The Unseen Hand - Ralph Epperson

Additional Economic Terms

It will be instructive at this point to present the definitions which will assist the reader in further understanding the methods and motives of those involved in the Conspiracy. The first definition is:

  • Monopoly: One seller of a particular good in a market place. There are two types:
  • Natural Monopoly: One that exists at the pleasure of the market place; entry to the market is not restricted except by the wishes of the consumer.
  • Coercive Monopoly: Government either creates or allows the monopoly to exist and then uses force to restrict the access of others into the market place to compete.

For instance, the owner of a pet store in a small town where it isn't profitable for another similar store to compete, would have a Natural Monopoly.

An example of a Coercive Monopoly would be a cab company in a city where it alone is allowed to transport passengers for a fee, by the edict of the governmental agency that created it. No one else is allowed to compete. The price charged is set by the government.

The advantage of a monopoly is obvious: the seller sets the price of a good. It is not set by the interaction of a buyer and a seller, each with the option of dealing with others. The seller can make exorbitant profits if there is no competition, especially if the government insures that the seller will receive no competition from other sellers.

Natural monopolies enable the greedy profit seeker only a short term to make an exorbitant profit. Competition tends to reduce the price of the goods sold, thereby reducing the profit made. It is when the monopolist realizes that the secret to long-term wealth is through the utilization of governmental power to limit access of other sellers into the market place that extreme fortunes are made.

Another definition is:

  • Monopsony: One buyer in a market place. Once again, as in the case of a monopoly, there are two types: a natural monopsony and a coercive monopsony.

As an example, the creation of a coercive monopsony was the intent of legislation introduced in 1977 that would have made the United States government rather than the privately owned oil companies the "sole buyer of foreign oil." The advantages are obvious. If the seller of foreign oil wishes to sell his product in the United States, he must sell it at a price set by the government, and that price might not have any relationship to the price set by a free market.

The third definition is:

  • Cartel: A few sellers in a market place combine to set the price of a good sold.

There is one major disadvantage to the cartel: the monopolist has to divide both the market place and the profits with the other sellers.

A simple example should suffice to explain how this system works.

The first producer of any product has the option of setting the price of the good where the profits are maximum. A product that costs $1 to produce can easily be sold for, say, $15 to enable the seller to make a profit of $14 on each item sold.

However, in the free-enterprise system, where access to the market place is not restricted, this type of profit encourages others to enter in an effort to acquire all or at least part of the profits being made. The second seller must reduce the price to induce the buyer to purchase his product The buyer, to save a dollar on the purchase price, now shifts his purchases to the second seller. This price reduction forces the first seller to reduce his price to match the new price of $14 or to a new price of $13 to re-capture the market place. This see-sawing of the price will continue until the price reaches a level where one of the sellers will no longer sell his product.

It is conceivable that one of the sellers will reduce his price to one below the cost of production (his selling price will become $.50 even though it costs $1 to produce) in an attempt to bankrupt his competitor. This price has two obvious disadvantages, though:

  • The seller who sells his product at $.50 must return the profits previously made at the higher price to the market place because he must continue to pay all of his costs. This is not popular with aspiring monopolists for obvious reasons.
  • With the reduced price, more product can be purchased, a buyer can now buy 30 units at $.50 apiece as compared to one product at $15. This means that the seller will be forced to return large quantities of his previously acquired profits back to the market place and the consumer.

A natural monopoly can be broken by competition without the force of government nor the threat of governmental action.

There is one other option that the monopolist has in his quest of exorbitant profits. He can join with the another seller and set the price together by dividing the market place. As stated previously, this forms a cartel, and under this agreement, the two sellers can set the price at $15 and avoid the head-to-head competition that tended to reduce profits for both. But as pointed out earlier, this form of agreement is not popular because each now must divide the market place and share the profits. The only advantage is that it curtails the cut-throat competition between the two.

So the cartel raises the price back up to $15 but this higher price invites competition from a third seller, and the competitive process starts all over again. No cartel, in a free market place where access is open to all sellers, can survive the price-cutting tendencies of competition. The way to break any cartel is to allow competitors to compete.

This encourages the two cartel members to invite the third seller into the cartel to avoid the price-cutting war which will break the strength of the original two member cartel. But once again, the market is now divided between three sellers instead of two, or even one. This market sharing is also not popular with the monopolists.

The key to monopoly control of the market place lies, then, in fixing it so that no one can compete with the monopolist. This arrangement can be made with the only agency with the force to restrict competition in the market place: the government. This agency has the power to curtail competition if the monopolist can gain control of government. This inescapable conclusion soon became apparent to those who wished to control the market place, and the monopolist quickly moved to get control of governments by influencing the outcome of elections.

This connection between the monopolists and government was correctly discerned by Frederick Clemson Howe, PhD., an economist, lawyer, and a special assistant to Henry Wallace, the Secretary of Agriculture and Vice-President to Franklin Roosevelt. He wrote:

"These are the rules of big business: Get a monopoly! Let society work for you, and remember that the best business is politics, for a legislative grant, franchise, subsidy, or tax exemption is worth more than a Kimberly or Comstock Lode, since it does not require any labor either mental or physical, for its exploitation."

John D. Rockefeller, one who correctly assessed the situation as well, expressed the opinion that "Competition is a sin."

Another who wrote of this connection was Dr. Antony Sutton, who wrote in his book Wall Street and FDR:

"Old John Rockefeller and his 19th century fellow capitalists were convinced of an absolute truth: that no great monetary wealth could be accumulated under the impartial rules of competitive laissez-faire society (the free-enterprise system) society.

"The only sure road to the acquisition of massive wealth was monopoly: drive out your competitors, reduce competition, eliminate laissez-faire and above all get state protection for your industry through compliant politicians and government regulation.

"The last avenue yields a huge monopoly and a legal monopoly always leads to wealth."

And in his book, Wall Street and the Bolshevik Revolution, Dr. Sutton further amplified his point:

"The financiers. . .could by government control. . . more easily avoid the rigors of competition.

"Through political influence they could manipulate the police power of the state to achieve what they had been unable, or what was too costly, to achieve under the private enterprise system.

"In other words, the police power of the state was a means of maintaining a private monopoly."

The best known cartel in the world is OPEC, the Organization of Petroleum Exporting Countries, which has recently become extremely influential in the oil markets of the world. This cartel is thought to be foreign, primarily Arabian, in ownership. However, there is ample reason to believe that the principle ownership of OPEC is not primarily Arabian but international, including American.

Dr. Carroll Quigley, in his massive book entitled Tragedy and Hope, discussed an oil cartel formed in 1928:

"This world cartel had developed from a tripartite agreement signed on September 17, 1920 by Royal Dutch Shell, Anglo-Iranian, and Standard Oil.

"These agreed to manage oil prices on the world market by charging an agreed fixed price plus freight costs, and to store surplus oil which might weaken the fixed price level.

"By 1949 the cartel had as members the seven greatest oil companies in the world: Anglo-Iranian, Socony- Vacuum, Royal Dutch Shell, Gulf, Esso, Texaco, and Calso.

"Excluding the United States domestic market, the Soviet Union and Mexico, it controlled 92% of the world's reserves of oil . . . "

James P. Warburg, who should know, further discussed the cartel in his book The West in Crisis. Apparently the cartel had grown to include an additional member:

"Eight giant oil companies—five of them American—control the non-Communist world's supply of oil, maintaining administered prices which . . . yield exorbitant profits.

"The oil companies extract oil from the Middle East, which contains 90% of the known reserves of the non-communist world, at a cost of 20 to 30 cents a barrel and sell it at a collusive price, varying over a period of recent years from $1.75 to $2. 16 per barrel, f.o.b., the Persian Gulf.

"The resulting profit has, as a rule, been split on a fifty-fifty basis with the government of the country in which the oil is produced."

Using the following figures, it is easy to extrapolate price increases to today's oil market prices.

Years Cost Price Profit % of Profit
1950 $ .30 $ 2.16 $ 1.86 620
1979 $3.25 $20.00 $16.75 515

Presuming a 10% per year increase in costs and using the OPEC price of $20.00 in 1979, the profit of $16.75 is approximately the same as that pointed out in Warburg's book.

In other words, the OPEC countries are increasing oil prices today in order to maintain their profit percentages of 30 years ago.

It is interesting to note that both Dr. Quigley and Mr. Warburg wrote about the years 1949 and 1950. OPEC was formed in 1951, right after both authors pointed out that the Arabian oil reserves were owned by non-Arabian oil companies.

It is doubtful that these non-Arabian oil companies gave up the ability to make a 620 percent profit to the OPEC nations when OPEC was formed.

In summary, then, these agreements that artificially set prices, (the cartels, monopolies, and monopsonies,) lead to the accumulation of large quantities of amassed wealth. These marketplace aberrations exist solely because the monopolists have formed a partnership with the government, and the result is higher prices for the consumer.