Minimum Price Controls

0:00So now we get to the final kind of government intervention in prices, namely minimum price control.

0:10Price, y-axis, quantity and x-axis, falling demand curve, supply line. And the minimum price control, the government says thou shalt not sell a certain product or service below a certain price. And we're keeping it above the market equilibrium. When the government does that, they set up a situation where much less will be sold than is supplied. In other words, supply is much and quantity demand is much less because the price is higher, supply is greater than demand, and there's an unsold surplus. In a free market situation, with an unsold surplus, prices fall, they have to cut their prices because the surplus piles up and you wind up back here with an equating supply and demand at the market clearing price and you eliminate the surplus, but if the government says no, you can't do that, it's illegal to sell a product for less than this You then have a permanent surplus, and the surplus piles up and gets worse over time, because if anything, for the higher price, they're tempted to have more, increased production even more than that, and they have to keep buying that up or whatever.

1:28If you wind up with even more surpluses over time, surplus gets worse and worse as time goes on, just like a shortage gets worse and worse, with maximum price control. Control. There are two big examples of minimum price control, a relevant example. The first one we'll deal with today is the whole farm question, which has been totally screwed up now for about almost 60 years, and it shows no signs of improving after probably getting worse. And the other is minimum wage laws, we'll get to on Thursday. Basically, the way Basically, the way the farm situation started is that it was back in World War I. Everything starts with World War I, as a matter of fact. In the case of the farm question, just before World War I, when Europe was at war and we weren't, we came in 1917, they were blockading each other. In other words, the warring countries were blockading each other. They couldn't buy any food from each other. On the other hand, the United States was neutral, so they

2:31They bought a lot of food from the United States. So what you had was an artificial increase in the man curve for farm products, wheat, cotton, corn, that sort of stuff. And so, of course, a tremendous increase in farm prices and an expansion of farm production. And this continued during the war, when we got into the war, because then the United States government was buying stuff and shipping it abroad and so forth and so on. So you had, in other words, before and during World War I, an unofficial increase in farm prices and in farm production. The farmers never had it so good before or since, in a relative sense. So after the war was over, there's a big drop, of course, everybody goes back to normal.

3:18There's a drop in European demand for American farm production. the man curve goes back to before more or less and the price is full okay and so and since production is now here it means you have a big agricultural depression in the United States this happens usually after every war in World War one this gave rise to the farm block just after the first appearance of the farm block as an organized force and the farm block ever since then has been and trying to live the way the farmers would like to have become accustomed back before World War I. In other words, they wanted the same relative income, relative price structure, now they had a 1910-1914 period.

4:05And what they did is they called this parity. Half the battle in any kind of political struggle is to find a good name for what you want. If you want to get a monopoly privilege, you don't call it monopoly, it doesn't sound good, you call it fairness or some other crap. In this case, you can call it parity. Who can be against parity, right? So, parity is defined as the same relative price, the farm prices, relative to all other prices as existed in the 1910-1914 period, the peak in American history before and since. In other words, you take an index of wheat prices or cotton prices relative to other prices, manufactured products, labor, whatever, wage rates, and they're at peak in this period.

4:53So the farmers ever since then have been insisting on going back to the good old days of parity and getting, of course, the government to do with four of them. Now the thing about agriculture is the general trend in life as civilization develops, the The trend is away from the farm. In other words, say in 1789, when the American Republic was founded, everybody was a farmer. I'd say 95% of the people were farmers, and the rest of the people essentially were merchants shipping farm products. In other words, exporting farm products, importing manufactured goods, more or less. This is, you know, roughly true. So you had, you start off with a world where 95% of the people are farmers, and as civilization develops, as industry grows, services, all that sort of stuff, People leave the farm and go to cities and suburbs and all sorts of other places and get better jobs in other areas.

5:46So the trend of world history is against the farmers in a sense, not against food, but in a sense that economically you leave the farm, increase agricultural production even as you leave the farm, because you get better technology, farm machinery and all that sort of stuff, and ways of producing crops. You leave the farm and you do other things. So if you try to freeze this and say, jeez, it's a terrible thing, people leaving the farm, what you're doing is you're essentially freezing the world, trying to turn back the clock and decrease productivity, decrease technology, go back to the good old days and everybody's a farmer, it's totally nuts. There's no reason why the taxpayers should subsidize this and the consumer, to subsidize this kind of truly reactionary position, because the fight against modern world, against industrialization, against everything else, but it's still going on, of course.

6:36There's a lot going on, of course, even though right now only 6% of the population are farmers. 6%, and for all the fuss that's made about it, you'd think the whole world is of farmers. And this is not only true in the United States, by the way. Almost every country outrageously subsidizes their own farmers, and Europe is a common market. It's supposed to be free trade between all the European countries. There's no free trade, because every country protects its own farmers to the hilt, keeping out cheaper and better farm products from other countries. Every country has this wall of protection around their own farmers. So the American farm situation, the farm block begins, interestingly enough, not with the farmers, didn't know what was going on mostly, it begins with a few people who are, number one, farm equipment manufacturers, Farm machinery manufacturers, who realize that if the government subsidizes a farmer, they too will be subsidized even more, as we'll see how.

7:34Farm machinery. These are guys who manufacture tractors and combines and all that sort of stuff. As you might expect, being born and bred in New York, I'm not exactly an expert in agriculture. So, anyway, these are farm machinery manufacturers who begin the idea of a farm block. The first two guys, George Peake and Hugh Johnson, wrote a book called Form Equality, Equality for Agriculture, I think in 1921. These guys were both, they were chairman of the board and president of the Moline Plough Company, which those days were the second largest farm equipment machinery manufacturers. They wailed about the poor dirt farmer and a lot of junk. The other guy, Bernard Barouf, was their mentor, was a big land speculator. In other words, he bought up a lot of farmland and then pushed for subsidies to farmers so that his land, the price of his land would go way up.

8:26This is essentially, these are the guys who begin the agitation for the farm, of course, as they keep agitating, of course the farmers say, this is great stuff, you know, organized farm block where I can Farm Bureau, Grange, that sort of thing. So anyway, during the 1920s, they keep pushing for subsidies to poor, the poor farmers. Instead of saying, all right, let the farmer get out, in other words, the farmer's producing more than he was before, cut back and leave the farm and all that sort of stuff. And by the way, leaving the farm doesn't mean that at the age of 60 you have to leave the farm. It almost always happens as the sons grow up or daughters grow up. The sons say, okay, Pop, I'm sorry, I feel better opportunities in New York or in California or something, and they leave the farm. This is basically what happens, a new generation coming up. So it's always been that way. They say it's been that way since 1789,

9:09except now in the 1920s we begin an agitation to try to stop it. 1929, Herbert Hoover becomes president. Herbert Hoover was committed to the farm block. He said if he gets to be president, the first thing he'll do with the Institute of Farm Price Support Program, which he did. In March 1929, the infamous Federal Farm Board was created. This is the first farm block, farm price support program. March 29, done before the Depression. I don't think this is a response to the 1929 Depression hit in October, and this is before that. This attempted to be a permanent part of American policy, which of course, unfortunately, it became. The idea is this, how do you raise the prices? Here's the price of wheat.

9:56They started with wheat, which has always been the biggest politically powerful part of agriculture. Now, of course, the farm price support program, especially with almost everything, with any crop you can think of, is supposed to be cartelization, marketing orders, limiting production, and aqueous control, and all that sort of stuff. But at any rate, it starts with wheat and cotton, especially with wheat. The idea is you create a federal farm board, which, so this starts the whole policy, Which is supposed to buy up a lot of wheat, if you buy up wheat you raise the price, otherwise you add to the regular demand by consumers and so forth, you add the federal government which buys up stuff and increases the price to push the price up to whatever the farmers want.

10:42So they did that, they did that from, by the way, the head of the federal farm board, the federal farm board consisted of a bunch of people, representatives of organized agriculture, wheat farmers, apple farmers in New York, things like that. But the head of it was Alexander Legge, who was the chairman of the board of International Harvester, which of course was the world's foremost farm equipment manufacturing company. So that's sort of like International Harvester. Not exactly a dirt farmer, Alexander Legge, probably never saw a farm, at any rate, head of International Harvester. So they buy up wheat, but see the problem is, here's the wheat, Federal Farm Board's stucco has all this huge accumulation of wheat, what are they going to do with it? It's hanging over the market like a sword of Damocles, and the market's worried about the fact that if they ever sell this stuff, the price is going to go down again.

11:30And so, as a result, nobody wanted to buy wheat. None of the speculators are worried because they're afraid that the government sells the wheat to be out of luck. And so the price goes pushed up a little bit and goes down again immediately. They couldn't do it. They couldn't just push up, what are they going to do with all this excess wheat or excess cotton? And also they found out that by trying to raise the price of wheat, they stimulated further wheat production, which made the problem even worse. And of course when the Depression hit, it's even more so, because the Depression, the oil prices tend to fall, and they're trying to push up wheat prices in the face of all this general price collapse. So, finally, by the end of the Hoover administration, by about 1932, they realized the only way to try to raise farm prices in a quasi-permanent manner is to organize the farmers as a cartel.

12:23In other words, they went, the Secretary of Agriculture went and told the farmers, campaigned all over the country, even his agents and so forth, and they told the farmers this, they hold meetings of farmers, tobacco farmers, wheat farmers, cotton farmers, milk farmers and all that. They said, look, explain to them economics and situation. They said, if all of you cut production, if you voluntarily cut production, let's say, by 20%, prices will go up 30% or 40% and you'll all benefit. In other words, he's telling them that the demand curve for their product is inelastic. It probably was. I mean, there's no proof for it. He was probably right. So the demand curve for wheat or cotton or oats or whatever was inelastic. Therefore, if you all band together and cut production by 10%, prices The prices go up by 30% or whatever. In other words, the total revenue increase, you can all share the benefits.

13:13Now, of course, who loses by this? Who loses? The consumer loses. The consumer now has to pay a higher price for a lower product. The suckers, especially during the Depression, everybody was poor. We now have to pay a much higher price for less wheat, less cotton, fewer pigs, that sort of thing, fewer cattle. The farmers would benefit, consumers would lose, and taxpayers would lose insofar as they have to buy up and spend a lot of money buying this stuff up, as the Federal Farm Board would say. So, they told the farmers this. They said, okay, remember, cut production next year by 10% or 15%, whatever this thing is, and prices will go up double, and you'll be much better off. Each farmer then went back to his own home and talked to himself. Farmers are not stupid, especially about their own pocketbook.

14:01He said, look, if these suckers out there, they're going to cut their prices, cut production, raise prices, I'm going to double my production and take advantage of the higher price, right? Of course. In other words, each farmer is going down his own main curve, so to speak. As a result of that, of course, instead of production going up, going down, it went up. They're worse off than they were before. Again, demonstrating that cartels don't work. I'm going to repeat this later on in the course when I get to monopolies and cartels. Cartels don't work unless the government enforces it. Voluntary cartels don't work, because everybody will say to themselves, aha, I'm going to take advantage and increase my production while the other suckers cut theirs. A good, solid American trait. So, then they started, the organized farmers started with random violence. For example, tobacco crops.

14:46The same thing happened with tobacco. They said, well, you cut your production by 10 percent, tobacco prices go up by 20 percent, each guy increases tobacco production. Tobacco farmers started some Ku Klux Klan activities. In fact, they were the Ku Klux Klan, usually, in North Carolina and so forth. They went and started burning tobacco fields, and they felt the guy increased his production. There was a lot of that. On the other hand, first it's illegal, and it's random, and it's not systematic, to say the least. They also did that with milk. They dumped out milk trucks, and they felt it was going beyond their informal milk quota. They went and dumped the trucks out and dumped the milk out on the road. These things were random violence and obviously were not systematic and therefore not successful. So by the end of the Hoover administration, the farm block and the Hoover administration itself came to inclusion.

15:34The only thing that would work was government coercion. In other words, the government has to force the farmers, quote, for their own good, unquote, to cut production. So it forced them into a cartel, very much like Bismarck in Germany forced the German industry into a cartel. So once again, what's happening then is he's forcing the cut production means that individual farmers might do better on their own or forced to go along with this general process of monopoly and chapping the consumer. So when Roosevelt came in in 1933, this is exactly what he did, he took the farm program and systematically employed government coercion to try to force farmers to grow less. Setting out the AAA, the American Agricultural Adjustment Administration. Official name of it.

16:21A vast bureaucracy in the Department of Agriculture that trying to force farmers to setting maximum quotas to force farmers to cut production so they can raise price and all benefit by the cartel. That was the concept. This is pretty outrageous, for example, a famous example. They try to force the farmers to cut their pig production by one-third, the number of pigs they raise. In the middle of the Depression, lots of people were starving in the cities. Here they're organizing agriculture in the name of a, quote, welfare state, which is a New Deal alleged contribution of the American economy, to cut production and raise prices while people were starving in the cities. I don't call that a welfare in any true sense, a welfare system. This is a welfare state in action. Anyway, so they figured, however, they couldn't, it would be difficult to cut production directly.

17:12To cut production, which they're doing now in a lot of cases, however, tobacco and also the development of peanuts, the cut production means you have to police everybody's output after some kind of way of policing marketing to make sure the Zeke Jones farmer doesn't produce more than his quota. They figured a way, an easier way to do this is to cut his acreage, because the acreage is visible. The Department of Agriculture county agent can drive around the county and find out how many acres Zeke Jones is cultivating wheat. Very easy to see. So acreage is a visible thing. Instead of having production quotas, cutting production by a certain amount, they can force them to cut acreage because it's more easy to enforce. So they put on acreage control, maximum acreage. So in other words, maximum acreage quotas.

18:02So, let's say, here's Zeke Jones, wheat farmer in Kansas, and he's, he's, say, 100 acres devoted to wheat. They tell him, everybody's got to cut their wheat acreage by 20 percent, so you have to take 20 acres out of production, and only have 80 acres worth of wheat. By doing that, they thought they would cut production by 20 percent. You cut acreage by 20 percent, you cut production by 20 percent, right? Wrong. Uh, that's not the way it worked. The farmers, indeed, obeyed the law in most cases to cut their acreage. However, farmers are smart and so here's what we're going to do. They're forcing us to cut acreage. What we'll do is we'll take our 20 lousiest acres because acres are not all the same. One acre is not the same as every other acre. Take your rocky soil, stuff that's no damn good anyway. Take that out of production and you concentrate all your best efforts on the 80 acres.

18:49You take the 80 best acres and you mechanize and then you use fertilizer and irrigate. That's exactly what they did. They wound up producing more than they did before. before more of the 80 acres produced 100 acres so this means here's the government trying to push farm prices up and a little clearer here and and then and so they they kind of they have acreage but they wind up a lot with all the stuff being produced more being produced they're out here now and the The government's got to buy up all this stuff. The government's committed to pushing prices up to here. So the government, the Department of Agriculture, buys up its coal loans, but it's really buying up. It's buying up all the excess amount that drives it to push the prices up to here.

19:37So instead of having the farmers cutting production, they're cutting increase production, and the Department of Agriculture has to buy up even more. Storing all sorts of useless wheat that's been producing, cotton and cheese nowadays and all that sort of stuff, and storing it in bins somewhere and just letting them rot, refrigerating them, just keeping them there for almost forever. So this is essentially what's happened for the last 50 years, in one form or another, different variations. It's more than that though, it's even crazier than that. The Department of Agriculture, one division of the Department of Agriculture, is trying to pay the farmers, in other words, subsidizing them to grow less. and buying up all this stuff and raising the price and getting it to grow less.

20:23Another division of Department of Agriculture at the same time is subsidizing the farmers to grow more, subsidizing irrigation, a huge amount of subsidized irrigation now and before, even more so now, but subsidizing fertilizers, subsidizing all sorts of agricultural techniques and subsidizing them with rural electrification to electrify every farm. So on the one hand, you have the Department of Agriculture subsidizing farmers to grow more, subsidizing with cheap electricity, cheap water, that sort of stuff, on the other hand, subsidizing them to grow less. Now economists would call this an irrational policy, the standard economic discussion was irrational because it's contradictory. If you're looking at it from a realistic point of view, it's not irrational from the point of view of two people, two sets of people.

21:10From the point of view of farmers, they're in great shape, they're getting paid to grow less and they're also getting paid to grow more. What better shape you'd be in than if you were a farmer? And also from the point of view of the Department of Agriculture, they're in great shape. Their bureaucracy is expanding like mad, with two huge bureaucratic empires, one wing down the hall subsidizing farmers to grow less, the other wing to grow more. They're in great shape, too. Who's getting screwed by this? The taxpayers and the consumers, plus the economy as a whole, of course, looking at it from the point of view of a kind of rational system. But it's not irrational from the point of view of the farmers and the Department of Agriculture But those two groups benefit at the expense of the rest of us, is really what this is. Right now, for example, with the water, I think I might mention with the so-called water shortage, the water system in the West, where there's very little amount of water to begin with,

21:57the government's growing huge dams, building huge dams, subsidizing farmers with cheap water. It's a very high cost to the taxpayer. The latest Central Arizona project, I think it's costing the taxpayers three times as as much as they charge the farmers for water, and it was very, very cheap water, wasting a huge amount of water, and then, because water is scarce there, artificially making the price of water low, and forcing the farmers to use it as fast as possible, the farmers then grow a lot of crops, cotton, wheat, etc., which then the government buys up because they want to raise the price, in other words, they subsidize the farmers to grow more so the government can buy them up because they want them to grow less, and you're totally Any nuts from any point of view except that of a farmer and a farmer of agriculture. So that's the basic policy, you know, there have been certain variations over the years.

22:48For one thing, as with the energy question, as with oil, as the farm price went up, permanently, it means that people started importing more farm products from the Bruin, obviously. It means that now American wheat or cotton or peanuts is much more expensive than European or South American. And then they start moving to prohibit exports or tariffs, high tariffs or quotas on imports or saying Argentinian meat is diseased. That's a big thing, by the way, is importing meat. First you artificially jack up meat prices by farm price allocations and controls, prices of pork and beef, et cetera, and then people start importing more beef, let's say, from And then you say, oh, it's diseased. Create a phony disease scare and ban the imports of foreign meat.

23:37So all these things then are a way of forcing the cartel for foreign products as well as American. And sometimes when the world price goes up, in other words, sometimes during the 60-year period, agriculture prices are high and then we unload the surplus. And in most cases, most of the time, the American price has been way above the world market price, and so we're stuck with these piling up. What do we do with the surplus? Well, who knows? They get very embarrassing as they pile up. They cost money to the taxpayer and to the consumer. Sometimes they're dumped abroad. One of the reasons for the food stamp program is that they're able to get rid of the surplus is through the food stamp program.

24:25The major lobbyists for food stamps are not the welfare people. They're the farm block. The farm block wants another kind of guaranteed income for the farmers, a guaranteed way of siphoning the stuff, where they can build out more surpluses. The major lobbyists for the farm program are, one, as I mentioned, the farm equipment manufacturers, farm machinery manufacturers. The big farmers, the small farmers, don't really care that, many of the small farmers are hurt by the program because The subsidy is per bushel of wheat or per pound of cotton. The subsidy is per pound rather than an income subsidy. The small farmers usually lose out because they have to cut their acreage. They can't mechanize that much. And the wheat, and the big farmers, in the wheat field, wheat situation, there's a so-called wheat democracy.

25:12Every three years, I think it is, the farmers can get together and vote on whether they should continue the farm price support program. That's great. We can't vote. We're not allowed to vote on this. I'm not allowed to vote on this, there's a referendum for wheat farmers, should they continue this outrageous subsidy of wheat farmers, and actually they always vote for it. Except the small farmers are not allowed to vote, those who have less than a hundred acres, or less than a thousand acres, whatever they say, I think it's a hundred acres, can't vote, because they probably will vote against the program. In other words, only large farmers can vote, and so then actually the large farmers and middle-sized farmers always vote to continue this thing. Another thing that happens is this, that when they pour in fertilizer and irrigation, et cetera, and a mechanization of the extra 80 acres, they mechanize more than they would have with 100 acres. When they mechanize more than they would have, it especially helps the farm equipment manufacturers, to see how this works.

26:01In other words, you're forced to cut out 20 acres, so you take the other 80 acres, you mechanize it, so you maximize it, intensively produce on the 80 acres that are left. This tremendously helps the farm equipment, where farmers can buy a lot of farm machinery. This is one of the big reasons, which is only discovered recently by historians. One of the big reasons for the big migration of blacks from the south to the north in the early 1930s. Namely, most of the blacks in the rural areas and the cotton areas in the south were sharecroppers. In other words, they were sort of tenants on large wheat farms. and they would get, they would pay a certain amount of the production to the wheat farmer in other words, they pay in sort of proportion of the wheat that they produce so the first thing they did when the farmers decided they had to mechanize their acreage was cut to kick out the sharecroppers and then mechanize

26:53the other 80 acres so all of a sudden, a lot of these black cotton farmers in the south were suddenly unemployed suddenly tossed into a labor market and they migrated to the north And so, a lot of them, of course, were in very desperate straits, and this starts a lot of the whole welfare problem, the migration of Northland welfare problem, created, in other words, by the New Deal Agricultural Program, which was supposed to bring us a welfare state and help all mankind. The other big lobbyist for this program, a high-tech heating system here, the other big lobbyist for this program are the warehouse owners. The government stores all the surplus stuff in warehouses, almost all of them private warehouses, they're not government-owned warehouses, they contract in private warehouses.

27:49If you own a private grain elevator, which is the term used for wheat warehouse, you're in great shape. You have like a steady contract forever. You always always be government surpluses. If your brother-in-law happens to be a big shot in the power of agriculture, you have it made for life. You have like a permanent contract with two million bushels of wheat to be stored in your damn warehouse. They're called grain elevators by the way because they're very tall for various reasons. So the warehouse owners lobby intensively in their areas for the farm program, the big farmers and the farm machinery manufacturers, these are the three major groups. First of all, when they want to testify for Congress, they always trot out the poor dirt farmer.

28:35They don't talk about the warehouse owners and large farmers. So what's happened, oh, the next big innovation, this thing came in the Eisenhower administration, next big step forward or backward, the farm program. What happened was, the question is, see, what happens to the 20 acres? If they can't grow wheat or cotton on it, they grow something else, soybeans, let's say, or turnips, whatever it is. And so, eventually, this means, this is our substitutability here, you have a, here's Here's the wheat, let's say. So wheat is forced up and the acreage is forced out or whatever. So the acreage control is imposed. The 20 acres are then devoted, let's say, to soybeans.

29:23That means there's an increase in soybean production. Supply of soybeans increases. So it means wheat prices are riven up, although it's only acreage that's full, really, not production. and Supply of Soybeans drugs up, the price of soybeans full, so the farmers started a bellyache. This is a terrible thing because I think there's a fall in the price of soybeans and turnips and all these things which they're using these 20 acres for. So the Eisenhower administration has another big advance in this whole nonsense, creating a new concept called the Soil Bank. Again, a great term, Soil Bank, sounds terrific, right? The Soil Bank is this, in order to prevent these red soybeans or turnips from being produced, you pay the farmers more if they keep this whole lot of production, if they just keep the land idle, if they don't grow anything on it.

30:16It's called a Soil Bank, keep the soil with nothing on it and nothing growing in it. In other words, you pay the farmers, the great innovation of the Eisenhower administration, you pay the farmers not to do anything at all, not to grow anything. And they still do that, of course. Anytime they have an innovation, it's a permanent part of the American soil heritage. So this, of course, is a great deal if you can swing it. It would be great if I could be paid a lot of money not to teach economics. If you guys would be paid a lot of money not to be engineers. And you can see how the world economy would progress with this. And so this is still there. I mean, they're still taking land out of production and just making it sit there because to make sure that all prices could be pushed up instead of just some prices.

31:07During the Nixon administration, it was talked about eliminating the thing of farm price support all together. They actually passed a law, sort of a three-tier law or something, a stopgap, but that's also still in... It's got to be a very complex legal structure, where all these things get lardered on top of each other. But anyway, for a while there, when world agriculture prices were fairly high, they They were talking about eliminating the farm price support program. That's an hour out the window, of course, and they're back worse than ever. What the Reagan administration did to their innovation, making things even worse, was called PIC, Payments in Kind Program, P-I-K, where they pay the farmers still more if they agree to cut production by half or something.

31:54In other words, they'll pay them back. It goes like this. Let's say the government stored up a lot of wheat. So they tell the farmers, if you cut your production from here to here, we will pay you back in the wheat we've stored up. We'll pay you the wheat and you can then sell it. So this way you try to unload your surpluses. And if you cut your production in half, we will then supply you with wheat from our storage, free, for payments and time for it. Another form of subsidy. It hasn't worked at all. As a matter of fact, generally in the state of collapse in a couple of years, the farmers are worse off. What's happening now is the farmers are now belly-aching about being in the state of depression. And the reason is, it's very similar to why the railroads are in a state of permanent collapse after 80, 100 years of government regulation, Regulation and the airlines almost collapsed before deregulation because after a long time

32:42of this sort of stuff the whole industry gets inefficient and monopolistic and falls apart. The farmers in particular have a sort of a penchant when they're in a good shape but things are going well and prices are going up, means their land values are going up, they borrow heavily, speculating an increase in their land values. They mortgage their the mortgage of the farm, the hilt, the mortgage of the houses, the hilt, because things are going up well, of course, prices rise and fall, just like anything else and when the farm prices go up, they plunge heavily and borrow the hilt when the farm prices go down, they get court short, because now they have to pay up and the prices are lower, they can't afford their mortgage payments, and they're losing at then, of course, they turn to the federal government for aid for some reason, they are the darlings of American life They've got the soil, they've got the pitchfork and all that nonsense, actually, probably none of them have seen a pitchfork, they're all mechanized anyway.

33:38And then they come running to the government, no, no, we're the farmers, we have to preserve American soil, American character and all that crap, and so they usually get bailout. And it's an amazing thing, because as I say, there are very few farmers left, only 6% of the population are farmers. Yeah, somehow we still think of it as this mystique of a farm, and so, almost invariably, they get bailed out. But the result is in the long run, after many years, decades of this, they're worse off in the sense worse off than before, they're heavily in debt, they can't pay the debt, and of course the government says, okay, we'll bail you out, give you a long-term loan, we'll have to pay out your mortgage or whatever, but there's a big campaign of crying about the farm problem now. So this happens in the last 60 years, but now it's sort of institutionalized, it's almost part of the American heritage.

34:31In the case of tobacco, there's now marketing orders, there's specific orders for different products. In the case of tobacco, it's even weirder. It's very much like the taxi medallion, which we'll get to later on in the course, where, or like the oil import program, in case of tobacco, not only are there these farm price support programs and acreage controls and all that, there's also tremendous cut in supply or restriction in land, and you have to own the right to produce tobacco. In other words, suppose I buy a farm and I can grow tobacco on it. For example, Pennsylvania, lots of farms can grow tobacco. Let's say I haven't been growing it recently. I buy the farm, I start growing tobacco. I can't do that, it's illegal.

35:16I have to buy the right to produce tobacco, and the right is carefully restricted. So, in other words, I have to buy a farm which now produces tobacco, and can only produce a certain amount, so it's already restricted. The price, of course, becomes a monopoly price, which carries with it the right to produce tobacco. In other words, you have a certain amount of land here. Let's say the value of the land, tobacco land is, I don't know, let's say a thousand dollars an acre, something like that. The price is a thousand dollars an acre, but land is so plighted that you can't grow tobacco on land which doesn't have the federal right to grow tobacco stamped on it, so to speak, like a taxing medallion. Then the price goes way up, it's maybe five thousand dollars an acre, whatever the price is to give you the monopoly right to produce tobacco, tobacco, which is referred upon by the federal government.

36:10So the result is you have a huge increase in land prices for tobacco lands, but tobacco farmers are cleaning up. In other words, they get not only the farm price support increase, they get the land monopoly. It was very tightly restricting the amount of land that could be used for tobacco. It's like medallions, I forget to lay it out later on, there's 11,747 taxis in New York with medallions on it, and it's been the same way since 1937, 50 years. was an absolutely fixed amount amount of taxis so at any rate this is so the result in order to buy a license well I'll get into that later on but to buy a license for a cab it used to be $10 when you go down you can prove you can drive a cab you buy your cab whatever the price is plus the $10 for a license that was it that was from till 1937 1937 to help out the cab industry the depression they decided to issue no further licenses there have been no

37:05for Licenses, 50 years of no license. In order to buy a license or drive a cab, you have to buy it from somebody else, because the total is restricted. It's very much the same in tobacco, agriculture, tobacco land. So that means there's a market price for the license, for the medallion, because you can't get it from the New York City government, you have to get it from a guy who's willing to sell his taxi. And the result is, it's Now, a little over $100,000. Note that. In other words, the price of a taxi license was $10.37. Now, $100,000 under the $5,000. So, this means in order to own a taxi, you have to go deeply into the hawk or whatever. You have to make a huge capital investment. And there was... Mayor Koch, a few years ago, had a pretty good idea. His idea was in order to break this thing, He would give each taxi owner right now another medallion, another license, free, provided he or somebody else uses it within a year or something.

38:09In other words, the guy would have to then sell it to somebody else. And they still refused to do it to taxi people. They thought they were afraid of any increase in supply. They wanted to keep their monopoly price. They were worried about even getting a free license. They were worried about the demand curve, basically. They were worried that they might have a loss in total revenue. So they hung onto it. And since the Taxi Association lawyer for the Taxi Association of New York, the famous or infamous boss, absolute boss of the Bronx democracy, Stanley Friedman, who virtually controls the city council, any attempt by any mayor to sort of break the monopolies and go under the feet, Stanley Friedman was involved in this famous license, parking license scandal. He's an elegant looking guy with a goatee.

38:56At any rate, I'll go into this further when we get to Monopoly, because it shows you various ramifications of this, but these are various methods to tighten up the whole system, to try to make sure that there's no increase in supply of product. To cut, in other words, not only cut acreage, but also cut production, to make the thing even tighter. There was a peanut shortage about, I meant to bring this in, I have an old clipping from Newsweek, about six, seven years ago, there was a big peanut shortage, a peanut failure, a peanut crop failure in Georgia. And so there was a big peanut butter shortage. Not only is there a price support program for peanuts, there's also big acreage restrictions and marketing restrictions, production restrictions, everything else, you can think of.

39:43Very tight control on the peanut situation, which of course more or less triples the price of peanut butter, by the way. So they try to, since there's a big peanut butter shortage, a big drop in production, they try to import it. Of course there's also big import quotas because peanut butter from, I forget who makes it, there's other countries that make peanut butter. Big, huge difference in price. They have big restrictions on peanut butter imports. So, poor Skippy, which... Skippy and the other peanut butter makers, of course, were petitioning the government, please let us import some cheap peanuts, because we can't get any peanuts here. So, they're very reluctant to do it. They allowed a little bit of import for one year. Very temporary, of course, so Skippy can produce some peanut butter. And they very grudgingly allowed them to do it. It's a very temporary basic.

40:30You can only do this for six months and then we crack down again. So this way the consumer is being shafted across the board for all these special interest groups. The New York Times, by the way, which is usually in favor of all these subsidy programs, is pretty sound on a farm question. There are not too many farmers reading the New York Times here. They're much more urban-oriented, and at least they can see the craziness of this program. So this is, there's no attempt, even though most of the Reagan economists are against the program, it's almost impossible politically to break the hold of this, for example, Senator Jesse Helms, a very powerful senator from North Carolina, is the big, even though allegedly in favor of the free market, is the big proponent, of course, of tobacco monopoly, tobacco price control, bigger, bigger, higher, higher. By the way, another thing about tobacco, another little bit The reason for the nuttiness here is that one wing of the government and the Department of Agriculture is constantly subsidizing more and more higher subsidies to tobacco farmers

41:34and the other wing is assisting in putting warnings on every package of cigarettes. Warnings that it's dangerous for your health, it will produce cancer, and so on and so on. So one wing of the government is warning you against tobacco, the other wing is subsidizing it for the health. Again, it's only irrational from the point of view of the consumer and the taxpayer and the economy as a whole. So again, what we have here is a giant cartel organized in agriculture, organized by the federal government, enforced by the federal government, so as to prevent any individual farmer, producer, from breaking in the cartel, from increasing its production, and various production control, production control, plus further subsidies, subsidies never end, they're added onto.

42:38As I say, even though there are very few farmers left, even in the midwest, even in places that are supposed to be farm areas, there seems to be no way to get rid of this thing. Well, one thing is there's log rolling in Congress. Each group wants to have their own schtick, wants to have their own subsidy, so the foreign people say, okay, I'll vote for your thing, I'll vote for New York's subsidy if you vote for our subsidies, and there's a general agreement then to carry the whole thing with them, increase the whole pressure. I'll bring in, next time, I'll bring in some examples, I'll probably get that peanut butter Okay, see you Thursday.