Government Cartels

0:00We've already talked about different forms of cartels, as the term is going along, with farm price supports and all the rest of it, we'll now go again to various types of cartels that government enforces. So, internal pressure and external pressure have broken up every cartel, without exception. The only cartels which have lasted have been government cartels, like OPEC, which is of course a cartel of different governments. Even OPEC has finally busted after 13 years, 12-13 years. Even they couldn't hack the fact that new countries were coming in with new production. Britain and Mexico and so forth are not part of OPEC, which tended to bust the whole thing. So economic law works even with governments and certainly with private firms it works much faster.

0:46Now one of the successful cartels is the diamond cartel. Even that has not been that successful recently. What happens in diamonds is all wholesale diamonds are routed through South Africa, the Beers company in South Africa, which then sells wholesale diamonds to the diamond markets in Amsterdam, etc. Amsterdam, yeah. And they sell, I think Amsterdam too was a big diamond center, and they sell, they regulate the flow, and they keep the supply are drastically limited through the beers cartel. Now what's happened to, several things happened in that cartel, first place a few years ago the whole diamond market busted and the man curve collapsed and the price of diamonds went way down.

1:37So even the cartel, a world diamond cartel is not all powerful because it has to face consumer fluctuating consumer desires, etc. Other jewelry, you know, all sorts of jewels in a sense are competing with diamonds. Another thing is this, the reason why the Beers is able to do this, because South Africa has most of the diamonds that are found in South Africa, I was going to say grown, anyway, discovered in South Africa, the way the South African government enforces this, it's not by the South African government, not by the Beers, the Beers is a beneficiary, the way they do it is this, in South Africa all diamonds, all diamond land is nationalized, in other In other words, if you're a farmer, you're Joe Jones or Yop Schroeder or whoever it is in South Africa, and you find diamonds in your land, those diamonds are now government-owned. They immediately become part of the government.

2:26The whole diamond mine or ore or whatever is nationalized. So first, South African government nationalizes all the diamonds. Then they lease the diamonds to favored laissez. They lease the mines to the beers, basically. In other words, the beers have to get some monopoly, let's see, plus a few other large diamond firms are in with the cartel, which is essentially an ally to the beers. Nobody else can get a license to mine diamonds. So if you're a farmer, you're absolutely in a hell of a government monopoly, I'm going to sell these diamonds. You're shot, I mean, literally shot, because they patrol the coast of South Africa, they patrol the coast guard, very rigorous patrol, they catch so-called diamond smugglers. diamond smuggling people trying to get their own diamonds out, basically, and to sell them, to break the cartel, their coast is patrolled and they're shot. There was a good British film a few years ago, some big star in it, about the diamond, South African diamond business,

3:24and it talks about this. Of course, it doesn't go into the cartel part very much. It talks about being shot by the Coast Guard and all that. So, diamond smuggling, quote-unquote, is really people trying to gauge your free trade, is what it really amounts to. Try to and Buster Cartel. So in other words, the successful cartel, first of all it's not super successful because the consumers can lower the price and have done it, second of all it's only successful because the South African government enforces it through this kind of arrangement where the beers are leasing the diamond mines from, they don't own the mine, they lease it from the South African government, which automatically owns it. So about 10, 20 years ago Russia discovered, Soviet Russia discovered diamonds, so it was There's a big panic in the international diamond cartel. What are they going to do? Russia might bust the market, bust the price, you say.

4:13Russia, however, being monopolists themselves, in this case state monopolists, were very happy to get cut in as part of the quota. In other words, they were happy to get cut. So Russia sells their diamonds to the South African government cartel, even though they allegedly are opposed to the South African government politically. When it comes to business, they're all happy combination monopolists. They got a chunk of the quota, so to speak. So that's the mystery of it. Whenever you see a successful cartel, look to government enforcement and sure enough, there's where it was. Another thing that's come into the news yesterday was the fact that heroic, one of my heroes in the movies, Clint Eastwood became mayor of Carmel, California. He was elected by two and a half to one, 70%, kicking out the previous mayor.

5:00Now, the issue which he fought the race on was very simple. It was anti-government cartelism. In other words, if you've ever been to Carmel, it's a beautiful little town in the Pacific. It's been a tight stranglehold of a bunch of upper-class liberals who essentially are residing in the town of Monnet, keeping down all growth. In other words, they're trying to prevent any kind of expansion, any kind of business growth or whatever. In other words, the whole thing is sort of a big zoning cartel, and zoning laws are used as a way of restricting production, keeping supply of almost everything to the left. Supply of houses, supply of trade, merchants, stores, whatever. So Clint Eastwood owned a restaurant in a cartel in Carmel, but he wanted to expand it, he wanted to get permission to expand it a little bit. They refused to do it because they had a very severe anti-growth policy in Carmel. If you've ever been to Carmel, you'll see why. A free market ticket, in other words,

5:55to Bust the Anti-Growth Zoning Cartel is what it really amounts to. He doesn't use the word cartel, but that's what it is. So he mobilized the masses and ran a campaign and won by two to one. So at any rate, this is what you have all throughout the United States, on a local level and on a federal level, is this kind of compulsory cartel in various areas. In this case, it's compulsory housing and zoning cartel is what it amounts to. California, by the way, is shot with that, is shot through with housing cartels, we try to keep out people you don't like by zoning them out of existence, zoning them, preventing them from coming in when I'm asked to. The, okay, another case of a luxury cartel is, well, a whole bunch of cases, licensing Licensing in general, there's an example of every business, almost every business is now licensed and everything you can think of and the licensing is always the excuse for life,

7:01what's the excuse? The excuse of course is the public welfare, common good. The excuse is we have to protect the public by licensing this profession. Well, the medical profession, it sounds more plausible than other professions, it's not The only, it's not the real reason for medical licensing either, but in some cases it's obviously idiotic. Like, photographer is a license. Why do you have to have only licensed photographers? My brother-in-law, for example, is an excellent photographer. He doesn't, he doesn't have a license because the license is very expensive. He's in the state of Virginia. The licenses are very expensive. So you have an expensive license. This, of course, pushes the supply curve of photographers to the left and raises the price of the consumer. He would like to He needs to be a part-time photographer, he's really a printer, a photographer is a sideline, he's a very good one, but he doesn't have enough money to be alive, it's not worth his while to get a full license.

7:51So, they don't have a Gestapo in Virginia searching every town for photographers, so he can be an illegal photographer, except he can't take out an ad, he can't be on the yellow pages, he can't say photographer, etc. etc. because then the state licensing bureau will crack down on him. His business is restricted by the fact that he can't advertise and he can't make it public. So this is what happens. The purpose of licenses is to keep out, to push the supply curve to the left, keep out new inference. And one of the things about licenses, we'll see time and again here, and Miller mentions this, is the so-called grandfather clause, grandfathering. Grandfather cause means that you say this profession, whatever it is, whose occupation needs to be licensed because we have to serve the public and have to make sure, for example, photographers are a good moral character, or they're heavily educated, whatever the heck it is, okay?

8:49They've taken three years of courses in some photography school. Well, these restrictions are coming and they're not applied to existing people. Existing people are grandfathered out. In other words, let's say you pass a law in Virginia, that in order to be a photographer, you have to go to a two-year old photography school, a licensed photography school, which is very expensive, this pushes the apply card to the left. And then you say, existing photographers are exempt from this regulation. So this is a blatant, monopolistic, cartelistic claim. Obviously, it has nothing to do with the public welfare, because if you want to serve the public welfare, you have to apply to everybody, including existing photographers. And it's really important that photographers get a university education where they get to learn about physics or something like that. Then you make it apply to everybody. No, it only applies to new people coming in. That's the tip-off. The whole thing is a racket.

9:38The grandfather causes a tip-off for the racketeering nature of licensing. Now, for example, in the barbering profession, what they do is, you see, every 20 years or so they increase the requirements, because the new generation comes in, they want to be grandfathered too. So every 20 years or every 15 years there's a big increase in tightening of requirements in almost every profession. Barbering is a marvelous, I unfortunately lost the clipping, there's a great little story about barbering, a history of barbering. Initially, of course, barbers were not licensed, you become a barber, you cut hair and that's it. If you're a lousy haircutter you go out of business, if you're a good haircutter you stay in business. At any rate, the barbers got together in a guild and they began to mobby for licensing. And every ten years they raise the restrictions. In other words, initially you have to go for six months to a barbering school.

10:25And then ten years later you have to go a year to a barbering school. I think now it's like three and a half years to a barbering school. You have to pass courses in the history of barbering. Like, you have to take 104 here, right? History of barbering, the barbering technology in the 1600s. You have to pass courses in the ethics of barbering, as if barbering has its own ethics. Don't cut the guy's neck, I guess, let's say. Anyway. That's right. It's like tightening requirements. And in each case, the existing people are exempt. In each case, you say, well, from now on, everybody's got to pass a course in history of barbering, but the existing barbers don't have to do it. Again, it's a tip-off, it's a racket. And so every five or ten years, they keep increasing requirements.

11:12You have to be a citizen. The minimum age keeps going up. 16 or 17, now it's about 21 or something like that, to keep raising the age, increase the education requirements, you have to be a citizen, and God knows what, there's all sorts of ways to restrict entry into the profession. In Chicago, Chicago is a very heavy unionized town, much more than New York, much more guild operated. In Chicago, technically, if the law really followed, it would be illegal to shave yourself without a license. Because it says, in order to shave anybody, that's anybody, you have to have a license. And so, only licensed barber can shave people. So technically, it's illegal to shave yourself in Chicago. And you can see the Gestapo in Chicago breaking into everybody's home, you're shaving yourself, you're under arrest. You're not a licensed barber. So fortunately, of course, these are not enforced, these insane requirements, but they're part of the law.

12:07You know, a lot of people think, if it's part of the law, it should be enforced under the Law of the Hill, that's part of the law in Chicago, it's not being enforced of the Hill. There's a lot of laws like that by the way, crazy laws, some of you have died out even though they're still in the books. But this shows you how far the licensing situation goes. For example, photography, or most of these, you have to be certified as a good moral character, what does that mean? Some board of photographers in Virginia is certifying everybody as good, what do they know about moral character anyway? Why are they experts in morality? So all of this is part of this whole gimmick. Yeah? Does that mean that everybody wants a lot of people, say, for hot dog business? Does that mean that you have to spend or...? No, it depends on each occupation.

12:52For example, in New York, they're constantly trying to crack down on peddlers. I might have mentioned this before. That's part of the whole thing. See, one of the things I want to tell you about competition, it's not necessarily true that small businesses can be outcompeted by big businesses. In many areas, small businesses are more efficient and are better able to compete than big businesses. For example, retail in general. Peddlers can often out-compete retail stores because peddlers can come in when they're not there on the corner when it's raining, they have a lower capital requirement, they don't have to pay rent, they don't have to pay fixed equipment, right? They can nip in with one day supply of purses or scarves and sell it and if it's raining they don't show up. So they're mobile, highly mobile, and they can often out-compete retail stores, to the extent that retail stores are always trying to outlaw them and putting, insisting on special licenses on peddlers, outdoor stands, whatever

13:44so many of these guys are constantly every once in a while the mayor, whoever the mayor is announces a crackdown on peddlers. Peddlers are great, I think peddlers are fantastic, they're cheaper stuff is of course much cheaper we have in our neighborhood, for example, a magnificent florist an illegal florist who's been selling flowers in St. Corners for many years and then you go to an official licensed florist A bouquet of something costs ten bucks, with him it's a dollar and a half. It's magnificent. Plus he's got better, fresher stuff. The organized florists are trying to always put him out of business. They get the cops on. Of course he pays off the cops. So there's a contest between who gets the official pressure. And every once in a while the mayor says, we've got a crackdown on the peddlers. What's wrong with the peddlers? Well, he says they spoil the beauty of the New York City streets. It's great. I mean, New York City has many advantages.

14:33So the whole thing is obviously absurd argument, to use any sort of argument, because of the pressure of inefficient retail stores who can't compete with these guys. And peddlers are the smallest possible business, they have one day's supply of capital. In some cases what they have is like a suitcase, they spread out the stuff and that's it, they don't even have a pushcart. A pushcart is already a high status symbol in the peddling profession, it means you have enough money to buy a pushcart. And yet they're magnificent, it's a great way for immigrants to rise up in the world, hadn't been in the past before licensing, and also a great way to compete with the consumer and for those who want opportunity. But of course organized retailing, organized retail by the way has always been trying to outlaw their competition, it's been going on for over a hundred years.

15:21Every innovation in the retail industry, every successful technological innovation has been combated legally by the organized interest in the retail field. For example, in the mid-19th century, when railroads first came in, the first time we had cheap transportation over land, so when railroads came in, the institution of traveling salesmen came in, where stores, wholesalers in New York, let's say Chicago, would send traveling salesmen out with sample cases to show to the various retailers. Well, the organized wholesalers, let's say in Dayton, Ohio, didn't like the fact that Traveling salesmen suddenly popping up, competing with them. In other words, New York stores can now compete with, or wholesales can now compete with Dayton. So they had taxes to put them out of business, special license fees. They said they were evil, it was terrible things, unfair competition to have traveling salesmen. This, by the way, is the reason, the origin of traveling salesmen, dirty traveling salesman jokes, because traveling salesmen are usually in a state of illegality, because they're trying to evade $1,000. For example,

16:23They would have to pay like $1,000 a year license fees to operate in each town and it would only make you about $3,000 a year so obviously they couldn't pay it so they tried to slip in and out of town unseen, you see, before the retail wholesalers can get after them, the wholesale competitors. So for about 20 or 30 years the family salesmen were basically illegal and finally the Supreme Court said it was unconstitutional and they were finally relieved of the special taxes and license fees. Then after they were finally absorbed and the wholesalers, and they started employing traveling salesmen in C2, so the whole thing began to finally get accepted. Then after they were accepted, around 1890 or so a new institution comes in, a department store, and that was a stereo directing a terrible, unfair competition of more than one floor, a terrible thing that's selling more than one product and blah blah blah, outlaw them, tax them.

17:14So about 20 or 30 years there were special taxes placed on department stores and attempts to outlaw them and then the same thing happened with mail order, oh my god, mail order, they can buy stuff by mail, Sears Roebuck and Montgomery Ward, they don't even have to hire salesmen, that's unfair, because they can just send catalogs out, they can sit there in Chicago and sell you stuff, terrible thing because consumers loved it, but all over the United States there were bonfires, parties to burn Sears Roebuck catalogs, unfair competition organized by the rotten retailers in each area who claimed they could be put out of business by evil Montgomery Ward and evil Sears Roebuck. Finally they were accepted. Then comes the chain store. The same damn thing happened to them in the 1920s. The first chain store started, A&P was the major chain. Liberals were calling for breaking up A&P, A&P is a monopoly, they're evil, break them up because they can sell stuff cheaper because they're getting discounted, volume discounts,

18:06they can buy stuff cheaper. When I was growing up, liberals in the United States were calling for the break-up of AMP. Well, that was finally rendered obsolete by the supermarkets which came in. AMP, of course, the last people to understand the importance of the supermarket, the last people to clue in on it, they were still mired in the old chain store technology and so they fell behind. They were outcompeted by newcomers like Safeway and Grand Union and so forth. Even now, even And right now, A&P stores are usually the worst in the city. They still have the crummy wooden floors and all the rest of it. It's dirtier. And so, they almost went out of business. They almost went bankrupt, so-called monopolists. They didn't have to be broken up. They fell behind in the competitive race because, like many big businesses, they didn't understand the new, they weren't alive for new developments.

18:53The chain was a, well, supermarkets can also be a chain, but the chain was, you had mom There's some in pop stores. You go to the counter and you ask for two pounds of butter or something. There's very few of them left. There's some in neighborhood stores like that, still. In chain stores, you still have to go to the counter and ask them, but there were branches all over the place. Each one was more impersonal. You couldn't get credit as well. They were cheaper. On the other hand, you couldn't get credit. They didn't know you and that sort of stuff. Deliveries weren't as... They were trade-offs. A lot of people still prefer to the mom and pop stores was going to get cheaper credit, they can deliver it at night or whatever it is. But then when supermarkets came in, it was really self-service, which was a great, tremendous new concept after World War II, we had heard of it, you didn't have to go and ask the

19:41guy to get the stuff, it was a great development, and A&P fell behind on that, yeah they finally did it, sure, but they almost went bankrupt, in fact they reduced a lot of their stores because of that. So at any rate, so after that, after the chain stores were finally accepted and the supermarkets were accepted, then they started belly-aching about discount houses in the 50s and 60s. They used to have, they had, this is by the way, put in by the retailer associations, trade associations, resale price maintenance laws came in in the 1930s as an alleged anti-depression of Money, The Theory of Money and State, The Theory of Money and State, The Theory of Money

20:50This is the so-called resale price maintenance law. So when a manufacturer doesn't care, why should a manufacturer, if you're a sunbeam company selling shavers, why should you care what the retail price is as long as you get your price that you want from the wholesaler or the jobber? And so they didn't care, what happened was the organized retail associations went to sunbeams and said, look, we'll boycott you, we won't buy sunbeams unless you impose a minimum price of whatever it was, $30 or whatever. So in other words, the whole idea was to restrict production and raise price. And inefficient retailers wanted to screw the consumer by organizing a cartel and getting the federal government and state governments along with them to impose the cartel through resale price maintenance laws, which said once the manufacturer announces a price, everybody is committed to it.

21:37Retailers can't cut it. So finally what happened was that two heroic so-called discount houses in New York, Masters and Corvette, simply started cutting prices. They said, hell with it, we defy the law, we challenge the constitutionality of it. They started selling stuff way below, much cheaper, and the way they were able to do it was by no-frill salesmanship, of course, in other words, instead of having a salesman at your beck and call, whatever you want, you had to line up like you do now with, you you know, 47-3 photo and stuff, you just, you know what, you have to know what you want ahead of time, you're going and line up and pay for it, and so, that was, enabled them to cut the cost, to cut the price, and so they, they started undercutting, it was magnificent, everybody flocked across the Master's in Corvette, and went out to the Supreme Court, the retailers, the organized retailers fought it bitterly, they hated this thing, it was horrible, it was unfair, and blah blah blah, it's monopolistic, here's another favorite argument of these guys, they say, well look, if you allow free competition, and cartelists

22:37As I always say, if you're allowed free competition, eventually some firms will get very big and will put the other firms out of business and then they'll raise the price. In other words, their argument is to preclude the possibility of an efficient monopoly 20 years from now, which will eventually raise price, let's enforce an inefficient monopoly right now. Let's have a government cartel forcing you to raise the price, an obviously idiotic argument which can only be held by somebody who's doing this to pose an inefficient cartel on their on their own behalf. I mean, if you look at it logically, the whole thing is idiotic. So it's only pushed on people who are special pleaders for this thing. So, this is their argument if you will. If you can't do terrible things, larger retailers will take over and they'll be efficient and they'll eventually raise the price. Of course, they eventually never come. Prices get lowered by competition. So, at any rate, this kind of masters and

23:31co-op that were hated by everybody, attacked by all the retailers, and finally the Supreme New York, by the way, are very fortunate. Most places in the country don't have these Discount, electronic discount places and things like that. So this is again an example of innovation, of retail, in this case the retail industry, fighting against, battling against compulsory cartels, they have to be compulsory in order to work at all, and breaking through this whole crust of cartellism.

24:27There still is, I think, I don't know how it is with vitamins now, but there used to There used to be a very tight anti-discounting for vitamins in the name of health. I remember when I was, I used to get Theragran vitamins, which were just Sqibs Theragran, which is multiple vitamins, of course, the list price those days might still be about 10 bucks, which is totally insane, so they were selling it for about $6, the market price was about $6. So I went into this drug store, a neighborhood drug store, and I said, I like Theragran, and he got a look at me and said, you live in the neighborhood. Strange question, I think, to ask. He says, yes, yes, I've seen you around. He then sold me the vitamins for $6 instead of $10. In other words, what he was worried about, I might be a Gestapo member, in other words, member of a secret police of whatever they call them for the federal food and drug,

25:13whatever bureau in New York regulates the retail industry, to go around and make sure the vitamins are no less than this price. In other words, minimum price control espionage and the organized agents, and the behest, of course, of the retailer, the organized retailer, the cartel, which doesn't want any given retail store to bust the price. So, of course, this is now busted. Nobody sells for $9. I've never seen any tariff of $9, $10. It's all about $5 or $6, so that, too, is busted. But it's intriguing that even in New York here we have a situation where you have to make sure the guy is safe, that I'm a neighborhood person, not some floating spy for the local bureau. So, anyway, this is, now of course it discounts all over in vitamins, but this is still going off of the liquor business, the liquor trust. It's been loosened a little bit recently, but basically what you have is the liquor industry, retail liquor store, the supply is tightly controlled.

26:11You have to get a license, first of all, there are no new liquor licenses, so it's very much There's only a fixed amount of liquor store licenses, because they don't issue any more. Suppose you want to open up a liquor store. You can only do it by buying some other existing liquor store's license. Some liquor store owner wants to retire, go out of business, or sell out. You have to buy his liquor license. It'll cost you many thousands of dollars, whatever it is. It's an enormous amount of money to be able to have the right to open up a liquor store. So, in other words, the supply of liquor stores is originally fixed. This, of course, raises the price, obviously. In addition to that, there's minimum distance requirements. In other words, you can't open a liquor store less than 100 yards or 200 yards or whatever from some other liquor store, giving this existing liquor store some coming geographical monopoly of three blocks or whatever. It was important in New York, three blocks is a lot.

27:01So, in other words, you can't invade his turf. It's a pure cartel. It's not true of any other business, of course. You know about the grocery store right across the street from another one, but in the case of a clothing store or whatever, in the case of liquor, however, it's specially regulated by the New York State Liquor Authority. And, see, you've got geographical monopoly. When I first moved into my neighborhood on the west side, there was one big liquor store here, there's another fairly large one there, and there's a teeny, lovable teeny one right here, right next door to me. And the teeny one was put out of business by these two guys who got together, a complainant of the liquor authority, they were listed on a hundred yards, whatever it is, from the other two, and they were put out of business, they were just, they were expelled from, ejected from business by the state, by the state government, at the, at the, under the lobbying of these

27:47two competitors. This is the way, this is the way, this is the welfare state in action. This is, this is the welfare state, this is government regulation for the common good, quote unquote. It's the government being used by these two competitors to screw their own, their third to your competitor, to cartelize the system, keep out competition. So that's the real monopoly problem, the real monopoly problem is not a falling demand curve. The real monopoly problem, which everybody has, the real monopoly problem is the government being used to restrict or eliminate competition. In the liquor field, by the way, you also have, of course, very high liquor taxes plus Liquor Import Controls, and the result of which is the price of liquor is enormously higher than it would be in the free market. It's incredible. The price of liquor before the Civil War, when extra liquor taxes came in because of the prohibitionists, a gallon of top scotch you can get for about a buck. And that's, of course, let's say the price

28:48is now eight times higher than that. You probably get a gallon of top Chivas Regal or something I've been talking about it for about $8, I would think, on the free market, without the taxes, I would think it would be something like that, yeah, on the free market, I'm not talking about now, I'm talking about without taxes, without import tariffs, yeah, yeah, that's it, okay, so I'll leave you with that happy thought, okay, let's take a 10-minute break, please, sir, a liquor store, liquor license is in the same status as a liquor store license, Same status as a tobacco farm license and also a taxi license. We got to one of my favorite examples, a great taxi caper, which is now in the news. If I've said this before, I'll repeat it on the taxi question. In the 1920s, there were 25,000 taxis on the streets of New York.

29:45And in order to get a taxi, in order to get a taxi license, you had to be licensed for this, all you needed to do was be able to show you could drive a car, so you needed a driver's license plus a car, you had to have access to a car, and then you went downtown and got a ten buck license, and then you're in business and you operate a taxi. In the 1930s, the number of taxis went down from 25,000 during the boom of the 20s to 11,787. In 1937, taxi owners in New York, the Associated Taxi Association, went to New York City and said, we need some help on the Great Depression, we need to be bailed out. And the help was that the New York City government said, Okay, from now on we issue no further taxi licenses.

30:38From that day, from 1937 until 1986, that's 39 years, no more taxi licenses have been issued in the city of New York. That's it. The number of taxi licenses has been frozen by divine edict in 1937 and has never increased since. There we sit. Greatest boom in American history, tremendous boom in income and employment, whatever. We still have the same number of cabs on the street now that we had in 1937, even though So, of course, income is going up, population in New York City is not going up, but population in the suburbs is going way up, there are a lot more people trying to get cabs, so you have then a freezing of supply at the old level and therefore can't, would have ordinarily of course have gone up, and so what you're really doing is you're restricting the supply and raising the price, keeping the supply at the 1937 level, the thing is, it's just saying well the supply of cars is now, or the supply of bread is now at the 1937 level

31:29and that's it. So in order to get a taxi license now, if you want to own a taxi in New York, you have not only to buy a car and be able to drive, you also have to buy a taxi license from some existing taxi owner who wants to leave the business, because you can't get any more from the city, that's it, frozen, 11,787. So there's a market, I hesitate to say free market, there's a market in taxi licenses, so-called medallion, which is a shield on the hood of the car. So if you want to own a taxi, you have to buy a license for some guys willing to retire and want to go into some other business, and the price has been fluctuating. Of course, in the 1930s, the price was somewhere near $10, there wasn't a big demand to be in the taxi business. But after World War II and the boom began, people wanted to enter it, and so the price – demand curve for – this is taxi licenses – supply, as Miller says, is frozen 11,787,

32:27so the demand fluctuates. It's like the art market, like the demand for Rembrandts, you know, the supply of Rembrandts is fixed because Rembrandt is dead, and supply of taxis is fixed because the goddamn city government won't issue any more licenses. And so we have a fluctuating demand in accordance with all sorts of things, booms and recessions and whatever. Well, the price of a taxi light, well Miller says the price of a taxi license in the mid-1980s is $60,000. He's way out of date already. The price of a taxi license right now on the market is $105,000. It means if you want to own a cab, and many people are cab drivers, there's also a good immigrant, a way for immigrants to start making a living here. As you well know, if you've seen, if you've ridden in taxis in New York, most people don't know English anymore. Most of the taxi drivers, they, huh?

33:15Can't drive either very well, but you have to, you have to, you have to get, the most The most important thing is to be able to cough up the $105,000 to buy the taxi. Many of these drivers, of course, are employees of fleets, but many of them, most of them are taxi owners. And so there we sit. You have to, the market price of a taxi license in Medan is now $105,000. And of course, the result of this is the tremendous shortage of cabs, in other words, the tremendous scarcity of cabs. Rates are up, the price is higher than it would have been, and the supply is way down. This means, of course, the taxi drivers in the saddle, just like the rent control landlord is or the butcher under price control, namely, that if it's raining, if it's rush hour, the cabs put their off-duty signs on, there's a thrust on the gut of every consumer, right?

34:07So-called off-duty signs. And that's it, you can't find a cab anyplace. The cab drivers don't want to go to Brooklyn, they won't go to the Bronx, they won't go to Harlem, they want to hang around Midtown Manhattan, where they maximize their income because there's no competition. The result of all of this was the growth of the so-called gypsy cab movement, the unlicensed cab, illegal cab market. And then the gypsy cabs became quasi-legals, and I think there's three tiers now, there's the gypsy cabs which are sort of legal now, there's the illegal illegals, and there's the legal illegals, and there's the medallion cabs, the medallion taxis are the only ones that can officially cruise and pick up customers. Other cabs have been allocated at Brooklyn and the Bronx and whatever, aside from Manhattan.

34:55They're basically allowed to cruise in Brooklyn and the Bronx. And still others can, you can call them up, you know, the radio cabs, you can call them up and that's okay, but they can't cruise. Of course in real life they do cruise, it's not illegal, like, this whole structure, this crazy structure of the taxi industry, all due to the fact that the licenses, no new The new license has been issued since 1937, for 39 years, yeah, 39 years, yeah, 49 years with no new caps factorized, every few years Mayor Koch has tried to increase the number, like let's have a hundred more, and the taxi drivers are going on strike, big hysteria, yeah, I'm not sure, what was the thing yesterday, tied up? What happens to taxi businesses, this happens to old monopolists in many ways, I said old monopolies are inefficient, in the case of a license, the market, and I'll go into this more when we get a little bit later on, next week or two, we get into what determines the actual market price of this kind of license.

36:02When you have a monopoly license of this sort, the price on the market tends to absorb a monopoly profit. In other words, if you get a big profit from owning a cab and getting a license, the price of the license goes up to absorb the profit. So that means that the current guy, a guy who spends $105,000 on a cab, he spends so much on a cab, he doesn't feel he's exploiting the public. his profit margin is pretty low because he has to, it's true he's getting monopoly profits because he's keeping out other cash, on the other hand he has to pay so much for the damn license that it absorbs his monopoly profits, so the taxi owners don't think they're exploiting us because they say our profits are low, we're struggling to keep alive, which is true because they have to pay so much for their monopoly license, the result of all this is the only people who really benefit from the taxi monopoly is the original guys, the guys in 1937 who

36:52who bought a license for $10 and sold it for $105,000. They are the so-called windfall gainers, the guys who hung on to that license for 30 years. They're in great shape. The guys, the newcomers, however, are no better off than anybody else. The result, this kind of system benefits no one and screws up a lot of people. In other words, the consumers are screwed. The people who like to enter the taxi industry and can't because they have to call for $105,000 or borrow $105,000 to get the scratch and to get the license are hurt. And even the beneficiaries don't really benefit anymore. In the long run, in other words, even the monopolists don't benefit because their profits were absorbed in the prices of the license they had to buy. And yet they'll fight like hell to keep it because they have $105,000 tied up. In other words, they will fight like tigers to keep any more medallions from being issued because they're afraid a whole $105,000 will go back to $10 where it

37:43should be in the first place. And it's the same argument. I don't know if I mentioned this in this class or not, but the same argument, same thing happened under slavery before the Civil War. In the economics of slavery, the slave was a capital equipment. The slave master was getting monopoly profits. In other words, essentially, as we'll see in a week or so, in the free market, everybody gets a marginal productivity. Everybody gets more or less the wage rate is equal to marginal productivity. In the case of slavery, the slave master picked up all the subsistence. In other words, he collected, so to speak, the productivity and In other words, they pay the slave only subsistence, just enough to keep going and reproduce. The difference was the surplus profit, in other words, the surplus value of the exploitation value, so to speak. While the slave master, you think the slave master would be making a lot of money because they'd be getting these extra profits from exploiting the slaves, however, after a few

38:33decades what happened was the slaves were bought and sold, and so the price of the slave absorbed the monopoly, the slavery profits. The slave master had to pay so much for the slave, had so much capital tied up in the slave that he wasn't getting any extra profit. He was struggling like everybody else. The result of all this is that the slavery system did not benefit anybody, even the slave master, but the slave masters fought like hella-keeps because they had all this money tied up in slavery. It's very much like the taxi industry, of course, much more important economic consequences and political consequences under slavery, but the same economic aspect to it. In other words, you have an exploitative system, a monopoly type system, where you're screwing a whole bunch of people to get monopoly profits, and yet the monopoly profits are discounted away by the market, so you wind up with no extra benefits.

39:20So the people who benefit are the initial slave, the guys like the slave traders who bought the slaves over and possibly reaped a big profit. But after a while, the slave profits were absorbed in the price of the slave. So yet, of course, they fought like hella keepin', a very similar kind of system. Well, so every once in a while the mayor, whichever may have been saying, let's increase the number of, the number of licenses by 100, and a big hysteria goes up, it means you're loosening up this monopoly system. But last year, about two years ago, Koch had a pretty interesting idea, he said, well, here's what he proposed to do, in order to quiet down the hysterical taxi owners, give them a free license, in other words, a double of the amount, a double of the amount, 23,000 and so on.

40:06But you give each existing license owner one more license free, and the proviso has to be used either by him or by somebody else within a year or two years, so in other words, he'll have to sell it. Probably these guys would have benefited, because they're getting a free $105,000 thing. It's true the price would have gone down from $105,000, but still and all, they probably would have benefited. They were so scared about loosening up this tight monopoly and reducing the value of the $105,000 value that they fought hysterically against it and finally caught trying to withdraw and all the suggestions, the idea of giving every existing owner a free medallion which has to be used. So this is the current situation, the current cookery thing came about, they decided a few years ago to issue a hundred, just a hundred, a hundred extra medallions to use experimentally in diesel cabs, to see how diesel cabs work, well of course what happened was these crooks

41:01The crooks took the hundred and each one in those days worth $60,000, $6 million and somehow nobody knows what happened to it. They got dissipated away in various crooks in the Taxi Commission. But anyway, this is an enormous amount of money here, $11,000 a day is $105,000 each with a lot of dough. So there's where we sit and it's interesting how the market discounts these extra profits. So the prices have been going way up, and of course they're all very happy about this. They're clinging to every buck they can in this situation. Most cities have one taxi monopoly or the other. Los Angeles, you have to be a yellow cab company. They have a literal monopoly.

41:47Only the yellow cab companies are allowed to have cabs on the street, and that's it. The only really free market or semi-free market taxi situation is in Washington. If you've ever been to Washington, it's a magnificent taxi cab. In a rush hour you can get a cab everywhere, it's magnificent, it's great, because there's free entry into the taxi business, no medallions, no nuts. It's true that the rates are regulated, but even so, there's a big difference. One of the things about the races, by the way, one of the reasons why the gypsy cabs are now quasi-legal, is because they don't cut the fare, in other words, they're finally grudgingly accepted by the medallion taxi people because they don't undercut the fare. If they undercut the fare, they'll probably be beaten up and there'll be war on the streets. But since they don't undercut the fare, they're allowed to continue under these restrictions.

42:36So that's the, we'll never get a really decent cab service in New York until a taxi monopoly is broken. So we get free entry in a taxi, but I doubt whatever will ever happen, we'll have to really buy these guys off. And you refuse to be bought off, even as I say, even one free medallion didn't do it. So, that's the current set up. The, by the way, buying them off, most economists say they should be bought off, it's cheaper for the consumer to buy them off, but in many cases, in the case of taxi people, they don't want to be bought off, they're afraid to be bought off. Yeah. I think I've heard a suggestion that they want to be mauled to have to be really, really busy. Yeah, because it's filled with crooks, but they'll replace it with something else, but The magic number of 11,787 is remaining. They're not talking about doing away with that, unfortunately.

43:30I'd love to see it. Maybe someday I'll be able to do it. But the taxi business, a vocal minority, vocal pressure group, highly politicized, because their whole livelihood is wrapped up in the government here and keeping their monopoly. That's the real problem with monopoly, once again. It's not a falling demand curve. It's this sort of stuff. You can't get into a taxi business unless you shell out $105,000 and somebody is already in it.

44:00A similar situation with medical licensing is more complicated. Medical and hospital licensing where the real sticking point happened, the real difference occurred in hospital licensing. where medical schools and hospitals were brought under severe regulation around 1910 Abraham Flexner wrote a report on medical education in 1910 it was sponsored by the Carnegie Foundation and the Rockefeller Foundation and his report was of too many doctors and it's true he talked a little bit about the quality of education Education. But basically he's saying that the income of each doctor is too low and should be higher and a way to make it higher is to restrict the entry.

44:49And once again, so we have a systematic situation where the supply curve is shifting to the left. There were literally half the medical schools in the country were put out of business. And licenses were not renewed or not issued by the state governments. Each state set up a medical board. The American Medical Association, the trade union of doctors, so to speak, was given the right to appoint the people. In other words, if you have a state photography board, who's running it? It's an organized photographer, and they run it in a cartelizing manner, of course. Why else run it? So each state, the hospitals and medical schools are licensed by the state, the AMA had its right to appoint the people, and they of course put half of the schools out of business, period. By doing it, in other words, they shifted the supply drastically to the left.

45:37The number of doctors per person is much lower in the United States than it is in most other countries. Much lower than it was before 1910. And so you push the supply curve to the left and you increase, tremendously increase, of course, the income of a physician. And one of the things that was done, we have a cartel. In other words, a medical field is an organized cartel, a compulsory cartel. Each state running it, a collaboration with the American Medical Association. What happens with the cartel is that, again, when you have a cartellist, discrimination comes in. It's very much like the butcher or the landlord. If you have the right to decide who should be in your apartment, you have 50 people for every apartment, well, then you pick the guys you like. You pick the race you're interested in, in favor of, or whatever.

46:25Same way with the medical profession. When the medical schools were pushed to the left and half of them were put out of business Business by the Government, the doctors then decided, well, we're going to keep out people we don't like. Who do they keep out? Blacks, women and Jews. These were the three major groups that were forced out of medicine. Before 1910, there were a lot of black medical schools, a lot of female doctors. They were systematically put out of business by the government, the state governments. All the black medical schools were put out of business being, quote, unqualified, unquote. Female schools, those that had female medical students were put out of business, and so So the whole thing shifted, and Ross basically took over the medical profession for decades. Interestingly enough, the people who took over, and this has been, economists have engaged in a study of this, in the medical profession, the most monopolistic part of the profession are those which are most connected with the hospitals, because the hospital is the key

47:20to this thing, key to the monopoly control, hospital and medical school. So the more hospital-oriented a physician is, the more monopolistic his occupation is. Surgeons, for example, are totally hospital-oriented, and surgeons are the most monopolistic. In other words, they charge the highest fees per income of the customer. For example, a dentist, dentists are not monopolistic, basically, because they're not connected with hospitals. A dentist will charge more or less the same amount than anybody for pulling a tooth. Surgeons, however, take a Dun & Bradstreet report on the income of a patient, and they charge a proportion of what they think they can get away with. In other words, if a person is wealthy, it's just sock him a higher fee for the same appendectomy or whatever.

48:06They can only do that because they're associated with a hospital which is basically a monopolistic license institution. So on the other hand, shrinks, mostly on hospital, more or less charge the same fee, within limits. Banks are basically non-monopolistic in that sense. They charge more or less the same fee for everybody, because they couldn't get away with charging more for which the wealthy personally just go to another shrink, and with inter-shrink competition will then do the job of making the price more or less uniform, but not with surgeons, because they're locked into a hospital situation. AMA, for example, you look at the power elite of the American Medical Association, invariably those who are running the association are surgeons, not internal medicine, not eye doctors or whatever, surgeons. The editors in the Journal of the American Medical Association of Surgeons, the heads of it. Why is that? It's not God ordained and it has to be surgeon.

48:57Surgeons are the most monopolistic. They're in with the key of the monopoly, which is the hospital. And one of the things that are done with the shrinkage is you're getting blacks, women and Jews out. You also get out competing therapies, those which don't fit in with orthodoxy. I'm not taking it to the stand one way or the other. I'm not a physician. I'm not taking a stand on therapy one way or the other. What I'm saying is, there are competing therapies. Orthodox therapy is not the only therapy. In recent years, there's been a lot more of this, by the way. The last 10-15 years are cropping up of unorthodox therapy because there's been more competition in the medical field. You notice doctors are even advertising now. It's a magnificent step. They're forced to compete a little bit. She was unheard of 10 years ago, 20 years ago. It's considered unethical to advertise. In other words, the ethics of medicine is you should never compete.

49:44Don't take a client away, a patient away from another doctor, because that's competition. In other words, it's been a forced cartel. It's been breaking up the last few years. So they put out of business competing therapies. In other words, there was in those days, before 1910, there were two basic, two respectable forms of therapy. What's now called medicine, which then was called allopathy, allopaths, the theory being that you cure diseases by massive doses of synthetic drugs to kill the germs, and other fields, homeopathy was considered just as respectable, I would say about one third or more physicians were homeopaths, homeopaths had a very different theory, their theory was synthetic drugs are no good, you use natural herbs and minute doses, I don't know, who Who knows? The thing is they had a good success rate too. Their success rate was probably at least as good as the allopaths. They were put out of business. Every homeopathic medical school was destroyed by the state government regulation after 1910. The American Medical

50:50Association, which were allopaths, therefore put the homeopaths out of business. In Europe, they still have a lot of homeopaths, a very respectable occupation. In the United States, however, they're put out of business by the government. There was allopathy using the government, the crush homeopathy, also there are other forms of PATH, natural PATH, osteopaths used to be illegal and now in chiropractors finally made it, but it's a long struggle to get legalized, also of course a lot of cancer, alleged cancer cures have been outlawed by the government, not on the basis that they do any harm, but on the basis that they're not effective, how do you know they're not effective? Well, it should be up to the patient There's a case on television a couple of weeks ago of Dr. Riccio Rubici, a lovable Romanian doctor about 85 years old, had a lot of cancer patients, doing a lot of good apparently, at least the patients testified to that.

51:48His license was taken away from him by the state government, and they said his therapy was not effective, quote unquote. The other hand, you have a lot of butchery going on by orthodox medicine, and they say, Sorry, that's our mistake. It was the way it is. That's even though it's not considered ineffective because that's the state of the art. That's the state of right, you can get away with it. So it seems to be a pretty run deal to outlaw a cure just because it's quote not effective unquote, according to the government, not according to the patient. That's a layer trail of an outlaw, the use of the hoxie cure, whatever these, however good or bad they are, should be able to take to buy them. Incidentally, look at the basic argument of orthodox medicine, look at the argument, they don't say that these cures are harmful, what they say is they're not effective and therefore they're wasting the patient's money, can you imagine these god damn doctors having the

52:40goal, the claim that other cures are wasting the patient's money, they're much cheaper than orthodox medicine, much cheaper, which is the big reason why they're being declared illegal, they're very cheap, natural herbs are cheap, the Rovitchi method is cheap, Laetrile is cheap, it's basically orange pits, almond pits, peach pits, apricot pits, anyway, they're fairly cheap, apricot pits are not that difficult to come by, at any rate, they're cheap, and most people, 90% of the people go to so-called quack cures, they've already gone through orthodox medicine, declared incurable, and they turn to these quack cures only as a last resort, in most cases, so there's a tremendous amount of So there we have it. A lot of these people, a friend of mine claims he was cured of diabetes by taking a homeopathic herb. And the herb of this much, like $3.50 of an herb, five years supply of an herb, that's it. He threw away his insulin and that was it. So it's much cheaper and less side effects, the boot. So at any rate, homeopathy should definitely

53:53should be legal, whether it's good or bad, it should be, consumers should have a right to patronize it. Now one, it's interesting enough, a method of the madness here, the alipass, remember, expressed synthetic drugs. Synthetic drugs are expensive. Synthetic drugs also have to be discovered by, research has to be done into them by drug companies, and were therefore particularly has been putting the natural herbs out of business. Remember I said the Flexner report, Abraham Flexner who wrote the report to change medical education in this country, was not a doctor and he was not an educator, oddly enough. So why did he get this big plum in signing on who should be out of business? His brother was Simon Flexner and was a doctor, was also head of the Rockefeller Institute for Medical Research. The Rockefeller Institute for Medical Synthetic research has been pushing ever since synthetic drug research.

54:47Most of their money goes into synthetic drug research. Synthetic drug companies are heavily invested in by the Rockefeller family. We have the Rockefeller drug interests making a lot of money out of synthetic drugs. We have the Rockefeller Foundation, allegedly impartial, objective, scientific outfit, pushing for outlawing of competitors to synthetic drugs. Rockefeller leaps the profits along with the medical cartelists at the expense of the consumer population. I'm not saying that these, this is the economics of the situation, I'm not taking a stand for or against any of these therapies, what I'm saying is that the consumer should be allowed to choose, that's the, at any rate. The last few years the medical monopoly has been loosened a lot, there's been a big increase The increase of people going to medical school, they've had to advertise, it's been loosening up.

55:45One of the reasons was the medical prices of drugs and medicine and hospitals have been so high that competition has been coming in, paramedics and people like that, holistic medicine, things are much cheaper, and finally pushed back the monopoly, stranglehold on medicine to some extent, not completely, but it's been a lot better than it used to be. I remember when I first went out to California many years ago and the dentists were advertising on the radio. It was really a culture shock, you know. Go to, turn the radio on, go to Dr. So-and-so, give cheap filling for ten bucks or whatever it is. And now, of course, there's a lot more of it. You've got a leaflet saying, go to this hospital, go to this clinic. But it's a good thing. It shows there's some competition at last in the medical field. So anyway, the monopoly problem is not Following a man curve, it's compulsory cartellism. I just want to say a footnote on a farm question.

56:41Farm price supports, which again are cartellized agriculture. You have the milk cartel, compulsory milk cartel, with a restriction in supply and a rise in price. While the milk people are still belly-aching about the price isn't high enough and it's overproduction, quote In order to crush the milk industry, in order to cartelize the milk industry further, the Federal Government has just issued a ruling, compulsory killing of a million dairy cows, slaughter them. It sounds like the early 1930s was being done right now, in the name of quote, free market, unquote. Compulsory slaughter of dairy cows is to decrease the supply of milk and push up the price.

57:26This is a welfare state in action, people, right? So the welfare of the god damn dairy interests is the expense of the rest of us. So interestingly enough, what's happening is, is they're killing the dairy cows. Usually, there are two kinds of cows, the dairy cows and the beef cattle. The dairy cows are milked and the beef cattle are killed for meat. As they're killing the dairy cows, they're selling them for meat. So the beef cattle industry is going crazy. They're saying, hey, hay is the biggest overproduction of cattle because there's now too much meat coming on the market. Meat prices are falling because there's too much cattle coming on the market. Stalling for stopping the slaughter of dairy cows. They don't care what they do with them. They're going to disappear somewhere. They don't want to compete with a beef cow on the meat market. Such is the situation. This is the latest development. I'll keep you apprised as the term goes on.

58:12Okay, enough for today.