Carlos Hudson Archive   |   Trotskyist Writers Index  |   ETOL Main Page

Jack Ranger

Tapping the Wall St. Wire

“Featherbedding” by the Capitalists

(25 October 1948)

From Labor Action, Vol 12 No. 43, 25 October 1948, p. 3
Transcribed & marked up by Einde O’ Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

All the wastes traceable to operations of a capitalist system, wastes which drain the wealth of the world at a hundred thousand points, will never be uncovered this side of a socialist overturn which will throw open the books of the capitalist monopolies to the public.

There is one outrageous source of capitalist waste which has momentarily been spotlighted recently, and which deserves to be widely known among the working class, particularly among those working on the railroads. I refer to the recent rulings of the Federal Trade Commission outlawing the basing point system, when used to further monopoly, and the three decisions of the Supreme Court upholding those rulings. The essence of the matter is as depicted below:

For decades many of America’s heavy industries have been locked in a conspiracy to sell their goods on a basing point system. Under such a system, a consumer in San Francisco will pay the same price for a load of steel as a consumer in Pittsburgh, let us say, even though the steel is made in Pittsburgh, and the Pittsburgh consumer drove up to the Pittsburgh steel mill with his own truck and hauled the steel away. In some industries, the conspirators have used a multiple basing point system, with several shipping points throughout the country designated as bases.

In general, basing points have been located at the plants of the large producers, who use the basing point system to maintain and strengthen their monopoly of the market. The smaller producers have been located at a considerable distance from basing points. Under these circumstances, the big producer at the base has been able to sell as profitably next door to his smaller rival, perhaps 2,000 miles away, as at his own mill door. The small non-base producer, on the other hand, has been handicapped in selling toward the base by the fact that, as his freight expenses increased, his net profit fell. All markets have been open to the big producer at the base. Only local markets have been open to the producer away from the base.

Originated in Railroad Conspiracy

Under the system, consumers have been paying fictitious freight rates, or “phantom” freight, as it is commonly called. For instance, the Federal Trade Commission has estimated that in Chicago, the fictitious freight upon a ton of steel worth $30, produced 20 miles away in Gary but priced as though it had been shipped from the basing point of Pittsburgh, was $7.60: in Duluth, $13.20.

But there is one aspect of the basing point system that is known hardly at all to the general public, and that is that the system resulted from a conspiracy among the nation’s railroads and the nation’s heavy industries, and that the basing point prices were based on RAILROAD freight rates. When customers have used lower-cost forms of transportation, such as by barge or truck, they have still had to pay the higher RAILROAD freight rate.

The very essence of the basing point system has been its encouragement to an extravagant interpenetration of markets, involving excessive cross-hauling from one end of the country to the other. This has been so because the system deprives buyers of any incentive to purchase from nearby mills rather than distant mills.

Do you understand now how the railroads gained under the conspiracy. Supposing there were two steel mills, one in Chicago and one in Pittsburgh, and two customers, in the same two cities. With the basing point system, a Chicago customer would often buy the Pittsburgh steel, and the Pittsburgh customer the Chicago steel. The railroads of course gained from this “featherbedding.”

The FTC estimated in 1932 that unnecessary transportation of this sort in the cement industry cost more than 24 cents a barrel, about 20 per cent of the total costs of producing and selling the cement.

One is absolutely safe in assuming that the same waste occurred in the case of iron and steel, corn syrup and dozens of other industrial products.

As Charles M. Schwab, the former steel magnate, said in 1928:

“It is manifestly uneconomic for a steel manufacturer in Chicago to ship 100,000 tons of steel to Pittsburgh at a time when a Pittsburgh manufacturer is shipping a like quantity of like material from Pittsburgh to Chicago ... It should be obvious that this waste is paid for jointly although perhaps indirectly by the consumer as well as the producer of steel products.”

Trusts Have Been “Bust” Before!

The pious railroad lords who have been handed tens of millions of ton-miles of freight under the basing point monopoly are the same men who dare to accuse the railroad unions of “featherbedding” when the unions insist on establishing minimum standards of safety in operating the railroads.

The real featherbedders are the capitalist monopolists, who by their economically senseless but personally profitable wastes, running to monstrous proportions, dissipate the wealth of the nation and of the world.

At this point, the liberal with the penetrating eyes will proclaim: Ah, but the FTC and the Supreme Court have now outlawed the wasteful basing point system. This proves that the government can clean up capitalism and make it work for the benefit of the people.

Preposterous. The railroads and the steel trust and the cement trust have just begun to fight. They have set up a Congressional committee headed by Senator Capehart which will take “testimony” from businessmen on the basing point decisions. The lobbies and agents of the trusts are going up and down the land organizing the fight to induce Congress to pass a law protecting the basing point system. In the meantime, the steel trust and other industries have used the court decisions as an excuse to raise prices still further, under the fraudulent claim that the court decisions required such price increases.

You can bet your bottom dollar that capitalist monopoly will not cease its monopolistic behaviour just because a few government bureaucrats, in an election year, take a swipe at the trusts. The politicians have been busting the trusts since 1890. The trusts are flourishing as never before.

Carlos Hudson Archive   |   Trotskyist Writers’ Index  |   ETOL Main Page

Last updated: 6 October 2018