WEBVTT NOTE The Business Class vs. The Free Market: Episodes from History 1 00:00:00.000 --> 00:00:08.400 You know, there was some discussion yesterday about the speakers being limited to 30-minute presentations, 2 00:00:08.400 --> 00:00:14.740 and it seems to me it makes perfect sense because you go to most academic conferences and give a presentation on anything. 3 00:00:14.740 --> 00:00:21.440 You're usually given an hour, but you usually have to spend the first half of that time explaining your philosophic principles. 4 00:00:21.440 --> 00:00:27.240 And at a conference with this particular title, The Economics of Fascism, you'd have to explain, 5 00:00:27.240 --> 00:00:33.240 I'm going to take a good 15 minutes to explain what fascism is and more so how to explain why you're opposed to it. 6 00:00:33.240 --> 00:00:39.240 And then you'd have 30 minutes to actually get into the meat of the presentation. 7 00:00:39.240 --> 00:00:47.240 And here we can cut through all of that and just get right to the meat of it without having to establish a lot of credentials. 8 00:00:47.240 --> 00:00:56.240 I first got introduced to the area of economic historical revisionism through Murray Rothbard back in 1963. 9 00:00:56.240 --> 00:01:16.240 I'd written a rather lengthy, one of these five, six page scathing attacks was directed to the author of a, an academic author of a textbook on antitrust law and take him to task for all of his erroneous thinking and I sent a carbon copy of it to Murray. 10 00:01:16.240 --> 00:01:19.240 Now this was back in the days for some of the younger people. 11 00:01:19.240 --> 00:01:49.240 People, there was actually a time when we didn't have copying machines, and you had to use carbon paper. So I sent a carbon copy to Murray, and he was kind enough to send me back one of his traditional letters, you know, that no margins, all the way across the page, typed three or four page letter, introducing me to this whole field of economic revisionism, and particularly the work of Gabriel Coco, who has just come out, titled The Triumph of Conservatism, which dealt with how the business community had 12 00:01:49.240 --> 00:01:55.240 I've been responsible for creating the bulk of the economic regulation that existed in this country. 13 00:01:55.240 --> 00:01:57.240 I've been familiar with the NRA. 14 00:01:57.240 --> 00:02:00.240 This, by the way, is the National Recovery Administration. 15 00:02:00.240 --> 00:02:05.240 I have a license plate up on my wall in my office from the motor carrier industry from the NRA. 16 00:02:05.240 --> 00:02:08.240 People come in and say, oh, nice and rightful association. 17 00:02:08.240 --> 00:02:11.240 I said, no, and it's not the National Restaurant Association either. 18 00:02:11.240 --> 00:02:14.240 It was the old National Recovery Administration. 19 00:02:14.240 --> 00:02:44.240 I was familiar with that from having read the Schechter case when I was in law school in constitutional law and discovered one of my enduring folk heroes, someone who continues to be a folk hero of mine, that was Joseph Schechter, a kosher poultry slaughtering, ran a poultry slaughtering business in South Brooklyn in a building which I've since seen not the building but where the building once stood is now a vacant lot and it's about 50% larger than 20 00:02:44.240 --> 00:02:45.640 in this particular room. 21 00:02:45.640 --> 00:02:47.020 So here's a very small businessman 22 00:02:47.020 --> 00:02:50.620 who brought down the cornerstone of this system 23 00:02:50.620 --> 00:02:54.220 that the business community had worked so hard to put together. 24 00:02:54.220 --> 00:02:56.340 So he became one of my heroes 25 00:02:56.340 --> 00:03:00.660 and began doing some research on the origins of the NRA, 26 00:03:00.660 --> 00:03:05.060 which eventuated in this particular book, 27 00:03:05.060 --> 00:03:06.220 titled In Restraint of Trade, 28 00:03:06.220 --> 00:03:08.900 dealing with not so much the history of the NRA 29 00:03:08.900 --> 00:03:11.320 as much with the history of business thinking 30 00:03:41.320 --> 00:03:49.320 and the elaborate and pervasive exercise of government regulation of economic activity undertaken within America up until that time. 31 00:03:49.320 --> 00:03:57.320 Aided by a myriad of other agencies and sub-agencies, the War Industries Board afforded the business community the unprecedented opportunity 32 00:03:57.320 --> 00:04:04.320 to experience business-directed government planning as a tool for the central direction of American industry. 33 00:04:04.320 --> 00:04:13.320 And with the Board functioning under 57 different commodity sections, it had the power to control production and distribution, 34 00:04:13.320 --> 00:04:23.320 to fix prices at which government bodies would purchase commodities, and virtually all other major facets of economic decision making in this country. 35 00:04:23.320 --> 00:04:30.320 Historian Frederick Allen, or Frederick Lewis Allen, stated that the War Industries Board had, quote, 36 00:04:30.320 --> 00:04:36.320 and the most dictatorial power to decide to what uses the industrial machinery of the country might be applied. 37 00:04:36.320 --> 00:04:43.320 Historians Robert Wiebe and Robert Cuff provide further depth into the extent to which the War Industries Board 38 00:04:43.320 --> 00:04:48.320 encouraged the business system to seek an effective cartelization of commerce and industry. 39 00:04:48.320 --> 00:04:54.320 And men of commerce and industry found in the wartime management of the War Industries Board 40 00:04:54.320 --> 00:05:01.120 temporary respite from what many regarded as the killing pace of competition. 41 00:05:01.120 --> 00:05:06.560 Prior to becoming president of AT&T, Walter Gifford told the U.S. Chamber of Commerce 42 00:05:06.560 --> 00:05:11.320 at a meeting in 1917, quote, we have never needed such organized industry as much as 43 00:05:11.320 --> 00:05:15.800 we need it now when we are engaged in this great war, and we have never needed it as 44 00:05:15.800 --> 00:05:20.020 much as we shall need it after this war is over when we shall be in the midst of a world 45 00:05:20.020 --> 00:05:32.020 Competition of Unknown Proportions. Robert Cuff got to the essence of the response of most business leaders to the War Industries Board as a model for the business cooperation. 46 00:05:32.020 --> 00:05:39.020 That became the slogan for this time period between 1918 and the early New Deal. 47 00:05:39.020 --> 00:05:54.020 But with a properly rationalized state system directed by businessmen and government, America would be able to combine the traditional genius of individualism and free enterprise with a modern efficiency of administrative centralization and state regulation, end of quote. 48 00:05:54.020 --> 00:06:06.020 The World War cliché of making the world safe for democracy very quickly morphed into a business campaign to make competition safe for business firms. 49 00:06:06.020 --> 00:06:13.420 The Trade Association was greatly energized during the 1920s as a vehicle for fostering voluntary restraints on competition. 50 00:06:13.420 --> 00:06:18.720 One of the champions of the Trade Association movement was our old pal Herbert Hoover, 51 00:06:18.720 --> 00:06:23.820 who I trust that no one this gathering will mistake for an advocate of laissez-faire economics, 52 00:06:23.820 --> 00:06:26.520 who observed, while still Secretary of Commerce, 53 00:06:26.520 --> 00:06:34.120 quote, we are passing from a period of extremely individualistic action into a period of associational activities, end of quote. 54 00:06:34.120 --> 00:06:41.620 and the trade associations developed a number of codes of fair competition and they're all over the lot. 55 00:06:41.620 --> 00:06:47.120 I have outlined and discussed a great number of them here. 56 00:06:47.120 --> 00:06:58.460 I won't try to summarize or even characterize them other than to say that they essentially were directed toward businessmen 57 00:06:58.460 --> 00:07:20.060 Quote, wanting to respect the position of their competitors, not undercutting prices, not engaging in trade piracy, which became a synonym for engaging in competition, trying to attract a buyer away from another businessman with whom that businessman was already in negotiation for a contract, aggressive advertising campaigns and so forth. 58 00:07:20.060 --> 00:07:33.060 It was aggressive competition that became unfair competition to these people and got these concepts worked into these voluntary trade association codes. 59 00:07:33.060 --> 00:07:42.060 One of the principal champions of a system of industry-regulated competition, what came to be known as the new competition, was Arthur Jerome Eddy, 60 00:07:42.060 --> 00:07:53.060 who proposed what many trade associations adopted, namely an open pricing system that sought to stabilize prices through an open system of price reporting by individual firms. 61 00:07:53.060 --> 00:08:02.060 So depending upon how open pricing systems actually functioned, they received a mixed response from the courts and antitrust prosecutions. 62 00:08:02.060 --> 00:08:09.060 Eddie also proposed the creation of a federal commission along the lines of the ICC that would license all corporations engaged in commerce 63 00:08:09.060 --> 00:08:17.060 and could punish those who engaged in, quote, dishonest, fraudulent, oppressive and unfair business methods, end of quote. 64 00:08:17.060 --> 00:08:23.060 Unfair again being competitive methods that have an adverse effect on your competition. 65 00:08:23.060 --> 00:08:34.060 Unfair methods of competition became the boogeyman for business leaders and their trade associations with the word unfair being basically synonymous with the word effective. 66 00:08:34.060 --> 00:08:45.060 It was aggressive competition in which individual firms were more concerned with the furtherance of their specific interests than with the collective interests of their industries that most troubled industry leaders. 67 00:08:45.060 --> 00:08:53.060 Those of you who are familiar with Mansur Olson's classic study, The Logic of Collective Action, will recognize the dynamics that are at work here. 68 00:08:53.060 --> 00:09:06.060 is a continual tension between individual and collective interests that, in my view, tends through the marketplace to always keep business organizations relatively small. 69 00:09:06.060 --> 00:09:13.060 It's the interplay between individual and collective interests that makes cartels inherently unstable. 70 00:09:13.060 --> 00:09:25.060 And again, I trust that no one here has any unfamiliarity with cartel as a very unstable type of a system because of the individual interests. 71 00:09:25.060 --> 00:09:40.060 While there may be collective interests associated with the maintenance of a particular pricing policy, it will always be to the individual firm's interest to undercut that with special deals and the like. 72 00:09:40.060 --> 00:09:54.060 A competition, which was a product of the freedom to pursue one's self-interest, became a threat to firms whose greater size and vertically structured organization made them increasingly less resilient and less adaptive to change. 73 00:09:54.060 --> 00:10:05.060 In his 1930 study, Arthur Doing noted, quote, the difficulties attending the administrative management of a large business, end of quote, a problem that tended to make mergers a disappointment to many. 74 00:10:05.060 --> 00:10:17.060 and a study involving ten unrelated companies doing observe that combined post-consolidation earnings averaged about 65% of pre-consolidation earnings. 75 00:10:17.060 --> 00:10:31.060 Gabriel Coco has demonstrated that following the 1901 merger that created United States Steel, its market share dropped from 61.6% in 1901 to 39.9% by 1920. 76 00:10:31.060 --> 00:10:42.060 Likewise, the 1902 merger that produced International Harvester saw a decline in market share from 85% in 1902 to 64% by 1918. 77 00:10:42.060 --> 00:10:51.060 From the early 1900s and continuing well into the 1930s, competition had become quite intense. 78 00:10:51.060 --> 00:10:59.060 Not simply the kind of competition that arose in the form of new entrants into existing industries, 79 00:10:59.060 --> 00:11:17.060 But the emergence of major new industries, along with major new methods of manufacture and product distribution, automobiles, airplanes, electrical power, along with products powered by electricity, including the radio, motion pictures, consumer appliances, and the phonograph were developed. 80 00:11:17.060 --> 00:11:22.060 And so these increased the tempo of competition during this time period. 81 00:11:22.060 --> 00:11:30.060 The petroleum industry, for example, which heretofore existed primarily as a source of lighting, became the fuel source for automobiles. 82 00:11:30.060 --> 00:11:38.060 And we now found petroleum, coal, and electricity now in sharp competition with one another as power sources. 83 00:11:38.060 --> 00:11:41.060 So this is what's going on during this period. 84 00:11:41.060 --> 00:11:48.060 Joseph Schumpeter's process of creative destruction helps to explain the condition which many businesses found themselves. 85 00:11:48.060 --> 00:11:54.060 noting that price competition was not the most significant factor to which firms had to respond, 86 00:11:54.060 --> 00:11:59.060 quote, but the competition from the new commodity, the new technology, the new source of supply, 87 00:11:59.060 --> 00:12:02.060 the new type of organization, end of quote. 88 00:12:02.060 --> 00:12:07.060 Inciting retailing, as an example, Schumpeter observed that it was not, quote, 89 00:12:07.060 --> 00:12:12.060 the additional shops of the same type that provided the greatest competitive threat, 90 00:12:12.060 --> 00:12:17.060 but the department store, the chain store, the mail order house and the supermarket, end of quote. 91 00:12:17.060 --> 00:12:29.060 A kind of mentality, a kind of thinking that one continues to find expressed in the continuing mindless wars against Walmart and other freestanding stores today. 92 00:12:29.060 --> 00:12:32.060 It's the same thinking. It just continues. 93 00:12:32.060 --> 00:12:38.060 The intensity of competition has been found in the patterns of prices in various industries. 94 00:12:38.060 --> 00:12:49.060 The petroleum industry saw production levels rise from 442.9 million barrels in 1920 to 901.1 million barrels in 1927. 95 00:12:49.060 --> 00:12:58.060 As a consequence, average prices for crude oil fell from just over $3 a barrel in 1920 to $1.25 a barrel by 1929. 96 00:12:58.060 --> 00:13:08.560 2009. Again, sometimes comparing that with today, there was actually one piece of research I ran across that it was an aberration. 97 00:13:08.560 --> 00:13:17.920 It wasn't typical, but it was in the mid-continent area that at one time barrels of oil were selling for 10 cents a barrel. 98 00:13:17.920 --> 00:13:27.260 Coal prices, which rose from $1.13 per ton in 1915 to $3.75 per ton by 1920, and this largely because of the demands of war, 99 00:13:27.260 --> 00:13:39.260 which, keeping in mind this was all being carefully managed and directed by the War Industries Board, encouraged the opening of new mines and a proliferation of supply along with aggressive competition among coal companies. 100 00:13:39.260 --> 00:13:50.260 As a result, from the 1920 average price of $3.75 per ton, prices plummeted to an average of $1.31 per ton by 1932. 101 00:13:50.260 --> 00:14:20.260 Regarding retailing, the development again of chain stores, direct selling by manufacturers, vertically integrated retailing organizations and new consumer credit practices added competitive pressures to which industry members made a variety of responses and keeping in mind they're trying to make some of these responses through these voluntary trade association arrangements. The steel industry was also experiencing the price reducing consequences of free competition. No one in all of business 102 00:14:20.260 --> 00:14:26.260 George W. Perkins, the right-hand man of J.P. Morgan, and a director of both U.S. Steel and International Finance. 103 00:14:26.260 --> 00:14:35.260 His message was encapsulated in these words, quote, I do think that sometimes competition, which I have said is a great thing for all the people, has been carried too far, 104 00:14:35.260 --> 00:14:44.260 and from the motives of selfishness we sometimes secure business for ourselves that really, justly, and naturally belongs to some of our competitors, end of quote. 105 00:14:44.260 --> 00:14:53.260 George W. Perkins, the right-hand man of J.P. Morgan and a director of both U.S. Steel and International Harvester, echoed Gary's remarks. He said, quote, 106 00:14:53.260 --> 00:15:03.260 I believe in cooperation and organization in industry. I believe in this for both labor and capital under strict regulation and control of the federal government, end of quote. 107 00:15:03.260 --> 00:15:10.260 Julius Kahn, president of Truscan Steel Company, declared in 1928, keep the year 1928 in mind, it's going to be kind of interesting here, 108 00:15:10.260 --> 00:15:15.260 Quote, the government must assume the trusteeship of our welfare, end of quote. 109 00:15:15.260 --> 00:15:24.260 Adding that quote, every solution to the problems of bad business I feel must emanate from a guiding central authority, namely our government, end of quote. 110 00:15:24.260 --> 00:15:33.260 In what was to prove to be a poor piece of prophecy, Kahn saw on the government direction of business the opportunity to achieve greater industrial stability. 111 00:15:33.260 --> 00:15:42.260 quote, just as it has been made possible to regulate against financial depressions and panics through a central body, our Federal Reserve Board, end of quote. 112 00:15:42.260 --> 00:15:47.260 And I believe that Murray just rolled over in his grave on that one. 113 00:15:47.260 --> 00:15:55.260 So Ayn Rand would have looked in vain for a real-life Hank Reardon in the American steel industry, at least at this particular point in time. 114 00:15:55.260 --> 00:16:02.260 Industries endeavored futilely to restrain aggressive competition through trade association codes of fair competition, 115 00:16:02.260 --> 00:16:09.060 which sought to appeal to social peer pressure for compliance, but as with any kind of a marketplace cartel, 116 00:16:09.060 --> 00:16:18.560 the absence of coercive means of enforcement led many industries to turn to the sector that could supply coercive force, and that was the state. 117 00:16:18.560 --> 00:16:27.460 Following the Great Depression in 1929, many business interests saw an opportunity to reinstitutionalize the old war industries board model. 118 00:16:27.460 --> 00:16:39.460 In 1931, Gerard Swope, president of General Electric, gave a speech to the National Electrical Manufacturers Association in which he developed what came to be known appropriately as the Swope Plan. 119 00:16:39.460 --> 00:16:45.460 It would force all companies with 50 or more employees into trade associations to be supervised by the federal government. 120 00:16:45.460 --> 00:16:55.460 The trade associations would be permitted, among other powers, to define and enforce, quote, trade practices, business ethics, methods of standard accounting and cost practice, end of quote, 121 00:16:55.460 --> 00:17:25.460 as well as to quote, collect and distribute information on volume of business transactions, transacted inventories of merchandise on hand, simplification and standardization of products, stabilization of prices and all matters which may arise from time to time relating to the growth and development of industry and commerce, you know, in other words, whatever they want to regulate. In words that could well have been provided by George Orwell, this plan spoke of the quote, voluntary acceptance of decentralized mandatory government of industry, end of quote. 122 00:17:25.460 --> 00:17:38.460 Major business leaders immediately fell in love with the smoke plan, including officials from the U.S. Chamber of Commerce and the National Association of Manufacturers. 123 00:17:38.460 --> 00:17:43.460 General Electric' Owen Young got to the heart of the fascist nature of this proposal when he declared, 124 00:17:43.460 --> 00:17:57.460 Every advance in social organization requires the voluntary surrender of a certain amount of individual freedom by the majority and the ultimate coercion of the minority. 125 00:17:57.460 --> 00:18:06.460 U.S. Chamber of Commerce President Henry I. Harriman added that any business that did not choose to cooperate with the recovery plan would be treated like any maverick. 126 00:18:06.460 --> 00:18:11.460 They'll be roped, branded and made to run with the herd. End of quote. 127 00:18:11.460 --> 00:18:18.460 Lest anyone here be deluded by Ayn Rand's notion of big business as America's persecuted minority, 128 00:18:18.460 --> 00:18:29.460 the history of this era reveals how attracted major business leaders were to having the coercive arm of the state available to serve their anti-competitive ends. 129 00:18:29.460 --> 00:18:36.460 One of my other moderate heroes, General Smedley Butler, I don't know if you're familiar with him, who wrote the book War is a Racket. 130 00:18:36.460 --> 00:18:41.460 I like to imagine he's probably a relative of mine. My first name is my Irish grandmother's old family name. 131 00:18:41.460 --> 00:18:44.460 So maybe Smedley and I had some relationship there. 132 00:18:44.460 --> 00:18:54.460 But his first-hand narrative of the realities of government regulation and John P. Diggins' study that Tom just referred to a little while ago, 133 00:18:54.460 --> 00:19:00.460 The View from America confirmed the prevailing corporate-state partnership. 134 00:19:00.460 --> 00:19:05.460 Diggins has documented the enthusiasm that so many business leaders had with Mussolini. 135 00:19:05.460 --> 00:19:13.460 Julius Barnes and Lewis Pearson, each of whom had served as president of the U.S. Chamber of Commerce, were eager supporters of Mussolini. 136 00:19:13.460 --> 00:19:18.460 Pearson hailed El Duce for having restored, quote, the ideals of individualism. 137 00:19:18.460 --> 00:19:20.460 His words, not mine. 138 00:19:20.460 --> 00:19:30.460 Other business praise for Mussolini came from Willis Booth, Vice President of Guarantee Trust Company, James Emery, Council for the NAM, E. H. H. Simmons, President of New York Stock Exchange, 139 00:19:30.460 --> 00:19:40.460 Albert Gary of U.S. Steel, Thomas W. Lamont, head of J.P. Morgan, Otto Kahn of Kuhn, Leopold & Company, and Andrew W. Mellon. 140 00:19:40.460 --> 00:19:46.460 Lamont went so far as to refer to himself as a, quote, missionary, end of quote, for Italian fascism. 141 00:19:46.460 --> 00:20:16.460 Well, by 1932, with the presidential campaign afoot and with the depression not having, the effects of it not having subsided, due largely to some of the policies that Rothbard talks about in his book, The Great Depression, about Hoover saying that he was not a do-nothing president, he was a do-everything president, Hoover was an engineer, engineers like to tinker, and as Murray said, you know, there are about six or eight different things that a government 142 00:20:16.460 --> 00:20:39.460 and what it could do to prevent the recovery of a depression and Hoover did every one of them. And so during the presidential campaign, the business community turns to these two presidential candidates, Hoover and FDR, to see if they will support the Swope Plan as a system for national industrial cartelization, I mean recovery. 143 00:20:39.460 --> 00:20:57.460 Hoover says no, not so much because he's opposed to that kind of a system, but he thought that the proposal would violate the antitrust laws, which I don't quite understand because the antitrust laws and the NRA would be co-equal and you couldn't say one takes priority over the other. 144 00:20:57.460 --> 00:21:03.520 and the other. FDR of course eagerly embraced it and the business community responded by 145 00:21:03.520 --> 00:21:10.940 overwhelmingly embracing FDR with his industrial recovery plan which became the cornerstone 146 00:21:10.940 --> 00:21:16.740 of the New Deal. So this old myth that FDR brought the business community kicking and 147 00:21:16.740 --> 00:21:21.980 screaming into a system of government regulation is about as silly as you can imagine. It's 148 00:21:21.980 --> 00:21:43.980 When FDR got elected, the basic structure of the Swope Plan was enacted on June 13, 1933, as a National Industrial Recovery Act, and it had a life of two years, they had to put a sunset provision in there. 149 00:21:43.980 --> 00:21:59.980 General Hugh Johnson, who had been the right-hand man to Bernard Baruch under the Old War Industries Board, and you notice how military leaders always seem to be assigned to take over regimenting functions in our society, was appointed to head the N IRA. 150 00:21:59.980 --> 00:22:14.980 And the NIRA, the National Industrial Recovery Administration, was sort of made fun of, I think it was by a Business Week article that referred to NIRA as NERA, as in NERA, my god to thee. 151 00:22:14.980 --> 00:22:26.980 And Johnson took great offense at this. Johnson had described the NRA as, quote, a holy thing, the greatest social advance since the days of Jesus Christ, end of quote. 152 00:22:26.980 --> 00:22:51.980 In the fascist spirit of the system, Baruch proposed the creation of NRA insignias for businesses to use to identify themselves as, quote, soldiers against the common enemy within, end of quote, and to differentiate them from those who, quote, are on the other side, end of quote. 153 00:22:51.980 --> 00:22:57.980 Fascists do have a love for insignias, whatever they may be. 154 00:22:57.980 --> 00:23:06.980 Hundreds of NRA codes were developed, about 557 basic codes and 208 supplementary codes. 155 00:23:06.980 --> 00:23:12.980 One writer has suggested there may have been as many as 2,000 codes by the time you get a lot of these cross-reference codes. 156 00:23:12.980 --> 00:23:19.980 In other words, a particular industry could be subject to a number of separate codes of fair competition, as they were referred to. 157 00:23:19.980 --> 00:23:49.980 Some of them were major industries, steel, cement, auto manufacturing, cotton textiles, motor carriers and so forth, and some were rather esoteric industries, corn cob pipe manufacturers, umbrella handle manufacturers, envelope manufacturers, steel wool manufacturers, even burlesque theater had a code, and you remember the model for it, if you ever see any movie that takes place in America 158 00:23:49.980 --> 00:24:18.980 The most popular code provisions dealt with pricing policies in virtually every imaginable form, while others dealt with defamation of a competitor, plant expansions, and trade piracy, again, trying to secure business from a customer who's negotiating with one's competitor. 159 00:24:18.980 --> 00:24:30.980 One commentator observed, quote, many of the pending codes have no purpose other than to destroy some strategic advantage gained by the foresight, the energy or the skill of some individuals or groups to the envy of their competitors. 160 00:24:30.980 --> 00:24:42.980 Historian Paul Konkin observed that, quote, usually without direct price setting, most industry codes achieve the same result indirectly by limiting production, preventing price cutting and forbidding unfair competition. 161 00:24:42.980 --> 00:24:51.980 Businessweek commented in the early days of the code formation, commented about the, quote, wild rush of businessmen to Washington who want to know everything, 162 00:24:51.980 --> 00:24:57.980 but mostly how to punish the rascal who has been cutting prices in their industry and how to fix some nice new prices, end of quote. 163 00:24:57.980 --> 00:25:03.980 You know, once the price structure becomes broken, we've got to fix it, you know, and that seems to be the logic here. 164 00:25:03.980 --> 00:25:09.980 That the stabilization of prices is precisely the wrong strategy for promoting recovery following the depression was 165 00:25:09.980 --> 00:25:17.480 was paradoxically not a consideration for an agency supposedly devoted to recovery, something that was spoken of yesterday. 166 00:25:17.480 --> 00:25:23.980 Contrary to the bunkum that passes for social enlightenment in our culture, the business community loved the NRA. 167 00:25:23.980 --> 00:25:35.980 Its support arose not from a desperate reaction to the depression, but from years of dedication to a state, getting a state-enforced system of 168 00:25:35.980 --> 00:25:40.320 of Controlled Trade Practices. Harry Thayer, the former president of Western Electric, 169 00:25:40.320 --> 00:25:44.920 went so far as to say that, quote, the enactment of the NRA seemed to be almost worth the price 170 00:25:44.920 --> 00:25:51.920 of the Depression, end of quote. As the NRA moved closer to its two-year sunset date, 171 00:25:52.260 --> 00:25:57.640 businessmen worked behind the scenes to reenact it as a permanent system. In the late 1934 172 00:25:57.640 --> 00:26:02.280 referendum of the members of the U.S. Chamber of Commerce showed overwhelming allegiance 173 00:26:02.280 --> 00:26:12.280 to the idea of a compulsory system for regulating trade practices. While 87% favored allowing the Act to expire in June 1935, they also voiced support for the following, 174 00:26:12.280 --> 00:26:22.280 for enactment of new legislation prior to expiration of the NRA, 78.1%, to permit industry to formulate its own rules of fair competition subject to government approval, 175 00:26:22.280 --> 00:26:30.280 95.2 percent, to restricting the power of the government agency to approval or veto 94.6 percent, to have rules of fair competition 176 00:26:30.280 --> 00:26:38.280 enforceable against all concerns in the industry 91.8 percent. And what these polls reflect on, and you see this kind of across the board, 177 00:26:38.280 --> 00:26:47.280 wherever you see any kind of reference to business attitudes, they reflect the discontent that many business leaders had with how the NRA was being 178 00:26:47.280 --> 00:26:53.280 In other words, they wanted more direct control and administration by business people themselves rather than bureaucrats. 179 00:26:53.280 --> 00:27:01.280 They were not opposed to the idea of government enforcement of some of these industry created codes. 180 00:27:01.280 --> 00:27:08.280 As long as the business committee could employ the power of the state to enforce price stabilization and trade practice standards, 181 00:27:08.280 --> 00:27:12.280 they favored these kinds of restraints on the market. 182 00:27:12.280 --> 00:27:16.280 There were a number of exceptions, lovable exceptions. 183 00:27:16.280 --> 00:27:23.280 One of them, and I would like to do some more research into this sometime if I ever day out of the time, the Illinois Manufacturers Association. 184 00:27:23.280 --> 00:27:30.280 I don't know if anyone is familiar with them, but they fought this whole pattern of governmental regulation from day one on. 185 00:27:30.280 --> 00:27:40.280 And I suspect there was probably someone who ran the Illinois Manufacturers Association who may have ridden Mises or had some sort of a philosophic opposition to this. 186 00:27:40.280 --> 00:27:47.280 But they were, every time some of this question comes up, here's the Illinois Manufacturing Association saying no when everyone else is saying yes. 187 00:27:47.280 --> 00:27:54.280 The Philadelphia New York Boards of Trade favored termination of the NRA when it was winding down. 188 00:27:54.280 --> 00:28:08.280 And of course my old folk hero, Joseph Schechter, who I referred to earlier, a small kosher poultry slaughterer in Brooklyn who brought down this whole system. 189 00:28:08.280 --> 00:28:14.780 I always thought it would be nice to put up all these monuments in Washington and put up some monuments to some real heroes. 190 00:28:14.780 --> 00:28:17.780 One of them would be Joe Schechter. 191 00:28:17.780 --> 00:28:22.780 Nor would my presentation be complete without making favorable comments to another of my folk heroes, 192 00:28:22.780 --> 00:28:31.280 and the one to whom I have dedicated my book, and that was a journalist, John T. Flynn, who Tom mentioned earlier, 193 00:28:31.280 --> 00:28:41.280 who had the Menkenesq quality of being both able and eager to discover and reveal the agreed upon lies and foolishness 194 00:28:41.280 --> 00:28:45.280 whose absence would be fatal to all political systems. 195 00:28:45.280 --> 00:28:54.280 Well, kind of running short on time, but following the collapse of the NRA, and it was brought about through the court saying in this particular case, 196 00:28:54.280 --> 00:28:58.280 as applied to Schechter, there were two reasons for its collapse. 197 00:28:58.280 --> 00:29:05.280 The Unlawful Delegation of Legislative Power from Congress to the Executive Branch 198 00:29:05.280 --> 00:29:12.280 The other was in the case involving Schechter, it didn't satisfy that definition of commerce 199 00:29:12.280 --> 00:29:20.280 And so afterwards you get a lot of industries that are out promoting individualized agencies or individualized legislation 200 00:29:20.280 --> 00:29:27.280 The Food and Drug and Cosmetic Act of 38, the Agriculture and Marketing Agreement Act of 37, the Motor Carrier Act of 35 201 00:29:27.280 --> 00:29:36.280 so they're not exactly 38, on and on, different industries getting in to do for their specific industries what the NRA had tried to do across the board. 202 00:29:36.280 --> 00:29:45.280 The appetite for fascism within the business community reached such a point that many within the independent retailing trades, anxious to overcome the competition from chain stores, 203 00:29:45.280 --> 00:29:52.280 became eager supporters of Texas Congressman Wright Patman's proposed, quote, death sentence, and that was what was referred to as the death sentence bill 204 00:29:52.280 --> 00:29:58.280 that would have allowed the federal taxation powers to literally confiscate chain stores out of existence. 205 00:29:58.280 --> 00:30:08.280 And anyone needing a reminder of what confiscate means should remember Charlie Anderson's definition in the movie Shenandoah when he says it's to steal. 206 00:30:08.280 --> 00:30:17.280 Well, the A&P chain, for example, with 1938 earnings of just over $9 million would have paid a chain store tax of $471.6 million. 207 00:30:17.280 --> 00:30:23.280 Kroger's earnings of just over $3.7 million would have been offset by a federal tax of over $71.8 million. 208 00:30:23.280 --> 00:30:31.280 Had this measure been enacted into law, the 24 largest chains would have paid a total tax of $874 million in the first year alone, 209 00:30:31.280 --> 00:30:39.280 a figure that was almost ten times their combined earnings and which would have supplied the federal government with some 13% of their total budget. 210 00:30:39.280 --> 00:30:43.280 This bill, of course, was supported by many so-called independent retailers. 211 00:30:43.280 --> 00:30:54.280 Most of the independent retailing organizations associations were eager to get behind it and to put a stop to this wicked system. 212 00:30:54.280 --> 00:31:03.280 Well, I think one can't understand the dynamics of what has long been generating an increased politicization of society, 213 00:31:03.280 --> 00:31:08.280 particularly within the economy, without understanding some of the institutionalizing processes at work. 214 00:31:08.280 --> 00:31:14.280 and I think this is something that needs to be understood in the light of what we're talking about here in terms of fascism. 215 00:31:14.280 --> 00:31:21.280 As Leopold Korr, I don't know if you're familiar with him, if not, very interesting writer. 216 00:31:21.280 --> 00:31:27.280 He is an Austrian by birth. I don't know if you can consider yourself an Austrian in terms of his economic theories, 217 00:31:27.280 --> 00:31:32.280 but he considers himself both a libertarian and an anarchist, or he did when he was living. 218 00:31:32.280 --> 00:31:37.280 Observe that there is a dysfunctional quality to organizational size. 219 00:31:37.280 --> 00:31:43.280 and he termed the size theory of social misery. Quote, whenever something is wrong, something is too big, end of quote. 220 00:31:43.280 --> 00:31:50.280 And he developed an analysis that ties in rather interestingly with Olson's treatment of collective action. 221 00:31:50.280 --> 00:31:59.280 I think what this does is to generate what I would call a dinosaur effect that when a system becomes so specialized to a particular set of conditions 222 00:31:59.280 --> 00:32:06.280 that it loses resiliency and adaptability, then it really is unable to sustain itself. 223 00:32:06.280 --> 00:32:10.280 And I think this is what happens with many large business organizations. 224 00:32:10.280 --> 00:32:16.280 And eventually they lose that sense of competitiveness, that creativity. 225 00:32:16.280 --> 00:32:19.280 They become, as Koko called it, very conservative. 226 00:32:19.280 --> 00:32:22.280 They may have the advantages of economies of scale, 227 00:32:22.280 --> 00:32:25.280 but they're more than offset by the lack of resiliency and adaptability, 228 00:32:25.280 --> 00:32:28.280 and they can't respond to change very effectively. 229 00:32:28.280 --> 00:32:33.280 I'm long been convinced, I'm thoroughly convinced, and I'll probably go to the gallows. 230 00:32:33.280 --> 00:32:36.280 Some of the last words, and H.O. Mencken once said, 231 00:32:36.280 --> 00:32:39.280 my last words on the gallow will be to take a who to socialism. 232 00:32:39.280 --> 00:32:52.280 Mine will probably be to emphasize this whole notion that large organizations of any size are quite incompatible with a free market. 233 00:32:52.280 --> 00:33:02.280 But a free market will tend to keep organizations, particularly business organizations, down to a much smaller level than they are now. 234 00:33:02.280 --> 00:33:07.280 But it takes a nation-state to prop up big corporations. 235 00:33:07.280 --> 00:33:20.280 There are a few corporations, I think, that probably could do this, but the only way they could really do it would be to retain this inwardly sense of resiliency that now seems to be lacking. 236 00:33:20.280 --> 00:33:30.780 Well, that's probably as good a place as any, and I notice that the time is about up, but perhaps the years of separating the war industry boarded in the New Deal, 237 00:33:30.780 --> 00:33:41.280 and whose anti-market influences have metastasized into the present, offer a stark confirmation of the classic libertarian sentiments of Adam Smith, 238 00:33:41.280 --> 00:33:53.280 who observed that, quote, people of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public or in some contrivance to raise prices. 239 00:33:53.280 --> 00:34:00.280 It is impossible indeed to prevent such meetings by any law which either could be executed or would be consistent with liberty and justice. 240 00:34:00.280 --> 00:34:09.280 But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies, much less to render them necessary.