whole new field

988
01:36:39.260 --> 01:36:45.260
and from the American system to mass production

989
01:36:45.260 --> 01:36:52.260
and it's a very interesting book, it's the history of American technology and manufacturing

990
01:36:52.260 --> 01:37:22.260
and when he points out, there are several revisionist things he points out, he points out that, for example, most people thought until this book came out last year, really, summarizing the latest stuff in the field, most historians thought that mass production came in around the 1850s, 1860s, mass production meaning factories, interchangeable parts, particularly, instead of hand crafting each part to fit together,

991
01:37:22.260 --> 01:37:26.260
All the parts are identical and you can replace them easily.

992
01:37:26.260 --> 01:37:32.260
It turns out it's not really true. Real mass production and interchangeable parts only came in much later.

993
01:37:32.260 --> 01:37:37.260
So many of the things we think of as being true mass production really weren't.

994
01:37:37.260 --> 01:37:43.260
For example, McCormick Reaper, the Singer sewing machine, which comes in about the 1880s or so.

995
01:37:43.260 --> 01:37:48.260
McCormick Reaper, which comes in also that period.

996
01:37:48.260 --> 01:38:01.260
was not really, the parts were not interchangeable, the parts were hand-fitted, even though they were machines, they had craftsmen, artisans, who hand-fitted, very skilled, expensive work up for it, to hand-fit all the parts together.

997
01:38:01.260 --> 01:38:16.260
And so it still keeps on, even with McCormick Agricultural, even though there were large, with mass production in the sense of a large amount of production per year, it was very costly, it wasn't very cheap because it was hand-fitted by artisans and mechanics.

998
01:38:16.260 --> 01:38:22.260
The thing is these mechanics would go from one industry to another carrying their craft with them so to speak

999
01:38:22.260 --> 01:38:28.260
and it's only really with Henry Ford when the mass production really comes in with interchangeable parts in 1910

1000
01:38:28.260 --> 01:38:35.260
the whole concept of completely identical parts, we don't need mechanics or artisans to hand fit

1001
01:38:35.260 --> 01:38:41.260
and one of the major ancestors, one interesting thing is the way this fits is

1002
01:38:41.260 --> 01:38:57.260
In order to produce the automobile, the preliminary work was done by the bicycle industry, which comes in really in the 1880s, 1890s.

1003
01:38:57.260 --> 01:39:01.260
Before that, there were no bicycles. Not only were there no roads, there were no cars, there were no bicycles.

1004
01:39:01.260 --> 01:39:04.260
Bicycles really come in like 1860 or 70.

1005
01:39:04.260 --> 01:39:09.260
The kind of bicycle that was popular in Europe and then came to the United States was not really suitable for much...

1006
01:39:09.260 --> 01:39:18.260
It was sort of like this, and it was on a big front wheel and a tiny back wheel, and no chain, no chain-driven length to clean them.

1007
01:39:18.260 --> 01:39:24.260
So it was very dangerous, sitting up on top here, you'd topple over in any minute, okay, so it wasn't really...

1008
01:39:24.260 --> 01:39:29.260
It was sort of a toy for the rich, it was very expensive and very much unused.

1009
01:39:29.260 --> 01:39:34.260
It was only in the 1890s that the so-called safety bicycle was produced.

1010
01:39:34.260 --> 01:39:38.820
Not only even wheels, but also chain-linked, chain-ribboned.

1011
01:39:38.820 --> 01:39:43.700
This is the pedal, you know, all of us that we're not familiar with.

1012
01:39:43.700 --> 01:39:48.380
And the first guy to really do this in the United States was a guy named Alexander Pope.

1013
01:39:48.380 --> 01:39:52.060
Well, Arthur Pope didn't even have the Pope Bicycle Company.

1014
01:39:52.060 --> 01:39:58.700
And this became extremely popular in the United States. I think it was in the 1890s, 100,000, 200,000 bicycles were used.

1015
01:39:58.700 --> 01:40:02.540
the mass production, in other words, mass production

1016
01:40:02.540 --> 01:40:07.940
safe and mass production, people driving around, everybody buying a bicycle

1017
01:40:07.940 --> 01:40:11.660
with everybody buying a bicycle, they got used to the idea of moving on their own hook

1018
01:40:11.660 --> 01:40:14.940
in other words, before that, in order to move around, you have to have a train

1019
01:40:14.940 --> 01:40:18.260
basically trains, trains have fixed schedules

1020
01:40:18.260 --> 01:40:21.380
and uh...

1021
01:40:21.380 --> 01:40:25.020
the trains are the only way to move from one city to another, one area to another

1022
01:40:25.020 --> 01:40:28.100
like I said, there's no land transportation except trains, right?

1023
01:40:28.100 --> 01:40:32.500
So what you have is the cities get built up. Everything gets built around the train station.

1024
01:40:32.500 --> 01:40:34.860
The train station is the middle of town.

1025
01:40:34.860 --> 01:40:36.900
How do you get in factories?

1026
01:40:36.900 --> 01:40:41.180
Everybody wants to be near the train station. Factories in order to ship their,

1027
01:40:41.180 --> 01:40:45.180
get their raw materials shipped and ship their stuff out. And workers and people

1028
01:40:45.180 --> 01:40:50.300
living near the factories. You have to walk. There's no way to get, there's no cars, there's no bicycles, there's no nothing.

1029
01:40:50.300 --> 01:40:52.980
Everybody has to walk to work.

1030
01:40:52.980 --> 01:40:55.900
So the cities grow up and clustered around

1031
01:40:55.900 --> 01:40:58.420
train station

1032
01:40:58.420 --> 01:41:02.180
and so cities have become this kind of a

1033
01:41:02.180 --> 01:41:04.900
circular sort of area around the train station

1034
01:41:04.900 --> 01:41:07.580
clustered in

1035
01:41:07.580 --> 01:41:11.660
and movement can only take place as mass transit so to speak

1036
01:41:11.660 --> 01:41:15.380
and fixed schedules and fixed terminals

1037
01:41:15.380 --> 01:41:18.380
all of a sudden a bicycle comes in, a safety bicycle comes in

1038
01:41:18.380 --> 01:41:21.660
and suddenly people have a feeling, boy they can move around, they don't have to start at 6 p.m.

1039
01:41:21.660 --> 01:41:24.900
they can go anytime they damn please, they can go with their girlfriend or whatever

1040
01:41:24.900 --> 01:41:29.100
They can drive out in the countryside, and this fantastic mobility comes in.

1041
01:41:29.100 --> 01:41:42.420
The idea of individual transportation and super mobility comes in, preparing people

1042
01:41:42.420 --> 01:41:43.420
for the automobile.

1043
01:41:43.420 --> 01:41:46.180
In other words, you can't have the automobile suddenly descend from heaven.

1044
01:41:46.180 --> 01:41:51.700
The whole concept is getting people a desire, a tremendous desire for individual transportation,

1045
01:41:51.700 --> 01:41:54.500
even better, more efficient and more powerful than just a bicycle.

1046
01:41:54.500 --> 01:42:01.500
also the whole wheel technology comes in, the whole idea of using wheels, the whole idea of rubber tires, which comes in fairly late in the bicycle

1047
01:42:01.500 --> 01:42:08.500
so bicycle manufacturers and bicycle shops, which are small, I mean, from the point of view of manufacturing, they're using small shops, small houses here, whatever, locks

1048
01:42:08.500 --> 01:42:15.500
yet people get used to bicycle technology, the wheel concept, the rubber tire concept, which really prepares the way for all kinds of things

1049
01:42:15.500 --> 01:42:25.500
You get people to get used to bicycle technology, the wheel concept, rubber tire concept, which really prepares the way for the automobile.

1050
01:42:25.500 --> 01:42:35.500
The first automobiles were manufactured in bicycle shops, because the people, the artisans, the manufacturers, the technologists were used to this kind of concept of using wheels for transportation.

1051
01:42:35.500 --> 01:42:46.580
The, and another thing is that the, before, when they got started, the automobile industry

1052
01:42:46.580 --> 01:42:52.820
got started around 1900, again after the bicycle craze, you see, the bicycle was 1890s, then

1053
01:42:52.820 --> 01:42:57.380
comes the next step which is automobiles, first of all automobiles are very expensive,

1054
01:42:57.380 --> 01:43:01.220
they were toys for the rich and they're extremely, they're beautiful, you see early on automobiles

1055
01:43:01.220 --> 01:43:03.860
with gold and chrome, all that sort of stuff.

1056
01:43:03.860 --> 01:43:07.020
They're very expensive, and also they had all sorts of

1057
01:43:07.020 --> 01:43:10.300
kind of engines, like electric, there were electric automobiles, there were steam automobiles,

1058
01:43:10.300 --> 01:43:13.540
all these things were technologically feasible, the only problem was they were not

1059
01:43:13.540 --> 01:43:17.540
economic for mass production, they were very expensive, and also they were

1060
01:43:17.540 --> 01:43:22.260
very, very fast, they didn't have much pick-up, so to chug along, if you see old movies,

1061
01:43:22.260 --> 01:43:26.500
you're an old car buff, which I'm not, but I know people who are, you know, they looked great,

1062
01:43:26.500 --> 01:43:29.420
and they could chug along at 10 miles an hour, or whatever it is,

1063
01:43:29.420 --> 01:43:42.120
And they start off with a lot of small businesses, small blacksmith shops, small blacksmith shops and small bicycle shops.

1064
01:43:42.120 --> 01:43:47.220
Basically, it was the first automobile, quote, factories, unquote.

1065
01:43:47.220 --> 01:43:55.720
Henry Ford began his, there were hundreds, literally hundreds of automobile companies from 1900 to World War I.

1066
01:43:55.720 --> 01:44:03.720
The largest company was an electric vehicle company, which was a $20 million corporation, which was very big in that period.

1067
01:44:03.720 --> 01:44:17.720
It went bankrupt because it didn't have the savvy. It also put its money in a losing proposition, namely electrical vehicle, electrical cars, which for various reasons don't make it.

1068
01:44:17.720 --> 01:44:21.720
They're slow and all the rest of it. Expensive, etc., etc.

1069
01:44:21.720 --> 01:44:51.720
et cetera. So Henry Ford starts off, he was again, I guess he was a pietist, he was, I think, I don't know where he was born, anyway, he starts off with only $20,000, he didn't get any bank loans, he got the stuff and he saved up some money, he got a lot of friends and so forth, he starts his first company with $20,000, plows back his profits in the usual manner, and originates the idea of everybody

1070
01:44:51.720 --> 01:44:57.400
He also was making beautifully hand-tooled cards, very expensive cards, for collectors,

1071
01:44:57.400 --> 01:44:58.400
for wealthy people.

1072
01:44:58.400 --> 01:45:03.080
It was Henry IV who got the original idea for a mass production of a uniformed card.

1073
01:45:03.080 --> 01:45:08.280
Instead of having beauty, instead of expressing beauty and elegance, it expressed low cost

1074
01:45:08.280 --> 01:45:10.000
to the masses.

1075
01:45:10.000 --> 01:45:15.120
And by doing that, and then interchangeable parts of mass production, which comes in then,

1076
01:45:15.120 --> 01:45:18.920
if you have beautifully hand-tooled cards, you're not going to have any mass production.

1077
01:45:18.920 --> 01:45:48.920
His idea, the idea of Henry Ford really starts, launches, finishes up, and Hancho points out really the first real mass production, real interchangeable parts, and therefore we're having huge factories to do this, but it didn't start off as a huge factory, it started off as an idea in the mind of Henry Ford, going for cheap production, cheap cars, cars that everybody can afford, those days a couple hundred dollars I guess was the price.

1078
01:45:48.920 --> 01:45:58.680
From 1900 to 1908 for example, to show you the intensity of competition in the automobile industry then, there were

1079
01:45:58.680 --> 01:46:04.160
502 automobile companies enter the automobile industry,

1080
01:46:04.160 --> 01:46:12.260
of which 273 failed.

1081
01:46:12.260 --> 01:46:17.140
Of the ten leading automobile manufacturers in 1903,

1082
01:46:17.140 --> 01:46:20.980
only one was in the top ten twenty-one years later

1083
01:46:20.980 --> 01:46:23.160
so a very heavy turnover, a very heavy

1084
01:46:23.160 --> 01:46:25.740
circulation of elites, if you want to put it that way

1085
01:46:25.740 --> 01:46:29.860
entries, failures, all the rest of it

1086
01:46:29.860 --> 01:46:35.140
General Motors, I'm sort of jumping the gun here, jumping into the later period

1087
01:46:35.140 --> 01:46:39.740
the point is that Henry Ford, I guess this idea of mass production, plows back profits

1088
01:46:39.740 --> 01:46:43.980
cheap cards for the masses and so forth

1089
01:46:43.980 --> 01:46:50.980
The first real mass production, the first assembly line, the concept of which is you bring everything together in one continuous rolling process

1090
01:46:50.980 --> 01:46:57.980
with people at each step of the way doing things, and the product continuously flowing through the sit until output.

1091
01:47:01.980 --> 01:47:05.980
The later liberals claim that the assembly line dehumanized the workers.

1092
01:47:05.980 --> 01:47:11.980
For those who were actually in the assembly line, I thought it was great. They were getting high pay, but not too much, not too onerous work.

1093
01:47:11.980 --> 01:47:17.980
and also they had a feeling that good stuff, a good product was rolling off the assembly line

1094
01:47:18.980 --> 01:47:25.980
General Motors was launched around 1908 by Morgan and DuPont

1095
01:47:25.980 --> 01:47:31.980
in other words, it was a coalition, essentially a coalition of Morgan and DuPont

1096
01:47:31.980 --> 01:47:37.980
DuPont was a major owner, DuPont had been a powder manufacturer for many, almost about a century

1097
01:47:37.980 --> 01:47:43.260
The General Motors was a corporation, a Morgan-Dupont corporation, that almost went back from.

1098
01:47:43.260 --> 01:47:53.740
It started in 1908, it was a total flop-a-roo, and the share of the market declined steadily

1099
01:47:53.740 --> 01:47:59.660
after 1908, and it was only after 1923, it almost went back, the General Motors almost

1100
01:47:59.660 --> 01:48:06.540
went under in 1923, I'm getting much later in the game, but the thing is that Ford, the

1101
01:48:06.540 --> 01:48:18.540
The problem was forwarding, he had this mass production, cheap cars, mass production, cars are beloved by everybody, he had huge plants, enormous big factories, which had the assembly line rolling, etc.

1102
01:48:18.540 --> 01:48:29.540
The problem is, and so he was doing very well, he had about 80% on the market at one point, he was succeeding, his general motives were flopping, the other corporations weren't doing too hot.

1103
01:48:29.540 --> 01:48:39.540
They called him an administrative genius, one of the great geniuses and managerial geniuses of the 20th century, Alfred P. Sloan, who saved General Motors.

1104
01:48:39.540 --> 01:48:45.540
What he did was, he changed the whole managerial concept in the 1920s.

1105
01:48:45.540 --> 01:48:52.540
See, Ford had everything in his own pocket. In other words, Ford was an individualist. He insisted on managing everything himself.

1106
01:48:52.540 --> 01:49:01.040
A giant multi-million dollar company, he insisted on running everything, every detail, who's going to be the floor sweeper, things like that.

1107
01:49:01.040 --> 01:49:09.040
With a few cronies, he had Harry Bennett with his chauffeur, became his vice president, that sort of stuff, separate multi-millionaire.

1108
01:49:09.040 --> 01:49:16.540
And Sloan said, no, you can't run a huge corporation that way, you have to de-centralize, he started the whole committee system, de-centralized management.

1109
01:49:16.540 --> 01:49:20.540
which now, of course, every corporation has, in those days, was unique.

1110
01:49:20.540 --> 01:49:23.540
Okay, committee system, decentralized management, all the rest of it,

1111
01:49:23.540 --> 01:49:26.540
reporting, trying to have individual parts of the company,

1112
01:49:26.540 --> 01:49:30.540
each of which has its own accounting system and tries to make me a profit center.

1113
01:49:30.540 --> 01:49:34.540
All that stuff really begins with Sloan,

1114
01:49:34.540 --> 01:49:37.540
which saves General Motors, really turns the whole thing around.

1115
01:49:37.540 --> 01:49:40.540
So it's not money that does it. Money itself is not going to do anything.

1116
01:49:40.540 --> 01:49:45.540
You have to have entrepreneurial, managerial, technological know-how of what to do,

1117
01:49:45.540 --> 01:49:48.300
and an idea of what to do and how to do it

1118
01:49:48.300 --> 01:49:49.940
another thing is that Ford

1119
01:49:49.940 --> 01:49:56.420
again gets conservative in the sense that he has this idea of one car which is uniform for everybody

1120
01:49:56.420 --> 01:50:01.540
and his idea was to never change it, what the hell, this is the best car, the so-called Model T

1121
01:50:01.540 --> 01:50:04.140
black Model T car

1122
01:50:04.140 --> 01:50:06.980
and when somebody said why not have

1123
01:50:06.980 --> 01:50:12.500
blue and green cars and change models, no, no, if you do that it's costlier, it's true in the sense it's going to be costlier

1124
01:50:12.500 --> 01:50:16.500
change models, they have new colors, no, everybody's got to have black and that's it

1125
01:50:16.500 --> 01:50:19.700
everybody has the same model for about thirty years

1126
01:50:19.700 --> 01:50:21.920
for it, this is it, why not?

1127
01:50:21.920 --> 01:50:25.540
General Motors was the first, Sloan was the first guy to realize the public wants

1128
01:50:25.540 --> 01:50:30.620
different colors, they're more affluent now, they're used to the idea of cars, they want green and blue, they want individualized cars, they want

1129
01:50:30.620 --> 01:50:34.020
model changes, they like to see some change once in a while

1130
01:50:34.020 --> 01:50:36.060
snazzier looking, all that sort of stuff

1131
01:50:36.060 --> 01:50:40.820
and General Motors introduced the concept of different model changes, different colors

1132
01:50:40.820 --> 01:50:42.580
appealing to the consumers

1133
01:50:42.580 --> 01:50:45.740
even though it might be costlier at the beginning, even though you don't have a

1134
01:50:45.740 --> 01:50:48.740
low cost for total uniformity

1135
01:50:48.740 --> 01:50:52.020
the public wants it, in other words, for them it's not costly because you're giving them a

1136
01:50:52.020 --> 01:50:56.540
better product, to improve the product by different colors, different styles,

1137
01:50:56.540 --> 01:50:58.820
different packaging, all the rest of it

1138
01:50:58.820 --> 01:51:03.940
which Ford scorned being a piousist type and believing everybody should be thrifty anyway

1139
01:51:03.940 --> 01:51:06.040
why shouldn't they have the same product?

1140
01:51:06.040 --> 01:51:07.060
for privilege

1141
01:51:07.060 --> 01:51:14.060
Well, the public wanted, they found, gee, we like different, we like new changes every year, we like new colors and different, you know, lower cars and all that sort of stuff

1142
01:51:14.060 --> 01:51:18.060
And Ford almost went bankrupt himself in the late 20s, he was slow in changing

1143
01:51:18.060 --> 01:51:22.060
He finally had to retool when they did that, I think it was 1928

1144
01:51:22.060 --> 01:51:28.060
He almost went bankrupt because Ford Motor Company being very, very big and geared to one car and one product

1145
01:51:28.060 --> 01:51:32.060
Couldn't handle the idea of retooling for different model changes, they almost went bankrupt doing it

1146
01:51:32.060 --> 01:52:02.060
It was then, in the late 20s and early 30s, that Ford lost its predominance in the automobile industry, which, you know, motors became the dominant, and still is the dominant company, because if this new idea it had, okay, we'll give them a higher price, we'll give them a nicer product they like better, and it worked, and if you're a company which is geared to one huge plant where everything is the same, it's very difficult, in order to get more flexibility, you have to have a smaller size product, smaller size plant. In other words, as Houcho points out, when you're

1147
01:52:02.060 --> 01:52:13.060
So mass production is a trade-off. You can either make it very big and very uniform at very low cost or you can have it smaller and more flexible and maybe higher cost and more flexible and be able to change faster.

1148
01:52:13.060 --> 01:52:17.060
And you have to make that decision and it depends on the market and all these other changes.

1149
01:52:17.060 --> 01:52:22.060
So one of the things it shows is that no company ever has a monopoly unless the government enforces it.

1150
01:52:22.060 --> 01:52:29.060
There's always some other guy coming up, in the words of the great philosopher, Satchel Page, the famous baseball pitcher,

1151
01:52:29.060 --> 01:52:33.540
Don't look behind because some guy might be gaining on you. Don't look back because some guy might be gaining on you.

1152
01:52:33.540 --> 01:52:39.300
This is exactly what's happening. Somebody else is always coming up with a new idea, maybe better, etc. etc.

1153
01:52:39.300 --> 01:52:44.740
And so you always have to be on the alert. Actually, you should look back. That's what the answer is.

1154
01:52:44.740 --> 01:52:51.140
So, at any rate, Florida is the first one to really come in with mass production,

1155
01:52:51.140 --> 01:52:54.660
completely mass production, completely interchangeable product. Yeah?

1156
01:52:54.660 --> 01:53:02.660
We've been talking about creating companies, also we've been mentioning in a book about stocks and shares.

1157
01:53:02.660 --> 01:53:07.660
You've been talking about what are the shares, what are the stocks?

1158
01:53:07.660 --> 01:53:09.660
What are the stocks?

1159
01:53:09.660 --> 01:53:11.660
Well, basically, it's really a stock.

1160
01:53:11.660 --> 01:53:13.660
The question is, what is the stock worth?

1161
01:53:13.660 --> 01:53:21.660
In other words, here's a company, a new corporation, a new merger is formed, General Electric, USC or whatever.

1162
01:53:21.660 --> 01:53:25.740
The promoters say, we think it's worth a hundred million dollars, let's say.

1163
01:53:25.740 --> 01:53:29.780
So if there are a million shares outstanding,

1164
01:53:29.780 --> 01:53:34.460
they say, we think it's worth, each share is worth a hundred bucks, right?

1165
01:53:34.460 --> 01:53:39.220
If they can get the public to go along with this, if the public says yes, yes,

1166
01:53:39.220 --> 01:53:43.380
if they buy it for a hundred bucks apiece, a new share, this is what they think it is.

1167
01:53:43.380 --> 01:53:46.040
It might well be, this is overestimated.

1168
01:53:46.040 --> 01:53:50.220
Maybe it's worth only twenty bucks a share in case the whole thing will collapse.

1169
01:53:50.220 --> 01:53:52.600
So it's not so much that the...

1170
01:53:52.600 --> 01:53:56.380
I mean, watered is sort of a pejorative term, it really means...

1171
01:53:56.380 --> 01:54:01.100
In other words, he's the promoter, the investment banker, essentially, which underwrites the share.

1172
01:54:01.100 --> 01:54:04.540
Say, Morgan underwrites the USDL. They say, this is worth a hundred million dollars,

1173
01:54:04.540 --> 01:54:07.700
because it's going to be a great profit in the future. Well, you don't have to believe this crap.

1174
01:54:07.700 --> 01:54:12.020
In other words, it's really a question of whether you believe in Morgan's estimate.

1175
01:54:12.020 --> 01:54:14.900
If you believe in it, you'll buy it for a hundred dollars, if you're a sucker or not.

1176
01:54:14.900 --> 01:54:19.140
If you're skeptical, you won't buy it for a hundred dollars. So eventually, the price goes down to twenty.

1177
01:54:19.140 --> 01:54:26.140
This turns out to be water, quote-unquote, but it's not illegal, that's the kind of fraud going on, which is what water implies.

1178
01:54:26.140 --> 01:54:32.140
The question of what you think, the whole stock market is a question of estimates. Do you think this company is worth more or less?

1179
01:54:32.140 --> 01:54:37.140
It goes on all the time. And if you accept the investment banker's estimate, of course you might be taken in.

1180
01:54:37.140 --> 01:54:40.140
But, you know, there's no reason for you to accept it unless you're dumb.

1181
01:54:40.140 --> 01:54:45.140
Unless you're suckered in by the whole thing. Unless you think that the monopoly is going to be worth a lot.

1182
01:54:45.140 --> 01:54:49.980
In other words, not so much that it would be frauding the stockholders, they probably

1183
01:54:49.980 --> 01:54:53.140
really thought there's going to be big monopoly profits for them, you know, and then they,

1184
01:54:53.140 --> 01:54:57.260
whether they thought it or not, this is what most of the people thought, and they find

1185
01:54:57.260 --> 01:55:01.580
out, no, it doesn't work by that time, and they make losses, so that difference turns

1186
01:55:01.580 --> 01:55:03.620
out to be quote, water on quote.

1187
01:55:03.620 --> 01:55:10.120
In the United States, there are shares of stocks, but in this country, there are shares of stocks.

1188
01:55:10.120 --> 01:55:12.120
Do you think there are any differences?

1189
01:55:33.620 --> 01:55:37.180
The FBA partner is worth eight million dollars, one eighth share.

1190
01:55:37.180 --> 01:55:41.820
If you're a corporation, you can sell the shares, the shares are sort of official out

1191
01:55:41.820 --> 01:55:42.820
there.

1192
01:55:42.820 --> 01:55:49.620
There's a, let's say there are a million shares of General Motors, and this means if you buy

1193
01:55:49.620 --> 01:55:53.540
one share of General Motors at the stock market, you're a one millionth owner of General Motors.

1194
01:55:53.540 --> 01:55:56.260
You buy 100,000 shares, you're a 10% owner.

1195
01:55:56.260 --> 01:56:00.980
So a share is a proportion of a total ownership, it ties you to a certain proportion of the

1196
01:56:00.980 --> 01:56:04.220
and the Profit and all that sort of thing.

1197
01:56:04.220 --> 01:56:06.180
So, the thing about corporation shares,

1198
01:56:06.180 --> 01:56:07.020
you can sell them easily.

1199
01:56:07.020 --> 01:56:08.740
If you're a partner, you can't sell your partner's share

1200
01:56:08.740 --> 01:56:10.300
very easily, hardly at all.

1201
01:56:10.300 --> 01:56:12.300
Your other partner's have to buy you out or something.

1202
01:56:12.300 --> 01:56:13.900
It's very difficult.

1203
01:56:13.900 --> 01:56:17.300
I know the Z-Bar's famous grocery store,

1204
01:56:17.300 --> 01:56:20.900
supermarket, Gunmei supermarket in Manhattan.

1205
01:56:20.900 --> 01:56:21.980
The owner wants to sell.

1206
01:56:21.980 --> 01:56:22.820
It's very difficult.

1207
01:56:22.820 --> 01:56:23.780
He's got like one third share.

1208
01:56:23.780 --> 01:56:24.620
How do you do it?

1209
01:56:24.620 --> 01:56:25.540
If there's, you know, the other guys have to,

1210
01:56:25.540 --> 01:56:27.700
your partner has to buy you out.

1211
01:56:27.700 --> 01:56:30.540
So, in a corporation, you can sell a share very easily

1212
01:56:30.540 --> 01:56:36.340
on a stock market. So a stock is a share of all the stocks in the corporation, a share

1213
01:56:36.340 --> 01:56:45.340
of ownership. It means ownership of assets, ownership of profits coming in, which is increase

1214
01:56:45.340 --> 01:56:53.340
of assets. So a bond is something different. A bond is a debt, evidence of debt, credit

1215
01:56:53.340 --> 01:57:01.660
to the corporation. So if General Motors floats bonds, let's say $10 million bond, if you

1216
01:57:01.660 --> 01:57:07.580
buy a $100 bond, it means you're, this is part of the debt, so this is, you're entitled

1217
01:57:07.580 --> 01:57:12.580
then to $10 a year, whatever the thing happens to be, the interest on the bond.

1218
01:57:12.580 --> 01:57:20.580
No, no, sponsor or share ownership, you get whatever the corporation size they give you.

1219
01:57:20.580 --> 01:57:23.460
The corporation, the board of directors of the corporation

1220
01:57:23.460 --> 01:57:27.040
represents the stockholders. They're like the stockholders' vote for the board.

1221
01:57:27.040 --> 01:57:31.080
They decide how much profit to share every year and all that.

1222
01:57:31.080 --> 01:57:33.160
It's called dividends. They share the...

1223
01:57:33.160 --> 01:57:40.160
Let's say you make profits of ten bucks a share, you declare a dividend of six bucks a share and take the other four and plow them back into the corporation.

1224
01:57:44.560 --> 01:57:48.880
Well, there's a certain number of total shares. The volume of trading can

1225
01:57:48.880 --> 01:57:53.960
It depends on how much is traded every day, it's traded back and forth, I buy a share

1226
01:57:53.960 --> 01:57:58.800
of General Motors stock from you, it means that one share is traded, you don't buy it,

1227
01:57:58.800 --> 01:58:03.880
you know, so that's the question of how much people are buying and selling back and forth.

1228
01:58:03.880 --> 01:58:11.520
So, but a bond is an evidence of debt and entitles you to a certain amount of dollars

1229
01:58:11.520 --> 01:58:17.880
per year.

1230
01:58:17.880 --> 01:58:22.320
Marketing, also marketing becomes important this whole period, around 1900, in other

1231
01:58:22.320 --> 01:58:25.840
words, selling is not enough to produce something, you have to sell it to the consumer, you have

1232
01:58:25.840 --> 01:58:30.440
to bring it to the transporter of the consumer and sell it, package it, like National Biscuit

1233
01:58:30.440 --> 01:58:36.040
Company packaged food, gasoline, packaged through, you know, through gasoline stations,

1234
01:58:36.040 --> 01:58:39.600
all these things had to be thought of and then developed, they're just as important

1235
01:58:39.600 --> 01:58:42.360
as actual production, shouldn't be forgotten.

1236
01:58:42.360 --> 01:58:44.800
Producing something is not enough, you have to get it to the consumer, if the package

1237
01:58:44.800 --> 01:59:00.800
The American Tobacco Company, James Duke, was the first one to really sell cigarettes in that way, to market them, becomes a sort of, quote, monopoly, unquote.

1238
01:59:00.800 --> 01:59:09.800
Actually, there was a merger. The American Tobacco Company was originally a monopoly in 1891, I think, and of course, the shares began to fall right away, the same sort of stuff.

1239
01:59:09.800 --> 01:59:16.800
It was originally a merger of a whole bunch of tobacco companies.

1240
01:59:22.640 --> 01:59:29.640
The sugar trust is another classic example of this sort of thing.

1241
01:59:31.800 --> 01:59:38.800
The sugar refiner's tried a cartel in the 1880s, it didn't work several cartels,

1242
01:59:39.800 --> 01:59:47.440
Finally, in 1886, the other side of the merge. In those days there was a geographical concentration of sugar companies.

1243
01:59:52.360 --> 01:59:56.800
There were 23 sugar refining companies in the United States.

1244
01:59:59.520 --> 02:00:01.000
In 1886,

1245
02:00:01.000 --> 02:00:03.000
10 of them were in New York City and

1246
02:00:03.000 --> 02:00:07.600
and six of them are here in the middle of Brooklyn, in other words, Brooklyn was a heavy...

1247
02:00:07.600 --> 02:00:14.200
Brooklyn had two big manufacturing concentrations those days, sugar refining and beer, you know, a lot of breweries

1248
02:00:14.200 --> 02:00:19.400
so Brooklyn was a separate city by the way until about 1902 or something like that

1249
02:00:19.400 --> 02:00:23.600
it was like the fifth largest city in the United States or something around that

1250
02:00:23.600 --> 02:00:27.200
and three of the largest, the three largest companies were in Brooklyn

1251
02:00:27.200 --> 02:00:32.800
and with 55% of the total, so it was an easy, seemed to be an easy industry to try to merge

1252
02:00:32.800 --> 02:00:41.960
which is heavily concentrated in one city here, New York and Brooklyn, and much of these

1253
02:00:41.960 --> 02:00:49.160
were owned by the Havmeyer family, so Havmeyer was an excellent position to lead the idea

1254
02:00:49.160 --> 02:00:57.400
of a merger, a sugar refining merger, and Havmeyer testified before Congress on this

1255
02:00:57.400 --> 02:01:01.920
thing and he said, he lobbied of course for a heavy tariff on sugar, the problem is if

1256
02:01:01.920 --> 02:01:08.920
So you have, again, you have a merger, you have a cartel or a merger or something, you raise cut production, you raise prices.

1257
02:01:08.920 --> 02:01:14.920
It's a danger, you might thought, importing sugar, if you try to have a tariff to keep at foreign sugar.

1258
02:01:14.920 --> 02:01:24.920
Habermann testified before Congress in 1897 in the big tariff bill, and he said, and he of course was a leader of the sugar trust,

1259
02:01:24.920 --> 02:01:31.920
And he said, quote, the mother of all trusts is the custom tariff bill, the tariff is the mother of all trusts.

1260
02:01:31.920 --> 02:01:36.420
The existing bill and the preceding one have been the occasion of the formation of all large trusts.

1261
02:01:36.420 --> 02:01:46.920
Now what he's saying is the high Republican tariff of 1897 was the reason why, the basic reason for the merger way of 1898-1901.

1262
02:01:46.920 --> 02:01:53.920
That got a huge increase in tariffs across the board, provided a shelter by which, shelter from foreign competition,

1263
02:01:53.920 --> 02:01:58.920
by which the domestic firms can try to have a trust and try to have monopoly prices

1264
02:01:58.920 --> 02:02:14.920
the refined sugar, for example, in 1899, Congress put on a very high tariff on refined sugar, about 71% tariff

1265
02:02:14.920 --> 02:02:21.920
There's raw sugar or refined sugar, we're not talking about refined sugar.

1266
02:02:23.920 --> 02:02:29.920
To give you an idea, obviously the economic thing would have been to import refined sugar from Great Britain.

1267
02:02:29.920 --> 02:02:36.920
We now have some tables here, here's a British price, this is the price of refined sugar.

1268
02:02:44.920 --> 02:02:57.800
Let me just show you the sugar we eat, you know, we buy in the stores, in 1885, the price,

1269
02:02:57.800 --> 02:03:04.880
this is British price, price in Great Britain, plus transportation cost to bring it, you

1270
02:03:04.880 --> 02:03:13.080
know, from Britain to the United States, British price plus transportation cost, in 1885 was

1271
02:03:13.080 --> 02:03:20.080
The US price for US refined sugar was $6.44. In other words, even with a transportation

1272
02:03:35.200 --> 02:03:39.200
course, it was much cheaper for Americans to buy sugar from Great Britain because it

1273
02:03:39.200 --> 02:04:09.200
So we slap on a very high tariff, and the British price plus the tariff, plus transport, in other words, this plus the tariff, amounted to $8.38, so we make the tariff so high, it cost $8.38 to buy British sugar and only $6.44 of American sugar, which is almost doubling the price of British sugar, and this keeps on, and it keeps on going,

1274
02:04:09.200 --> 02:04:17.200
And it's more or less the same throughout. There are ways of constantly trying to raise it.

1275
02:04:17.200 --> 02:04:23.200
The problem comes in with raw sugar. Raw sugar came in from Cuba and the Dominican Republic and so forth.

1276
02:04:23.200 --> 02:04:28.200
And of course the sugar trust is trying to keep free, wants to import raw sugar free.

1277
02:04:28.200 --> 02:04:32.200
They can have nice cheap raw sugar, then have a big tariff on refined sugar.

1278
02:04:32.200 --> 02:04:37.200
Well, they had a problem in a conflict with the American sugar growers.

1279
02:04:37.200 --> 02:04:42.480
So the sugar people, the Louisiana cane growers, the mountain sugar bee growers wanted to have

1280
02:04:42.480 --> 02:04:47.640
high tariff on imported raw sugar to keep out Cuban and Dominican, Hawaiian raw sugar.

1281
02:04:47.640 --> 02:04:51.520
In the meantime, the sugar refineries wanted to have a low tariff because they wanted to

1282
02:04:51.520 --> 02:05:02.760
have cheap raw sugar, big political conflicts over this.

1283
02:05:02.760 --> 02:05:06.200
Anyway the refined sugar, to get back to refined sugar people, they try to merge, they probably

1284
02:05:06.200 --> 02:05:13.200
So we finally have a grand merger of almost all the sugar refiners under Havmeyer's direction

1285
02:05:14.080 --> 02:05:21.080
into the American Sugar Refining Company. This was 1887. Located in Brooklyn. In fact,

1286
02:05:22.560 --> 02:05:27.200
one of my students a few years ago was actually still working for a plant, for a American

1287
02:05:27.200 --> 02:05:34.200
Sugar Refining Company plant here in Brooklyn. This consisted of 80% of the total sugar refining

1288
02:05:34.200 --> 02:05:40.480
80% of the total sugar-finding in the United States, 80% of the share of the market, and

1289
02:05:40.480 --> 02:05:44.360
of course as soon as they got that they cut production and raised price, why else have

1290
02:05:44.360 --> 02:05:48.440
a merger, unless you're going to do this, so they immediately cut production and raised

1291
02:05:48.440 --> 02:05:57.440
price, and bingo, new competitors come in, the key guy who formed the trust was Henry

1292
02:05:57.440 --> 02:06:04.440
We've got a big bonus performing in the trust, being the head of this, president and chairman

1293
02:06:07.200 --> 02:06:14.200
of the board of this whole outfit. And so immediately as I say they cut production,

1294
02:06:15.720 --> 02:06:21.600
they took, they had 20 plants, this outfit, and they immediately cut the number in half

1295
02:06:21.600 --> 02:06:27.000
and they dismantled the other half and all the rest of it. They raised prices and bingo

1296
02:06:27.000 --> 02:06:45.000
So, of course, new firms come in. In one year, they're down to 73% from 80%. In other words, here they've merged 80% of the sugar refining market, they cut the production, they scrap a few plants, but new firms are not coming in, their share of the market is cut in one year by 7%.

1297
02:06:45.000 --> 02:06:52.000
By 1889, it was down to 66%.

1298
02:06:52.000 --> 02:06:56.040
So, once again, the fact that there's free entry into the sugar refining business, and

1299
02:06:56.040 --> 02:07:00.280
no government keeping them out, obviously, they keep losing their share of the market

1300
02:07:00.280 --> 02:07:04.200
all the time to new companies which are popping up.

1301
02:07:04.200 --> 02:07:08.500
So the result of prices fall, not only does the price fall again, they're stuck with new

1302
02:07:08.500 --> 02:07:13.840
competitors who are coming in with new machinery, new technology, not stuck with the old high

1303
02:07:13.840 --> 02:07:19.040
cost technology, and the sugar refining companies worse off than they were before.

1304
02:07:19.040 --> 02:07:23.280
So, for example, in 1890 enters a new guy to compete with the American sugar refining

1305
02:07:23.280 --> 02:07:26.120
and have him wire trust, Klaus Speckles.

1306
02:07:26.120 --> 02:07:30.360
This starts the whole Speckles case.

1307
02:07:30.360 --> 02:07:36.040
I think Speckles' family fell in line with the mining playboys.

1308
02:07:36.040 --> 02:07:42.760
And Speckles was known as the sugar king of the Sandwich Islands in the Pacific.

1309
02:07:42.760 --> 02:07:49.020
He builds a, excuse me, I guess the West Indies, anyway, he builds a new plant in Philadelphia

1310
02:07:49.020 --> 02:07:54.900
with a big, much bigger refining capacity, 3000 barrels a day, and he's out-competing

1311
02:07:54.900 --> 02:08:01.060
the sugar refining company, becomes a new Baltimore sugar refinery, and he's moving

1312
02:08:01.060 --> 02:08:08.060
into this market, he's out-competing everybody, and they're stuck again. Severe competition

1313
02:08:08.100 --> 02:08:15.100
is a fool of profits, and the price of refined sugar goes down from $6.17 for hundreds of

1314
02:08:15.100 --> 02:08:21.100
For a hundredth of a weight, $4.69 because of the new Speckles competition.

1315
02:08:21.100 --> 02:08:23.100
So, and this keeps going on.

1316
02:08:23.100 --> 02:08:28.100
Every time they kind of merge and have a cartel or merger and monopoly and cut production

1317
02:08:28.100 --> 02:08:31.600
and raise price, a new competitor comes in and cuts the price and they have a lower share

1318
02:08:31.600 --> 02:08:36.100
of the market.

1319
02:08:36.100 --> 02:08:38.100
Again, so what does Havonmai do?

1320
02:08:38.100 --> 02:08:40.100
He decides to buy out Speckles, okay?

1321
02:08:40.100 --> 02:08:42.100
So he bought them out.

1322
02:08:42.100 --> 02:08:44.100
He formed a great new company in 1892.

1323
02:08:44.100 --> 02:08:49.900
and two, the new American sugar refining company they figure this will solve the whole problem

1324
02:08:49.900 --> 02:08:55.060
the new improved sugar refining company with speckles now in it

1325
02:08:55.060 --> 02:08:58.300
now they have a merger of six new companies, a fifty million, seventy-five million dollar

1326
02:08:58.300 --> 02:09:03.740
corporation

1327
02:09:03.740 --> 02:09:07.220
and they now have ninety-five percent of the sugar refining production

1328
02:09:07.220 --> 02:09:09.420
figure this is it, boy, now we have a monopoly

1329
02:09:09.420 --> 02:09:13.140
We can now cut production and raise prices.

1330
02:09:13.140 --> 02:09:19.180
The only firms that were left after 1892 were two, three teeny independents.

1331
02:09:19.180 --> 02:09:24.580
One small plant in Boston which only put out 500 barrels of sugar a day and the other was

1332
02:09:24.580 --> 02:09:29.760
two small plants in Louisiana and that was it.

1333
02:09:29.760 --> 02:09:30.760
So what happened?

1334
02:09:30.760 --> 02:09:34.700
Well, they form it and old sugar hands have gotten out of the sugar business and say,

1335
02:09:34.700 --> 02:09:37.500
hey this is fantastic, now we have higher prices, these guys have cut production and

1336
02:09:37.500 --> 02:09:47.100
And all of a sudden there comes people like Rockefeller, remember Rockefeller bought out

1337
02:09:47.100 --> 02:09:53.340
sugar, I mean oil refineries, they make oil refineries so that Rockefeller has to buy

1338
02:09:53.340 --> 02:09:54.340
it out.

1339
02:09:54.340 --> 02:09:55.340
Very costly.

1340
02:09:55.340 --> 02:10:01.020
Same thing happens now, two shrewd operators, Edward Siegel and Fred Hipple say, hey, looks

1341
02:10:01.020 --> 02:10:04.660
like the American sugar refining company is going to buy out every sugar refining plant

1342
02:10:04.660 --> 02:10:09.660
to keep them from competing with them, so let's produce a plant, we're going to have to buy it

1343
02:10:09.660 --> 02:10:14.660
Siegel & Hemp will go into the sugar refining plant business

1344
02:10:14.660 --> 02:10:18.660
so these suckers will have to buy it, it's great, nobody can stop them, there's no government

1345
02:10:18.660 --> 02:10:22.660
ordering them not to, so they make a practice of building sugar refineries

1346
02:10:22.660 --> 02:10:26.660
so the trust will have to buy them out, and

1347
02:10:26.660 --> 02:10:32.660
in some cases they found out the water supply was no good there, they couldn't have used it anyway, and so forth and so on

1348
02:10:32.660 --> 02:10:38.660
and they keep doing this a lot and this keeps smashing the monopoly

1349
02:10:38.660 --> 02:10:49.660
so in a year or so they're down at 85% from 95% and the price of sugar starts falling again, back to 4.1 cents

1350
02:10:49.660 --> 02:10:57.660
from $4.69 to $6.17. They can't seem to be able to raise prices and eliminate competition

1351
02:10:57.660 --> 02:11:02.340
In 1895-1996 they have a new agreement, they try to bring in Hippel and Siegel

1352
02:11:02.340 --> 02:11:06.060
to get back to 90% of production from 1895

1353
02:11:06.060 --> 02:11:09.660
In 1895 they're back

1354
02:11:09.660 --> 02:11:13.900
to 95%

1355
02:11:13.900 --> 02:11:16.060
90%

1356
02:11:16.060 --> 02:11:21.820
and again in 1897 a new sugar refining plant comes in, this time it's Klaus Dorscher

1357
02:11:21.820 --> 02:11:25.740
who was an old sugar man who had gone out of the business

1358
02:11:25.740 --> 02:11:32.740
Hey, it's a new monopoly here, they're raising the price, let's nip in with a new plant. Sure enough, the orchard starts up. Also, the Arbuckle brothers come in.

1359
02:11:33.740 --> 02:11:39.740
The ancestors of the famous fatty Arbuckle, the disgraced movie star of the 1920s.

1360
02:11:40.740 --> 02:11:48.740
They enter the sugar refining business in 1897-98. Let's bust this whole thing. Again, the share of the market goes down, prices fall again.

1361
02:11:48.740 --> 02:12:01.740
And another thing that happens is sugar beets come in more and you wind up, once again,

1362
02:12:01.740 --> 02:12:03.740
busting the whole cartel.

1363
02:12:03.740 --> 02:12:09.740
In 1901, they keep trying this thing, I mean, they don't seem to be able to learn much.

1364
02:12:09.740 --> 02:12:10.740
They bring in Arbuckle.

1365
02:12:10.740 --> 02:12:16.740
Okay, we'll bring Arbuckle in and they form a great new cartel, new merger, as you say,

1366
02:12:16.740 --> 02:12:17.740
in 1898.

1367
02:12:17.740 --> 02:12:29.740
1901, excuse me, they get almost all the Eastern refiners, and they try to bust up, they blow up Speckles plant, they do some organized vandalism.

1368
02:12:29.740 --> 02:12:37.740
By 1902 they have a brand new American sugar refining company, again they have 90% of the production.

1369
02:12:37.740 --> 02:12:44.740
and

1370
02:12:45.820 --> 02:12:52.260
again the same thing happens, they get ninety percent of production, their price goes up a little bit, their profits go up and bingo

1371
02:12:52.260 --> 02:12:54.540
things are going to collapse a couple of years later

1372
02:12:54.540 --> 02:12:57.360
so this is the

1373
02:12:57.360 --> 02:13:01.100
this is a record and it counts back, we have to quit now

1374
02:13:01.100 --> 02:13:07.700
this record sort of continues, the sugar refining is a beautiful example of this, every year they try it, every couple of years it can collapse

1375
02:13:07.700 --> 02:13:13.060
They bring new guys in, new guys, new new guys pop up and they always keep losing money

1376
02:13:13.060 --> 02:13:15.940
They never seem to get to the places that can really cut production and raise prices