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

[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.”

(New York Times, March 2, 1888, p. 2)

P

What happens in the LONG RUN?

T

Pw + TPw+T

Q

P SB

DB

q

Marginal Cost

AverageCost

WorldSupply

PWPW

One typical British corn farmer Entire British corn market

qf1 QS1 QD1

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?

S’

S’’S’’’

Effects of a Tariff

P

What happens in the SHORT RUN?

T

Pw + TPw+T

Q

P SB

DB

q

Marginal Cost

AverageCost

WorldSupply

PWPW

One typical British corn farmer Entire British corn market

qf1 QS1 QD1

PROFIT

qf2 QS2QD2

At the new higher price, British corn farmers make a profit.

At the new higher price, British consumers import less corn.

Effects of a Tariff

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 - 1889Page 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.

Quantity

Price Supply (MC)

Demand (MR)

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.