Trends

CAPACITY RESTRAINTS VETOED

When last year's "fuel crisis" arose, a number of America's CAB-protected airlines obtained the agency's permission to collude to cut back service in certain competitive markets, allegedly to conserve fuel. What they then proceeded to do, predictably, was to use the planes thus freed to compete with other airlines—not parties to the collusion—and especially against charter airlines. (TWA doubled its charter fleet from 6 to 12 planes, United increased its from 11 to 18, and Pan Am from 8 to 14 charter planes.) In addition, the level of service on routes subject to the agreements declined; stops were inserted in previously nonstop flights, off-hour operations (rather than peak period flights) were reduced, and large numbers of passengers had to be placed on waiting lists for flights.

All of these points were cited recently by administrative law judge Robert Seaver in declaring these government-enforced capacity restraint agreements illegal. In his decision, Seaver pointed out that capacity, including better schedules, is one of the few areas in which competition between airlines exists. "If capacity agreements become a [regular] part of the regulatory system [as hinted recently by several CAB members], the only real competition will be eliminated, leaving only that competition based on in-flight amenities and services such as movies, meals, the attire of cabin attendants, and other frills that do not compare in value to the public with convenient and efficient scheduling."

Whether Seaver's landmark ruling will stand, however, is open to question, given the strength of the scheduled airline lobby and its symbiotic relationship with the CAB. The decision is certain to be appealed—but the CAB itself is the reviewing agency! (Seaver is a CAB "administrative law judge," formerly known as a CAB "examiner.") Perhaps enlightened consumer groups will take the issue out of the cozy administrative arena and into the Federal judicial system.

SOURCE:
• "CAB to Review Capacity Pact Decision," Charles E. Schneider, Aviation Week, Nov. 25, 1974, p. 30.

THE NEW GOLD RUSH

As 1974 drew to a close, individuals, companies, and governments scurried into position for a totally new gold market environment—one that would have seem inconceivable only a few years ago. The moves underlined a growing distrust of government paper money systems, especially of inflation-prone governments like those of the U.S. and the U.K.

Even some governments expressed this distrust, more by actions than by words. The Swiss and Saudi Arabian Governments transferred large amounts of their gold reserves from vaults at the Federal Reserve Bank of New York to vaults on their own soil—just in case. The Swiss transferred some two million ounces, while the Saudis moved over half a million. French President Valery Giscard d'Estaing pressured President Ford into agreeing that governments could revalue their gold reserves at the market price rather than the "official" price of $42.22, whereupon France did just that. But the U.S. Government still maintained that governments were forbidden to buy gold in the free market.

Meanwhile, several Federal agencies initiated an action program to discourage Americans from exercising their new freedom to own gold. The SEC ended the year with a flurry of investigations and indictments of coin dealers and exchanges, accompanied by strongly-worded press releases implying that those who buy gold are likely to get fleeced. The Treasury momentarily forced down the gold price by announcing its January 6 auction of two million ounces (out of a 276 million ounce supply), but the price rebounded sharply on news of the Ford/Giscard revaluation agreement, and the news that foreign governments would not be allowed (officially, at least) to bid. (The U.S. revaluation will be made official later this year when the Treasury asks Congress to abolish the $42.22 price.) And to further discourage gold use, the Federal Reserve took the following actions:

• Banned savings and loan associations from dealing in gold
• Required banks to notify the Fed and the FDIC before engaging in gold dealing
• Forbade the use of gold to satisfy bank reserve requirements
• Announced that it (the Fed) will not assay or store gold for banks, nor accept gold as collateral for loans to member banks.

Banks will be allowed to accept gold as collateral for customer loans. But the Fed, the FDIC, and the Comptroller of Currency all sought to discourage banks from making loans to enable customers to buy gold, calling these "nonproductive" loans.

None of this discouraged many companies, however. Many large banks have entered the gold business, as have brokerage firms (led by industry giant Merrill Lynch, Pierce, Fenner & Smith). Mutual funds have shifted sharply into South African golds; 7 of the top 10 overseas stocks held by mutual funds are South African golds, and some 26 funds held positions in Vaal Reefs as of December. A gold bullion investment fund, Bars of Gold, Inc., had to increase its initial offering from $30 million to $105 million.

Finally, the National Committee to Legalize Gold, having accomplished its original objective, announced a change of name and program. Henceforth known as the National Committee for Monetary Reform, it will work toward:

• A law to prohibit sale of U.S. gold reserves
• An audit of the entire Federal Reserve System
• Repeal of any laws limiting the use of gold clause contracts
• Education in support of a gold standard.

The battle for sound money made impressive progress in 1974, but is far from over.

SOURCES:
• "Saudi Arabia Withdraws New York Gold," Reuters, Aug. 29, 1974.
• "The Gold Marketers Get Ready to Sell," Business Week, Oct. 12, 1974, p. 26.
• "Treasury Plans to Auction 2 Million Ounces of Gold to Citizens," Washington Post, Dec. 4, 1974.
• "S&Ls Banned from Dealing in Gold; Banks Warned of Risks," Washington Post, Dec. 10, 1974.
• "U.S.-French Agreement Pushes Up Gold Prices," Los Angeles Times, Dec. 18, 1974.
• "Foreign Nations Face U.S. Gold Ban," AP (Washington), Dec. 20, 1974.
• "Investment in Gold," Business Week, Dec. 7, 1974, p. 38.
• "The Golds that Funds Like," Business Week, Dec. 14, 1974, p. 66.
• Press release, National Committee to Legalize Gold, Dec. 1974.

FREE MARKET MILK

The trend of consumer groups recognizing the merits of the free market as an alternative to government/industry price support programs continues to grow. Thanks in part to pressure from consumer groups, California's 37-year old program to enforce minimum wholesale milk prices ended in December, with the controls at retail and farm levels likely to be abolished early this year.

The controversy pitted the state's Milk Advisory Board (a classic state-industry partnership) against such organizations as the California Citizen Action Group (CAG) and Flight Inflation Together (FIT). Roy Alper of CAG testified that California milk consumers were being overcharged some $150 million per year due to the milk pricing laws. He pointed out that in states without controls, milk sells for as low as 47¢ per half-gallon, compared with 71¢ in California. (Pro-control spokesmen replied weakly that prices are even higher than California's in some other states with controls.) Decontrol was also supported by such people as Linda Akulian of the Consumer Co-op of Berkeley and Robert Laverty, president of Thriftimart Stores, Inc., a large supermarket chain. Akulian stated that the best way to reduce prices is for "the state to get out of the milk business." Despite full-page pro-controls ads by the Milk Advisory Board, the state appears to be doing just that.

Fresh from an apparent victory on the milk issue, consumerists are now tackling California's "temporary" price support program for eggs. The program, which orders cuts in production and keeps "surplus" eggs off the market, caused a five-cent per dozen increase during November. (The surplus eggs are sold in Japan at between 25¢ and 42¢ per dozen, vs. California prices of 69-72¢—a practice which would be called "dumping" and prosecuted if done by Japanese with chemicals, steel, or TV sets in the U.S. market!) Consumer groups have so far succeeded in getting FIT member Ruth Yannatta onto the Egg Advisory Board, and in airing their case against price-fixing in the media. "Some farmers may be hurting, but why the state should be protecting those guys and not me as a consumer, I don't understand," Ms. Yannatta has stated. She has also pointed out that many medium-size producers who can produce eggs efficiently don't want the program—a point which has been confirmed by one Egg Board member, Earl Brown, whose own farm is making money. "I don't know how far you can go in protecting the inefficient producer," he admits. Since the temporary program must be approved every four weeks to stay in effect, there is hope that sufficient public exposure may bring about its much-needed demise.

SOURCES:
• "Views Vary on Lifting Milk Price Controls," Los Angeles Times, Dec. 15, 1974.
• "Wholesale Milk Control Ending," UPI (Sacramento), Dec. 18, 1974.
• "Consumer Groups Attack Proposal to Stabilize Egg Prices," Los Angeles Times, Nov. 14, 1974.
• "State Program Increases Egg Prices 5 cents," AP (Sacramento), Dec. 4, 1974.

MILESTONES

Antitrust. By a 7-2 majority, the U.S. Supreme Court has ruled that "interstate commerce" means just that, when it, comes to application of the Clayton Act and the Robinson-Patman Act, two of the three principal antitrust statutes. In Gulf Oil v. Copp Paving Co., the majority of the Justices refused to extend to these two statutes the extremely broad interpretation of "interstate commerce" used in cases brought under the Sherman Act. Under the latter interpretation, virtually any business can be construed to have some impact, no matter how indirect, on interstate commerce. The Court's ruling will thereby shield a large number of local businesses from the depredations of two of the three principal antitrust laws. (Source: "High Court Limits Scope of Two U.S. Antitrust Statutes," Los Angeles Times, Dec. 18, 1974.)

Constitutional Rights. A Houston psychiatrist has chosen to be jailed for contempt of court, rather than be coerced to give courtroom testimony as an expert witness, without compensation. Dr. Gary J. Byrd rested his case on the 13th and 14th Amendments, arguing that providing such testimony would be involuntary servitude, and that the court would be depriving him of property (his report) without due process of law. Byrd pointed out that the Family Code provides for payment of up to $500 for expert testimony in cases like the one in which his testimony was sought. His stand, he told the press, was one of principle. "My constitutional rights are more important to me at this point than the contempt citation," he added. (Source: "Psychiatrist Sent to Jail," Houston Chronicle, Aug. 26, 1974.)

Deregulation. Yet another voice has been added to the chorus calling for a National Commission on Regulatory Reform. Z. David Bonner, president of Gulf Oil-U.S., has urged the business community to support creation of such a commission, which would investigate the ICC, FTC, FPC, FCC, CAB, Federal Maritime Commission, and Consumer Product Safety Commission. In a speech to Town Hall in Los Angeles, Bonner enumerated many of the harms caused by the regulatory agencies, including the natural gas shortage, waste of fuel in inefficient shipping, added costs of recent-model cars, and the decline of the coal industry. (Source: "Gulf Official Calls for End to U.S. Interference in Business," Los Angeles Times, Nov. 20, 1974.)