The Reagan Speech Preservation Society

The Laissez Faire Capitalism That Never Was

Modified: Tuesday, 20 July 2021 21:54 by admin - Categorized as: Podcasts
The following is a collection of the materials used in creating the twenty-seventh episode of the Citizen Reagan podcast about the Reagan's Radio Commentaries.

Part 1Part 2Part 3Part 4Part 5




This is the Citizen Reagan podcast and I need to get in the habit of doing a few things with every episode, like asking you to rate and review the podcast with whatever services you use. Like asking you to share us with your friends, family, complete strangers and your worst enemies, I don’t care really, just as long as you share it. Like telling you that you can find past episodes, transcripts, research and more on a wiki on my webspace. The address for the wiki is but if you just visit, I have a variety of other projects there. I sell digitally restored books, magazines and pamphlets. I have constructed an archive of old pulp short stories. I accept donations through Ko-fi, if you're willing help out. It’s all there on the website. Now, with that out of the way, let's get to Reagan.

When I reviewed the book Musings on Money a few months ago, I mentioned that I was reading The Incredible Bread Machine for consideration for a future broadcast. Not only have I read The Incredible Bread Machine, I've read a 1999 revised and expanded edition as well. There is so much to discuss from reading these books, I'm going to have to turn this into a series of episodes.

Let's start, though, with Reagan’s reading of the book's namesake poem:
There's more truth than fiction in the story of Tom Smith's Incredible Bread Machine. I'll be right back, and I'll be reading poetry. Recently, I came across a slender volume that contains more good sense than nearly all the economic treatises of the last four decades. It's called the incredible bread machine, authored by a group of young people at the campus studies institute in San Diego. They have a sense of humor. They include this poem in their book.

This is a legend of success and plunder
And a man, Tom Smith, who squelched world hunger.
Now, Smith, an inventor, had specialized
In toys. So, people were surprised
When they found that he instead
Of making toys, was BAKING BREAD!

The way to make bread he'd conceived
Cost less than people could believe.
And not just make it! This device
Could, in addition, wrap and slice!
The price per loaf, one loaf or many:
The miniscule sum of under a penny.

Can you imagine what this meant?
Can you comprehend the consequent?
The first time yet the world well fed!
And all because of Tom Smith's bread.

A citation from the President
For Smith's amazing bread.
This and other honors too
Were heaped upon his head.

But isn't it a wondrous thing
How quickly fame is flown?
Smith, the hero of today—
Tomorrow, scarcely known.

Yes, the fickle years passed by;
Smith was a millionaire,
But Smith himself was now forgot—
Though bread was everywhere.
People, asked from where it came,
Would very seldom know.
They would simply eat and ask,
"Was not it always so?"

However, Smith cared not a bit,
For millions ate his bread,
And "Everything is fine," thought he,
"I am rich and they are fed!"

Everything was fine, he thought?
He reckoned not with fate.
Note the sequence of events
Starting on the date
On which the business tax went up.
Then, to a slight extent,
The price on every loaf rose too:
Up to one full cent!
"What's going on?" the public cried,
"He's guilty of pure plunder.
He has no right to get so rich
On other people's hunger!"

(A prize cartoon depicted Smith
With fat and drooping jowls
Snatching bread from hungry babes
Indifferent to their howls!)

Well, since the Public does come first,
It could not be denied
That in matters such as this,
The Public must decide.
So, antitrust now took a hand.
Of course, it was appalled
At what it found was going on.
The "bread trust," it was called.

Now this was getting serious.
So Smith felt that he must
Have a friendly interview
With the men in antitrust.
So, hat in hand, he went to them.
They'd surely been misled;
No rule of law had he defied.
But then their lawyer said:

"The rule of law, in complex times,
Has proved itself deficient.
We much prefer the rule of men!
It's vastly more efficient.
Now, let me state the present rules,"
The lawyer then went on,
"These very simple guidelines
You can rely upon:
You're gouging on your prices if
You charge more than the rest.
But it's unfair competition
If you think you can charge less.

"A second point that we would make
To help avoid confusion:
Don't try to charge the same amount:
That would be collusion!
You must compete. But not too much,
For if you do, you see,
Then the market would be yours—
And that's monopoly!"

Price too high? Or price too low?
Now, which charge did they make?
Well, they weren't loath to charging both
With Public Good at stake!

In fact, they went one better—
They charged "monopoly!"
No muss, no fuss, oh woe is us,
Egad, they charged all three!

"Five years in jail," the judge then said.
“You’re lucky it’s not worse.
Robber Barons must be taught
Society Comes First!"

Now, bread is baked by government.
And as might be expected,
Everything is well controlled;
The public well protected.

True, loaves cost a dollar each.
But our leaders do their best.
The selling price is half a cent.
(Taxes pay the rest!)

This is Ronald Reagan.

Thanks for listening.

There are several versions of this book. I had the opportunity to read the 1974 edition and the 1999 revision. The 1974 edition expands on the original 1966 book by R. W. Grant and contains contributions from 6 students from the staff of World Research Inc. This edition is also available as a free PDF through the Mises Institute website. As always, I'll provide links on the wiki, I also read the 1999 edition. That is the one I said I had purchased from at the same time as Musings on Money.

There was also a movie made in 1975 starring the 6 students who had written the 1974 book, and it's available on Youtube.

The Incredible Bread Machine books might be the most libertarian, even anarcho-capitalist books I have ever read, the 1999 book more so than the 1974. The book promotes the privatization of nearly everything that the government does. It also looks back at history and discusses or reevaluates what we may have learned in school about the actions of government.

Over the next few episodes, I'll be discussing the expanded 1999 edition. As the book is broken up into 5 parts, that seems the most logical means for me to cover it. But it means these episodes are going to be longer than normal.

Part 1, Historical Notes, The Laissez Faire Capitalism That Never Was.

Part 1 is here to challenge the way history was presented to you and me by your teachers in school or the writers of so many educational videos on TV. Those who told us that the unbridled greed coming from free market capitalism forced government to act, breaking up monopolies and trusts and bringing order to the chaos. Was it, perhaps, the government that made things bad?

The primary focus of Grant's rebuttals is the 1934 book, "The Robber Barons" by Matthew Josephson, from which Grant quotes frequently.

The first example cited is that of "The Erie War." The Erie Railroad, deep in debt during the 1850s came to be majority owned by Daniel Drew, a Wall Street broker. Over the years, with the help of friends James Fisk and Jay Gould, Drew would take the outdated railroad and manipulate it to enrich himself. In 1868, the railroad became the takeover target of none other than Cornelius Vanderbilt. Drew, Fisk and Gould would undertake the forgery of their own stock, allowing Vanderbilt to sink millions of dollars into the railroad without ever actually gaining control of it. This now being a case of fraud, he would end up going to the state of New York. Not only could he not convince them to place an injunction against these three, the legislature passed an anti-takeover law, leaving Vanderbilt high-and-dry.

Grant goes on to outline the Credit Mobilier scandal, which saw the U.S. government scammed for roughly half of the money it paid through subsidies to the companies (some of which were fake) involved in the construction of the transcontinental railroad by the Union Pacific railroad. The total cost in 1872 of the project was about $94 million. In 2020, that same amount is roughly worth $2 billion. Imagine, today, the government getting scammed for half that, $1 billion. (Or, don't imagine, because you just have to go back a few years and we have the Obama-era solar scandal where companies like Solyndra and Abound Solar went bankrupt after receiving massive government-backed loans.)

Then, Grant tackles one of the biggest of them all, Rockefeller. Everyone knows that Rockefeller's Standard Oil had to be broken up because it controlled too much of the oil industry. But, one must know Rockfeller and his partners were innovators. Their kerosene was the most pure. They did everything they could to cut costs, which allowed them to pass those lower prices on to the consumers, just like Tom Smith's bread machine. What was their reward? Prosecution for becoming a monopoly, in spite of the fact that there were 125 independent refineries, i.e. competition, around the country in 1908.

Next, we get to a man with his fingers in every pie, John Pierpont Morgan. What Vanderbilt had failed to do in win the Erie War, J.P. Morgan succeeded. With the Panic of 1893, Morgan was able to gain control of it and reorganize a collection of 30 railroad companies throughout the South. Within a year, this collection turned a $3 million profit. Morgan also bailed out the U.S. Treasury in the midst of that Panic. President Grover Cleveland was deemed a sell out to Wall Street, but it saved the federal government, which had destroyed its own gold supply through the free silver movement. Don't ask me to explain it, I don't know that I can do it justice. He would also steer the federal government into the clear during the Panic of 1907. And his reward would be an investigation by a Congressional subcommittee for having too much power over our money.

So, government fails to fight fraud. Government gets duped. Government attacks the innovators. Government needs help from private citizens to keep afloat. Do I detect a pattern?

Into the Progressive era is where regulation starts to grow, and it's with the blessing of the entrenched, powerful private business. There were too many upstarts appearing. U.S. Steel sought voluntary cooperation with its competitors, which didn't last long. They turned to the government to craft new laws which they would be able to comply with, but their competitors would not. With the birth of the Federal Trade Commission, the merger would be complete. I know, we were taught that the FTC was to control business, but it was businessman who were installed to run the FTC.

This new FTC would continue to go after innovators, like Alcoa, DuPont and GE but usually only once they were successful. GE, for example, lost money for 11 years on tungsten carbide. They had a monopoly on it, shouldn't government have gone after them? No, they waited until the technology began to make money, charged GE, its subsidiaries and successfully fined them over $5000 each in the 1940s.

The point of the first two chapters of the book is to state that the United States has almost never practiced real free market capitalism. Government, scratch that, people in government, always have some way, some reason for playing favorites.

Government also interferes in a natural cycle called the "Boom-and-Bust," and it is very natural thing. Think of a piece of land with a few trees on it. Over time, seeds drop and more trees grow, it develops into a forest. The forest gets thicker and thicker, and starts to become more of a drain on the nutrients in the soil. Then, a freak lightning strike triggers a fire, destroying all but the strongest trees, but soon, new seeds begin to sprout, fertilized by the ash left from the fire and the cycle starts over. The boom is the growth, the bust is the fire. When government gets involved it thinks too much of saving the entire forest, stopping the fire early and causing the forest to grow too thick, without the opportunity to renew itself. Failure needs to always be an option.

Grant starts his discussion with talk about the von Mises theory on interest rates and how their natural shifting is the best regulator of a free market. But we don't have a natural shifting, we have the Federal Reserve dictating interest rates. Financial panics, recessions and depressions before the 1913 creation of the Fed were also the result of government interference. The Panics of 1837, 1873, 1893, and the Great Depression each have their own write-up, and the Great Depression is further expanded for its own chapter. I'll run down explanations for each of those panics quickly:
  • Leading up to 1837, land sales were going through the roof and numerous banks in the western portion of the United States had issued their own paper money, without it being backed up by gold. Government at both the state and federal level could have prevented this, but they didn't. The expanded supply of money was ended with President Andrew Jackson declared that only gold or silver backed currency would be accepted at the Treasury, making anything else worthless.

  • In the case of 1873, it was the result of inflationary policies to pay for the Civil War. The inflation was further increased after the war by the speculation in railroads, including the Credit Mobilier scandal mentioned earlier in the book. The scandal broke and suddenly everyone decided railroads might be the best place to invest their money. The book includes a quote from Vanderbilt saying, "Building railroads from nowhere to nowhere is not legitimate business."

  • Regarding 1893, I touched on it earlier. It was the free silver movement. As government minted more silver coins, the value of silver dropped, but the face value didn't. Since the silver could also be traded in for gold, many people began to do this, so much so that the Treasury soon found itself low on gold. That's where J.P. Morgan stepped in and organized to sell the government gold from his and other banks, with interest of course. President Cleveland would seek to repeal the Congressional acts which allowed the added silver minting to begin.

  • The discussion of the Great Depression is almost 20 pages long, spanning the end of one chapter then the entirety of the next, and I must confess, goes over my head at times. Grant starts by discussing what caused it. In the simplest terms, government manipulated the credit system and allowed the money supply to grow too much. Things would seem to teeter towards collapse, but government reassurances would bring it back, keeping people happy and investing, but it couldn't last.

The chapter on the Depression deals with the efforts of Hoover and Roosevelt to end it, which were unsuccessful. Instead of government getting out of the way and allowing, to use my earlier metaphor about the forest, it to burn down so rebuilding could begin, they intervened all over the place. Roosevelt campaigned on a balanced budget, cutting spending, keeping to the gold standard and stopping the growth of the bureaucracy. Wow. I'd vote for that. Maybe that's why Reagan considered himself an FDR Democrat. Those sound like things Reagan would have wanted to do too. But Roosevelt did not come close to delivering on his promises. Gold was confiscated by his order and the price was set arbitrarily. Works programs were used to give jobs to the unemployed, and that cost money the government didn't have. The economy became managed, because a bureaucrat in Washington D.C. knows better than a farmer what his corn should sell for and heaven forbid you go against the government. Some day, I should tell the story of Stanley Yankus, one of the few men known to have left the United States in search of freedom.

Our fifth chapter is entitled Capitalism and the Intellectual: Radical Pique and it asks a fundamental question: Why is capitalism looked down upon? Grant starts by speculating that it was from the free market that we saw the beginning of class stratification. For centuries, the majority of men had been in poverty. The free market and the factories of the Industrial Revolution which are often connected with it saw a rise in the standard of living, leaving some of the poor behind, looking more conspicuous. It was also in these factories where was seen the first child and women laborers, something that would have been looked down upon.

The chapter continues on, shifting the conversation to what it labels Radical Pique, stating: "the anticapitalists comprise a comfortable, prominent elite. Generally affluent, and well-educated, they are bright, articulate and idealistic people. They have (or think they have) all the answers to the problems of poverty, the environment, the economy, etc." But, it continues, they hold "resentment toward an economic system which responds to what people actually want rather than to what these bright people think they should want."

Ahh, this sums up so much. Our politicians and their appointed bureaucrats believe they have all the answers. We, on the other hand, can't be trusted to make economic decisions ourselves, so they must do it for us. They pass laws, create regulations and use every method they can think of to nudge us towards what they believe are the correct decisions. Smoking is not illegal, but they'll throw a massive tax on every pack of cigarettes to discourage it. They have a plan and our freedoms interfere with them.

Last chapter is entitled Regulation Today. It focuses on the current state of regulation and calls it "ideological law" with the idea that often, no one actual suffers harm, rather that it may deem possible violations to be unfair, which leaves a great deal up for interpretation. Grant speaks of a number of incidents where individuals or companies were taken to court (or just outright fined without a hearing) without any kind of specific victim being involved. There are several incidents of insider trading outlined, the story of Michael Milken, Microsoft's anti-trust suit in the late-1990s (from the integration of Internet Explorer into Windows 98) and an anti-trust suit against Intel over their use of their own intellectual property.

I have no idea if what I just told you will whet your appetite to pick up a copy of the book. You'll just have to let me know somehow.

Next time: Part Two: The Three Principles of Capitalism and a Free Society.

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