Protectionist Origins of Antitrust

0:00The next three lectures that I have planned is, they're all about what I consider some of the major economic myths that are out there. So we're going to shift gears a bit, and of course there are so many of them that I could stand up here for the next five years talking about economic myths. But the myth of antitrust is one of them, the myth of the New Deal is another one, and labor union myths is a third, and these myths all generally have behind them what is going on is a condemnation of the free market and an explanation of why historically government has come to the rescue of the free market and saved capitalism from itself.

0:49That's generally the theme of all these myths. And so the myth of antitrust is why we need government to protect us from monopolists. The myth of the New Deal is the myth that capitalism caused the Great Depression and the New Deal, massive interventionism cured it. And then with regard to labor unions, there are all kinds of myths that are used to prop up the notion and the notion that there should be special governmental privileges to promote unionism over a free market and labor. And so, like I said, there could be many more myths that we could talk about. Those are three prominent ones that I've written about quite a bit. And so I'm going to try to explain this, understanding that not everyone has studied antitrust economics or microeconomics necessarily that much, but I can explain it, I think, in fairly plain English.

1:43and the way I'm going to do it is start off with the original anti-trust law or anti-monopoly law. It was called the Sherman Antitrust Act that the U.S. Congress passed in 1890 and there's old Sherman again. I quoted him this morning on banking policy. He was a champion of central banking and he was chairman of the Senate Finance Committee in the 1860s and he was still

2:43The story about antitrust is that there was supposedly rampant monopolization occurring in the 1880s, rampant monopolization, and if you look at almost any book, economics, an economics book, a law book that covers antitrust, a history book, a social studies book, it'll say this, it'll give some version of this story, and even some of the better, more reputable economics textbooks. One example, and if you were to major in economics 20 years ago, and you took a course called Industrial Organization, chances are the textbook you would use would be one by a man named Friedrich Scherer. And he had the best-selling textbook in this area for several decades.

3:30I mean, he's still around. I think he still teaches at Harvard now. He's been in and out of Harvard for a while. And this book said this, In the United States, the enforcement of the antitrust laws is the main weapon wielded by government in its effort to harmonize the profit-seeking behavior of private enterprise with the public interest. So the idea is it's necessary to have these laws to have competition to harmonize things. And why is that? Well, historically they say there was monopolization. Let me see some classic quotes here. Richard Posner, who is now a judge, a federal judge, is one of the prominent scholars in the whole law and economics movement. He used to teach at the University of Chicago, did that for many years. He wrote a book on antitrust law, widely used at universities for a long time.

4:21And he said this in his book on antitrust. The Sherman Act was passed in 1890 against a background of rampant cartelization and monopolization of the American economy. and so I picked him because he was a major critic of antitrust. His whole book is a book of criticisms on the misuse of antitrust but even Posner, one of the bigger critics of antitrust, says well there's a need for these laws because after all there was rampant cartelization and how are we going to stop that? How are we going to stop rampant cartelization? Another textbook author named Marshall Howard called the Sherman Antitrust Act the magna carta of free enterprise and so that's the kind of language that you get.

5:09And so now I've been reading this stuff for a long time as an economic student and then after I finished my Ph.D. I was doing research in this area and it struck me that I had never I've never seen in any of these books proof. Where's the evidence? The rampant cartelization. I've seen all these statements. And so I just got the idea of doing a survey. And so I had a research assistant working for me. I was at George Mason at the time. And I had a graduate student working for me. So I said, let's gather up all the antitrust economics books we can find. I had about a dozen of them on my bookshelf. And he went to the library and went through And we did not find one single statistic that was used to back up this claim in any of the law books, economics books, there was no data.

6:00It was just bold statements, rampant cartelization, monopolization, thank God for the Magna Carta, free enterprise, on and on and on. And where's the evidence? None. There was none. And so that made me a little curious whenever you have all these statements like this, but backed up by absolutely nothing, not even bad statistics. Sometimes they're bad or feeble statistics. The statistical analysis is incorrect. There was never even any attempt there. And so we gathered these statistics ourselves. What I did was I had this student of mine go and read through the Congressional Record of 1889 and 1890.

6:47And back in those days, this was all on microfilm. So you had to go to the library and read on this microfilm machine. You had to crank them up and make the little film go around in a circle. And it's, oh, you can hardly read it. I send him a check every year. He's in a home for the blind in Arlington, Virginia. and I wrote through all this and I said write down the industries that were being accused of being monopolies during the congressional debates over the Sherman Act, he wrote all these down and then the next step was well let's see if we can gather the data on what all these economics books say and monopolies do is they somehow conspire to restrain trade that's what everybody says that these monopolies do and what they were doing they were restricting production in order in order to prop up prices. Less supply will prop up the price.

7:38And so we went and we found that in the historical, there's a publication called Historical Statistics of the United States, and I think the Commerce Department just published a new version of it. It was in print for about 30 or 35 years, they just came out with a new version. And then there were other scattered statistics here and there that we dug up every source we could think of or find and they would have data on production of all these things, like some of the industries of salt, petroleum, zinc, steel, bituminous coal, steel rail, sugar, lead, liquor, twine, castor oil. Could you imagine members of Congress in a debate on the floor of the House of Representatives with all the flags behind them and everything arguing over the price of castor oil?

8:29They apparently were doing that. Leather. These were all the things that they were arguing about at the time. Monopolies. And so we did that. We got a lot. I think we got 17 of these industries. There were just some data we just couldn't find for a lot of these industries that were mentioned in the Congressional debates. But we got pretty good data on a lot of them. And so what I found was that during the decade prior to the Sherman Act, this was 1880 to 1890, real gross national product, back in those days we called it gross national product, not gross domestic product, has adjusted for inflation, increased by about 24 percent during that decade. But these industries, my sample of industries that were being excoriated as monopolies, In the early days, restricting output and driving up prices, on average, their production grew by 175%, on average, seven times the rate of growth of the rest of the economy.

9:29So these industries that were supposedly restricting production in a cartel fashion were growing seven times faster than the economy as a whole. So that continued to pique my interest in this whole thing. And then, of course, what happened to prices? The ultimate test is what happens to consumers. The ultimate test, according to any economics book that talks about monopoly, is, well, does it harm consumers? And one thing to look at is, well, what happens to prices? Okay, so we were using the standard neoclassical framework. We weren't even getting into Austrian economics. We were just saying, on your own standards, well, you know, how does this meet the test of monopoly?

10:15And so we did the same thing. We gathered what data we could on prices. And this was a period of deflation, the decade between 1880 and 1890. And so prices, measured prices were falling by, not by much, was 7 percent or something like that, I think. But again, what I found was that in every single case, except castor oil, I think, no, except coal, now coal was the one exception. In every single item, the price was falling faster than the price level, and sometimes it was falling pretty rapidly. For example, the price of steel rails fell by 53% compared to a 7% reduction in the price level.

11:01level, price of refined sugar, 22% decline, lead drop by 12%, zinc 20%, bituminous coal remained about steady per pound, although it fell by 29% from 1890 to 1900, so after the Sherman Act was passed, it really went through the floor. So all these prices fell much faster than the general price level. So these are some facts that if they don't prove that the Sherman Act was misguided, at least it should lead anyone to call into question the standard story that there was rampant cartelization because all of these theorists I mentioned at the beginning would all agree that rampant cartelization should have led to output restrictions and higher prices.

11:55And what they could say to weasel their way out of it would be, well, yes, the price fell by 52 percent and production increased by 300 percent, but if they weren't monopolized, prices would have fell even faster. And that's one of those unprovable arguments that could usually be made, but it's not very convincing to me. And another thing I found is that the members of Congress who were arguing over this and

12:54the price of oil immensely, that does not alter the wrong of the principle of any trust. So in principle they're wrong. What principle could that be? It's the principle that they didn't want prices to go down. That's the only principle I could determine is the principle that they're in favor. They're in favor of higher prices. That's their principle. And so they recognized that. They actually complained about lower prices. And why were they complaining about lower prices? Well, it's for the same reason, in my view, why politicians have always used the antitrust laws to prosecute various companies for dropping their prices. They have businesses in their districts or their states who are not as efficient as the price-dropping companies, and they want to protect them from competition.

13:46So in other words, what I'm talking about with my research here is that antitrust has always been a protectionist plot. It has never been the Magna Carta free enterprise. It has always been exactly the opposite. It has always been a government intervention that was always meant to stop competition, to be a barrier to competition. I mentioned Posner being a big critic. Well, he studied various antitrust cases for a 100-year period and has come to the conclusion that in most cases, these are decided wrongly. These are decided where these companies were not monopolizing. But he seems to see it as just a 100-year record of goof-ups, mistakes.

14:31I don't see it that way. I see it as that was always the intent. It was always the intent to thwart competition. And so these laws for a hundred years did exactly what they were intended to do. They weren't intended to protect consumers from competition. They were always intended to protect politically connected competitors from competition. That's my story and I'm sticking to it. And so further evidence of the political hanky-panky that was going on here that I offer is that these prices fell for a decade prior to the Sherman Act pretty precipitously. And they continued to fall for the next decade. So I gathered data for the next decade after the Sherman Act in the same trend.

15:19Because there were, you know, manufacturing was being developed, there were economies of scale, mass production was being fine-tuned and more and more used. There were technological advances such as in the steel industry and the cement industry were causing lower and lower and lower cost of production. And as a result, you had lower and lower and lower prices for all these things. It was a great thing for the American consumer and for American industry that had to buy steel and cement to make things, to make housing, buildings, and whatever, bridges, whatever you're making out of steel. And so this was a great thing. But most of the complaints came, as they always do, from companies or, in some cases, farmers who were selling things and who were either unable or unwilling to drop their prices as fast as the so-called trust did.

16:13Therefore, the law was meant to stop that, and they all understood that. And this could not have been predatory pricing, you know, there's this old, I call predatory pricing the unicorn of economic theory. You all know what a unicorn is. The Theory of Money and Credit

16:56The Theory of Money will charge a monopolistic price, and it's sort of an appealing theory although it's not very logical when you think about it for a minute. I put this to one of my MBA classes. I have students in these MBA classes who are like the vice president of marketing at McCormick Spice Company, which is in Baltimore, or the Black & Decker Tool Company. and I would ask these guys well what if you went back to work on Monday these are Saturday classes and told your boss like the CEO of McCormick Spice Company or Black & Decker well I learned something in school on Saturday I learned that how we can corner the drill markets you say you're Black & Decker here's what we're going to do it costs us $25 the marginal cost of manufacturing We're going to sell this drill for $5, and we're going to do this, it might take three, four, five years, but we think we can drive all the competition out of the market, if we can just hang in there for maybe five years.

17:56And I asked them, well, what do you think your boss would say of that? And they all said, well, we'd be fired on the spot. Do they think we lost our minds? If you think about this for a minute, it doesn't make sense, and there's never been a proven example of a monopoly created this way, but it's part of the folklore. And so when you come up with data like this, as I did, with a 20-year price decline, the critics will say, well, predatory pricing. But doesn't it sound kind of ridiculous to think that these businesses like Standard Oil, John B. Rockefeller, One of the smartest businessmen in world history would purposely lose money for 20 years in hopes of some day making a killing.

18:41Why would you think that's how to make money? It's absurd. So that didn't happen. That's not what was going on. This was competitive price cutting. And another part of the real political hanky-panky that I ran across was three months after the Sherman Act was passed, This was July of 1890, the Sherman Act was passed. October, early October, was the passage of the McKinley Tariff, which at the time was one of the biggest tariff increases in history in the US. And the sponsor of the McKinley Tariff was Senator John Sherman himself. So here's the guy who supposedly is the savior of the consumer. His name is on the Sherman Antitrust Act. Three months later, he sponsors, as chairman of the Senate Finance Committee, the McKinley Tariff increase, which at that time, everybody knew.

19:34You couldn't argue that Adam Smith was hot off the press in 1890. The Wealth of Nations was written in 1776. And so everybody knew that protectionist tariffs caused higher prices. A. A. Blinken didn't think that, but by then everybody knew this. It had been proven time and again because we were in the era of Republican protectionism for decades at this point. And so doesn't that smell rotten? Supposedly the champion of the consumer is raising everybody's prices by raising tariffs on imports. And so that was another sort of smoking gun type of piece of evidence that I found. Sherman himself said this. He said he attacked these businesses that I just cited, some of them, by saying they have subverted the tariff system, they have undermined the policy of government to protect American industries by levying duties on imported goods, end quote.

20:32That's Senator Sherman. He was saying these guys are dropping prices, they're subverting our high price tariff system, and he's more or less calling them outlaws because the law created higher prices, the tariff law created higher prices. These guys come around and they're not raising their prices like they're supposed to, they're cutting their prices because they're figuring out how to cut their costs and they're competing. They're not sitting back and saying, let's just let the government keep the competition away from us and get fat and happy. They weren't doing that. These were some of the great entrepreneurs of American history that were developing all these new industries and cutting costs and competing internationally. They weren't on board with this protectionist scam.

21:17And so Sherman himself was complaining about that. And the next thing I had my now barely able to read former graduate student do is I wanted to know, you know, I'd read in all these books stories about the muckrakers, the press, the muckraking media and what they were saying, what they were doing. So I thought, well, let's read firsthand what was being said in the major media. and so I had him read through the New York Times on microfilm in 1889, 1890, anything he could find, you could do this all online now, but these were the old days where we were barely out of the stone tablet age, the internet didn't exist back at this time when I was doing this research and so Al Gore hadn't invented it yet, he was working on it, he was in graduate school working on it, but so he read through Let me know what the New York Times, the paper of record, was saying about this, the whole of the Sherman Act business.

22:15Let's not take these left-wing muckrakers at their word, why should we believe them, all these quotes of them. And so anyway, it was kind of interesting. The New York Times was originally for the Sherman Antitrust Act, but then they just watched what was going on and they totally reversed themselves and came out against it. And here's what they said, on October 1st, 1890, the New York Times, it's like the day the law was passed, they called it the Campaign Contributor's Tariff Bill, that is, the McKinley Tariff. They called the McKinley Tariff the Campaign Contributor's Tariff Bill. And they got the connection between what was going on here with the McKinley Tariff and the Sherman Act. They said, the Campaign Contributor's Tariff Bill now goes to the President for his signature, which will speedily be affixed to it, and the favored manufacturers, many of whom proposed and made the tariff rates, which affect their products, will begin to enjoy the profits of this legislation.

23:15So they're complaining about that, there's something rotten here. And then they go on to say something about Sherman, in one of his speeches, they say it should not be overlooked, his speech on Monday, for it was one of confession, okay, We direct attention to those passages of Sherman's speech relating to combinations of protected manufacturers designed to take full advantage of high tariff duties by exacting from consumers prices fixed by agreement after competition has been suppressed by the tariff. Mr. Sherman closed his speech with some words of warning and advice to the beneficiaries of the new tariff. He was earnest enough in his manner to indicate that he is not at all confident as to the outcome of the law.

24:01The great thing that stood in the way of the success of the tariff bill was whether or not the manufacturers of this country would permit free competition in the American market. Sherman was trying to get off the hook for being the sponsor of the tariff bill. He knew prices were going to go up, but he wanted to blame it on the trusts. and so he couldn't blame it on his own legislation he had to blame it on the trust if consumers complained he wanted the Republican Party wanted all the campaign bribes the money and the support from the manufacturers who has benefited but they didn't want to take the heat from consumers who had to pay more for all this stuff in case they caught on and so he was getting off his hook and so here's what the New York Times concluded with which I think is The so-called anti-trust law was passed to deceive the people and to clear the way for the enactment of this law relating to the tariff.

25:06It was projected in order that the party organs might say to the opponents of tariff extortion and protected combinations, Behold, we have attacked the trusts. The Republican Party is the enemy of all such rings. And now the author of it, Sherman, can only hope that the rings will somehow dissolve of their own accord. And so it was a fig leaf. The New York Times was saying this was a fig leaf, the Sherman Act. The real monopoly was being created by the tariff, the McKinley Tariff, but they needed something to cover this up. And so they railed against the evil trusts to cover this all up. And so, that's why I'm convinced, and why I made this statement earlier, that antitrust, from the very beginning, was a protectionist racket.

25:52And that the textbooks are all basically wrong about this Magna Carta of free enterprise business, and they're wrong because they never looked into it. It's one of these things where they just took the words of somebody in the 1890s and just kept repeating this mantra about cartelization. The most generous thing you can say about the textbook writers is that how this came about was a confusion on what monopoly is. If you define monopoly as just bigness, big business, well, yeah, they were becoming very big and successful, like Standard Oil, if you define monopoly in that way. That's why the Austrians define monopoly as necessarily be created by government, government intervention, a government franchise, like in the so-called public utilities, for example.

26:38Another thing I did in this era is to research what the economics profession was saying, and there weren't that many professional economists back then. So it was possible to survey just what almost every professional economist who had earned a living as an economist said about this at the time. You couldn't do that now. It would be a gigantic survey. It would be very costly. very costly but fortunately I ran this was a miracle that I found this in the library but I found a doctoral dissertation that was written in 1964 that did exactly this it did a survey of the economist opinions of the Sherman Act in 1890 and in fact I even found this on microfilm I didn't even find it in the stacks in the library and that's why so and I've always been a library

27:59The guy's name was Sanford Gordon and he did this survey and I'll just read you his conclusion because I ended up publishing an article in a journal called Economic Inquiry on this a couple years after I did this. But Gordon says, a big majority of economists at the time conceded that the combination movement was to be expected, that high fixed costs made large scale enterprises economical, That competition under these new circumstances frequently resulted in cutthroat competition, that agreements among producers was a natural consequence, and the stability of prices usually brought more benefit than harm to society. They seemed to reject the idea that competition was declining or showed no fear of decline, which they didn't.

28:44I did my own research on this a little later and found that almost exclusively the economists at Wharton, Chicago, Yale, who were studying this at the time, were not afraid that there was anything anti-consumer going on here. So it's a myth that the economics profession provided guidance to the politicians to deal with this form of so-called market failure, antitrust, but that never happened. The economist rationale for antitrust came along several decades later, and the late George Stigler, from the University of Chicago, wrote an article about this, about why economists came to embrace antitrust regulation. And the main reason he gave is that they realized, I could paraphrase Stigler, they realized that they could make considerably more than the minimum wage as antitrust consultants. That's the reason Stigler gave for this. And so they became, this is not so bad after all. But this article that I wrote co-authored with Jack High in Economic Inquiry, way back in 1988, we surveyed all these economists who were against antitrust, and the argument we made is that the reason they were against

30:00it is not because they were paid whores, like Stickler said, although many of them were and are, that's undeniable, was that their theory of competition changed, the theory The Theory of Competition, at the time the Sherman Act was passed, all these economists, John Bates Clark, George Gunton, Simon Patton, one of the founders of the Wharton School, David Wells, Richard T. Ely, when they thought of competition, they thought of competition just like the Austrian economists did and do. Competition was a dynamic, rivalrous process of entrepreneurship that involved price cutting, product differentiation, innovation, advertising, these are all elements of competition.

30:48Competition is an ongoing process and these mergers that were occurring were just a part of that ongoing process of a competitive market and they saw the proof, they saw the lower prices and lower cost and they looked at this at the time and said, well, this is a good thing. is just how we think competition ought to operate. And so they were dead set against it. We found one prominent economist who was against anti-trust laws. Even Richard T. Ely, who was a self-described socialist and the co-founder of the American Economic Association was against the anti-trust laws. He thought they were a bad idea. They were for competition. And in fact, I have a statement by Ely here. to show what a socialist he was he said this this is the founding statement of the American Economic Association when it was founded and people wonder why Mises called called the AEA a bunch of socialists and he would never join have anything to do with it here's the founding statement we hold that the

31:50doctrine of laissez-faire is unsafe in politics and unsound in morals that's part of it and so that's how the AEA was founded and so and so when Mises He's never joined. People say, well, he's a crank and an eccentric and an outsider. What is he talking about? Well, that's what he's talking about. Why would he want to be a part of that? And so the economics profession was against it, but that's the reason we give. And so you see that the theory of competition changed. Any of you who have ever taken a course in microeconomics were taught the newer theory that came around in the 1920s and 30s called perfect competition. and it had these assumptions about what defines a competitive market and the key assumption is many firms, many firms, many firms is good, fewer firms is bad.

32:38That was new, that wasn't a part of Adam Smith's definition of competition or anybody really up until the 1920s and 30s. And so if you define competition as requiring many firms and you see mergers occurring, Even if the mergers are resulting in lower prices, a lot of people started to say, well, this is monopoly. Even though the effect was lower prices and better products, more products, greater volume and so forth, it didn't matter. That definition changed the opinion of economists. And so Jack Hyne and I argued that that's a more likely reason than just the fact that antitrust consultants are paid whores. Although we don't deny that that's a truth out there, okay?

33:28And so, that's my story about the origins of antitrust. And another thing that I knew about when I was doing all this work some years ago was that there were state antitrust laws before the federal antitrust law. And so if you want to understand the real origins of this whole area of regulation, They come at the state level and in my research is that basically the same thing was going on that prices were falling and so businesses and farmers who could not match the lower prices complained to their legislatures that we've got to do something about this and one of the most blatant examples I'll just give you one quick example of what was going on here was there were all of a sudden there was talk of this beef trust The Beef Trust, there was a menace to society, okay, the Beef Trust.

34:26And how is this Beef Trust menacing? Well, there was all this talk about the Big Four, the Big Four Armour, Swift, and a couple of other companies, or the Big Four beef companies, beef packing companies. Well, now that the railroad industry was pretty well developed by the 1880s, Chicago So it became the center of the beef packing industry. And so they were chopping up the cattle. And when they originally invented refrigeration, what it was, was open train cars in the wintertime. But still, it enabled them to ship dressed beef, ready to go to the supermarket, for hundreds and hundreds of miles all over the country.

35:12And then, of course, they figured out other ways of keeping the beef from spoiling, and and Refrigeration came along later. But in the meantime, all of a sudden you had little towns and cities all over America, especially the Midwest and as far east as Pittsburgh and places like that, where you had sort of mom and pop meat monopolies. The local butcher shop was charging a certain price for beef. And all of a sudden here comes mass production, mass production with economies of scale, lower cost of production enabling the big four to under price everybody. All of a sudden these train cars show up with beef that's half the price of what the local mom and pop butcher monopolies are selling meat for and they did not like that and they all banded together with their trade associations and went to the state legislatures and said we've got to do something about this beef trust. They're cutting prices and so in another article that I authored with, co-authored

36:10with Don Boudreau. It was in the Review of Austrian Economics some years ago. We found basically the same thing was going on with beef and other farm goods in Missouri, especially in your state of Missouri. There was a Senator Vest from Missouri who took the lead here and had a commission, the Vest Commission to investigate lower beef prices, what's causing it and what can be done about it. And so they had this big commission and here's what they The principle cause of the depression in the prices paid to the cattle raiser and of the remarkable fact that the cost of beef has not fallen in proportion comes from the artificial and abnormal centralization of markets and the absolute control by a few operators thereby made possible.

37:00So we admitted that all of this, this abominable centralization of manufacturing, if you will, or the beef dressing industry, caused a depression in prices, lower prices, and so the commission recommended federal legislation to put an end to this, and that was an impetus to the Sherman Act eventually at the federal level. They used the so-called research for this to help support the Sherman Act. And so, no matter where you look, what was going on was this was an anti-price-cutting law, state level, federal level, and on and on. And the same thing, the same type of thing continued to happen with antitrust regulation to this very day. I'll give you just a few examples of this, of what we've had to live with for what, 116 In the beginning of 1969, the federal government spent 13 years prosecuting IBM for being a monopoly.

38:06In the meantime, IBM was eclipsed by companies like Microsoft and quite a few others. The judge in the case died, so the government in 1982 just said, And they gave up with it, because if they appointed a new judge, to be credible, he would have to go through 13 years of all this litigation and hearings and everything to be up to snuff, and that would take years for a new judge to be credible, and all that went on, so they just dropped it. But in the meantime, you know, they seriously crippled IBM because it was very costly, it was very time consuming, it's an unmeasurable amount of man hours, it had to be put toward complying with all the requests.

38:53Friends of mine who have worked at the Federal Trade Commission, for example, told me Bill Shugart is one of them who teaches at Ole Miss. He worked at the FTC for a while. He said on a typical merger case, not the big IBM case or the big Microsoft case, but a typical merger case, some bank, The FTC will put in so many requests for information and paperwork that he said, for several days, the biggest U-Haul trucks you can rent will back up to the back door of the Federal Trade Commission building on Constitution Avenue and unload box after box after box of paperwork from the company's files somewhere, and that has to be very time consuming to do that. And of course, a lot of this ends up in the hands of the competition paperwork, the more proprietary information, so that can be pretty damaging.

39:44In 1962, the government forced the Schwinn Bicycle Company to divorce itself from its network of dealers. It said it was giving Schwinn an unfair advantage being a manufacturer of bikes if it also had its own dealerships. Schwinn went bankrupt after that. They made a recovery, but they went bankrupt. During the 1950s, RCA was prohibited from charging royalties to American licensees, which was supposedly a monopolistic practice. So RCA licenses products to Japanese companies, and that helped the Japanese microelectronics industry take over the market, so to speak.

40:30Pan Am Airlines, and most of you have probably never heard of Pan American World Airways, But they only flew international routes, and this is in the 1960s, and they decided that since air travel was becoming more popular, there were a lot of people, say they flew from New York City to London, well there were a lot of people in Ohio who would want to go to London, you know, a European vacation, and they had a hard time getting from Ohio to New York City, so they wanted to fly from, you know, let's have feeder routes, let's have some flights from Columbus to New York, New York to London. Since they had a big share of the market, the government said, no, you can't do that. We won't allow you to have feeder routes to bring customers to your international flights. They went bankrupt because they couldn't do that, because their competition could.

41:17Their competition did do that, but since they had a big market share, they weren't allowed. General Motors was never prosecuted under the antitrust laws, but if you read a history of, there are several histories of General Motors, and you know scholars management scholars have been studying them for decades and decades but from 1937 until 1956 it was company policy to never let its market share go above 45 percent for any reason for fear of an antitrust lawsuit and so they instructed all their managers don't make the cars too good and don't price them too low or else we'll get too big a market share and we'll be and we prosecuted it and we'll have to go through maybe 10 years of litigation and who wants to do that and so I just wanted to give you a few examples of since some of you I assume haven't really studied this or don't know much about antitrust sort of a you know not the top topic on your mind but this is what I was referring to when I said a hundred

42:21in 2016 years of misguided regulation. I don't think it's ever been misguided. I think it always has a purpose there. And it's usually with one company sues another. In fact, about 90% of all antitrust lawsuits are private. They don't involve the government agencies. They involve the government courts, but it's one company using the antitrust laws to sue another company. Now think about that for a minute. If one company is acting like a monopoly in your industry and raising prices, is that good or bad for you? It's good no matter how you look at it. If your competitor is raising his prices, that means you can raise your price too, or if you don't raise your price, you'll gain market share, you'll be more competitive.

43:14So either way, you're going to like this. So why on earth would you sue if they really are acting monopolistically? You would only sue if they're cutting their price by saying they're gaining market share and I suspect monopoly. So with all these private lawsuits, they're typically over against a company that is being too good at competing. They're either introducing new products, they're catching on, they're dropping their prices or they're doing both of that sort of thing. It just doesn't make sense that you would sue a company for acting like a monopolist in your industry, because it would benefit. A higher price could create an umbrella effect for every firm in the industry. Everybody can make more money if the leading company, the biggest company, is doing that. And so typically, an antitrust lawsuit will be, by definition, anti-competitive. The best book to read on this is Dominic Armantano's Antitrust and Monopoly. It's probably for sale outside the door over there, if it's not sold out.

44:14It's a little dated. It ended, I think, in 1982, something like that, when it was actually first published. But it's a good history book. It covers 55 of the most famous federal antitrust cases in American history during that period, 1892, basically 90 years. And there's a lot The Anti-Trust Policy in America is a misleading myth that has served to draw public attention away from the actual process of monopolization that has been occurring throughout the economy.

45:05The General Public has been deluded into believing that monopoly is a free market problem and that the government, through antitrust enforcement, is on the side of the angels. The facts are exactly the opposite. Antitrust served as a convenient cover for an insidious process of monopolization in the marketplace. And so I like that quote because it confirms my interpretation of the origins of antitrust. And if he agrees with me, he must be a very smart guy, in my opinion. But one final quote is one of my favorites. Maybe you've heard this before. This is from a famous central planner who said, The world of antitrust is reminiscent of Alice's Wonderland. Everything seemingly is, yet apparently isn't, simultaneously.

45:52It is a world in which competition is lauded as the basic axiom and guiding principle, It is a world in which actions designed to limit competition are branded as criminal when taken by businessmen, yet praised as enlightened when initiated by government. It is a world in which the law is so vague that businessmen have no way of knowing whether specific actions will be declared illegal until they hear the judge's verdict after the fact. Anybody want to guess who the central planner was that said that? It was Alan Greenspan. The graduate students know it. It was Alan Greenspan in 1962 in a book edited by Ayn Rand called Capitalism of the Unknown Ideal.

46:41This was back long before he became a central planner. This was when he was still a pretty good guy. He also had another essay in that same book in defense of the gold standard. Congressman Ron Ron Paul, when Greenspan was still the head central planner at the Fed, would have to go in front of the House Banking Committee, where Ron is on the committee, and Ron would badger him at every meeting, and they would ignore Ron, of course, but they would badger him anyway. And Ron told the story of the speech he gave here, that he brought a copy of this essay, Greenspan's essay on the gold standard, to him and asked him, do you still believe everything in this essay? and he says Greenspan said, yes I do, every word of it, and then he got Greenspan to autograph his essay, but he was very good on antitrust, what's that?

47:34Yeah, no disclaimer, he has an unabridged signature on that, so that's all I'm going to say for now about antitrust, Dr. Woods has an example of failure of predatory pricing in the politically incorrect side of American history. Murray talks about this American entrepreneur who put out a product in the United States that was, say, $5, and he wanted to put that product into the German market, but the German market had also another company. He wanted to put it out $5 over there, too, but they were selling it at $10, so the German company said, if you don't get out of Germany, we're going to sell the same oil or the same product in your country at a lower price.

48:28Right. So they went ahead and did that, but the American entrepreneur bought up all the products that they were selling in America and sold it at a higher price in Germany about the cartel out of business.

48:58One article, there's a publication called the Antitrust Bulletin. If you work in this area, you might be familiar with the Antitrust Bulletin. And there was one article in it that I cited in some of my work that claimed that the authors said, okay, we're going to look at all the antitrust cases that have ever been filed by the federal government for predatory pricing, and we're going to take a close look and decide, was there really predatory pricing? And they look at hundreds and hundreds of cases and they said, well, there are seven of them that could conceivably be construed over the past 70 years as predatory pricing, as monopoly power gained by predatory pricing. But then if you keep reading, they said that, you know, but in no case was there fewer than a dozen competitors in these industries.

49:48So they never, they never were able to do what predatory pricing says and create a monopoly, which is a single seller. All they did was cut their prices and drive the higher price, enough higher price competitors out of the market so that there were only a dozen left instead of maybe 25 as five years earlier. So there's never really been any evidence at all of any kind of anybody gaining a monopoly power of any kind by this method. But like Armantano said, it's all a diversion. Economists have spent entire careers sitting at their desks and so forth. And there are hundreds of models of oligopoly, and they're all theoretical conspiracies. And so you have these economists spending their entire careers writing theoretical models, not based on reality, but theoretical models like this. When they send their kids to the monopoly government schools, the monopoly trash collector run by the city government picks up their trash, just pick any agency of government, they're all a monopoly, they

51:04watch cable TV at night from the monopoly franchise company given a monopoly by the government and they pretty much, apart from some of the Chicago schoolers and the Austrians, The Economist profession ignored that for generations. They're surrounded by monopoly power, the farm lobby that creates a farm cartel through the Department of Agriculture. They ignore that, and they focus on their theoretical models of oligopoly, and so they've demonized the market by creating a faux market. It's a fake market. It's a theoretical market, while largely ignoring the real market. That's what has always appealed to me, and appealed to me by the Austrian School that, like Joseph Salerno said earlier, von Mises and others always, they were good theorists but they always focused on real world markets and events and wrote about them.

51:57I mean you can't really understand the real world events without some theoretical guide. You have to understand economic theory and especially Austrian economics I think is the best theory but you have to look out the window once in a while. So there are all these theories, there are hundreds of them, and if you take microeconomics you'll be taught a lot of them. But the thing about these oligopoly theories, as long as there's the ability for entry to occur, they all break down. They all ultimately have to assume no entry, because if entry can occur, you don't have any more oligopoly power, monopoly power. And in today's world, that's almost universally the case, even with government regulation. You know, satellites have broken up the cable monopoly to a large degree.

52:43You can use satellites. You don't have to buy cable TV anymore. And then computers and the internet, pretty soon you're going to be able to combine television and your PC pretty cheaply and easily. Other questions, comments? Everybody's always worn out by the end of the day here. You people are weak. What are you, drinking too much at night or something? You're all younger than me with the exception of maybe one or two people. I don't know. And you're all worn out by the end of the day. There's a robust young man in the back. Question asked, sometimes when you have the mergers, the cost of the innovation, and that the mergers are a body-wide sell, and an increase in the cost of the company is big amounts, is it possible that that could change the debt around someone?

53:34Is it the high cost for quickly the planet after mergers?

53:50Merger Happens, and so what a lot of economists do who are opposed to mergers, like the more interventionist minded economists, they fall into what Friedrich Hayek called the pretense of knowledge. They claim to know in advance, before the merger happens and before the market reveals to us what the costs are going to be, that we shouldn't allow this merger to happen because it's going to raise costs or it's going to do something bad to consumers. There's no way of knowing that. The only way to know is to let the market work and reveal to us what happens. That's how we find out what the most efficient structure of industry is. For example, there's a big study done by the guy I mentioned, Scherer, Friedrich Scherer, and a guy named David Ravenscraff. They wrote this into a book and they studied, I forget the number, it was over 500 mergers over about a 30, 35 year period.

54:43And they found that over half of them, half of these companies, within 10 years, spun off a company that they had previously acquired, so that the merger didn't work out, like you're suggesting, the cost went up, and so on that basis they conclude we need more government regulation of mergers. But the assumption there is that government bureaucrats, aided by economists like Scherer and Ravenscroft, have a crystal ball and can look at these mergers and say, no, that one's not going to work out, we'll allow this one, we won't allow that. There's no way of doing it. It's all pretentious. It's hubris. They have no way of knowing that. And the way I would look at it, which I think is the way most Austrian economists would look at this, is that these mergers that fail to reduce costs do have some value in that they tell us what doesn't work.

55:37And that it's the only way to know what doesn't work. And so if they don't work, they won't be imitated. The mergers that do work, those will be imitated and will be repeated. And so the whole industry will become more efficient by merging in that way. For example, a company that has a lot of production engineering expertise, merging with another company that has little engineering expertise but is great on marketing, so they'll have some sort of a synergy there, you know, good marketing and good engineering, that might work, but other types of mergers maybe not, it won't work, but so mergers, you know, mergers are a process, they're part of the competitive market, and the market reveals information to us. And that's one important kind of information is what the most efficient structure of industry is.

56:26So, in fact, Hayek's Nobel Prize speech when he accepted the award, the award was called the pretense of knowledge. It was all about this. It was published in the American Economic Review and when was it? Probably around 1976 in the May issue, I think. And so, the theme is that this is all pretentious that some central planner could know in advance what's going to happen. Too much prestige, yeah. Yeah, that's true. You know, the Nobel Prize in Economics is funded by the Swedish Central Bank. It's not funded by Alfred Nobel's money. That was the science, you know, but the Swedish Central Bank started the Nobel Prize in Economics.

57:19Hayek won the Nobel Prize in Economics, so it's a prize given out by central bankers. So that's probably another reason why Hayek, he took the money though, he took the money, he didn't turn down the money. His co-winner was the Kami Pinko Gunnar Myrdal, a Swedish communist. And so the Nobel Committee at that time was in 1975, 1974, and they lose track of time anymore, but they couldn't stomach giving it just to Hayek, they had to give it to a communist also. Well, they started with a commie, Paul Samuelson, right? No, he wasn't a commie, he just idolized the Soviet economy a lot, as these guys were telling me.

58:06telling me, one of their professors at GMU, for those of you who don't know about Paul Samuelson's textbooks, for decades he had a graph in it, maybe I can imitate the graph, Comparing, it looks something like this. Here's a U.S. economic growth. And here's a U.S.S.R. And then this year would be, say, 2000. Then in the 1990 issue of the book, they erase and then they sit and say, well, 2020, and then, you know, the later edition, well, it's not looking, it's not working out that way, eh, 2050, and so, beginning with the 1948 version, he had a graph kind of like this, just taking as truth statistics published by Stalin on economic growth in Russia, Soviet Union, and claiming that they're growing so fast that, you know, at a certain They're going to be bigger than us, and I don't know when the last one was. Was it 1988? You guys remember that, around there? 1988 or 89? Somewhere around there, yeah.

59:30Okay, so any other questions, comments? Oh, worn out, worn ragged. Okay, well I don't want to keep you here against your will then. We'll call it a day.