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The Debacle of Margarine's Utility

Mises Daily: Friday, December 30, 2011 by

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Protectionism always requires an "evil eye and an unequal hand" of the bureaucratic managers who are entrusted with economic regulation.[1] More often than not, government regulators with good intentions trigger massive breakdowns within an all-inclusive market economy, leading to results that nobody desires — what Mises aptly termed "planned chaos."[2] We can see some of the more insidious side effects of regulations that seem fair on the face and impartial in appearance by tracing the history of antimargarine laws in the United States.

According to the usual tale, margarine had its origins in the "genius" of government promotion of industry. Louis Napoleon III had offered a prize in 1869 to any chemist capable of inventing a cheap butter substitute, for he wished to provide the working classes and military with affordable bread spreads. A primitive form of "beef tallow," patented by Hippolyte Mège-Mouriès, was the product that won the prize. International entrepreneurs quickly refined oleo into a more palatable substance, scrapping the lard-based tallow recipes for vegetable oils. Dairy farmers soon objected that margarine threatened to put butter producers out of work (never mind that those dairy farmers were vital to the boom in margarine production, since margarine was only partially produced from vegetable oils at the time, and still required skim milk), and the dairy lobby made the traditional appeal for government protection. Within two decades, French excise men were everywhere in arms against the margarine that Louis Napoleon had promoted for the sake of the indigent masses.

By 1888, a Pennsylvania butter-substitute producer named Powell was defending his right in the Pennsylvania Supreme Court to sell oleaginous butter (viz. margarine) against a "Pennsylvania statute [that] forbade the manufacture, sale, or the keeping with intent to sell" of adulterated butter made from oils, which threatened the protected industries of butter and cheese "produced from pure, unadulterated milk or cream."[3]

Powell fought the Supreme Court of Pennsylvania on the constitutionality of margarine after being convicted by a county court of sessions for "violating this statute by selling and keeping for sale packages of oleomargarine plainly labeled and sold as such, which had been lawfully made in the state prior to the passage of the statute." Powell had complied with state regulations, but the state nevertheless pressed its ex post facto protective measures in court under the auspices of a public health code.

In 1883, Pennsylvania politicians under the influence of the dairy lobby argued that unscrupulous producers of margarine in the United States had mixed their "shilling butter" recipes with questionable ingredients. The state thus passed measures restricting the sale of oleomargarine for the sake of "public health." By 1885, the lobby was so successful that Pennsylvania completely banned the harmless butter substitute. According to the courts that issued the ban, unscrupulous sellers had engaged in outright fraud by labeling their margarine products "butter" in order to make a profit by selling inexpensive margarine for the more expensive alternative — "pure" butter. Rather than prosecuting hucksters for fraud, state and federal courts decided to engage in imprecise and wasteful protectionism to "safeguard the people" from the fringe excesses of the margarine market.

Antimargarine legislation benefitted the dairy lobby by raising margarine's price (due to increased costs that margarine producers incurred by acting in compliance with state regulations, margarine excises, and licenses) and creating an artificial scarcity of margarine. Nor was the antimargarine prejudice a strictly local phenomenon. One French commentator noted that an 1896 protective measure in France "prohibits dealers in butter from keeping margarine on their premises — as if it were an explosive: while the margarine trader will have to be specially licensed to sell that compound, and will not be allowed to sell anything else."[4]

The primary question involved in margarine's legality was that its nearness to butter in all respects threatened not only to undercut butter prices, but also to question the very denotation of "butter." "Margarine" was itself a label enforced by government mandate upon a good that was veritably indistinguishable from butter in use and taste, but which involved a different manufacturing process. Unless butter manufacturers could enforce a legal definition of "butter," margarine threatened to completely restructure the butter industry from the outside and further increase the price differential between the two spreads by weakening demand for the more expensive alternative.

Worldwide bans on margarine, however noble they seemed in appearance as a boon to dairy farmers, were an explicit transfer of wealth from upstanding margarine producers and margarine consumers to dairy lobbies. By the late 1890s, American producers of unmixed oleo were exporting factors of production to the manufacturers of Rotterdam, who mixed the raw oleo with skim milk and oil. The Dutch city soon became the margarine capital of the world.[5] Danish producers capitalized on the price differential introduced by backbiting antimargarine laws worldwide, and they often sold "Le Danak" back to the United States as "butter" to increase profits.[6]

To this day the debate over the respective healthiness of margarine and butter is a popular topic for nutrition magazines, and margarine appears to be winning the battle despite more than a century of regulation by the world's most scrupulous blockheads. It is hard to believe that there ever was a time when uttering "I can't believe it's not butter" would have provided ample warrant to arraign a hapless margarine producer for crimes against the state.

Fierce debate over the legality of margarine was a mainstay of any era featuring excessive government intervention, including the New Deal during the Great Depression. When people needed most a cheap alternative to expensive goods, the government increased the scarcity of butter alternatives by setting up a clunky system of "progressive" protections.

In its 1894 report on Italian commerce and trade, the Foreign Office of Great Britain reported that margarine manufacturers as far away as Florence were legally obligated to mark their products as "oleaginous margarine," to everywhere display ingredients as "artificial," to post signs above margarine stalls denoting the "artificiality" of the products sold, and even to refrain from adding yellow food coloring to the margarine, since this would make it hard to distinguish margarine from butter.[7] Ironically, it was standard practice for butter producers to mix their butter with "artificial" yellow additives in order to increase the spread's appetizing appearance.

A worldwide "separate but equal" charge was placed on those nearly indistinguishable spreads on point of color. Since uncolored margarine is an unappetizing shade of white, the dairy lobbies in numerous countries used government regulation to restrict the coloring of margarine in order to attach a socioeconomic stigma to the rival margarine industry while claiming that natural "yellowness" was a property of butter alone. In some states, governments forced margarine producers to color their produce an unappetizing shade of pink.

Incredibly, the same injunctions were placed upon manufacturers of margarine in places as remote from Florence as America and Australia, including various forms of margarine taxation.[8] In 1886, the United States government celebrated the passage of the Federal Margarine Act, which included a host of restrictions and protections, as well as an arbitrary tax of between two and ten cents on every pound of margarine sold.[9] In 1907, violators of the margarine excise faced up to a $2,000 penalty ($50,000 today) and six months in prison.

When oleomargarine producers began using cottonseed oil in their production processes in the late 1800s during the shift to vegetable oils, dairy lobbies lodged complaints with the state. Cottonseed oil naturally introduced yellow coloring into margarine producers' recipes. While it was successfully prosecuting antimargarine restrictions on point of color, the dairy lobby did not see that it was directly affecting the multimillion-dollar market of cottonseed oil on which many of the poorest African American farmers in the South relied.

Thirteen Jim Crow states upheld outright discriminatory measures on point of race, but federal regulation of the margarine industry accidentally introduced a nationwide "Jim Crow" regulation through the restriction of margarine tinting. Every tax on margarine produced from cottonseed oil was a hidden tax on the southern black farmer. What the regulators could see was the "protection" of butter and the relative maintenance of butter prices. What they could not see were the evils introduced by government regulation, whose aftershocks were generally disastrous.

Between 1890 and 1910, blacks increasingly found employment in the manufacture of cottonseed oil, since the mills dedicated to the oil's manufacture sprang up in the cotton belt. Booker T. Washington's entrepreneurial Mississippi colleague, Charles Banks, built a black-owned and black-operated cottonseed mill in the Mound Bayou colony, which served the market interests of enterprising blacks.[10] Southern blacks flocked to Mound Bayou to attach themselves to the growing industry, thus escaping the clutches of socialistic serfdom in the sharecropping industry.

Though the Mound Bayou experiment ended in dissolution after WWI inflation wreaked havoc on investors and crop prices, many southern blacks remained employed in the cottonseed oil industry. Mississippi floods and massive blank foreclosures in the Great Depression further damaged the cottonseed industry, and government regulation of margarine blocked one important outlet for beleaguered southern laborers.

In 1893 one reporter noted that the majority of southern blacks who owned property would set aside a corner of the household vegetable garden, which was dedicated exclusively to the growth of cotton. The cotton could be sold to the ginners, and the cottonseed could be sold to the oil producers at a rate of 15 or 16 cents a bushel.[11] Whatever was left was ground up into meal as food for cattle.

Whereas the average farm laborer in the Black Belt could make roughly 50 to 75 cents per day, the cottonseed-oil laborer could make between $1 and $2.50 per day.[12] In many instances, blacks had wage parity with whites in cottonseed-oil manufacture, or at least near parity; meanwhile, black workers were earning the skills they needed on the job to restructure the industry from the ground up, entering into skilled jobs and lower management. Peonage laws were in effect in states like Mississippi, but had other protective measures not been in place — i.e., the federal protection of butter's sacred yellow coloring — southern blacks would have made longer strides for economic success through vertical integration despite the oppressive commercial restrictions of Jim Crow.

During the 1949 hearing of the Committee on Agriculture on the motion for repealing antimargarine laws, Mary McLeod Bethune, the president of the National Council of Negro Women, presented a statement voicing her opposition to the antimargarine laws on the behalf of housewives and blacks. She pronounced her judgment with a healthy sense of humor:

Much has been made of the danger of fraud involved in the possibility that a user will eat margarine thinking it is butter. One is tempted, and with considerable justification, to reply, "And what if he does?"

Though Bethune was the black policy advisor to FDR (viz. the prototypical American interventionist and protectionist), and although she helped lead the charge to convert the nation's black population to the protectionist Democratic party, Bethune proved to be an extraordinarily keen critic of interventionist policies.

Could the state enforce the protection of a patent on the basis of color between two rival products? Where does margarine begin and butter end, and where is the official color line?[13]

The regulation of butter and margarine, prosecuted on point of color, was nearly as slippery an issue as government regulation of human industry on point of race. Since human beings come in all shapes, sizes, and colors, and since race-mixing was a nearly universal phenomenon despite social prejudices, it could be very difficult for many industries to regulate commerce on point of race the closer that those discriminated against approached the arbitrarily fixed color line. Trains were a common point of contention for racial regulation, especially in states like Mississippi and Louisiana, which were peopled by a rather high percentage of Creoles.

Homer Plessy, whose Supreme Court case standardized the "separate-but-equal" standard, often "passed off as white" on Mississippi trains, and thus escaped Jim Crow regulations. Though the Supreme Court "took judicial notice" of Plessy's plea that he often passed off as white on trains in Plessy v. Ferguson, the court refrained from defining racial designations, likely assuming the validity of the ridiculous one-drop rule.

As with race, so with margarine. Customs men charged with regulating the legal "yellowness" of margarine were given a series of "color cards" by which to grade the legal tint of margarine when going about their appointed rounds. What they could not see is that their yellow "color cards" were an indirect pathway to outright discrimination against a poor black populace in the rural South.

Bethune and her executive secretary, H. Corinne Lowry, argued that the antimargarine laws discriminated "against colored consumers and other consumers as well … against colored farmers and other farmers also."[14] Because Bethune and Lowry's argument for the repeal of antimargarine laws is a sweeping critique of government intervention and protection on the whole, it is perhaps worth citing the conclusion to their free-market argument:

We need not tell you that the colored people of this country are among the very lowest income groups.

The Federal and State antimargarine laws increase the cost of margarine, a food product as good and nutritious as butter. In many instances, due to these discriminatory laws, families cannot buy margarine. As we have stated, when it is purchased, the discriminatory laws force them to spend extra time in the kitchen, mixing color into margarine and wasting margarine in the process.

On behalf of the 14,300,000 colored consumers in this country, we plead with you to do away with all punitive Federal laws aimed at margarine.

The proposed color ban against margarine is as unfair and unjust as discriminatory race and class laws.

On behalf also of the hundreds of thousands of colored farmers and their families, we urge the repeal of the Federal antimargarine laws.

As this committee knows, most of these colored farmers produce cotton and cottonseed.

The income of these farmers is among the lowest of any group in this country.

Cottonseed oil, which is made from cottonseed, is one of the principal ingredients of margarine.

The antimargarine laws, over a long period of years, have decreased the use of cottonseed oil in margarine and thereby have lowered the price of cottonseed and the income of colored farmers. These farmers are in an unenviable position as it is.

For the sake of the farmers, the consumers, and for the sake of fair play and fair competition, we again urge this committee to approve legislation scrapping the outmoded and un-American antimargarine laws.[15]

William H. Jernigan, a representative of the National Fraternal Council of Negro Churches, argued that those same laws discriminated against millions of black farmers who relied upon the sale of cottonseed and soybeans. He noted that in 1948 roughly 400 million pounds of cottonseed oil and 300 million pounds of soybean oil went into the production of margarine. He appealed to the court on the behalf of black Mississippi farmers, who were "waiting until their cottonseed [was] sold to get money to buy their children shoes to wear to school after Christmas."[16]

If the state's protections in the interest of butter lobbies were removed, Jernigan argued, there would be "increased production of margarine," followed by "indirectly … increased income for cotton farmers. And it means shoes for children to wear to school and to church." Grasping quite well the humanitarian argument for the free market, Jernigan also seems to have captured its long-run consequences.

It is interesting to note that after Bethune and Jernigan entered their pleas for the end of antimargarine regulations, the Teamsters' Local 38 of Everett, Washington, opposed the repeal of the antimargarine laws, citing the "interests" of "the widespread union labor employment on milk trucks and in creameries."[17] In the unionists' own words, the repeal of the oleomargarine tax would drive down the price of margarine for the lower classes, and therefore affect the selling price; and this would, of course, undercut the union's effectiveness in collective bargaining. A widespread boom in production of margarine would increase distribution by nonunion distributors, diversifying the transportation possibilities of margarine manufacturers while weakening union regulation.

Characteristically, the union begged for more protection of the industry to artificially prop up butter's price and to manipulate the supply at the cost of the nation's black cottonseed oil producers. In one fell swoop, the union hoped to restrict the supply of margarine and to restrict the supply of rival drivers, stunting real economic growth for the sake of nominal maintenance of GDP. If the antimargarine laws were repealed, margarine distributors would naturally pick up work in a booming margarine industry, which afforded more opportunities for employment due to margarine's greater availability across the socioeconomic spectrum at a low price.

Notes

[1] Cf. Court's opinion in Yick Wo v. Hopkins (118 U.S. 356).

[2] Mises, Ludwig von. Planned Chaos. Auburn: LVMI, 2009.

[3] In Powell v. Pennsylvania (127 U.S. 678), the court attempted to settle the all-important dispute concerning the constitutionality of margarine. Cf. Hall James Parker. Illustrative Cases on Constitutional Law. St. Paul: West Publishing Co., 1914. 228.

[4] Anon. Paint, Oil, and Drug Review, No. , May 13, 1896. Vol. 21. Chicago: D. Van Ness Person. 25.

[5] Anon. "Manufacture of Margarine." In Chemical Trade Journal, Oct. 11, 1896. 274-5.

[6] Anon. "Butter Eating is a Dying Superstition." In Food and Sanitation, Nov. 30, 1895. London. Vol. 6. 367.

[7] Foreign Office. Diplomatic and Consular Reports on Trade and Finance: Italy. London: Harrison and Sons, 1895. 100. For an annual record of American court cases, the primary purpose of which was to determine the constitutionality of margarine, see also Browne, Irving. The Albany Law Journal: A Weekly Record of the Law and the Lawyers. Vol. 31. Albany: Weed, Parsons, and Co., 1885. 6-8.

[8] In fact, the ban that Australia placed upon the sale and production of colored margarine expired only as recently as the 1960s. Wisconsin, the butter and cheese state, finally repealed its protective measures against margarine in 1967.

[9] Cf. Battle, Laurie C. Oleomargarine. Ed. Marie Stock. Arno Press, 1976. 26-28. Battle's records give more on the charges laid upon margarine wholesalers and producers.

[10] Washington, Booker T. My Larger Education: Being Chapters from my Experience. New York: Doubleday, Page, & Co., 1911. 206.

[11] Reed, Helen Leah. "In a Cottonseed Oil Mill." In The Christian Union: A Family Paper. Ed. Charles A. Briggs. New York: The Christian Union Co., 1893. 74-5.

[12] Greene, Lorenzo J., and Carter G. Woodson. The Negro Wage Earner. New York: Russell & Russell, 1930. 155.

[13] If a margarine producer were to label his product "butter" and then lie about the product's ingredients, he would definitely be committing fraud — as Bethune and Lowry acknowledge.

[14] Battle 1949, 261.

[15] Ibid., 262.

[16] Ibid., 265.

[17] Ibid..