American History Revised (76 page)

1931
When the major petroleum-exporting countries formed their OPEC organization in 1973 and jacked up the price of oil, Americans howled with rage. How dare they try to manipulate the market and subject the world to artificially high prices?

What Americans forgot was that it had been done before, and done so successfully that it lasted more than forty years. The model? The Texas Railroad Commission in 1931.

Up until the 1950s, when the Middle East began producing oil in huge quantities, the major oil producer was Texas, generating more than half of the world’s oil. Regulating the Texas oil industry was the Texas Railroad Commission, originally set up to regulate railroad commerce, which also had the power to regulate other “common carriers” such as oil pipelines. As a regulatory agency, the commission was further empowered to take whatever measures it deemed necessary to prevent waste of oil and gas resources.

Because it is so big and capital-intensive, the oil business is a complex business involving a delicate balance of its major players. Contrary to the popular perception that the oil industry wants high prices, the best level of prices is a stable, midlevel one that assures oil consumers, oil producers, and oil refiners that they won’t be hit with a shortage or a surplus. The history of the oil industry, unfortunately, is one of swings between too much production, which leads to low prices, and too little production, which leads to high prices. In early 1930, oil was selling for $1.30 a barrel. Then came the discovery of the Kilgore Field in Texas, the biggest oil deposit ever found. Within months it was producing more than a million barrels a day (equivalent to 50 percent of all American oil consumption). By the summer of 1931, there was so much supply that people were stealing oil from the Kilgore field and selling it on the black market for as little as ten cents a barrel.

In a business where the cost of production was eighty cents, such widespread panic selling threatened the oil industry with ruin. “The time will come,” warned the Texas Railroad Commission, “when our oil and gas resources will be greatly
depleted or exhausted … the calamity will be too serious to contemplate.” Said one oilman, “There was much unrest, with talk of threats of blowing up wells and pipelines” to curb competitors’ output.

Facing ruin, some 1,200 oil producers and wildcatters met with Texas governor Ross Sterling and asked him to save them from themselves. By unanimous vote, they passed a resolution requesting him to declare martial law. That 1,200 oilmen agreed on anything, let alone unanimously, was a miracle readily appreciated by the governor, himself a former oilman. Sterling wasted not a moment. In a move that violated every U.S. law prohibiting anticompetitive practices and price collusion, he declared a state emergency and imposed martial law. With his full support, the Texas Railroad Commission announced a new system of monthly production quotas (called allowances), specifying what percentage of production the Texas wells could pump each month. To enforce the Railroad Commission’s edicts and to prevent desperate sellers from undercutting the market, the governor sent in state troops to shut down all wells temporarily. This show of force worked, production fell to more reasonable levels, and by 1934 the price of oil was back to more than one dollar a barrel.

Because of the volume of oil coming from Texas, this control of Texas oil pricing had the effect of dictating the world price of oil. When the Middle Eastern countries replaced Texas as the primary source of oil in the 1950s and 1960s, they appreciated the need for joint cooperation of some kind. Looking for a model, they had to look no further than the obvious one in the United States.

Oil isn’t the only case of outrageous trading practices having their origin in the United States. Another example is copyright infringement, especially by China.

For years artists and writers in the world’s most powerful nation have seethed at the theft of their creative works by a large developing country on the other side of the ocean. No matter that the two countries were major trading partners, it was vital that copyright protection be observed. One of the powerful nation’s most popular novelists visited the developing nation and was horrified to find thousands of copies of his novels being printed locally and hawked on the streets for a fraction of what they could be sold for at home (with no royalty to him, of course). After much trade negotiation spanning a half-century, an agreement was reached whereby the developing country granted copyright protection for foreign authors. But there was a condition: the books still had to be manufactured locally. No imports were allowed. The powerful nation continued to push for full copyright protection for its writers and creative artists, and finally got it—ninety-five years later.

China’s policy of copyright infringement
follows early American practice. The novelist appalled at the theft of copyright was Charles Dickens, visiting America in 1842. England granted copyright protection to American authors, but it wasn’t until 1891 that the United States did the same for English authors—with conditions attached (the books had to be printed in America). These conditions were not removed until Congress amended U.S. copyright law in 1986. If we replace the year 1842 with the year 2010 and follow this same pace of copyright reform, then American artists can look forward to obtaining copyright protection in China in the year 2154.

1932
This daring admiral was convinced the Americans would be sleeping on a Sunday morning, a good time to attack Pearl Harbor and get rid of the American menace once and for all. At his disposal were two aircraft carriers and four destroyers in the Pacific, but his chosen weapon of assault would be aircraft—a form of attack never attempted before. Everything depended on surprise. Launching 152 planes at dawn, he succeeded in hitting every ship in Pearl Harbor and destroying all the defending planes on the ground. The carnage on the ground was awesome. Needless to say, his stunning victory was greeted with horror by his superiors in the country’s capital.

He was Harry E. Yarnell, U.S. rear admiral and later commander of the Asiatic Fleet. Conducting a military exercise in 1932 and pretending to be a Japanese admiral, he destroyed the U.S. forces at Pearl Harbor. The exercise, known as Fleet Problem 13, involved a fleet of “Blue” attacking planes launched from the USS
Saratoga
, attacking Pearl Harbor defended by “Black” planes resting on the ground. In a classic example of “loose lips sink ships,” the exercise was duly reported in the
New York Times.
Its report from Honolulu, dated February 7, began, “A vast fighting force of the air rose out of the horizon today, delivered a smashing attack on the defenders of the island of Oahu and then wheeled around and disappeared over the bend of the sea towards its floating base in the Pacific….They made their attack unopposed by the defense, which was caught virtually napping and escaped to the motherships without the slightest damage being inflicted upon them.”

The next day the
New York Times
followed up with another story making it abundantly clear how stunning Yarnell’s victory was: “The sky-hawks circled over the land air base and rained down bombs while the defense, with its interior air force, watched and waited.”

The Japanese consulate in Honolulu was so astounded by what it read that it immediately cabled full details to Tokyo.
Might naval air power be the next new tool of war? The U.S. Navy in Washington was so shocked and embarrassed by Yarnell’s feat that it complained the rules of the war game had been skewed in his favor, and disallowed the results. Such an event could never happen in reality.

Yarnell (third from right) conducting inspection prior to launching his surprise attack on Pearl Harbor. Notice the absence of markings on the planes—the Navy claimed he violated the rules.

By 1941, Yarnell was gone, replaced by a more traditional admiral wedded to the primacy of destroyers and cruisers as opposed to aircraft carriers. On Thursday, December 4, a private dinner party was held at the Carlton Hotel in Washington DC to honor the vice president, Henry Wallace. Present were two dozen of the most powerful men in the nation’s capital. It was a boisterous gathering, full of jokes and camaraderie. After a round of toasts amid the cigar smoke, one man stood up and delivered a quite different message, a somber one. “I feel that I can speak very frankly, within these four walls,” he said. “I want you to know that our situation tonight is very serious—more serious, probably, than most of us realize. We are very close to war. War may begin in the Pacific at any moment. Literally, at any moment. It may even be beginning tonight while we’re sitting here, for all we know. We are that close to it.”

He paused to let the words sink in, then he went on, his voice rising confidently
lest he be a party-pooper: “But I want you to know that whatever happens, the United States Navy is ready!” he thundered. “Every man is at his post, every ship is at its station. The Navy is ready. Whatever happens, the Navy is not going to be caught napping.”

The speaker was Frank Knox, secretary of the Navy. Everyone went to bed and slept soundly.

Seventy-two hours later, the Japanese bombed Pearl Harbor. The “surprise” attack of 1941 had followed the 1932 Yarnell trial run exactly.