Introduction to Economics: Part 5

0:00Where capitalist profit, quote-unquote, or interest comes from, and why the worker or landlord only pay it. This is even a world of certainty. This is even a no-change, no-risk. The second thing, of course, the capitalist provides is that he pays the money now and takes the risk. In a real world of certainty, you have a situation where you produce the SL car and nobody buys it, or whatever. The entrepreneur or businessman becomes the major uncertainty bearer. The worker and the landlord get the money now, a relief of this uncertainty. They get the payment right now, and the entrepreneur takes upon himself the burden of this uncertainty or risk.

0:45So what you have then is, return on capital, the business return, is provided at least conceptually in two parts. There's long run profit, normal natural profit, natural interest, which is something like 8% or whatever it is. Again, it's very difficult to spot it empirically. It's the natural interest of time preference. and as profit for successful forecasting, pure profit, plus losses or minus losses if the value allows the entrepreneur to do that. So this is the risk component, the uncertainty component of the profit, pure profit and loss, which is sort of on top of, it's a vector, on top of the natural rate of interest. So I think it's a useful analysis, even though we never get the final equilibrium.

1:32By talking about equilibrium, where there's no change or no uncertainty, we can then separate out sexually what the capitalist's return will be on pure time preference and what it is on profit and risk uncertainty. So that's the analysis, the illustrative analysis of where this returns to capital come from. Orthodox economics has sort of grudgingly accepted some of the time preferences, but not very much. Certainly not this time market analysis. Well, so the fact that the course curves are not the same is that you can't prove the tangency of all that. I think it's enough to scuttle the perfect competition of people.

2:20And also the fact that there never is this situation, and we're never in equilibrium. It's another interesting point. And so in the real world, there's always poplism, losslism, whatever, and there's no way you can compare tangencies if there ain't no tangencies. Even if there were smooth curves, it may have to be something like here or there. And nothing can be true one way or the other. One interesting thing to remember on cost curves is that the... I like to deal with total cost and total revenue, anyways. I think it makes more sense as average stuff. But at any rate, the cost curve is defined. You have a usual total cost curve of something. When you start with zero, you produce nothing.

3:06It doesn't cost you anything, like if you're not in business. So the usual cost curve is depicted as something like that. It's a total cost. What happens, this is assumed, of course. I mean, if you take any given production, Producing 10,000 loaves of wonder bread. The possible costs are infinite. And if you want to keep raising your costs, you can do it. So what this really is is an envelope of the minimum total cost of what was the absolute minimum that you could produce the stuff for. Because your returns, your profits, are equal to total revenue minus total cost. You're interested in keeping the difference as high as possible and getting the total cost as low as possible. So what you have is sort of a whole bunch of possible costs, and the market economy forces businessmen, so to speak, to keep them as low as possible.

3:59However, yes, we can't refer to it as not, doesn't have these rigors of the free market. Take, for example, a firm which specializes in government contracts. There's a very different situation that occurs. Government contracts, at least in the United States, are so-called cost plus contracts. Okay, if you want to buy paper clips from you, or bams, or missiles, or whatever it has to be, we will pay your cost, or whatever your cost is, plus guaranteed profit of 8% or 10% or whatever. Now notice what this means, cost plus, I mean any cost, any way you justify wealth, if it comes to your interest then, then for your cost to start ballooning upward, if you're a business and you want your cost to blow upward, it's very easy to do it, very easy. Just let them float, and the government, the tax payer pays up the difference, gives you a guaranteed margin of profit on top of that. What the hell? Why not?

4:49And so you have all sorts of things happening where in war contracts, defense contract firms, there's so-called hoarding of labor. If you need, if you're an engineering firm producing stuff from the U.S. government, if you really need, if you're a private firm, let's say you hire 50 engineers, why not hire 150? What the hell? I may as well keep them sitting around idling and then have a peak week where they all work like man and sick, drop back to playing poker the other 51 weeks of the year. Because the cost that you pay for it all, and you just corporate into it all, the bill that you give it to the Pentagon or the government, that'll pay you the guaranteed cost plus the profit. So the cost then, it's like a waste of resources. I mean, these people are worrying about the tangency on the cost curve. This is the real problem.

5:36And so this is the problem, of course, with the thing, but you can do all sorts of stuff. For example, usually in the paper, for engineers, full-page ads are taken out. We want engineers in California, and so forth. Well, these ads you see are recouped by the government. This is a reasonable cost, you can show the first department, advertising for engineers, and just recoup it. So why not? The sky's the limit. Anything which the suckers and the government will grant you, you will conclude as part of your cost. And then, of course, there's the cozy interaction, and I've talked about antitrust law before, that the Pentagon, for example, will retire at full pay or whatever, that's an insane amount, after 20 years' service in general, you then become vice president in charge of procurement, Procurement, product sales, from Lockheed or Boeing or something, selling the same planes and missiles to your old buddies in the defense department, and this is a sort of recirculating thing.

6:38And this is what everybody watches everywhere in the back, except for the taxpayer, the consumer, and we're all sitting in the back. Any comments on this one? You have a similar analysis for the medical profession. It seems to me that it's not for any given procedure it's cost us to some extent, it's just a question of once you have a different set of medical paying things as you're getting benefits then you get very strange effects. Absolutely. There seems to be no limit on the demand as far as the medical profession is concerned and whatever they bill is paid and the cost to the consumer seems very low.

7:35Precisely, you just hit it. You look at the inflation record and so forth, you see that last year's 5% or something, medical costs 15%. Medical costs are always skyrocketing. Which are the regular inflation rates? Why is that? Well, you have two things going on. It's not quite the same, but it all watches that, instead of the third party cost.

8:00Supply, this is since 1910 in the United States. Supply is severely restricted by the government. Each state government is coordinated by the federal government. So if you have a confederate, this is the man curve and the supply curve. Supply is pushed way upward and to the left. This is the real problem with monopoly. There's all this nonsense about the cost of a general loader. This is the first way to happen, because the government steps in and excludes people who mean doctors. Pretty simple operations, licensing requirement, especially in primary licensing hospitals. The requirement comes in, you can only be a practicing physician if you were graduated from a certified hospital, from a medical school.

8:48And the government, I think what happened in 1910, this whole thing swept in, 1910 to 14, the government put out a business, distinct government of the United States, put out a business literally half the hospitals in the country, half the medical schools in the country, just like that, they're not qualified, you're under, you're, you're, you're, you're, you're deficient, except, except, AMA, right? Well the whole thing is put through by AMA and collaboration with the government. And the state, like New York State for example, will turn over, turn They're going to stay in a hospital licensing court, where they call it. They staff it. They animate people. They ask the animator to staff it. The animators, of course, are very happy to do this. And they put in these crazy requirements. They cut the quota. Each medical school will have a severe quota.

9:34They'll only have 40% of the doctors will apply and will admit it and all that sort of stuff, if you want to be admitted. They cut the number of doctors enormously. They cut the number of hospitals. And of course, as time goes on, very quickly, supplies cut severely to the left and the price goes up. And when the physicians were pushing for this, they admitted it, they said, this is an economic problem, not just a medical problem, you need more of this. Doctors are not getting a sufficient standard of living. I don't know what sufficient means to what they would like to become accustomed. And so sure enough, the number of doctors per person in the United States is now half of what it was in 1910, This whole thing follows. Interestingly enough, the parts of the medical profession which are the most restrictive, the most monopolistic in a sense, are those most tied to hospitals.

10:29So that the more hospital-oriented the doctor is, the more monopoly gains he's getting. Surgeons, for example, of course totally hospital-oriented, they're getting most of the benefit. If you look at the guys who run the American Medical Association, they're all surgeons. Why are they all surgeons? Surgeons are better people. How come there are no internists or dermatologists? They're all surgeons because the surgeons are the guys who are getting a lion's share of this stuff. They're totally based on the hospital. And access to the hospital is the key. On the other hand, psychoanalysts who are in hardly any manual hospital have been much less monopolistic. They are much less, it's kind of like they're a cut to the left, a shift to the left. And one of the things that being hospital-oriented does, by the way, is that you're allowed to price discriminate.

11:15There's nothing wrong with price discrimination, necessarily, but surgeons, for example, can do that, because there's no competition, very little competition. Price discriminate, meaning you find out what the, you know, for any given appendix operation, you find out what the income is, and you sock them accordingly. So the wealthy patient pays much more through the nose, through the appendix than a middle-class patient. Psychoanalysts don't do that because they have another hospital orientation, maybe a little bit, peanuts or dentists, and dentists are essentially the same price for every patient. They haven't got the opportunities for this hospital monopoly. Anyway, so that's one thing. Then, of course, as you said, there's a man-curd thing, but medical insurance, either government or private, third-party insurance, the insurer pays, we pay any medical cost, plus, except $100, whatever it is, we pay anything.

12:09Doctor charges? Well, how do you have an unlimited incident in the man-curd? It's heaven to the doctor, right? Charge of anything an insurance company pays off, what the hell? and Health. The patient doesn't care. They've got insurance. As a result, people are not insured. A few people here and there have got intracisies and decided to get the shaft. Oh, the insurance companies can only pay when they take him, so it's everybody's getting the shaft. Yeah, of course. They distribute the costs. In fact, you get situations where, I remember doctors telling me, at two o'clock in the morning on a Saturday night, people come into the office and they're like, oh, I'm going to get the shaft. The insurance companies can only pay, but they take him, so it's everybody's getting a shot. Yeah, of course. They distribute the costs. But you get situations where... I remember doctors telling me at two o'clock in the morning on a Saturday night, people come into the outpatient areas of the hospital

12:49because they're sunburdened. He sprays them with novocaine. He says, why didn't you go to the drugstore and get a can of solar cane? That's all you needed. They say, that costs four dollars. This is free. Exactly, right? So you have so-called shortage of hospitals coming in, exactly the same stuff. Another thing that happened when half the medical schools were put out of business, there was a warfare within the medical profession, so-called allopathy in those days, now called homeopaths and others. The allopaths have now, of course, taken over our medicine, took the opportunity not, by the way, coincidentally, to totally crush the homeopaths. Most of the medical schools we put out of business were homeopathic medical schools. What is the difference between homeopathic and homeopathic?

13:35Well, it's sort of interesting. I know it's only tangential, but the homeopathic I find fairly lovable. I'm not going to take sides between them. The homeopathic is certainly much more lovable.

13:48They obviously can't hurt anybody. Even the allopaths sort of admit that. In other words, you go to the homeopaths, the only people around, or the only homeopaths are either European immigrants or they still have homeopaths, and people over the age of 80. There's an article we have about 10 of them left in Ontario, and much of them are retired. What is a homeopath? Basically, they give very, very small doses to things, and they attempt to give what the body needs, small doses and only one dose. So here's the thing, so you go into the homeopath, homeopath has got millions of different little bottles, I know this ugly lady from Austria who's like a homeopath, little teeny little bottles and teeny little doses, alright?

14:36And the homeopath sits there and talks to you over the length of life because the theory is that your personality, each different personality gets different nerves in the homeopath. Dr. Mises has spent a lot of time with you, refreshing it itself. So, he's going to say, okay, take three doses of this and we'll come back in two weeks. You've got to sit and talk to him and say, are you a nervous type or are you optimistic or whatever. In accordance with your personality type, he gives you different teeny little herbs. Now, teeny little herbs obviously can't hurt, it's pretty clear. Even the alipads admit that, they just say it's a racket because it doesn't help anybody. Well, a lot of people say they're helped by it. A lot of people say they're not helped by it. And also, it's almost costless, but you get this damn thing. Teeny little bottles, five bucks worth of a teeny little bottle can cost five years of treatment.

15:25So it's practically almost zero cost for the medicine. And, pharmacists hate it. And, more than that, they're cheap because they're natural herbs. You need to pick them out of the ground or something. They're very cheap. The Allopaths specializes in synthetic drugs, which are extremely expensive, and have to be manufactured by drug companies. So you have a whole different economic culture involved here. The Allopaths, go to an Allopath, and he figures out, I know a friend of mine, I haven't seen him in a few years, they have diabetes quite severely, and they have a heavy dose of insulin. He went to an old homeopath, because there are only old homeopaths. I said, look, here's this little bottle, it's five years worth of doses, throw away the insulin because it'll help cure you, I mean, throw away the insulin because it's been in great shape ever since.

16:22I'm not saying it's going to work for every diabetic, I'm saying it costs them next to nothing, one visit to the homeopathy, $3 for five years worth of stuff. So, doctors hate it, drug companies hate it, people who invest in drug companies hate it, pharmacists hate it, so these people were put out of business at the time, in 1910, and they were considered equally respectable over the alipad, fierce competition, and the alipads then turned to the government to put these other guys out of business. Excuse me? Am I right in assuming the alipads were like the way your doctors were? Yeah, they're my now-core positions. Right. Now, there's another aspect of this, which I'm particularly interested in being an economist and interested in the economic aspect of history, so to speak. Namely, who benefits?

17:07I'm always interested in that question. Who benefits by government action, for example? Well, obviously, the alipass benefits. But who else? OK, you have a situation where the report comes in in 1910, the Flexner Report, which said, written by an extremely beloved figure, Dr. Abraham Flexner, who was not a physician or an educator, he then becomes, he writes this big report on medical education, putting out of business in the sets, because his advice was followed by the whole state government, put out of business by allopaths and everybody else, so who was he, how did he come in, he was a headmaster of Southern High School, no training in medicine, why did he become the guy, Well, because the report was financed by the Rockefeller Foundation, the Carnegie Foundation, especially the Rockefeller Foundation.

17:57His brother, Dr. Simon Flexner, was a doctor, was one of the big shots of the Rockefeller Foundation. We get the patterning is going to be merged, for those of us who are pattern-oriented. Or as a friend of mine says, I don't believe in the accidental theory of history. I believe that life is random. So, the Rockefeller family has always heavily invested in drug companies. They're very heavily invested in it, right? The Rockefeller Institute for Medical Research for the most amount of money in drug research. It's not called something else, Rockefeller Foundation or something. And then, so you have an interesting pattern where the allopaths put the only effects out of the business. The allopaths then specialize in Rockefeller drug company products.

18:43And so I think that's interesting, it's a pattern of whatever, business, medical cooperation to the government. It's cartelism, it's whatever. I think it works most of the time. As we get back to the discussion I had with Mary a little last night about what's responsible for statism. I don't think it's altruism, I think it's this sort of thing about statism, precisely this sort of cooperation. We use the government, we get patronage to put the other guys, your competitors out of business and all that sort of stuff. It's known now as the Government-Business Partnership. Anyway, I should give you one more example. I realize this tangential is a beautiful example. I love it. It's from the New York City milk problem.

19:30Early 1930s, we had a big depression. And those days, most milk was sold by local farmers and local grocery stores. They came in big cans. They were poured out to the consumer. You go to the grocery store, a mom and pop store. It wasn't a supermarket. The label was an app. We would bring a bottle and give them the milk. There was also Borden and Sheffield, who were the two bottle companies. Borden and Sheffield cost about twice as much as the other milk. So called loose milk. Well, everybody was suffering during the depression. And the New York City Health Department one day decided, nope, they said loose milk is unsafe.

20:16We have spoken, it's unsafe. And the former was saying, it's not unsafe, nobody's been sick, you can't prove it. Well, well, point of commission, committee. The only big thing, I don't know what it is here. Point of committee, experts, experts will decide whether loose milk is unsafe. They appointed a committee, a committee of seven people, I have the whole world data on, I'm going to fast-track by this. Out of the committee, one guy was a big shot in the boarding company, the other guy was a big shot in the chef people company. The three others were big shots of the Moonbank Fund, an independent, truth-seeking foundation. They meet for a few months, they come to a conclusion, Musma was going to say, it's got to be outlawed, post-text, pronto. And the farmer was saying, no, no, it's ridiculous, they haven't included anything, and he said, look, the only thing you might possibly say is that the dipper that they dip in is not sterile, we're now working on a sterile dipper, a famous sterile dipper, and you can't say anything.

21:10He said, too late, tough, and loose milk is outlawed. Loose milk was outlawed, and in New York City the price immediately doubled, the supply curve was tremendously to the left, and the price doubles, and poor people can't afford the milk, etc. This is so-called New Deal. It's probably one of the aspects of New Deal in the United States. Warfare of State and Action. Beginnings of Warfare of State. So, okay, who's the Milbank Fund? You know about Gordon Shepard. The New York City Health Department probably to this day has a record, the heads of it and the vice chairman of it are always in and out of the Milbank Fund. In other words, the head of the New York City Health Department is the former vice president of the Milbank Fund. He's there for three years, he goes back to the Milbank Fund as president, that sort of thing. Custom in and out, so who the heck is Ludwig von Mises?

21:57Well, Ludwig von Mises is wholly owned by the Borden company, by the Borden people, Mr. Ludwig von Mises was the owner of the Borden company. So it ties it up in a neat little package. So we have independent, objective, value-free research coming at the inclusion of everybody. Well, the Borden competitors should be out more than that. Turn out to be Borden people. I told this story, I was on a libertarian group about 10 years ago at Mount Sinai Medical School, which is a big shot medical school in New York. They asked me to lecture to the class on medicine and government. So I was talking about all this stuff, about licensing. I never got through this little story about New York City, a little bit of fun. So I was telling the kids, the libertarian kids after I said, Gee, this is a great story and so forth, I wish I had time to tell it.

22:44I said, Gee, Professor Walker, we're glad you didn't tell it because every professor in the community medicine department, which is what the course was given, Every professor in the community medicine department and outside is on a payroll and they'll buy it for them, as of right now. So this is just a little window, a microcosm of the way the world works, it's been.

23:13How do we stop it? That's not for discussion. No, it's the next course or whatever, it's sort of like the famous Clifford Ode, that's playing in the 30s, a comedy play, they went up, and everybody in the audience, everybody on the stage is shouting, the audience, the last final act, strike, strike, everybody's supposed to rush out and strike. We recently had a situation here where illegal chicken production was being clamped down on. When I read the article in the paper about these farmers, they had up till now been able to sell their chickens mainly to lodges and things like that that used a large volume throughout the year.

23:58And obviously pressure was put on the lodges by government and they no longer will accept shipment and these farmers have no way to get the chickens to market. In Virginia, my wife comes from Virginia, so I know something about the Virginia society. Everybody, they love country ham. If you know what country ham is, it's very different, very salty and flaky and all that. And everybody has got their own little company ham, their favorite company ham, the Mrs. Window down the road or something. There's little teeny little smoke houses with smoke and ham.

24:44And they're all slightly different, they've all got different wood or whatever it is. And everybody likes their... I like Mrs. Wilson's ham. I like Porter's ham. So, what happens is the goddamn government, I think it's the state government, because they have a larger meat packer or something, started outlawing these little... they're unsafe, there are going to be OSHA requirements. It's not outlawing the little slope-hand managers. It's monstrous. You're not kosher. And it's just monstrous. These poor people like to just quarter their hands. They have to eat armor or whatever it is. The Lubavitches are on them, yeah. Right. So anyway, that's an enormous amount of stuff like that.

25:29That's kind of fascinating, because that's the real problem of monopolizing stuff. Oh, yeah, you know, that's what I was going to say. OK, any more about monopoly? Because I want to see, so I guess, what is the next break before or after? Yeah, the next 15 minutes or so. Because I want to get to the macro stuff. And so any more about micro or competition? Yeah. Well, actually, the cost of the other homes is sometimes presented is a cost curve that is continually downsloping through a whole range of levels that are bought by the public and therefore only have one firm, therefore one ever-ending monopoly so that they can get the best average cost. Right, monopoly. Yeah. Well, I can't fucking say, I mean, presumably what happened that way on the market was really the most efficient way of doing it.

26:18I can't think of any really natural monopoly. The answer to that is complete of course, and that is that if the economies of scale need to use lower costs, then why do they need illegal monopolies? Because they're going to be lower cost anyway. Achieve it on the market, precisely. So it's going to achieve in the marketplace, so they don't need to make it a legalised market. But of course, all these smooth cost curves are crazy really, because if somebody adds one extra machine to produce one more, then the cost is going to go up, so you're going to get sort of a U-shape there. And then, maybe, you should basically have two of all these other parts to it. Oh, sure. Oh, yeah, yeah. Oh, sure, it could be a whole bunch of units. Well, jack it all, or whatever, you know, unless you need a custom study piece and you should go along.

27:03Which is, by the way, much more realistic than the smooth Kerr arc thing. You have a whole bunch of horizontal, a whole bunch of... You don't know where the heck you are. It's actually what's going on. You never know whether you're in a horizontal part or a flowing part or whatever. Yeah, that's absolutely true. Yeah, there's, I can't think of any really simple natural monopoly at all. It used to be considered a telephone as a natural monopoly. You have to have one company because otherwise you have 20 phones and all that sort of stuff. It turns out even that wasn't wrong. Even in the old days, there was a lot of current technology that wasn't really true anyway. And I forget now what the answer was to that. Maybe 20, maybe 100 years ago it wasn't really true. And now, of course, I have additional satellites and microwaves and all that.

27:48You've got the capacity to collaborate in the same cable, so you don't have to have a whole bunch of different phone companies all using the same common cable. Well, you know what I really found interesting is that just in the past few years when they've led private companies to sell telephones on the market, it's incredible how much the technology has improved. In fact, it came to the point that I have a small telephone that you just lay onto the table. It doesn't have a base or anything like that. Basically, it just has a cord that goes to the wall, and this thing is like, what was it, I think it was like $12 at the very, very most. Belch used to charge like hundreds of dollars, practically, for this kind of equipment. And not only that, they're coming up with cordless. I mean, you know, the cordless telephones are getting cheaper and cheaper and cheaper.

28:35And if you think, you know, if they had let that go a long time ago, we probably wouldn't have cable troubles. They would have had transmitters in the neighbourhood. And, you know, I've heard people complain about, well, I mean, then people would be monitoring the telephone messages. But think about, let's say, a telephone, they don't really have telephone lines, generally, from, let's say, London, Ontario to Toronto. They have microwave transmitters. And I know people who have set up equipment so that they can monitor the microwave transmitter. I mean, you know, we were not really, that's, I think, one of the easiest things to convince people, I found, is that you're really not protected. It's like the mobile telephones. In the city of Toronto, you've got three channels. There's two other big cities that want to talk on their car phones. You don't get on them. And now they open it up and the cellular radio is supposed to be here in a year or so.

29:23Every single person in Toronto could have a mobile and a student crowd, I think. And less money, of course. That's great. Super. The whole data interconnecting industry is a feature of that, along with competition. The other thing about monopolies, though, and particularly in the area of what people consider to be natural monopolies like that, you wouldn't want to string all those lines if they didn't want to cooperate, they couldn't share the table, is that we're thinking about telephones in a conventional sense as opposed to means of communication in a broader sense and means of communication as opposed to food, shelter or all the other choices in the market. In Austrian economics, is that addressed sufficiently, that there's no such thing as a monopoly for your dollars?

30:11Absolutely. In fact, we're the only ones who stress it, because everybody else, again, goes back to the whole discussion we had about what's good. The antitrust economists would say, well, if you look at the industry, this is five firms, it's a gear shift or whatever, and it's a terrible thing that only five firms are producing 80% of the gearshift input, unless they can break them up. If you widen the definition of what the thing of the use is, you have all sorts of different 2000 firms, the concentration ratio is much lower. So it all depends on how narrow you make the so-called concentration ratio, it's one of the big things in antitrust people. It's a terrible thing for five firms, or the top three firms, or whatever, to have more than an extra cent of what's arbitrarily arbitrary of the sales.

30:57Simply, yeah, just widen a narrow definition of what the good is. Make a very narrow good. I mean, for example, I mean, of course, Wonder Bread is a total monopoly on Wonder Bread. Nobody else produces Wonder Bread. Anybody else who does it is in a feeling of the property rights. So break it up. Wonder Bread is 100% of the bread market. However, it's pretty sad. It's a monstrous thing. Then you can stretch it a little bit to white bread. You've got a whole bunch of stuff. Then you can stretch it more to rye and pumpernickel and rolls and bagels. So the concentration purely was all of your definition of an economist. And they all compete. Of course, everything competes with consumer dollar. For example, on vacation, there's a vacation market for people going on vacation. Hotels compete with each other. They also compete with other hotels.

32:13The cartel don't work on an accepted government dimension. It cannot survive on a free market. And for two basic reasons, having a bunch of people get together, I'm a very good friend of mine who's a coin dealer. He said, every once in a while, that's a coin dealer. Every once in a while a coin dealer's got together, Let's jack up the price, and let's agree, and so forth and so on. Somebody always breaks the agreement. Somebody goes out there, cuts the price by 10% in order to pick up sales. The other suffers, and I haven't cut the price. Back to the race, it constantly happens. I venture to say there's not a single cartel in the history of the world which existed in a free market for any life at all.

33:01It's constantly breaking down. Either because the internal firms have tremendous pressure now, Let's say they have to cut production in order to raise price, they won't read of that. It's a lot of difficult things. They read, okay, we'll cut production by 10%, we'll cut freight shipments or whatever it happens to be. We'll read of this and we'll raise the price by 20% and we'll be better off. And so what happens then is everybody sits there and says, if I can secretly cut the price, I can pick up enormous amount, because I'd sound 20% higher and the whole price got placed, fantastic. They start secret price-cutting, and one of the interesting things, one of the first things is the Clayton Act, the Act on Trust Act and Outlaw, the secret price-cutting. In the name of forcing competition, there's never how many things secret. I think it's got to be public. Of course, that means you can't break the cartel.

33:51It's an unfair competition. Yeah, it's an unfair competition to secretly price-cut. Secret price-cutting is a magnificent way by which the market slashes the cartel. In that equation though, in a free market, companies could get together and form a proposal and then the contracts should be upheld by law. But as long as they don't have the ability to forbid new entries into the market, someone else will step in too. It's kind of incredible that I think it's the Canadian government that's complaining about a lot of being dumped on the Canadian market. I wonder who's really complaining about a lot of being dumped onto the Canadian market. No, it might be another incident, but Bill Davis is telling people not to buy larder these days, and I don't think he's going to buy larder in any way, but never mind, it's different.

34:37Every now and again, someone's complaining about the Japanese dumping steel. I figure if the Japanese can make steel cheaper, then we should buy it, or we can make steel cheaper too, I mean, what is it, Supernatural? So they got this lot of no different computerized equipment, so they have a whole steel house. That's the problem. I think it'd be great if they, from all the foreign countries, decided to give us their products for free. You know, like, undercut American products, and we've got all this stuff that would be great. It'd be magnificent. Nobody would have to work. For a very short period of time. I'm willing to wait for the short period of time to see what happens. I remember back in the 50s when Germany had compulsory cartels. Germany pioneered the welfare state and the warfare state on a big market, and everything else.

35:24And it complained about compulsory cartels. Every steel firm was forced to join a steel cartel, etc. With strict production rates and a high tariff to keep them out. So after World War II, the air hard regime eliminated that, and eliminated compulsory cartels. So the argument of the old cartelists was this, I get this, they said we need compulsory cartels. If we don't have compulsory cartels, then one big firm will then take over and out-compete everybody, drive everybody to the wall and be monopolistic, right? So in other words, what they were saying is, let's assume that happens. Let's say one big steel firm finally merges after 20 years and they're more efficient. But what the cartellists are saying is we have to crush efficient, we have to oppose cartellists, but we have to worry about possible future efficient monopolies and oppose, instead, no, no, no, against that, oppose inefficient and compulsory monopolies right now.

36:14That's the argument. Totally insane. I mean, why anybody would fall for that argument? It just beats me. Well, the biggest example of proof of the efficiency of competition is my watch here, you know, I mean, the same as everyone else's watch in the room. So the computer inside it is more powerful than the first electronic computer produced by IBM back in 1950 or whatever it was. It cost a million dollars. Fantastic. The chip in here is, you know, cost one buck and then a pencil, two bucks, that's expensive. That's great. It's absolutely ridiculous. How much does it cost to produce? Pardon? How much does it cost to produce, that's the amazing thing. Exactly, yeah. I mean, you know, the amount of competition there is, I mean, this calculator is for what, ten bucks now? Well, and the sly bull used to cost that much, which is a piece of wood with some mortar. That's what a sly bull is.

37:00You remember the old calculating machine? I was going to college, and there were massive calculating machines. Frieden, I think we were on, and Horroves, whatever we were covering. Yeah, and you'd be pounding away on this thing. Only slightly faster than your own pound. You know what you said about the early four-function calculators costing 400 bucks? My first solid was I bought one. I only paid 100 bucks for one. I figured I was smart and made the right choice. I went to Simpson's, which is just about a mile from here, and I bought it in this room. And I bought it in this room full of calculators and item machines. And the guy who sold it to me, the salesman, I learned to get this to figure out the sales tax on a big or bad room full of calculators and item machines.

38:17I used to do competitions like that with the old Comptometer against electronic computers. But once people get good at operating, they can beat up computers. Murray used to work in the picture, by the way, so she's not nice. I heard you say, Victor. What's a Comptometer? Comptometer is a full keyboard machine in that age. With no functions except adding. But you learn to add, subtract, multiply and divide by adding. Yeah, I was like, you know, I think it was, I mean, I'm telling you, our operators used to just practically the point in the market on doing audits and things like that. Right. Talking about, talking about competition, I was just looking, but I can't find it. Anyone remember that cartoon at the back of Reason? Must have been about a year or so ago about the antitrust people, you know, and in their office they would say, We've broken up all the big companies, what's there to do?

39:11Go out of business, don't be sitting, better look for some more monopolies So they look for a market on the corner, they see this little sort of grocery store on the corner and say That's a market on the corner and that's the corner on the market! So they break it up, so there's mamma's grocery store and papa's grocery store next door to each other And the last frame of it is a couple from Essentialist Company coming on looking at it and saying I think this is the last chunk of this mammoth seminar, and a lot of people ask me why I'm not going to cover just that, the other thing, I think maybe you're going to probably get the opinion that I'm talking about.

40:05The people here, well, tough as you like to have covered, is also the toughness of a macro area. Business cycles. Closest to inflation. Inflation? Likely some areas over the next five to ten years. How do I comment on commodity markets? What insurance? I've only got a seminar. It's a different seminar. Can you discuss the printing of money? Yeah, that would be inflation, for sure. Yeah, well, I mean, just alternatives to that, if possible.

40:52Yeah, that's a pain in the neck. Laissez-faire, alright. I have a new book that just came out, by the way, which I strongly recommend, called The Mystery of Banking, which is published by Richardson and Snyder, distributed through Dutton. Okay, so you can get it from Dutton. Liberty Library won't have it available. You were staring me down there. Where is your cell phone? One interesting thing is the history of the business cycle, how this thing starts.

41:51There's an interesting book by Wesley Mitchell, which I don't endorse, but it's got some interesting stuff in there called Business Cycle of a Problem in a Setting, it came out in 1927. It's reported on another investigation by an English economic historian named W.R. Scott. Scott went back, way back in the 16th century, 15th century, looked at business analysts. In other words, went to all the financial pages and memoirs and whatever, Try to figure out the state of business activity, what was things depressed, were they prosperous, or whatever. Essentially you found something like this.

42:36Okay, essentially you have something like this. Business system, the market activity, there were markets, there were much more limited than they came later, so find them. There's something like that, if you go along an even keel, something would happen. A king confiscated half the gold in the kingdom, so there's a big depression. Or there's a war, and so there's a big stimulus, or more cuts off trade and big depression, something like that. So what you have are isolated instances, where something happens to the business activity, where it's clear to everybody what the cause was. It's almost always the government, right? War, or somebody has a famine or something like that. and mostly the king confiscates, the king's wolfs confiscated the money, they didn't have much money, they confiscated it.

43:22So, there was no business cycle, things pegged along more or less evenly and then something happened, but these are exogenous causes, these causes were outside the market. So these were not anything sick or odd, not anything that seems to come from within the market, I think scary in the sense of how come this is happening. Then around 1750, to be very vague about it, starting really in England, then continuing, then spreading to the United States later in the late 18th century, early 19th, in Western Europe, began the curious situations of regular type, wave-like fluctuations of business activity, something like this.

44:08And this is peculiar because there didn't seem to be any specific cause which you can identify and say, okay, this is due to the wars, this is due to the king confiscating something, this is due to the famine or drought. It seemed to come from within the business and market system. And two things happened at the same time, two mighty institutional changes. will change in one industrial revolution, so that there's around mid-18th century, so that the market economy spreads and you have industrialization. At the same time, the banking system pops up, fractional reserve banking system, starting with the Bank of England in 1690 and then spreading to other countries in the mid-18th century.

44:58So in other words, the rise of the banking system starts at about the same time as the Industrial Revolution. And ever since then, those economists are trying to investigate the causes of the business cycle. Why is this? Breakdown of two different broad schools of thought, those who blame the market economy and the Industrial Revolution, and those who blame the banking system. Both coincidentally, this is one of the problems, the correlation does not prove causation. Three things happen at the same time. It could be one or the other, or both, or neither, whatever. So these are the broad, those that blame the industrial market economy, those that blame the banks, money and banking.

45:46And within the industrial market economy, there are also the different subdivisions, et cetera. One of the first ones, the famous sunspot theory, Stanley Jevons, a distinguished economist, In those days, the theory was a big crisis. People were really worried about the crisis, they weren't worried about the boom, they were worried about the crisis. Why did it suddenly collapse? Collapse of credit, collapse of banks, prices fall, unemployment occurs, bankruptcy, etc., etc. So, it was a theory at one point that every nine and a half years or something, this thing pops up, crisis. Therefore, it must be in some spots.