WEBVTT

NOTE Tariffs, Inflation, Anti-Trust and Cartels

1
00:00:00.000 --> 00:00:09.760
Sherman Act outlaws conspiracy and restraint of trade and I forgot the second clause, it

2
00:00:09.760 --> 00:00:14.400
basically is really all it says, it's very vague, it's been held to mention to mean price

3
00:00:14.400 --> 00:00:20.280
fixing of some sort, like a cartel, it doesn't mention anything, it's very vague, it's like

4
00:00:20.280 --> 00:00:27.000
a two sentence, and then the Clayton Act of 1913-14 adds some stuff and creates a federal

5
00:00:27.000 --> 00:00:32.540
The Federal Trade Commission, so most of the antitrust law is simply accretions of decisions

6
00:00:32.540 --> 00:00:36.840
by antitrust courts, the courts, the Department of Justice and the Federal Trade Commission.

7
00:00:36.840 --> 00:00:37.840
They can do whatever they want.

8
00:00:37.840 --> 00:00:43.680
I mean basically they can declare anything monopolistic or anything, merger, it's truly

9
00:00:43.680 --> 00:00:46.780
administrative fiat.

10
00:00:46.780 --> 00:00:52.960
So at the peak of the antitrust hysteria, which really came in the 1930s, 40s or 50s

11
00:00:52.960 --> 00:00:58.520
Anything that can be considered and what's considered monopolistic, if you charge a price

12
00:00:58.520 --> 00:01:02.960
the same as your competitors, it's called collusion, because we know that most prices

13
00:01:02.960 --> 00:01:10.440
tend to be the same, Hershey bars and Nestle bars will be about the same, otherwise one

14
00:01:10.440 --> 00:01:13.640
of them is going to be in trouble.

15
00:01:13.640 --> 00:01:17.360
And if you charge a price lower than your competitors, it's considered predatory price

16
00:01:17.360 --> 00:01:21.160
cutting and unfair competition, if you charge a price higher than your competitors, it's

17
00:01:21.160 --> 00:01:22.160
considered monopolistic.

18
00:01:22.160 --> 00:01:26.360
So, whatever you did, it can be considered monopolistic.

19
00:01:26.360 --> 00:01:28.840
So, it's purely arbitrary in the part of the government.

20
00:01:28.840 --> 00:01:29.840
There was no rule of law.

21
00:01:29.840 --> 00:01:33.920
There was no statute you can interpret in any, you know, rational sense.

22
00:01:33.920 --> 00:01:39.120
And in those days, of course, I can't get into it in this course particularly, but they

23
00:01:39.120 --> 00:01:42.360
actually took seriously the economic model of perfect competition.

24
00:01:42.360 --> 00:01:46.880
The competition in the market wasn't, quote, perfect, unquote, which meant it wasn't meant

25
00:01:46.880 --> 00:01:52.080
that if any firm could affect its market in any way, like by making a better product,

26
00:01:52.080 --> 00:01:55.760
by competing more actively at something that somehow meant it was monopolistic.

27
00:01:55.760 --> 00:02:01.480
So, in that case, you can outlaw everything, so they could selectively then move in and

28
00:02:01.480 --> 00:02:07.200
right now, the most antitrust, right now, almost all antitrust tubes are private.

29
00:02:07.200 --> 00:02:12.240
90% of antitrust charges are made up by the government by other firms in the industry

30
00:02:12.240 --> 00:02:16.480
and even the government ones are in the behest of other firms.

31
00:02:16.480 --> 00:02:19.520
Usually what it is, almost exclusively, is inefficient firms are trying to screw their

32
00:02:49.520 --> 00:03:00.180
Oh yeah, if you raise it, in other words, if the merger, I mean a merger could be just

33
00:03:00.180 --> 00:03:01.180
for efficiency purposes.

34
00:03:01.180 --> 00:03:02.180
I mean usually, yeah.

35
00:03:02.180 --> 00:03:03.180
Oh yeah, sure.

36
00:03:03.180 --> 00:03:06.580
You have to keep the right stuff, all you have to get is that.

37
00:03:06.580 --> 00:03:08.180
The thing is not.

38
00:03:08.180 --> 00:03:09.980
You have to work with the people.

39
00:03:09.980 --> 00:03:11.280
You have to be flexible.

40
00:03:11.280 --> 00:03:12.180
Oh yeah, sure.

41
00:03:12.180 --> 00:03:12.980
How do you bust it?

42
00:03:12.980 --> 00:03:16.680
You can't just go around and say, I want to buy things and you can't just end up selling them.

43
00:03:16.680 --> 00:03:19.480
No, well, it depends on the...

44
00:03:19.480 --> 00:03:22.380
Well, I think Texas Air did bust it in a sense.

45
00:03:22.380 --> 00:03:23.880
They just don't hire...

46
00:03:23.880 --> 00:03:27.480
They don't... when a contract runs out of them, they just don't hire union workers.

47
00:03:27.480 --> 00:03:30.880
They hire non-union machinists or pilots or whatever.

48
00:03:30.880 --> 00:04:00.880
No, no, no. It's not your fault. No, no, you can't, well, if you have, you can't deny them a vote or something. In other words, if they can call for an election, a bargaining, collective bargaining election. But if they don't have a collective bargaining election, in many of these cases, the union wouldn't, the workers wouldn't vote for a union anyway. And so the, in many cases, and they see the non-union workers are people who can't get

49
00:04:00.880 --> 00:04:04.160
Union jobs anyway, because they've been squeezed out.

50
00:04:04.160 --> 00:04:12.640
Union has pushed the supply curve of workers to the left, they exclude a whole bunch of people.

51
00:04:12.640 --> 00:04:15.120
So this is a machinist union on the outside.

52
00:04:15.120 --> 00:04:23.120
Union machinists are getting a lot higher pay than non-union machinists, but the non-union machinists can't get into the union, the jobs are frozen out, it's controlled with entry.

53
00:04:23.120 --> 00:04:28.800
So you can turn to a pool in many cases of non-union machinists, pilots, stewardesses and all that.

54
00:04:28.800 --> 00:04:33.800
and they'd be much higher than they'd be in favor of keeping the union act. They'd realize that jobs were at stake.

55
00:04:33.800 --> 00:04:38.800
Especially in the airlines industry, it was all going bankrupt anyway if they had excessive union wages.

56
00:04:38.800 --> 00:04:42.800
See, what happened in the airline industry was all monopolistic.

57
00:04:42.800 --> 00:04:50.800
CAV, a civil aeronautics board, from the very beginning, in the 1930s,

58
00:04:50.800 --> 00:04:54.800
monopolized the airline industry and assigned routes.

59
00:04:54.800 --> 00:04:57.800
In other words, only Eastern Airlines could fly from Boston to New York or something. That's it.

60
00:04:57.800 --> 00:05:03.840
Anybody else that flies is outlawed. And so they restricted drastically, and they assigned

61
00:05:03.840 --> 00:05:07.960
routes and they drastically restricted competition. They only let a few airlines in on the industry.

62
00:05:07.960 --> 00:05:12.040
For a long time, for example, only Panam could fly in the Pacific. Nobody else could do it.

63
00:05:12.040 --> 00:05:18.320
It was illegal. So by doing that, they first raised, cut production and raised prices.

64
00:05:18.320 --> 00:05:23.240
But after a long, after 30 years of this stuff, the airline gets monopolistic. The courts

65
00:05:23.240 --> 00:05:35.240
The costs get bid up, you pay excessive wage rates, you get some pilots and stewardesses and all that, the costs go way up, it gets lazy, and so they wound up not making money anyway, even with the regulation, even with Monopoly, they lost money.

66
00:05:35.240 --> 00:05:40.240
In the long run, like with the railroads, Monopoly puts the boots on the whole industry.

67
00:05:40.240 --> 00:05:50.240
In the case of the airlines, only United Airlines, I think, fought against deregulation finally in the late 70s, because there were all the other airlines going down the tubes anyway, private markets.

68
00:05:50.240 --> 00:05:55.240
and so first of deregulation, interesting about deregulation by the way, it shows the economic theory in action

69
00:05:55.240 --> 00:05:59.840
nobody, no airline economic expert or airline expert predicted what would happen

70
00:05:59.840 --> 00:06:03.640
in other words, deregulation came around 1978, 79

71
00:06:03.640 --> 00:06:09.040
nobody realized what the change of pattern would be, nobody realized it would be spokes instead of the spoke hub stuff

72
00:06:09.040 --> 00:06:11.440
just the way it worked, in other words

73
00:06:11.440 --> 00:06:15.940
in the old days if you flew from New York to San Francisco you almost always flew non-stop

74
00:06:15.940 --> 00:06:17.340
right, that's it

75
00:06:17.340 --> 00:06:20.960
Now, very few people find out something. That's almost always a hub situation.

76
00:06:20.960 --> 00:06:22.720
You go to Denver or something,

77
00:06:22.720 --> 00:06:25.480
everybody flies into Denver and they fly out.

78
00:06:25.480 --> 00:06:27.840
It works that way, somehow it's more efficient,

79
00:06:27.840 --> 00:06:29.680
other cities coming in.

80
00:06:29.680 --> 00:06:33.720
So that's the way around. Nobody predicted this. You know, this is what would happen.

81
00:06:33.720 --> 00:06:38.660
At any rate, some mergers,

82
00:06:38.660 --> 00:06:45.020
in this case, they're going to try to operate without the machinist union.

83
00:06:45.020 --> 00:06:47.240
And

84
00:06:47.240 --> 00:06:50.920
and what happened with these non-union airlines like Texas Air is that they paid much lower

85
00:06:50.920 --> 00:06:57.200
salaries to stewardesses, pilots, they were getting enormous salaries these people, enormous

86
00:06:57.200 --> 00:07:00.640
and so now they're being brought down to earth, so to speak, and one of my colleagues, who

87
00:07:00.640 --> 00:07:07.640
should remain nameless, the Marxist, who was married to a stewardess of Pan Am, he was

88
00:07:07.640 --> 00:07:10.960
very much against deregulation, not only because he was a Marxist, but also because he realized

89
00:07:10.960 --> 00:07:17.120
this would lead to lower prices for passengers and the end of monopoly rent, so to speak,

90
00:07:17.120 --> 00:07:23.000
Wage Raids Enjoyed by Stewardesses, I'm saying that. Flight Attendance is what he's supposed

91
00:07:23.000 --> 00:07:24.000
to say now.

92
00:07:24.000 --> 00:07:28.200
At any rate, to get back to the sugar thing, in the middle of the sugar trust and its saga,

93
00:07:28.200 --> 00:07:32.400
I'm going to do a few more of these examples and then point out the significance of all

94
00:07:32.400 --> 00:07:37.640
of this in relation to other historians, various historians. You remember the sugar, when I

95
00:07:37.640 --> 00:07:42.600
left off on Tuesday, the sugar trust had again merged with Arbuckle. Arbuckle had moved in

96
00:07:42.600 --> 00:07:48.180
and the American Sugar Refining Company, which was a tempted monopoly.

97
00:07:48.180 --> 00:07:52.600
And the prices went down again and so forth, so they finally absorbed, they had an agreement

98
00:07:52.600 --> 00:07:57.600
between Havmeyer, who was the head of the American Sugar Refining Trust and Arbuckle,

99
00:07:57.600 --> 00:08:03.440
they wound up with another big cartel, 1901, so by 1902 they formed a new American, all

100
00:08:03.440 --> 00:08:06.600
the cartels were called American, all the mergers were called American Sugar Refining

101
00:08:06.600 --> 00:08:07.600
Company.

102
00:08:07.600 --> 00:08:13.360
1902 they ran up with a larger one with 90% of the output of the refined sugar, you'd

103
00:08:13.360 --> 00:08:14.360
think that'd be enough.

104
00:08:14.360 --> 00:08:21.400
There were only three independents left, three small independent sugar producers and they

105
00:08:21.400 --> 00:08:29.040
jacked the price up, of course profits go up, they jack it up from 4.6 cents per hundredth

106
00:08:29.040 --> 00:08:35.320
of weight I guess it was to 5.3 and they think they're doing great and then the same damn

107
00:08:35.320 --> 00:08:40.200
and then everything happens, they start again with new competitors, in other words, they

108
00:08:40.200 --> 00:08:41.200
cut production.

109
00:08:41.200 --> 00:08:46.720
As soon as they raise the price and raise profits, as soon as they do that, new competitors

110
00:08:46.720 --> 00:08:51.600
come and increase their production and so, and the price has to fall again and once again

111
00:08:51.600 --> 00:08:57.120
it falls by 1905 to about four and a half cents, back down to what it was before and

112
00:08:57.120 --> 00:09:04.120
now you have new competitors and now the sugar trust by 1904 is only 70% of the total output

113
00:09:04.120 --> 00:09:10.400
And the whole cartel, the whole merger system collapses at that point and doesn't come back

114
00:09:10.400 --> 00:09:15.280
again until World War I. Once again, this is a steel industry, which when the government

115
00:09:15.280 --> 00:09:21.080
recartalized the industry on behalf of alleged war effort, the whole merger system once again

116
00:09:21.080 --> 00:09:26.680
collapses in the sugar refining. And it repeats in industry after industry. I'll just give

117
00:09:26.680 --> 00:09:30.880
a few more examples of this. It's fascinating how time and time again they try a cart, they

118
00:09:30.880 --> 00:09:35.320
Merge, they have a big new merger and like they try to have a monopoly and like the whole

119
00:09:35.320 --> 00:09:38.360
point of monopoly of course is to try to cut production and raise prices and raise profits

120
00:09:38.360 --> 00:09:42.160
as soon as they do that, new competitors come in and back down again, there's new competitors

121
00:09:42.160 --> 00:09:47.720
and they can never, it's like pushing back the waves or something, it never works.

122
00:09:47.720 --> 00:10:00.000
By 1914, the sugar price was down 54% total share, total output.

123
00:10:00.000 --> 00:10:04.000
So prices are back down, the whole thing is lower, et cetera, et cetera.

124
00:10:04.000 --> 00:10:09.800
Habermeyer, who made a statement, remember, that tariff is the mother of trusts, repeated

125
00:10:09.800 --> 00:10:14.920
the statement and repeated it at length for Congress.

126
00:10:14.920 --> 00:10:19.800
What he said was that we never would have tried even to have a merger, a monopoly, without

127
00:10:19.800 --> 00:10:22.960
a high tariff wall to keep our foreign competition.

128
00:10:22.960 --> 00:10:29.920
He said the merger was built up, he said, under, quote, enormous protection.

129
00:10:29.920 --> 00:10:34.640
Now the tariff, I doubt if we should have dared to take the risk of forming the trust.

130
00:10:34.640 --> 00:10:38.680
I certainly should not have risked all I had in a trust unless the business had been protected

131
00:10:38.680 --> 00:10:39.680
as it was by the tariff.

132
00:10:39.680 --> 00:10:44.000
That was a very clear statement by one of the top monopolists, so to speak, or trust

133
00:10:44.000 --> 00:10:48.440
persons, that the tariff is the mother of trust, and of course made a statement, his

134
00:10:48.440 --> 00:10:49.440
quote.

135
00:10:49.440 --> 00:10:59.440
At any rate, there's also the leather truss, which is kind of interesting, because the

136
00:10:59.440 --> 00:11:07.200
The leather company, U.S. Leather Company, when it was formed in 1893, had higher capitalizations,

137
00:11:07.200 --> 00:11:11.680
a bigger company even than the Standard Oil Trust, it was a huge company, we don't think

138
00:11:11.680 --> 00:11:20.240
much about leather, but in the leather business, there's the sole leather industry which was

139
00:11:20.240 --> 00:11:24.320
highly competitive, this is what we're talking about, sole leather, in other words, leather

140
00:11:24.320 --> 00:11:31.760
to Get Souls of Shoes, and a lot of small firms and very little capital required to enter,

141
00:11:31.760 --> 00:11:37.840
so a lot of easy entry into the industry, and the five of the largest leather firms

142
00:11:37.840 --> 00:11:44.520
are tanners, in effect, called, firms that make leather, five tanners, the five largest

143
00:11:44.520 --> 00:11:47.720
ones, and mostly concentrated in New York and Pennsylvania in that period, so they're

144
00:11:47.720 --> 00:11:54.240
fairly close together, like the brewery industry was concentrating in Brooklyn and New York,

145
00:11:54.240 --> 00:12:03.840
They all got together to form the U.S. Leather Company in 1893 and had a capitalization,

146
00:12:03.840 --> 00:12:08.480
total assets capitalization of 130 million dollars, the largest capitalized, largest firm

147
00:12:08.480 --> 00:12:12.480
in the country at that point, largest corporation in the country.

148
00:12:12.480 --> 00:12:18.520
Standard oil at that point was only 102 million, the whole standard oil trust.

149
00:12:18.520 --> 00:12:25.520
So it doesn't get the play of the oil industry, but it's the largest corporation in the country

150
00:12:25.520 --> 00:12:26.520
at that point.

151
00:12:26.520 --> 00:12:37.520
The control at that point, 58% of the sole leather with that merger, 58% of the pan-to-sole

152
00:12:37.520 --> 00:12:46.320
leather, I guess is the correct term for it, 72% of hemlock leather, 30% of oak leather,

153
00:12:46.320 --> 00:12:53.320
This is the overall 58%. So what happens with this thing? Here's the biggest company in

154
00:12:53.320 --> 00:12:59.440
the country with close to 58% of the output. What happens to it? Total flop a row. It starts

155
00:12:59.440 --> 00:13:06.160
off immediately with a loss of $1.3 million in the first year. It thought it could cut

156
00:13:06.160 --> 00:13:10.720
production and raise prices. It thought it would have an economy of large scale. It didn't

157
00:13:10.720 --> 00:13:15.880
work. It made losses. The profits were low. The stocks collapsed. There were no dividends.

158
00:13:15.880 --> 00:13:22.520
prices collapse, etc. Prices continue to be competitive, too much competition, new competition

159
00:13:22.520 --> 00:13:29.440
coming in. And the small tenors begin to out-compete the large tenors when they try to raise the

160
00:13:29.440 --> 00:13:34.560
price. And finally, in 1904, the thing went bankrupt. In other words, after 11 years of

161
00:13:34.560 --> 00:13:41.560
losses, the mighty US leather company went bankrupt, put, finish. Again, another merger

162
00:13:41.560 --> 00:13:47.720
Again, another merger going down the drain, same way with the cornstarch industry, cornstarch

163
00:13:47.720 --> 00:13:54.720
industry had a big merger, tried to create a trust and they had 70% of the cornstarch

164
00:13:54.720 --> 00:14:00.680
industry, again, a very large factory, again, there's a severe competition comes up and

165
00:14:00.680 --> 00:14:03.200
the whole thing collapses once more.

166
00:14:03.200 --> 00:14:09.600
Again, there's another merger, 1900, there's a further merger, this is 1893, a bigger merger

167
00:14:09.600 --> 00:14:14.920
Merger had 90% of the starch in the industry, 90% of the corn starch. What then happens

168
00:14:14.920 --> 00:14:22.720
is, corn starch got to be so expensive. In other words, they have 90%, this is the so-called

169
00:14:22.720 --> 00:14:32.480
United Starch, the national starch company, merger company. So naturally, the whole point

170
00:14:32.480 --> 00:14:35.240
of the merger is to be able to cut production rates, prices. As soon as they do that, corn

171
00:14:35.240 --> 00:14:40.480
Cornstarch gets so expensive that industries using starch start using other kinds of starch.

172
00:14:40.480 --> 00:14:56.200
In other words, cornstarch now becomes uncompetitive compared to the other starch, I think potato

173
00:14:56.200 --> 00:14:57.200
starch.

174
00:14:57.200 --> 00:15:03.320
So people start using mills and factories which use starch as raw material, start shifting

175
00:15:03.320 --> 00:15:10.240
from Cornstarch to Potato Starch and the whole thing again collapses. Independent mills spring

176
00:15:10.240 --> 00:15:16.560
up either with Potato Starch or a new Cornstarch mill using a new process, hydraulic process

177
00:15:16.560 --> 00:15:21.720
which is brand new, lowering the cost of manufacture. The profits of the National Starch Company

178
00:15:21.720 --> 00:15:29.040
begin to collapse and in a few years they're down to 40%. 90% of the total output is 40%.

179
00:15:29.040 --> 00:15:33.120
And once again, this thing is heartwarming, and once again, it happens very fast.

180
00:15:33.120 --> 00:15:37.280
Merged monopolies collapse time and time again, industry after industry, and the same thing

181
00:15:37.280 --> 00:15:38.280
happens.

182
00:15:38.280 --> 00:15:41.880
It's just a process of illustrating economic law at work.

183
00:15:41.880 --> 00:15:45.960
Same thing happens in the glucose, the glucose industry, which is similar to the starch industry.

184
00:15:45.960 --> 00:15:46.960
Same damn thing.

185
00:15:46.960 --> 00:15:51.080
Monopoly after monopoly, merge monopoly after merge monopoly, doesn't work.

186
00:15:51.080 --> 00:15:56.040
In 1897, they formed the big merger of the glucose sugar refining company, 40 million

187
00:15:56.040 --> 00:16:12.300
$1,000 company with 85% of the glucose, in 1997, and at first they had high profits,

188
00:16:12.300 --> 00:16:15.760
they raised the price, they cut production, everything was hunky-dory, and very soon new

189
00:16:15.760 --> 00:16:16.760
people come into it.

190
00:16:16.760 --> 00:16:21.080
They say, hey, they got high profits in glucose, let's build a new glucose factory.

191
00:16:21.080 --> 00:16:25.400
New glucose firms come in, the Illinois Sugar Refining Company, the New York Glucose Company,

192
00:16:25.400 --> 00:16:32.400
etc. etc. which by the way was put in by Rockefeller as an investment and so with new machinery

193
00:16:33.160 --> 00:16:40.160
by 1901 the glucose companies back down at 45% of the output and they have to cut prices

194
00:16:41.080 --> 00:16:48.080
and make a lot of losses and stock collapses and bingo. In 1902 they try another consolidation,

195
00:16:48.080 --> 00:16:56.080
In 1902 they try another consolidation, a new mighty merger of the various, the big

196
00:16:56.080 --> 00:17:01.400
glucose company, the mighty corn product company, now the corn product refining company, which

197
00:17:01.400 --> 00:17:13.400
now has 80% of the glucose in 1902, and corn products, and again the same thing happens,

198
00:17:13.400 --> 00:17:17.120
same sort of story, expect they had high profit, they scrap a lot of their plants, hey we're

199
00:17:17.120 --> 00:17:22.920
We're going to take a lot of plants out of production, cut production, raise prices,

200
00:17:22.920 --> 00:17:27.060
and again, new starch factories come in, glucose factories, better ones, newer ones, Peele

201
00:17:27.060 --> 00:17:32.640
Brothers, Warner Company, the mighty corn products company, we have to collapse, profits

202
00:17:32.640 --> 00:17:37.760
decline, high cost of corn limits the market, heavy losses, the stock collapses and the

203
00:17:37.760 --> 00:17:39.960
whole company more or less goes under.

204
00:17:39.960 --> 00:17:44.840
By 1903, they're only producing, one year later, they're producing only 45% of the glucose

205
00:17:44.840 --> 00:17:53.520
from 80% to 45% in one year, 1906 they try another mighty new merger, the Corn Products

206
00:17:53.520 --> 00:18:02.520
Refining Company, 91 million dollar company, 74% of the product and very shortly, what happens

207
00:18:02.520 --> 00:18:05.880
to them is they realized they couldn't raise the price, they kept low prices, so the company

208
00:18:05.880 --> 00:18:10.320
kept on but they didn't achieve any kind of monopoly price, it's fine with them but me,

209
00:18:10.320 --> 00:18:14.600
they just stick to low cost of production and distribution, so any company to succeed

210
00:18:14.600 --> 00:18:21.040
had to not be a monopoly, it had to act as if they were competitors, they were competitive.

211
00:18:21.040 --> 00:18:26.280
Same thing happens with the gunpowder trust, another not too well studied trust, the DuPont

212
00:18:26.280 --> 00:18:29.720
Company, which had always been the major gunpowder company, before they were producing nylons

213
00:18:29.720 --> 00:18:34.880
and stuff, they were producing, they started as arms and gunpowder manufacturers.

214
00:18:34.880 --> 00:18:42.680
And DuPont led the way in 1872 to form a mighty, 43 corporation merger, a mighty gunpowder

215
00:18:42.680 --> 00:18:51.740
Trust, and they formed it by, not by predatory price cutting, once again, they never try

216
00:18:51.740 --> 00:18:57.040
to undercut their competition with it, they simply bought them out on a very high fee,

217
00:18:57.040 --> 00:19:05.440
and leaving only a couple of companies, and once again the whole thing begins to, their

218
00:19:05.440 --> 00:19:11.800
share of the market begins to collapse, and finally they just have to go, they just went

219
00:19:11.800 --> 00:19:18.440
by the time it was all by 1911 after many years of struggling to maintain, get some kind of monopoly price out of it

220
00:19:18.440 --> 00:19:22.360
which they never succeeded in

221
00:19:22.360 --> 00:19:25.160
by the way in the in the case of

222
00:19:25.160 --> 00:19:28.440
the Gunpowder Trust they had

223
00:19:28.440 --> 00:19:30.960
two, one and three, they had, I think

224
00:19:30.960 --> 00:19:33.160
many firms, they had many firms, yeah

225
00:19:33.160 --> 00:19:36.120
had about forty-three firms in this merger

226
00:19:36.120 --> 00:19:38.240
they couldn't prevent their own

227
00:19:38.240 --> 00:19:42.400
Part of their own plants, their own different subsections of a company from cheating, quote

228
00:19:42.400 --> 00:19:47.440
cheating, unquote. The salesmen, once again, the sales vice president, the sales managers

229
00:19:47.440 --> 00:19:52.240
are constantly offering rebates and discounts to get more people for themselves, for their

230
00:19:52.240 --> 00:19:54.800
department, even though it was one merged company. They didn't act as if they were

231
00:19:54.800 --> 00:19:59.400
their actors, they were salesmen. They wanted to make more sales, they competed against

232
00:19:59.400 --> 00:20:04.040
each other. They couldn't even stop that, and much less external competition. They couldn't

233
00:20:04.040 --> 00:20:10.600
and stop internal competition from the sales managers and then, of course, new entrants

234
00:20:10.600 --> 00:20:19.400
come in and out-compete the non-tolerant trusts, the whole thing had to collapse.

235
00:20:19.400 --> 00:20:27.480
In a general study of these trusts, of nearly 100 trusts or mergers formed in 1899 and 1900,

236
00:20:27.480 --> 00:20:34.640
For example, they have a hundred merged so-called trusts. We'll define a trust as being a merged

237
00:20:34.640 --> 00:20:44.400
attempt at monopoly. 1899 and 1900. In one year, three-quarters of these firms were not

238
00:20:44.400 --> 00:20:50.080
paying dividends. In other words, they were losing money basically. They were in bad financial

239
00:20:50.080 --> 00:20:55.400
shape. And only one year after they were formed, there are many other, several other statistics

240
00:20:55.400 --> 00:20:59.680
I'll mention on this thing, but the promoters' hopes were not realized in most cases, new

241
00:20:59.680 --> 00:21:03.560
competition comes in, et cetera, et cetera.

242
00:21:03.560 --> 00:21:10.360
Coco points out of the 50 largest corporations in 1909, for example, in 20 years, 20 had

243
00:21:10.360 --> 00:21:14.800
dropped out of the 50 largest, so there was a very high turnover of large companies.

244
00:21:14.800 --> 00:21:18.040
Coco writes a lot of very good stuff.

245
00:21:18.040 --> 00:21:21.080
His first two chapters on the mergers, failure mergers are very good.

246
00:21:21.080 --> 00:21:28.840
The other very good person, even better, Cocoa was a book by the way, came as a thunderclap

247
00:21:28.840 --> 00:21:32.760
and it came out in 1960s, so I'll point out in a minute.

248
00:21:32.760 --> 00:21:38.960
Before Cocoa, I think Cocoa was what, 1960-something, 1965, something like that, anyway, 1960s.

249
00:21:38.960 --> 00:21:43.240
Before that, the best study of mergers was made by a guy named Arthur Dewey, which nobody

250
00:21:43.240 --> 00:21:48.280
paid any attention to, Arthur S. Dewey, B-E-W-I-N-G.

251
00:21:48.280 --> 00:21:53.480
He had made a study, he'd written a book called Corporate Promotions and Reorganizations,

252
00:21:53.480 --> 00:22:00.680
I think 1906, something like that.

253
00:22:00.680 --> 00:22:08.200
And then he'd written a scholarly journal article in 1911, studying what happened to

254
00:22:08.200 --> 00:22:13.520
these mergers, a random sample, and then he wrote an excellent textbook on corporate finance

255
00:22:13.520 --> 00:22:17.840
called Financial Policy of Corporations, which went on about 20 editions, I think the first

256
00:22:17.840 --> 00:22:27.840
The first edition was like 1920 and continued for about 30 years. It might still be in print from what I know and it's a marvelous book. It's not really a textbook. It's chock full of footnotes and all sorts of other great stuff.

257
00:22:27.840 --> 00:22:35.840
But nobody ever read this except corporate finance people. An economist didn't read it, a historian didn't read it. It was sort of isolated in the mainstream.

258
00:22:35.840 --> 00:22:41.840
Anyway, doing is probably the best study. Cocoa comes in second.

259
00:22:41.840 --> 00:22:50.840
So what doing showed is you had two truss waves, two merger waves. First the smallest one was the late 1880s, early 1890s, that was the first one.

260
00:22:50.840 --> 00:23:08.840
And the biggest one, as I pointed out, was late 1880s, 1890s. The largest one was 1898, 1901.

261
00:23:08.840 --> 00:23:14.840
That was by far the biggest, most of the mergers took place.

262
00:23:14.840 --> 00:23:21.720
What he did was, he took a, for example, he said 130, in this second label, 130 mergers

263
00:23:21.720 --> 00:23:28.360
were made, 130 trusts, 130 different industries, climax of course by U.S. Steel Corporation,

264
00:23:28.360 --> 00:23:33.040
which was 1901 on a capitalization of $1.3 billion, and I've already mentioned the steel

265
00:23:33.040 --> 00:23:48.040
and what he did was he took a random sample of 35 industries and went into detail what

266
00:23:48.040 --> 00:23:54.040
happened to them, what was the expectation of the promoters before they were merged,

267
00:23:54.040 --> 00:23:58.880
what happened to them afterwards, a year after, five years, ten years afterwards, he also

268
00:23:58.880 --> 00:24:07.880
I was asked a question, why did it stop in 1901? Why was there a sudden cessation, a sudden stopping of mergers in 1901? Wasn't there any kind of antitrust stuff?

269
00:24:07.880 --> 00:24:15.880
And he said, well, they turned out badly. It just didn't work. They didn't suppress competition. They didn't realize big economies of scale.

270
00:24:15.880 --> 00:24:23.880
They thought one of their theories was, if a large company is more efficient than a small company, and a very, very large company is even more efficient.

271
00:24:23.880 --> 00:24:29.880
Of course, it didn't work that way. There were limits to economies of scale. They tapped them, especially by this kind of artificial merger.

272
00:24:29.880 --> 00:24:35.880
Their stocks declined steadily. They made losses. They had new competitors coming in, all the stuff I've talked about.

273
00:24:35.880 --> 00:24:39.880
Few of them paid any dividends at all. Most of them lost money.

274
00:24:39.880 --> 00:24:45.880
The shares of the output of the industry declined steadily. Many of them actually went bankrupt. They just collapsed totally.

275
00:24:45.880 --> 00:24:50.920
those didn't collapse, had to cut back, keep declining steadily, like USC, which has been

276
00:24:50.920 --> 00:24:57.000
in miserable shape ever since, so you see studies that say a random sample of 35 of

277
00:24:57.000 --> 00:25:09.640
these trusts, and you fan out for example that the average, on the average, the average

278
00:25:09.640 --> 00:25:26.480
Mergers of the 35, 25% of these mergers earn more in the first year before the trust, just

279
00:25:26.480 --> 00:25:34.240
earn more just before the trust than in the year afterwards, so than in one year after.

280
00:25:34.240 --> 00:25:50.240
If you take a hundred companies forming a trust, let's say, in some industry, you take their average rate of return, average rate of profit, just before they form the trust and compare it with the trust after it was formed, the average drop was 25%, drop in profits.

281
00:25:50.240 --> 00:25:56.240
After 10 years, it's also more than the average earnings of 10 years later.

282
00:25:56.240 --> 00:26:00.240
So you have 10 years of the trust is still earning less than the individual companies did before the trust.

283
00:26:00.240 --> 00:26:08.520
The estimates of the promoters and bankers who formed the trusts were 50% higher than

284
00:26:08.520 --> 00:26:12.720
the actual earnings in the first year, much higher over the first 10 years, in other words,

285
00:26:12.720 --> 00:26:16.700
inflated estimates, you ask about water and stock, in other words, they say we earn $10

286
00:26:16.700 --> 00:26:21.400
million actually and only earn $5 million, that's a 50% drop over the expectation of

287
00:26:21.400 --> 00:26:22.400
the promoters.

288
00:26:22.400 --> 00:26:29.400
Of the 35, or let's look at it another way, of the 35 trusts that he's doing, studied,

289
00:26:37.400 --> 00:26:44.400
13 had positive earnings in the first year.

290
00:26:52.400 --> 00:27:01.400
And 13 had first year earnings equal or greater than the pre-trust earnings.

291
00:27:01.400 --> 00:27:05.400
The higher first year earnings are the same.

292
00:27:05.400 --> 00:27:12.400
22 dropped in earnings, lower earnings.

293
00:27:12.400 --> 00:27:14.400
It's the same for the whole first 10 year period.

294
00:27:14.400 --> 00:27:18.400
Most of the trusts had much lower earnings after they formed than before.

295
00:27:18.400 --> 00:27:31.520
Only four are earnings equal to anticipation, only four earnings are anticipated, are equal

296
00:27:31.520 --> 00:27:48.080
to anticipation, the, or looking another way, earnings after the trust were expected to

297
00:27:48.080 --> 00:27:51.880
to be 40% higher than, on the average, the earnings after the trust were expected to

298
00:27:51.880 --> 00:27:57.640
be 40% higher than before the trust, actually 20% less in the first year and 10% less over

299
00:27:57.640 --> 00:28:01.720
the first several years, so that gives you another way of looking at it, they're expected

300
00:28:01.720 --> 00:28:08.720
to be 40% higher, in the former trust, the promoter is expected to have 40% higher, it

301
00:28:08.720 --> 00:28:16.000
actually drops from 10% to 20%.

302
00:28:16.000 --> 00:28:20.800
So some of the reasons he goes into it as a sake, just because a larger firm is more

303
00:28:20.800 --> 00:28:24.080
economical and a smaller firm doesn't mean a very large firm would be more economical.

304
00:28:24.080 --> 00:28:27.200
It depends, especially if it doesn't grow organically, especially if it's officially

305
00:28:27.200 --> 00:28:28.760
imposed by a sort of promotion.

306
00:28:28.760 --> 00:28:35.800
It turns out, for example, that management or entrepreneurship is very scarce.

307
00:28:35.800 --> 00:28:39.900
The range of judgment is very scarce, is limited.

308
00:28:39.900 --> 00:28:43.320
One guy over a huge number of, aside from the fact that a new competitor is popping

309
00:28:43.320 --> 00:28:50.320
The range of individual initiatives is limited, managerial ability is very scarce, et cetera, et cetera.

310
00:28:50.320 --> 00:28:53.320
Also, in many cases, the loyalty of the managers will weaken.

311
00:28:53.320 --> 00:28:57.320
What usually happens is that 20 firms merge into one.

312
00:28:57.320 --> 00:29:02.320
The guy used to be the owner or the president of one firm becomes now the manager of that division.

313
00:29:02.320 --> 00:29:07.320
Well, he doesn't care that much anymore as a manager than he did as an owner.

314
00:29:07.320 --> 00:29:10.320
Also, the salesmen are demoralized.

315
00:29:10.320 --> 00:29:25.600
The larger size often makes them worse competitors compared to smaller, more mobile owners and

316
00:29:25.600 --> 00:29:27.420
much more innovative.

317
00:29:27.420 --> 00:29:31.920
One example of that, I don't know if I mentioned it already, but the current recent years and

318
00:29:31.920 --> 00:29:36.640
great examples of very large firms and so-called monopolies or virtual monopolies have become

319
00:29:36.640 --> 00:29:39.640
Uncreated, bureaucratic, etc., etc.

320
00:29:39.640 --> 00:29:44.640
Did I mention Xerox and Polaroid yet? That's just a classic example.

321
00:29:44.640 --> 00:29:51.640
After World War II, in the United States at least, there was a virtual monopoly of photography by Eastman Kodak.

322
00:29:51.640 --> 00:30:00.640
And Dr. Land, the discoverer of Polaroid camera, comes to this great new discovery, comes to Eastman Kodak

323
00:30:00.640 --> 00:30:04.640
and says, look, I have this great thing and he offered of course to sell it to Eastman Kodak

324
00:30:04.640 --> 00:30:10.640
And their experts went over and they said it won't work, it won't be economic, it won't work, so that's it.

325
00:30:10.640 --> 00:30:16.640
He had to go and get friends together and get a small bank loan or whatever and start this thing up on his own company.

326
00:30:16.640 --> 00:30:22.640
I wish of course I had had 10 shares of the original Polaroid Corporation.

327
00:30:22.640 --> 00:30:26.640
Same thing happened to the guy who met the Xerox, I forget his name, anyway, same damn thing happened.

328
00:30:26.640 --> 00:30:32.640
He goes to one of the great revolutions of photography, right? He goes to the Eastman Kodak, won't work, it's not economic, blah, blah, blah.

329
00:30:32.640 --> 00:30:36.640
and blah, blah, blah, he has to start his own Xerox corporation for the rest of his history.

330
00:30:36.640 --> 00:30:42.640
Actually, he's originally Haloid Xerox, a teeny company, and of course, I wish I had 10 shares of that.

331
00:30:42.640 --> 00:30:48.640
Another fantastic success story. So once again, the monopolist, the big business doesn't see the situation.

332
00:30:48.640 --> 00:30:52.640
You start off as a teeny firm, you out-compete these guys for the world.

333
00:30:52.640 --> 00:30:56.640
There's an excellent book, there's several books on this, if you're interested.

334
00:30:56.640 --> 00:31:02.640
There's a special book by John Jukes and others, Jukes and other people, called Sources of Invention.

335
00:31:02.640 --> 00:31:13.640
It's a marvelous book. I'm not sure it's in print anymore, but what it did was it took out all the top inventions of the 20th century, about 80 of them or something,

336
00:31:13.640 --> 00:31:22.640
and found out where they were invented, what sort of conditions, and it found out almost every case was done by either an individual inventor or a small firm.

337
00:31:22.640 --> 00:31:30.120
The big research laboratory seemed to be much better for development after somebody else

338
00:31:30.120 --> 00:31:31.120
had invented it.

339
00:31:31.120 --> 00:31:36.080
They can then process it and apply it, but for actual inventions, they were a pack of

340
00:31:36.080 --> 00:31:37.080
losers.

341
00:31:37.080 --> 00:31:43.480
All the top inventions of the 20th century, including Xerox and Polaroid and penicillin

342
00:31:43.480 --> 00:31:44.480
and God knows what else.

343
00:31:44.480 --> 00:31:49.080
There was a whole bunch of stuff, basic oxygen processing, steel, all these things are in

344
00:31:49.080 --> 00:32:00.080
in a very small laboratory, where the people are flexible and not bureaucratic, etc., etc.

345
00:32:00.080 --> 00:32:05.920
Another thing that happens is the peddler, as we'll see in a minute in the retail industry,

346
00:32:05.920 --> 00:32:12.440
we'll get into that in a minute too, where in most, in many cases in retail firms, smaller

347
00:32:12.440 --> 00:32:14.560
businesses cannot compete, larger ones very easily.

348
00:32:14.560 --> 00:32:22.600
You see the peddlers, for example, the local florists are hunted down like rats by the police.

349
00:32:22.600 --> 00:32:27.360
They can very beautifully out-compete the official florists, the official orthodox florists

350
00:32:27.360 --> 00:32:31.640
that they charge 10 bucks for a bunch of flowers and get it for 2 bucks, better ones, in the

351
00:32:31.640 --> 00:32:33.640
corner of florists.

352
00:32:33.640 --> 00:32:37.200
And he's mobile, he can get stuff easily, he can get in and out of the rain, he doesn't

353
00:32:37.200 --> 00:32:41.920
have to be, you know, he can take the right corners and the right spots, he doesn't have

354
00:32:41.920 --> 00:32:44.000
to pay fixed rent, he doesn't have to take the one particular...

355
00:32:44.000 --> 00:32:48.400
If it's raining that day, it doesn't have to show up, all these things makes the peddler

356
00:32:48.400 --> 00:32:53.360
who has almost no capital, notice the peddler only has one day's worth of equipment, makes

357
00:32:53.360 --> 00:32:58.240
him very able to outcompete larger stores. As a result of that, the history of the retail

358
00:32:58.240 --> 00:33:01.920
industry, I'll just start that today, but the history of retail industry nowadays is a whole

359
00:33:01.920 --> 00:33:09.360
history of constant attempts by the established firms to render illegal, to cripple and outcompete

360
00:33:09.360 --> 00:33:15.040
by law they're more smaller mobile competitors and almost every city and town in the country

361
00:33:15.040 --> 00:33:20.000
even now peddlers are illegal. They're still illegal here. There are severe licensing requirements.

362
00:33:20.560 --> 00:33:26.080
Every once in a while the mayor tries to crack down on them. They have to outlaw these evil peddlers

363
00:33:26.080 --> 00:33:29.680
because they can out-compete retail stores. Well, tough, you know, it's a great thing. Why should

364
00:33:29.680 --> 00:33:33.440
they out-compete them? Why shouldn't the consumers be able to get scarves and pocketbooks and all

365
00:33:33.440 --> 00:33:39.800
and all that are much cheaper, watches are cheaper than the established official firm.

366
00:33:39.800 --> 00:33:43.680
So the fact that you have more capital doesn't necessarily mean you're better competitively.

367
00:33:43.680 --> 00:33:51.000
In many cases you're worse off, you're stuck in a fixed location for example.

368
00:33:51.000 --> 00:33:55.920
And many of the immigrant groups in the United States came in, they rose up, immigrants in

369
00:33:55.920 --> 00:34:00.480
the late 19th century, early 20th century, they came to New York with no money at all,

370
00:34:00.480 --> 00:34:05.120
Nothing in their pocket, and they get one day's worth of stuff, of capital, so to speak,

371
00:34:05.120 --> 00:34:09.420
one day's worth of peddling equipment, flowers or cloth or whatever it is, and they start

372
00:34:09.420 --> 00:34:13.640
with that and they rise up very quickly, and profits plow back to profits, finally get

373
00:34:13.640 --> 00:34:16.840
a pushcart, pushcart of course is a massive amount of capital, and they're just carrying

374
00:34:16.840 --> 00:34:23.740
a thing in a suitcase or whatever, and they wind up quite wealthy in that way.

375
00:34:23.740 --> 00:34:29.600
But now, current low-income groups find it difficult to do that because they need heavy

376
00:34:29.600 --> 00:34:33.860
License Requirements, they're hunted down by the police, etc., driven out.

377
00:34:33.860 --> 00:34:38.540
In New York, the mayor of New York usually says that it's un-aesthetic, the major argument

378
00:34:38.540 --> 00:34:42.600
against peddlers is that the streets are no longer beautiful, and New York may say a lot

379
00:34:42.600 --> 00:34:48.560
about New York streets, beauty is not one of them, aesthetics is not one of our major

380
00:34:48.560 --> 00:34:49.800
attributes.

381
00:34:49.800 --> 00:34:53.440
The idea of somehow the streets have to be cleansed by getting rid of peddlers is pretty

382
00:34:53.440 --> 00:34:54.440
extremely phony.

383
00:34:54.440 --> 00:34:58.840
Anyway, doing winds up, I think a marvelous quote from doing after he's summing up his

384
00:34:58.840 --> 00:35:10.460
He says this, quote, I've been impressed throughout by the powerlessness, powerlessness of mere

385
00:35:10.460 --> 00:35:15.000
aggregates of capital to hold monopoly, powerlessness of just, just because they have a lot of capital

386
00:35:15.000 --> 00:35:16.000
equipment.

387
00:35:16.000 --> 00:35:20.080
I've been impressed too by the tremendous importance of individual innate ability or

388
00:35:20.080 --> 00:35:24.800
its lack in determining the success or failure of any enterprise.

389
00:35:24.800 --> 00:35:28.720
With these observations in mind, one may hazard the belief of whatever, quote, trust problem

390
00:35:28.720 --> 00:35:34.720
will work out its own solution. The doom of the inefficient waits on no legislative regulation.

391
00:35:34.720 --> 00:35:40.720
It is rather delayed thereby. Restrictive regulation will perpetuate the inefficient

392
00:35:40.720 --> 00:35:46.480
corporation by furnishing an artificial prop to support natural weakness. It will hamper

393
00:35:46.480 --> 00:35:51.280
the efficient by impeding the free play of personal ambition. It's a beautiful statement

394
00:35:51.280 --> 00:35:55.760
that without government intervention, just letting it rip, without any kind of regulation

395
00:35:55.760 --> 00:35:59.400
Control, you'll wind up with enterprise being successful. In other words, regardless of how

396
00:35:59.400 --> 00:36:03.680
much capital a person's got, he's got the ability to foresee what's going on, to step

397
00:36:03.680 --> 00:36:11.560
into the market, to compete. He or she will do so rather than just aggregates of capital.

398
00:36:11.560 --> 00:36:18.280
And I want to turn next, I'll just start this today, about the history of the retail industry

399
00:36:18.280 --> 00:36:25.520
in the United States. One concept of innovation, new innovations, repeating stuff, where the

400
00:36:25.520 --> 00:36:32.520
Orthodox current established retailers are trying desperately to crush the new competition by law, turning the government outlaw them.

401
00:36:32.520 --> 00:36:37.520
Right now, as I say, peddlers are almost illegal almost everywhere, except for severe license requirements.

402
00:36:37.520 --> 00:36:42.520
It starts in the early 19th century. You have to go back to that.

403
00:36:42.520 --> 00:36:45.520
Remember, in the early 19th century, there were no roads.

404
00:36:45.520 --> 00:36:50.520
There were very little, there were no traveling salesmen, there was nothing, there was no way, you can't travel.

405
00:36:50.520 --> 00:36:58.360
So what you had was merchants in central markets were offering good and once a year the out-of-town

406
00:36:58.360 --> 00:37:02.560
buyers would come in and actually make their way to New York or whatever, which they still

407
00:37:02.560 --> 00:37:08.600
do in many cases in the garment industry, to look at samples of equipment and buy them

408
00:37:08.600 --> 00:37:09.600
and carry them home.

409
00:37:09.600 --> 00:37:16.080
That was the sort of pre-Civil War, pre-1850s situation.

410
00:37:16.080 --> 00:37:22.520
So it was a very little standardization, it was a very haphazard kind of setup, in 1850s

411
00:37:22.520 --> 00:37:29.360
and 1860s with the railroad coming in, a new kind of marketing technology enters the field

412
00:37:29.360 --> 00:37:35.800
of retail, namely the traveling salesman, who would take his sample case and travel

413
00:37:35.800 --> 00:37:43.480
around and go to different merchants, retail merchants and sell his wares.

414
00:37:43.480 --> 00:37:48.260
The traveling salesman was met by the wholesale merchants in the town, in other words in Detroit

415
00:37:48.260 --> 00:37:50.760
or Peoria or whatever, you have all these wholesale merchants.

416
00:37:50.760 --> 00:37:56.240
Traveling salesman come from New York and go to the retailers, go straight to the retailers

417
00:37:56.240 --> 00:37:59.520
and compete with the local wholesale merchants.

418
00:37:59.520 --> 00:38:03.520
Local wholesale merchants met this whole development of hysteria with hatred.

419
00:38:03.520 --> 00:38:08.320
The traveling salesman of course had no capital except his suitcase.

420
00:38:08.320 --> 00:38:13.880
So there's a whole series of state and city licensing laws that crush the traveling salesman,

421
00:38:13.880 --> 00:38:18.240
making it, for example, very high license fees, very high, I mean, severe anti-peddler

422
00:38:18.240 --> 00:38:24.880
laws, and every little town has its own license tax. In other words, it would say something

423
00:38:24.880 --> 00:38:28.800
like this, anybody who sells anything in our town, doesn't live in our town, has to pay

424
00:38:28.800 --> 00:38:32.960
a license fee of, I don't know, 20 bucks a year, which is enormous. It means the poor

425
00:38:32.960 --> 00:38:37.200
traveling salesman has to pay 20 bucks a year every town he visits, which makes it totally

426
00:38:37.200 --> 00:38:40.520
is absolutely prohibitive. As a matter of fact, the average traveling salesman was making

427
00:38:40.520 --> 00:38:48.000
$2,500 a year in his days. He had to pay a license fee out of that of over $1,000. That

428
00:38:48.000 --> 00:38:53.880
means like almost 40% of his income was absorbed by the license fee. Obviously, this is not

429
00:38:53.880 --> 00:39:03.400
going to work. So, what you had then was a series of evasions. In other words, the peddlers

430
00:39:03.400 --> 00:39:08.280
The traveling salesmen try to evade a license fee. One way or the other. They sneak into

431
00:39:08.280 --> 00:39:13.360
town, sell their stuff to the retail and get out before they go to court. Or else they

432
00:39:13.360 --> 00:39:18.720
have phony employees. In other words, they get some resident merchant, some retail merchant

433
00:39:18.720 --> 00:39:22.360
that quote, hire them unquote for two weeks. They wouldn't be illegal. They wouldn't have

434
00:39:22.360 --> 00:39:30.360
to pay a license fee. They have phony employee relationship. Or they just skip town dodging

435
00:39:30.360 --> 00:39:42.120
Traveling Salesman, Traveling Salesman is always in a state of semi-legality, sometimes

436
00:39:42.120 --> 00:39:46.520
he was jailed, he went to jail for non-payment of the license fee.

437
00:39:46.520 --> 00:39:51.400
So, he became a disreputable figure as a result of that the famous Traveling Salesman's farmer's

438
00:39:51.400 --> 00:39:55.620
daughter's jokes came in, I don't know if they're still going around but when I was

439
00:39:55.620 --> 00:39:59.960
growing up, it was the standard dirty joke of the Uppock, a traveling salesman joke,

440
00:39:59.960 --> 00:40:02.720
So the reason why the traveling salesmen are in a state of semi-legality, they're always

441
00:40:02.720 --> 00:40:05.640
disreputable, they're half in jail, half in time, they're skipping the law.

442
00:40:05.640 --> 00:40:11.400
At any rate, this goes on for about 20 or 30 years, this kind of nonsense, trying to

443
00:40:11.400 --> 00:40:15.520
use the law to oppress, repress the traveling salesman concept.

444
00:40:15.520 --> 00:40:20.560
Finally after about 30 years or so, by about the 1880s, the pressure comes and it's finally

445
00:40:20.560 --> 00:40:21.560
repealed.

446
00:40:21.560 --> 00:40:24.480
Actually, the Supreme Court finally declares them unconstitutional.

447
00:40:24.480 --> 00:40:29.240
But the pressure comes from several sources, kind of interesting.

448
00:40:29.240 --> 00:40:34.400
In the first place, the retail merchants want and want this, they're getting cheaper wholesale

449
00:40:34.400 --> 00:40:35.400
products.

450
00:40:35.400 --> 00:40:40.160
Also, another thing that happens is the wholesalers themselves start employing traveling salesmen.

451
00:40:40.160 --> 00:40:44.720
In other words, a wholesale in Detroit will start sending traveling salesmen out to their

452
00:40:44.720 --> 00:40:45.720
region.

453
00:40:45.720 --> 00:40:48.200
So they don't want to have their people outlawed and paying heavy license fees.

454
00:40:48.200 --> 00:40:52.040
So in other words, traveling salesmen now begin to be used by wholesale merchants themselves

455
00:40:52.040 --> 00:40:55.920
and they start shifting to support repeal.

456
00:40:55.920 --> 00:40:59.600
and this happens in Baltimore, it happens in Philadelphia, in Louisville, in Atlanta,

457
00:40:59.600 --> 00:41:03.280
all these sort of medium-sized cities start shifting and the salesmen start forming their

458
00:41:03.280 --> 00:41:09.920
own associations, the pressure for lobby for repeal, so you have the shift by the local

459
00:41:09.920 --> 00:41:15.760
merchants and the regional merchants and the salesman association and finally the Supreme

460
00:41:15.760 --> 00:41:19.600
Court takes notice of this and the whole thing goes down the chute, after 30 years of repression

461
00:41:19.600 --> 00:41:30.000
of the Poor Traveling Salesman, the friendly thing is finally over, and they made a decision

462
00:41:30.000 --> 00:41:34.360
in the 1870s and 80s, so anyway, finally the traveling salesmen were accepted, they're

463
00:41:34.360 --> 00:41:38.360
no longer disreputable, they're no longer high license fees, they're part of the industry,

464
00:41:38.360 --> 00:41:41.840
but again hysteria hit, so it doesn't take much longer for a new innovation to come.

465
00:41:41.840 --> 00:41:48.880
For example, two big things happen, one is that about 1895 comes to the apartment store,

466
00:41:48.880 --> 00:41:53.560
You can't imagine the hysteria of which department stores were met.

467
00:41:53.560 --> 00:42:00.440
Department stores are unfair, they're evil, they're out-competing, poor mom and pop stores,

468
00:42:00.440 --> 00:42:04.000
stores that only sell one or two things, department stores, they have many floors, makes them

469
00:42:04.000 --> 00:42:07.960
unfair, they have ten floors, other stores have only one floor, and so there's a tremendous

470
00:42:07.960 --> 00:42:15.200
attacks on Gimbals and Macy's and other department stores, and the retailers would condemn department

471
00:42:15.200 --> 00:42:29.640
Department stores would result in oppression of the public by suppressing competition and

472
00:42:29.640 --> 00:42:33.280
causing the consumer in the end to pay higher prices and ultimately create a monopoly.

473
00:42:33.280 --> 00:42:34.280
Here's the argument.

474
00:42:34.280 --> 00:42:39.040
Here's the department stores, Mises, Gimlo, etc., which are now efficient and out-competing

475
00:42:39.040 --> 00:42:40.040
retail stores.

476
00:42:40.040 --> 00:42:44.080
If you allow them to do that, they will eventually push all the retail stores out of business

477
00:42:44.080 --> 00:42:49.160
and they will then cut prices, cut production rates by, so for the interest of consumers

478
00:42:49.160 --> 00:42:54.080
we should outlaw the department stores now. Notice the logic of this. Because you, there

479
00:42:54.080 --> 00:42:58.440
might be eventually a monopoly by, an efficient monopoly by department stores, therefore we

480
00:42:58.440 --> 00:43:02.520
could create an inefficient monopoly right now through the consumers now by outlawing

481
00:43:02.520 --> 00:43:09.520
department stores. That's the logic of it. In Germany there were compulsory cartel system

482
00:43:09.520 --> 00:43:15.880
from about 1880 to about 19, to the end of World War II, more or less, and after World

483
00:43:15.880 --> 00:43:19.520
War II was over, the Germans, Germany no longer had a compulsory cartel system, it was more

484
00:43:19.520 --> 00:43:25.520
or less free market, more or less, relatively free market, so the former cartelists had an

485
00:43:25.520 --> 00:43:29.460
argument to the German Parliament, and it said as follows, about 1950, I remember reading

486
00:43:29.460 --> 00:43:34.120
it somewhere in a clipping, they petitioned to re-impose the compulsory cartel, because

487
00:43:34.120 --> 00:43:38.480
they said if you don't have a compulsory cartel, then you have efficient business with Alcapite,

488
00:43:38.480 --> 00:43:46.480
In order to eliminate a possible future monopoly where the consumers would suffer, we should

489
00:43:46.480 --> 00:43:49.600
make the consumers suffer right now with an inefficient monopoly.

490
00:43:49.600 --> 00:43:52.000
Fortunately, it didn't work.

491
00:43:52.000 --> 00:43:54.040
I can't imagine anybody really believing.

492
00:43:54.040 --> 00:43:57.760
My problem is I can't imagine people making these arguments with a straight face or anybody

493
00:43:57.760 --> 00:44:02.240
believing them, or anybody bothering to report them without laughing in their faces.

494
00:44:02.240 --> 00:44:07.020
At any rate, these are common arguments in favor of compulsory cartels, in favor of outlawing

495
00:44:37.020 --> 00:44:43.340
You have samples, you send orders by mail, met with fantastic hysteria, all the retail

496
00:44:43.340 --> 00:44:47.340
stores are my god, creating monopoly, it drives us a lot of business, there's unfair competition,

497
00:44:47.340 --> 00:44:53.820
outlaw them, tax them, and they organize, for example, special, they said this is a

498
00:44:53.820 --> 00:44:57.900
terrible thing, it's because they don't employ salesmen, and I get this, one of the big arguments

499
00:44:57.900 --> 00:45:04.460
was that here's Roebuck, and Montgomery Ward are unfair because they don't employ salesmen,

500
00:45:04.460 --> 00:45:07.740
So it means they have a lower cost.

501
00:45:07.740 --> 00:45:13.180
You'll notice that 30 years before that, they were attacking any firm which employed a salesman as being somehow evil.

502
00:45:13.180 --> 00:45:16.780
Now if you didn't employ salesmen, it's a terrible, unfair thing.

503
00:45:16.780 --> 00:45:25.620
And so they organized, VTL has organized mail-order catalog burning parties, bonfires, where they have trade-at-home clubs.

504
00:45:25.620 --> 00:45:30.860
Because this way, of course, if you're a New Yorker or a Philadelphian, you're buying from Sears catalog in Illinois,

505
00:45:30.860 --> 00:45:34.860
The Theory of Money and Credit means you're not trading from a local store. You're somehow injuring a local economy.

506
00:45:34.860 --> 00:45:38.860
They had traded home clubs. They had organized burning of Sears-Robach catalog.

507
00:45:38.860 --> 00:45:42.860
Bonfire, they tossed in the Sears and Monkey Ward catalog. Totally crazed.

508
00:45:42.860 --> 00:45:46.860
They set up special taxes against mail order.

509
00:45:46.860 --> 00:45:52.860
So anyway, after the mail order business, the final grudging and took a long time for the acceptance of the mail of Sears-Robach and Montgomery Ward.

510
00:45:52.860 --> 00:45:56.860
They were considered monopolists, unfair competitors. They don't have any salesmen.

511
00:45:56.860 --> 00:46:01.860
Just like peddlers are unfair, they don't have, they don't pay rent. Well, so what? If you can get away without paying rent, great!

512
00:46:01.860 --> 00:46:06.860
You're willing to walk around the streets and rave the rain and snow and so forth. Super!

513
00:46:06.860 --> 00:46:10.860
Anything which is best for the consumer is best for the economy.

514
00:46:10.860 --> 00:46:19.860
And another big threat which came in around the same time as the mail order business was the department store. I guess I mentioned it at the very end.

515
00:46:19.860 --> 00:46:25.860
Department store, a terrible thing. They have eight floors instead of one. God proclaimed that only one floor, every store should be on one floor.

516
00:46:25.860 --> 00:46:42.860
In 1895, a group of retailers convened and condemned department stores. They said it would result in oppression of the public by suppressing competition and causing the consumer, in the end, to pay higher prices and ultimately create a monopoly.

517
00:46:42.860 --> 00:46:50.860
I mentioned last time this is a typical argument of monopolists. They're trying to get a government to give you a cartel. The argument against efficient competitors is eventually you'll have a monopoly.

518
00:46:50.860 --> 00:46:59.860
The answer is, first of all, wait. Don't impose an inefficient cartel now because you might have an efficient monopoly 20 years from now.

519
00:46:59.860 --> 00:47:05.860
Wait for the efficient monopoly and see if they raise prices. They almost never do because then they'll worry about new competitors coming in.

520
00:47:05.860 --> 00:47:08.860
So it's typical nonsense.

521
00:47:08.860 --> 00:47:17.860
At any rate, after that, as the department store was accepted, as mail orders were accepted, around the 1920s came a new dread innovation, chain stores.

522
00:47:17.860 --> 00:47:23.860
Chain stores, chain stores, my God, chain stores are a monopoly, terrible, they squeeze out all these lovable mom and pop stores,

523
00:47:23.860 --> 00:47:26.860
there'll be no single stores left, every one's a little bone in the wall.

524
00:47:26.860 --> 00:47:32.860
When I was growing up in the 1930s, there was a big cry by liberals and leftists, break up A&P.

525
00:47:32.860 --> 00:47:38.860
A&P then was a big quote monopolist on chain stores, they had the biggest chain of groceries.

526
00:47:38.860 --> 00:47:44.860
And they could charge lower prices because they were buying in quantity, they'd buy in 10,000 units or something instead of 12.

527
00:47:44.860 --> 00:47:50.460
And so, as a result, they've got discounts, quantity discounts, they'd be cheaper, etc., etc.

528
00:47:50.460 --> 00:47:54.860
Now, of course, there were also some problems with A&P, namely, they didn't give credit,

529
00:47:54.860 --> 00:48:02.460
they didn't deliver as much as small stores do, you have a trade-off, a so-called mom-and-pop store,

530
00:48:02.460 --> 00:48:11.260
they know you, they give you credit, and they'll be a lot looser about charging, about enforcing it,

531
00:48:11.260 --> 00:48:13.900
and the liberal later and so forth and so on.

532
00:48:13.900 --> 00:48:16.100
So at any rate, break up AMP.

533
00:48:16.100 --> 00:48:19.140
AMP is so big, they're going to drive all the stores out of business, all this nonsense.

534
00:48:19.140 --> 00:48:23.940
What actually happened in practice was that when the supermarket boom came in,

535
00:48:23.940 --> 00:48:28.380
first of all, World War II, the big change of frozen food, the big invention of frozen food,

536
00:48:28.380 --> 00:48:33.020
and second of all, the supermarket concept where you have, because before that,

537
00:48:33.020 --> 00:48:38.300
AMP, which they were like mom and pop stores in the sense that you had a counter,

538
00:48:38.300 --> 00:48:43.300
You want to ask the guy, I want, you know, five cans of so-and-so.

539
00:48:43.300 --> 00:48:47.300
The whole idea of a self-service supermarket comes in after World War II.

540
00:48:47.300 --> 00:48:52.300
An ANP, not being used to this, were the last guys to convert,

541
00:48:52.300 --> 00:48:55.300
the last people to really understand the supermarket concept.

542
00:48:55.300 --> 00:48:58.300
As a result, the average ANP in New York, first of all ANP,

543
00:48:58.300 --> 00:49:03.300
it sort of almost went bankrupt, went crazy bankrupt, down the tubes.

544
00:49:03.300 --> 00:49:07.300
They didn't have to be broken up by government coercion, they broke up themselves by inefficiency.

545
00:49:07.300 --> 00:49:13.140
Efficiency. And even now you have an AMP supermarket, those are few that are left, they're crumbly

546
00:49:13.140 --> 00:49:18.700
organized, they're dirty, they have boxes piled up in the aisles, they have linoleum

547
00:49:18.700 --> 00:49:22.980
floors instead of what they, they have wooden floors, excuse me, instead of the tiles, they're

548
00:49:22.980 --> 00:49:30.420
just crumming in their old fashion, they just weren't up with the current, with innovation.

549
00:49:30.420 --> 00:49:35.380
So as a matter of fact, many states and cities have changed their taxes, deliberately to

550
00:50:05.380 --> 00:50:09.720
I don't know how many left-wing liberal writers in the 1930s and 40s were urging the break

551
00:50:09.720 --> 00:50:15.080
of the man, terrible thing, monopoly, selling cheap stuff, and selling good stuff for the

552
00:50:15.080 --> 00:50:16.980
consumer at cheap prices.

553
00:50:16.980 --> 00:50:23.180
After World War II, the latest thing in retailing, which also got big hysteria, was the discount

554
00:50:23.180 --> 00:50:31.580
house, which came in in the 1950s, I believe, heroic discount house, which broke the law.

555
00:50:31.580 --> 00:51:01.580
Part of the Clayton Act which came in 1913 as we'll see later, and the Robinson-Patman Act which came in the 1930s imposed the so-called fair trade, a great word from Cartel, fair trade law, let me hear the word fairness by the way in economics, guard your pocketbook, reach guard your wallet, so fair trade meant

556
00:51:01.580 --> 00:51:06.580
It shouldn't compete. In other words, this is a so-called resale price maintenance.

557
00:51:06.580 --> 00:51:11.580
Once again, the poor beloved mom and pop stores have to be saved.

558
00:51:11.580 --> 00:51:16.580
This was done by trade associations, mom and pop retail stores.

559
00:51:16.580 --> 00:51:19.580
You don't have to be a big business to be perfectly powerful.

560
00:51:19.580 --> 00:51:22.580
You can have a lot of retail stores, a little band together in a trade association.

561
00:51:22.580 --> 00:51:25.580
They have a big cloud because they have a lot of votes.

562
00:51:25.580 --> 00:51:28.580
The resale of price maintenance means that the

563
00:51:29.980 --> 00:51:33.380
now shall not sell the certain product below a certain amount.

564
00:51:33.380 --> 00:51:37.380
In other words, you keep the, you push the price above the free market level.

565
00:51:37.780 --> 00:51:40.580
By cartel arrangement, you push the supply to the left,

566
00:51:41.180 --> 00:51:44.180
keep out competition and raise the price.

567
00:51:44.180 --> 00:51:46.180
This is a typical cartel situation.

568
00:51:46.180 --> 00:51:48.380
A cartel is enforced by the government, federal government,

569
00:51:48.380 --> 00:51:50.580
because nobody else can do it, state government, federal government.

570
00:51:50.980 --> 00:51:55.180
If you have 100,000 retailers, they can't form a successful cartel

571
00:51:55.180 --> 00:51:58.180
without the government imposing it.

572
00:51:58.180 --> 00:52:01.180
So retail price maintenance,

573
00:52:01.180 --> 00:52:04.180
officially the manufacturer imposed it.

574
00:52:04.180 --> 00:52:06.180
Actually, of course, it was the retailer.

575
00:52:06.180 --> 00:52:09.180
The retailers would want to keep, let's say, electric shavers.

576
00:52:09.180 --> 00:52:12.180
The classic case was Sunbeam, which was

577
00:52:12.180 --> 00:52:15.180
a slave to the retail cartel.

578
00:52:15.180 --> 00:52:17.180
They had an electric shaver in those days.

579
00:52:17.180 --> 00:52:19.180
I don't know why, I don't use an electric shaver.

580
00:52:19.180 --> 00:52:21.180
In those days, a typical price would be about $30 or $25.

581
00:52:21.180 --> 00:52:23.180
I suppose it's a lot more now.

582
00:52:23.180 --> 00:52:28.780
So, let's say that the retailers will go to Sunbeam and say, look Mr. Sunbeam, we will

583
00:52:28.780 --> 00:52:33.180
not buy your product, blah, blah, blah, unless you impose a resale price maintenance, say,

584
00:52:33.180 --> 00:52:34.180
$30.

585
00:52:34.180 --> 00:52:38.780
Now, almost always the manufacturer doesn't care, as long as he sells the product to the

586
00:52:38.780 --> 00:52:45.120
wholesaler or the jobber, he doesn't care what the retailer is charging, not his concern.

587
00:52:45.120 --> 00:52:49.340
But the law, the resale price maintenance law is set as follows, the manufacturer can

588
00:52:49.340 --> 00:53:19.340
I can make a contract, if I'm Mr. Sunbeam, I can make a contract with retailers saying that I shall not sell this shaver for less than $30, but that would mean like $100,000 contract, nobody wants to go through this nonsense, so the resale price maintenance law said that Mr. Sunbeam makes a contract with one retailer to impose a minimum price of $30, and every other retailer is bound by it. In other words, this extending contract, the statute, it's saying, all he has to do is to sign one contract with Joe Jones somewhere,

589
00:53:19.340 --> 00:53:24.340
Supplies across the board through the whole country, but nobody can sell this thing for less than 30 bucks.

590
00:53:24.340 --> 00:53:30.340
And this, of course, was imposed upon some being by the retailer cartels, retail association.

591
00:53:30.340 --> 00:53:36.340
This is true for most products, appliances, household appliances, vitamins, drugs of course, even more so, liquor,

592
00:53:36.340 --> 00:53:40.340
liquor which is, we say, a price maintenance from the state governments.

593
00:53:40.340 --> 00:53:43.340
So what happened, this meant that prices were much higher than they should have been.

594
00:53:43.340 --> 00:53:47.340
There's a whole cartel screwing the consumer. This is in the name, of course, of the welfare state.

595
00:53:47.340 --> 00:53:56.340
This by the way is the welfare state in action. There's a whole bunch of special interest groups screwing consumers and taxpayers and making them think they're really benefiting.

596
00:53:56.340 --> 00:54:13.340
So what finally happened is the rise of the discount house, a heroic group of illegal black market sellers, in particular in New York the classic ones are Masters House and Corvettes, which just recently went bankrupt for other reasons.

597
00:54:13.340 --> 00:54:19.180
Corvettes and Masters, the whole thing was geared as we now know, of course, now there are discount houses all over the place.

598
00:54:19.180 --> 00:54:24.420
The discount house was able to sell way below the market, the fixed market price,

599
00:54:24.420 --> 00:54:31.220
because they had very, they had very low cost. The thing is, in the old days, not so much anymore, I mean,

600
00:54:31.220 --> 00:54:38.340
nowadays you can't get a salesman in New York to wait on you. If there are salesmen at all, as you well know,

601
00:54:38.340 --> 00:54:43.820
The customer is considered to be an intrusion on the valuable leisure time of the clerks.

602
00:54:43.820 --> 00:54:49.380
You know, the clerks are yucking it up, either no clerks at all, no sales, and also yucking it up over coffee.

603
00:54:49.380 --> 00:54:52.180
And any customer is an unwelcome intrusion.

604
00:54:52.180 --> 00:54:56.100
At any rate, in the old days, there used to be a lot of service,

605
00:54:56.100 --> 00:55:02.860
if you go into the department store or whatever, appliance store, rug store, you got a lot of personal service.

606
00:55:02.860 --> 00:55:07.420
The masters in Quebec cut out personal service at all.

607
00:55:07.420 --> 00:55:12.120
You just have price tags and you just get the product and you take it out and wait online and buy it

608
00:55:12.120 --> 00:55:14.720
as you do now at 47th Street, Toto and other places

609
00:55:14.720 --> 00:55:19.220
In other words, it's the idea of no frills, no service, retailing

610
00:55:19.220 --> 00:55:21.820
So if you know what you want, it's a great thing to do

611
00:55:21.820 --> 00:55:26.420
So if you know you want something being shaved, Matt, I'd like to shave you just go stand in line and pay the discount

612
00:55:26.420 --> 00:55:28.220
This is illegal

613
00:55:28.220 --> 00:55:30.920
because they were violating, consciously violating

614
00:55:30.920 --> 00:55:34.920
at least the price minimum, the retail price maintenance law

615
00:55:34.920 --> 00:55:44.920
It was heroic because everybody started buying it, they'd sell it for 20 dollars, something like that.

616
00:55:44.920 --> 00:55:50.920
See, they didn't make a contract, the contract was only with somebody else, one store.

617
00:55:50.920 --> 00:56:00.920
They didn't violate a contract, they violated the price maintenance law, which said that one contract applies to everybody.

618
00:56:00.920 --> 00:56:05.920
They were breaking the law. No, they weren't breaking any contract. They made no contract.

619
00:56:05.920 --> 00:56:09.920
They just bought a sunbeam. That's right, they broke the law. Yeah. No, well, they took

620
00:56:09.920 --> 00:56:14.920
them to court. Obviously, the sunbeam people, and particularly, of course, the retail trade

621
00:56:14.920 --> 00:56:18.920
association, took them to court. They fought it. They took it all the way to the Supreme

622
00:56:18.920 --> 00:56:22.920
Court. The Supreme Court, on the side of the law, was unconstitutional. It was a magnificent

623
00:56:22.920 --> 00:56:26.920
decision. It was somewhere, I guess, the late 50s and 60s. In other words, it was a constitutional

624
00:56:26.920 --> 00:56:41.920
and finally broke the resale price maintenance law. It was a great day for the consumer and after that the whole thing collapsed, the whole price structure collapsed and then we started getting discounts all over the place and now you have, and now everything is discount.

625
00:56:41.920 --> 00:56:52.920
I mean you have 47th Street Photo, I mean this price is sort of a joke. One great thing about New York, even though the consumer sovereignty is not exactly in order, you can get stuff much cheaper here than you can at any place else.

626
00:56:52.920 --> 00:56:58.920
I mean, this 47-story photo, you get electronic stuff, much, much cheaper than, and list price is sort of a joke here.

627
00:56:58.920 --> 00:57:03.420
If you go to other places in the country, they pay list price. They don't know any better.

628
00:57:03.420 --> 00:57:08.920
There's no discount house unless they get a catalog. Yeah, of course.

629
00:57:08.920 --> 00:57:12.920
So the whole concept of a discount, no frills discount store is a magnificent, magnificent one,

630
00:57:12.920 --> 00:57:20.420
and now just list price is just a sort of vague, a vague reference point. Nobody really takes it seriously.

631
00:57:20.420 --> 00:57:25.060
So, at any rate, recently Corvette went out of business because they had no more function.

632
00:57:25.060 --> 00:57:30.340
In other words, after 20 years of bonanza, they finally wound up, you know, ever since

633
00:57:30.340 --> 00:57:34.340
everybody else was discounting, there's no reason to go to Corvette more than the other place.

634
00:57:35.300 --> 00:57:39.060
They still had vitamins and drugs, which I think took a long time to go discount, although that

635
00:57:39.060 --> 00:57:45.140
happened too with health food stores. It wasn't too long ago, about 20 years ago, I went in to get

636
00:57:45.140 --> 00:57:49.620
some vitamins at a drug store in my neighborhood, and the guy asked me, it was the list price, this

637
00:57:49.620 --> 00:58:00.620
Drugs was Theragran, the list price was $9.50, an insane price, and very high, it was part of the retail price maintenance, because drugs were especially regulated.

638
00:58:00.620 --> 00:58:07.620
They said, the list price was $9.50. I said, I'd like to get some via Theragran. He said, look at me. He said, you live in the neighborhood.

639
00:58:07.620 --> 00:58:11.620
A strange question you might think to ask, why should I care if I live in the neighborhood?

640
00:58:11.620 --> 00:58:26.620
I was afraid I was the equivalent of a narc, and I was afraid I was like a stop bowl, an SBI agent for the city regulatory, whatever the heck it is, it goes around, the use of police prices, make sure you don't sell it below $9.50.

641
00:58:26.620 --> 00:58:35.620
I said, yes, I've seen you in the neighborhood, and you're selling me for $5.50, which is the true market price, in contrast to the crazed $9.50.

642
00:58:35.620 --> 00:58:41.460
So now, of course, it's all over the place, you don't have to be known in the neighborhood to buy cheap vitamins

643
00:58:41.460 --> 00:58:45.140
because now the discounts are everywhere, it's magnificent, great victory for the consumer

644
00:58:45.140 --> 00:58:48.580
we should hail Mr. Corvette, Mr. Master, whatever their names are

645
00:58:48.580 --> 00:58:55.140
I think it wasn't Mr. Corvette, E.J. Corvette, hailed them for being pioneers of consumer freedom

646
00:58:55.140 --> 00:59:01.220
and so, but again, of course, these were attacked bitterly by the retailers

647
00:59:01.220 --> 00:59:21.500
Likert is monopolized in the sense that you can't open a liquor store, you have to get

648
00:59:21.500 --> 00:59:24.740
a liquor license, they're not issuing any new liquor licenses, you have to buy a liquor

649
00:59:24.740 --> 00:59:29.580
license from guys willing to sell, it's like a taxi industry, it's very tightly controlled,

650
00:59:29.580 --> 00:59:37.580
You can't have a liquor store more than, less than, I don't know, 150 feet or 150 yards or whatever.

651
00:59:37.580 --> 00:59:42.580
It's another liquor store. It's compulsory spacing. Everybody has a little monopoly turf.

652
00:59:42.580 --> 00:59:46.580
It's less regulated than it used to be. I'm not really sure what the latest thing is.

653
00:59:46.580 --> 00:59:49.580
It's still heavily regulated. Very high taxes, of course.

654
00:59:49.580 --> 00:59:53.580
It keeps out of competition, raises the cost, raises the price.

655
00:59:53.580 --> 01:00:00.580
I'm not sure. I don't know what the European situation is. Usually liquor is regulated everywhere, but I'm not sure what happens.

656
01:00:00.580 --> 01:00:11.580
I think so. It's not as bad as liquor where it's all tightly. For example, in California, it's magnificent to buy liquor in a grocery store.

657
01:00:11.580 --> 01:00:16.580
It doesn't have to be a special liquor store because they have the Muck of the Muck license.

658
01:00:16.580 --> 01:00:17.580
and the Muck License.

659
01:00:17.580 --> 01:00:22.020
So liquor is much cheaper for them and much more competitive.

660
01:00:22.020 --> 01:00:29.100
Also, in Las Vegas, for example, liquor stores open 24 hours a day, supermarkets.

661
01:00:29.100 --> 01:00:31.020
You can buy liquor magnificently three in the morning.

662
01:00:31.020 --> 01:00:35.020
I guess they close the liquor office at about one o'clock or something, shut down the liquor

663
01:00:35.020 --> 01:00:36.020
section.

664
01:00:36.020 --> 01:00:39.020
Anyway, it's much easier to buy it.

665
01:00:39.020 --> 01:00:42.020
How do they lease their own?

666
01:00:42.020 --> 01:00:44.020
How do they lease the airlines?

667
01:00:44.020 --> 01:00:46.020
They do it by deregulation.

668
01:00:46.020 --> 01:00:53.020
Oh, that was due to deregulation. That was in the late 70s, early 80s when the deregulation hit.

669
01:00:53.020 --> 01:00:59.020
Because before that you see the rates were regulated by the Civil Airlines Board.

670
01:00:59.020 --> 01:01:03.020
And so the big airlines put in the Civil Airlines Board.

671
01:01:03.020 --> 01:01:09.020
And so they kept the rates way up and they kept the competition way down.

672
01:01:09.020 --> 01:01:13.700
They signed routes, like Boston and New York, it was going to only be Eastern, and things like that.

673
01:01:13.700 --> 01:01:17.420
Now, of course, the sky's the limit, anybody can nip in any area.

674
01:01:17.420 --> 01:01:21.620
So, of course, the inefficient airlines started going bust, and new airlines came in with

675
01:01:21.620 --> 01:01:23.740
more competitive rates, and then

676
01:01:23.740 --> 01:01:27.260
no frills, and all the rest of it.

677
01:01:27.260 --> 01:01:34.260
No, the railways are still not going to be regulated. As a matter of fact, there's a woman now who's head of the Interstate Commerce Commission who's a favor of eliminating the Interstate Commerce Commission,

678
01:01:34.260 --> 01:02:01.260
If you get to L.A., you're going to have to pay $230 for a ride here and $225 for a ride there, who's going to be paying the rent there?

679
01:02:01.260 --> 01:02:03.260
Who's going to be paying the rent?

680
01:02:04.260 --> 01:02:34.260
I've been realizing that purely subsidized means right now it's all the taxpayer that pays for this stuff, and I think according to a trend of mine, I was in the transportation economist, I asked him the question, if all subsidies and all controls were eliminated, if you had entirely free markets in transportation, what do you think would be the, you know, what would be used in different areas? Of course you can't predict it, and his hunch was that basically you'd have, for long mileage, long haul freight, you'd have railroads, and best for long haul freight.

681
01:03:04.260 --> 01:03:11.460
Connecticut or something. Subsidon, why should they be subsidized? Hoppe is nuts. They're

682
01:03:11.460 --> 01:03:16.460
trying to sell Amtrak. At least one wing of the Reagan administration is trying to privatize

683
01:03:16.460 --> 01:03:19.660
and get rid of all this stuff. I don't think it will be very successful, but at least they're

684
01:03:19.660 --> 01:03:23.460
talking about it, which is very unusual. Trying to sell Amtrak. They're even trying to sell

685
01:03:23.460 --> 01:03:27.460
a couple of dams. It's an amazing thing when the government is trying to sell some dams,

686
01:03:27.460 --> 01:03:33.460
because there had been a dam propaganda there for about a century. All dams are good per

687
01:04:03.460 --> 01:04:21.420
The producers are liable, if you have construction, there are houses all the time, they are not

688
01:04:21.420 --> 01:04:25.580
government, private houses being built, private offices, they don't collapse.

689
01:04:25.580 --> 01:04:30.340
They did collapse, the guys would be liable, the guys would use unsafe equipment and go

690
01:05:00.340 --> 01:05:10.100
Anyway, on the whole retail question, we have a whole history, and each time the finally

691
01:05:10.100 --> 01:05:15.580
innovation triumphs, and the efficiency finally triumphs after a long hysterical attack, and

692
01:05:15.580 --> 01:05:20.780
now, I don't know of any recent big developments, the peddlers of course, of course when I get

693
01:05:20.780 --> 01:05:27.340
rid of peddlers, I guess it's forever, at any rate, but you can bet your bottom dollar

694
01:05:27.340 --> 01:05:30.860
Well, whatever new big thing comes into the retail industry will be combated by a whole

695
01:05:30.860 --> 01:05:34.660
bunch of people who are now competing against it.

696
01:05:34.660 --> 01:05:40.260
One interesting thing, I'm beginning to labor in a second, is that one of the big charges

697
01:05:40.260 --> 01:05:44.220
that left us have always made is capitalism, as capitalism took the people, took the masses

698
01:05:44.220 --> 01:05:46.620
out of their beloved home, used to work at home.

699
01:05:46.620 --> 01:05:49.860
In other words, in the old days, if you're a weaver, let's say you had your equipment

700
01:05:49.860 --> 01:05:56.020
at home, your loom in the basement, and you lived by one, usually one hut, you, your family

701
01:05:56.020 --> 01:06:01.220
and the Loom and a couple of pigs who are all in one room. This is a traditional peasant hut.

702
01:06:01.220 --> 01:06:06.260
Anyway, so they yank capitalism, they yank these people out of their beloved huts and put them into the

703
01:06:06.260 --> 01:06:11.380
factory where they have to stay there eight hours or ten hours a day or something. Of course they got a lot more money

704
01:06:11.380 --> 01:06:16.980
but somehow their soul was robbed and they were alienated from their labor.

705
01:06:16.980 --> 01:06:19.860
So capitalism brings about alienation and so forth and so on.

706
01:06:19.860 --> 01:06:26.220
So here we have, now we have a situation where there's a counter drive, in other words, with the computer and stuff like that.

707
01:06:26.220 --> 01:06:32.020
A lot of people now can work at home, and are working at home, and so the leftists are now belly-aching about that.

708
01:06:32.020 --> 01:06:35.780
Terrible thing, they can undercut union wage scales, and they don't join unions, obviously.

709
01:06:35.780 --> 01:06:37.780
If you're working at home, you're not going to join a union.

710
01:06:37.780 --> 01:06:43.980
They're trying to outlaw that for the same people who are attacking capitalism for alienating people from their home,

711
01:06:43.980 --> 01:06:49.340
and now trying to force them to work somewhere else, to prevent them from working at home.

712
01:06:49.340 --> 01:06:52.340
One more contradiction in the internal struggle.

713
01:06:52.340 --> 01:06:57.340
Anyway, now I get to labor and the labor situation in the late 19th century.

714
01:06:57.340 --> 01:07:02.340
There's been a lot, and most historians, it's not true of you, but in general,

715
01:07:02.340 --> 01:07:06.340
most historians traditionally overweighted the whole labor, the whole union problem.

716
01:07:06.340 --> 01:07:11.340
The number, as we'll see in a minute, the number of people joining unions is very small throughout.

717
01:07:11.340 --> 01:07:16.340
And it's of course dramatic, it's newsworthy if you have a strike,

718
01:07:16.340 --> 01:07:26.700
In the overall picture, wage rates, real wage rates, in other words, wage rates corrected

719
01:07:26.700 --> 01:07:31.140
for changes in price went way up all during the late 19th century.

720
01:07:31.140 --> 01:07:42.300
Here's one way of looking at it, this is the average wage rate, average daily wages in

721
01:07:42.300 --> 01:07:48.300
and Industry, Oil Industry. Of course it's a rough figure but it gives you I think a good idea of what

722
01:07:48.300 --> 01:07:54.300
as in daily wages, oil industry.

723
01:07:54.300 --> 01:08:01.300
Because a lot of historians used to claim that workers were somehow oppressed during the late, during the Industrial Revolution in the United States.

724
01:08:01.300 --> 01:08:06.300
You can see what kind of oppression it was. In 1865 we set

725
01:08:06.300 --> 01:08:13.300
Wages equal 100. In other words, this is an index where the average wage in 1865 is equivalent to 100.

726
01:08:13.300 --> 01:08:22.300
In 1891, in money terms, in money wage rates, this is going up by 13%.

727
01:08:22.300 --> 01:08:31.300
In other words, there's now a 13% increase in money terms in 1865-1891.

728
01:08:31.300 --> 01:08:35.300
Plus 13%.

729
01:08:35.300 --> 01:08:40.580
The cost of living at the same time, don't forget there was deflation in this whole period,

730
01:08:40.580 --> 01:08:46.900
and the prices kept falling throughout, basically because the increase in production of goods

731
01:08:46.900 --> 01:08:49.980
and services was much greater every year than the increase in money supply.

732
01:08:49.980 --> 01:08:54.300
The increase in money supply was fairly small, the increase in production was tremendous,

733
01:08:54.300 --> 01:08:59.700
and so you had a big drop in the words, you had this sort of thing, this is price on the

734
01:08:59.700 --> 01:09:05.260
y-axis and quantity on the x-axis, this is supply and this is demand, supply kept increasing

735
01:09:05.260 --> 01:09:20.260
So, the cost of living went from 100 to 69, in other words, there's a 31% drop in prices.

736
01:09:20.260 --> 01:09:28.260
Imagine a 31% drop in prices over a 26-year period, a drop of slightly more than 1% a year.

737
01:09:28.260 --> 01:09:34.820
So, overall, in real terms, the average daily real wage,

738
01:09:34.820 --> 01:09:38.580
correcting for deflation this time,

739
01:09:38.580 --> 01:09:42.940
went up by 64%, 164%.

740
01:09:42.940 --> 01:09:45.780
So we had, in other words, a

741
01:09:45.780 --> 01:09:50.080
something like 2% a year, 3% a year increase in real wages

742
01:09:50.080 --> 01:09:54.660
steadily for these 26-year periods. That really goes on from 1900.

743
01:09:54.660 --> 01:09:58.140
In addition to that, the number of hours a day worked, the average hour a day.

744
01:09:58.140 --> 01:10:01.980
Don't forget, in those days people worked a lot, they worked very hard, they worked

745
01:10:01.980 --> 01:10:05.340
sixty-four hours a week or something and

746
01:10:05.340 --> 01:10:10.620
the hours dropped in this period from eleven hours a day and the average of ten

747
01:10:10.620 --> 01:10:15.020
So you had, in other words, in addition to a sixty-four percent increase in real wages, you have

748
01:10:15.020 --> 01:10:16.440
what is it, something like

749
01:10:16.440 --> 01:10:19.220
another extra amount

750
01:10:19.220 --> 01:10:20.960
since you're

751
01:10:20.960 --> 01:10:22.620
an additional ten percent

752
01:10:22.620 --> 01:10:23.700
per hour

753
01:10:23.700 --> 01:10:24.980
wage rate

754
01:10:24.980 --> 01:10:27.860
so it's like 74%

755
01:10:27.860 --> 01:10:31.860
in this whole period

756
01:10:31.860 --> 01:10:35.060
take the union membership rate

757
01:10:35.060 --> 01:10:38.940
you take the labor force, I mean the number of people working or seeking work

758
01:10:38.940 --> 01:10:41.100
total labor force

759
01:10:41.100 --> 01:10:44.900
in 1897

760
01:10:44.900 --> 01:10:48.940
was

761
01:10:48.940 --> 01:10:51.940
26 million

762
01:10:51.940 --> 01:11:07.340
And the total union membership in 1897 was 440,000, which is 1.7%. That was about the norm. That's not unusual, this whole period.

763
01:11:07.340 --> 01:11:19.340
From the 1880s until 1914, approximately, union membership was about 2%. Range fluctuated to some extent, but basically it was a very small proportion of labor force.

764
01:11:19.340 --> 01:11:41.340
It wasn't really worth talking about very much, total union membership, this is a total labor force, number of people who are working, 26 million, of that 440,000 were union members, which makes it about 1.7% of the total.

765
01:11:49.340 --> 01:11:56.060
No, there's no deflation. They're talking about deflation, but prices are still going

766
01:11:56.060 --> 01:12:01.540
up by about 3% a year. Yeah, the price of oil fell. On the other hand, if you look at

767
01:12:01.540 --> 01:12:10.900
the overall picture, prices are still going up by 3% a year. No, it's just one important

768
01:12:10.900 --> 01:12:17.620
price. It's not the whole story. There's lots of prices going on, and it's just one aspect

769
01:12:17.620 --> 01:12:23.780
and the fact that the material prices keep falling on the other hand general prices

770
01:12:23.780 --> 01:12:29.940
you know overall of course living goes up as a sign and don't forget there in 1950s the government

771
01:12:29.940 --> 01:12:34.580
tried to keep their target was that prices should go up no more than two percent a year they figured

772
01:12:34.580 --> 01:12:39.380
that was the limit of inflation and anything above two percent is considered a terrible thing now

773
01:12:39.380 --> 01:12:44.900
3.5 percent is going to be no inflation at all which shows we've been desensitized from inflation

774
01:12:44.900 --> 01:12:47.900
It's not that inflation is eliminated, just, we don't think there is any, because it's better,

775
01:12:47.900 --> 01:12:52.900
I think three and a half percent is better than thirteen percent, I suppose it is, but it's not, it's not the whole picture.

776
01:12:52.900 --> 01:12:56.900
You have to watch that. The problem, desensitization through inflation,

777
01:12:56.900 --> 01:13:01.900
weakens people's will to do something about it.

778
01:13:01.900 --> 01:13:08.900
Can unions come in, first of all, before the Civil War, there was no real room for unions,

779
01:13:08.900 --> 01:13:11.900
because most people were not employed, most people were self-employed.

780
01:13:11.900 --> 01:13:17.340
The standard situation was to be self-employed if your manufacturing was very small, like

781
01:13:17.340 --> 01:13:22.420
a small barrel maker or bicycle, not a poor bicycle, barrel maker or horseshoe or something

782
01:13:22.420 --> 01:13:23.420
like that.

783
01:13:23.420 --> 01:13:28.980
Usually they have a master craftsman who owns his own shop, and then an adjournment employee,

784
01:13:28.980 --> 01:13:29.980
maybe an apprentice.

785
01:13:29.980 --> 01:13:30.980
That's it.

786
01:13:30.980 --> 01:13:35.780
So even though there were outfits that called themselves labor groups, they were not really

787
01:13:35.780 --> 01:13:36.780
labor in our sense.

788
01:13:36.780 --> 01:13:39.780
They weren't particularly employed.

789
01:13:39.780 --> 01:13:46.180
So only after the Civil War, with factories, you have a large number of employed people.

790
01:13:46.180 --> 01:13:57.500
And so what first happens is that the first organization to try to organize laborers were

791
01:13:57.500 --> 01:14:05.780
the Knights of Labor, founded in 1869, which was essentially a socialist outfit.

792
01:14:05.780 --> 01:14:09.700
And since the Knights of Labor believed in labor solidarity above all things, they didn't

793
01:14:09.700 --> 01:14:16.580
Season E for any kind of separate unions, in other words, what they did is they, everybody,

794
01:14:16.580 --> 01:14:19.460
you just join up geographically, you know, everybody's a member of the Knights of Labor,

795
01:14:19.460 --> 01:14:23.940
you show up, doesn't matter what you're working at, you simply become a geographical member,

796
01:14:23.940 --> 01:14:29.700
let's say if downtown Brooklyn here was a, would be local 786 or something like that,

797
01:14:29.700 --> 01:14:32.420
you just join up, doesn't matter what your occupation is, you become a member of the

798
01:14:32.420 --> 01:14:38.300
Knights of Labor, local 786, so obviously since there was no, since everybody was amalgamated

799
01:14:38.300 --> 01:14:51.300
The concept of one big union, because everybody was amalgamated in one big union and there was no collective bargaining going on, because there was nobody to bargain with, there was no committee of steelworkers or something like that.

800
01:14:51.300 --> 01:15:02.380
So this really went national by 1878, so it existed in a very small amount, and it reached

801
01:15:02.380 --> 01:15:06.740
a peak in 1886, and by 1890 it had totally collapsed, in other words it was a big sort

802
01:15:06.740 --> 01:15:11.780
of a flurry and a bingo, the whole thing was over.

803
01:15:11.780 --> 01:15:18.900
And with the collapse of the Knights of Labor, some smart, shrewd union people began to come

804
01:15:18.900 --> 01:15:22.900
In conclusion, there must be another way. There's something wrong with life and labor. It didn't work.

805
01:15:22.900 --> 01:15:25.900
And one of the reasons it didn't work is because it was one big union.

806
01:15:25.900 --> 01:15:29.900
There's nothing for them to do except preach socialism. There's no direct activity.

807
01:15:29.900 --> 01:15:35.900
And so, as a result, was founded another group based on a whole different concept.

808
01:15:35.900 --> 01:15:39.900
And this is the concept of a craft union.

809
01:15:39.900 --> 01:15:46.900
The idea of a craft union is to control labor supply.

810
01:15:46.900 --> 01:15:53.780
In other words, to try to take a situation, an occupation, usually a skill craft, where

811
01:15:53.780 --> 01:15:56.180
there's a natural limitation on entry.

812
01:15:56.180 --> 01:16:02.540
In other words, everybody can be a zitchdigger, anybody who's got shoulders can be a zitchdigger.

813
01:16:02.540 --> 01:16:05.380
So you can't organize zitchdiggers, this is the concept.

814
01:16:05.380 --> 01:16:11.980
You can only organize people who are skilled, very small supply of skilled craftsmen.

815
01:16:11.980 --> 01:16:16.420
One ideal now, for example, would be stonemasons, there are almost no stonemasons left.

816
01:16:16.420 --> 01:16:20.740
8 or 9 other countries and usually elderly Italians, and that's it.

817
01:16:20.740 --> 01:16:27.420
If you have 8 or 9 people in stone masons, you can easily organize them for various reasons.

818
01:16:27.420 --> 01:16:37.460
One is a skill craft and a small limited entry, that's one reason.

819
01:16:37.460 --> 01:16:41.460
You take a skill craft which is limited entry and also requires a lot of skill to become

820
01:16:41.460 --> 01:16:42.460
a stone mason.

821
01:16:42.460 --> 01:16:45.460
You can't just walk in and become a stone mason, you have to be an apprentice for ten

822
01:16:45.460 --> 01:16:52.620
So, you have things like stonemasons, you have things like cigar band workers, usually

823
01:16:52.620 --> 01:16:53.620
not mechanized.

824
01:16:53.620 --> 01:16:58.860
In other words, in most cases, these are skilled craftsmen, mechanics in the old-fashioned

825
01:16:58.860 --> 01:16:59.860
sense.

826
01:16:59.860 --> 01:17:02.700
You fit the stuff together, you fit parts together.

827
01:17:02.700 --> 01:17:11.540
You have mechanics, you have cigar workers, hand cigar workers, glassblowers and other

828
01:17:11.540 --> 01:17:17.540
Another occupation which I'm afraid is going forever with mechanization is things like that.

829
01:17:17.540 --> 01:17:22.540
No, it's still a skill craft. We have a limited number. Only a few people can join it, can be in it.

830
01:17:22.540 --> 01:17:27.540
And two, another very important thing is the demand curve for the labor inelastic.

831
01:17:27.540 --> 01:17:36.540
In other words, you have this sort of situation.

832
01:17:36.540 --> 01:17:42.540
If the demand curve is elastic, okay, this is a demand for, let's say, ditch diggers, elastic.

833
01:17:42.540 --> 01:17:47.540
If you form a ditch digger's union and insist on raising the wage rate, you will disemploy a whole bunch of them.

834
01:17:47.540 --> 01:17:51.540
In other words, this is how many people will be hired, the demand curve.

835
01:17:51.540 --> 01:17:54.540
On y-axis, you now have wage rate.

836
01:17:54.540 --> 01:18:00.540
So if you push the wage rate up from here to here, you'll disemploy, you know, half the number of ditch diggers, or more than half.

837
01:18:00.540 --> 01:18:03.540
If you have a heavy unemployment, you'll break the union.

838
01:18:03.540 --> 01:18:09.540
The Union will just go out there and under-compete the Union and the Union will be smashed.

839
01:18:09.540 --> 01:18:13.540
You have to have, in order for the Union to be successful in pushing out wage rates,

840
01:18:13.540 --> 01:18:17.540
have an inelastic demand curve where if you push out the wage rates with, say, stone masons,

841
01:18:17.540 --> 01:18:21.540
you might disemploy one person, you have ten people employed, you might disemploy one guy.

842
01:18:21.540 --> 01:18:26.540
In other words, you're trying to have a situation where you always will have unemployment as a result of

843
01:18:26.540 --> 01:18:31.540
unions pushing out wage rates, but at least if it's a small amount of unemployment, the Union can get away with it.

844
01:18:31.540 --> 01:18:44.540
And at best for the union, of course, if you don't disappoint anybody, simply don't employ a new person coming in, like somebody would have been employed at the age of 21, he's no longer employed, so the unemployment is not visible, it's even better from the point of view of the union.

845
01:18:44.540 --> 01:18:53.540
So if you can do that, if you can have an inelastic demand curve and a limited entry, then you have the conditions ready to form a successful craft union.

846
01:18:53.540 --> 01:19:01.220
And one of the reasons it gives you an interactive demand curve is a small proportion of the

847
01:19:01.220 --> 01:19:02.220
labor force.

848
01:19:02.220 --> 01:19:06.540
In other words, just a small number of people, a small proportion.

849
01:19:06.540 --> 01:19:16.500
So these are the aspects that have an economic power, in other words can push out wage rates

850
01:19:16.500 --> 01:19:21.780
at the expense of unemployment.

851
01:19:21.780 --> 01:19:26.780
A small proportion, because then it's not a significant part of the payroll, you don't

852
01:19:26.780 --> 01:19:28.780
raise costs for the employer very much.

853
01:19:28.780 --> 01:19:32.780
To give you an example, I think a classic example which I use in one of my micro classes,

854
01:19:32.780 --> 01:19:33.780
that union.

855
01:19:33.780 --> 01:19:37.780
In Polly here, we used to have two big unions, we had the staff workers union, big relative

856
01:19:37.780 --> 01:19:38.780
to Polly.

857
01:19:38.780 --> 01:19:44.780
We had 200 members or something of a staff union, which belonged to the retail curse

858
01:19:44.780 --> 01:19:45.780
union.

859
01:19:45.780 --> 01:19:50.780
And the faculty used to belong to AUP, which is a mass union of 250, whatever, faculty

860
01:19:50.780 --> 01:20:20.780
for faculty members, they had no power at all, they made a lot of noise because there were more people, they yelled a lot, they had no power, they couldn't get a damn thing, because if a faculty got a 50% wage increase it would bankrupt probably, that would mean a huge increase in costs, on the other hand you had two or three boiler tenders, belonging to the very teeny but important boiler tenders union, and so, I remember years ago, about 18 years ago or something, the boiler tenders union went out on strike, and then we had big unions,

861
01:20:20.780 --> 01:20:24.500
and so forth. They went to the boiler and said, one picket somewhere around the corner

862
01:20:24.500 --> 01:20:29.020
so nobody sees them. And they went up to them and they said, you want us to have solidarity?

863
01:20:29.020 --> 01:20:33.500
You want us to picket with you? They said, no, leave us alone. Leave. Buzz off. We're

864
01:20:33.500 --> 01:20:38.540
not interested in you working with solidarity. And so, sure enough, there's a formal strike

865
01:20:38.540 --> 01:20:43.380
two weeks, three weeks by these three guys, the boiler guy and the union. And finally,

866
01:20:43.380 --> 01:20:48.580
probably settles after about three weeks, gives them a 50% wage increase. They're probably

867
01:20:48.580 --> 01:20:52.580
So you're not going to get a 40% or 50% wage decrease to three people, not to 400 people.

868
01:20:52.580 --> 01:21:00.580
That's the difference. You have then, in other words, inelastic demand curve, small proportion of the payroll, and small entry.

869
01:21:00.580 --> 01:21:05.580
Boiler tenders are probably fairly skilled occupations. You can't just walk in and become a boiler tender.

870
01:21:05.580 --> 01:21:12.580
So with these conditions set, you're going to have a situation of a successful craft union.

871
01:21:12.580 --> 01:21:17.060
So the unions that have the economic power, in other words the power to raise wage rates

872
01:21:17.060 --> 01:21:21.580
above the market level, are not the large unions with lots of members that make lots

873
01:21:21.580 --> 01:21:24.700
of noise, we've got a lot of publicity in the paper, these are the small little unions

874
01:21:24.700 --> 01:21:30.140
of the interstices of the market where they can get in, cut, cut employment and raise

875
01:21:30.140 --> 01:21:34.940
wage rates without too much evident disruption, and what happens of course with the people

876
01:21:34.940 --> 01:21:39.380
of Mises, people can't get into the occupation, you can't become a boiler tender very easily,

877
01:21:39.380 --> 01:22:09.380
These unions usually have very tight control, they're usually considered racist because they don't, they're not really racist in the correct sense, they really, what happens in the standard situation is you can't become a union member, let's say I like Christian and Hohbock, Christian's union is a very powerful union, you can't become an electrician unless you're the son or nephew of an existing union member, of course nowadays with affirmative action or whatever they've probably broken that a little bit, but this was a classic situation, you can't become

878
01:22:09.380 --> 01:22:13.380
You can't become a member of the Union unless you're the son or nephew of an existing Union member.

879
01:22:13.380 --> 01:22:17.380
Well, I mean, it's cut that for other races. It also cuts out non-relatives.

880
01:22:17.380 --> 01:22:20.380
All non-relatives need not apply.

881
01:22:20.380 --> 01:22:24.380
And, of course, you can't become an electrician unless you're a member of the Union.

882
01:22:24.380 --> 01:22:29.380
In a virtually closed shop situation, your house is bombed or whatever.

883
01:22:29.380 --> 01:22:32.380
It's tight control over the whole area of the labor force.

884
01:22:32.380 --> 01:22:37.380
So this means wage rates of electricians are pushed up at the expense of who?

885
01:22:37.380 --> 01:22:42.380
Not so much the employer, to some extent, but largely to the extent of other workers who would like to be electricians and can't do it.

886
01:22:42.380 --> 01:22:47.380
They have to become supermarket clerks or whatever, or move out of Hoboken.

887
01:22:47.380 --> 01:22:53.380
And so the result is an increase in supply curve for other occupations which don't have tight unions.

888
01:22:53.380 --> 01:22:59.380
So this means a fall in wage rates for supermarket clerks, filling stations of tenants or whatever.

889
01:22:59.380 --> 01:23:05.380
So at your hands then, the way unions get their power is not by exploiting employers particularly,

890
01:23:05.380 --> 01:23:07.820
by exploiting other workers

891
01:23:07.820 --> 01:23:12.300
by exploiting non-union workers or workers with less powerful unions

892
01:23:12.300 --> 01:23:16.380
that can't maneuver this way. They've got a lot more people that can't control the supply

893
01:23:16.380 --> 01:23:17.860
so much, so much, so much.

894
01:23:17.860 --> 01:23:21.060
So what you had in this whole period, 1880s

895
01:23:21.060 --> 01:23:26.380
to 1914 was a situation where unions were a very small proportion, like 2% or so,

896
01:23:26.380 --> 01:23:29.220
and they only flourished in skilled craft situations.

897
01:23:29.220 --> 01:23:31.900
And the theoretician of this,

898
01:23:31.900 --> 01:23:34.900
or the practitioner of Samuel Gomper's,

899
01:23:34.900 --> 01:23:41.300
was the head of the Cigar Workers' Union who

900
01:23:41.300 --> 01:23:46.220
became head of the American Federation of Labor, formed in 1886,

901
01:23:46.220 --> 01:23:48.900
as the exemplar of this kind of

902
01:23:48.900 --> 01:23:51.420
of the craft concept

903
01:23:51.420 --> 01:23:58.580
of the American Federation of Labor.

904
01:23:58.580 --> 01:24:03.900
The American Federation of Labor, the AFFL, had no power itself, it was really sort of propaganda,

905
01:24:03.900 --> 01:24:07.460
The real power belongs, and still belongs, by the way, to the National Union, the National

906
01:24:07.460 --> 01:24:14.740
Cigar Workers Union, whatever it is, and there are National Unions and then there are Locals.

907
01:24:14.740 --> 01:24:21.340
Usually the National Union has total power over Locals, and each Local.

908
01:24:21.340 --> 01:24:25.980
And then they're part of the Federation, but the Federation itself only endorsed candidates

909
01:24:25.980 --> 01:24:26.980
and they make speeches.

910
01:24:26.980 --> 01:24:30.180
They don't really do anything, they don't have any concrete power, so the National Union

911
01:24:30.180 --> 01:24:33.180
You can leave the FRO anytime you want to, and you often have.

912
01:24:33.180 --> 01:24:34.180
Yeah.

913
01:24:34.180 --> 01:24:42.740
Well, that's a guild, yeah, so not technically calling unions a self-employed usually, but

914
01:24:42.740 --> 01:24:47.140
they're certainly, they act as a monopolistic guild, sure, it's very similar.

915
01:24:47.140 --> 01:24:48.140
Is that correct?

916
01:24:48.140 --> 01:24:49.140
Yeah.

917
01:24:49.140 --> 01:24:55.140
Yeah, oh sure, but they get the government to produce this plot for them, we'll see how

918
01:24:55.140 --> 01:25:09.140
The reason why that happened in 1910 was the Flexner Report, how the doctors were able to get control of medicine, especially licensing in medical schools and hospitals by kicking out or reducing supply tremendously.

919
01:25:09.140 --> 01:25:21.140
They had to use the government to do it. We're not talking about unions that do this without the government, you see. In other words, we're able to have a successful kind of union without government support.

920
01:25:21.140 --> 01:25:35.140
It's very limited. It's also limited to craft unions, and most of these unions were concentrated in certain industries or occupations.

921
01:25:35.140 --> 01:25:49.140
There were the building trades, what's known as the building construction unions, carpenters, joiners, masons and machinists and so forth.

922
01:25:49.140 --> 01:25:55.140
Construction, of course, has always been the most reactionary part of the economy, most backward, least innovative.

923
01:25:55.140 --> 01:26:04.140
And largely it's because construction is not a very competitive industry between cities or locales.

924
01:26:04.140 --> 01:26:13.140
In other words, if you're a garment firm, let's say, if New York City is unionized and pushes the cost of garment production way up,

925
01:26:13.140 --> 01:26:20.640
You just, you know, the garment plant closes and goes into West Virginia or something, starts there and competes with the clothing that is in New York.

926
01:26:20.640 --> 01:26:28.940
But in construction, you don't really have that kind of competition. If New York City is unionized, if New York City is unionized, you don't just move to Chicago, construction firm.

927
01:26:28.940 --> 01:26:33.140
In other words, construction doesn't compete that easily, closely, with other cities.

928
01:26:33.140 --> 01:26:40.640
But since construction is sort of geographically monopolistic in a sense, it leaves room for this kind of skilled craft unionism.

929
01:26:40.640 --> 01:26:50.680
So, building trades were heavily unionized throughout, in the railroad industry, the

930
01:26:50.680 --> 01:26:56.120
Brotherhood of Locomotive Engineers, which was known as the aristocracy of the railroad

931
01:26:56.120 --> 01:26:57.120
industry.

932
01:26:57.120 --> 01:27:02.640
The guys were, you know, the guys blowing the whistle there in a cab.

933
01:27:02.640 --> 01:27:08.160
But they were the only ones that were unionized before the ICC came in, the ICC came in 1886.

934
01:27:08.160 --> 01:27:16.160
This has expanded to the skill craft and railroad, the so-called big four brotherhoods, even known as the brotherhoods.

935
01:27:19.160 --> 01:27:27.160
And these were the engineers, the firemen, I forget who the other two guys were, two big four skilled crafts.

936
01:27:27.160 --> 01:27:37.160
The non-skilled railroad people, like the guys with the janitorial types of reporters, were not unionized.

937
01:27:37.160 --> 01:27:41.340
Unionized, these were the skilled crafts in the railroad industry, and these only really

938
01:27:41.340 --> 01:27:42.880
came in with the ICC.

939
01:27:42.880 --> 01:27:48.960
With the ICC by the way, since the ICC essentially cartelized the railroad industry, it permitted

940
01:27:48.960 --> 01:27:51.280
broad-end racial discrimination into the railroads.

941
01:27:51.280 --> 01:27:58.040
Before 1886, blacks were, there was strong black contingent and railroad engineers, firemen,

942
01:27:58.040 --> 01:28:02.640
all the rest of it, in the South and other places, black and mostly in the South.

943
01:28:02.640 --> 01:28:06.120
As soon as the ICC came in and the railroads were cartelized, you didn't have to worry

944
01:28:06.120 --> 01:28:10.520
about being profitable and so forth. Blacks were systematically kicked out of the top

945
01:28:10.520 --> 01:28:19.840
jobs in the railroad industry, engineers, farmers, and pushed down to quarters and janitors.

946
01:28:19.840 --> 01:28:26.160
And then, that's really mostly, and then various skilled crafts, cigar, compers comes out of

947
01:28:26.160 --> 01:28:32.760
the cigar workers, glassblowers, etc. And the only other one is really with anthracite

948
01:28:32.760 --> 01:28:39.760
Anthracite coal. Anthracite coal contrasted with bituminous coal, which gets most of the publicity.

949
01:28:39.760 --> 01:28:44.760
But bituminous coal is found everywhere. I mean, Pennsylvania, West Virginia, all over the place.

950
01:28:44.760 --> 01:28:48.760
Anthracite coal is limited to a very small section around Eastern Pennsylvania.

951
01:28:48.760 --> 01:28:54.760
So therefore it's fairly easy to monopolize it, to unionize it, because it's a very small geographical monopoly.

952
01:28:54.760 --> 01:28:59.760
And so you get one union in a small area and that's it. So they were successfully unionized.

953
01:28:59.760 --> 01:29:16.760
And that's really about it and not too much else. They tried all the time with government firms to unionize that, especially because they were ideologically devoted, they were immigrants from Eastern Europe, they were devoted to unionism per se and socialism, they couldn't succeed very well even with that ideological devotion.

954
01:29:16.760 --> 01:29:31.760
Within that framework, what also would happen, if you take a graph and a y-axis percentage of union membership, percentage of labor force and union membership,

955
01:29:31.760 --> 01:29:40.760
and this is time, say 1880s to 1914, and this whole period would go from about 1% to 6%, something like that.

956
01:29:40.760 --> 01:29:43.760
The 6% would be in the business cycle boom period.

957
01:29:43.760 --> 01:29:51.760
When you had a boom situation, this means the demand for labor would go up, so wage rates would tend to go up.

958
01:29:51.760 --> 01:29:55.760
In that situation, people would join unions, so they thought the unions would claim responsibility.

959
01:29:55.760 --> 01:29:59.760
Hey, we got your higher wage rates, even though the cause was not unions, the cause was the boom.

960
01:29:59.760 --> 01:30:03.760
So union membership would go up, say, from 1% to 6% in the boom period.

961
01:30:03.760 --> 01:30:08.760
As soon as the recession came and the demand for labor fell, the unions would be smashed

962
01:30:08.760 --> 01:30:13.320
because they try to keep the wage rates up, and of course massive unemployment and unions

963
01:30:13.320 --> 01:30:17.880
will be broken because the workers will simply compete under a cut union wage rate to get

964
01:30:17.880 --> 01:30:20.280
jobs and go right back down to 1%.

965
01:30:20.280 --> 01:30:30.560
This is a classic situation during the pre-1917 period, from 1886 to 1917, this is a traditional

966
01:30:30.560 --> 01:30:31.560
situation.

967
01:30:31.560 --> 01:30:38.000
A very small proportion unionized, mostly during boom periods which then would recede

968
01:30:38.000 --> 01:30:43.200
and Recessions, and limited to very small skill craft, usually concentrated in things

969
01:30:43.200 --> 01:30:49.480
like building trade, railroad brotherhoods and SSI coal.

970
01:30:49.480 --> 01:30:53.920
The only other union before the 1930s, before the New Deal came out, which was successfully

971
01:30:53.920 --> 01:31:01.920
unionized, which doesn't meet these conditions of a musician's union, and apparently my professor

972
01:31:01.920 --> 01:31:06.360
who taught me labor economics from Bible and great truth couldn't understand that.

973
01:31:06.360 --> 01:31:09.360
I said, well, the musicians are crazy anyway. It was the only explanation.

974
01:31:09.360 --> 01:31:15.360
I think probably a better explanation is that the musicians are willing to be 90% unemployed.

975
01:31:15.360 --> 01:31:18.360
Most of them are. In other words, they love music so much.

976
01:31:18.360 --> 01:31:21.360
It's something like acting, too. Acting is, of course, not heavenly.

977
01:31:21.360 --> 01:31:25.360
They're willing to be unemployed most of the time, be waiters and so forth, waiting for their big chance,

978
01:31:25.360 --> 01:31:28.360
or waiting to play music once.

979
01:31:28.360 --> 01:31:31.360
And most occupations are not willing to settle for that, obviously.

980
01:31:31.360 --> 01:31:34.360
They're not willing to settle for the 90% unemployment rate.

981
01:31:34.360 --> 01:31:40.440
So generally that was the concentration. Unions are not that important and they were craft unions.

982
01:31:41.320 --> 01:31:46.200
They gave up any kind of idea of changing the world, but they wanted higher wage rates and better

983
01:31:46.200 --> 01:31:49.960
working conditions. That was it. And it was collective bargaining on a global level. And the

984
01:31:49.960 --> 01:31:54.760
theoretician, Samuel Gompers, was a great practitioner in this. The theoretician was

985
01:31:55.480 --> 01:32:00.600
Selig Perlman who wrote, was an economist for Gompers, who wrote a book on the theory of

986
01:32:00.600 --> 01:32:04.600
of Labor Unions of the United States, which propounded this doctrine.

987
01:32:04.600 --> 01:32:08.600
The Marxist myth of worker solidarity, there is no worker solidarity, it's all nonsense.

988
01:32:08.600 --> 01:32:16.600
And you see the craft unions succeeded by essentially shafting other workers who were not skilled craftsmen.

989
01:32:16.600 --> 01:32:20.600
And also on the national level, this is what happens, in other words, at the national level,

990
01:32:20.600 --> 01:32:23.600
the people who call for immigration restrictions were, of course, the unions.

991
01:32:23.600 --> 01:32:29.600
In other words, by keeping out immigrants, you push the supply curve to the left,

992
01:32:29.600 --> 01:32:33.640
and you raise wage rates of workers who are behind this barrier and of course in the long

993
01:32:33.640 --> 01:32:37.200
run it means the international division of labor is hurt and all sorts of other stuff

994
01:32:37.200 --> 01:32:40.440
but usually the special interests don't care about the long run, they're interested in

995
01:32:40.440 --> 01:32:44.640
short-term exclusion of competition.

996
01:32:44.640 --> 01:32:47.240
America was built on free immigration, it was one of the great things about America

997
01:32:47.240 --> 01:32:52.800
was that there was no restriction on immigration and with immigration we had the greatest industrial

998
01:32:52.800 --> 01:32:57.360
success, the greatest industrial growth, the greatest growth in the standard of living

999
01:32:57.360 --> 01:33:03.520
However, the Union forces in favor of limiting immigration so as to keep out competitors,

1000
01:33:03.520 --> 01:33:04.520
worker competitors.

1001
01:33:04.520 --> 01:33:07.920
In other words, workers compete with each other just as employers compete with each other.

1002
01:33:07.920 --> 01:33:08.920
Workers don't compete with employers.

1003
01:33:08.920 --> 01:33:17.160
So the key thing is that restrictions on labor migration or advance are almost always lobbied

1004
01:33:17.160 --> 01:33:18.760
for by other labor groups.

1005
01:33:18.760 --> 01:33:25.560
In the case of the United States, the first restriction on immigration comes in the late

1006
01:33:25.560 --> 01:33:30.560
in the 19th century with bitter hatred of Chinese and restrictions on Chinese immigration.

1007
01:33:30.560 --> 01:33:37.560
The important thing again about labor migration is that economics and race is a powerful combination.

1008
01:33:37.560 --> 01:33:41.560
Race is by itself is unimportant. Race by itself is simply a sort of a social thing.

1009
01:33:41.560 --> 01:33:44.560
You don't get into a certain club, who the hell cares?

1010
01:33:44.560 --> 01:33:48.560
But when you combine race with economics, when it comes to somebody's economic interest

1011
01:33:48.560 --> 01:33:52.560
to keep at Chinese or Latanians or whatever, then you have a powerful combination.

1012
01:33:52.560 --> 01:33:56.520
and the two things reinforce each other, which is what happens with immigration restriction

1013
01:33:56.520 --> 01:33:57.520
in the United States.

1014
01:33:57.520 --> 01:34:01.400
So the first people to get the force of this were the Chinese immigrants.

1015
01:34:01.400 --> 01:34:06.440
The Chinese began to migrate to the United States around 1850, and they did extremely

1016
01:34:06.440 --> 01:34:12.280
well, mostly of course on the west coast as you might expect, they were usually efficient,

1017
01:34:12.280 --> 01:34:17.480
industrious, all the rest of the virtues of the labor force, thrifty, came in with almost

1018
01:34:17.480 --> 01:34:21.920
no capital, and immediately of course white workers began to agitate to keep them out,

1019
01:34:21.920 --> 01:34:39.440
The first thing the Chinese settled en masse in western mining districts in the mountain

1020
01:34:39.440 --> 01:34:40.840
states and did extremely well.

1021
01:34:40.840 --> 01:34:44.480
They'd take an abandoned mine, like a crummy mine, and do very well with it, stop making

1022
01:34:44.480 --> 01:34:45.480
it profitable.

1023
01:34:45.480 --> 01:34:51.400
So the white miners began to agitate very quickly by 1852 to prevent Chinese immigration

1024
01:34:51.400 --> 01:35:01.400
and they kicked them out and they used force both private and governmental to kick the Chinese out of the mining districts, they lynched the Chinese, they burned their houses down and so forth and so on

1025
01:35:01.400 --> 01:35:09.400
and the state and local governments would pass laws prohibiting Chinese entering the mining districts and working in the mines, it was unbelievable to think of it

1026
01:35:09.400 --> 01:35:16.400
about 20 or 30 years later the Supreme Court declared most of these laws unconstitutional, whether that time was too late, really the effect was immediate

1027
01:35:16.400 --> 01:35:24.400
So there's whole horror stories about this, there's violence was used and state laws were

1028
01:35:24.400 --> 01:35:31.000
used to especially tax Chinese mines and so forth and so on, in that way by violence both

1029
01:35:31.000 --> 01:35:34.720
governmental and private the Chinese were driven out of the mining areas and went to

1030
01:35:34.720 --> 01:35:39.760
the cities like San Francisco and railroad work, of course once again the white workers

1031
01:35:39.760 --> 01:35:43.960
started bellyaching about Chinese railroad workers except when work became dangerous

1032
01:35:43.960 --> 01:35:48.960
So you had to go up mountain grades, etc. And they said, okay, well, allow the Chinese to do that.

1033
01:35:53.960 --> 01:36:02.960
And the people leading the parade at a theoretical level, so to speak, leading a parade of anti-Chinese exclusion and agitation were the Knights of Labor.

1034
01:36:02.960 --> 01:36:05.960
First the Knights of Labor and then the American Federation of Labor later on.

1035
01:36:05.960 --> 01:36:14.960
Terence Powderly, usually considered by liberal historians, left-wing historians, a heroic left-wing figure, I guess in a sense he was a left-wing figure, certainly a left-wing figure, not heroic.

1036
01:36:14.960 --> 01:36:20.960
He was the head of the Knights of Labor. Terence Powderly calls it a total elimination of all Chinese in the United States. Kick them all out.

1037
01:36:20.960 --> 01:36:23.960
Powderly.

1038
01:36:23.960 --> 01:36:31.960
And the Knights of Labor adopted this as one of their big flanks.

1039
01:36:31.960 --> 01:36:44.440
And again, there were murders of Chinese driving them out of mining areas, in 1877, the Working

1040
01:36:44.440 --> 01:36:49.960
Man's Party of California, which is a labor party of workers and unions, was a fairly

1041
01:36:49.960 --> 01:36:54.080
strong party, a big third party in California for about 30 years, was founded by Dennis

1042
01:36:54.080 --> 01:36:58.720
Carney, a powerful political figure, came out of the rest of income tax welfare state and

1043
01:36:58.720 --> 01:37:02.720
and kicking all Chinese out of the United States.

1044
01:37:02.720 --> 01:37:04.560
As he put it, quote,

1045
01:37:04.560 --> 01:37:07.200
we propose to rid the country of cheap Chinese labor

1046
01:37:07.200 --> 01:37:09.520
as soon as possible and by all means in our power,

1047
01:37:09.520 --> 01:37:12.720
by any means necessary would be the current phrase.

1048
01:37:12.720 --> 01:37:14.280
They also marked us public enemies

1049
01:37:14.280 --> 01:37:15.920
in what's in the newspapers or whatever,

1050
01:37:15.920 --> 01:37:19.240
all employers who would refuse to fire Chinese workers.

1051
01:37:20.360 --> 01:37:23.400
There's also legal persecution in California

1052
01:37:23.400 --> 01:37:24.600
of Chinese workers.

1053
01:37:25.520 --> 01:37:27.160
In California, for example, in 1870,

1054
01:37:27.160 --> 01:37:31.600
They outlawed the employment of any Chinese in public works projects.

1055
01:37:31.600 --> 01:37:35.320
Two years later, they outlawed Chinese, prevented Chinese from owning any real estate or getting

1056
01:37:35.320 --> 01:37:36.320
business licenses.

1057
01:37:36.320 --> 01:37:42.120
I'd say about 20, 30 years later, the Supreme Court declared it unconstitutional.

1058
01:37:42.120 --> 01:37:44.880
They put special taxes on Chinese.

1059
01:37:44.880 --> 01:37:45.880
What they do is things like this.

1060
01:37:45.880 --> 01:37:47.880
For example, Chinese had less capital than other workers.

1061
01:37:47.880 --> 01:37:49.360
They started with virtually nothing.

1062
01:37:49.360 --> 01:37:55.560
So San Francisco, for example, charged an $8 license fee per year for horse-drawn laundry

1063
01:37:55.560 --> 01:37:56.560
wagons.

1064
01:37:56.560 --> 01:38:26.560
$60 for foot laundry men, in other words, Chinese didn't have enough yet to have horses and wagons, they carry the stuff on foot, laundry on foot, there'd be especially high taxes on foot laundry men, same thing with vegetable peddlers, where basket carriers, Chinese would have basket, they'd spend $40 a year against $8 a year for a license fee for those who have wagons. Now this, remember $40 meant something like $1,000 now, so they're quite high. Also in order to crush Chinese businesses,

1065
01:38:26.560 --> 01:38:33.720
They have maximum cubic foot laws for, say, laundries, a cubic air ordnance, so you couldn't

1066
01:38:33.720 --> 01:38:40.320
have less than 500 cubic feet of air in any laundry, so most of the Chinese laundries are

1067
01:38:40.320 --> 01:38:45.520
small, so it outlawed Chinese laundries for the benefit of white laundries.

1068
01:38:45.520 --> 01:38:52.600
Also the queue ordnance, California, San Francisco area, where compulsory haircutting, the Chinese

1069
01:38:52.600 --> 01:39:00.600
I used to wear pigtails, or queues as it's called, and they'd possibly cut the hair off.

1070
01:39:00.600 --> 01:39:03.600
Again, eventually it was declared unconstitutional.

1071
01:39:03.600 --> 01:39:08.600
Anyway, this goes on as a whole list of horror stories I have in this thing.

1072
01:39:08.600 --> 01:39:10.600
On and on, endless.

1073
01:39:10.600 --> 01:39:14.600
And again, the leaders in all of this were first the working man's nights of labor,

1074
01:39:14.600 --> 01:39:17.600
then the working man's party in California, and then the craft unions.

1075
01:39:17.600 --> 01:39:21.600
When the AFL gets strong in the 1880s, they pick up a cry.

1076
01:39:21.600 --> 01:39:28.600
In San Francisco, 40 labor unions in April 1880 set up the League of Deliverance, what they meant was the League of Deliverance from Chinese Americans.

1077
01:39:28.600 --> 01:39:38.600
And the head of it was a socialist and a member of the Siemens Protective Union, which was a working-mass party socialist group.

1078
01:39:38.600 --> 01:39:45.600
They had 4,000 members in California and promoted a giant boycott. The idea is to boycott all goods made by Chinese labor.

1079
01:39:45.600 --> 01:39:50.600
And boycott merchants who employ Chinese and sell Chinese labor products.

1080
01:39:50.600 --> 01:39:54.600
As a matter of fact, the first example of a boycott in the United States was an anti-Chinese boycott.

1081
01:39:54.600 --> 01:40:01.600
And the boycott tactic begins, by the way, with Samuel Gumpers,

1082
01:40:01.600 --> 01:40:09.600
whose white cigar workers were being outcompeted by large cigar firms who used to employ Chinese labor, Chinese cigar labor.

1083
01:40:09.600 --> 01:40:15.600
They would outcompete the inefficient white Chinese, white cigar workers.

1084
01:40:15.600 --> 01:40:20.360
So the conference comes up with a tactic of what was called a white label, now called

1085
01:40:20.360 --> 01:40:21.360
the Union Label.

1086
01:40:21.360 --> 01:40:23.360
We all know about Union Labels in clothing, etc.

1087
01:40:23.360 --> 01:40:32.800
It originated as a white label and so the cigars, for example, made an inefficient high-cost

1088
01:40:32.800 --> 01:40:40.160
white worker plant that had a white label and of course the Chinese made one that didn't.

1089
01:40:40.160 --> 01:40:47.640
And by the mid-1880s, seven-eighths of the cigars in San Francisco, for example, were

1090
01:40:47.640 --> 01:40:51.540
made by Chinese workers and low-cost plants.

1091
01:40:51.540 --> 01:40:55.720
So the white label comes in, they form a white cigar makers association to lead the boycott

1092
01:40:55.720 --> 01:41:01.160
along of course with the union, again an example of union industry cooperation, the white cigar

1093
01:41:01.160 --> 01:41:08.360
workers combining with inefficient white cigar manufacturing firms to try to boycott and

1094
01:41:08.360 --> 01:41:15.360
crush the lower-cost Chinese labor people, and of course Gompers then takes the lead

1095
01:41:16.520 --> 01:41:20.880
in Chinese exclusion to try to keep Chinese from coming in and preferably to kick them

1096
01:41:20.880 --> 01:41:27.880
out. Finally, in late 1885, in this pressure of a boycott, etc., San Francisco large cigar

1097
01:41:29.840 --> 01:41:34.480
firms agreed to fire all the Chinese workers and replace them with white workers. Another

1098
01:41:34.480 --> 01:41:40.800
The other thing in 1885 was a giant council of congress in San Francisco of 64 Pacific

1099
01:41:40.800 --> 01:41:45.400
Coast unions, including Knights of Labor, anarcho-communists, anarchists, socialist

1100
01:41:45.400 --> 01:41:50.640
labor party and other, and craft unions, all united in the idea of kicking out all Chinese

1101
01:41:50.640 --> 01:41:55.120
from the United States, so certainly from the San Francisco area, and the only disagreement

1102
01:41:55.120 --> 01:41:58.720
was should they be kicked out, should we give them two months to leave or two days, that

1103
01:41:58.720 --> 01:42:04.240
was the range of opinion, the most extreme was the anarcho-communist Siemens Union which

1104
01:42:04.240 --> 01:42:11.240
The State of California goes along with this, by one, preventing Chinese from becoming citizens,

1105
01:42:24.400 --> 01:42:28.480
two, excluding Chinese children from public schools, three, trying to restrict Chinese

1106
01:42:28.480 --> 01:42:33.480
immigration on a state level. At any rate, most of the agitation has ended in 1882 when

1107
01:42:33.480 --> 01:43:03.480
Congress is available as part of the Chinese Exclusion Act, preventing all Chinese from coming in, further Chinese from coming in, mostly under union pressure, and Californians, and of course the unionists were disappointed, they did not kick out existing Chinese, about 100,000 Chinese in America at that point, they did not go so far to kick them out, Samuel Gompers again, just want to mention, one of Samuel Gompers' officials,

1108
01:43:03.480 --> 01:43:10.480
The title of this pamphlet, 1902, was, but this was in the Chinese Exclusion Act, it was up for renewal, a 20 year act, and I wanted to agitate to keep it going,

1109
01:43:10.480 --> 01:43:15.480
some reasons for Chinese exclusion, colon, meat vs. rice, in other words, rice is somehow evil,

1110
01:43:15.480 --> 01:43:22.480
meat vs. rice, American manhood against Asiatic coulis, as a result of the Chinese Exclusion Act,

1111
01:43:22.480 --> 01:43:29.480
the Chinese Exclusion Act, the Chinese Exclusion Act, the Chinese Exclusion Act, the Chinese Exclusion Act, the Chinese Exclusion Act,

1112
01:43:29.480 --> 01:43:35.480
Meat vs. Rice, American Manhood Against Asiatic Coolism, Which Shall Survive

1113
01:43:35.480 --> 01:43:45.480
At any rate, then the Japanese begin to emigrate by 1880 or so, and by 1900 they're going to come in

1114
01:43:45.480 --> 01:43:51.480
and then of course they start to stare at the Japanese, especially in Los Angeles area, the same stuff goes on, the same people

1115
01:43:51.480 --> 01:43:57.840
Dennis Kearney comes out of retirement in the 1890s to leave the idea of Japanese exclusion

1116
01:43:57.840 --> 01:44:03.120
against quote another breed of Asiatic slaves unquote, again the labor unions lead the parade

1117
01:44:03.120 --> 01:44:08.760
of San Francisco labor unions, Los Angeles, etc. etc. the same damn thing happens, forming

1118
01:44:08.760 --> 01:44:14.920
Asiatic exclusion lead to exclude Chinese and Japanese immigrants, and in fact the AFFL

1119
01:44:14.920 --> 01:44:18.960
refused charter at the Japanese farm workers union because they were Japanese and Japanese

1120
01:44:18.960 --> 01:44:25.860
Americans and Samuel Gomper is refusing a charter to a sugar beet union, sugar

1121
01:44:25.860 --> 01:44:31.040
beet workers union said quote around 1905 your union must guarantee that will

1122
01:44:31.040 --> 01:44:34.760
under no circumstances accept membership of any Chinese or Japanese this is the

1123
01:44:34.760 --> 01:44:41.900
great this is a great far side of humanistic labor movement at any rate the

1124
01:44:41.900 --> 01:45:11.900
The same stuff goes on, it's finally the Japanese Exclusion Act, and so, I just want to emphasize that the point of all this is not just to repeat a horror story, the point is to demonstrate that exclusion, racial racism as an economic and political measure comes from a blend of race and economics, it was a blend of economic privilege with then using racial, whipping up racial sentiment as a way of doing it. And by the way, the same thing happened in South Africa, well it's not realized in South Africa, the South African

1125
01:45:11.900 --> 01:45:16.340
The apartheid system was not put in by the Afrikaners or Boers, that was much later.

1126
01:45:16.340 --> 01:45:23.340
It was put in originally by the white Anglo workers after World War I when African workers

1127
01:45:23.340 --> 01:45:28.260
began to rise up and become skilled laborers, rise up out of the unskilled and become foremen

1128
01:45:28.260 --> 01:45:29.260
and things like that.

1129
01:45:29.260 --> 01:45:34.220
At that point the white workers got hysterical because we have to exclude Africans from being

1130
01:45:34.220 --> 01:45:35.220
promoted.

1131
01:45:35.220 --> 01:45:41.220
The Communist Party of South Africa, by the way, which led the exclusion principle, organized

1132
01:45:41.220 --> 01:45:45.620
In the general strike in the early 1920s, the theme of which was to prevent all Africans

1133
01:45:45.620 --> 01:45:54.020
from coming into skilled labor or full-man jobs, and the slogan was, white workers unite

1134
01:45:54.020 --> 01:45:56.260
and fight for a better world.

1135
01:45:56.260 --> 01:46:00.820
The Communist Party of course does not talk about this epoch in its history at this point,

1136
01:46:00.820 --> 01:46:05.500
but anyway this won, the general strike won, and after that the government of South Africa

1137
01:46:05.500 --> 01:46:12.000
and the response to this prevented blacks from rising up into a skilled worker and forming jobs.

1138
01:46:12.000 --> 01:46:18.500
This really begins the whole apartheid. It began even before that with workers. That was one of the earliest examples.

1139
01:46:18.500 --> 01:46:26.500
Okay, I want to get now to start with Teddy Roosevelt. The next time I talk about Teddy Roosevelt, beginning with Teddy Roosevelt as president.

1140
01:46:26.500 --> 01:46:33.500
So I want to talk about Teddy Roosevelt's early career. Teddy Roosevelt, as you might expect, is one of my least favorite people in American history.

1141
01:46:33.500 --> 01:46:37.500
I have many unfavorites, so Teddy is one right up there on the top

1142
01:46:37.500 --> 01:46:41.500
I can't imagine there are too many people who dislike more than Teddy

1143
01:46:41.500 --> 01:46:45.500
At any rate, Teddy, for example, liked killing for his own sake

1144
01:46:45.500 --> 01:46:49.500
He loved war, he loved murder, killing anybody

1145
01:46:49.500 --> 01:46:53.500
Animals, people, it didn't make any difference

1146
01:46:53.500 --> 01:46:57.500
He didn't care who he killed either, he wanted any kind of war, it didn't matter who the war was against

1147
01:46:57.500 --> 01:47:01.500
Spain, England, France, it didn't make any difference, Germany, it didn't matter, as long as it was war

1148
01:47:01.500 --> 01:47:09.500
At any rate, Teddy was, as I say, grew up in the Morgan ambit, his relatives were more the Oyster Bay, Roosevelt's were all Morgan.

1149
01:47:09.500 --> 01:47:17.500
He goes to Harvard as a young lad and at Harvard College and he marries Alice Lee, who was the daughter of George Cabot Lee,

1150
01:47:17.500 --> 01:47:22.500
one of the top Boston Brahmins, one of the top, of course, all connected with the Morgan interests.

1151
01:47:22.500 --> 01:47:29.500
And related to Lee's, Higginson's and the Cabot's, the top Boston financial aristocracy.