The Progressive Era Triple Alliance: Government as Cartellizer (continued)

0:00So the Federal Trade Commission, and I'd refer to COCO for more detail. This seems to me an extremely important legislation in the corporatist development, and was considered as such as the analog for the ICXP, federal versus the intercultural, substantive subgroup. There's also an interesting development during the Wilson administration, started during the Taft administration. This is pushing the social welfare and the welfare of the corporate state. This is the United States Commission on Industrial Relations, which was set up in late 1912 by Taft, but really it hardly got started before Wilson takes over and Wilson points to people and so forth.

0:45The U.S. Commission on Industrial Relations, which was stimulated by industrial violence, worker violence and what to do about it, I guess it has, again, this is the first time really on a federal scale we have this tripartite arrangement referring to three labor representatives, three corporation representatives, all of whom, incidentally, were national civic federation types, the NAM was squeezed out of this arrangement, and three so-called public representatives who are our public busybody types, social engineers. Among the public representatives is our old friend John R. Comma, who plays an extremely important role in this whole business. Also, Mrs. J. Borden Harriman, one of the famous Harriman families, who becomes one of the upper-class female social worker busybody types, The Chairman of the Commission was a genuine left-winger named Frank Walsh, to the left of the corporate common types. He was a lawyer and social worker. He was put on because he was supposed to be a friend of John R. Cummings. That was his cache in this thing. So he was

2:04and the National Civil Federation. And it turns out they split later on during the work of the commission. The forces were too leftish for the rest of them. And Cummins put then as the research director, head of research for the commission, Charles B. McCarthy, another Wisconsin progressive. McCarthy is a very interesting guy. McCarthy was essentially a student of Cummins, a student and a disciple. He was the head of the Legislative Reference Bureau of Wisconsin, engaged in many of the cross-dining activities. Act, the Federal Trade Commission Act, the Great Example of Planning, the World, and particularly the role of business market, one of the great economists, or so-called economists, theoreticians, Otto Wagner, one of the historical school economists.

2:57and he thought of the, he did his work on the industrial commission, he thought of the industrial commission as trying to bring the German model, the Wismark model, to the United States. He's one of the big figures in workman's compensation, pushing workman's compensation, pushing the whole Wisconsin idea and so forth. One of the McCarthy's lucrative ratios that I found some interest in, when he was reminiscing one day, he said, quote, the backbone, the backbone was his thought on political economy. The State must invest in human beings in the same way as you invest in cattle on a farm.

3:55The U.S.A. has two great labor historians in the early part of the century. There were the American Labor Union, the official A.F. and L.L. line, the craft union, monopoly union, and the corporateist framework. I'll get more to that when I get more to humans later on. John D. McCarthy, this should be a corporatist, a progressive, a commons associate, and everything else. It's also turned out to have been a friend and a classmate of John D. Rockefeller Jr. at Brown University. Classmates keep popping up all the time. It's probably something incredible. It can't be a coincidence. I don't believe it. By this time, Rockefeller, I think maybe, this is a little bit, this is kind of spiky, Rockerfeller sets up an industrial relations department as part of a fairly newly set up Rockerfeller Foundation.

5:08One of the big shots in this, by the way, was Sir William Lyon Mackenzie King, who was The relationship between the Rockefeller Foundation and McCarthy is quite close. Jerome Green, who was a personal Rockefeller aide, writes to McCarthy in October 1914. He says, under William Lyon Mackenzie King's direction, the Rockefeller Foundation might quote, gradually convince the public both of our disinterestedness and of our strictly scientific methods.

5:53Again, you have this idea of, in a sense, you have the Rockefellers, okay, I'm going to turn to science too, in quotes. These guys can do it, I can do it. Which I guess is the beginning of the great Rockefeller Foundation career, in a sense. career of finding and developing promising scholars. We now have the last, the latest fruits of the Rockefeller interest and scholarship, of course, is Henry Kissinger, our beloved foreign policy czar. So, what happens is there's a split in the commission. McCarthy is kicked out under Walter Zeges, and we have three reports basically, several reports, Cummins Rights Report and other very independent reports of the commission.

6:52One of the key people in the commission, one of the things about Cummins is he becomes a, he promotes a Cummins Report, presages a new deal almost one by one. He sets forth a situation which will later become very similar to the Nash NRA, the Wagner Act, the WPA, the CCC, all these things are pre-figured of a Cummins report in 1915. The Industrial Commission reports are written in 1915. Cummins' sidekick, the Assistant Director of Research, who was Assistant to McCarthy, is another guy who appears among all rulers from then on. Well, an amazing number of people start around this period and continue ever since. They sort of live to the age of 110 or something. They've only died out fairly recently. And they start around this World War I period. One of them, Billy Lizerson, who was the labor economist, student of commonivid, post-associated McCarthy, who's pushing here, state public works for depressions and state unemployment services. And he comes up with a new deal

7:55and so on, one of the largest flour millers in the world at the time, and Ballard's report outlines the following steps that should be taken to cure the industrial problem and so forth. He's talking about raising wages, various government steps to raise wages, one, you should restrict immigration in the way of raising wages, if your interest is in raising and the American Wage Rates, one of the ways to do is to keep everybody out, two to have a national minimum wage law to raise wages, three workman's compensation laws, four factory inspection laws, which we've seen with meatpacking impose higher costs on cartelized assistance, impose higher costs on small competitors, next the federal eight hour a day law to make The Federal Employment Service and the Federal Republic works during recessions.

9:02And also, in all of this is practically the entire deal, not only 33-35 but really also 33-38. The whole spiel I think is set out in the Commons report, the Ballard report, etc. One of the things, kind of a cute thing, which prefigures the CCC and maybe a few other institutions in the world, is the cause for, quote, government concentration camps, where workers, where work with a small wage would be provided, supplemented by agricultural and industrial training. And we see here the beginning of the great CCC concept of, out there in the great forestry or mainly, The whole idea of forced government labor. They used the word concentration camps those days.

9:47It had not yet been rendered inoperable. The word, not so much as a policy. So who runs against, who runs against Wilson in 1916? In fact, past corporate reform has been put in. I haven't mentioned the Federal Reserve System yet because I'm going to go back to coming with that. That had plus the Federal Reserve System. Only fantastic corporatist reforms were coming. Who is going to be found to run against this great man, Charles Evans Hughes, 1916, Wall Street lawyer, who turns up, at least after his defeat, as the attorney for Standard Oil Company in New Jersey? I cannot refrain from saying that Hughes was a Rockefeller person. I cannot stop myself from saying that. He's also a member of the same Baptist Bible class as John D. Rockefeller, Jr.

10:39And he, of course, he was beaten. He was only almost won, but he was finally beaten. Okay, so it shows the Morgan, the Wilson-Morgan continuation of power. Okay, what's the Federal Reserve System, and we'll come back to that, of course, later on. The thing about the Federal Reserve System, basically, was it succeeded, well, first of all, it was backed by almost every banker. I really don't know, there might have been bankers that opposed it in detail, certainly, but the concept, certainly the big bankers all favored it.

11:25There were pretty few people that were against it anyway, in general. I think the major reason for that is the fact that the Federal Reserve System succeeds the National Banking System. The National Banking System was kind of an abortion. The National Banking System is a halfway house from free banking, hard money free banking, at least free banking kind of system, system, which we had before the Civil War, to a central bank on the other hand. In other words, what we have, basically what we have before the Civil War is a free banking setup, with the exception of the first and second banks in the United States, but after Jackson got rid of the second bank in the United States, we had a decentralized banking system. Much of it was hard money, the free entry into the banking system.

12:10Some western states banks were declared unconstitutional, and they put some no-banks in that area, but there was considerably less inflation under the free banking system, even though, quote, wild-cannon, quote, than there was later on. Anyway, this is one system, and the free banking kind of system, the hard-money position, the pure-gold position of the Jacksonians, and previously that of the Jeffersonians, really, And we at least had a fighting chance, and what you have is you have a continuing drive by the Jacksonians for outlawing banks altogether, for ensuring that they pay specie immediately. One of the reasons why it's always been said that free banking leads to wildcat banking and runaway inflation.

12:57One of the reasons why there was, it didn't, but one of the reasons why there was more inflation than there would have been under a real free banking system is that every time When the banks got into any kind of real trouble, massive trouble, thought about by their over-expansion, the government, state and federal, got them off the hook by allowing them to suspend specie payments. In other words, to stop paying their debts until this crisis is over. In the meantime, of course, they could collect the debts, they could enforce the collection of their debts, the debts to them and the courts. But while all this was going on, the moratorium was declared, so they wouldn't have to pay This great tradition of letting the banks off the hook begins in the War of 1812, the largest center of capital investment in New England, which we all know as the post of the War of 1812 against Britain.

13:59So in order to finance the war effort, the administration had to turn to the new banks popping up, the new banks inflated like mad. The government spends the money on munitions and so forth, and manufactured goods produced in New England. The New England banks call upon the new banks of Pennsylvania and Kentucky, et cetera, for redemption. They ain't got the money, they ain't got the gold, so they have to go bankrupt. It was the end of the modern banking system, so to speak, the origins of it. The Federal Government says, okay, we suspend species banking. This is the Black Month of August 1814 habit. Not only does this continue for the duration of the war, but it went on from then on until early 1817. So for two and a half years, the banks were let off the hook. There were two ways out. I won't go into detail.

14:47There were two ways out, faced at the time by the congressmen and theoreticians. One way was to get rid of the banks, the banks who couldn't pay, the bank crop banks, and go back to a gold system, or a gold-silver system, I should say. And the other was to set up a new bank in the United States which would inflate enough to keep these banks afloat, which was the solution that was adopted. At any rate, after the second bank in the United States was eliminated, we have a free banking system, with hard money as a viable trend, let's say. After the Civil War, the whole system changes with two things. One, the greenbacks, which are fiat money, not redeemable, gold or silver. It took them 14 more years to get rid of the greenbacks. They got the greenbacks back on a gold basis.

15:33And the National Banking Act, which won outlawed state banknotes, that was banknotes produced by state banks, outlawing by producing an extra tax of 10% on state banknotes, And it's setting up a whole new national banking system where reserve requirements, et cetera, deliberately centralizing Wall Street, the national banks of Wall Street, and then permitting on top of that smaller city banks having deposits in the Wall Street banks and the rural banks having deposits in the smaller city banks. So it's got a permanent expanded credit kind of system based on the central Wall Street Bank is a major reserve, separate reserve cities, and their reserves, their money supplies they were allowed to issue was based on federal government bonds, a very peculiar kind of system.

16:26In other words, the more government bonds they bought, the more credit they could issue. So this was a system which didn't satisfy really anybody too well. The, for one thing, so they looked around for reform. It was very difficult at this point to go back to, first of all it took them 14 years to get back to gold even, to get back to the gold standard. So this sort of exhaust of the hard money people, besides the hard money people sort of dying out by this time. And it becomes very, to go back to the free banking system and full of civil war would have made a titanic revolutionary kind of change in the system, in which whatever gold bugs were left were not in the position to try to accomplish.

17:14So with this sort of alternative kind of dead and defunct, or forgotten, increasingly forgotten by the general public, by economists, by bankers, the next alternative looming up was the pressing on of a fully centralized banking system with the Federal Reserve, with the imitation of the Bank of England, which pioneered in this thing, and so forth. Now most of us think, looking back, most textbooks think of, say the central bank is extremely important and we must have a central bank in order to restrict the banks, the commercial banks from expanding credit and inflating the credit excessively. This is the usual way in which the, this kind of thing is sold to the general public. You should be surprised by this time that this is sort of again an Orwellian system in reverse.

18:00This is not the way the bank, this is not the arguments of the bankers themselves and and the economists themselves promoting it, used for the Federal Reserve system. The argument was, this darn national banking system is too inelastic. The money supply is quote inelastic in quote-unquote, in other words, we ain't got enough of it. Banks are not allowed to expand credit enough, especially during recessions. So we need some kind of instrument to ensure more and better inflation, more and better expansion of money and bank credit. There were several problems. One was, we need Walter Badgett, the Mephistophenean figure, who was the theoretician of the Bank of England in the 19th century. So the central bank has one very important function of being a lender of what we call a lender of last resort. Lender of last resort meaning that there always should be a government-sponsored bank out there in the sort of a Deus Ex market, that want to bail out any bank that is really getting

18:52into trouble. So every bank knows deep in its heart, there's always a central bank there to bail it out, to Lend It Money and so forth, to tie it over any kind of real emergency. This was accepted as a brilliant stroke, master stroke in banking theory. And then they felt it was necessary, also as Coco points out here, under the national banking system, decentralization was popping up, the Chicago banks now were becoming part of the Central Reserve, and the more and more state banks, in other words, they had less Less and less centralization was felt by the larger bankers. They had to re-centralize again and impose a central control, which would seem to be getting out of hand. Also, we had the growth of the Bank of America, a state bank, which was completely outside the establishment in those days.

19:47So we had, in this situation, once again, the economists have punked out, in other words, The economists which previously to this period had been hard-money people, and they'd also been gold bugs to one extent or another. By this time, the old hard-money economists had dropped out, had died off. And then it was just a question of sort of jockeying, which kind of central bank should we have? We've accepted almost on every hand that we have to imitate advanced countries like England and Germany, et cetera, and have our own central bank. And there's a whole litany here, which I need not repeat, as Coco mentioned, of all the guys who are pushing for some kind of Federal Reserve bank.

20:35And there's all sorts of jockeying back and forth, and I don't think in the long run they were very important. The point is almost everybody has one of their own kind of separate bank, and we wind up with something. Some of the key figures, again, in this, the famous Jekyll Island Conference, which figured in Westbrook Puggler's demonology from then on until the day he died, one of the things which was one of the sources for the writing of the Federal Reserve System, at this conference were Paul Warburg from King Moab, Frank Vanderlip from the National City Bank, who becomes very important throughout this thing as a great theoretician of inflation, Henry P. Davison Morgan-Partner, Charles Norton of the First National Bank, and of course Milton Aldrich. And anyway, with all this jockeying back and forth, we wind up with the Federal Reserve System.

21:23Before I get to the essence of what happens there for the Federal Reserve System, I want I want to mention a few words about the man whom I will turn to later, later lectures. The man who becomes the ritual king of the Federal Reserve system until the day he died, not exclusively at the beginning, but enough to establish working control, and by the mid-20s, the early 20s, he has absolute control until he died at the end of 1928. Benjamin Strong, governor of the Federal Reserve Bank in New York. And it was all during the 20s, by the way, the constant battle between the Federal Reserve in Washington, which one would have thought would be the head of the system.

22:09And Strong, who was the head of the Federal Reserve Bank in New York, Strong wins out. In addition to having a lot of clout and being in New York and buying and selling bonds and the rest of it, close to the source, he also had a lot of political and economic clout. In addition to being a charismatic figure. I don't think we should, usually historians interpret Strong's ascendancy in the Federal Reserve System Benjamin Strong was the head of Bankers Trust Company, a Morgan Trust Company, set up in 1903, and second of all, his closest friends in the world.

22:56I mean, not only business friends and people who have pushed him all along the way, but also social friends and golf club pals and all the rest of it, or Henry P. Davison, Morgan partner, and Dwight Morrow, Morgan partner. Strong, when he got the call to be head of the Federal Reserve System, he's also an old pal of Elihu Root, just to sort of cement the whole thing, and Thomas W. Lamont, another Morgan partner. At any rate, it comes to the core from the Muslim administration to appoint Benjamin Strong as head of the Federal Reserve Bank in New York. He sort of hangs back in a shy and modest manner. He's probably not really competent to do this. He was implicated with, and so forth and so on, by Davidson and Morrow to accept the post. Okay, so our hypothesis from now on, which we will test as we go along, is that Benjamin Strong is essentially parenthesis Morgan.

23:46Essence of Federal Reserve System. Here I refer to a great book, which is published by Macmillan, published by several distinguished co-authors, the senior author of whom was one of the most distinguished banking theoreticians of the 20th century, Charles A. Phillips. It was a book published in the 30s by Macmillan, an distinguished publishing company, yet the book bombed totally. It was never heard from again, either by economists or by anybody else. Yet it's one of the best books on this whole period, starting both theoretically and empirically, starting in 1914 and continuing on down through the 20s and the early 30s. So I refer you to this for further elucidation of this whole thing, plus other books on bibliography.

24:33The Banking and Business Cycle by Felix McManus and Miltz Gehring. What do we do here? We have a situation. Well, this way. Supposing we have a bunch, we start off with a bunch, let's say, of independent banks. Forget a minute about the national bank permitting. That makes it just more complicated. We have a bunch of independent banks, each of which are required, the average reserve requirement before the Federal Reserve Act. They have a bunch of independent banks, each of which are required. The average reserve requirement for the Federal Reserve Bank, the average reserve requirement was 10%. In other words, the banks could pyramid, the national bank notes could issue notes, the national banks could issue notes.

25:20Let's take a pyramid note on the deposits, 10 to 1 on top of the reserves, which were either gold or government bonds or other banks, depending on where they stand on the pyramid. Let's say they're gold in the simplify effect. So we have the 10 to 1 on top of this. Excuse me, it wasn't 10%. It was 20%. I'm giving away the punch line. 20%. It was 5 to 1 permitting. So these banks are now allowed, and the average is really 21, but I'll make it 20 to make it simpler. We have been allowed a 5 to 1 permitting by each bank.

26:07We centralize the reserve. We take all the government forces my left will induce and the cousins in many other ways. The Federal Reserve Bank gets the banks to yield most of their reserves to the Federal Reserve Bank, and then we create the Federal Reserve Bank. Let's say they get all the reserves, and now the Federal Reserve Bank, the reserves of the national banks become the deposits with the Federal Reserve Bank. Checking accounts, so to speak, of the Federal Reserve Bank. So now we have a gold centralized Federal Reserve Bank. This is one of the arguments that's constantly being used. The National Banking System is too inelastic, in other words, not enough money, not inflationist enough, but also we need centralization of reserves, so we economize on reserves as the slogan.

26:53What this meant, economizing on reserves, was here we have, if they just put reserves into the central bin here, we still have a 5 to 1 setup, 5 to 1 ratio. However, now we have the Federal Reserve system, Federal Reserve Banks themselves are allowed to expand 3 to 1, 35%, so let's say it's 3 to 1, 3 to 1 on top of their gold, so now in other words, the gold, let's say the gold, the amount of gold centralized is the same, now the Federal Reserve Banks are allowed to expand 3 to 1 on top of that, so this means that by this process of centralizing and having this 35% limit, we have an allowed 3 to 1 expansion The bank credit supply can go up by 3 to 1, permitted to go up by 3 to 1, and usually in banking history, if the government permits banks to expand money on top of reserves, they'll do it, except in deep depressions, when they can't find anybody to lend money

27:51to because they might go bankrupt, but generally, this is either immediately or in a couple of years, if they permit a 3 to 1 expansion of reserves, they can expand 3 to 1. This allows for a 3 to 1 expansion of money and bank credit. In addition to that, as if this weren't enough, this engineered inflationary potential of 3 to 1, by inflation, by the way, I mean an increase in money supply, despite money and bank deposit. In addition to that, the Federal Reserve Act reduced the average reserve requirements by statute in half, from 21% to 10%. And actually it was 11% in 1914 and 10% later, but basically it was reducing in half, possibly 20% to possibly 10%, which means that instead of, before you get a permit, the banks could permit 5 to 1 on top of reserves, now they can permit 10 to 1 on top of reserves.

28:42We now have an extra twofold inflation on top of a threefold by the centralization process. The mechanism of the Federal Reserve Act immediately ensured a potential 6 to 1 inflation on top of the previous supported money, an enormous inflationary engine, sold to the public to diluted college students in a sense as a restriction on inflation, as a way of combating these evil commercial banks, the private banks that are out there inflicting, we need the Federal This 6 to 1 potential was limited. It starts off fortuitously at the end of 1913, so it was just about time for the war effort. Only a couple of years into the war effort. This 6 to 1 potential was limited by money in circulation by the public. In fact, the public can take Get some money out once in a while. This is a limiting factor. It's always a limiting factor in bank credit inflation. If all of us, for example, if the entire country suddenly cashed in their bank deposit tomorrow, it would be an excellent, this would be, if I

29:55were asked to give advice to the general public, how can we stop inflation? I wouldn't say don't eat meat, I'd say cash in your bank deposits. It would be a very effective, if a little disturbing way of limiting inflation. Get your money out of the banks. And, you

30:13and also the 35% was altered, it was 40% against Federal Reserve notes, anyway these are minor considerations. The other problem is that there's a disturbing potential, we're still on the gold standard, there's still a disturbing potential that the public might cash in all this stuff, not only the Federal Reserve notes and the National Bank's deposit for gold. This could wreck the whole thing. So a big campaign is launched by the Federal Reserve System in various ways to get the public not to use gold anymore, to reduce gold to the sort of thing, gold coins, the sort of thing that you give to kids on Christmas, like one gold coin, here's your gold dollar and you'll find all people get it, to reduce it to this sort of ceremonial status.

30:59One of the things they did is to stop issuing gold certificates and replacing gold certificates. The gold certificates had been issued by the Treasury. They were 100% backed by gold, so they were extremely sound and hard, etc., etc. These were replaced by Federal Reserve notes, which were backed, you know, 40%, like two and a half to one on top of gold, and which then replaced as a general cash in circulation. Gold certificates were retired and replaced by these Federal Reserve notes. Incidentally, one of the ways by which... How does the government How does it get its power over the commercial bank? How does it ensure the Federal Reserve has all its power to regulate, control and inflate together? Basically two ways. One is all the national banks were forced to become members of the Federal Reserve system.

31:47But more important than that, the state banks were not. But more important than that, the real guts, the real heart of the Federal Reserve control was the Federal Reserve now had a monopoly and the issue was of cash, the issue was of paper money. Before that, as I said, the national banks, the private national banks like Chase National Bank, could issue their own bank notes. Now this is prohibited. It becomes illegal on the pain of death torture and whatever for any private bank issue. Only the Federal Reserve banks can do that. So this means that if you want to get your money from the Chase or Chem bank or whatever, the Chem bank has to use their reserves to go to the Federal Reserve and buy cash from the Federal Reserve system. So this becomes the control. So this means that everything pyramid on top of the Federal Reserve bank would have the supply of cash in its mitt. In 1913, the same 21% requirement was levied by the federal government to time deposits

32:44as it was to demand deposits. This was changed now, and the time deposit minimum requirement was lowered first to 5% and then to 3% by 1917, which is almost zero, practically almost unlimited. The whole controversy among economists about time deposits isn't really part of the money supply, isn't it? I contend that it is part of the money supply. For one reason, you can get your money out right away. There might be a little clause there in fine print saying you can put the bank in a wait of 30 days. But if a bank ever really tries, if a savings bank, a commercial bank, is trying to make you wait 30 days, they'd be bankrupt very quickly. The Time Deposit Method becomes a very interesting way, all during World War I and during the The result of this titanic change in the banking system, which I'd say came along very fortuitously to finance our war effort, and the post-war war effort as far as I said, a lot of the war

34:16We have this kind of situation in Wallops, 1914, this is bank deposit, I think it's only Bank deposits, total bank deposits, 1914, $18.6 billion, 1920, $37.7 billion, a doubling Bank of the total money supply in the form of bank deposits.

35:09I would like to talk about the 100% increase in a 6-year period, which is a heck of a lot. Home sale price level, setting 1913 equal to 100. 1914 was 1997, 1920 243, which means a 2.5 fold increase in the wholesale price level. So we have inflationary prices fueled in the classic manner by inflationary money supply.

35:54World War I was very badly financed on any kind of conservative or sound criterion. The usual conservative criterion for financing a war effort is, you've got to finance a war effort, you should finance most of it, at least, by taxes, by levying taxes. Because if you don't do that, you're going to have to finance it by inflation, which is considered to be kind of a bad thing to do. The Napoleonic Wars, to give a kind of comparative analysis here. The England Finance Award and the Napoleon Awards went on for a long, long time for us. 63% by tax revenue, by levying taxes for expenditure. World War I, in the United States, World War I financed 25% of its expenditures by taxes, the rest of it by inflationary debt.

36:50There are other details about what happens each couple of years, etc., but I don't really think it's necessary to go into it, because I think this is kind of the basic framework. Well, this sets the stage for the World War I inflation and the post-war period coming on. I think there's still some time to, a little bit at least, to another aspect of progressivism, which is very important, which has been alluded to here and there. Local Progressivism or municipal or urban city local progressivism. Here I refer you to the classic, just a classic article by Samuel Hayes called The Politics of Reform in Municipal Government, The Progressive Era, which has been anthologized all over the place and several other things which I'll mention.

37:48The, what you have here, and this is alluded to, I think for us, alluded to Lindsay, the essence of John Lindsay, and I really think this fits in beautifully in this whole setup. What you have basically is a great drive for an urban reform really to smash the, and this runs through the whole set-up, to smash the power of the local ward healer machine-type politicians, the old politics, to smash their power and replace this power by new technician-expert upper-class centralized government, as compared to the older politics of essentially decentralized Award-Oriented Neighborhood Community Control, as we call it, kind of set up. We place this by out of politics, taking municipal government out of politics, and into this new, great new, into the light, into the limited light.

38:41The essence of this, before getting into any details on this, not only, incidentally, in addition to being an economic determinist, which I proclaim, I'm also an ethnic determinist, The two of them often, of course, jive. But you have here, during this whole period, of course, one of the things you have is massive immigration from southern and eastern Europe. And as far as I mentioned, the original native people, the Wasp, the Wasp who had been here are kind of scared by this whole setup. New Invasion, so to speak, and in many aspects of life, and I'll be getting later on probably undoubtedly tomorrow night, the public school revisionism, which is also a great new thing which has popped up in the last couple of years, public school revision in the progressive period, all these things mesh in, the whole thing is an attempt to take urban politics out of the hands of the new immigrant groups, well, old immigrants, Irish, Italian, Jewish, One of the key bases of neighborhood control by the local ward-healer politicians was the saloon. The neighborhood saloon was a key social center.

40:07The other thing is the Catholic Americans drank a lot. At least in contrast to the Protestants who drank hardly at all, at least in the public way. This whole thing about drinking, which comes all the way back, I guess, at least to the 18th century and probably before that. At any rate, this whole thing about drinking, and the Catholics usually drank, and also Germans drank, I guess, in general. I suppose German Protestants also. So you have the whole thing about the evil Germans, the evil Irish, the evil Italians, and they're drinking. And here you have a loss to Don Frank, at least supposedly Don Frank. And fortuitously, along with this, you have the neighborhood saloon and the saloon keepers being the key ward politician. They go to him for favors and he's sort of the beloved figure and they all say hi Joe, Joe, and that sort of stuff. He often gets elected to the board of aldermen. And so part of the idea of smashing a local neighborhood is the idea of smashing the saloon and the brewery industry, which is anyway in the hands of the evil Germans we're beginning with. So you can bust them along with the saloon keepers.

41:04and added grace. So all these things that are happening together, it's really almost like a systematic, systemic kind of approach on every level, social and settlement house level, and the city commissioner concept which comes in, and the city manager concept which comes in, and prohibition which comes in, and I regard prohibition as really once a form of corporatist framework, and the public school, tightening up of the public school thing which comes in, and crushing and Immigrants, which also comes in in this period. Part of this, I was very interested in, I was talking to Ligio after Forrest's talk this morning, because he mentioned the whorehouse question.

41:50And it seemed to me, he and I had a flash of insight, creative flash of insight in this whole thing, because in addition to the saloon, The Warhouse is even more important than the Warhouse, but also the Warhouse is kind of a neighborhood, ethnic, old politics kind of setup. And I have thought that my analysis of the Man Act, and here I feel there's a correction, I'm going to deal with this more in the morning, a correction of my revered mentor H.L. Mencken in this whole period. period. H. L. Mencken, for example, saw the Man Act and Prohibition as a purely moral morality thing with what he called cow country Baptists and Protestants rising up from their ranches and dung heaps or whatever to impose these moral morality laws on their betters, on the urban folk.

42:49In this context, of course, Mencken defined Puritanism, and one of the great definitions of Puritanism in our UPC, which is that Puritanism is the haunting fear that somebody somewhere might be happy. And, uh, but I think, I think more, and it wasn't about thinking about economic, he had essentially an economic analysis of that, too. Especially what he, I think what he said about the Mann Act, was that, well, this is a formula, an agrarian farmer, Methodist Baptist imposition, because what the, what the farmers are saying is, they don't have the money, you see, to transport women across state lines for immoral purposes. The Man Act becomes the former smashing of urban wealthier and more affluent and more cosmopolitan and more mobile urban types.

43:46In addition to that, he also had an economic analysis of the former in Prohibition, he said that the urban person has to buy his liquor from somewhere, this is interstate and so on and so on, it's visible and can be outlawed, the former makes his own moonshine, he can never really outlaw that very successfully, so out there in the backyard. So here again you have this sort of former orientation, but I think there's more to it than that, it's not just the former. It's also, for various reasons, our centralizers and our corporate reform types moving in an alliance, obviously, with the former Methodist Baptist ideologists, so to speak, moving in for their own purposes to smash the saloon, to smash the brewers, to smash the evil German conspiracy.

44:31Certainly, during World War I, and Leonard and Lydia have done more research on this than I have, during World War I, there's a whole thing, not only about this hysteria by George Creel, etc., about the German conspiracy, The German Conspiracy is part of the brewing industry in general is part of the German international Kaiser Conspiracy. The very act of drinking beer is a sign of loyalty to the Kaiser, and therefore you're stamping it out as part of the patriotic war effort. Of course, prohibition really comes in during World War I. Let me do the prohibition thing. I was going to do the Samuel Hayes thing. We've gotten Here I refer you to James Timberlake's work on prohibition of the rest of the movement. What you had in prohibition, and presumably also in the Mana Act, in the prohibition we have an alliance of forces.

45:25What Mencken always referred to as the uplift, and William Graham Summer referred to the uplift, the idea that you, you, and you out there should be uplifted. If you don't like to be uplifted, you don't like the idea of being freed of the curse of demon John Barleycorn, you're going to jolly well be compulsorily uplifted. This idea for William Graham Sumner and his great essay, What Social Classes Ode to Each Other, his concept of forgotten man, I think is a definitive statement on this, his description of moral uplift was that A and B put their heads together to decide what C should be made to do for D. And in the prohibition case, it works something like this. A and B are reformers, are moral uplifters.

46:11They get their heads together and say, you know, you have more accidents and all that sort of stuff, and people are getting liver ailments, etc. Therefore, because a lot of people become alcoholic, therefore we should outlaw liquor. So the essence of this is that A and B, who don't drink anyway, are forcing C, who's a forgotten man, he's the poor schnooker who takes a drink once in a while, First, depriving him of liquor in order to say B, the minority, small minority of alcoholics or potential alcoholics. So he goes on from there to say, well, what happens is A and B, you pass the prohibition law, whatever other similar legislation. And A and B, of course, are very happy. They don't drink anyway, and they're imposing their moral standards on everybody else, so they're in great shape. B, the potential alcoholic, can get the liquor anyway. He knows all sorts of sources, you know, you knock on the window three times, and Joe, you know, Joe's sentencing, he gets his liquor.

46:57This is liquor. So he gets his liver ailments and dies in the concoction anyway. So the person who's really harmed by this is the poor schnook C, the forgotten man, the poor, humble, average American, middle American, if you want to call it. But like I said, Rick wants it in a while. He doesn't know the illegal sources. He doesn't know how to speak easy or whatever. And he's the one who's not being helped anyway, even in terms of reformers. He's the one who gets shafted by this whole system. Anyway, we have the moral uplifters, we have the, particularly led incidentally, we think again of prohibitionists, we think of prohibitionists as being sort of a right-wing fundamentalist thing. I mean, especially in these days, the Prohibition Party is sort of a right-wing prohibitionist party. In those days it was pretty different.

47:42But as we have, for example, the social gospel movement, which everybody knows as the great left-wing, in quotes, of the Protestant movement, bringing a message, applying a message of Christianity to social affairs, as almost always socialistic in nature, these guys were very hip on prohibition, outlawing the liquor industry. This was part of the social gospel. Walter Rauschenbusch, his great work, Christianizing the Social Order, I told Leonard I was going In 1912, Walter Rauschenbusch is again held up by any old discussions of the social gospel as being the big theoretician of the left-wing Protestantism of this period. Walter Rauschenbusch in Christianity and Social Order writes of the liquor industry quote, is seeking to fasten on an angry people a relic of barbarism, which the awakened conscience and the scientific intellect of the world are combining to condemn.

48:38Here's the key phrase. It's this great alliance, you see, of the awakened conscience, that's the fundamentalist crazy, so to speak, that's the moral argument against liquor, combined with the scientific intellect, and this is the new scientific technician, The scientific technicians, while all this was taking place, were also in favor of prohibition using scientific arguments, using statistics, you know, more alcoholics die in the gutter, more alcoholics get blind, and you can say statistically it's very true, more alcoholics have cirrhosis in the liver, more alcoholics don't want to meal as much, more alcoholics have one of a meal accident, and on and on, more alcoholics go crazy and so forth. And so here we have the scientific reformer, our expert, our technician, our social worker, and Social Sciences. Combined with the social gospel, we have this magnificent fusion of Christian theology and science. I mean, what could be more powerful than that? The Reverend Josiah Strong, for example, another eminent social gospeler in 1909 writes that industrial

49:42work, they're coping with the industrial system. They came to the conclusion that industrial work increases one's desire for alcohol. Presumably what they mean by this is you work, you know,

50:19They're congested, they're tired after a hard day's work in the assembly line, and they unfortunately have high wages. This is very interesting for a left-wing social-loss bowler. Their high wages leave them to be a little more affluent, and so they're led then, quote, to buy, drink, and acquire the liquor habit before they had developed a more refined taste of a higher civilization. So obviously what the conclusion for this is, you stop them, you outlaw the liquor, you refine them up. It's sort of like this is Galbraith in the The Gospel of the Kingdom magazine writes in 1914, hailing this great drive for a prohibition Personal liberty is at last an uncrowned, dethroned king with no one to do him reverence.

51:28We are no longer frightened by that ancient bogey paternalism in government. We affirm boldly it is the business of government to be just that, paternal. Having human can be foreign to a true government. I like that. It's a certain ring to it. One of the problems is perhaps fortuitously that Catholics tend to drink in at least moderate amounts. Part of this whole thing is an anti-Catholic drive. Catholics were not shaping up in this is a great drive toward purity and temperance. Catholics are largely immigrants. This is largely true. So in addition to the uplifts in the Gospel of the Kingdom magazine, Walter Rauschenbücher, Owen Josiah Storm, and some of my other favorites, we have the scientific argument, the uplifts argument, the harmful effects of alcohol, at least the crime, the poverty, etc., etc.

52:26We have this interesting twist. I wonder how some of our current social workers are caught into this. They had this kind of an attitude, the scientists. They said, the scientists gave me social worker types. They said, a man is determined by his environment. If a person is poor and he's unhappy and so forth and so on, it's not because he doesn't have a job or whatever, it's not because he's personally at fault. That's an ancient reactionary 19th century laissez-faire attitude. It's his personal character that's at fault. No, no, it's his environment that's at fault. He is determined by his environment. He is a poor puppet creature of the environment. So the way to help him out, the way to cure his poverty and his slum conditions and his unemployment, etc., etc., is to change the environment. What's the environment? The environment is liquor. The saloon, the neighborhood saloon, standing there with evil temptations, etc., etc.

53:11And so therefore the way to help his environment, the outlaw of the saloon, the outlaw of liquor, and so forth. All the progressive social scientists, our beloved friends from our other meetings here. Edward A. Ross, one of the great founders of scientific sociology. Simon Nelson Patton, the progressive economist. Irving Fischer, now beloved and then beloved. A compulsory vegetarian as well as compulsory prohibitionist. All these people pushing the idea of outlawing liquor as part of this great new social science and applying the lessons of social science to the public. and the social workers, as I said, going on very neatly with this. There's also, in addition to this, interestingly enough, I've already talked about religio-ethnic determinism and a little bit of our friends as social scientists again, we also have some economic determinism in work, more directly.

54:07And that's many big businessmen, back to our big business friends again, who believe it was necessary for workers to be sober. There's this whole tradition, by the way, in Western civilization, for example, in England, the mercantilists, many of the mercantilist theoreticians in England in the 17th, 18th century were constantly saying, we shouldn't have higher wages, higher wages is a bad why, because we increase wage rates, the workers will just get drunk on Monday as well as Sunday, and on Friday as well as Sunday they just won't work. And economics is known as the theory of the backward sloping supply curve of labor, which as far as I know has never been substantiated. At any rate, they just won't work, they just work less, they may as well pay them lower wages, make them work harder. Part of this thing is, again, this evil drunkenness. These guys will go out there, they'll be relaxed a little bit, and this will reduce their hard work and their efficiency. So many businessmen now get to the point of favoring prohibition

55:01in order to sober the workers up. They won't have the temptation, they'll be on the job more rapidly, and then they're working harder, and so on. Also, there'll be more safety at work. Here we have, you see, the triumph of the workman's compensation was, now that employers Employers are liable by law for the accidents on the job. If you keep liquor away from you guys, they won't have so many accidents. It will cut down the cost of the employer. It's a beautiful reinforcement of one state as impiling up on top of another. And we begin to have a situation where many businessmen engage in voluntary prohibition. In other words, as a condition of employment, no worker should be, first of all, drinking on the job, and many of the more far-out employers, No worker should be drank, period, even off the job. The railroads were pioneering this great effort. The railroads had negligence laws, again, special liability laws to worry about too. The railroads began to lay down the rule that no worker can drink either on

56:02duty or off duty, ever, period. The next step, of course, then, if you really want to enforce this with some of the employers, it is kind of expensive to do it, as well as a little is the higher groups of agents that go around and see what the guy is drinking or not. Otherwise, what's the point of having a rule? And they found out, you see, in the railroads, it's true, I'll have to give the devil a layer to do here, that when the railroads passed this rule of no drinking either on or off the job, there was a decline in railway accidents, no question about it. This was sort of a model and inspiration for other employers in manufacturing. And the scientific management movement which comes in around this period, Frederick M. Taylor, pushing the idea also, in addition to firming up the assembly line and so on, of eliminating alcohol because alcohol lowers efficiency.

56:54and so you have this other aspect to the prohibition movement and in addition to that we have special regional kind of situation for example the dry, there are many dry states in the south for example, many states which have state prohibition, still is, still are, almost, at any rate, the businessmen in the dry states want to impose national prohibition so the wet state people wouldn't have this advantage, we can impose this throughout the country and the American business in general also wanted national prohibition in order to firm up the American labor force and be able to compete against these drunken people, drunken workers abroad. This will increase our productivity in the world markets.

57:44In addition to the sort of general business sympathy toward prohibition, we had certain specific businesses which are even more economically determined to be in favor of prohibition. In other words, economics is known as substitutes. I wouldn't say close, it's hard to say close substitutes, but sort of substitutes. The closest we can think of to liquor. Grape juice and Coca-Cola. Most grape juice company and Coca-Cola company push very hard for prohibition for the outlawing of liquor. And again, I think it could not be purely coincidence that they were the closest, at least the closest substitutes we have to liquor. The anti-saloon league, for example, was the major pressure group for prohibition, had a committee of industrialists on it, and many of these people were in this system.

58:35On the other hand, you see there were, of course, certain businesses which were strongly anti-prohibition. The majority were probably in favor of prohibition. There were a few businesses that were opposed to Prohibition, for example, obviously the brewing industry and the rest of the liquor industry, for that question. And also, the DuPonts, of course, being Catholic, again, were very unsympathetic of Prohibition on religious grounds, and so we had this kind of a breakdown. Labor unions tended to be in favor of Prohibition, and although they had a problem with that, for example, the Brewers, their brewing brothers would be thrown out of work. There wasn't too much distilling going on. Most of the liquor industry in those days was beer brewing. The labor unions, aside from, of course, the problem about the brewing brothers when we kicked out of work, labor unions also tend to be favored prohibitions. Some of the arguments are kind of cute.

59:26We'll be reminiscent of certain current trends on the Maoist left. For example, one of the unions claimed that, many of the unions claimed that alcohol, quote, does class consciousness, unquote, on par with workers, and alcohol is the opium of the masses, and it does that fighting spirit, so if you have prohibition, this means that the workers will be on the TV and be able to fight the bosses better. Drinking, in other words, is a class enemy. The Knights of Labor, who were, I guess, still in remnantism around these days, fired any organizers who drank on the job or even off it, and excluded any liquor traffickers or liquor industry workers from membership.

1:00:18The Railroad Brotherhoods, the big four, were all in favor of prohibition. The AF Development did not take a stand because of the split in the liquor industry, et cetera, liquor workers, obviously. But there were many unions, however, which opposed it on other bases. They didn't like the whole idea. Some of them actually worry about personal liberty. And the loss of the saloons, especially the foreign-born workers and those, you know, the ethnic-laborhood types, the Catholic workers, et cetera, who were in this thing The Socialist Party, as usual, was split somewhere down the middle between the pro-prohibitionist and anti-prohibitionist.

1:01:05The John Spargo, later termed the Great Theoretician of the Socialist Party, later termed up as a pro-war socialist, and was one of the great cows in the war effort, was in favor of Prohibition Another interesting argument by Spargel in favor of Prohibition was this. Okay, you guys are worried because Prohibition interferes with personal liberty, but he says, well, all legislation interferes with personal liberty. So what are you griping about? Most Socialist Party members are probably against Prohibition. German influence, the Germans were heavily involved in the Socialist Party and from the great brewing tradition were opposed to it.

1:01:59The saloons were a basic part of local control, the saloon setups were largely owned by the The Brewer's, the brewing industry, the situation there was like Rheingold would own their saloons and peel it on its saloons and so forth. There were an enormous number of retail outlets, they were all over the place, especially in those cities. And they had, they were closely involved, again, the saloons, and I'll get to this tomorrow night when I talk about urban crime and ethnic problems, etc. One of the problems is that usually the saloons were tightly licensed. and so on. In order to get the licenses and pay the taxes and all the rest of it, you had to dicker with local politicians. So the symbiotic relationship between local board meeting politicians and local saloons and the brewing industry, in the middle of which we have so-called corruption and crime rampant.

1:02:54In order to get it to be in business, you have to pay off the politician in order to keep your competitor out and so forth and so on. The whole kind of symbiosis also, most of these brewers, most of the saloons confronted and the Sunday Closing Laws, which is one of the elements of puritanism here, and the saloons wanted to stay open on Sunday, which was not part of the German Catholic Ethnic Addition to have any kind of Sunday Closing. In order to stay open on Sunday, they had to pay off the politicians and they won't close you down. So this whole thing was involved in this. also, and you had to pay off the police, of course, so the whole police and local government machines were wrapped up in the whole saloon caper. In return for the politician favoring the local saloonkeeper, the saloonkeeper in addition to paying, had another of course very important function, which was to pull out the votes of the re-elected politician who was his friend.

1:03:49The saloonkeeper being looked up to by the urban ethnic in the neighborhood was able Many of the saloon keepers became all of them in themselves, or city councilmen, and so forth. Another thing, of course, which increased the symbiosis with local corrupt machines, in quotes, and increases the political incentive for the upper class, lost business establishment, reforming corporators' establishment, to smash the saloons. Another element here is that since the saloons were sort of quasi-illegal, because they were only someday closing and licensing and all the rest of it anyway, along with the saloons came other services which urban ethnic immigrants etc. enjoyed openly, which drove Baptist Methodists to wash up the wool, namely gambling and prostitution.

1:04:45So the saloons became sort of centers of gambling and prostitution and allied to it. So we have this whole set then of this kind of rural conflict, symbiotic with political, ethnic and all the rest of conflict emerging in the progressive period. The progressive party naturally, naturally of course, this is kind of to be deduced from our analysis, but wholeheartedly in favor of prohibition. And finally there's the progressive war that put prohibition over the top. The German brewers in this country have rendered thousands of men inefficient, thus crippling the republic in its war on Prussian militarism.

1:05:36John the Prohibitionist writes, quote, We have German enemies in this country too, and that was not just abroad. And the worst of all our German enemies, the most treacherous, the most menacing, are Paps, Schlitz, Blass, and Miller.