05. The Great Depression, World War II, and American Prosperity, Part I (video)

0:00Well, I'm going to start this discussion by saying a few words about the Great Depression itself and what is a reasonable explanation for why it occurred. First of all, we typically date, obviously, we tend to date the beginning of the Great Depression as being October 1929 because of the stock market crash. The really bad, appallingly bad economic conditions really settle in around 1931. That's why Benjamin Anderson calls 1931 the tragic year. But people associate it in their minds with 1929. Now the 1920s, of course, had been a very prosperous time.

0:49I believe that by 1926 the unemployment rate had been reduced to 1%, which is, you know, unheard of, unbelievable, but there were difficulties, there were problems with the economy that were deep-seated and perhaps not evident on the surface. Now, obviously, various explanations have been advanced for what caused the tremendous downturn that occurred basically particularly in 1931 but beginning in 1929 because it's a very substantial downturn. Real GNP per capita fell by 30% between 1929 and 1933. Unemployment reached over a quarter of the labor force and it has been said that if we lined up all All the unemployed in a line, a yard apart, the line would stretch from New York to Seattle to Los Angeles and all the way back to New York and would still leave 280,000 people out of the line.

1:54It seems to me somebody who is himself out of work must have taken the time to calculate that statistic, but there you have it. Corporate profits after taxes were actually negative in 1931, 1932 and 1933. That private investment during the 1930s was also negative. May at first seem odd. How can you have negative investment? Well, that is to say that plant and equipment depreciated and wore out faster than they were being replaced. So given these figures, naturally, natural human curiosity wants to know what is the explanation for this, or at least what initiated the downturn. And then we'll look at what kept it so sustained, but what was the precipitating factor that initiated the downturn?

2:45Well, I'm going to propose the explanation that Rothbard advances in America's Great Depression. And I don't have to defend his position with great precision simply because Joe Salerno did that in his seminar. I believe it was election number seven. Joe Salerno looked at some of the criticisms that have been advanced against Rothbard's book America's Great Depression from 1963 and I think is in a fifth edition now. I remember reading years ago some of Joe's defenses of that book and I was very glad that he made that the subject of one of his talks. So you can get a lot of the meat there. I'm going to speak more broadly here. Now I'm a little uncomfortable because there are economists in the room, and here I am going to speak on the Austrian business cycle theory.

3:33Do please correct me if I misstate something, although try to keep the scoffing to a minimum and the fidgeting in your chair and the obscene gestures, if you can just try and restrain yourselves on that, it would be much appreciated. But I do this because not everybody who is a historian knows about the Austrian cycle theory. Not everybody who's a historian knows there is such a thing as a business cycle theory. And who knows who the audience for this is, and people could be hearing this for the first time. I happen to think this is one of the greatest contributions the Austrian School makes, because the business cycle theory I find so persuasive that it sort of answers the question, why are you interested in economics? Well, I'm interested in it because it has such explanatory power as this.

4:21Well, a good introduction to the theory comes in the, there's a little book of essays that the Institute puts out on the Austrian theory of the trade cycle. And Rothbard has one in there from the late 60s called Economic Depressions, Their Cause and Cure. And in that essay, Rothbard argued that you're going to have a theory of the business cycle to explain why it is that the economy appears to move in a boom bust pattern. There are two empirical facts that your theory must be able to account for. And he says that one such fact comes from the very definition of a depression. When you have a depression and you have a depressed business sector, and obviously you've had tremendous entrepreneurial misjudgments taking place all at the same time, The question arises, why is this happening simultaneously?

5:18Why, to use Rothbard's phrase, why is there this cluster of entrepreneurial error? Given that the market system has built within it a natural tendency to weed out the good entrepreneurs from the bad, to weed out people who have superior forecasting ability from those who have poor forecasting ability, those who are good at meeting the anticipated desires of consumers from those who are very poor at it, given that the market has this natural Why would all the people the market has in effect chosen to endow with capital goods, why would so many of them simultaneously have made terrible errors, why is that? Secondly, he says, we must account for an empirical fact that seems to characterize one business cycle after another, And that is that they tend to hit capital goods industries much more heavily than they do consumer goods industries.

6:12And this is going to be true, clearly and verifiably true, of America's Great Depression, this empirical fact. So capital or producer goods industries are hit harder than consumer goods industries. This empirical fact, in and of itself, poses a radical challenge to those who would claim that depressions are caused by underconsumption. People are just not consuming enough, or they're not able to consume enough, and that causes problems. Well, if the problem were in consumer goods, then why is it that depressions are actually characterized by bigger downturns in industries that produce goods consumers don't buy? Like, I don't buy a steel plant, you know, right, typically. So why would the depression be hit so hard there?

7:00Well, in effect, the Austrian view suggests that there is an explanatory factor that can account for both of these facts that characterize depressions. Now, in the unhampered market economy, the interest rate declines when people save more. So that is to say, you put your money in a savings account. Banks lend these saved funds out to borrowers. The more people save, the more the banks have available to lend. The more the banks have available to lend, the lower the interest rate will be. This stands to reason, because as something comes into greater and greater abundance, its price tends to fall lower and lower. In this case, the amount of loanable funds increases, so its price, the price of borrowing, or the interest rate, correspondingly falls.

7:48Moreover, the Austrian theory introduces the concepts of higher and lower order stages of production. Higher order stages of production are stages of the production process that are further away from finished consumer goods, things like mining and refining, or the construction of a factory or production facility. These are sometimes called producer goods industries since they involve things that are produced not for immediate use, but are themselves used to produce final consumer goods. Grain production, for instance, is a higher order stage than is the bakery that sells the final consumption good. Higher order stages of production tend to be the most sensitive to interest rate fluctuations. Building a new plant or expanding mining capacity might turn a profit only in the relatively distant future.

8:33If interest rates are high, this means higher costs year after year. But if the interest rate should come down, projects that once looked unprofitable suddenly become potentially profitable. In an unhampered market with a commodity money, everything works out smoothly. By saving more of their money, consumers have indicated that they are prepared to spend less in the present. Investors make note of this in the form of a lower interest rate. Lower interest rate encourages them to begin investing, investing in particular in more time-consuming stages of production that they can now afford thanks to the lower interest rate and thanks to the fact that consumers have indicated a relatively decreased desire to consume in the present. So in effect, consumers are willing to wait as they've demonstrated by saving. So this is the time for investment to take place.

9:20But consider what happens when the central bank or the Federal Reserve in our case intervenes in the economy. Fed has a variety of mechanisms at its disposal to increase the availability of credit and lower interest rates. Whether the rate is lowered by voluntary saving on the part of the public or whether it is lowered by these actions of the Federal Reserve, the result in both cases is that businesses see that interest rates have come down. So they tend to borrow more, and this borrowing tends to be concentrated in higher order stages of production, which are more interest rate sensitive. In this case, there is a problem. This time the lower interest rate does not reflect an increased willingness on the part of consumers to defer purchases and consume less in the present. This time the lower interest rate is created by entirely artificial means. Investors are thus misled into directing resources into higher order, time consuming stages of Production, while in the meantime consumers continue to follow their old consumption patterns.

10:15Now we can either have more investment and less consumption in the present, or less investment and more consumption in the present, but the Fed generated boom attempts to do both simultaneously, more investment and more sustained consumption at the same time. Something has to give. The economy is being pushed in two mutually exclusive directions at once. In a genuine boom fueled by additional savings, people's abstention from consumption makes resources available to investors. The Fed-driven boom, on the other hand, makes no additional resources available. People's time preferences have not changed. So as Roger Garrison notes, in the absence of an actual change in time preferences, that is people's willingness to defer purchases, no additional resources for sustaining the policy-induced boom are freed up.

11:05In fact, facing a lower interest rate, people will save less and spend more on current consumables. The central bank's credit expansion then results in an incompatible mix of market forces. So people are consuming more but yet more investment is taking place. The Fed's intervention has therefore created systematic discoordination throughout the economy. Resources have been malinvested. That is to say, resources have been invested not in accordance with consumer desires but in response to false signals. have been wasted. Some of them can be recovered, since some building and equipment can be transferred to lines of production more in conformity with consumer desires, but even this transition process takes time and resources to accomplish. When lower interest rates are caused by increased saving on the part of the public rather than by Fed manipulation, then the boom is sustainable.

11:54People's deferred consumption provides the means for investors to engage in long-term and projects far removed from the immediate production of consumer goods, plant and equipment, raw materials, steel mills, etc. The interest rate coordinates investment in accordance with people's time preferences. When people save more, the interest rate goes down, signaling to investors that the requisite funds are available and that people are willing to defer their purchases to this degree. But when the lower interest rate is the result of Fed manipulation, the boom is built on sand. It is built not on authentic savings, the only sound source of investment funds, but on Artificial Credit Creation As one expert explains, with seemingly favorable credit conditions, long-term investment projects are being initiated at the same time that the resources needed to see them through to completion are being consumed.

12:42As the market guides these projects into their intermediate and late stages, the underlying economic realities become increasingly clear. Not all of the investment undertakings can be profitably completed, and thus the bust is inevitable. At this point, capital goods that are complementary to these production processes, still unfinished, are in unexpectedly short supply, with investors enticed by cheap credit now competing for resources with established firms, and competitive entrepreneurial bidding for them begins to drive up their prices. These increased prices, largely unanticipated by the investors who embarked on these projects in the first place, naturally leads to a greater demand for credit to cover them, which in turn raises interest rates back up. It now becomes clear that the boom has been built on sand and that enough resources do not exist in the economy for all of these investment projects to be completed.

13:31Some portion of the invested capital is irretrievably lost and provides physical evidence of the waste and destruction of wealth caused by the artificial boom. While the price system works at this point to bid resources away from earlier stages of production and toward later ones, this process is not without difficulties. Actually, what I mean to say is vice versa. Thanks to the Austrian theory, it becomes possible to understand both the sudden cluster of entrepreneurial error and its concentration in the capital goods industries. The cluster occurs because entrepreneurs are misled by a distorted signal to which any substantial economic actor must be attentive, the interest rate. The concentration of this error in capital goods industries, and particularly in the higher order stages of production, can be explained with reference to the same fact.

14:16The further away in time a particular stage of production is from finished consumer goods, The more sensitive will it be to fluctuations in the interest rate, thus the malinvestment will tend to be concentrated in higher order capital goods and the inevitable liquidation will necessarily be concentrated there. Now that's a summary that I included in my Church in the Market book. So what's useful about Rothbard's study is that he's going to begin his book, America's and the Great Depression by looking at alternative explanations for the cycle, then giving an overview of the Austrian theory, and then going and looking at empirical evidence. I mean, actually looking to see, was there in fact an inflationary boom in the 1920s that sowed the seeds for the Austrian cycle to take place?

15:10And he does argue this, and as I say, Joe Salerno defends Rothbard's methodology in that. It's an absolutely indispensable book because it then goes into the presidency of Herbert Hoover and shows that, in fact, it is Hoover's policy decisions that help to make the depression prolonged. I mean, we understand what brings on the depression, but there's no reason that it has to go on year after year after year. Government policy tends to be the explanatory factor as to why the downturn just seems to remain. The economy remains depressed for so long, and Rothbard helped to show that Hoover was, at least in some degree, responsible for that. Now, if you go to Amazon to buy Rothbard's book, America's Great Depression, you look at the reviews there, you'll see something very interesting.

15:59You'll see some five-star reviews saying, this is just a book that, if you want to be a member of the human race, you've got to read this book. And then you see some one-star reviews from people saying I couldn't understand a word of this book, I wanted to read a book, like people bought this book because they were thinking it was going to be like a social history of the Depression, like story of people eating ketchup sandwiches and how did they get by and they had to split a head of lettuce among the whole family. And by the way, I don't mean to be flippant about that, but I mean that's the type of story people are looking for. And they get Rothbard's book and it's this wonderful magisterial treatise on the market economy and on this particular historical episode and they don't know what to mean, there are no ketchup sandwiches in the whole book. So they go on Amazon and instead of just saying to themselves,

16:40well, you know what, it's my fault, I didn't really research this book, it's not the kind of book I was looking for, they blame the book for not being what they want. And they say, well, this is just terrible. And part of me feels like I should post a review just saying, you know, pearls before swine, people, you know? This is pearls before swine, what's the matter with you? But I thought, probably, you know, Amazon is already filled with enough acrimony without my, you know, wise guy comments. Well, anyway, let's carry on. I also mentioned the Austrian cycle theory, because I really wanted to include it in my politically incorrect guide. I was all set to put it in there, wrote the whole thing up, and it's just another one of these things where there's just no space for it. So all I could do was have a sentence in there saying, I am begging you people to read Rothbard's book.

17:25And I thought, well, that's good enough. That will pique people's interest. Okay. Well, it used to be the conventional wisdom that Herbert Hoover, if I had a board, I'd probably try to, I can actually draw Herbert Hoover pretty well, it's like the only thing I can draw, like Herbert Hoover and like a carrot, two things I can draw, but, or actually I can also draw Woodrow Wilson, because if you ever look at Woodrow Wilson, you ever seen that painting, the scream with that guy going, I always felt like you put glasses on that guy. It could be Woodrow Wilson. Well, Herbert Hoover, the myth used to be that Herbert Hoover just sat there and people are eating the ketchup sandwiches and he's just sitting there, sitting there, sort of big chubby guy, he doesn't have to worry.

18:16He can eat ketchup sandwiches for a long time and he'll still be okay. But the point is that people had this sense, historians and students of history, In fact, we can only wish that he had just sat there, but instead, he engaged in what he later described as the greatest episode of economic re-election in the history of the United States and the United States. He was a big supporter of laissez-faire, a big supporter of the free market, and because he was such a fool and he had such outdated, Neanderthal economic ideas, the Depression got worse and worse. But instead, he engaged in what he later described as the greatest episode of economic reconstruction engaged in by the federal government in American history. Now, Rexford Tugwell, who was an important figure in Franklin Roosevelt's New Deal programs in the 30s, later acknowledged, Well, Hoover's program of intervention both prefigured the New Deal programs of Franklin Roosevelt that would follow his administration and also ensured that the downturn, this economic downturn, would not be the limited one of 1920 to 21, but would instead be indefinitely prolonged.

19:36In 1920 and 21, when Warren Harding was elected, economic conditions were quite poor, there was a severe contraction. Harding came into office and in the first six months he just cut the government budget. So he did exactly the opposite of what later economists would suggest and then everything turned out okay. So historians hate that, the fact that Harding's a bumbling idiot and he's not as smart as they think presidents should be. and he was fairly modest in the things he did and yet he has a much better economic record than every president who tries to manipulate the economy so that drives them crazy so they always put poor Warren Harding at the bottom of the list of presidents. I mean it doesn't help that he was an adulterer and you know kind of a kind of a scuzzy guy but still one of the things I think they resent about him was that he didn't really do anything and yet things seemed to work okay.

20:29A month after the stock market crash, Hoover summoned major business leaders to the White House and implored them to refrain from cutting wages under the pressure of the Depression because he argued that high wages were themselves the way out of the Depression because the high wages, as I'm sure we've all heard this line of argument before, give workers the means with which to purchase the goods that the economy was producing. So it's a purchasing power argument. Well, Hoover had been peddling this theory for over two decades by the time of his presidency. In the early 20th century, during his days as a mining consultant, Hoover had informed Australians that he had put their mining on a sounder footing by securing higher wages for miners.

21:21By the way, M-I-N-E-R-S, I don't know, maybe there are miners working in the mines, I don't I always wondered if that were the case, why don't we just impose a global minimum wage of $100 an hour, because then that would give everybody a lot of purchasing power, but no one I know has actually seriously proposed that, although probably somebody has and I just haven't had the misfortune of coming across it. Well, certainly Hoover's philosophy is superficially plausible. And virtually every American history textbook dutifully adopts it. The economic downturn was caused by underconsumption. There are other theories of the Depression, but this is one that American historians seem to find the simplest to explain, so they focus on it.

22:07But, as I say, for one thing, we would expect the hardest hit segments of the economy to be the consumer goods industries. But that's not true. As Gary Dean Best points out, Gary Dean Best, by the way, wrote a very good book on the New Deal called, not the best title in the world, but it's called, Pride, Prejudice and Politics, Roosevelt versus Recovery, 1933 to 1938. Best points out that it was industries that produced durable goods and capital goods, in other words, that are most remote from the consumer, that suffered the most, and consumer goods industries did relatively better. And Best says this, he says, He says, increased consumer spending would largely assist the consumer goods industries, where the volume of business showed the least decline from pre-depression levels. It did little or nothing for the heavy industries that had been most affected by the depression, and where the bulk of unemployment was concentrated.

23:00Now, if you read... Much of this is going to be filled with reading suggestions. When I was going through this sort of cycle of stuff, I was at the Mises University and that sort of thing. Veteran Galloway had just come out with their book, Out of Work, which is now, I think, at least a second edition. But Richard Veteran, Lowell Galloway, economist at Ohio University, have written the absolutely indispensable book basically on the 20th century in terms of economic history and accounting for unemployment. And their discussion of Hoover and the New Deal is just outstanding. It's indispensable. The interesting thing is that nobody you're going to be debating with will have read it. When you're in college, you have to read all their stuff. But then, when you debate with them, you've read their stuff, but they haven't read your stuff.

23:50They haven't read veteran Galloway. So you can just trounce them in a debate. They've never heard any of this stuff before. Anyway, so to me, I've been having a great time talking to people about this, because they honestly don't know any of this stuff. So it's good fun, but you should read veteran Galloway. What they are pointing out consistently in that book is they're trying to actually look at experience. They're looking at the way things actually turned out to try to verify a theory. Now I understand the epistemological problems with this, but what they are trying to discuss is whether it makes both theoretical and empirical sense to claim that wages, in fact, In fact, to simply increase purchasing power and our way out of an economic downturn or whether artificially increasing wages simply increases unemployment by making it more difficult for people to hire workers.

24:48Well, this is in effect what veteran Galloway conclude, that these measures to prop up wages are in fact responsible in at least large measure for prolonging the depression. Now Hoover, of course, is not at this point or even later, it's not till FDR that this is forced on people, he's simply using persuasion, please, please keep wages up, and that can work only so long until economic reality becomes so overwhelming that wages simply have to be cut. But for a couple of years, big business more or less did comply with the president's wishes and basically kept wages up or prevented, tried to avoid wage cuts. Now, as the years go on, though, given that the price level is declining, 10% one year, 15% another year, if you keep wages at the same nominal level, of course, in effect what you're doing is giving people a raise during the Depression, because the prices of the goods they have to buy are declining and their wages are staying the same.

25:52So this is in fact a major ingredient in sustained unemployment according to the analysis of veteran Galloway and others. Now Hoover's agricultural policy also anticipates that of Franklin Roosevelt. Now farmers had complained since the end of World War I of the need for special governmental assistance of one kind or another, including government intervention, whatever, to prop up farm prices. which is another way of saying they wanted the government to make food and clothing more expensive for everyone else in order to benefit themselves. Now let me pause here for a moment. I have nothing in particular against farmers per se. We do need them. At the same time though, it is hard for a student of history not to have at least a slight sympathy for H.L. Mencken's assessment of farmers.

26:44Anybody familiar with what Mencken had to say on farmers? Well, you're in for a treat here. Mencken said, Let the farmer, so far as I'm concerned, be damned forevermore. To hell with him and bad luck to him. He is a tedious fraud and ignoramus, a cheap rogue and hypocrite, the eternal jack of the human pack. He deserves all that he ever suffers under our economic system and more. Any city man not insane who sheds tears for him is shedding tears of the crocodile. and he goes on to describe the farmer as grasping, selfish and dishonest. He says, when the going is good for him, he robs the rest of us up to the extreme limit of our endurance. When the going is bad, he comes bawling for help out of the public till.

27:31Has anyone ever heard of a farmer making any sacrifice of his own interests, however slight to the common good? Has anyone ever heard of a farmer practicing or advocating any political idea that was not absolutely self-seeking, Banking, that was not in fact deliberately designed to loot the rest of us to his gain. Greenbackism, free silver, the government guarantee of prices, bonuses, and on and on, these are the contributions of the virtuous husbandmen to American political theory. There has never been a time in good seasons or bad when his hands were not itching for more. There has never been a time when he was not ready to support any charlatan, however grotesque, who promised to get it for him. Only one issue ever fetches him and that is the issue of his own profit. He must be promised something definite and valuable to be paid to him alone or he is off after some other mountebank. He simply cannot imagine himself as a citizen of a commonwealth, in duty bound

28:26to give as well as take. He can imagine himself only as getting all and giving nothing. Yet we are asked to venerate this prehensile moron as the ur burger, the citizen par excellence, The foundation stone of the state. And why? Because he produces something that all of us must have, that we must get somehow on penalty of death. And how do we get it from him? By submitting helplessly to his unconscionable blackmailing, by paying him, not under any rule of reason, but in proportion to his roguery and incompetence, and hence to the direness of our need. I doubt that the human race as a whole would submit to that sort of hijacking year in and year out from any other necessary class of men. All right, let's just let that settle for a moment.

29:11All right, well, I'm going to get a lot of angry mail over that one. But look, it's just Mencken, and just for historical interest, I read it to people, so I don't know what the problem is. Well, a major reason, as you might expect, that the farmers were having such difficulty making a living is that there were just too many of them, far more than made any economic sense. And normally, when people have difficulty making a living, they choose to abandon their current occupation and pursue another one. But given that farming is in some certain way, I think, qualitatively different from a lot of different other lifestyles, because it is a whole way of living. It's a whole way of looking at the world. It's a whole philosophy behind it. Plus, there's this sense that the farmers used to be the backbone of the country, so there's this reluctance to really ask them to change their occupation.

30:00So instead, it becomes government policy to try to keep them where they are. Well, the American agricultural sector had actually expanded fairly dramatically during World War I because of disruption in production in Europe. But that emergency is now over, of course, by the 1920s. So it was, to say the least, unreasonable to pretend that America's bloated agricultural sector could simply remain the same size, as if circumstances had not changed. People and resources needed to be shifted out of agriculture and into some other line of production that the American population needed more urgently. That, of course, was not done. Instead, during Hoover's administration, a federal farm board was established whose activities were supposed to improve the lot of the American farmer.

30:46In particular, the federal farm board stood ready to make loans to farm cooperatives, to make it possible for farmers to keep their crops, particularly wheat and cotton, off the market until their prices rose. But whenever they managed to get prices up, the result was to encourage farmers to produce still more the following year, thereby making the surplus problem even worse. Eventually, the farm board authorized through its Grain Stabilization Corporation massive purchases of wheat from American farmers at prices well above the world price. Farmers thereby sold their wheat to the Grain Stabilization Corporation instead of exporting it. Government farm bureaucrats were sure that by keeping American wheat off the world market, a world shortage of wheat would ensue and foreigners would be begging for American wheat.

31:36Instead, Canadian and Argentinian wheat producers simply grabbed America's share of the world market. Federal bureaucrats were in fact able to raise the grain price for a brief period, but again the result was that farmers responding to these higher prices increased their acreage and produced more the following year, These huge surpluses bought up by government agencies served to depress prices even further, since the rest of the world knew they would eventually have to be dumped on the world market. Lionel Robbins, a British economist some of you are familiar with, observed several years later, The grandiose buying organizations by which Hoover tried to maintain agricultural prices had the effect of demoralizing markets altogether by the accumulation of stocks and the creation of uncertainty.

32:28Given this problem, some government officials were honest enough to admit that for a program like this to work, strict limits would have to be imposed on how much farmers would be allowed to produce. So the requests that farmers voluntarily cut back their acreage of both wheat and cotton were ignored. Why should we? Desperate to increase prices, the chairman of the Federal Farm Board actually went so far as to call upon state governors, quote, to induce immediate plowing under of every third row of cotton now growing. So in order to increase farm prices, it was being proposed that farmers destroy already existing crops. When the New York Times called this, quote, one of the maddest things that ever came from an official body, it would become official farm policy under Franklin Roosevelt.

33:17So in an all too typical pattern, one government intervention leads to another, as the government now intervened yet again in order to solve the problems caused by the first intervention. So you've created total chaos in the agricultural sector. So instead of just stopping your intervention, you have to come up with another intervention. Given that American agriculture was a complete shambles, we now get the notorious Smoot-Hawley Tariff being proposed and passed in 1930. It was originally intended to provide tariff protection for American agricultural commodities. But it turned out there was no politically feasible way to limit that protection to agricultural commodities. Pressure groups from countless industries descended upon Washington to argue for tariff protection for themselves as well.

34:07Now virtually all American economists urged Hoover to veto the Smoot-Hawley tariff, but he ignored their advice and signed it into law in June 1930. It raised tariffs an average of 59% on more than 25,000 items. Now, the tariff hit American export industries hard. And by the way, this would be the case for two reasons. Anytime you have a protected tariff or really any kind of tariff, it's going to hurt American export industries. For one thing, if you export to the rest of the world and you have to buy your inputs, you have to either buy them from your fellow Americans who are now able to raise their prices because they have tariff protection from foreign competition, or you have to buy them from foreigners and pay the tariff whatever you're at a competitive disadvantage as a result of the tariffs because you either have to buy your inputs from tariff protected stuff overseas or you have to pay higher prices made possible by the tariffs so this is going to put your export industries at a disadvantage vis-a-vis businesses in other countries that are not at this type of disadvantage or don't have to pay artificially inflated prices for their inputs but then there's the fact of tariff

35:24It's the retaliation that occurs because obviously when you increase tariffs, Americans are going to buy fewer goods from foreigners because they want to avoid the tariff. So, American trading partners are going to retaliate against this. When they see that their products are increasingly being shut out of the American market, they're going to retaliate to keep American products out of theirs. So, given that the tariff affected Italy's major exports to the United States, the Italian government doubled its tariffs on American cars. American automobile sales in Italy fell by 90%. The French practically shut American products out of their country altogether. Spain retaliated by raising tariffs on American cars to a level practically guaranteed no American cars would be sold there, and you could just go on and on and on in this connection.

36:12There are a great many examples of this in Jim Powell's book FDR's Folly, which of course is before FDR, but he gives example after example of the consequences of Smoot-Hawley Tariff. Well, this wasn't the only tax increase that occurred under Hoover. During the 1920s, Andrew Mellon, who had been Secretary of the Treasury, had advocated lowering income tax rates because he basically for laffer curve reasons he had sort of suspected that the extremely high top rates that have been imposed during World War I were tending to discourage investment and expansion of business and so we needed to cut them for that reason and so that had been done although of course in Robert Higgs as if to confirm what Robert Higgs would say about the ratcheting effect the top rate never went down to the level it was before World War I but it still came down to about 25 percent And then it was increased again under Hoover. The top rate went back up to 63 percent.

37:17Andrew Mellon had been behind advocating this increase. Here he was the one who in the 20s had said we've got to cut rates, cut them back down. Now he's saying we've got to increase them. So the top rate goes back to 63 percent as part of the Revenue Act of 1932. Corporate and estate taxes were raised. The gift tax was revived. Sales taxes were imposed on a great many items, including cars, tires, gasoline, toiletries, toiletries people. I don't know what kind of incentive that produces, interesting thing.

38:05Toiletries are increased, have their taxes increased, people buy less of them, I don't know what happens. Electric energy, luxury items, other taxes were imposed on bank checks, as well as telephone, telegraph and radio messages. So if you're trying to send a telegraph message saying, hey, we've got some jerk as president, it's going to cost you a little bit more as a result of that. The one area in which Hoover most differed from FDR and which has been totally exaggerated is that Hoover was hesitant to provide direct federal relief, preferring instead to rely on voluntary organizations and eventually to make loans to the states for the purpose. He believed that voluntary organizations as well as state and local government were the appropriate instruments for dispensing aid.

38:52In 1931, the Red Cross actually turned down a proposed federal grant of $25 million, arguing that it had all the money it needed, and that such government grants to private charities would, quote, to a large extent, destroy voluntary giving. Hoover also vastly increased expenditures on public works projects. More money was spent on public works projects in the four years of Hoover than had been spent in the previous 30. He also subsidized the shipbuilding industry. That would always be a silly thing to do, but when you consider that this is after the Smoot-Hawley Tariff, and your shipbuilding industry has much less need to expand it, because there's much less trade going on, he's going to subsidize it.

39:40Hoover's Reconstruction Finance Corporation supplied failing businesses, mainly railroads and banks, with emergency low-interest loans. Charles Dawes' discussion of this is great because they always denied that the Reconstruction Finance Corporation was in any way motivated by politics. We're giving emergency loans to the most deserving banks and businesses. It just so happens that Charles Dawes, who was a big wig in the Republican Party and had a big bank, happened to get a $95 million loan from the Reconstruction Finance Corporation for a bank that was about $90 million capital as a bizarre loan and that the treasurer of the Republican National Committee happened, just by some coincidence, happened to get a big loan from the Reconstruction Finance Corporation.

40:29So you wonder what the heck is going on here. By the later part of 1932, the Reconstruction Finance Corporation was no longer doing what you might call just defensive measures of trying to prop up businesses that were already in big trouble, but now was beginning to initiate projects, lending money to the states for unemployment relief and to fund public works projects. Now, Gary Dean Best points out that the businesses he hoped thus to save either went bankrupt in the end, after fearful agonies, or were burdened throughout the 1930s by a crushing load of debt. Well Hoover congratulated himself, looking back on his record, and said, we might have done nothing. That would have been utter ruin.

41:16Instead, we met the situation with proposals to private business and to Congress of the most gigantic program of economic defense and counter-attack ever evolved in the history of the Republic. Counterattack, such a funny word in this context. Now the result was a complete catastrophe. Hoover drew no lessons from this experience apparently. Now Franklin Roosevelt will be elected. Franklin Roosevelt, the Democrat, although what on earth is the difference between them then as now is a good question. But Franklin Roosevelt will now Now be elected and initiate his so-called New Deal programs. Now I became sort of naive after years of reading about the New Deal and reading both the mainstream literature and libertarian-type literature.

42:07And it's more and more common now that you see, even in mainstream journals, you see articles being written that acknowledge that, you know, in retrospect, maybe Franklin Roosevelt's programs did prolong the Depression. They were not, in fact, particularly well designed to lift the country out of it. It's now becoming more common to hear that. That's not just something that we would say. It's something that more and more people would say. I came to the conclusion that everybody knew this. I sort of figured that everyone was quietly conceding to us that we're right about Franklin Roosevelt and that obviously the New Deal did damage. I just thought that. Apparently it's not so, because when I argued this, the response I got from some people on the left, online, was to say, well, I mean, was he crazy? I mean, the New Deal, what would we have done without, my father worked for the WPA, as if an anecdote can overturn a whole body of evidence.

43:05So that's why I chose this topic to go over, because I figured if this myth about the New Deal getting the country out of the Depression isn't dead yet, then I'd like to just do whatever my small part is in just repeatedly bludgeoning it. So that's what today and this morning and this afternoon are all about. Well, Franklin Roosevelt defeated Hoover fairly dramatically. is routinely listed as one of the great presidents in these lists of great presidents that come out periodically. Now, during this past semester there was a poll that came out, not of American historians but of ordinary Americans, about who they thought the great presidents were. Normally you see these, once every few years you see Arthur Schlesinger type people getting together to vote on who the great presidents are and nobody cares because we all know the

44:29I think Ronald Reagan is on his way toward near-great status. When he died last year, we saw that no one was saying a single unkind word about him. I couldn't believe what was happening. It's like when you die, you become part of the pantheon of gods. It's incredible. So, in fact, I remember, I can't say who, but I was talking to a radio personality during the commercial, and I said, you know, I said, you know, when I was a kid, I liked and admired Ronald Reagan, but even I felt a little, I found it a little bizarre, that all this weird, you know, weird, almost blasphemous spiritual pretensions of the whole, of the funeral, and I said, you know, the whole presidency has got this bizarre aura around it now, and he said, yeah, I'm wondering What are they going to do when Gerald Ford dies?

45:25Are we going to do the same thing for Gerald Ford? We're all going to say, oh my gosh, what a giant among men Gerald Ford was. Anyway, all right, I don't know, maybe Chevy Chase can talk about Gerald Ford. That's me. I don't mean to be mean to Gerald Ford. He's basically a harmless bumbler, more or less. Anyway, so you always get these polls. But a few years ago, actually this past semester, they did a poll of the American population. And I believe President George Bush, the current President George Bush, came in like at number seven. Did anybody see this? The seventh greatest president in American history, George W. Bush. Okay. I forget where Reagan came in, but like right up there because it was right around the time of the funeral and everybody was being told he was the greatest so they voted for him.

46:16I just don't listen to these presidential rankings, unless you'd like to be tortured. So Franklin Roosevelt is always listed as one of the greats. Why? Because he engaged in these tremendous programs, both foreign and domestic. Well, the fact is, though, that during Franklin Roosevelt's tenure, unemployment remained a major problem. Up until you get to World War II, then you ship 11 million people overseas, and voila, the unemployment problem goes away. Sorry, I'm not giving him credit for that because I think anyone could have done that to solve the unemployment problem. If you want to just line people up in front of a firing squad, we could solve unemployment. There's a hierarchy of moral pursuits in getting rid of unemployment, I think.

47:05But from 1933 to 1940, the average unemployment rate is 18%. How does this constitute getting the country out of the Depression? Well, sometimes you get historians who concede, all right, the New Deal did not lift the country out of the Depression. World War II did. Well, we'll talk about that. I want to address that claim as well. John T. Flynn is a notorious biographer of Franklin Roosevelt. And he said that basically there was no one on earth more ignorant of economics than Franklin Roosevelt. Did not at all understand how wealth was created. And I recommend Flynn's book. It's called The Roosevelt Myth. and the Roosevelt Myth. It's out in a 50th anniversary edition from 1998 with an introduction by Ralph Raco, which is great, which is actually better than the book, I think, Ralph Raco's introduction.

47:54But John T. Flynn was basically a good guy, but it's not a perfect book because Flynn is basically pro-Hoover. So in the book he's sort of arguing, well, if only we had done more things that Hoover had done, continued in the line of Hoover. Well, all right, we'll let him get away with that because he is very anti-Roosevelt and you can forgive a lot of someone who is anti-Roosevelt, but it's a wonderful book because it's got some good economic argumentation, but it's also got tremendously entertaining anecdotal evidence about some of the weirdos who were surrounding Franklin Roosevelt. It's just wonderful and very much worth reading. So I would recommend that book, FDR's Folly and the veteran Galloway book, Out of Work, as being the three Absolutely indispensable starting points for this. And then the Gary Dean Best book is also worth reading.

48:40Pride, Prejudice and Politics. All right, well, what I want to do is to talk about the National Industrial Recovery Act. But in order to do that, I want to go back in time to look at the antecedents, both basically the intellectual antecedents of the National Industrial Recovery Act. Because we're going to see that in that piece of legislation from 1933, We're going to see that various industries were permitted and indeed encouraged to draw up production codes for their industries, in which each firm in that industry would be bound by the terms of the production code. So they would be bound by certain hours of operation. You cannot carry out production before or after these set hours or for a longer duration.

49:26You have to sell at least at this minimum price, So you can't really undersell each other, so it minimizes competition. And various other features are evident in these production codes as well. And they get the backing of law in the National Industrial Recovery Act. This does not just come out of thin air. Business have been agitating for something like this for decades because they didn't like, frankly, the rigors of free market competition. So they wanted to be sheltered from the rigors of free market competition. And they've been trying for years to come up with a mechanism for doing that. None of them had been terribly successful. They needed to have government backing for it, and they're going to get it in 1933. But from the end of World War I, you already have businesses that are quite taken by the idea of economic planning and the idea of economic coordination and rationalizing production and cutting down on anarchic competition and laissez-faire.

50:28This is another reason that, although I have to admit I very much enjoy some of Ayn Rand's essays because I like her polemical style and her combative nature. At the same time, I think she tends to romanticize business so much that we forget that these are actually mortal men involved in these undertakings And they, as much as anyone else, have the disutility of labor and an attraction for gaining at the expense of their fellows using the machinery of the state. And we begin to see that already at the end of World War I. Because during World War I, there had been tremendous government involvement in production. And a lot of businessmen thought that this could be a model for the future, sort of joint cooperation between government and business and a kind of flattening out of competition.

51:18In this context, it's worth recalling a very famous statement that some of you, I'm sure, are anticipating by Adam Smith. In the 18th century, Adam Smith said, People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public or in some contrivance to raise prices. Well, that is very much operative here. Now, typically we have this consensus, we have this, I think, myth that in the early 19th century, pardon me, in the early 20th century, in the late 19th, that there wasn't that much, there was very vigorous competition, that in fact you had a very stagnant situation where you had just a few firms dominating each industry, which, by the way, there's no non-arbitrary way of saying that that's in some way objectively bad or wrong or, you know, In the early 20th century, competition was incredibly intense, and this is becoming more and more clear.

52:41This is one of the points that Gabriel Kolko makes in his book, The Triumph of Conservatism. Kolko wrote this revisionist history of the early 20th century, basically looking at the years roughly 1900 to 1916 or so, and showing that there was intense competition and that this is precisely why you see big business so anxious to use the machinery of government to in some way inhibit the intensity, to limit the intensity of this competition. Historian Robert Wiebe actually said that businessmen after World War One were not looking toward, quote, a neutralization of the government. They wanted a powerful government, but one whose authority stood at their disposal, a strong, responsive government through which they could manage their own affairs in their own way.

53:28Now, a very much overlooked book on this subject, the efforts by business to use first voluntary means and then in the thirties coercive means to secure some kind of agreement among firms, not to undersell each other, not to use so-called unfair business practices, and by the way when businessmen define what constitutes an unfair business practice, it almost always In Restraint of Trade, The Business Campaign Against Competition, 1918-1938

54:53Professor Schaeffer points out that one trade association executive condemned the businessman who operated his business in entire disregard of the effects on his competitor and the rest of the industry. That's the mainstream view, really, in the 1920s. And you see this in business publications, in Business Week, everywhere, The Modern Businessman Must Believe in the New Spirit of Cooperation Another businessman said, our profits are absolutely unprotected.

55:46He said that we need business ethics legislation that would make it possible for fair practices to become a law in any industry when 80 or 90% of that industry, together with governmental supervision, agree on a policy. The president of the Denison Manufacturing Company said this, We must manage ourselves if we are to gain on the past. No laissez-faire, no unchanneled and unimpeded course of nature, no invisible hand will do it for us. We now find ourselves in a period of growing social self-control. I love that, social self-control. It's not just each of us will control ourselves, we'll have social self-control, which is a little more ominous sounding, I think. These people are speaking of the end of laissez-faire, or either voluntary regulation on the part of business, self-regulation, or, if necessary, using the coercive power of the state if the voluntary means don't work.

56:41Herbert Hoover was a huge supporter of this, a huge supporter of this so-called associationism in the 1920s. He thought this was the answer to untrammeled competition. So here he is, hilariously referred to as the supporter of the absolutely untrammeled market and against any attempt to modify the market, but nothing could be further than the truth. It's exactly the opposite. In the 1920s, the American bottlers of carbonated beverages developed, as did many different industries, developed a code of ethics. Professor Schaeffer says that the established firm should adopt the codes of fair competition.

57:26One of the points in his code was, My desire shall not be to undersell my fellow bottlers, but to contend with them for first place in the quality of my products and the service I render my patrons. I think Professor Schaeffer gets right to the heart of the significance of this. The established firms would, quite understandably, find such competitive restrictions particularly beneficial. For a newer firm would, in order to attract customers away from the older firms, have to offer significant inducements. This is a problem always faced by a newcomer. The existing firms enjoy an immense advantage by virtue of their goodwill and established positions, a situation that can be overcome only by recourse to the most effective competitive methods.

58:14But if competitive methods become fairly standardized, and the newer firm is required to adhere to the same patterns as the established firm, the newcomer will find itself at an even greater disadvantage. It will have been deprived of the means of offering the necessary inducements to attract customers away from the established firms. I think that's it exactly. Now one of the points that Schaeffer notes about the 1920s was that you got the Federal Trade Commission occasionally calling in various firms to help them hammer out some kind of code or to determine what these firms themselves consider to be unfair business practices. And very often one of the unfair business practices is selling below cost. And that's an unfair business practice.

59:03Now, what these businesses were hoping for was that if they meet with the Federal Trade Commission and the vast bulk of them agree on what would constitute an unfair business practice, that this consensus, this widespread consensus would then sort of filter its way into the common law, which would become a factor that would inform judges when they adjudicate disputes in business This is just a reasonable rule that 90% of reasonable businessmen agree on. So there was this hope that this could translate in some way into some kind of coercive measure to keep competition at bay. These voluntary agreements, though, have this problem that since they're voluntary, you'll never get everybody agreeing to them.

59:55The answer to this is the same answer that our forefathers probably gave to a citizen in a New England town when he objected to a town meeting's action.

1:00:25Do your hollering and your arguing in due order in time when you exercise your prerogative as a free citizen by coming to the meeting and debate and vote, and then when the matter is decided by majority vote, obey the mandate. By this test, the plan for logical government in industry is in no sense a contravention of liberty, nor an interference by government in business. Business merely uses the government's aid in governing itself. Again, along these lines from the Swope Plan, How can coercion be considerate and fair? Only when the fullest technical opinion within a given industry agrees that it knows the interests of the moderately small producer better than he does.

1:01:13Isn't that funny how they all know his interests better than he does? A man's peers can pass upon a man's needs more fairly than any others. Coercion in the coerced one's own best interests is no less considerate than a measure of coercion applied to an adolescent when all moral suasion has failed. Remember Robert Wagner, who is responsible for the Wagner Act, which involves labor unions. We're going to talk about tomorrow. That's one of the features of the New Deal that we're going to postpone until we talk about labor unions. But he looked at the National Industrial Recovery Act of Franklin Roosevelt, which in effect put these features into effect finally, that said that industries will be encouraged to Robert Wagner said this,

1:02:39It was a part of the platform of the 1912 Progressive Party, namely the necessity of a national planned economy. Until we have that, I venture to say that we are not going to have an orderly, organized economic system. A good deal of the chaos and disorganization from which we are suffering now is due to this lack of planning. All right, well, say a little bit about this and then probably just open for questions and continue after lunch. But the man who headed the National Recovery Administration, which was created by the National Industrial Recovery Act, which in effect coordinated these codes and gave the force of law to them, once referred to this whole plan, the National Recovery Administration, as a holy thing, The Greatest Social Advance Since the Days of Jesus Christ Some people might think that's kind of an exaggeration.

1:03:47I think industry can both run itself and govern itself, and that the coercive power of political government will be necessary only to discipline units within an industry which depart from practices which the overwhelming bulk of that industry regard as unfair and destructive. Is this regimentation? If it is, it is regimentation by the majority itself through the peculiarly American doctrine of majority rule. That is no more regimentation than any form of government which any community elects to impose upon itself for the common good. Yeah, I know what I mean. You're just left speechless. Well, as the National Industrial Recovery Act and its offshoot, the National Recovery Administration, goes on for a couple of years, there are a lot of complaints about it.

1:04:41Small businessmen complain about it, largely because the bigger businesses are dominating the drafting of these codes. So naturally, they're drafted in a way that tends to benefit the larger interests. And there is a lot of griping about it. The thinking behind it, by the way, is not only that business wants to regulate itself, but there's this thinking that we're in this depressed condition. There's only a limited amount of demand out there. So we have to parcel it out among the businesses. And we need coordination to do this. And there is this belief that big business itself became really disconcerted or disillusioned with the National Recovery Administration and the whole plan.

1:05:28But that's kind of a misleading statement because by 1935 when the Supreme Court found this act to be unconstitutional, this is back when the Supreme Court used to actually find things unconstitutional other than state laws, It's not true that big business was saying, oh, well, that's a relief. It's true that they had some administrative disagreements with the way the thing was being run. But Butler Schaeffer makes an indispensable point that their so-called opposition was just in the way the thing was being run. It wasn't the basic principle of the thing, whereby businesses would have these codes governing them. They still liked that. In fact, he managed to dig up this useful bit of information.

1:06:15The U.S. Chamber of Commerce had a referendum in 1935 of its members, and they asked them these poll questions. The first one was, are you for enactment of new legislation prior to the expiration of the National Industrial Recovery Act? And 78.1% were for, 21.9% against. Do you believe the industry should be permitted to formulate its own rules of fair competition subject to government approval? In favor of that statement, yes. 95.2%, 4.8% against. How do you feel about having rules of fair competition enforceable against all concerns in the industry? 91.8% in favor, 8.2% against.

1:07:03So to say that they were relieved that this thing was over is, I think, a misreading of the data. So anyway, I say to you, you should read Professor Schaeffer's book, because it's one of these books that is... it's a huge contribution to an absolute gap in the literature covering essential material, but it's one of these books that's easily overlooked. And it should be studied, because it's extremely well done. How did Robert Luber get the businesses to keep wages high? Did he convince them on economic grounds or did they want to stand on the other side?

1:08:00and the Power Theory of Wages. You would think that as a businessman, you would see from your own bookkeeping or something that we just can't afford to pay these wages, but some of them do actually seem to have believed that it was good for industry as a whole if we keep wages up because then they can buy products and then other people keep wages up, they can buy our products. This just seemed to have swept the board as the fashionable way of thinking. But secondly, they do, I think, want to stay on the good side of the president. I mean, think of Bill Gates when the government was going after him. You know, I remember seeing on the news, there he is playing golf with Bill Clinton. And I thought, isn't this disgusting? You know, when you live in a society where you have to play golf with this jerk, just to try to hope that, you know, would you please not shut me down? Good.

1:08:52So I think some of that was this desire that the president urges you to do something, Smaller business that wasn't as much in the limelight, wasn't as much on display as it were, did manage to get away with cutting wages a little bit, with it not being as noticeable. But eventually even the big business had to say, well, this is just not sustainable for us as an individual firm, we just can't keep it up. And eventually they did cut the wages. Everything you've been talking about with the NRA is pure marketalism or even fascism.

1:09:46What else can we talk about? I know it. I've got some good quotations. In some way this isn't fair, but in some ways they said it, so I'm going to use these quotations. I have a couple of quotations from Mussolini and Hitler explaining their admiration for the New Deal, so I'm going to read those in the next talk after lunch. I thought the NRA also was not just big business, but I kept thought of going down to whole areas of business. I recall one guy who got put in jail because he cut the price of pressing trousers or something.

1:10:40to be dominated by the biggest. But yeah, you're right. That's an anecdote that you can find in John T. Flynn's book, where he gives examples of people who are found violating the codes of production. So he gives the example of a gentleman in New Jersey who's hemming a pair of pants at night, or he's hemming them for 35 cents and he's supposed to hem them for 40 cents. Or there are people in the garment industry who are producing things at night instead of during the day and you're not supposed to do that. Aren't marketing orders for now agriculture the same kind of activities? I used to work for USDA for 13 years and I was appalled by all these marketing orders that were going on.

1:11:37And you wonder, how can it still go on? I mean, to one extent, you have the public choice explanation, you know, that the agricultural interests are small and concentrated, it's in their interests, and it's easy for them to organize and lobby 24 hours a day. Our interests are more dispersed. It doesn't matter to me, you know, if sugar is 25 cents more than it would otherwise be, well, I'll have to live with it. So they're going to tend to win. But I mean, this is just so much more than it's worth. It's so outrageous when you consider how much some of these big agricultural concerns are getting from the government in these programs. And so I tell this to my students, because they laugh when they hear about Hoover and FDR with agriculture. They say, oh, gosh, people were just really silly in those days.

1:12:24And I say, well, this stuff still goes on. They just can't believe it. How is this happening in a democracy? Because they all think that in a democracy nothing can go wrong. Well, most of us don't produce lemons, so why is there this program for lemons? So I have to explain to them, and they leave just very confused. Well, what do we do? I just don't know. But, yeah, the fact that it's still going on is absolutely stunning. It's stunning. Yes? Well, I mean, I think that it goes beyond the point of noticing them, because there are a lot of people who are not farmers, but yet they are really in favor of these things. Maybe they just haven't really looked at it and really thought about it, You know, they'll say things like, but we need to protect the family farm when in fact subsidies are going to these huge corporations, but I mean, yeah, people actually believe in this a lot of the time.

1:13:31The Family Farm. And, you know, one program that I've sort of favored, it's not a government program, and I wrote briefly about it once. There is something to, I mean, it is hard to be a farmer. I mean, I know I made fun of them reading that Mencken thing and whatever, but I mean, it's hard to be a farmer because, you know, so much can go wrong, you know, from year to year. And so it's very easy for farmers to become indebted because they go into debt at the beginning of the year, they plant their crops, and then it turns out badly, and then sometimes it's hard

1:14:31I just like to be able to buy locally grown stuff, but the farmers have a difficult time. So what people do in community-supported agriculture is they pay, people voluntarily pay the farmer like a few hundred dollars at the beginning of the year, they give him his capital. And then he uses that for what he needs, and then when he begins growing, you get free stuff the whole year, you get all his production, you get to go there and pick out, well I guess I'll get some fennel and whatever, you just stock up on stuff. If he has not so good a year, then you have not so good a year, but I have friends who have been involved in this for years who tell me that the farmer would have to have an event of biblical proportions for you not to get it.

1:15:30You read a quote about how our profits are entirely protected by under-debates and under-money. You read a quote about our profits are entirely affected by ______. There are two ways of reading it. our profit is in a narrow sense of our small businessmen or the others, or it could mean the general rate of profit.

1:16:20I'm just wondering, if there's secondary cost to this, what is the intellectual roots to that error or thinking that ______ dangers in general? Well, I'm just looking at it again just to see if I can figure out the context on the basis of the small quotation that I have here. Yeah, I mean, right, and the general idea. Well, it does seem to be, I mean, what I think is going on here is there is both a desire to basically protect my interests within my industry, But there's also the suspicion that the economy as a whole has the same problem, but naturally because of my own interest, I'm focused on the problems in my industry.

1:17:06But I do think there is this sense that unchecked competition is just simply too destructive. And in the long run, it's going to hurt everybody because it's the argument that they're trying to make. Because sometimes these codes or these comments in business magazines are being made to the guy who is cutting prices very low and they're saying to him, you know, this isn't in your interest either. You're going to hurt yourself too. But I think the intellectual error there is that, well, let him find that out for himself. You know, let the producer find that out for himself. But there is this thinking that businessmen who are engaged in these types of practices are just too short-sighted and that the only way that you can really look to the long term is through collective action where you get the best minds in the industry and they think in terms of what's good but they have no confidence in individual business mavericks.

1:18:04They think that this can throw the entire industry into disarray and an intellectual historian more skilled than I can try to trace out where this line of thinking ultimately originates I have a question about the historiography of this period. I guess, like most people, my education included this fiction about troopers kicking back and educating them when they were there, although something that I admired, but come to find out it's not true. When and where did this idea come from? Other than from pro-Roosevelt historians who want Roosevelt to look good by comparison, they want to show that he's the originator of all kinds of radically new ideas as opposed to the old, tired laissez-faire of the past.

1:19:00But I can't put actual names and faces to that. But if anybody in the room can help me here, I'd love to know the answer because it seems to me that it's quite clear as Butler Schaeffer has shown and Rothbard has shown and others Well, I was just going to say right now a lot of us can look at Fern Bush policies with regard to a lot and see the truth, but the majority either doesn't see it or doesn't want to see it. Isn't it part of human nature, the herd mentality, that they swim with the crowd and even though they're all going off the cliff at the same time, they don't want to look at the actual truth.

1:19:56Apparently, years later, it makes sense. They can now collectively sit there and go, yeah, we were wrong. But at the time, individually, no, they don't want to step out of the ranks of the herd.

1:20:13There's this kind of herd mentality that sees what it wants to see, in the same way that today people are repeating propaganda about the Middle East that is demonstrably false. And we don't understand how is it possible that you can think these things when they're demonstrably false, but sometimes you're so committed to see one thing that that is in fact what you wind up seeing. Yes? I think the other thing that happens often is that anything that goes bad is always said, well, it's a market failure. It's a market failure. market failure, and usually if you look at what's happening, it is precisely the area where government has come in and interfered the most. I give two examples, healthcare and education, those of which for the last 40 years have been increasingly involved in government, but since the expenses are going up and failing, it's a market failure.

1:20:59You know, I think that's a good point because I think people today think, well, we've got this free market in healthcare, Well, another thing, especially considering what the different things you'll say about Hoover and Roosevelt has a lot to do with just the partisan nature of politics, you know, I mean, it's in the Democrats' interest,

1:21:35The question is, how do you get people's interest to say that he's different from this Republican? And the Republican's interest is different from this Democrat? Like you were saying, John D. Clinton even likes Putin. Even though, it's the same... They're doing the same thing. And so, going back to the thing about Bush and Iraq, Clinton was the one who actually put into law that it was the policy of the United States to go and overgrowth, that I'm saying. But no Democrat would ever want to talk about that. So John Payne here suggests that there is a natural tendency on the part of the major parties to differentiate themselves from each other for fundraising purposes or whatever. And so the Democrats are going to want to make themselves look as different as possible from the Republicans. It's just that my reaction to that is to say in my naive way, well shouldn't professional historians though be above this type of bias?

1:22:26Shouldn't they just be disinterested seekers of the truth? The Truth, Kevin, I think that's the last one.

1:22:59It's malice and evil and darkness.

1:23:29I mean, I came away from that. Remembering how, like, there was a period of time where they let me try to float this comparison of them with the Roosevelt? I came away from that. Remembering how, like, there was a period of time when the Clintons were trying to float this comparison of them with the Roosevelts?

1:24:01There's really a lot more similarity between Eleanor Roosevelt and Hillary Clinton.

1:24:18This is like the closest challenge I've ever had to that doctrine. Okay, I think we're all finished, so thank you ladies and gentlemen.