Transcript 18 (3/5, 3/7)

Richard T. Ely
The Tariff
“…the changed circumstances of our
time have driven me farther and farther
away from any affection which I ever
entertained for protectionism” (56)
Richard T. Ely
The Trusts
“…all competition has been excluded,
all producers have been placed at the
mercy of a ring, and those who have
dared oppose them have been crushed by
a tyranny… While profits of employers
in the ring have been raised …
workingmen, instead of finding their
wages increased, have been entirely
thrown out of employment…” (57)
Effects of a Tariff
Richard T. Ely
Internal
Improvements
“There is an opportunity for the
advantageous expenditure of the existing
surplus, and the free traders do not do
themselves credit by their demagogical
objections to every legitimate plan for
the use of the national surplus….
Money spent [on rivers and harbors]
would yield enormous returns to the
people…” (62)
Richard T. Ely - 1888
Ideal tax system: (67)
•Tariffs on a few commodities for revenue;
•Internal revenue system laying taxes on a few
articles like intoxicating beverages and possibly
tobacco;
•Some more elastic taxes which could be raised
or lowered, e.g. a tax on the gross revenues of
railroads.
•Note the problem in relying on tariff revenue.
Richard T. Ely - 1888
“I am in favor of an extension of commercial
relations, and would gladly see a satisfactory
scheme for a zoll-verein or commercial union
for all of North and South America, devised and
put in execution.” (66-67)
HOME COMPETITION - 1887
“The defenders [of protection] talk loudly about
the benefits yielded to the consumer by the
competition of protected manufacturers in the
home market…” (NYT, Dec. 28, 1887)
They say… “The consumer who opens his eyes
will learn that he is not taxed by any protective
duty that attains its purpose, because that
purpose is permanent cheapness through home
competition.”
HOME COMPETITION - 1887
[In fact,] “The consumer who opens his eyes will see
that in many important ‘protected’ industries home
competition has been deliberately killed by the protected
manufacturers.” (New York Times, Dec. 12, 1887)
“By Trusts, by syndicates, by combinations, by pools, by
associations, manufacturers have successfully conspired
to prevent competition…”
A Debate About Trusts - 1888
(New York Times, March 2, 1888, p. 2)
[Senator Beck] “had no doubt that every
Republican Senator would vote to repeal all
taxes which went directly into the Treasury
(like the tax on whisky) in order to keep up the
taxes only one-third of which went into the
Treasury, while the other two-thirds went into
the pockets of the manufacturers.”
Effects of a Tariff
P
P
SB
S’
S’’
S’’’
Marginal Cost
Average
Cost
Pw+T
Pw + T
PW
PW
qf1
q
One typical British corn farmer
T
World
Supply
QS1
QD1
DB
Q
Entire British corn market
What happens in the LONG RUN?
In the LONG RUN, entry can occur.
So long as profits exist, entry will continue.
How do we show entry on the graph?
How far will the British Supply curve shift?
Effects of a Tariff
P
P
SB
Marginal Cost
Average
Cost
Pw+T
Pw + T
PROFIT
PW
PW
qf1 qf2
q
One typical British corn farmer
T
World
Supply
QS1QS2QD2QD1
DB
Q
Entire British corn market
What happens in the SHORT RUN?
At the new higher price, British corn farmers make a profit.
At the new higher price, British consumers import less corn.
If entry is blocked, this may turn into the LONG RUN, too.
The Bugaboo of Trusts - 1889
Page 141
•A demand exists … beyond the capacity of
existing works to supply it
•Prices are high, and profits tempting
•Every manufacturer proceeds to enlarge his works
•New works are erected
•Demand is fully satisfied
The Bugaboo of Trusts - 1889
Page 142
•Supply becomes greater than demand, prices
begin to fall
•The article is sold at cost
•It costs … much less to run at a loss … than to
check production. (What has changed?)
•With no hope of a change in the situation,
anything promising relief is gladly welcomed.
The Bugaboo of Trusts - 1889
Carnegie’s story. Demand rises; Price rises from P0 to P1; entry occurs;
Supply shifts out; Price falls; Supply continues to rise (S2, S3, S4, S5);
Price falls through P0 down to P5; Firms operate at a loss (covering
variable, but not fixed cost); “With no hope of a change in the situation,
anything promising relief is gladly welcomed.”
The Bugaboo of Trusts - 1889
Page 145
•let us follow the operation of the manufacturing trust
•The dividends from…capital invested in the sugar business
yield…profit far above the capital…invested in …other affairs.
•Capital is always upon the alert…new sugar manufactories spring up,
as if by magic
•[each new factory] must be taken into the Trust
•Every factory that the Trust buys is the sure creator of another, and
so on ad infinitum, until the bubble bursts.
•Capital, like water, has again found its level.
Price
Supply (MC)
Demand (MR)
Quantity
Refer to the Online
textbook for a review of
Monopoly and
Monopsony
Carnegie on Wealth
What was Carnegie’s “Gospel of Wealth”
Do you agree with it?
Use Carnegie, and the Economist articles, and
anything else you choose.
Post in pairs.