Written on Tuesday, March 20, 2012 by Nathaniel Davidson
In Part 1, I outlined the great achievements in many areas of our 26th President, the Republican Theodore Roosevelt, before he became President. Part 2 highlighted some of his great achievements as President, such as the Panama Canal and the Great White Fleet’s voyage, and deservedly winning the Nobel Peace Prize. But it also documented his unfortunate Progressivism, including support for eugenics, and even why his alleged laws for meat hygiene did more harm than good. This third part analyzes some of his other well-meaning laws that also ended up causing much harm.
President Roosevelt promoted what he called “The Square Deal”, which was ostensibly to give a fair deal to all, and protect them from the alleged excesses of both corporations and unions. In line with that, TR negotiated an end to the Coal Strike of 1902 with a sort of compromise, which unfortunately helped increase union power.
The most famous part of this, for which he has been most admired by the left, was so-called “trust-busting”, ostensibly to prevent businesses becoming too powerful and exploiting consumers with monopoly prices. TR made use of the Sherman “Anti-Trust” Act of 1890.
However, TR was badly mistaken on capitalism (here I make much use of Ph.D. economist Robert Murphy’s great book The Politically Incorrect Guide to Capitalism, available from the Patriot web store).
Many people still admired Roosevelt’s trust-busting crusade because they have swallowed the myth of “predatory pricing”, where a company sells below cost to drive competitors out of business, then once it has a monopoly, it gouges consumers.
In reality, it’s too irrational to work. By definition, a predator must sell at a loss. And he must sell huge volumes to try to out-do competitors for long enough to drive them out. For consumers, this is a bargain while it’s going on, so it’s crass for the government to interfere. Then if the predation drives up the prices, new competitors have an incentive to re-enter the market.
Furthermore, this strategy can easily be countered. For example, while the company is willing to make a loss, its share price will inevitably drop. So competitors aware of its determination to predate can short-sell its stock.
Dr. Murphy provides another example of defeating predators. This is the account of how Herbert Dow, the founder of Dow Chemicals, beat the cartel Die Deutsche Bromkonvention (NB: a cartel supported by its government, i.e. what leftists look to as Savior). Dow, a brilliant chemist, worked out how to make bromine (a red-brown corrosive liquid chemically similar to chlorine and iodine) more cheaply than Bromkonvention could, so his bromine sold better. In retaliation, Bromkonvention instituted predatory pricing, flooding the American market with bromine below cost. But Dow had an agent buy up huge amounts of bromine at this fire-sale price, then he sold it back in Europe at a profit, including in Germany. Thus he drastically undercut Bromkonvention with its own product! This cartel was mystified at where this cheap bromine could be coming from. But Bromkonvention eventually had to give in. Dow had won, but consumers and America were the big winners.
The so-called “robber barons,” whom TR hated with a passion, were not predators. Yes, they drove down prices. E.g. Rockefeller’s Standard Oil captured 90% of the market—but by reducing the price of kerosene from 58c to 8c. Similarly, economist Dr. Thomas Sowell points out, “The average price of steel rails fell from $68 to $32 before TR became president.” And the discounts that Vanderbilt’s shipping line offered Standard Oil, which TR claimed were unfair to other customers, were because Rockefeller provided huge volumes and loading/unloading expenses. Vanderbilt would have offered other customers the same discount if they had been able to provide the volume, service and regularity that Rockefeller could.
But in all cases, contrary to the hypothetical “predator”, the prices stayed down, so consumers continued to benefit. TR’s trust-busting crusade actually hurt consumers by breaking up the successful, low-price companies, which became rich precisely because they pleased lots of customers. And it has continued in modern times, where the Justice Department wastes lots of taxpayer money persecuting the most successful companies at the behest of inferior businesses who could not compete in the marketplace.
Once you have an unaccountable bureaucracy like the “anti-trust” branch of the Justice Department, no business is safe. No matter what they do, they can be faulted:
And the cost of defending these long, drawn-out suits against the Government is inevitably passed on to consumers.
In reality, if you want something to blame for high prices, look to government. They create monopolies with trade barriers, licensing laws, taxes, and regulations. The government schools are a prime example of high prices and bad service that abuse customers in just the way that TR hated. And they are the only ones who can practice predation, because the government subsidizes their losses. The Post Office has frequently indulged in predatory pricing to try to undercut Fedex, even at heavy losses.
TR was an avid outdoorsman, hiker, explorer, and hunter. He was also a scholar in this area as well, writing a four-volume series, The Winning of the West, from 1889 to 1896. Thus he loved what he considered the pristine, untouched nature areas. One highlight was hiking and camping through the picturesque Yosemite valley with John Muir, the founder of the Sierra Club.
In line with this, he used an 1891 law that gave the President the power to block land from development as “National Parks” and “National Forests”. The total came to 230,000,000 acres! In other words, the Federal Government stole huge areas of land from the States, especially the Western ones.
TR was not an environmental extremist like Muir, and he supported building dams and using our natural resources. But here again, well-intentioned government intervention has proved inferior to the free market in preserving the environment. The Communist countries have had the most appalling environmental records. Even in this country, the government control has proved inferior to the private sector. Thomas Sowell tells of his bad experience with the government-backed monopoly-controlled lodgings at Grand Canyon National Park.
It should be self-evident. Thomas Sowell explained in his widely praised volume Knowledge and Decisions:
“It is precisely those things which belong to ‘the people’ which have historically been despoiled—wild creatures, the air, and waterways being notable examples. This goes to the heart of why property rights are socially important in the first place. Property rights mean self-interested monitors. No owned creatures are in danger of extinction. No owned forests are in danger of being levelled. No one kills the goose that lays the golden egg when it is his goose.”
Although President Theodore Roosevelt was a most able and honorable man, excessive pride in his own abilities led to decisions we are still paying for today. The fact is, no man, no matter how brilliant, can have more knowledge than the millions of buyers and sellers making their own decisions in the marketplace. So how much more absurd is it to expect the current Marxist-in-Chief, who can’t hold a candle to TR in either ability or character, to be anything but a disaster for the economy.
In Part 4, I will cover President Roosevelt’s disastrous third party run, which landed us with the racist Woodrow Wilson and the Income Tax. It will conclude on a high note with some great achievements of his later years.