Pietism and the Power Brokers

0:00The Republican Party, which used to be called, in the previous party system, the Party of Great Moral Ideas, is now called the Party of Prosperity. In other words, this is, as McKinley calls, the Party of the Full Dinner Pail. Notice the shift from so-called, what we now call social issues, prohibition, crushing Catholics and all that, to a much more modest, stressing the economic issues, protective power, things like that. The Democrats now become the party of piety, the great moral crusade against the saloon. And over the, as the years go by, the pietists begin to shift back to the Republican Party. They begin to, first of all, pietism, they begin to have second thoughts or whatever and we wind up with the Republican Party as a major party, as I say.

0:47Look at the, here's a table of partisan leads, in other words, party, party leads and percentage points. For example, if one party gets 51% of the vote, let's say the Democrats get 51%, the Republicans get 49, this means a two percentage point lead, okay? So in a close election you'll have leads of 2%, 3%, 4%, when the leads get much bigger it means you're really crushing the opposition. Now here we have for each region in the country, average of 1882 to 92, and the average 1894 to 1904, in other words, before and after the Great Change. Yeah, good Hans, cut out the gigglers.

1:34Also we've got plenty of air coming up from the broken window, we don't really need that. New England, before the change, was moderately Republican, fairly heavily Republican, a very piousist, as we know, Yankee area, plus 8.1% lead, in other words Republican lead. Afterward, it becomes plus 23.6%, in other words becomes very heavily Republican, overwhelmingly Republican. The Middle Atlantic states, which are neck and neck, New York, Pennsylvania, New Jersey, etc., where it was 0.1% Republican, that was really tied, very close elections, now becomes plus 16.9% Republican, overwhelmingly Republican. In other words, we now have, and this is true, up until 1932, well it's 1896, except for Woodrow Wilson's election, which is a fluke, East-North-Central, which is what we call the Midwest, in other words, Michigan, Ohio, Indiana, Illinois, Wisconsin, basically, which had been 1.1% Republican, it was almost tied again, now becomes 14.8% Republican, so overwhelmingly And then we have the South, which had been heavily democratic, is more democratic, becoming

3:08more pietist, plus 32.6% Democrat, now becomes plus 39. What happened in the South was that So as the so-called progressives take over, we'll get to the progressives, of course, very soon now. Progressive era, possibly 1900, 1918, or 1900, 1920, whatever you want to call it, when both parties become progressives or statists, the southern progressivism meant this progressive disfranchisement of blacks. What happened after the Civil War was the The White Voters voted Democratic, the Blacks voted Republican, almost automatically. There began a progressive disfranchisement of Black voters, so that almost no Blacks in the South voted by saying that by about 1900.

3:55Various ways of, for example, in order to vote in the South, you had to interpret the state constitution to the satisfaction of the election official, who was always white. So, you know, it's very subjective, first of all, who knows what the state constitution is? Who knows the New York state constitution? So you can always claim that the black can't really interpret the constitution properly and that was the end of that. Also there was a poll tax fairly heavy which disfranchised most poor white voters. So the result was a restricted suffrage in one party and one party region. The border states, which was essentially Kentucky, Tennessee, Missouri, etc. places like that, which had been 10.9% Democrat, now become neck and neck, in other words, 0.6.

4:45This again shows the shift toward the Republican, except for the South, shift toward the Republican Party. And the mountain states, which are essentially the three silver states that I talked about, Idaho, Wyoming, etc., which had been 11.7% Republican, Excuse me, you have been, yeah, and now 3.8% Democratic, this is the attraction of Brianism and Puppets and the free silver. And the Pacific states, California, Oregon, Washington, which had been 3.5% Republican are now 15.5% Republican. So we have a basic shift throughout. States which are slightly Republican become heavily Republican, states which were tied, especially Middle Atlantic and Midwest now become heavily Republican.

5:39So we wind up, as I say, with essentially South as a democratic region and a few big cities. Even the big cities are now neck and neck. We're the only, the Irish, as I said last time, are dedicated Democrats. The others begin to shift over. As a whole, we now have U.S. total and U.S. outside the South, non-South. The previous 1882-1992 average had been 2.4% Republican, and now becomes shifts from 2.4% Republican to 14.5% Republican, overwhelming. including the South, with 3.7% Democrats, now 7.7% Republicans.

6:29So we have, in other words, essentially a one-and-a-half party system, basically a Republican system, with the South as a one-party region, and some big cities. Even the big cities, however, begin to shift, for example, Boston, which had been heavily democratic, is now more or less tied, sort of even, Brooklyn, which used to be an important separate city, by the way, until about after 1900, was heavily Democratic, is now about tied with Republicans. I'm not talking about now, of course, I'm talking about after 1896. Baltimore, which had been heavily Democratic, is now heavily Republican, and Chicago, which had been heavily Democratic, is now heavily Republican. So even the big cities shift. We're not used to that now, not used to the idea of Republican big cities, but I can say were there before 1932. So along with this comes a drop in the turnout rate. Now we hear a lot about the drop in the turnout rate now, and people act as if the turnout rate only

7:26started dropping after 1950 or so. In other words, turnout rate means the percentage of eligible voters actually turn out and vote. I'm not talking about registered voters, those who could vote, those over 21 and that sort of stuff. It's now down to about 38%, very very low, of course. Back in the old days, the third party system was about 80-90%, a higher force in presidential election. Turnout rate begins to drop very quickly. The drop starts in 1896. It starts when the party system shifts to a non-ideological, not much contest either because heavily Republican and non-ideological, but there's not too much difference between in the Parties. And so people being faced with an echo rather than a choice, take the words of Barry Goldwater, famous words of Goldwater's campaign in 1964, we offer the public a choice, not an echo. Essentially, parties have been echoes of each other since 1900. And the turnout rate begins to drop very quickly after 1896. For example, this So, this is the turnout rate, as a percentage of eligible voters, I mean percentage of,

8:36yeah, voters who couldn't vote, which drops, it only increases, by the way, in the border states, which now become close contests, and the mountain states, all the others drop sharply. Here we have 1874 to 92, average turnout for all elections, 1900 to 1918. New England, this includes presidential and non-presidential, so it's lower than it would be for presidential as we'll see in a minute. 56% this period drops to 48, that's a drop of 8 points, 8 percentage points. Central Atlantic States, which on average 68% turn out, drops to 55, minus 13. East North Central, which had been 75% turn out, drops to 61.

9:27West North Central, which had been 65%, drops to 62. South, of course, drops very heavily, because half the people are disenfranchised, blacks are disenfranchised and poor whites are disenfranchised. That rate drops from 56% to 25%, 32%, 31%. Border states drop from, well actually, about the same, 66-66% is more intense party competition now. Mountain states go up with an increased competition, 55-74%, not many people in the border mountain states, however. Pacific drops from 53 to 44. Again, U.S. non-south drops from 67 to 57, and the U.S. total, including the South, drops from 65 to 51. So here's a big shift right there after 1900. Now it's down to about 38. Also another thing happens. Some historians say it was due to the fact of Registration comes in. In other words, see, before the 1900s, before the so-called progressive period, we'll talk about it at some length. By the way, the progressives claimed, progressive historians, claimed that the progressive era was an era of expanding democracy, right,

10:50with government regulation increasing and all that. If it's expanding democracy, how come the turnout rate drops? How come the number of people voting drops? What kind of expanding democracy is that? Anyway, the orthodox explanation for this drop in the turnout rate is that registration requirements increase. Before 1900 you didn't have to register, you just showed up and voted. The whole idea of having to register three months in advance of course cuts down the number of votes. It was deliberately designed to do that, by the way. However, it does not explain the low turnout, the drop in the turnout rate, because the drop in the turnout rate took place in urban areas and rural areas. The registration only came in in urban areas for a long time. In other words, if you're a farmer who lives in upstate New York, you didn't have to register, only city people had to register. There was and an attack on the city voters by Republican wasps against Democratic ethnics in the city.

11:37That was the whole point, immigrants and so forth. But this particular drop in the turnout rate had nothing to do with registration requirements, because it was just as heavy in the rural areas as it was in the cities. Also, as I say, the turnout increase in the border and mountain states, some people had something to vote about. They had some competition, at least, between the parties. And more severe drop we can see in the presidential turnout, which of course is of the greatest interest of people. The turnout rate in presidential elections, this is for oral elections, this first table. And now we come to turnout rate presidential elections.

12:18Before the party system, before the third party system, in other words, from 1826 to 38 In the second party system period, the presidential turnout rate averaged from 55 to 58 percent. In 1840, which was the beginning of a very hot election between the Democrats and the Whigs, it was up to 80 percent. And between 1844 and 92, in other words, the heartland, the period of the third party system, more or less, it was 70 to 84 percent, more on this end of it. And we get 1896 election at 78% and after that it begins to decline, in other words 1900, 72%, 1904, 1965, 1908, 1968, 1912 with 56, a hotly contested election by the way, but people began to lose interest.

13:181960s, 1960s, it was 60. So what you have is a basic drop from about 80% during the third party system to about 60, or 55, 60 before World War I, and it's been dropping ever since, of course, too. Another thing I have is in addition to the overall drop, particularly drop concentrated in church members. Notice, before this, this again boasters the idea that the whole thing is SL religious in origin. Church members voted much more heavily, whether it's catholic or protestant or pietist or liturgical, voted much more heavily than non-church members, because they were much more fired up. The drop in church members was much greater. In other words, the big turnout rate drop, voting rate drop for church members, and a big drop among the poor. Before 1900, poor people voted even more heavily than wealthy people. This, of course, is now, has been a big drop among poor people. Let's go to this day. Poor people are not interested.

14:12This is the turnout rate for all elections. This is the turnout rate for presidential elections, where the interest is always at a peak, contrasted with all key elections.

14:42The reason is the same, but I'm saying they're concentrated more heavily among church members and poorer people where the interest is fired up in an ideological issue. Many middle class people vote because they think it's their civic duty, they learn in a school that it's their duty to vote, they don't really care, it's sort of an obligation. But in those days voting was not an obligation. people were fired up, they were intensely interested, especially if they were church members, either pietists or liturgical, and they had something to vote about, you know, it makes a great deal of sense.

15:23Also, we look at the newly eligible voters, another interesting statistic, those who either became 21 or just, you know, became naturalized aliens or whatever, they didn't have the habit of voting, so the first people to drop off and not vote are those who've never voted anyway, So if you look at first voters, those who are newly eligible to vote, from 1876 to 1992, 62% voted. In other words, 62% of the newly eligible voters voted that year. From 1900 to 1916, it's 41%. You have a big drop in first voters. And as I say, people have always voted, and might continue to vote anyway, even if they had no choices anymore, they've always voted in elections. and the new voters are those who haven't picked up the habit yet, so they are the people who were first hit by the drop in interest, you know, the drop in the basic choices available.

16:22Okay, McKinley is now president and we have the McKinley cabinet, examine the McKinley cabinet, comes in 1896 in this new party revolution, so to speak. The cabinet is almost solidly a Rockefeller cabinet. Before I get to that for a second, I have to point out, by this time, by the late 1890s, there were two big financial groups in the country, power groups, the Morgans and the Rockefellers. The Rockefellers, as I say, run the Republican party through an Ohio party. The Morgans are in the process of shifting the Democrat to Republican or shifting their emphasis. Each one is a collection of financial groups. The Rockefellers, as I said before, always are together with a whole bunch of families, not just one guy. It's a whole bunch of families.

17:07The Prats, the Boswicks, the Bedfords, the Rogers, all these people have ever since then moved with, invested with the Rockefellers. They have a whole powerful complex. Also each one begins to get their investment back. In other words, investment banks become important. Commercial banks are important. These are depositing, checking banks, etc. So each group begins to get their own insurance companies, their own commercial banks, their own investment banks. Life insurance companies in particular, as I mentioned before, ways of voting a lot of capital, amassing a lot of capital which is run by trustees who get control by either Morgan's or Rockefeller's and they vote for their guys and their companies. So we now have the following sort of financial group. In the J.P. Morgan group, of course the headquarter This is part of the J.P. Morgan & Company which ships from Philadelphia to New York around somewhere before this period with Morgan Partners, these are all private partnerships and they get partners who are important close to Morgan and they run the biggest financial

18:08groups all over the country but the Bankers Trust Company which was set up to engage in trust certificates in trust form, we'll see a little later how that becomes important The big commercial bank is the Chase National Bank, which is run by Morgan, which shifts in control, by the way, in 1930, shifts to the big Rockefeller bank, it's been the big Rockefeller commercial bank ever since. David Rockefeller was the chairman of the board until very recently. The first national bank in New York, which is headed by George F. Baker, probably the closest Morgan ally, long old friend, associate, whatever, another big commercial bank.

19:13By the way, the Rockefellers, I'll say in a minute, control national city bank, that That changed to Morgan Control in the late 1930s and after that merged with National City to become First National City and finally of course now City Bank, which has been a Morgan Bank since the 30s, guaranteed trust company, commercial bank, which is now Morgan Guaranteed Trust, so it's officially Morgan, not just in reality, mutual life insurance Company, which is their big life insurance, future life and National Bank of Commerce. Anyway, these are the major, there are a whole bunch of other companies and railroads and all that, but these are the basic financial agglomeration.

20:01The Rockefellers, of course, had Standard Oil as their basic, Standard Oil trust as their basic, as their base of operation. And then they had Rockefeller, you know, Rockefeller himself lasted until the age of 98, I still remember. He was still alive when I was growing up and he had seen sort of a mummy-type, he was short in BDI anyway, began to look more mummy-ish as time went on, but he was sort of semi-retired by about 1900 or so, I mean he wasn't really retired, but he was beginning to phase out a bit. His brother, William Rockefeller, becomes a key figure and who takes charge of the National The City Bank, which was run by James Stillman. So, Stillman and Rockefeller form an alliance.

20:55Commercial City Bank comes to their big commercial bank. And if the alliance was even more personal than that, because, William Rockefeller, by the way, is president of Standard Oil in New York, which then later became Soconi Vacuma, The two sons of William Rockefeller marry the two daughters of Stillman, the two Rockefellers marry two Stillmans. This is what happens, by the way, in dynastic marriages, of course it happens with kings and queens and all that. It also happens with the top power elite in the United States where you have intermarriages, you try not to have a situation. Bobo Rockefeller and one of the Rockefeller daughters married a coal miner, I think, back in the 50s.

21:41It's frowned on. Usually what happens is you're married, your social institution is you're marrying your own set. And here you have two Rockefellers marrying two Stillmans, which sort of cements the Rockefeller-Stillman alliance and the Coal-National-City Bank. U.S. Trust Company, I think was in Boston, was Rockefeller, was a few Boston financial. Farmers Loan and Trust Company, etc. and Rockefeller still needs an investment bank, you see he's got a couple commercial banks, he's got a national city, he needs some kind of alliance with an investment banker, obviously it's not going to be Morgan, because Morgan and Rockefeller hate each other, they've got their engaging economic and later we'll see and Political Clashes, Rockefeller hooks up with Kuhn Loeb as a basic financial advisor.

22:37We have coming up in the late 19th century a group of German Jewish investment banks in New York, Kuhn Loeb, Lehman Brothers, a bunch of others, Loeb Roads and so forth and so on. Kuhn Loeb was a major one and it was connected with German banking firms, Warburg and company, and Global Interrelated in Germany, and Jacob Schiff was the maximum leader of the Tumulo. Schiff formed an alliance with Rockefeller against Morgan. Obviously, there was a big conflict between the Morgans and Tumulo, etc. Schiff formed an alliance with Rockefeller in this mighty, titanic economic financial struggle. Another person becomes important in this whole period, to understand both the economic and political end of it.

23:28The last of the great tycoons, I've already mentioned some of the great tycoons, Hill, Gould, Rockefeller, Carnegie, super tycoon types who start with almost nothing and wind up with real big shots, and Morgan at some extent, although his father was quite a wealthy British banker. This is Edward H. Harriman, another very important figure who has been underestimated by historians both in his economic and his political influence. The New Deal, for example, the Roosevelt New Deal was really a Harriman New Deal, and the role of the Harriman family is underrated. W. Averell Harriman, former governor of New York, was the political arm of the Harriman financial group. He's still beloved, he's about 90 years old or something, he's still very powerful politically in the Democratic Party, at any rate.

24:14Edward H. Harriman started as a, was also short, thin, this enters, by the way, in a personal context, since Morgan was tall and beefy and, you know, charismatic or whatever, one of the reasons he hated Harriman was because he preferred him as little Harriman. Rockefeller's also short, Hill is short too and he formed an alliance with Morgan, so it doesn't work, it's not a one-to-one correlation, it's part of the, at any rate, Harriman grows He grows up as a fairly poor, I think he grew up, I think he was born in Long Island, and becomes a young, a young clerk in Wall Street, he becomes like a runner, whatever it is, I forget what they call him, bulletin boy or something, he posts a stock like, he starts at the age of 14 or something as a bulletin boy, and becomes very, he's poor, he's son He was kind of a minister, no education, none of these guys went to college of course, didn't waste time going to college, I keep stressing this.

25:17He becomes, yeah, quotation boy is what it's called, you know, chalking up, there was no computers in that of course, chalking up the quotations. He rises very quickly to become a top stockbroker, a brilliant financial, real financial genius, and very good at stock manipulation and stockbroking. Okay, he marries in 1879, he's born in 1848, marries Miss Averill, I don't know her first name, I suppose I could dig it out if I'm really interested, her father owned a small railroad in upstate New York, and he buys the railroad out, becomes head of it, buys it out, and from this he starts becoming a railroad tycoon, he's really brilliant, I mean, he just goes from one railroad, starts with a small railroad line, ends up with a bigger railroad, medium sized railroad, and he starts, he winds up Strolling, first he gets control of Illinois Central in 1881. He clashes with Morgan. Now, here's Morgan running the whole railroad world, not used to the young upstart, suddenly buying

26:17railroads out from under him. The Buick and Sioux City Railroad, a very important Morgan railroad in the Midwest, and even though not too big, Morgan loved it and all of his pals were running it. Harriman takes it away from him and buys it out from under him using what In 1886, he grabs control over Morgan of the Buchan City Railroad, and here's Morgan, the whole railroad world was supposed to be his oyster, so to speak, and here's this young pup, young upstart, grabbing it away from him, and he hated Harriman from then on. So Harriman begins to take over railroad after railroad, he takes over, as they become bankrupt Morgan takes over the Union Pacific, takes over the Southern Pacific, which includes the Central Pacific.

27:08He's now running the whole schtick, all the trash can't run over except the Northern Pacific and Hill's Great Northern. So Hill, also in the 1890s, Hill completed the Great Northern without competing in the Northern Pacific. The Northern Pacific was sort of bankrupt. Morgan takes over the Northern Pacific in the form of an alliance with Hill. Steve Hill is a very good railroad man and he forms a big Morgan-Hill alliance and tries to get control of Burlington and Quincy, which goes from, you know, is the way to get from Omaha or whatever to Chicago, and Harriman beats him out for that, and again a big, big Titanic clashes, and Harriman now moves to try to get control of the Northern Pacific from Morgan, the Titanic struggle, huge amount of money involved. Who gets control of the Northern Pacific? Big stock fight, big hysteria involved here in the late 1890s. And Herman gets a lot of, gets, forms an alliance with Rockefeller and Kuhn-Loeb as against Morgan

28:13and Hill for the control of the Northern Pacific. And this becomes politically very important because part of, I'm convinced this is part of the reason for the Titanic struggle politically which starts with Teddy Roosevelt's administration, we'll get to it very shortly now, after we talk about the mergers and their failure, but politically what's happening here is we have the Harriman Rockefeller-Kuhn-Lowell alliance which continues from then on, in other words what basically the, to look at it very simply, Teddy Roosevelt was a McKinley administration was Rockefeller, Teddy Roosevelt was a Morgan person, almost from birth as we'll see, and We begin to have the two struggles that go on politically are essentially reflections of the struggle between Rockefeller-Kunlob-Harriman alliance versus the Morgans.

29:05And the New Deal, Franklin Roosevelt New Deal, was essentially a bitter attack on the Morgans with the alliance of Rockefellers and Harriman, especially Harriman, who was a powerful Democratic party person at this point. Anyway, so these are some of the behind the scenes struggles which make sense out of alleged political, at least lend clarity to alleged political struggles. At any rate, this is beginning, building up with the end of the McKinley administration, the fight over Northern Pacific, I'll get back to that, just hold that in your mind as a great Northern Pacific struggle. Okay, McKinley has a cabinet in 1896. It was mostly Rockefeller with a couple of sops for the Morgans. After all, Rockefeller was the winning combo.

29:57Rockefeller-McKinley was the winning combination of the Republican Party, but the Morgans were now Republicans or mostly, and so they had to have a certain sop. Let's go down the list of some of the top cabinet officials and general administration stalwarts. Works. Secretary of State under McKinley was John Sherman of Ohio, therefore of course Rockefeller, basically a Rockefeller payroll for many years. When you say Ohio you say Rockefeller, at least in the Republican Party. Secretary of the Treasury, of course a key The key spot was a certain Lyman J. Gage. Lyman Gage had been a Chicago banker and had been a Cleveland Democrat, as a matter of fact, before the great Brianite takeover.

30:53But he was not a Morgan person. He was definitely a Rockefeller person. He was president of He was one of the first national bank of Chicago before he became Secretary of the Treasury. And he was also a big corporatist as we'll see. Weinstein, stop reading by the way, in addition to Kogo, the first couple of chapters of Weinstein is especially dealing with the National Civic Federation which was the, I think that's the first chapter. A big corporatist of corporate liberal institution moving towards statism, representing big business of Interest, an alliance of intellectuals and a few labouring leaders, moving towards state control, state regulation, etc. Gage was the head of the Chicago Civic Federation, which was the initial, sort of the birth, the birth of the National Civic Federation, I'll get to that later.

31:38Anyway, he was former president of the American Banking Association, and the first National Bank of Chicago was the, essentially a subsidiary of the Chase of the National City Bank in New York. close to the ally to it, which of course is Rockefeller. When Gage leaves the Secretary of Treasury's ship, the question is, always you have to look at what were these guys before they were Secretary of the Treasury and what were they afterwards? They didn't just pop out of thin air, they didn't descend from heaven in a vacuum. So I just say before that he was head of the First National Bank of Chicago, which was in the Rockefeller National City Bank ambit, and after he gets out of there he becomes president of the U.S. Trust Company, which is a Rockefeller company. The Assistant Secretary of the Treasury, you have to realize in those days government departments were much smaller, there was no undersecretary, deputy secretaries, there was just one assistant secretary and that was it, a great era.

32:35So the Assistant Secretary of the Treasury was a certain Frank Vanderlip, in addition to being a banker, was also a pain in the neck intellectual. and he's always issuing pronouncements, reformed pronouncements about banking, as we'll see, he's a theoretician in other words. Frank Vanderlip, after leaving, what does he do after he leaves the Assistant Secretary of Treasury post, he becomes president of the National City Bank itself. In other words, the top Rockefeller man in the banking business. So you have a solid Rockefeller treasury department under McKinley. Secretary of War was Russell Alger of Michigan, who was the former governor, head of the Republican Party of Michigan, and wealthy lumber man, and director of the U.S. Express Company, which is controlled by Boss Platt.

33:27We'll get to Boss Platt in a minute. So as we'll see later, by the way, he was head of the Diamond Match Company, which was The Secretary of War was Russell Alger of Michigan, an ally of Boston Platt, the Secretary of Navy was John Davis Long, but he was the director of the U.S. Trust Company, which was Rockefeller. So once again we have a lot of certain Morgan connections, I mean basically rock-a-thawing.

34:13The ambassador to Great Britain, which is also a very important post in the state and the foreign service, it still is, the top power elite post was none other than Joe Choate, was a top lawyer for Standard Oil and for Rockefeller personally. In other words, Rockefeller and Standard Oil. Okay, the Speaker of the House, now looking at the legislature that McKinley was working with, the Congress, was Thomas Reed of Maine, who was a very close and all-time friend of Henry Rogers, who was one of the top standard oil executives in Rogers' family and standard oil Rockefeller, so Reed was essentially Rockefeller.

35:10Boss Platt, who was the friend of Alger, was a Republican boss in New York State. Platt was an old high school chum and schoolmate and chum of Dondi Rockefeller in Owego, New York. Before he moved to Cleveland, he was a couple of years in high school in Owego, upstate New York. It's a very good thing there would have been a high school chum of Rockefeller with us in Cleveland and New York. Rockefeller class chum. There was one other guy, his name I forget now, who was also a chum, a tallard Rockefeller, because they were both teaching in Baptist Sunday School. I forget who that one was. Anyway, that was a good thing too. The one way to get ahead in the world is to be a high school classmate of Rockefeller. Unfortunately, most of us are not going to make it.

36:03Alright, the Senator, the Majority Leader of the U.S. Senate, very powerful figure for many years, Senator from Rhode Island, Nelson W. Aldrich, Nelson W. Aldrich entered the Senate in 1881 as a sort of a middle class wholesale grocer, fairly well off and not spectacular. He retired 30 years later, he died in office 30 years later, with assets of 12 million dollars, which is equivalent now to about 100 million. The question is, how did he do it, because he didn't have a, salary wasn't very high. How did he get this money? It's like Lyndon Johnson, spending all of his life as congressman and senator or president, winding up as a multimillionaire. Well, one thing is he bought the legislation of Rhode Island legislature, he got himself public utility franchises of big, of course.

36:55and of course, who gets the contract to have an electric company and provenance run out? Either himself or his brother or his friends. So essentially he bought out the whole Rhode Island legislature. Anyway, who was he? Who was Senator Aldrich? Senator Aldrich happened to be the father-in-law of John D. Rockefeller Jr. In other words, John... If he can't be the high school chum of Rockefeller, be his father-in-law, would be the father-in-law of his son. He's the father-in-law of John D. Jr., making him an distinguished member of the family. Abbey Oldrich, whatever the name is. Governor Rockefeller died recently, Nelson Rockefeller's middle name was Oldrich. In other words, he was named after a beloved family member and kinsman, Nelson Oldrich. His name was Nelson Oldrich Rockefeller.

37:42Winthrop W. Oldrich, son of Nelson, became head of the Chase National Bank when Rockefellers took it over from the Morgans. One great moment, sometime in the 1950s, I forget the exact year, a marvelous moment to see how the power elite really runs politics, Thomas Dewey, who was a beloved governor of New York for many years, was obviously really a tool of the Rockefeller machine. So one year he decided he was going to quit, he was tired of being governor, he wanted to make some money, he wanted to go into private law practice and make millions. He announced that he was going to quit, and the guy who would have been the Republican candidate was Lieutenant Governor Hanley, some upstate New Yorker, no prominent, nobody He was called to the office, he had a New York World Telegram, a paper now in law, and got a hold of this thing, the story, and published it.

38:30He was called to the offices, that was Winter of Aldrich, head of the Chase National Bank, member of the Rockefeller family, called Dewey into his offices for a meeting. Issued a summons, you will appear next Thursday at noon. Dewey meekly appeared and he ordered Dewey to run for re-election, and Dewey accepted it. It's very interesting, it sort of gives you a little window on the two, what really happens in American politics. His master's voice, okay, yes sir, I will run for governor again. They finally allowed him to retire after four more years or something, he finally made some money before he corked off. But he, so the Republican Party in New York for many years was essentially a Rockefeller party, and when Nelson actually ran for governor and then for president, it was an open drive for power by the family itself.

39:15As a matter of fact, John D. Sr. and his brother William had one son, John D. Jr., who died I think either before Sr. or just a year or two afterwards. And then there was the famous brothers, getting a little old now, but running things until very recently. Johnson, the political arm, David, who was head of the Chase Manhattan National Bank, Chase Manhattan Bank, the financial power, Lawrence is in charge of recreation and land conservation, buys up resorts and then turns everything else over to public parks, there wouldn't be any competition. He's in charge of recreation, John D. Junior, John D.'s third or something, I forget what he's in charge, I guess he's just regular with business.

40:06and then it was Winthrop who sort of got drunk a lot so he shipped him off to Arkansas, he became governor of Arkansas for a while, he sort of exiled in Arkansas, the black sheep of the Rockefeller brothers, now we have of course a whole bunch of Rockefellers, the cousins as I call them, you know, dozens of them, of course they all operate together, they have a family investment team, Rockefeller brothers, at any rate, in this Rockefeller domination of the government, there were certain stops on the One of the SOPs, slightly was John Hay, became Secretary of State after Sherman. Hay was basically a Rockefeller person. He was a former journalist and other theoretician. You always have to watch out for theoreticians in politics. He was Secretary of State after 1899, or 1998. He was from Cleveland, Ohio, he was a higher Republican, and all the rest of it.

40:57His brother-in-law was Samuel Masser, who was a big businessman in Cleveland, and he was also, however, connected also with the Morgan Federal Steel Company. certain ties with the Morgans, which we'll do in a good stead later. Anyway, he was basically a Rockefeller, and the Attorney General later on, two or three years into the administration, was a guy named Gregson New Jersey, who was essentially a Morgan person. Basically, he was a solid Rockefeller administration. There was one, however, that stopped, but what always happens is the other faction gets the vice presidential nomination. So the vice president under McKinley was a guy named Garrett Hobart, who I'm sure none of you have ever heard of. Here he was, distinguished vice president of the United States, nobody's ever heard of him. Garrett A. Hobart, who was a Morgan man from New Jersey.

41:46He was a New Jersey politician, senator and so forth and so on. And he was the director of Morgan's Liberty National Bank in New York. and also in, I think, with Morton Soil Company, which is a Morgan company and a couple of other Morgan directorates. So he was essentially in the Morgan stable, New York Life Insurance Company, which is Morgan, and he was the basic stop for the Morgans. Morgan. In 1899, Gary Hobart died, died feeling young, at the age of 53 or something, and there's a vacancy for the Morgan person in the vice presidential nomination. McKinley of course is going to be re-nominated in 1900, he's going to win the landslide against the idiot Brian who's been put up again by a Democrat. The question of who should be vice president, and of course it had to be a Morgan person, and it's a very fateful day because Morgan insisted, he offered it to almost everybody, everybody in the Morgan came, he offered it

42:46The only Morgan man who would take it was Theodore Roosevelt, who everybody in the McKinley administration hates as a guts doll, they all thought he was nuts anyway, they said he was crazy, insane, there's a certain justification for that, I don't think he's crazy, he's certainly a wild man type, so we get to Theodore Roosevelt, who will be our next political discussion person here, we have to get to the merger stuff and how it failed, political discussion being about Teddy Roosevelt. The thing you have to realize about who was Assistant Secretary of the Navy, he was the Morgan person in the Navy Department under Long. And when McKinley launched the war against Spain in 1898 for the possession of Cuba, Teddy Roosevelt sent a telegram when the Secretary was out of town commanding the Admiral to start fighting.

43:42It was not overruled by McKinley, but essentially he was an extreme war hawk, then and later. He loved war for its own sake, Teddy Roosevelt. He was half-blind, Teddy Roosevelt. He always wanted to fight. And when he finally fought in the Spanish-American War, he led his troops up to the Rough Riders in Cuba, and he almost got shot. Everybody else got shot. His forces were decimated. It was a total disaster. The guy couldn't see. But anyway, he made it because A lot of influence in the press and the Morgan-dominated press, he came out a big hero and rode that to the presidential nomination later. The thing about the Roosevelt family, you have to realize that two wings of the Roosevelt family, very different wings. One wing of the Oyster Bay Roosevelt, come from Oyster Bay, Long Island, descendants of the two Roosevelt brothers back in the 17th century, first came here very early.

44:36This was, I think, John Roosevelt, the original 17th century Roosevelt, who moved to Oyster Bay. There was a whole Oyster Bay group. There were merchants and lots of other things. They were much wealthier generally, Cornelius Roosevelt, James A. Roosevelt, whatever. And then there was the Hyde Park Roosevelts, this was Brother James back in the 17th century, settled in upstate New York, from which Franklin emerged. This is a Theodore Roosevelt branch of the family, and this is the Franklin branch. The Hyde Park branch got in very early with the Harriman's and the Astors, who were their neighbors basically, and became Harriman types, so to speak, Harriman and of course by extension Kuhl, Lowell and Lockerthaler starting in 1900.

45:26The Oyster Bay Roosevelt from early in the game in the late 19th century became Morgan Morgan Connected, you see we're already in a conflict, okay? The Teddy Roosevelt's father and Uncle James, I've got his father's name anyway, both in with the Morgans financially, his Uncle James Roosevelt was the director of the Buick and Sissi Iorara, I already told you it was Morgan until Harriman captured it, so to speak, his His uncle James was also the director of the New York, Chicago and St. Louis Railroad, which was a Vanderbilt-Morgan railroad. And so they grew up as Morgan people. As a matter of fact, two of Teddy Roosevelt's, not only cousins, but very close financial advisors, one of them was W. M. Lund Roosevelt, who was the first cousin, but also a very close friend and financial advisor of Teddy before he became president, while he was president, and afterward, WM1, was connected with a whole bunch of Morgan board, the Astor National Bank, which was head with George Baker, a Morgan person, the Astor Trust Company, which is

46:38a Morgan, and a member of the board of the Central and Southern American Telegraph Company, which is a very close Morgan thing, the board consisted of William P. Hamilton as a son-in-law of Morgan, Charles Lanier, a long-time associate of Morgan, another guy who had married into of the Vanderbilt family. In other words, W. M. Linn, close financial advisor and friend of Teddy, was very close to the Morgan Embitt. And his other top friend and relative was Douglas Robinson, Teddy Roosevelt's brother-in-law, was also in the real estate operator in New York, was also in the Astrid bank, also in the Morgan Embitt. So we have, in other words, Teddy Roosevelt's whole family and friends, close friends and relatives were all tied in with the Morgan Ambit from early on.

47:25So Teddy Roosevelt grew up as a Morgan person, so to speak, and we'll see next time, or next time after that, continuing on, accelerating the Morgan Ambit. His first wife was a Boston financial person associated with the Morgan, et cetera, et cetera, and the whole, this grows. Okay, this is way over time, right? The beginnings of Teddy Roosevelt. We'll be coming back to Teddy Roosevelt next time. His two major advisors, financial advisors, personal financial advisors all of his life were two close relatives. His first cousin W.M. Roosevelt. These are all Oyster Bay wing of the family, you know, it's not the Hyde Park wing, W.M. one, was a member of the board The board of directors of many, the Astor National Bank, which was Morgan to George Baker, the Central and Southern American Trading Company, which was, on which board was also the son-in-law of J.P. Morgan, named Hamilton, and so forth, and then there's Douglas Robertson, who was Teddy Roosevelt's brother-in-law, who was a big real estate operator, and also on the same Morgan network,

48:41Network. Later on, as we'll see, you'll see a teaser for later on, the real key of the Panama Canal caper, which I did some work on when the Panama Canal treaty was signed, and where Teddy Roosevelt, it was kind of interesting, Panama, I'm really skipping ahead a bit, Panama was simply a section of Columbia, it was Columbia in South America, Panama was up here in Venezuela. Originally it was supposed to be a Nicaraguan canal which fell through for some reason and so the French had opened up a canal company called the Panama Canal Company which was crazy bankrupt, really was bankrupt. They had the yellow fever problem which you've probably seen in the movies. There was a lot of the yellow fever there and the mosquitoes and whatever and they could never lick the problem so they couldn't dig and the big the canal and at any rate the United States was negotiating to get a Panama Canal Company with a French Panama Canal Company and the Colombian government and I think they had agreed, I think it was 30 million dollars, I have to check back, but anyway, I'd say 30 million dollars that the United States government would give to French Panama Canal Company

50:05and the rights to operate a canal. I think, of course, they were really bankrupt. Probably shouldn't have gotten anything. Let's say they got 30 million. And the Colombian government said, now we want to get, you know, we want to get a piece of the action here. And they insisted on 10 million out of the 30. In other words, the 10 million dollars would go to the Colombian government. And 20 would go to the, to the canal, the French Canal Company. Petty Rosa, at that point, decided to organize a fake revolution in Panama and the person, the reason why I'm talking about this now is the person who was hired by the French Panama Canal Company to negotiate all this stuff was a guy named William Nelson Cromwell, later became the major partner of Sullivan and Cromwell, now one of the top law firms in Wall Street Cromwell was hired, with a huge sum, to lobby for the interests of the Panama Canal Company to get, essentially to get 30 million instead of 20 million, so that was a big thing, of course, and Teddy Roosevelt, Cromwell was sitting in the White House issuing the orders for Teddy Roosevelt, and Roosevelt signed them, and Cromwell essentially was running this whole operation, created a fake revolution in Panama, organized the finance by the U.S. government,

51:26by the Panama Railroad Company, which was an American company, through them, the U.S. Navy then intercepting, threatening, intercepting any Colombian ships, but you see, you couldn't walk, you couldn't go over a land, it was a little jungle, so you had to go by sea to get from Columbia proper to Panama, and the U.S. Navy would shoot any, you know, sink any ship, Colombian ship would try to suppress the revolution, so essentially it was a fake revolution, it was not a popular revolution by the Panama masses, there were no Panama masses, essentially the American agents down there, Getting these people to revolt created a phony independent state of Panama, which then signed the treaty with the U.S. government to turn over the full 30 million to the Panama oil company, to the Panama Canal Company. The U.S. government's official line was the Colombian government was trying to hold us up, the American taxpayer, for an extra 10 million, but that wasn't, that was a total lie.

52:17What they were trying to do was give the whole 30 million to the French company rather than the 20 million. In other words, the whole idea would have been no extra amount of money to the American The question is who should get the 30 million, should the whole 30 million go to the French Canal Company or should 10 million of it go to the Colombian government, that was the real issue. Anyway, Teddy Roosevelt created this fake revolution and immediately recognized it of course 24 hours after they proclaimed the new Panama State. And the interesting issue was that most historians still haven't discovered it because it's an obscure book by a guy who was involved in this and finally sets the whole thing straight. The question is, who is the French Panama Canal Company? It turns out, the French Panama Canal Company, when they're going bankrupt or semi-bankrupt, all their shares were bought up by a syndicate headed by J.P. Morgan, including all the Morgan people, a couple of Rockefeller people, a couple of Cunloa people, a guy named Douglas Robinson, who was Teddy Roosevelt's brother-in-law, all involved in this operation. They bought the shares when the French Canal Company was bankrupt for half, you know, just 50 cents on the dollar.

53:24And of course, when the American government created the phony Panama Revolution and gave the whole 30 million to the French Panama Council, they had doubled the value of their shares, and they sold it at a doubling amount, in other words, they held the shares for a year, the Morgan Syndicate, and then doubled their price by then selling it, so they got a lot of money out of this, it was the Morgan people. So essentially the whole operation, the whole Panama Revolution was a Roosevelt-Morgan, Teddy Roosevelt-Morgan deal, and most of the money that the syndicate had gone out of, of it, was invested in New York City real estate with Robinson as the real estate broker and land owner. So, most of it then, much of it was funneled into Robinson, but that was the, this is still not known to most historians of the Panama Canal Company, and if you're interested in the book on this, this guy named Earl Harding wrote a book called The Untold Secrets of Panama.

54:18Earl Harding was an elderly, when he wrote this book, he was about 80 years old, he was For a young reporter from New York World Telegram, Scripps Howard, New York World, I should say, which exposed this about 1910, and Teddy Roosevelt, I think the school president, maybe in 1908, filed a libel suit for criminal libel against the New York World to try to suppress this information, a seditious libel, and it went to the Supreme Court and they said it's unconstitutional, because those were saying it's a seditious libel against the president, the government. And so, when Harding was a young reporter who did most of the work on that, and he finally, about 60 years later, disclosed the fact that 50 years later, that was a... Anyway, this is the untold story of Panama, the whole thing, not only engineered by Teddy Roosevelt, which was generally accepted, but done in order to benefit the Morgan syndic and his bosom or connected with it.

55:11That's what I mean by being in the Morgan ambit, one of the things. Okay, we're getting to industry, we're getting now to the merger movement, and before I get to that, I want to just mention the fact that I'm dealing with federal politics and industry in this period, that the iron and steel industry has always been, since 1820, the big major fountainhead of protective power movement, and largely because much of it is inefficient, And so, they're always trying to keep out cheap foreign iron and steel. In 1820, which was the first organized protective tariff movement in the country, it was started by Representative Henry Baldwin of Pittsburgh, Congressman from Pittsburgh, who himself was a big iron manufacturer, Pittsburgh being the center of the iron and steel industry for a century or so.

56:01And after the Civil War, and the big propagandist for protective tariff, from about 1815 on, Matthew Carey, a Philadelphia printer, also of course, especially wanted to get a protective tariff on printing, a sale of printing from a newsprint, et cetera, from abroad. His son, Henry C. Carey, becomes an economist and the major lobbyist and propagandist for protective tariff. Carey became himself a Pennsylvania iron manufacturer and was a big theoretician for the iron and steel interests during the whole, well, 10 or 15 years after the Civil War period.

56:47The interesting thing about the Civil War, post-Civil War period is that he had a situation where he had, as I said, greenbacks, in other words, fiat money, which was not the redeemable and gold of silver. You have fiat money, inflationary fiat money, for the first time really, and then you have protective tariff, and Kerry is a theoretician that saw immediately that you benefit, the U.S. steel industry benefits twice from having inflation plus protective tariff, in other words you have fiat money and protective tariff, and inflation acts like a double protective tariff, in other words here you have the American dollar, As you inflate dollars, the quantity of dollars, the value of the dollar in terms of foreign currency goes down.

57:36In other words, you have floating exchange rates as you have now. If the United States inflates, it lowers the value of the dollar. As you lower the value of the dollar, say the American dollar, let's say the American dollar used to be worth four francs, four French francs. So, if you're lower than America, you inflate dollars, and you raise prices, you lower the value of dollars, say to two francs. This means that now the dollar is worth less abroad, so Americans can't buy as much... French prices are now much higher in the United States in terms of francs. American prices are lower in terms of dollars. So, inflation, when you have fluctuating exchange rates, inflation acts as a subsidy to exports, to U.S. exports.

58:23and a tax on American imports. So, in other words, essentially what inflation does when reflected in foreign currency is you subsidize American exporters at the expense of American consumers. It's really a roundabout but effective manner of screwing American consumers for the benefit of the American exporter so that we can't buy foreign steel because it's more expensive This is why American exporters, exporters in any country, always want inflation. If the inflation is reflected in falling exchange rates, this is why, by the way, the whole gang got together recently, about three months ago, a gang by the United States government and all the other governments, Western European governments, to try to push the dollar down, as you remember. The dollar had been magnificently expensive.

59:20I am going to Europe in a couple of weeks. This is always my luck, by the way. When I go to Europe, the dollar is always at its weakest. If I go on last year, the dollar was worth like one pound almost. And now I think it's a buck fifty per pound. English pounds and all the rest. They all got together to drive the dollar down in order to shaft the American consumer for the benefit of American exporters, basically. And so, the iron and steel people are getting, in other words, carrying, and the iron and steel people realize that They get a protective tariff that benefits, of course, the subsidizers of American steel and also inflation and greenbacks subsidize them, so you have a double subsidy. Now, historians used to believe until about the 1950s, I say, the standard historical view was that inflation was always, the farmers are always pushing for inflation and manufacturers and merchants are always in favor of hard money, but it doesn't work that way at all.

1:00:14As a matter of fact, what happened in this period, for example, was the iron and steel The gold manufacturers were very powerful and the Republican Party, in particular, favored both greenback inflation and protective tariffs. And the Republican Party, as I said, part of it was due to the pious support, but this was the economic argument for it. In other words, the elite industrialist types, big business types, favored inflation because they realized that greenbacks and the dollar could go down faster than American prices would go up and they were therefore in great shape. and so it took it until 1879 before we got back to the gold standard and the republicans fought against it

1:01:02Exporters like it when the dollar is very cheap the dollar is worth only two francs because it means that exporters American goods now are cheap in terms of foreign currency. In other words, the dollar is worth very little. It means that American prices have become cheaper in terms of France or Germany or England or whatever. Yeah, in the foreign country. Yeah, the dollar is high and then America starts importing more. So exporters are always in favor of a cheap dollar. importers in favor of an expensive dollar consumers always benefit, the average consumer always benefits when the dollar rate is very high because it means we get cheap farm products and so in order to shaft us, it works like another tariff we get, we can't buy as much abroad and we have to turn it in for our inefficient American producers so it acts as if Cheap dollar acts as if equivalent to a tariff.

1:02:07You can see how that works. It's sort of like a double tariff coming on. It makes dollars artificially cheap. You have balance. First of all, each individual country doesn't need a balance. If you have any balance, it should be overall. Whole balance of payments. You can import stuff from Japan and then export stuff from other countries. The whole balance is that. Overall, you don't have to have an equal balance of payments for each country. that was refuted by the 18th century that kind of nonsense went out about 1720 but even the overall balance now is irrelevant because there's no gold standard you don't pay anything, in other words, see there's a lot of complaint about the fact that America spends about $150 billion more in imports than we sell in exports overall but see what happens is $150 billion doesn't flow out of the country, it doesn't disappear somewhere because nobody else uses dollars, basically what it means is As foreigners are willing to invest $150 billion worth in dollars and hold them,

1:03:02which really means buying investments in the United States, either real estate or stocks or bank accounts or bonds or something. There's nothing wrong with that. As a matter of fact, it's great from the point of view of the American. It means that foreigners are willing to invest in our cheap imports. Super. I hope that continues. It's not going to continue forever. As long as it does, it's like a great bonanza. As if they're helping us, they're financing us with cheap food and whatever, cheap products. And they're holding dollars for various reasons, much of it is because the United States is the safest country to invest in, you know, you're not going to get confiscated, for example, it was important, you know, some new dictator is not going to come and suddenly grab your dough, okay, it's not going to be hyperinflational as we presume, and so the last few years there's been a big increase in foreign investments in the United States, which is great, as I say, it should flow in. The United States had an overall deficit in the balance of payments in the entire 19th century, basically England, Englishmen were

1:03:56financing, American Railroads, and all sorts of other stuff, you know, it's great, it helps everybody, there's no big injury. Especially if there's no gold standard, there's no problem with banks collapsing or anything, there's no problem at all. There's nothing actually flowing out, since it's somehow leaking out of the system. The whole thing is trumped up, trumped up by exporters who want to subsidize their exports, want us to subsidize their exports, basically what it is. Anyway, so Kerry used to hold, Kerry's an interesting figure, older than 1860s, 70s or so, He was holding what was called Cary Vespers. Once a week at his home, palatial home, top-level elite people would come in the evening and he would hold forth his own private seminar.

1:04:41And the members of the seminar were mostly iron manufacturers called Iron Masters, Joseph Wharton of Philadelphia, Thomas Scott was also vice president of Pennsylvania Railroad. Representative Morel is a big shot, Careyite, Eder Ward is a very wealthy, Eber Ward I should say, President of the Iron and Steel Association, these are the people hanging around Carey and getting the theoretical poop that they can then pop in their eyes for what? For protective tariffs and greenback inflation, so in other words, behind the greenback and inflation agitation, not just pietists and farmers and general crazies Also, at the power relief stage, iron manufacturers knew exactly what they were doing, were getting economic benefits from this.

1:05:30By the way, Carey is an interesting character, because it also fits in with the whole piousness versus liturgical personally. Matthew Carey's father was an Irish Catholic, Irish Catholic immigrant. Henry Carey, he got to be a big shot, converted to Protestantism, forgot his Irish, not only his Catholic background, his Irish background, became assimilated and also, of course, a partisan pietist. He also had tremendous influence, Henry Carey, on Friedrich List, who was a German emigrant at one point, who came to the United States and embodied the protective power of doctrine and brought it back to Germany. He was in many ways responsible for the whole protectionist movement in Germany. It was an international flow of influence. Carey is also a friend of a friend of a columnist from the New York Tribune, Henry Greeley, a socialist pietist again, they're both of course agreeing on protective terror as being a key element and also another guy I must mention here, a charming character I think I might have mentioned before

1:06:33the major political arm of this guy in Congress was Representative William D. Kelly of Pennsylvania He was also a, I think it was an iron manufacturer himself. Anyway, he had the nickname of Pig Iron, he was known as Pig Iron Kelly because of his undying fealty to the iron and steel interests. Hi there, Pig Iron! Anyway, that was his general nickname. Okay, we're getting now to the merger movements of the late 19th century. The one thing I should say also is that the merger movements, which are both ideological and economic, a set of businessmen or manufacturers became convinced that the way to get a monopoly price, they tried it with cartels and it didn't work, the railroads didn't work, they figured it's better to merge, if you really have a merger, then at least you won't have internal cheating.

1:07:27In other words, you have eight companies all producing refining sugar, let's say, or producing glucose. The eight companies band together in one company, then you can't have one company cheating under secret price cutting because there will be one company. In other words, a merger becomes presumably an easier way of arriving at a cartel price than having a cartel. In other words, then you can push the supply to the left and raise prices without worrying about going up the industry demand curve, A cartel is also one of the interesting aspects of the Anti-Trust Act, which comes in 1990, for reasons I won't go into in a minute, so-called Sherman Anti-Trust Act, which in essence If you look at these outlawed cartels, that means they go into mergers, which are even worse from the point of view of the consumer, because it means you're eliminating... cartels at least can both fall apart very easily in a free market.

1:08:31If you have a merger, it's more difficult to fall apart. The result of the Anti-Trust Act, in a sense, was to stimulate mergers. But another thing about the Anti-Trust Act is that it was really a dead letter. It was not enforced until Teddy Roosevelt came in by 1902. In other words, all during the 1890s, even though it was on the books, it was generally known as not being enforced, and the merger, the great merger movement in 1898, 1901, 1900, when these mergers were being put together, no corporate lawyer worried about the antitrust law. Nobody said, gee, we're going to have to worry about the Sherman Act. It was a dead letter, considered, you know, sort of a dead law which nobody paid attention to. The reason the Sherman Act came in, by the way, is kind of interesting. Here's a big business group, a Republican party dominated by big business. Why are they putting through an antitrust act?

1:09:20Do they suddenly get religion or whatever? What happened was this, well, two factors. The personal factor, which we should never omit in history. Sherman, Senator Sherman, always wanted to be president. He was getting pretty old by this time. His last shot was in 1888. It was the Republican convention in 1888. Which, as we know, Benjamin Harrison came through the nomination and won the presidency in 1888. It was an open convention. It was no one favorite. As a matter of fact, Harrison was sort of a dark horse. There were a lot of ballots in those days. Harrison came in with whatever, 28 ballots or something. The Sherman was running for president. One of the people running against him was General Russell Alger, whom I've already mentioned, I think it was McKinley Cabinet later, governor of Michigan and head of the Michigan party.

1:10:06Alger was trying to get the nomination. Alger was also head of chairman of the board, I think, of the Diamond Match Company, which is, in those days at least, was a quote, monopoly unquote. I think it was the only match producing company maybe in the world, certainly in the United States. So, General Alger played dirty pool. He was competing with the same sort of delegates as Sherman. He bought out a lot of Sherman delegates. I mean, literally bribed them. Sherman, let's say, had 25 delegates pledged to him. He found out when he gets to the convention that he only has 15, the others had been bought out by Alger. and Alger. He's very bitter at Alger, Sherman, from then on. He was convinced that Alger was the prize winner of the nomination. But Sherman was out to get Alger, and the Diamond Match Company gets under anti-trust, state anti-trust problems after that, in Michigan.

1:10:53Sherman gets up there on the floor of Congress and reads the entire, like, I think there's some Michigan court which says the Diamond Match Company was violating common law anti-trust. And Sherman's there cackling at the decision, reads the whole decision in the congressional and the record, cackling, every time they attack Algeria and the Diamond Match Company. So when President Harrison signed the Sherman Act, he turned to the secretary and said, he chuckled, he said, I see Senator John Sherman has gotten to Russell Alger. In other words, this was Sherman's revenge against Algeria. He figured if he passed the Sherman Act, if any company is broken up on there, it'll be the Diamond Match Company. So the idea was to smash Alger, it was Sherman's personal schtick. And interestingly enough, the orthodox historian of the history of the Sherman Act, the crummy book is the only good, you know, full books written on by Hans Pirelli, and he gets to this point, this charge, he has a footnote on this, a charge that Sherman did this in

1:11:50order to pass it in order to kind of get back at Alger, and he said he couldn't believe that any American statesman had this kind of a petty motive, that was supposed to dispose of the charge. Those of us who believe in the American statement are capable of petty motives and have a different view of it. At any rate, the reason why the Republican Party passed it in general, not just Sherman, of course, is another broader reason for this, namely that the Democrats kept charging, as we'll see in a minute. Their big argument against the tariff was, the tariff is the mother of trusts. In other words, it was a phrase that was stated by Henry Habermeyer, the sugar of trust person. And the Democrats then repeated this, the power of the mother of trusts.

1:12:37In other words, it's impossible to have any cartel or any trust or any merger system that's going to work at all, unless you have a protective power which keeps out foreign competition, which creates a wall so that you can have a monopoly price. In other words, you won't be able to have a cartel arrangement restricting production and pushing out prices unless you keep out cheaper foreign imports, create a wall to enforce the tariff. So therefore, the foreign tariff is the only way a trust can work or a monopoly or cartel can work at all, which if you keep out foreign competition. As a matter of fact, when you read in the old days, in the 30s and 40s and 50s, you used to read the tax on American business being monopolistic. They'd say three companies have an 80% share of the market, but the share of all these was only American companies that have to leave out all foreign producers.

1:13:32General Motors and Ford were supposed to be a duopoly of the American automobile industry. It was only a duopoly. In other words, it was only a two-firm industry. If you leave out Honda and Toyota and everybody else, you see, and Mercedes, If you leave out imports, it looks like a big monopoly concentration. If you realize that you can always import stuff, you have a completely different picture. The Democrats, the laissez-faire Democrats had a very effective charge against the tariffs, mainly it's the mother of trusts. The Republicans committed to protecting the tariffs and said, okay, we'll shut them up. We'll shut up the Democrats by saying, we're going to break up trusts. We're going to go you one better. We're not going to just create trust. It's true. We'll create trust by the tariffs and then we'll break them up. That was the way they could answer the Democrats' charges and have the Sherman Act on the books.

1:14:18As we'll see later, when Teddy Roosevelt began to enforce this, the thing became part of a titanic struggle between the Rockefeller and the Morgan financial empires, breaking up the other guy's company using antitrust law as the ideological weapon. Okay, well before we get to that we have to talk about the merger movements, the great merger movement of 1898 and 1901. The idea was this, if business is big, a bigger business is better. If a big business is more efficient, which in many cases it was, why don't we have one firm for the entire industry, and then we can cut production and raise prices. And hundreds, literally hundreds of industries did this in one small period, 1888, 1901. COCO deals a lot of that, and again I commend you to read the first chapter of COCO and also the first chapter of Weinstein dealing with the National Civic Federation.

1:15:10The first two chapters of COCO ought to deal with this. At length I'm going to repeat some of this and deal with a couple of others. The iron and steel industry, for example, in 1889, there were 719 iron and steel companies in the United States. And there were constant attempts, all during the 1880s and 90s, at pools and cartels, at the strict production rates, probably because they didn't work, all swap-a-roos. And finally there was a series of mammoth mergers, okay, we'll merge everybody. And finally, in 1901, the Mammoth U.S. Steel Corporation was founded. The idea of U.S. Steel was supposed to be a monopoly of the entire steel industry.

1:15:57That was the objective, to include every steel company. It was put through, of course, by J.P. Morgan & Company, financed, underwritten and organized by Morgan, and also including Carnegie. By this time, Carnegie was getting old and wanted to sell out. In 1899 there were still, even with a bunch of mergers, 668 steel companies, and in February 1901 they set up a U.S. Steel, by the way I should mention here one of the key companies,

1:16:41The key Morgan partners, which put most of these things together, the major merger partner and the major political partner, George W. Perkins, a very important figure for the Morgan's. And uh, George W. Perkins, and so you have in this, you have the chairman of the board of the USDA with Judge Gary, a famous figure in the film industry who was, well these are These are Morgan people, Judge Gary, I forget his first name, Olsen or something like that, Elbert, I think Elbert, and the idea is to kind of merge all of them, they weren't able to merge all of them. Once again, there's no government coercion here, there's no government saying you have to merge. So they wind up, US Steel, merging 138 companies, still an impressive number, with 60% of them still in the steel market.

1:17:33In other words, US Steel starts a 60% share of their land and steel business and you'd think, you see, if you believe in it, most people think, well, big business can always out-compete small business. It doesn't work. Not at all. Especially if it's an artificial kind of thing like this. And as I said about Rockefeller, Standard Oil couldn't see the importance of gasoline, it couldn't see the importance of Texas crude oil and the rest of it. Well, USDL has been a flop-a-roof from the very beginning. It's been heartwarming, those of us who are in favor of competitive markets. USDL has been a total flop-a-roof from the beginning until the present time. In other words, it's always been a crummy company. It started as a crummy company. It's still a crummy company. It's been the last...its share of the market has been declining steadily since 1901.

1:18:22It's been losing money most of the time. It lost an enormous amount of money for its promoters. In other words, for the initial stockholders who lost money throughout, the only people made money was Morgan and his people, because if you're an underwriter, you're a promoter, you get money off the top, you get a big fee putting the whole thing together, and then the suckers who buy the stock are stuck. So the last company to put in innovation, the US deal, was the last company in the world to put in the oxygen process, whatever the current one is, the oxygen, basic oxygen process I think it's called. It started again in Europe with small companies and other companies took it up. U.S. Steel was the most monopolist, the most backward company, etc., etc. And it started, for example, as a share of the market, U.S. Steel, share of Ingots and Castings, which was a major product, in 1901, it had 63% of the market, it kept declining

1:19:20from 1950s, 1920s, 46% of the market, 1950s, 32% of the market, it's probably less, undoubtedly less now 1955 is the last figure I have for this, but it's steadily declining, every asset, ingots and castings, pig iron, wire and nails, it's the same story The overall total for the whole business in 1901 was 62% total, in 1920 it was 40% of the market. So, again, partly due to technological conservators, you've got a big company like that, small and artificially big, so to speak, they've slowened in adopting new inventions. In 1900 and 1919, for example, a big shift in the industry was from Bessemer's steel to open-heart steel.

1:20:10again it starts in small companies U.S. Steel continued as Bessemer till almost the end continued and stuck in their old technology also as the time went on in the 1920s the shift was from heavy, start with heavy steel products later you get lighter and lighter steel, structural steel, so forth and so on. U.S. Steel was the last company that started going into these new fields stuck with them, we always produced heavy steel, that sort of thing They're behind on the scrap metal field and alloys, stainless steel, the last big mass steel company adopted stainless steel, the continuous rolling mill, the whole bit, structural steel, they didn't think that was important either. So they're constantly, you start off with lots of plants, you're sort of stuck with those obsolete plants, you're not geared to new equipment because you're stuck with these fifty plants, those are equipment.

1:21:08US Steel was a holding company operation, you sort of have 10 quasi independent companies with stocks that were merged into the US Steel Company, so it's a very inefficient way of doing it anyway. The shares of US Steel, the share prices, reflect of this. For example, US Steel started 1901, the price of each share on the stock market was $55, so you say, hey, this is a new monopoly, they're going to make lots of money, right? So you buy their shares for $55 a piece, share, 55 bucks apiece. By 1904, they're going down a nine dollars a share. Typically, you know, you have steel and work. And their profits drop precipitately. 1902, they had 16% profits. By 1904, they had 7% profits.

1:21:53And they kept the price of steel low. Another thing is that they found out even with mergers, it works the same as cartels in a sense. If you raise the price, you're going to induce other companies to come in. You have new competitors. They still can't keep out of new competitors without government coercion. They were afraid to raise the price of steel, I had to keep it low anyway, and the costs were high because they were an inefficient company, so their profits started going down very rapidly. So what the reaction then was, well, Judge Gary, the beloved leader, chairman of the board of the US Steel Company, organized what were called Gary Dinners, 1907, 1908. These were dinners, banquets, which included all the steel and the top industrials in the iron and steel industry.

1:22:42And they got together and they said, let's raise the price. You know, the idea was to cut production and raise price. Let's have a cartel again, because US Steel's share of the market was declining anyway. And they said, yes, yes, we'll do it. Yes, yes, we should cut price, cut production, raise price, right, we all agree, and then go out and cut prices some more, take advantage of it. The other suckers are raising their price, I'm going to lower mine. So the Gary dinners, he had 20 guys get together at dinner and they make an agreement, they break it within three months. Once again, mergers didn't work, and instead of that you had price cuts, you had intense competition, recrimination and hatred because they broke the agreement and that sort of stuff. So informal cartels, once again, didn't work. It had nothing to do with antitrust laws that were not applied to this. And only in World War I, as we'll see later on in the course, where it culminated, organized cartellism by the Federal Government, was the government able to cartelize the system.

1:23:36So, at any rate, as I've said, in recent years, the U.S. was the last company to adopt the basic oxygen process, which was one of the latest technological advances. In 1909, by the way, after, forget this, after this attempt at a merger, and after this cartels and breakage of the cartels, in 1909 there was still 654 R&S steel companies, after all this frantic attempts at a merger, they're still stuck with over 600 companies. So this is a record, this flop-a-roo of US Steel was repeated literally hundreds, almost almost hundreds of times throughout every industry, almost every attempted merger was a flop, a very quick flop I'm going to quote from Koko, I usually don't do this because I'm supposed to read it, but I think it's an important quote from page 39 of Koko summing this up quote, the steel industry was competitive before the World War and the efforts of the House of Morgan to establish control and stability, he calls it control and stability, I would call it cartel of course

1:24:38control and cartel over the steel industry by voluntary private economic means had failed Having failed in the realm of economics, having failed in the realm of economics, the efforts of the U.S. Steel Group were to be shifted to politics. This sums up the entire progressive period from 1900 to 1918. Namely, big businesses, especially the Morgans, tried to establish cartels and mergers and monopoly prices in the free market. They couldn't do it. The real point is, if they couldn't achieve monopolies and cartels in the free market they turned the government to do it for them, but the government, they couldn't do it in the name of establishing a monopoly, they couldn't say to the public, we want a monopoly, we want a cartel, we want the government to enforce it, they had to say this is democracy, this is modernization, it's bringing us into the modern world and all the rest of the junk, they had to use different ideologies.

1:25:37But the essence of the process was to politicize the system in order to cartelize it He had a call expanding democracy and all that, we'll see as time goes on I'm just stating the fact, I'm going to demonstrate this time and again as we get to the progressive period In other words, what we've been dealing with so far is up to 1900 When we get to the progressive era, this will become more evident And so by 1900, also, business sentiment in general was swinging They begin to realize, when these mergers begin to flop, they begin to realize they have to turn to the government to enforce cartels and mergers for them. That's the point. So what happens is every time the US Steel organizes a merger and pushes things up a bit, new steel firms come into the picture. You see, they say, huh, steel prices are going up, we'll compete.

1:26:24They come in with better new equipment, they out-compete US Steel, and the price goes down again, and they're back with new firms, 654 firms, lower prices and lower profits. there's no percentage in that and then they have to buy out the competitor, and of course a lot of money to buy out a new profitable competitor so it's sort of like rolling back the ocean, you can't do it

1:26:56as Iron Age, the magazine of the Iron and Steel Association, said in September 1900 It's especially true, in other words, to try to buy up a new firm coming in, but the combination, namely U.S. Steel, is naming confessively high prices for its goods and at the same time under heavy expenses that are kind of buying out competitors or subsidizing them to keep out of the market. So it's like an endless loss process. You try to maintain a high price, a new competitor comes in, you try to buy them out, you're spending money like water, you're making losses. Okay, so that was the Iron and Steel Trust. This is repeated time and time again in other companies the whiskey trust for example, you get the whiskey eighty small midwestern firms in 1887 combined into the stillers, cattle and feeders trust try to have a whiskey trust, a whiskey monopoly uh... in 1887 in the middle west as I say, the late 1890s was the peak of this, but it starts a little earlier than that

1:27:57and uh... and they have twenty-one plants, they bring them to cut production and raise price immediately they keep the price of whiskey up for a few years, and of course new whiskey distilleries come in what the hell, you can't keep them out so new firms come in, distilleries distilleries trust buys them up, and they finally go bankrupt, they can't keep buying stuff, they haven't got unlimited funds to buy up new distilleries and so in 1896 this cartel goes bust That was the end of that and uh... they tried again by 1903 and it doesn't work either the same thing happened to a charming company, a national biscuit company national biscuit companies you all know are the producers of different packaged biscuits but they were the first ones to do it. In the old days you didn't have packages there were no packages, you'd go into a general store and you'd buy bins with stuff in it, bins with malomars, probably that way in Europe now, in Asia

1:28:50and you get, you know, it's kind of charming to get these, you know, I want 20 malomars or something so the National Biscuit Company is the first company to package I think they package almost anything, not just cookies or crackers, I think it might have been the first retail packaging of food and uh... because you can imagine how to feed one of the poison bins would be much more effective than Tylenol means, they don't package at all, they just have bins of stuff in it anyway yeah, the National Biscuit Company and so forth, you need a biscuit, I think, is the first one and this of course is a big hit because it means the customers can out-buy and know what you're getting and you're getting a certain fixed amount and so forth and so on The National Biscuit Company was originally supposed to be a monopoly In 1898, they formed with a giant regional combination of three other giant regional combinations. They wanted to have a big monopoly of the entire biscuit field, the entire cookie and biscuit field

1:29:40and they tried to then push, cut production and raise prices and as soon as they did it, this was in 1898 as soon as they did it new companies kept coming in, they had to buy them up you know, it's too expensive to buy it up, where are they going to get the money from? and finally the whole thing collapses, they almost go bankrupt in 1901 the uh... National Biscuit Company I wish I had used to have a quote from this, a charming quote the National Biscuit Company report I still have it here where they say they're changing their policy. Yeah, here it is. They're giving up the idea of a monopoly and they're going to just go to competition.

1:30:26This is an annual report from 1901. It's in a book by Alfred Chandler on big business in America, sort of a paperback book. They're announcing the change. Why? It is before antitrust, by the way. I mean, the antitrust was not being enforced. Nothing to do with it. After three years of this trying to have a monopoly and constantly being out-competed, almost going bankrupt issue a report to their stockholders, changing their whole policy, this is what they say, it's charming quote, when we look back over the four years, I mean 1898, 1901 when we look back over the four years, we find that a radical change has been wrought in our methods of business when this company started, it was thought we must control competition, in other words, have a cartel, have a monopoly and to do this, we must either fight competition or buy it This first meant, when I was fighting it, a ruinous war of prices and a great loss of profit.

1:31:21The second, the constantly increasing capitalization, and we're constantly spending more money to buy up new competitors. Experience soon proved to us that instead of bringing success, either of these courses, if persevered in, must bring disaster. This led us to reflect whether it was necessary to control competition, and we'll all know the words. We soon satisfied ourselves that within the company itself we must look for success. We turn our attention and bent our energy to improving the internal management of our business, to getting full benefit from purchasing our raw materials in large quantities, to economizing the expenses of manufacture, to systematizing and rendering more effective our selling department, and above all things and before all things, and above all things and before all things to improve the quality of our goods and the condition in which they should reach the customer.

1:32:12It became the subtle policy of this company to buy at, no competition. It's a beautiful clear statement, they try monopoly, it didn't work and now they're going to compete, they're going to cut costs and try to improve their products, forget about it, they're going to try to get a monopoly. This is repeated in really every industry in this whole period. Agriculture machinery the same way, agriculture machinery, Morgan and Perkins got together to try to get a monopoly in farm equipment manufacturing. Farmer Equipment Manufacturing McCormick was the leading farm equipment manufacturer, McCormick Reaper McCormick, I guess, was retiring or dying, instead of the original McCormick, they decided to get together and merge all farm equipment manufacturing into one giant Morgan-type monopoly called International Harvester which was formed in 1902 It was supposed to be the only company in the farm equipment business, and once again, of course, other companies and go along with it. New companies came in to out-compete. Again, Morgan Perkins, Morgan Perkins and McCormick's, and so they formed in 1902 a giant alleged monopoly. From the very beginning, they were a singularly unprofitable international harvester. The management was no good, the orc was bad, they were overconfident,

1:33:39The share of their profits declines at the very beginning, the share of the market declines, the share of output. I'll let you go in a minute for a break. For example, the International Harvester began, I get this, for example, with Binders, which is one of the top farm machinery. Binders International Harvester begins in 1903 With 96% of the market, now think about that, I'm like USDA with 60, 96% of the market. By 1911 they're down to 87% and counting downward, in other words they lose money from the very beginning there. They lose business shares, mowers drops from 91% to 75% and harvesters themselves dropped from 85% to 80% and then finally 64% by 1918, so all of these are constantly declining, they start almost a monopoly, almost get their monopoly, almost, they're not quite and then I keep going, even in 1909 there were still 640 farm equipment manufacturing companies Even small ones are able to compete, and if an international harvester tries to raise

1:35:06the price and cut production, they can be out-competed very easily. In total farm machinery, in 1922 as a total, international harvesters down to 44%, they They started with about 90 in 1902. In 1922 they got 44%. In 1948 they got 23%. It's been declining, in other words, steadily ever since they started. They started with virtual monopoly. They keep falling constantly since then. Again, they're behind on a lot of stuff. They were behind on rubber tires, things like that, you know. They stay stuck with the old stuff for quite late.

1:35:53Okay, we will just take a 10 minute break and we will press on industries which we won't be able to do full credit to, so maybe later, but one of the most important industries in the country is of course the automobile industry, and I just want to say one of the, there's a very interesting new book that is interested in pursuing history of technology in particular, American technology, it's by a guy named Hounshell, David Hounshell, it's in paperback. called, it's a terrible title, I think Princeton University Press, John Hopkins, one of the top presses, it's called From the American System to Mass Production, it's sort of technological history revisionism, it's a whole new field and from the American system to mass production and it's a very interesting book, it's the history of American technology and manufacturing and when he points out, there are several revisionist things he points out, he points out that, for example, most people thought until this book came out last year, really, summarizing the latest stuff in the field, most historians thought that mass production came in around the 1850s, 1860s, mass production meaning factories, interchangeable parts, particularly, instead of hand crafting each part to fit together,

1:37:22All the parts are identical and you can replace them easily. It turns out it's not really true. Real mass production and interchangeable parts only came in much later. So many of the things we think of as being true mass production really weren't. For example, McCormick Reaper, the Singer sewing machine, which comes in about the 1880s or so. McCormick Reaper, which comes in also that period. was not really, the parts were not interchangeable, the parts were hand-fitted, even though they were machines, they had craftsmen, artisans, who hand-fitted, very skilled, expensive work up for it, to hand-fit all the parts together. And so it still keeps on, even with McCormick Agricultural, even though there were large, with mass production in the sense of a large amount of production per year, it was very costly, it wasn't very cheap because it was hand-fitted by artisans and mechanics.

1:38:16The thing is these mechanics would go from one industry to another carrying their craft with them so to speak and it's only really with Henry Ford when the mass production really comes in with interchangeable parts in 1910 the whole concept of completely identical parts, we don't need mechanics or artisans to hand fit and one of the major ancestors, one interesting thing is the way this fits is In order to produce the automobile, the preliminary work was done by the bicycle industry, which comes in really in the 1880s, 1890s. Before that, there were no bicycles. Not only were there no roads, there were no cars, there were no bicycles.

1:39:01Bicycles really come in like 1860 or 70. The kind of bicycle that was popular in Europe and then came to the United States was not really suitable for much... It was sort of like this, and it was on a big front wheel and a tiny back wheel, and no chain, no chain-driven length to clean them. So it was very dangerous, sitting up on top here, you'd topple over in any minute, okay, so it wasn't really... It was sort of a toy for the rich, it was very expensive and very much unused. It was only in the 1890s that the so-called safety bicycle was produced. Not only even wheels, but also chain-linked, chain-ribboned. This is the pedal, you know, all of us that we're not familiar with. And the first guy to really do this in the United States was a guy named Alexander Pope.

1:39:48Well, Arthur Pope didn't even have the Pope Bicycle Company. And this became extremely popular in the United States. I think it was in the 1890s, 100,000, 200,000 bicycles were used. the mass production, in other words, mass production safe and mass production, people driving around, everybody buying a bicycle with everybody buying a bicycle, they got used to the idea of moving on their own hook in other words, before that, in order to move around, you have to have a train basically trains, trains have fixed schedules and uh... the trains are the only way to move from one city to another, one area to another like I said, there's no land transportation except trains, right? So what you have is the cities get built up. Everything gets built around the train station. The train station is the middle of town.

1:40:34How do you get in factories? Everybody wants to be near the train station. Factories in order to ship their, get their raw materials shipped and ship their stuff out. And workers and people living near the factories. You have to walk. There's no way to get, there's no cars, there's no bicycles, there's no nothing. Everybody has to walk to work. So the cities grow up and clustered around train station and so cities have become this kind of a circular sort of area around the train station clustered in and movement can only take place as mass transit so to speak and fixed schedules and fixed terminals all of a sudden a bicycle comes in, a safety bicycle comes in and suddenly people have a feeling, boy they can move around, they don't have to start at 6 p.m.

1:41:21they can go anytime they damn please, they can go with their girlfriend or whatever They can drive out in the countryside, and this fantastic mobility comes in. The idea of individual transportation and super mobility comes in, preparing people for the automobile. In other words, you can't have the automobile suddenly descend from heaven. The whole concept is getting people a desire, a tremendous desire for individual transportation, even better, more efficient and more powerful than just a bicycle. also the whole wheel technology comes in, the whole idea of using wheels, the whole idea of rubber tires, which comes in fairly late in the bicycle so bicycle manufacturers and bicycle shops, which are small, I mean, from the point of view of manufacturing, they're using small shops, small houses here, whatever, locks yet people get used to bicycle technology, the wheel concept, the rubber tire concept, which really prepares the way for all kinds of things You get people to get used to bicycle technology, the wheel concept, rubber tire concept, which really prepares the way for the automobile.

1:42:25The first automobiles were manufactured in bicycle shops, because the people, the artisans, the manufacturers, the technologists were used to this kind of concept of using wheels for transportation. The, and another thing is that the, before, when they got started, the automobile industry got started around 1900, again after the bicycle craze, you see, the bicycle was 1890s, then comes the next step which is automobiles, first of all automobiles are very expensive, they were toys for the rich and they're extremely, they're beautiful, you see early on automobiles with gold and chrome, all that sort of stuff. They're very expensive, and also they had all sorts of kind of engines, like electric, there were electric automobiles, there were steam automobiles, all these things were technologically feasible, the only problem was they were not economic for mass production, they were very expensive, and also they were very, very fast, they didn't have much pick-up, so to chug along, if you see old movies, you're an old car buff, which I'm not, but I know people who are, you know, they looked great,

1:43:26and they could chug along at 10 miles an hour, or whatever it is, And they start off with a lot of small businesses, small blacksmith shops, small blacksmith shops and small bicycle shops. Basically, it was the first automobile, quote, factories, unquote. Henry Ford began his, there were hundreds, literally hundreds of automobile companies from 1900 to World War I. The largest company was an electric vehicle company, which was a $20 million corporation, which was very big in that period. It went bankrupt because it didn't have the savvy. It also put its money in a losing proposition, namely electrical vehicle, electrical cars, which for various reasons don't make it.

1:44:17They're slow and all the rest of it. Expensive, etc., etc. et cetera. So Henry Ford starts off, he was again, I guess he was a pietist, he was, I think, I don't know where he was born, anyway, he starts off with only $20,000, he didn't get any bank loans, he got the stuff and he saved up some money, he got a lot of friends and so forth, he starts his first company with $20,000, plows back his profits in the usual manner, and originates the idea of everybody He also was making beautifully hand-tooled cards, very expensive cards, for collectors, for wealthy people. It was Henry IV who got the original idea for a mass production of a uniformed card.

1:45:03Instead of having beauty, instead of expressing beauty and elegance, it expressed low cost to the masses. And by doing that, and then interchangeable parts of mass production, which comes in then, if you have beautifully hand-tooled cards, you're not going to have any mass production. His idea, the idea of Henry Ford really starts, launches, finishes up, and Hancho points out really the first real mass production, real interchangeable parts, and therefore we're having huge factories to do this, but it didn't start off as a huge factory, it started off as an idea in the mind of Henry Ford, going for cheap production, cheap cars, cars that everybody can afford, those days a couple hundred dollars I guess was the price.

1:45:48From 1900 to 1908 for example, to show you the intensity of competition in the automobile industry then, there were 502 automobile companies enter the automobile industry, of which 273 failed. Of the ten leading automobile manufacturers in 1903, only one was in the top ten twenty-one years later so a very heavy turnover, a very heavy circulation of elites, if you want to put it that way entries, failures, all the rest of it General Motors, I'm sort of jumping the gun here, jumping into the later period the point is that Henry Ford, I guess this idea of mass production, plows back profits cheap cards for the masses and so forth The first real mass production, the first assembly line, the concept of which is you bring everything together in one continuous rolling process with people at each step of the way doing things, and the product continuously flowing through the sit until output.

1:47:01The later liberals claim that the assembly line dehumanized the workers. For those who were actually in the assembly line, I thought it was great. They were getting high pay, but not too much, not too onerous work. and also they had a feeling that good stuff, a good product was rolling off the assembly line General Motors was launched around 1908 by Morgan and DuPont in other words, it was a coalition, essentially a coalition of Morgan and DuPont DuPont was a major owner, DuPont had been a powder manufacturer for many, almost about a century The General Motors was a corporation, a Morgan-Dupont corporation, that almost went back from. It started in 1908, it was a total flop-a-roo, and the share of the market declined steadily after 1908, and it was only after 1923, it almost went back, the General Motors almost went under in 1923, I'm getting much later in the game, but the thing is that Ford, the The problem was forwarding, he had this mass production, cheap cars, mass production, cars are beloved by everybody, he had huge plants, enormous big factories, which had the assembly line rolling, etc.

1:48:18The problem is, and so he was doing very well, he had about 80% on the market at one point, he was succeeding, his general motives were flopping, the other corporations weren't doing too hot. They called him an administrative genius, one of the great geniuses and managerial geniuses of the 20th century, Alfred P. Sloan, who saved General Motors. What he did was, he changed the whole managerial concept in the 1920s. See, Ford had everything in his own pocket. In other words, Ford was an individualist. He insisted on managing everything himself. A giant multi-million dollar company, he insisted on running everything, every detail, who's going to be the floor sweeper, things like that. With a few cronies, he had Harry Bennett with his chauffeur, became his vice president, that sort of stuff, separate multi-millionaire.

1:49:09And Sloan said, no, you can't run a huge corporation that way, you have to de-centralize, he started the whole committee system, de-centralized management. which now, of course, every corporation has, in those days, was unique. Okay, committee system, decentralized management, all the rest of it, reporting, trying to have individual parts of the company, each of which has its own accounting system and tries to make me a profit center. All that stuff really begins with Sloan, which saves General Motors, really turns the whole thing around. So it's not money that does it. Money itself is not going to do anything. You have to have entrepreneurial, managerial, technological know-how of what to do, and an idea of what to do and how to do it another thing is that Ford again gets conservative in the sense that he has this idea of one car which is uniform for everybody and his idea was to never change it, what the hell, this is the best car, the so-called Model T

1:50:01black Model T car and when somebody said why not have blue and green cars and change models, no, no, if you do that it's costlier, it's true in the sense it's going to be costlier change models, they have new colors, no, everybody's got to have black and that's it everybody has the same model for about thirty years for it, this is it, why not? General Motors was the first, Sloan was the first guy to realize the public wants different colors, they're more affluent now, they're used to the idea of cars, they want green and blue, they want individualized cars, they want model changes, they like to see some change once in a while snazzier looking, all that sort of stuff and General Motors introduced the concept of different model changes, different colors appealing to the consumers even though it might be costlier at the beginning, even though you don't have a low cost for total uniformity the public wants it, in other words, for them it's not costly because you're giving them a

1:50:52better product, to improve the product by different colors, different styles, different packaging, all the rest of it which Ford scorned being a piousist type and believing everybody should be thrifty anyway why shouldn't they have the same product? for privilege Well, the public wanted, they found, gee, we like different, we like new changes every year, we like new colors and different, you know, lower cars and all that sort of stuff And Ford almost went bankrupt himself in the late 20s, he was slow in changing He finally had to retool when they did that, I think it was 1928 He almost went bankrupt because Ford Motor Company being very, very big and geared to one car and one product Couldn't handle the idea of retooling for different model changes, they almost went bankrupt doing it It was then, in the late 20s and early 30s, that Ford lost its predominance in the automobile industry, which, you know, motors became the dominant, and still is the dominant company, because if this new idea it had, okay, we'll give them a higher price, we'll give them a nicer product they like better, and it worked, and if you're a company which is geared to one huge plant where everything is the same, it's very difficult, in order to get more flexibility, you have to have a smaller size product, smaller size plant. In other words, as Houcho points out, when you're

1:52:02So mass production is a trade-off. You can either make it very big and very uniform at very low cost or you can have it smaller and more flexible and maybe higher cost and more flexible and be able to change faster. And you have to make that decision and it depends on the market and all these other changes. So one of the things it shows is that no company ever has a monopoly unless the government enforces it. There's always some other guy coming up, in the words of the great philosopher, Satchel Page, the famous baseball pitcher, Don't look behind because some guy might be gaining on you. Don't look back because some guy might be gaining on you. This is exactly what's happening. Somebody else is always coming up with a new idea, maybe better, etc. etc. And so you always have to be on the alert. Actually, you should look back. That's what the answer is. So, at any rate, Florida is the first one to really come in with mass production,

1:52:51completely mass production, completely interchangeable product. Yeah? We've been talking about creating companies, also we've been mentioning in a book about stocks and shares. You've been talking about what are the shares, what are the stocks? What are the stocks? Well, basically, it's really a stock. The question is, what is the stock worth? In other words, here's a company, a new corporation, a new merger is formed, General Electric, USC or whatever. The promoters say, we think it's worth a hundred million dollars, let's say. So if there are a million shares outstanding, they say, we think it's worth, each share is worth a hundred bucks, right? If they can get the public to go along with this, if the public says yes, yes, if they buy it for a hundred bucks apiece, a new share, this is what they think it is.

1:53:43It might well be, this is overestimated. Maybe it's worth only twenty bucks a share in case the whole thing will collapse. So it's not so much that the... I mean, watered is sort of a pejorative term, it really means... In other words, he's the promoter, the investment banker, essentially, which underwrites the share. Say, Morgan underwrites the USDL. They say, this is worth a hundred million dollars, because it's going to be a great profit in the future. Well, you don't have to believe this crap. In other words, it's really a question of whether you believe in Morgan's estimate. If you believe in it, you'll buy it for a hundred dollars, if you're a sucker or not. If you're skeptical, you won't buy it for a hundred dollars. So eventually, the price goes down to twenty. This turns out to be water, quote-unquote, but it's not illegal, that's the kind of fraud going on, which is what water implies. The question of what you think, the whole stock market is a question of estimates. Do you think this company is worth more or less?

1:54:32It goes on all the time. And if you accept the investment banker's estimate, of course you might be taken in. But, you know, there's no reason for you to accept it unless you're dumb. Unless you're suckered in by the whole thing. Unless you think that the monopoly is going to be worth a lot. In other words, not so much that it would be frauding the stockholders, they probably really thought there's going to be big monopoly profits for them, you know, and then they, whether they thought it or not, this is what most of the people thought, and they find out, no, it doesn't work by that time, and they make losses, so that difference turns out to be quote, water on quote. In the United States, there are shares of stocks, but in this country, there are shares of stocks. Do you think there are any differences?

1:55:33The FBA partner is worth eight million dollars, one eighth share. If you're a corporation, you can sell the shares, the shares are sort of official out there. There's a, let's say there are a million shares of General Motors, and this means if you buy one share of General Motors at the stock market, you're a one millionth owner of General Motors. You buy 100,000 shares, you're a 10% owner. So a share is a proportion of a total ownership, it ties you to a certain proportion of the and the Profit and all that sort of thing. So, the thing about corporation shares, you can sell them easily. If you're a partner, you can't sell your partner's share very easily, hardly at all. Your other partner's have to buy you out or something. It's very difficult. I know the Z-Bar's famous grocery store, supermarket, Gunmei supermarket in Manhattan.

1:56:20The owner wants to sell. It's very difficult. He's got like one third share. How do you do it? If there's, you know, the other guys have to, your partner has to buy you out. So, in a corporation, you can sell a share very easily on a stock market. So a stock is a share of all the stocks in the corporation, a share of ownership. It means ownership of assets, ownership of profits coming in, which is increase of assets. So a bond is something different. A bond is a debt, evidence of debt, credit to the corporation. So if General Motors floats bonds, let's say $10 million bond, if you buy a $100 bond, it means you're, this is part of the debt, so this is, you're entitled then to $10 a year, whatever the thing happens to be, the interest on the bond.

1:57:12No, no, sponsor or share ownership, you get whatever the corporation size they give you. The corporation, the board of directors of the corporation represents the stockholders. They're like the stockholders' vote for the board. They decide how much profit to share every year and all that. It's called dividends. They share the... Let's say you make profits of ten bucks a share, you declare a dividend of six bucks a share and take the other four and plow them back into the corporation.

1:57:44Well, there's a certain number of total shares. The volume of trading can It depends on how much is traded every day, it's traded back and forth, I buy a share of General Motors stock from you, it means that one share is traded, you don't buy it, you know, so that's the question of how much people are buying and selling back and forth. So, but a bond is an evidence of debt and entitles you to a certain amount of dollars per year. Marketing, also marketing becomes important this whole period, around 1900, in other words, selling is not enough to produce something, you have to sell it to the consumer, you have to bring it to the transporter of the consumer and sell it, package it, like National Biscuit Company packaged food, gasoline, packaged through, you know, through gasoline stations, all these things had to be thought of and then developed, they're just as important as actual production, shouldn't be forgotten.

1:58:42Producing something is not enough, you have to get it to the consumer, if the package The American Tobacco Company, James Duke, was the first one to really sell cigarettes in that way, to market them, becomes a sort of, quote, monopoly, unquote. Actually, there was a merger. The American Tobacco Company was originally a monopoly in 1891, I think, and of course, the shares began to fall right away, the same sort of stuff. It was originally a merger of a whole bunch of tobacco companies.

1:59:22The sugar trust is another classic example of this sort of thing. The sugar refiner's tried a cartel in the 1880s, it didn't work several cartels, Finally, in 1886, the other side of the merge. In those days there was a geographical concentration of sugar companies.

1:59:52There were 23 sugar refining companies in the United States. In 1886, 10 of them were in New York City and and six of them are here in the middle of Brooklyn, in other words, Brooklyn was a heavy... Brooklyn had two big manufacturing concentrations those days, sugar refining and beer, you know, a lot of breweries so Brooklyn was a separate city by the way until about 1902 or something like that it was like the fifth largest city in the United States or something around that and three of the largest, the three largest companies were in Brooklyn and with 55% of the total, so it was an easy, seemed to be an easy industry to try to merge which is heavily concentrated in one city here, New York and Brooklyn, and much of these were owned by the Havmeyer family, so Havmeyer was an excellent position to lead the idea of a merger, a sugar refining merger, and Havmeyer testified before Congress on this thing and he said, he lobbied of course for a heavy tariff on sugar, the problem is if

2:01:01So you have, again, you have a merger, you have a cartel or a merger or something, you raise cut production, you raise prices. It's a danger, you might thought, importing sugar, if you try to have a tariff to keep at foreign sugar. Habermann testified before Congress in 1897 in the big tariff bill, and he said, and he of course was a leader of the sugar trust, And he said, quote, the mother of all trusts is the custom tariff bill, the tariff is the mother of all trusts. The existing bill and the preceding one have been the occasion of the formation of all large trusts. Now what he's saying is the high Republican tariff of 1897 was the reason why, the basic reason for the merger way of 1898-1901.

2:01:46That got a huge increase in tariffs across the board, provided a shelter by which, shelter from foreign competition, by which the domestic firms can try to have a trust and try to have monopoly prices the refined sugar, for example, in 1899, Congress put on a very high tariff on refined sugar, about 71% tariff There's raw sugar or refined sugar, we're not talking about refined sugar. To give you an idea, obviously the economic thing would have been to import refined sugar from Great Britain. We now have some tables here, here's a British price, this is the price of refined sugar.

2:02:44Let me just show you the sugar we eat, you know, we buy in the stores, in 1885, the price, this is British price, price in Great Britain, plus transportation cost to bring it, you know, from Britain to the United States, British price plus transportation cost, in 1885 was The US price for US refined sugar was $6.44. In other words, even with a transportation

2:03:35course, it was much cheaper for Americans to buy sugar from Great Britain because it So we slap on a very high tariff, and the British price plus the tariff, plus transport, in other words, this plus the tariff, amounted to $8.38, so we make the tariff so high, it cost $8.38 to buy British sugar and only $6.44 of American sugar, which is almost doubling the price of British sugar, and this keeps on, and it keeps on going, And it's more or less the same throughout. There are ways of constantly trying to raise it. The problem comes in with raw sugar. Raw sugar came in from Cuba and the Dominican Republic and so forth.

2:04:23And of course the sugar trust is trying to keep free, wants to import raw sugar free. They can have nice cheap raw sugar, then have a big tariff on refined sugar. Well, they had a problem in a conflict with the American sugar growers. So the sugar people, the Louisiana cane growers, the mountain sugar bee growers wanted to have high tariff on imported raw sugar to keep out Cuban and Dominican, Hawaiian raw sugar. In the meantime, the sugar refineries wanted to have a low tariff because they wanted to have cheap raw sugar, big political conflicts over this. Anyway the refined sugar, to get back to refined sugar people, they try to merge, they probably So we finally have a grand merger of almost all the sugar refiners under Havmeyer's direction into the American Sugar Refining Company. This was 1887. Located in Brooklyn. In fact, one of my students a few years ago was actually still working for a plant, for a American Sugar Refining Company plant here in Brooklyn. This consisted of 80% of the total sugar refining

2:05:3480% of the total sugar-finding in the United States, 80% of the share of the market, and of course as soon as they got that they cut production and raised price, why else have a merger, unless you're going to do this, so they immediately cut production and raised price, and bingo, new competitors come in, the key guy who formed the trust was Henry We've got a big bonus performing in the trust, being the head of this, president and chairman of the board of this whole outfit. And so immediately as I say they cut production, they took, they had 20 plants, this outfit, and they immediately cut the number in half and they dismantled the other half and all the rest of it. They raised prices and bingo So, of course, new firms come in. In one year, they're down to 73% from 80%. In other words, here they've merged 80% of the sugar refining market, they cut the production, they scrap a few plants, but new firms are not coming in, their share of the market is cut in one year by 7%.

2:06:45By 1889, it was down to 66%. So, once again, the fact that there's free entry into the sugar refining business, and no government keeping them out, obviously, they keep losing their share of the market all the time to new companies which are popping up. So the result of prices fall, not only does the price fall again, they're stuck with new competitors who are coming in with new machinery, new technology, not stuck with the old high cost technology, and the sugar refining companies worse off than they were before. So, for example, in 1890 enters a new guy to compete with the American sugar refining and have him wire trust, Klaus Speckles. This starts the whole Speckles case.

2:07:30I think Speckles' family fell in line with the mining playboys. And Speckles was known as the sugar king of the Sandwich Islands in the Pacific. He builds a, excuse me, I guess the West Indies, anyway, he builds a new plant in Philadelphia with a big, much bigger refining capacity, 3000 barrels a day, and he's out-competing the sugar refining company, becomes a new Baltimore sugar refinery, and he's moving into this market, he's out-competing everybody, and they're stuck again. Severe competition is a fool of profits, and the price of refined sugar goes down from $6.17 for hundreds of For a hundredth of a weight, $4.69 because of the new Speckles competition.

2:08:21So, and this keeps going on. Every time they kind of merge and have a cartel or merger and monopoly and cut production and raise price, a new competitor comes in and cuts the price and they have a lower share of the market. Again, so what does Havonmai do? He decides to buy out Speckles, okay? So he bought them out. He formed a great new company in 1892. and two, the new American sugar refining company they figure this will solve the whole problem the new improved sugar refining company with speckles now in it now they have a merger of six new companies, a fifty million, seventy-five million dollar corporation and they now have ninety-five percent of the sugar refining production figure this is it, boy, now we have a monopoly We can now cut production and raise prices.

2:09:13The only firms that were left after 1892 were two, three teeny independents. One small plant in Boston which only put out 500 barrels of sugar a day and the other was two small plants in Louisiana and that was it. So what happened? Well, they form it and old sugar hands have gotten out of the sugar business and say, hey this is fantastic, now we have higher prices, these guys have cut production and And all of a sudden there comes people like Rockefeller, remember Rockefeller bought out sugar, I mean oil refineries, they make oil refineries so that Rockefeller has to buy it out. Very costly. Same thing happens now, two shrewd operators, Edward Siegel and Fred Hipple say, hey, looks like the American sugar refining company is going to buy out every sugar refining plant to keep them from competing with them, so let's produce a plant, we're going to have to buy it Siegel & Hemp will go into the sugar refining plant business so these suckers will have to buy it, it's great, nobody can stop them, there's no government

2:10:18ordering them not to, so they make a practice of building sugar refineries so the trust will have to buy them out, and in some cases they found out the water supply was no good there, they couldn't have used it anyway, and so forth and so on and they keep doing this a lot and this keeps smashing the monopoly so in a year or so they're down at 85% from 95% and the price of sugar starts falling again, back to 4.1 cents from $4.69 to $6.17. They can't seem to be able to raise prices and eliminate competition In 1895-1996 they have a new agreement, they try to bring in Hippel and Siegel to get back to 90% of production from 1895 In 1895 they're back to 95% 90% and again in 1897 a new sugar refining plant comes in, this time it's Klaus Dorscher who was an old sugar man who had gone out of the business Hey, it's a new monopoly here, they're raising the price, let's nip in with a new plant. Sure enough, the orchard starts up. Also, the Arbuckle brothers come in.

2:11:33The ancestors of the famous fatty Arbuckle, the disgraced movie star of the 1920s. They enter the sugar refining business in 1897-98. Let's bust this whole thing. Again, the share of the market goes down, prices fall again. And another thing that happens is sugar beets come in more and you wind up, once again, busting the whole cartel. In 1901, they keep trying this thing, I mean, they don't seem to be able to learn much. They bring in Arbuckle. Okay, we'll bring Arbuckle in and they form a great new cartel, new merger, as you say, in 1898. 1901, excuse me, they get almost all the Eastern refiners, and they try to bust up, they blow up Speckles plant, they do some organized vandalism.

2:12:29By 1902 they have a brand new American sugar refining company, again they have 90% of the production. and again the same thing happens, they get ninety percent of production, their price goes up a little bit, their profits go up and bingo things are going to collapse a couple of years later so this is the this is a record and it counts back, we have to quit now this record sort of continues, the sugar refining is a beautiful example of this, every year they try it, every couple of years it can collapse They bring new guys in, new guys, new new guys pop up and they always keep losing money They never seem to get to the places that can really cut production and raise prices