Sherman Act outlaws conspiracy and restraint of trade and I forgot the second clause, it
basically is really all it says, it's very vague, it's been held to mention to mean price
fixing of some sort, like a cartel, it doesn't mention anything, it's very vague, it's like
a two sentence, and then the Clayton Act of 1913-14 adds some stuff and creates a federal
The Federal Trade Commission, so most of the antitrust law is simply accretions of decisions
by antitrust courts, the courts, the Department of Justice and the Federal Trade Commission.
They can do whatever they want.
I mean basically they can declare anything monopolistic or anything, merger, it's truly
administrative fiat.
So at the peak of the antitrust hysteria, which really came in the 1930s, 40s or 50s
Anything that can be considered and what's considered monopolistic, if you charge a price
the same as your competitors, it's called collusion, because we know that most prices
tend to be the same, Hershey bars and Nestle bars will be about the same, otherwise one
of them is going to be in trouble.
And if you charge a price lower than your competitors, it's considered predatory price
cutting and unfair competition, if you charge a price higher than your competitors, it's
considered monopolistic.
So, whatever you did, it can be considered monopolistic.
So, it's purely arbitrary in the part of the government.
There was no rule of law.
There was no statute you can interpret in any, you know, rational sense.
And in those days, of course, I can't get into it in this course particularly, but they
actually took seriously the economic model of perfect competition.
The competition in the market wasn't, quote, perfect, unquote, which meant it wasn't meant
that if any firm could affect its market in any way, like by making a better product,
by competing more actively at something that somehow meant it was monopolistic.
So, in that case, you can outlaw everything, so they could selectively then move in and
right now, the most antitrust, right now, almost all antitrust tubes are private.
90% of antitrust charges are made up by the government by other firms in the industry
and even the government ones are in the behest of other firms.
Usually what it is, almost exclusively, is inefficient firms are trying to screw their
Oh yeah, if you raise it, in other words, if the merger, I mean a merger could be just
for efficiency purposes.
I mean usually, yeah.
Oh yeah, sure.
You have to keep the right stuff, all you have to get is that.
The thing is not.
You have to work with the people.
You have to be flexible.
Oh yeah, sure.
How do you bust it?
You can't just go around and say, I want to buy things and you can't just end up selling them.
No, well, it depends on the...
Well, I think Texas Air did bust it in a sense.
They just don't hire...
They don't... when a contract runs out of them, they just don't hire union workers.
They hire non-union machinists or pilots or whatever.
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
Union jobs anyway, because they've been squeezed out.
Union has pushed the supply curve of workers to the left, they exclude a whole bunch of people.
So this is a machinist union on the outside.
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.
So you can turn to a pool in many cases of non-union machinists, pilots, stewardesses and all that.
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.
Especially in the airlines industry, it was all going bankrupt anyway if they had excessive union wages.
See, what happened in the airline industry was all monopolistic.
CAV, a civil aeronautics board, from the very beginning, in the 1930s,
monopolized the airline industry and assigned routes.
In other words, only Eastern Airlines could fly from Boston to New York or something. That's it.
Anybody else that flies is outlawed. And so they restricted drastically, and they assigned
routes and they drastically restricted competition. They only let a few airlines in on the industry.
For a long time, for example, only Panam could fly in the Pacific. Nobody else could do it.
It was illegal. So by doing that, they first raised, cut production and raised prices.
But after a long, after 30 years of this stuff, the airline gets monopolistic. The courts
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.
In the long run, like with the railroads, Monopoly puts the boots on the whole industry.
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.
and so first of deregulation, interesting about deregulation by the way, it shows the economic theory in action
nobody, no airline economic expert or airline expert predicted what would happen
in other words, deregulation came around 1978, 79
nobody realized what the change of pattern would be, nobody realized it would be spokes instead of the spoke hub stuff
just the way it worked, in other words
in the old days if you flew from New York to San Francisco you almost always flew non-stop
right, that's it
Now, very few people find out something. That's almost always a hub situation.
You go to Denver or something,
everybody flies into Denver and they fly out.
It works that way, somehow it's more efficient,
other cities coming in.
So that's the way around. Nobody predicted this. You know, this is what would happen.
At any rate, some mergers,
in this case, they're going to try to operate without the machinist union.
And
and what happened with these non-union airlines like Texas Air is that they paid much lower
salaries to stewardesses, pilots, they were getting enormous salaries these people, enormous
and so now they're being brought down to earth, so to speak, and one of my colleagues, who
should remain nameless, the Marxist, who was married to a stewardess of Pan Am, he was
very much against deregulation, not only because he was a Marxist, but also because he realized
this would lead to lower prices for passengers and the end of monopoly rent, so to speak,
Wage Raids Enjoyed by Stewardesses, I'm saying that. Flight Attendance is what he's supposed
to say now.
At any rate, to get back to the sugar thing, in the middle of the sugar trust and its saga,
I'm going to do a few more of these examples and then point out the significance of all
of this in relation to other historians, various historians. You remember the sugar, when I
left off on Tuesday, the sugar trust had again merged with Arbuckle. Arbuckle had moved in
and the American Sugar Refining Company, which was a tempted monopoly.
And the prices went down again and so forth, so they finally absorbed, they had an agreement
between Havmeyer, who was the head of the American Sugar Refining Trust and Arbuckle,
they wound up with another big cartel, 1901, so by 1902 they formed a new American, all
the cartels were called American, all the mergers were called American Sugar Refining
Company.
1902 they ran up with a larger one with 90% of the output of the refined sugar, you'd
think that'd be enough.
There were only three independents left, three small independent sugar producers and they
jacked the price up, of course profits go up, they jack it up from 4.6 cents per hundredth
of weight I guess it was to 5.3 and they think they're doing great and then the same damn
and then everything happens, they start again with new competitors, in other words, they
cut production.
As soon as they raise the price and raise profits, as soon as they do that, new competitors
come and increase their production and so, and the price has to fall again and once again
it falls by 1905 to about four and a half cents, back down to what it was before and
now you have new competitors and now the sugar trust by 1904 is only 70% of the total output
And the whole cartel, the whole merger system collapses at that point and doesn't come back
again until World War I. Once again, this is a steel industry, which when the government
recartalized the industry on behalf of alleged war effort, the whole merger system once again
collapses in the sugar refining. And it repeats in industry after industry. I'll just give
a few more examples of this. It's fascinating how time and time again they try a cart, they
Merge, they have a big new merger and like they try to have a monopoly and like the whole
point of monopoly of course is to try to cut production and raise prices and raise profits
as soon as they do that, new competitors come in and back down again, there's new competitors
and they can never, it's like pushing back the waves or something, it never works.
By 1914, the sugar price was down 54% total share, total output.
So prices are back down, the whole thing is lower, et cetera, et cetera.
Habermeyer, who made a statement, remember, that tariff is the mother of trusts, repeated
the statement and repeated it at length for Congress.
What he said was that we never would have tried even to have a merger, a monopoly, without
a high tariff wall to keep our foreign competition.
He said the merger was built up, he said, under, quote, enormous protection.
Now the tariff, I doubt if we should have dared to take the risk of forming the trust.
I certainly should not have risked all I had in a trust unless the business had been protected
as it was by the tariff.
That was a very clear statement by one of the top monopolists, so to speak, or trust
persons, that the tariff is the mother of trust, and of course made a statement, his
quote.
At any rate, there's also the leather truss, which is kind of interesting, because the
The leather company, U.S. Leather Company, when it was formed in 1893, had higher capitalizations,
a bigger company even than the Standard Oil Trust, it was a huge company, we don't think
much about leather, but in the leather business, there's the sole leather industry which was
highly competitive, this is what we're talking about, sole leather, in other words, leather
to Get Souls of Shoes, and a lot of small firms and very little capital required to enter,
so a lot of easy entry into the industry, and the five of the largest leather firms
are tanners, in effect, called, firms that make leather, five tanners, the five largest
ones, and mostly concentrated in New York and Pennsylvania in that period, so they're
fairly close together, like the brewery industry was concentrating in Brooklyn and New York,
They all got together to form the U.S. Leather Company in 1893 and had a capitalization,
total assets capitalization of 130 million dollars, the largest capitalized, largest firm
in the country at that point, largest corporation in the country.
Standard oil at that point was only 102 million, the whole standard oil trust.
So it doesn't get the play of the oil industry, but it's the largest corporation in the country
at that point.
The control at that point, 58% of the sole leather with that merger, 58% of the pan-to-sole
leather, I guess is the correct term for it, 72% of hemlock leather, 30% of oak leather,
This is the overall 58%. So what happens with this thing? Here's the biggest company in
the country with close to 58% of the output. What happens to it? Total flop a row. It starts
off immediately with a loss of $1.3 million in the first year. It thought it could cut
production and raise prices. It thought it would have an economy of large scale. It didn't
work. It made losses. The profits were low. The stocks collapsed. There were no dividends.
prices collapse, etc. Prices continue to be competitive, too much competition, new competition
coming in. And the small tenors begin to out-compete the large tenors when they try to raise the
price. And finally, in 1904, the thing went bankrupt. In other words, after 11 years of
losses, the mighty US leather company went bankrupt, put, finish. Again, another merger
Again, another merger going down the drain, same way with the cornstarch industry, cornstarch
industry had a big merger, tried to create a trust and they had 70% of the cornstarch
industry, again, a very large factory, again, there's a severe competition comes up and
the whole thing collapses once more.
Again, there's another merger, 1900, there's a further merger, this is 1893, a bigger merger
Merger had 90% of the starch in the industry, 90% of the corn starch. What then happens
is, corn starch got to be so expensive. In other words, they have 90%, this is the so-called
United Starch, the national starch company, merger company. So naturally, the whole point
of the merger is to be able to cut production rates, prices. As soon as they do that, corn
Cornstarch gets so expensive that industries using starch start using other kinds of starch.
In other words, cornstarch now becomes uncompetitive compared to the other starch, I think potato
starch.
So people start using mills and factories which use starch as raw material, start shifting
from Cornstarch to Potato Starch and the whole thing again collapses. Independent mills spring
up either with Potato Starch or a new Cornstarch mill using a new process, hydraulic process
which is brand new, lowering the cost of manufacture. The profits of the National Starch Company
begin to collapse and in a few years they're down to 40%. 90% of the total output is 40%.
And once again, this thing is heartwarming, and once again, it happens very fast.
Merged monopolies collapse time and time again, industry after industry, and the same thing
happens.
It's just a process of illustrating economic law at work.
Same thing happens in the glucose, the glucose industry, which is similar to the starch industry.
Same damn thing.
Monopoly after monopoly, merge monopoly after merge monopoly, doesn't work.
In 1897, they formed the big merger of the glucose sugar refining company, 40 million
$1,000 company with 85% of the glucose, in 1997, and at first they had high profits,
they raised the price, they cut production, everything was hunky-dory, and very soon new
people come into it.
They say, hey, they got high profits in glucose, let's build a new glucose factory.
New glucose firms come in, the Illinois Sugar Refining Company, the New York Glucose Company,
etc. etc. which by the way was put in by Rockefeller as an investment and so with new machinery
by 1901 the glucose companies back down at 45% of the output and they have to cut prices
and make a lot of losses and stock collapses and bingo. In 1902 they try another consolidation,
In 1902 they try another consolidation, a new mighty merger of the various, the big
glucose company, the mighty corn product company, now the corn product refining company, which
now has 80% of the glucose in 1902, and corn products, and again the same thing happens,
same sort of story, expect they had high profit, they scrap a lot of their plants, hey we're
We're going to take a lot of plants out of production, cut production, raise prices,
and again, new starch factories come in, glucose factories, better ones, newer ones, Peele
Brothers, Warner Company, the mighty corn products company, we have to collapse, profits
decline, high cost of corn limits the market, heavy losses, the stock collapses and the
whole company more or less goes under.
By 1903, they're only producing, one year later, they're producing only 45% of the glucose
from 80% to 45% in one year, 1906 they try another mighty new merger, the Corn Products
Refining Company, 91 million dollar company, 74% of the product and very shortly, what happens
to them is they realized they couldn't raise the price, they kept low prices, so the company
kept on but they didn't achieve any kind of monopoly price, it's fine with them but me,
they just stick to low cost of production and distribution, so any company to succeed
had to not be a monopoly, it had to act as if they were competitors, they were competitive.
Same thing happens with the gunpowder trust, another not too well studied trust, the DuPont
Company, which had always been the major gunpowder company, before they were producing nylons
and stuff, they were producing, they started as arms and gunpowder manufacturers.
And DuPont led the way in 1872 to form a mighty, 43 corporation merger, a mighty gunpowder
Trust, and they formed it by, not by predatory price cutting, once again, they never try
to undercut their competition with it, they simply bought them out on a very high fee,
and leaving only a couple of companies, and once again the whole thing begins to, their
share of the market begins to collapse, and finally they just have to go, they just went
by the time it was all by 1911 after many years of struggling to maintain, get some kind of monopoly price out of it
which they never succeeded in
by the way in the in the case of
the Gunpowder Trust they had
two, one and three, they had, I think
many firms, they had many firms, yeah
had about forty-three firms in this merger
they couldn't prevent their own
Part of their own plants, their own different subsections of a company from cheating, quote
cheating, unquote. The salesmen, once again, the sales vice president, the sales managers
are constantly offering rebates and discounts to get more people for themselves, for their
department, even though it was one merged company. They didn't act as if they were
their actors, they were salesmen. They wanted to make more sales, they competed against
each other. They couldn't even stop that, and much less external competition. They couldn't
and stop internal competition from the sales managers and then, of course, new entrants
come in and out-compete the non-tolerant trusts, the whole thing had to collapse.
In a general study of these trusts, of nearly 100 trusts or mergers formed in 1899 and 1900,
For example, they have a hundred merged so-called trusts. We'll define a trust as being a merged
attempt at monopoly. 1899 and 1900. In one year, three-quarters of these firms were not
paying dividends. In other words, they were losing money basically. They were in bad financial
shape. And only one year after they were formed, there are many other, several other statistics
I'll mention on this thing, but the promoters' hopes were not realized in most cases, new
competition comes in, et cetera, et cetera.
Coco points out of the 50 largest corporations in 1909, for example, in 20 years, 20 had
dropped out of the 50 largest, so there was a very high turnover of large companies.
Coco writes a lot of very good stuff.
His first two chapters on the mergers, failure mergers are very good.
The other very good person, even better, Cocoa was a book by the way, came as a thunderclap
and it came out in 1960s, so I'll point out in a minute.
Before Cocoa, I think Cocoa was what, 1960-something, 1965, something like that, anyway, 1960s.
Before that, the best study of mergers was made by a guy named Arthur Dewey, which nobody
paid any attention to, Arthur S. Dewey, B-E-W-I-N-G.
He had made a study, he'd written a book called Corporate Promotions and Reorganizations,
I think 1906, something like that.
And then he'd written a scholarly journal article in 1911, studying what happened to
these mergers, a random sample, and then he wrote an excellent textbook on corporate finance
called Financial Policy of Corporations, which went on about 20 editions, I think the first
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.
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.
Anyway, doing is probably the best study. Cocoa comes in second.
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.
And the biggest one, as I pointed out, was late 1880s, 1890s. The largest one was 1898, 1901.
That was by far the biggest, most of the mergers took place.
What he did was, he took a, for example, he said 130, in this second label, 130 mergers
were made, 130 trusts, 130 different industries, climax of course by U.S. Steel Corporation,
which was 1901 on a capitalization of $1.3 billion, and I've already mentioned the steel
and what he did was he took a random sample of 35 industries and went into detail what
happened to them, what was the expectation of the promoters before they were merged,
what happened to them afterwards, a year after, five years, ten years afterwards, he also
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?
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.
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.
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.
Their stocks declined steadily. They made losses. They had new competitors coming in, all the stuff I've talked about.
Few of them paid any dividends at all. Most of them lost money.
The shares of the output of the industry declined steadily. Many of them actually went bankrupt. They just collapsed totally.
those didn't collapse, had to cut back, keep declining steadily, like USC, which has been
in miserable shape ever since, so you see studies that say a random sample of 35 of
these trusts, and you fan out for example that the average, on the average, the average
Mergers of the 35, 25% of these mergers earn more in the first year before the trust, just
earn more just before the trust than in the year afterwards, so than in one year after.
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.
After 10 years, it's also more than the average earnings of 10 years later.
So you have 10 years of the trust is still earning less than the individual companies did before the trust.
The estimates of the promoters and bankers who formed the trusts were 50% higher than
the actual earnings in the first year, much higher over the first 10 years, in other words,
inflated estimates, you ask about water and stock, in other words, they say we earn $10
million actually and only earn $5 million, that's a 50% drop over the expectation of
the promoters.
Of the 35, or let's look at it another way, of the 35 trusts that he's doing, studied,
13 had positive earnings in the first year.
And 13 had first year earnings equal or greater than the pre-trust earnings.
The higher first year earnings are the same.
22 dropped in earnings, lower earnings.
It's the same for the whole first 10 year period.
Most of the trusts had much lower earnings after they formed than before.
Only four are earnings equal to anticipation, only four earnings are anticipated, are equal
to anticipation, the, or looking another way, earnings after the trust were expected to
to be 40% higher than, on the average, the earnings after the trust were expected to
be 40% higher than before the trust, actually 20% less in the first year and 10% less over
the first several years, so that gives you another way of looking at it, they're expected
to be 40% higher, in the former trust, the promoter is expected to have 40% higher, it
actually drops from 10% to 20%.
So some of the reasons he goes into it as a sake, just because a larger firm is more
economical and a smaller firm doesn't mean a very large firm would be more economical.
It depends, especially if it doesn't grow organically, especially if it's officially
imposed by a sort of promotion.
It turns out, for example, that management or entrepreneurship is very scarce.
The range of judgment is very scarce, is limited.
One guy over a huge number of, aside from the fact that a new competitor is popping
The range of individual initiatives is limited, managerial ability is very scarce, et cetera, et cetera.
Also, in many cases, the loyalty of the managers will weaken.
What usually happens is that 20 firms merge into one.
The guy used to be the owner or the president of one firm becomes now the manager of that division.
Well, he doesn't care that much anymore as a manager than he did as an owner.
Also, the salesmen are demoralized.
The larger size often makes them worse competitors compared to smaller, more mobile owners and
much more innovative.
One example of that, I don't know if I mentioned it already, but the current recent years and
great examples of very large firms and so-called monopolies or virtual monopolies have become
Uncreated, bureaucratic, etc., etc.
Did I mention Xerox and Polaroid yet? That's just a classic example.
After World War II, in the United States at least, there was a virtual monopoly of photography by Eastman Kodak.
And Dr. Land, the discoverer of Polaroid camera, comes to this great new discovery, comes to Eastman Kodak
and says, look, I have this great thing and he offered of course to sell it to Eastman Kodak
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.
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.
I wish of course I had had 10 shares of the original Polaroid Corporation.
Same thing happened to the guy who met the Xerox, I forget his name, anyway, same damn thing happened.
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.
and blah, blah, blah, he has to start his own Xerox corporation for the rest of his history.
Actually, he's originally Haloid Xerox, a teeny company, and of course, I wish I had 10 shares of that.
Another fantastic success story. So once again, the monopolist, the big business doesn't see the situation.
You start off as a teeny firm, you out-compete these guys for the world.
There's an excellent book, there's several books on this, if you're interested.
There's a special book by John Jukes and others, Jukes and other people, called Sources of Invention.
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,
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.
The big research laboratory seemed to be much better for development after somebody else
had invented it.
They can then process it and apply it, but for actual inventions, they were a pack of
losers.
All the top inventions of the 20th century, including Xerox and Polaroid and penicillin
and God knows what else.
There was a whole bunch of stuff, basic oxygen processing, steel, all these things are in
in a very small laboratory, where the people are flexible and not bureaucratic, etc., etc.
Another thing that happens is the peddler, as we'll see in a minute in the retail industry,
we'll get into that in a minute too, where in most, in many cases in retail firms, smaller
businesses cannot compete, larger ones very easily.
You see the peddlers, for example, the local florists are hunted down like rats by the police.
They can very beautifully out-compete the official florists, the official orthodox florists
that they charge 10 bucks for a bunch of flowers and get it for 2 bucks, better ones, in the
corner of florists.
And he's mobile, he can get stuff easily, he can get in and out of the rain, he doesn't
have to be, you know, he can take the right corners and the right spots, he doesn't have
to pay fixed rent, he doesn't have to take the one particular...
If it's raining that day, it doesn't have to show up, all these things makes the peddler
who has almost no capital, notice the peddler only has one day's worth of equipment, makes
him very able to outcompete larger stores. As a result of that, the history of the retail
industry, I'll just start that today, but the history of retail industry nowadays is a whole
history of constant attempts by the established firms to render illegal, to cripple and outcompete
by law they're more smaller mobile competitors and almost every city and town in the country
even now peddlers are illegal. They're still illegal here. There are severe licensing requirements.
Every once in a while the mayor tries to crack down on them. They have to outlaw these evil peddlers
because they can out-compete retail stores. Well, tough, you know, it's a great thing. Why should
they out-compete them? Why shouldn't the consumers be able to get scarves and pocketbooks and all
and all that are much cheaper, watches are cheaper than the established official firm.
So the fact that you have more capital doesn't necessarily mean you're better competitively.
In many cases you're worse off, you're stuck in a fixed location for example.
And many of the immigrant groups in the United States came in, they rose up, immigrants in
the late 19th century, early 20th century, they came to New York with no money at all,
Nothing in their pocket, and they get one day's worth of stuff, of capital, so to speak,
one day's worth of peddling equipment, flowers or cloth or whatever it is, and they start
with that and they rise up very quickly, and profits plow back to profits, finally get
a pushcart, pushcart of course is a massive amount of capital, and they're just carrying
a thing in a suitcase or whatever, and they wind up quite wealthy in that way.
But now, current low-income groups find it difficult to do that because they need heavy
License Requirements, they're hunted down by the police, etc., driven out.
In New York, the mayor of New York usually says that it's un-aesthetic, the major argument
against peddlers is that the streets are no longer beautiful, and New York may say a lot
about New York streets, beauty is not one of them, aesthetics is not one of our major
attributes.
The idea of somehow the streets have to be cleansed by getting rid of peddlers is pretty
extremely phony.
Anyway, doing winds up, I think a marvelous quote from doing after he's summing up his
He says this, quote, I've been impressed throughout by the powerlessness, powerlessness of mere
aggregates of capital to hold monopoly, powerlessness of just, just because they have a lot of capital
equipment.
I've been impressed too by the tremendous importance of individual innate ability or
its lack in determining the success or failure of any enterprise.
With these observations in mind, one may hazard the belief of whatever, quote, trust problem
will work out its own solution. The doom of the inefficient waits on no legislative regulation.
It is rather delayed thereby. Restrictive regulation will perpetuate the inefficient
corporation by furnishing an artificial prop to support natural weakness. It will hamper
the efficient by impeding the free play of personal ambition. It's a beautiful statement
that without government intervention, just letting it rip, without any kind of regulation
Control, you'll wind up with enterprise being successful. In other words, regardless of how
much capital a person's got, he's got the ability to foresee what's going on, to step
into the market, to compete. He or she will do so rather than just aggregates of capital.
And I want to turn next, I'll just start this today, about the history of the retail industry
in the United States. One concept of innovation, new innovations, repeating stuff, where the
Orthodox current established retailers are trying desperately to crush the new competition by law, turning the government outlaw them.
Right now, as I say, peddlers are almost illegal almost everywhere, except for severe license requirements.
It starts in the early 19th century. You have to go back to that.
Remember, in the early 19th century, there were no roads.
There were very little, there were no traveling salesmen, there was nothing, there was no way, you can't travel.
So what you had was merchants in central markets were offering good and once a year the out-of-town
buyers would come in and actually make their way to New York or whatever, which they still
do in many cases in the garment industry, to look at samples of equipment and buy them
and carry them home.
That was the sort of pre-Civil War, pre-1850s situation.
So it was a very little standardization, it was a very haphazard kind of setup, in 1850s
and 1860s with the railroad coming in, a new kind of marketing technology enters the field
of retail, namely the traveling salesman, who would take his sample case and travel
around and go to different merchants, retail merchants and sell his wares.
The traveling salesman was met by the wholesale merchants in the town, in other words in Detroit
or Peoria or whatever, you have all these wholesale merchants.
Traveling salesman come from New York and go to the retailers, go straight to the retailers
and compete with the local wholesale merchants.
Local wholesale merchants met this whole development of hysteria with hatred.
The traveling salesman of course had no capital except his suitcase.
So there's a whole series of state and city licensing laws that crush the traveling salesman,
making it, for example, very high license fees, very high, I mean, severe anti-peddler
laws, and every little town has its own license tax. In other words, it would say something
like this, anybody who sells anything in our town, doesn't live in our town, has to pay
a license fee of, I don't know, 20 bucks a year, which is enormous. It means the poor
traveling salesman has to pay 20 bucks a year every town he visits, which makes it totally
is absolutely prohibitive. As a matter of fact, the average traveling salesman was making
$2,500 a year in his days. He had to pay a license fee out of that of over $1,000. That
means like almost 40% of his income was absorbed by the license fee. Obviously, this is not
going to work. So, what you had then was a series of evasions. In other words, the peddlers
The traveling salesmen try to evade a license fee. One way or the other. They sneak into
town, sell their stuff to the retail and get out before they go to court. Or else they
have phony employees. In other words, they get some resident merchant, some retail merchant
that quote, hire them unquote for two weeks. They wouldn't be illegal. They wouldn't have
to pay a license fee. They have phony employee relationship. Or they just skip town dodging
Traveling Salesman, Traveling Salesman is always in a state of semi-legality, sometimes
he was jailed, he went to jail for non-payment of the license fee.
So, he became a disreputable figure as a result of that the famous Traveling Salesman's farmer's
daughter's jokes came in, I don't know if they're still going around but when I was
growing up, it was the standard dirty joke of the Uppock, a traveling salesman joke,
So the reason why the traveling salesmen are in a state of semi-legality, they're always
disreputable, they're half in jail, half in time, they're skipping the law.
At any rate, this goes on for about 20 or 30 years, this kind of nonsense, trying to
use the law to oppress, repress the traveling salesman concept.
Finally after about 30 years or so, by about the 1880s, the pressure comes and it's finally
repealed.
Actually, the Supreme Court finally declares them unconstitutional.
But the pressure comes from several sources, kind of interesting.
In the first place, the retail merchants want and want this, they're getting cheaper wholesale
products.
Also, another thing that happens is the wholesalers themselves start employing traveling salesmen.
In other words, a wholesale in Detroit will start sending traveling salesmen out to their
region.
So they don't want to have their people outlawed and paying heavy license fees.
So in other words, traveling salesmen now begin to be used by wholesale merchants themselves
and they start shifting to support repeal.
and this happens in Baltimore, it happens in Philadelphia, in Louisville, in Atlanta,
all these sort of medium-sized cities start shifting and the salesmen start forming their
own associations, the pressure for lobby for repeal, so you have the shift by the local
merchants and the regional merchants and the salesman association and finally the Supreme
Court takes notice of this and the whole thing goes down the chute, after 30 years of repression
of the Poor Traveling Salesman, the friendly thing is finally over, and they made a decision
in the 1870s and 80s, so anyway, finally the traveling salesmen were accepted, they're
no longer disreputable, they're no longer high license fees, they're part of the industry,
but again hysteria hit, so it doesn't take much longer for a new innovation to come.
For example, two big things happen, one is that about 1895 comes to the apartment store,
You can't imagine the hysteria of which department stores were met.
Department stores are unfair, they're evil, they're out-competing, poor mom and pop stores,
stores that only sell one or two things, department stores, they have many floors, makes them
unfair, they have ten floors, other stores have only one floor, and so there's a tremendous
attacks on Gimbals and Macy's and other department stores, and the retailers would condemn department
Department stores 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.
Here's the argument.
Here's the department stores, Mises, Gimlo, etc., which are now efficient and out-competing
retail stores.
If you allow them to do that, they will eventually push all the retail stores out of business
and they will then cut prices, cut production rates by, so for the interest of consumers
we should outlaw the department stores now. Notice the logic of this. Because you, there
might be eventually a monopoly by, an efficient monopoly by department stores, therefore we
could create an inefficient monopoly right now through the consumers now by outlawing
department stores. That's the logic of it. In Germany there were compulsory cartel system
from about 1880 to about 19, to the end of World War II, more or less, and after World
War II was over, the Germans, Germany no longer had a compulsory cartel system, it was more
or less free market, more or less, relatively free market, so the former cartelists had an
argument to the German Parliament, and it said as follows, about 1950, I remember reading
it somewhere in a clipping, they petitioned to re-impose the compulsory cartel, because
they said if you don't have a compulsory cartel, then you have efficient business with Alcapite,
In order to eliminate a possible future monopoly where the consumers would suffer, we should
make the consumers suffer right now with an inefficient monopoly.
Fortunately, it didn't work.
I can't imagine anybody really believing.
My problem is I can't imagine people making these arguments with a straight face or anybody
believing them, or anybody bothering to report them without laughing in their faces.
At any rate, these are common arguments in favor of compulsory cartels, in favor of outlawing
You have samples, you send orders by mail, met with fantastic hysteria, all the retail
stores are my god, creating monopoly, it drives us a lot of business, there's unfair competition,
outlaw them, tax them, and they organize, for example, special, they said this is a
terrible thing, it's because they don't employ salesmen, and I get this, one of the big arguments
was that here's Roebuck, and Montgomery Ward are unfair because they don't employ salesmen,
So it means they have a lower cost.
You'll notice that 30 years before that, they were attacking any firm which employed a salesman as being somehow evil.
Now if you didn't employ salesmen, it's a terrible, unfair thing.
And so they organized, VTL has organized mail-order catalog burning parties, bonfires, where they have trade-at-home clubs.
Because this way, of course, if you're a New Yorker or a Philadelphian, you're buying from Sears catalog in Illinois,
The Theory of Money and Credit means you're not trading from a local store. You're somehow injuring a local economy.
They had traded home clubs. They had organized burning of Sears-Robach catalog.
Bonfire, they tossed in the Sears and Monkey Ward catalog. Totally crazed.
They set up special taxes against mail order.
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.
They were considered monopolists, unfair competitors. They don't have any salesmen.
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!
You're willing to walk around the streets and rave the rain and snow and so forth. Super!
Anything which is best for the consumer is best for the economy.
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.
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.
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.
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.
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.
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.
So it's typical nonsense.
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.
Chain stores, chain stores, my God, chain stores are a monopoly, terrible, they squeeze out all these lovable mom and pop stores,
there'll be no single stores left, every one's a little bone in the wall.
When I was growing up in the 1930s, there was a big cry by liberals and leftists, break up A&P.
A&P then was a big quote monopolist on chain stores, they had the biggest chain of groceries.
And they could charge lower prices because they were buying in quantity, they'd buy in 10,000 units or something instead of 12.
And so, as a result, they've got discounts, quantity discounts, they'd be cheaper, etc., etc.
Now, of course, there were also some problems with A&P, namely, they didn't give credit,
they didn't deliver as much as small stores do, you have a trade-off, a so-called mom-and-pop store,
they know you, they give you credit, and they'll be a lot looser about charging, about enforcing it,
and the liberal later and so forth and so on.
So at any rate, break up AMP.
AMP is so big, they're going to drive all the stores out of business, all this nonsense.
What actually happened in practice was that when the supermarket boom came in,
first of all, World War II, the big change of frozen food, the big invention of frozen food,
and second of all, the supermarket concept where you have, because before that,
AMP, which they were like mom and pop stores in the sense that you had a counter,
You want to ask the guy, I want, you know, five cans of so-and-so.
The whole idea of a self-service supermarket comes in after World War II.
An ANP, not being used to this, were the last guys to convert,
the last people to really understand the supermarket concept.
As a result, the average ANP in New York, first of all ANP,
it sort of almost went bankrupt, went crazy bankrupt, down the tubes.
They didn't have to be broken up by government coercion, they broke up themselves by inefficiency.
Efficiency. And even now you have an AMP supermarket, those are few that are left, they're crumbly
organized, they're dirty, they have boxes piled up in the aisles, they have linoleum
floors instead of what they, they have wooden floors, excuse me, instead of the tiles, they're
just crumming in their old fashion, they just weren't up with the current, with innovation.
So as a matter of fact, many states and cities have changed their taxes, deliberately to
I don't know how many left-wing liberal writers in the 1930s and 40s were urging the break
of the man, terrible thing, monopoly, selling cheap stuff, and selling good stuff for the
consumer at cheap prices.
After World War II, the latest thing in retailing, which also got big hysteria, was the discount
house, which came in in the 1950s, I believe, heroic discount house, which broke the law.
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
It shouldn't compete. In other words, this is a so-called resale price maintenance.
Once again, the poor beloved mom and pop stores have to be saved.
This was done by trade associations, mom and pop retail stores.
You don't have to be a big business to be perfectly powerful.
You can have a lot of retail stores, a little band together in a trade association.
They have a big cloud because they have a lot of votes.
The resale of price maintenance means that the
now shall not sell the certain product below a certain amount.
In other words, you keep the, you push the price above the free market level.
By cartel arrangement, you push the supply to the left,
keep out competition and raise the price.
This is a typical cartel situation.
A cartel is enforced by the government, federal government,
because nobody else can do it, state government, federal government.
If you have 100,000 retailers, they can't form a successful cartel
without the government imposing it.
So retail price maintenance,
officially the manufacturer imposed it.
Actually, of course, it was the retailer.
The retailers would want to keep, let's say, electric shavers.
The classic case was Sunbeam, which was
a slave to the retail cartel.
They had an electric shaver in those days.
I don't know why, I don't use an electric shaver.
In those days, a typical price would be about $30 or $25.
I suppose it's a lot more now.
So, let's say that the retailers will go to Sunbeam and say, look Mr. Sunbeam, we will
not buy your product, blah, blah, blah, unless you impose a resale price maintenance, say,
$30.
Now, almost always the manufacturer doesn't care, as long as he sells the product to the
wholesaler or the jobber, he doesn't care what the retailer is charging, not his concern.
But the law, the resale price maintenance law is set as follows, the manufacturer can
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,
Supplies across the board through the whole country, but nobody can sell this thing for less than 30 bucks.
And this, of course, was imposed upon some being by the retailer cartels, retail association.
This is true for most products, appliances, household appliances, vitamins, drugs of course, even more so, liquor,
liquor which is, we say, a price maintenance from the state governments.
So what happened, this meant that prices were much higher than they should have been.
There's a whole cartel screwing the consumer. This is in the name, of course, of the welfare state.
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.
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.
Corvettes and Masters, the whole thing was geared as we now know, of course, now there are discount houses all over the place.
The discount house was able to sell way below the market, the fixed market price,
because they had very, they had very low cost. The thing is, in the old days, not so much anymore, I mean,
nowadays you can't get a salesman in New York to wait on you. If there are salesmen at all, as you well know,
The customer is considered to be an intrusion on the valuable leisure time of the clerks.
You know, the clerks are yucking it up, either no clerks at all, no sales, and also yucking it up over coffee.
And any customer is an unwelcome intrusion.
At any rate, in the old days, there used to be a lot of service,
if you go into the department store or whatever, appliance store, rug store, you got a lot of personal service.
The masters in Quebec cut out personal service at all.
You just have price tags and you just get the product and you take it out and wait online and buy it
as you do now at 47th Street, Toto and other places
In other words, it's the idea of no frills, no service, retailing
So if you know what you want, it's a great thing to do
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
This is illegal
because they were violating, consciously violating
at least the price minimum, the retail price maintenance law
It was heroic because everybody started buying it, they'd sell it for 20 dollars, something like that.
See, they didn't make a contract, the contract was only with somebody else, one store.
They didn't violate a contract, they violated the price maintenance law, which said that one contract applies to everybody.
They were breaking the law. No, they weren't breaking any contract. They made no contract.
They just bought a sunbeam. That's right, they broke the law. Yeah. No, well, they took
them to court. Obviously, the sunbeam people, and particularly, of course, the retail trade
association, took them to court. They fought it. They took it all the way to the Supreme
Court. The Supreme Court, on the side of the law, was unconstitutional. It was a magnificent
decision. It was somewhere, I guess, the late 50s and 60s. In other words, it was a constitutional
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.
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.
I mean, this 47-story photo, you get electronic stuff, much, much cheaper than, and list price is sort of a joke here.
If you go to other places in the country, they pay list price. They don't know any better.
There's no discount house unless they get a catalog. Yeah, of course.
So the whole concept of a discount, no frills discount store is a magnificent, magnificent one,
and now just list price is just a sort of vague, a vague reference point. Nobody really takes it seriously.
So, at any rate, recently Corvette went out of business because they had no more function.
In other words, after 20 years of bonanza, they finally wound up, you know, ever since
everybody else was discounting, there's no reason to go to Corvette more than the other place.
They still had vitamins and drugs, which I think took a long time to go discount, although that
happened too with health food stores. It wasn't too long ago, about 20 years ago, I went in to get
some vitamins at a drug store in my neighborhood, and the guy asked me, it was the list price, this
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.
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.
A strange question you might think to ask, why should I care if I live in the neighborhood?
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.
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.
So now, of course, it's all over the place, you don't have to be known in the neighborhood to buy cheap vitamins
because now the discounts are everywhere, it's magnificent, great victory for the consumer
we should hail Mr. Corvette, Mr. Master, whatever their names are
I think it wasn't Mr. Corvette, E.J. Corvette, hailed them for being pioneers of consumer freedom
and so, but again, of course, these were attacked bitterly by the retailers
Likert is monopolized in the sense that you can't open a liquor store, you have to get
a liquor license, they're not issuing any new liquor licenses, you have to buy a liquor
license from guys willing to sell, it's like a taxi industry, it's very tightly controlled,
You can't have a liquor store more than, less than, I don't know, 150 feet or 150 yards or whatever.
It's another liquor store. It's compulsory spacing. Everybody has a little monopoly turf.
It's less regulated than it used to be. I'm not really sure what the latest thing is.
It's still heavily regulated. Very high taxes, of course.
It keeps out of competition, raises the cost, raises the price.
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.
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.
It doesn't have to be a special liquor store because they have the Muck of the Muck license.
and the Muck License.
So liquor is much cheaper for them and much more competitive.
Also, in Las Vegas, for example, liquor stores open 24 hours a day, supermarkets.
You can buy liquor magnificently three in the morning.
I guess they close the liquor office at about one o'clock or something, shut down the liquor
section.
Anyway, it's much easier to buy it.
How do they lease their own?
How do they lease the airlines?
They do it by deregulation.
Oh, that was due to deregulation. That was in the late 70s, early 80s when the deregulation hit.
Because before that you see the rates were regulated by the Civil Airlines Board.
And so the big airlines put in the Civil Airlines Board.
And so they kept the rates way up and they kept the competition way down.
They signed routes, like Boston and New York, it was going to only be Eastern, and things like that.
Now, of course, the sky's the limit, anybody can nip in any area.
So, of course, the inefficient airlines started going bust, and new airlines came in with
more competitive rates, and then
no frills, and all the rest of it.
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,
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?
Who's going to be paying the rent?
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.
Connecticut or something. Subsidon, why should they be subsidized? Hoppe is nuts. They're
trying to sell Amtrak. At least one wing of the Reagan administration is trying to privatize
and get rid of all this stuff. I don't think it will be very successful, but at least they're
talking about it, which is very unusual. Trying to sell Amtrak. They're even trying to sell
a couple of dams. It's an amazing thing when the government is trying to sell some dams,
because there had been a dam propaganda there for about a century. All dams are good per
The producers are liable, if you have construction, there are houses all the time, they are not
government, private houses being built, private offices, they don't collapse.
They did collapse, the guys would be liable, the guys would use unsafe equipment and go
Anyway, on the whole retail question, we have a whole history, and each time the finally
innovation triumphs, and the efficiency finally triumphs after a long hysterical attack, and
now, I don't know of any recent big developments, the peddlers of course, of course when I get
rid of peddlers, I guess it's forever, at any rate, but you can bet your bottom dollar
Well, whatever new big thing comes into the retail industry will be combated by a whole
bunch of people who are now competing against it.
One interesting thing, I'm beginning to labor in a second, is that one of the big charges
that left us have always made is capitalism, as capitalism took the people, took the masses
out of their beloved home, used to work at home.
In other words, in the old days, if you're a weaver, let's say you had your equipment
at home, your loom in the basement, and you lived by one, usually one hut, you, your family
and the Loom and a couple of pigs who are all in one room. This is a traditional peasant hut.
Anyway, so they yank capitalism, they yank these people out of their beloved huts and put them into the
factory where they have to stay there eight hours or ten hours a day or something. Of course they got a lot more money
but somehow their soul was robbed and they were alienated from their labor.
So capitalism brings about alienation and so forth and so on.
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.
A lot of people now can work at home, and are working at home, and so the leftists are now belly-aching about that.
Terrible thing, they can undercut union wage scales, and they don't join unions, obviously.
If you're working at home, you're not going to join a union.
They're trying to outlaw that for the same people who are attacking capitalism for alienating people from their home,
and now trying to force them to work somewhere else, to prevent them from working at home.
One more contradiction in the internal struggle.
Anyway, now I get to labor and the labor situation in the late 19th century.
There's been a lot, and most historians, it's not true of you, but in general,
most historians traditionally overweighted the whole labor, the whole union problem.
The number, as we'll see in a minute, the number of people joining unions is very small throughout.
And it's of course dramatic, it's newsworthy if you have a strike,
In the overall picture, wage rates, real wage rates, in other words, wage rates corrected
for changes in price went way up all during the late 19th century.
Here's one way of looking at it, this is the average wage rate, average daily wages in
and Industry, Oil Industry. Of course it's a rough figure but it gives you I think a good idea of what
as in daily wages, oil industry.
Because a lot of historians used to claim that workers were somehow oppressed during the late, during the Industrial Revolution in the United States.
You can see what kind of oppression it was. In 1865 we set
Wages equal 100. In other words, this is an index where the average wage in 1865 is equivalent to 100.
In 1891, in money terms, in money wage rates, this is going up by 13%.
In other words, there's now a 13% increase in money terms in 1865-1891.
Plus 13%.
The cost of living at the same time, don't forget there was deflation in this whole period,
and the prices kept falling throughout, basically because the increase in production of goods
and services was much greater every year than the increase in money supply.
The increase in money supply was fairly small, the increase in production was tremendous,
and so you had a big drop in the words, you had this sort of thing, this is price on the
y-axis and quantity on the x-axis, this is supply and this is demand, supply kept increasing
So, the cost of living went from 100 to 69, in other words, there's a 31% drop in prices.
Imagine a 31% drop in prices over a 26-year period, a drop of slightly more than 1% a year.
So, overall, in real terms, the average daily real wage,
correcting for deflation this time,
went up by 64%, 164%.
So we had, in other words, a
something like 2% a year, 3% a year increase in real wages
steadily for these 26-year periods. That really goes on from 1900.
In addition to that, the number of hours a day worked, the average hour a day.
Don't forget, in those days people worked a lot, they worked very hard, they worked
sixty-four hours a week or something and
the hours dropped in this period from eleven hours a day and the average of ten
So you had, in other words, in addition to a sixty-four percent increase in real wages, you have
what is it, something like
another extra amount
since you're
an additional ten percent
per hour
wage rate
so it's like 74%
in this whole period
take the union membership rate
you take the labor force, I mean the number of people working or seeking work
total labor force
in 1897
was
26 million
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.
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.
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.
No, there's no deflation. They're talking about deflation, but prices are still going
up by about 3% a year. Yeah, the price of oil fell. On the other hand, if you look at
the overall picture, prices are still going up by 3% a year. No, it's just one important
price. It's not the whole story. There's lots of prices going on, and it's just one aspect
and the fact that the material prices keep falling on the other hand general prices
you know overall of course living goes up as a sign and don't forget there in 1950s the government
tried to keep their target was that prices should go up no more than two percent a year they figured
that was the limit of inflation and anything above two percent is considered a terrible thing now
3.5 percent is going to be no inflation at all which shows we've been desensitized from inflation
It's not that inflation is eliminated, just, we don't think there is any, because it's better,
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.
You have to watch that. The problem, desensitization through inflation,
weakens people's will to do something about it.
Can unions come in, first of all, before the Civil War, there was no real room for unions,
because most people were not employed, most people were self-employed.
The standard situation was to be self-employed if your manufacturing was very small, like
a small barrel maker or bicycle, not a poor bicycle, barrel maker or horseshoe or something
like that.
Usually they have a master craftsman who owns his own shop, and then an adjournment employee,
maybe an apprentice.
That's it.
So even though there were outfits that called themselves labor groups, they were not really
labor in our sense.
They weren't particularly employed.
So only after the Civil War, with factories, you have a large number of employed people.
And so what first happens is that the first organization to try to organize laborers were
the Knights of Labor, founded in 1869, which was essentially a socialist outfit.
And since the Knights of Labor believed in labor solidarity above all things, they didn't
Season E for any kind of separate unions, in other words, what they did is they, everybody,
you just join up geographically, you know, everybody's a member of the Knights of Labor,
you show up, doesn't matter what you're working at, you simply become a geographical member,
let's say if downtown Brooklyn here was a, would be local 786 or something like that,
you just join up, doesn't matter what your occupation is, you become a member of the
Knights of Labor, local 786, so obviously since there was no, since everybody was amalgamated
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.
So this really went national by 1878, so it existed in a very small amount, and it reached
a peak in 1886, and by 1890 it had totally collapsed, in other words it was a big sort
of a flurry and a bingo, the whole thing was over.
And with the collapse of the Knights of Labor, some smart, shrewd union people began to come
In conclusion, there must be another way. There's something wrong with life and labor. It didn't work.
And one of the reasons it didn't work is because it was one big union.
There's nothing for them to do except preach socialism. There's no direct activity.
And so, as a result, was founded another group based on a whole different concept.
And this is the concept of a craft union.
The idea of a craft union is to control labor supply.
In other words, to try to take a situation, an occupation, usually a skill craft, where
there's a natural limitation on entry.
In other words, everybody can be a zitchdigger, anybody who's got shoulders can be a zitchdigger.
So you can't organize zitchdiggers, this is the concept.
You can only organize people who are skilled, very small supply of skilled craftsmen.
One ideal now, for example, would be stonemasons, there are almost no stonemasons left.
8 or 9 other countries and usually elderly Italians, and that's it.
If you have 8 or 9 people in stone masons, you can easily organize them for various reasons.
One is a skill craft and a small limited entry, that's one reason.
You take a skill craft which is limited entry and also requires a lot of skill to become
a stone mason.
You can't just walk in and become a stone mason, you have to be an apprentice for ten
So, you have things like stonemasons, you have things like cigar band workers, usually
not mechanized.
In other words, in most cases, these are skilled craftsmen, mechanics in the old-fashioned
sense.
You fit the stuff together, you fit parts together.
You have mechanics, you have cigar workers, hand cigar workers, glassblowers and other
Another occupation which I'm afraid is going forever with mechanization is things like that.
No, it's still a skill craft. We have a limited number. Only a few people can join it, can be in it.
And two, another very important thing is the demand curve for the labor inelastic.
In other words, you have this sort of situation.
If the demand curve is elastic, okay, this is a demand for, let's say, ditch diggers, elastic.
If you form a ditch digger's union and insist on raising the wage rate, you will disemploy a whole bunch of them.
In other words, this is how many people will be hired, the demand curve.
On y-axis, you now have wage rate.
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.
If you have a heavy unemployment, you'll break the union.
The Union will just go out there and under-compete the Union and the Union will be smashed.
You have to have, in order for the Union to be successful in pushing out wage rates,
have an inelastic demand curve where if you push out the wage rates with, say, stone masons,
you might disemploy one person, you have ten people employed, you might disemploy one guy.
In other words, you're trying to have a situation where you always will have unemployment as a result of
unions pushing out wage rates, but at least if it's a small amount of unemployment, the Union can get away with it.
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.
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.
And one of the reasons it gives you an interactive demand curve is a small proportion of the
labor force.
In other words, just a small number of people, a small proportion.
So these are the aspects that have an economic power, in other words can push out wage rates
at the expense of unemployment.
A small proportion, because then it's not a significant part of the payroll, you don't
raise costs for the employer very much.
To give you an example, I think a classic example which I use in one of my micro classes,
that union.
In Polly here, we used to have two big unions, we had the staff workers union, big relative
to Polly.
We had 200 members or something of a staff union, which belonged to the retail curse
union.
And the faculty used to belong to AUP, which is a mass union of 250, whatever, faculty
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,
and so forth. They went to the boiler and said, one picket somewhere around the corner
so nobody sees them. And they went up to them and they said, you want us to have solidarity?
You want us to picket with you? They said, no, leave us alone. Leave. Buzz off. We're
not interested in you working with solidarity. And so, sure enough, there's a formal strike
two weeks, three weeks by these three guys, the boiler guy and the union. And finally,
probably settles after about three weeks, gives them a 50% wage increase. They're probably
So you're not going to get a 40% or 50% wage decrease to three people, not to 400 people.
That's the difference. You have then, in other words, inelastic demand curve, small proportion of the payroll, and small entry.
Boiler tenders are probably fairly skilled occupations. You can't just walk in and become a boiler tender.
So with these conditions set, you're going to have a situation of a successful craft union.
So the unions that have the economic power, in other words the power to raise wage rates
above the market level, are not the large unions with lots of members that make lots
of noise, we've got a lot of publicity in the paper, these are the small little unions
of the interstices of the market where they can get in, cut, cut employment and raise
wage rates without too much evident disruption, and what happens of course with the people
of Mises, people can't get into the occupation, you can't become a boiler tender very easily,
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
You can't become a member of the Union unless you're the son or nephew of an existing Union member.
Well, I mean, it's cut that for other races. It also cuts out non-relatives.
All non-relatives need not apply.
And, of course, you can't become an electrician unless you're a member of the Union.
In a virtually closed shop situation, your house is bombed or whatever.
It's tight control over the whole area of the labor force.
So this means wage rates of electricians are pushed up at the expense of who?
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.
They have to become supermarket clerks or whatever, or move out of Hoboken.
And so the result is an increase in supply curve for other occupations which don't have tight unions.
So this means a fall in wage rates for supermarket clerks, filling stations of tenants or whatever.
So at your hands then, the way unions get their power is not by exploiting employers particularly,
by exploiting other workers
by exploiting non-union workers or workers with less powerful unions
that can't maneuver this way. They've got a lot more people that can't control the supply
so much, so much, so much.
So what you had in this whole period, 1880s
to 1914 was a situation where unions were a very small proportion, like 2% or so,
and they only flourished in skilled craft situations.
And the theoretician of this,
or the practitioner of Samuel Gomper's,
was the head of the Cigar Workers' Union who
became head of the American Federation of Labor, formed in 1886,
as the exemplar of this kind of
of the craft concept
of the American Federation of Labor.
The American Federation of Labor, the AFFL, had no power itself, it was really sort of propaganda,
The real power belongs, and still belongs, by the way, to the National Union, the National
Cigar Workers Union, whatever it is, and there are National Unions and then there are Locals.
Usually the National Union has total power over Locals, and each Local.
And then they're part of the Federation, but the Federation itself only endorsed candidates
and they make speeches.
They don't really do anything, they don't have any concrete power, so the National Union
You can leave the FRO anytime you want to, and you often have.
Yeah.
Well, that's a guild, yeah, so not technically calling unions a self-employed usually, but
they're certainly, they act as a monopolistic guild, sure, it's very similar.
Is that correct?
Yeah.
Yeah, oh sure, but they get the government to produce this plot for them, we'll see how
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.
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.
It's very limited. It's also limited to craft unions, and most of these unions were concentrated in certain industries or occupations.
There were the building trades, what's known as the building construction unions, carpenters, joiners, masons and machinists and so forth.
Construction, of course, has always been the most reactionary part of the economy, most backward, least innovative.
And largely it's because construction is not a very competitive industry between cities or locales.
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,
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.
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.
In other words, construction doesn't compete that easily, closely, with other cities.
But since construction is sort of geographically monopolistic in a sense, it leaves room for this kind of skilled craft unionism.
So, building trades were heavily unionized throughout, in the railroad industry, the
Brotherhood of Locomotive Engineers, which was known as the aristocracy of the railroad
industry.
The guys were, you know, the guys blowing the whistle there in a cab.
But they were the only ones that were unionized before the ICC came in, the ICC came in 1886.
This has expanded to the skill craft and railroad, the so-called big four brotherhoods, even known as the brotherhoods.
And these were the engineers, the firemen, I forget who the other two guys were, two big four skilled crafts.
The non-skilled railroad people, like the guys with the janitorial types of reporters, were not unionized.
Unionized, these were the skilled crafts in the railroad industry, and these only really
came in with the ICC.
With the ICC by the way, since the ICC essentially cartelized the railroad industry, it permitted
broad-end racial discrimination into the railroads.
Before 1886, blacks were, there was strong black contingent and railroad engineers, firemen,
all the rest of it, in the South and other places, black and mostly in the South.
As soon as the ICC came in and the railroads were cartelized, you didn't have to worry
about being profitable and so forth. Blacks were systematically kicked out of the top
jobs in the railroad industry, engineers, farmers, and pushed down to quarters and janitors.
And then, that's really mostly, and then various skilled crafts, cigar, compers comes out of
the cigar workers, glassblowers, etc. And the only other one is really with anthracite
Anthracite coal. Anthracite coal contrasted with bituminous coal, which gets most of the publicity.
But bituminous coal is found everywhere. I mean, Pennsylvania, West Virginia, all over the place.
Anthracite coal is limited to a very small section around Eastern Pennsylvania.
So therefore it's fairly easy to monopolize it, to unionize it, because it's a very small geographical monopoly.
And so you get one union in a small area and that's it. So they were successfully unionized.
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.
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,
and this is time, say 1880s to 1914, and this whole period would go from about 1% to 6%, something like that.
The 6% would be in the business cycle boom period.
When you had a boom situation, this means the demand for labor would go up, so wage rates would tend to go up.
In that situation, people would join unions, so they thought the unions would claim responsibility.
Hey, we got your higher wage rates, even though the cause was not unions, the cause was the boom.
So union membership would go up, say, from 1% to 6% in the boom period.
As soon as the recession came and the demand for labor fell, the unions would be smashed
because they try to keep the wage rates up, and of course massive unemployment and unions
will be broken because the workers will simply compete under a cut union wage rate to get
jobs and go right back down to 1%.
This is a classic situation during the pre-1917 period, from 1886 to 1917, this is a traditional
situation.
A very small proportion unionized, mostly during boom periods which then would recede
and Recessions, and limited to very small skill craft, usually concentrated in things
like building trade, railroad brotherhoods and SSI coal.
The only other union before the 1930s, before the New Deal came out, which was successfully
unionized, which doesn't meet these conditions of a musician's union, and apparently my professor
who taught me labor economics from Bible and great truth couldn't understand that.
I said, well, the musicians are crazy anyway. It was the only explanation.
I think probably a better explanation is that the musicians are willing to be 90% unemployed.
Most of them are. In other words, they love music so much.
It's something like acting, too. Acting is, of course, not heavenly.
They're willing to be unemployed most of the time, be waiters and so forth, waiting for their big chance,
or waiting to play music once.
And most occupations are not willing to settle for that, obviously.
They're not willing to settle for the 90% unemployment rate.
So generally that was the concentration. Unions are not that important and they were craft unions.
They gave up any kind of idea of changing the world, but they wanted higher wage rates and better
working conditions. That was it. And it was collective bargaining on a global level. And the
theoretician, Samuel Gompers, was a great practitioner in this. The theoretician was
Selig Perlman who wrote, was an economist for Gompers, who wrote a book on the theory of
of Labor Unions of the United States, which propounded this doctrine.
The Marxist myth of worker solidarity, there is no worker solidarity, it's all nonsense.
And you see the craft unions succeeded by essentially shafting other workers who were not skilled craftsmen.
And also on the national level, this is what happens, in other words, at the national level,
the people who call for immigration restrictions were, of course, the unions.
In other words, by keeping out immigrants, you push the supply curve to the left,
and you raise wage rates of workers who are behind this barrier and of course in the long
run it means the international division of labor is hurt and all sorts of other stuff
but usually the special interests don't care about the long run, they're interested in
short-term exclusion of competition.
America was built on free immigration, it was one of the great things about America
was that there was no restriction on immigration and with immigration we had the greatest industrial
success, the greatest industrial growth, the greatest growth in the standard of living
However, the Union forces in favor of limiting immigration so as to keep out competitors,
worker competitors.
In other words, workers compete with each other just as employers compete with each other.
Workers don't compete with employers.
So the key thing is that restrictions on labor migration or advance are almost always lobbied
for by other labor groups.
In the case of the United States, the first restriction on immigration comes in the late
in the 19th century with bitter hatred of Chinese and restrictions on Chinese immigration.
The important thing again about labor migration is that economics and race is a powerful combination.
Race is by itself is unimportant. Race by itself is simply a sort of a social thing.
You don't get into a certain club, who the hell cares?
But when you combine race with economics, when it comes to somebody's economic interest
to keep at Chinese or Latanians or whatever, then you have a powerful combination.
and the two things reinforce each other, which is what happens with immigration restriction
in the United States.
So the first people to get the force of this were the Chinese immigrants.
The Chinese began to migrate to the United States around 1850, and they did extremely
well, mostly of course on the west coast as you might expect, they were usually efficient,
industrious, all the rest of the virtues of the labor force, thrifty, came in with almost
no capital, and immediately of course white workers began to agitate to keep them out,
The first thing the Chinese settled en masse in western mining districts in the mountain
states and did extremely well.
They'd take an abandoned mine, like a crummy mine, and do very well with it, stop making
it profitable.
So the white miners began to agitate very quickly by 1852 to prevent Chinese immigration
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
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
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
So there's whole horror stories about this, there's violence was used and state laws were
used to especially tax Chinese mines and so forth and so on, in that way by violence both
governmental and private the Chinese were driven out of the mining areas and went to
the cities like San Francisco and railroad work, of course once again the white workers
started bellyaching about Chinese railroad workers except when work became dangerous
So you had to go up mountain grades, etc. And they said, okay, well, allow the Chinese to do that.
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.
First the Knights of Labor and then the American Federation of Labor later on.
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.
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.
Powderly.
And the Knights of Labor adopted this as one of their big flanks.
And again, there were murders of Chinese driving them out of mining areas, in 1877, the Working
Man's Party of California, which is a labor party of workers and unions, was a fairly
strong party, a big third party in California for about 30 years, was founded by Dennis
Carney, a powerful political figure, came out of the rest of income tax welfare state and
and kicking all Chinese out of the United States.
As he put it, quote,
we propose to rid the country of cheap Chinese labor
as soon as possible and by all means in our power,
by any means necessary would be the current phrase.
They also marked us public enemies
in what's in the newspapers or whatever,
all employers who would refuse to fire Chinese workers.
There's also legal persecution in California
of Chinese workers.
In California, for example, in 1870,
They outlawed the employment of any Chinese in public works projects.
Two years later, they outlawed Chinese, prevented Chinese from owning any real estate or getting
business licenses.
I'd say about 20, 30 years later, the Supreme Court declared it unconstitutional.
They put special taxes on Chinese.
What they do is things like this.
For example, Chinese had less capital than other workers.
They started with virtually nothing.
So San Francisco, for example, charged an $8 license fee per year for horse-drawn laundry
wagons.
$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,
They have maximum cubic foot laws for, say, laundries, a cubic air ordnance, so you couldn't
have less than 500 cubic feet of air in any laundry, so most of the Chinese laundries are
small, so it outlawed Chinese laundries for the benefit of white laundries.
Also the queue ordnance, California, San Francisco area, where compulsory haircutting, the Chinese
I used to wear pigtails, or queues as it's called, and they'd possibly cut the hair off.
Again, eventually it was declared unconstitutional.
Anyway, this goes on as a whole list of horror stories I have in this thing.
On and on, endless.
And again, the leaders in all of this were first the working man's nights of labor,
then the working man's party in California, and then the craft unions.
When the AFL gets strong in the 1880s, they pick up a cry.
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.
And the head of it was a socialist and a member of the Siemens Protective Union, which was a working-mass party socialist group.
They had 4,000 members in California and promoted a giant boycott. The idea is to boycott all goods made by Chinese labor.
And boycott merchants who employ Chinese and sell Chinese labor products.
As a matter of fact, the first example of a boycott in the United States was an anti-Chinese boycott.
And the boycott tactic begins, by the way, with Samuel Gumpers,
whose white cigar workers were being outcompeted by large cigar firms who used to employ Chinese labor, Chinese cigar labor.
They would outcompete the inefficient white Chinese, white cigar workers.
So the conference comes up with a tactic of what was called a white label, now called
the Union Label.
We all know about Union Labels in clothing, etc.
It originated as a white label and so the cigars, for example, made an inefficient high-cost
white worker plant that had a white label and of course the Chinese made one that didn't.
And by the mid-1880s, seven-eighths of the cigars in San Francisco, for example, were
made by Chinese workers and low-cost plants.
So the white label comes in, they form a white cigar makers association to lead the boycott
along of course with the union, again an example of union industry cooperation, the white cigar
workers combining with inefficient white cigar manufacturing firms to try to boycott and
crush the lower-cost Chinese labor people, and of course Gompers then takes the lead
in Chinese exclusion to try to keep Chinese from coming in and preferably to kick them
out. Finally, in late 1885, in this pressure of a boycott, etc., San Francisco large cigar
firms agreed to fire all the Chinese workers and replace them with white workers. Another
The other thing in 1885 was a giant council of congress in San Francisco of 64 Pacific
Coast unions, including Knights of Labor, anarcho-communists, anarchists, socialist
labor party and other, and craft unions, all united in the idea of kicking out all Chinese
from the United States, so certainly from the San Francisco area, and the only disagreement
was should they be kicked out, should we give them two months to leave or two days, that
was the range of opinion, the most extreme was the anarcho-communist Siemens Union which
The State of California goes along with this, by one, preventing Chinese from becoming citizens,
two, excluding Chinese children from public schools, three, trying to restrict Chinese
immigration on a state level. At any rate, most of the agitation has ended in 1882 when
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,
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,
some reasons for Chinese exclusion, colon, meat vs. rice, in other words, rice is somehow evil,
meat vs. rice, American manhood against Asiatic coulis, as a result of the Chinese Exclusion Act,
the Chinese Exclusion Act, the Chinese Exclusion Act, the Chinese Exclusion Act, the Chinese Exclusion Act, the Chinese Exclusion Act,
Meat vs. Rice, American Manhood Against Asiatic Coolism, Which Shall Survive
At any rate, then the Japanese begin to emigrate by 1880 or so, and by 1900 they're going to come in
and then of course they start to stare at the Japanese, especially in Los Angeles area, the same stuff goes on, the same people
Dennis Kearney comes out of retirement in the 1890s to leave the idea of Japanese exclusion
against quote another breed of Asiatic slaves unquote, again the labor unions lead the parade
of San Francisco labor unions, Los Angeles, etc. etc. the same damn thing happens, forming
Asiatic exclusion lead to exclude Chinese and Japanese immigrants, and in fact the AFFL
refused charter at the Japanese farm workers union because they were Japanese and Japanese
Americans and Samuel Gomper is refusing a charter to a sugar beet union, sugar
beet workers union said quote around 1905 your union must guarantee that will
under no circumstances accept membership of any Chinese or Japanese this is the
great this is a great far side of humanistic labor movement at any rate the
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
The apartheid system was not put in by the Afrikaners or Boers, that was much later.
It was put in originally by the white Anglo workers after World War I when African workers
began to rise up and become skilled laborers, rise up out of the unskilled and become foremen
and things like that.
At that point the white workers got hysterical because we have to exclude Africans from being
promoted.
The Communist Party of South Africa, by the way, which led the exclusion principle, organized
In the general strike in the early 1920s, the theme of which was to prevent all Africans
from coming into skilled labor or full-man jobs, and the slogan was, white workers unite
and fight for a better world.
The Communist Party of course does not talk about this epoch in its history at this point,
but anyway this won, the general strike won, and after that the government of South Africa
and the response to this prevented blacks from rising up into a skilled worker and forming jobs.
This really begins the whole apartheid. It began even before that with workers. That was one of the earliest examples.
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.
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.
I have many unfavorites, so Teddy is one right up there on the top
I can't imagine there are too many people who dislike more than Teddy
At any rate, Teddy, for example, liked killing for his own sake
He loved war, he loved murder, killing anybody
Animals, people, it didn't make any difference
He didn't care who he killed either, he wanted any kind of war, it didn't matter who the war was against
Spain, England, France, it didn't make any difference, Germany, it didn't matter, as long as it was war
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.
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,
one of the top Boston Brahmins, one of the top, of course, all connected with the Morgan interests.
And related to Lee's, Higginson's and the Cabot's, the top Boston financial aristocracy.