Dairy farmers have induced the Attorney General of Vermont to investigate their complaint they are being exploited by a milk-processing monopoly. And Vermont’s Socialist Senator, Bernie Sanders, has also urged the Justice Department to investigate, in his effort to ensure that Vermont dairy farmers get “fair prices” for their product. They received a six million dollar payment at the end of last year.

http://sanders.senate.gov/legislation/issue/?id=90c28ee4-5607-4eaf-90b4-1e400d5458d3

Whatever the merits of this particular grievance, it is rather amusing to hear complaints about the abuse of power from dairy farmers, who were pioneers in interest-group politics. They have been adept in using the power of government, as Adam Smith put it, to launch “conspiracies against the public” and “contrivances to raise prices.” And their efforts have had far-reaching constitutional implications.

The Milk Man Cometh

Dairy farmers have induced the Attorney General of Vermont to investigate their complaint they are being exploited by a milk-processing monopoly. And Vermont’s Socialist Senator, Bernie Sanders, has also urged the Justice Department to investigate, in his effort to ensure that Vermont dairy farmers get “fair prices” for their product. They received a six million dollar payment at the end of last year.

http://sanders.senate.gov/legislation/issue/?id=90c28ee4-5607-4eaf-90b4-1e400d5458d3

Whatever the merits of this particular grievance, it is rather amusing to hear complaints about the abuse of power from dairy farmers, who were pioneers in interest-group politics. They have been adept in using the power of government, as Adam Smith put it, to launch “conspiracies against the public” and “contrivances to raise prices.” And their efforts have had far-reaching constitutional implications.

The dairy lobby’s first target was margarine—“oleomargarine,” as it was called in the nineteenth century. In the 1860s a French chemist, Hippolyte Mège-Mouries, devised a method to mimic the cow’s processing of milk from its own fat. Some American manufacturers copied his process and were able to produce oleo that was chemically indistinguishable from butter for about half of butter’s price.

Dairy farmers organized to drive oleo from the market. They claimed that oleo was harmful—manufactured, they claimed, from “dead dogs, mad dogs, and drowned sheep.” They alleged that an “oleo trust” was not only driving dairy farmers to the wall, but also impairing the marriage market, because “women are no longer a necessary adjunct to the farmer lads to help them create wealth, owing to the oleo-cotton-oil-soap-fat combine.”

Failing here, they accused oleo manufacturers of coloring their product and selling it fraudulently as butter. This was despite the fact that dairymen had long colored winter butter yellow to resemble the best “June butter.” They also routinely “renovated” rancid butter to bring it to market. The dairymen finally got Congress to enact a two-cent per pound excise tax on oleo in 1886.

This was the first time that Congress had used its internal taxing power for regulatory purposes, rather than to raise revenue. But oleo would not down, and dairy interests tried other methods to eliminate it. Some states completely prohibited its manufacture and sale. New Hampshire required that oleo be colored pink. (The Supreme Court disallowed this.) In 1902 Congress enacted a prohibitive ten-cent per pound tax on artificially colored oleo, but reduced the tax on uncolored oleo to one-quarter of a cent. The Supreme Court upheld this tax two years later, a milestone in the expansion of federal regulatory power.

Today, if Congress can impose a tax to compel us to purchase health insurance, it will be due to the dairy industry’s effort to use the taxing power to compel us to eat butter.

Organized dairy’s next target was “filled milk.” This was skimmed milk to which was added vegetable oil to give the texture of whole milk. Although it provided all of the protein and most of the vitamins of whole milk at a much lower cost (and fewer cardiovascular hazards), the dairy lobby claimed that it was a health menace. They even resorted to racism, noting that cow milk was a pillar of western civilization, superior to the oriental menace of coconut oil.

Congress prohibited the shipment of filled milk in interstate commerce in 1923. This was the sort of special interest legislation that the Supreme Court would have struck down before President Franklin D. Roosevelt threatened to “pack” the Court in 1937. In 1938 the Court sustained the filled-milk prohibition act. After this, Congress’ power to regulate the economy under the guise of the commerce clause was virtually unlimited. Moreover, the Court said that economic rights were less worthy of judicial protection than “personal” rights and the rights of “discrete and insular minorities.” The dairy lobby provided the occasion for our “double standard” of judicial review.

Perhaps the most egregious exercise of dairy power was a New York law of 1933 that declared that milk was a business “affected with a public interest” and allowed the state to set dairy prices. The New York board set 9 cents per quart as the minimum retail price of milk. A Rochester grocer, Leo Nebbia, was prosecuted for selling two quarts of milk and a loaf of bread for 18 cents. Why, in the midst of the distress and privation of the early 1930s, did New York want to raise the price of milk? The idea was that it would raise the income of dairy farmers, who would then purchase more industrial goods, thus stimulating the economy. The Supreme Court accepted it, again giving state governments virtually unlimited power to regulate the economy. Such counterintuitive trickle-up economic theory helped to turn the 1929 recession into the prolonged Great Depression.

The efforts of the dairy lobby produced an unlimited federal taxing power, and unlimited federal commerce power, and an unlimited state regulatory power. The milk man cometh, and the Constitution goeth.