Murray Rothbard Unpacks the Meatpacking Myth
Murray Rothbard Unpacks the Meatpacking Myth
by Brownstone Institute at Brownstone Institute
We are newly aware of the close relationship between industry and administrative agencies, a corrupting one that is building cartels and blocking serious reform of government. This is usually called agency “capture,” but what if that is not the right term? Capture implies an institution that was previously pure and independent that was later taken over. In the case of the FDA, and its predecessor agencies, they have a deep history of industry involvement.
The usual story of the nation’s first major food safety regulation posits a corrupt industry cleaned up by government. The deeper history offers a different story of an industry in trouble with consumers that went to government to shore up its market share.
The best documentation of this alternative view is offered by economic historian Murray Rothbard who wrote a short history of the meatpacking controversies. His article is reprinted here.
The Meatpacking Myth, by Murray N. Rothbard
One of the earliest acts of Progressive regulation of the economy was the Meat Inspection Act, which passed in June 1906. The orthodox myth holds that the action was directed against the “beef trust” of the large meatpackers, and that the federal government was driven to this anti-business measure by popular outcry generated by the muckraking novel, The Jungle, by Upton Sinclair, which exposed unsanitary conditions in the Chicago meatpacking plants.
Unfortunately for the myth, the drive for federal meat inspection actually began more than two decades earlier and was launched mainly by the big meatpackers themselves. The spur was the urge to penetrate the European market for meat, something which the large meatpackers thought could be done if the government would certify the quality of meat and thereby make American meat more highly rated abroad. Not coincidentally, as in all Colbertist mercantilist legislation over the centuries, a governmentally-coerced upgrading of quality would serve to cartelize — to lower production, restrict competition, and raise prices to the consumers. It, furthermore, socializes the cost of inspection to satisfy consumers, by placing the burden upon the taxpayers instead of on the producers themselves.
More specifically, the meatpackers were concerned to with combating the restrictionist legislation of European countries, which, in the late 1870s and early 1880s, began to prohibit the import of American meat. The excuse was to safeguard the European consumer against purportedly diseased meat; the probable major reason was to act as a protectionist device for European meat production.
Partly at the behest of the major meatpackers, Chicago and other cities imposed and then strengthened a system of meat inspection, and the Secretary of the Treasury, on his own and without Congressional authorization, set up an inspection organization to certify exported cattle as free of pleuropneumonia in 1881. Finally, after Germany prohibited the importation of American pork, ostensibly because of the problem of disease, Congress, responding to the pressure of the large meatpackers, reacted in May 1884 by establishing a Bureau of Animal Industry within the Department of Agriculture “to prevent the exportation of diseased cattle” and to try to eliminate contagious diseases among domesticated animals.
But this was not enough, and the Department of Agriculture kept agitating for additional federal regulation to improve meat exports. Then, in response to the hog cholera epidemic in the United States in 1889, Congress, again pressured by the big meatpackers, passed a law in the summer of 1890 compelling the inspection of all meat intended for export. But the European governments, claiming to be unsatisfied because live animals at the time of slaughter remained uninspected, continued their prohibitions of American meat.
As a result, Congress, in March 1891, passed the first important compulsory federal meat inspection law in American history. The Act provided that all live animals must be inspected, and it managed to cover most animals passing through interstate commerce. Every meatpacker involved in any way whatever in export had to be inspected in detail by the Department of Agriculture, and violations were punishable by imprisonment as well as fine.
This rigid inspection law satisfied European medicine, and European countries swiftly removed their prohibition on American pork. But the European meatpackers were upset in proportion as their physicians were satisfied. Quickly, the European packers began discovering ever higher “standards” of health — at least as applied to imported meat — and European governments responded by reimposing import restrictions. The American meat industry felt it had no other choice but escalating its own compulsory inspection — as the minuet of ever higher and hypocritical standards continued. The Department of Agriculture inspected more and more meat and maintained dozens of inspection stations. In 1895, the department was able to get Congress to strengthen meat inspection enforcement. By 1904, the Bureau of Animal Industry was inspecting 73% of the entire US beef kill.
The big problem for the large packers was their smaller competitors, who were able to avoid government inspection. This meant that their smaller rivals were outside the attempted cartelization and benefited by the advantage of being able to ship uninspected meat. To succeed, the cartel had to be extended to, and imposed upon, the small packers.
The much publicized “beef trust,” or cartel among the major packers to agree on prices and restrict production and competition, had indeed been in existence since the mid-1880s. But in an industry with free entry and numerous small producers, and with meat growing in the hands of thousands of stock raisers, the beef trust had no impact on meat prices. Moreover, the competition from small meatpackers was increasing. During the 1880s, the number of meatpacking establishments in the United States had increased sharply from 872 in 1879 to 1,367 ten years later. Under the impact of federal cartelization, the number of firms declined to 1,080 in 1899, but then competitive pressure increased, with the number of firms rising to 1,641 in 1909, an increase of 52% in the first decade of the 20th century. Another gauge is that the meatpackers other than the three largest firms accounted for 65% of meat production in 1905, and the percentage rose to 78% in 1909.
In March 1904, responding to pressure from organized livestock growers, the House of Representatives passed a resolution calling for the Bureau of Corporations to investigate the alleged impact of the beef trust on prices and meatpacking profits. The Bureau’s report, issued one year later, angered the muckrakers, populists, and livestock interests by pointing out, quite accurately, that the meatpacking industry was substantially competitive, and that the packer cartel had no particular impact on meat prices.
Until early 1906, all the popular agitation against the meat industry was focused on the alleged monopoly, and scarcely at all on sanitary conditions. Articles in English and American magazines in the previous two years attacking sanitary conditions in meatpacking houses had no impact on the public. In February 1906, Upton Sinclair’s The Jungle was published and revealed many alleged horrors of the meatpacking industry. Shortly thereafter, Roosevelt sent two Washington bureaucrats, Commissioner of Labor Charles P. Neill and civil service lawyer James B. Reynolds, to investigate the Chicago industry. The famous “Neill-Reynolds” report that apparently confirmed Sinclair’s findings, in fact, only revealed the ignorance of the officials, as later congressional hearings indicated that they poorly understood how slaughterhouses worked and confused their inherently foul nature with unsanitary conditions.
Shortly after The Jungle came out, J. Ogden Armour, owner of one of the biggest packing firms, wrote an article in the Saturday Evening Post defending government inspection of meat and insisting that the large packers had always favored and pushed for inspection. Armour wrote:
Attempt to evade it [government inspection] would be, from the purely commercial viewpoint, suicidal. No packer can do an interstate or export business without Government inspection. Self-interest forces him to make use of it. Self-interest likewise demands that he shall not receive meats or by-products from any small packer, either for export or other use, unless that small packer’s plant is also “official” — that is, under United States Government inspection.
This government inspection thus becomes an important adjunct of the packer’s business from two viewpoints. It puts the stamp of legitimacy and honesty upon the packer’s product and so is to him a necessity. To the public it is insurance against the sale of diseased meats.
Government meat inspection which also lures the public into always thinking the food is safe and reduces competitive pressures to improve meat quality.
In May, Senator Albert J. Beveridge of Indiana, a leading Progressive Republican and old friend of Morgan partner George W. Perkins, introduced a bill for strengthening the compulsory inspection of all meat, including meat products and preservatives, passing through interstate commerce, as well as fixing standards for sanitation within the meatpacking plants. The bill was vigorously supported by Secretary of Agriculture James Wilson. The funds appropriated for federal inspection were quadrupled compared to the existing law, from $800,000 to $3 million. The Beveridge bill passed both houses of Congress nearly unanimously at the end of June.
The large meatpackers were enthusiastically in favor of the bill, designed as it was to bring the small packers under federal inspection. The American Meat Producers’ Association endorsed the bill. At the hearings of the House Committee of Agriculture on the Beveridge bill, Thomas E. Wilson, representing the large Chicago packers, put their support succinctly:
We are now and have always been in favor of the extension of the inspection, also to the adoption of the sanitary regulations that will insure the very best possible conditions…We have always felt that Government inspection, under proper regulations, was an advantage to the live stock and agricultural interests and to the consumer…
One advantage to imposing uniform sanitary conditions on all meatpackers is that the burden of the increased costs would fall more heavily on the smaller than on the bigger plants, thereby crippling the smaller competitors even further.
The major battle over the Beveridge bill was who was to pay for the increased government inspection. The big packers, naturally enough, wanted the taxpayers to keep paying the costs as they had in the past. They also objected to the bill’s provision to compel canning dates placed on meat products, for fear of discouraging consumer purchases of cans stamped at more remote dates. The packers’ objections were embodied in amendments by James W. Wadsworth, chairman of the House Committee on Agriculture, amendments which were drafted by Samuel H. Cowan, attorney of the National Live Stock Association.
When President Roosevelt attacked the Wadsworth amendments after approving them privately earlier, Wadsworth answered him with “I told you…that the packers insisted before our committee on having a rigid inspection law passed. Their life depends on it, and the committee will bear me out in the statement that they placed no obstacle whatever in our way …”
The House passed the Wadsworth bill and the Senate the Beveridge original, but the House stood firm, and the big packers got all that they had wanted, the bill being signed by the president at the end of June. The cans would not be dated, and the taxpayers would pay the entire cost of inspection. George W. Perkins was delighted, and he wrote to J.P. Morgan that the new law “will certainly be of very great advantage when the thing once gets into operation and they are able to use it all over the world, as it will practically give them a government certificate for their goods …”
The opposition to the Wadsworth amendment was scarcely based on anti-business views. Beveridge himself declared, quite sensibly, that “an industry which is infinitely benefited by the Government inspection ought to pay for that inspection instead of the people paying for it.” The same position was advanced by the New York Journal of Commerce.
The leftish opponents of business were not fooled by the Beveridge-Wadsworth law. Senator Knute Nelson realized that the law was a meatpacker’s bonanza: “Three objects have been sought to be accomplished — first, to placate the packers; next, to placate the men who raise the range cattle, and, third, to get a good market for the packers abroad.”
Even Upton Sinclair himself was not fooled; he realized that the new law was designed to benefit the packers; the intention of his exposé, in any case, was not to impose higher standards for meat as it was to improve the living conditions of the packinghouse workers, which he himself admitted was scarcely accomplished by the new law. Hence his famous quote: “I aimed at the public’s heart, and by accident I hit it in the stomach.” Sinclair looked back on the event:
I am supposed to have helped clean up the yards and improve the country’s meat supply — though this is mostly delusion. … But nobody even pretends to believe that I improved the conditions of the stockyard workers.
Neither was Secretary of Agriculture Wilson under any delusions who favored or opposed the new law. Meeting with the large packers shortly after the bill passed, Wilson told them: “…the great asset that you gentlemen are going to have when we get this thing to going will be the most rigid and severe inspection on the face of the earth.” To which the packers responded with “loud applause.”
Swift & Co. and the other large meatpackers took out giant ads trumpeting the new law asserting that its purpose “is to assure the public that only sound and wholesome meat and meat food products may be offered for sale….It is a wise law. Its enforcement must be universal and uniform.”
During the next few years, Senator Beveridge tried to restore the idea of the packers paying for their inspection, but he got no support from Roosevelt and opposition from his Secretary of Agriculture. Meanwhile, the packers continued to defend the Bureau of Animal Industry and its inspections, and they even sought unsuccessfully to strengthen inspection further.
Murray Rothbard Unpacks the Meatpacking Myth
by Brownstone Institute at Brownstone Institute – Daily Economics, Policy, Public Health, Society