By Harold Brown
Government regulations have unintended consequences. Winners are protected, losers are punished, perhaps. Effects are often unpredictable and change with time and conditions. Nothing illustrates the vagaries of government management better than the protection of butter.
Most Americans believe the oleomargarine-butter controversy to be a mild competition between two ordinary foods that began in mid-20th century, but it’s much older and more significant.
Mark Twain (“Life on the Mississippi,” 1874) overheard a conversation between two salesmen on a Mississippi steamboat that included, “… look at it – smell of it – taste it. Put any test on it you want to. Take your own time – no hurry – make it thorough. There now – what do you say? Butter, ain’t it? Not by a thundering sight – it’s oleomargarine! Yes, sir, that’s what it is – oleomargarine. You can’t tell it from butter …”
Such an otherwise insignificant new product set in motion a struggle that affected federal regulation of commerce. A House of Representatives historical Web site relates that “The Oleomargarine Act” passed on July 23, 1886, “set in motion an era of commercial regulation” that made conduct of business increasingly complicated. Passage followed months of debate about federal regulation of private economic activity and interstate commerce.
The law was part of the development of special interest politics late in the 19th century. It was a mundane issue by today’s standards, but it was fought over for the next 64 years with real and extraneous arguments.
A French inventor had won first prize in 1867 in a competition that Napoleon III sponsored to produce a cheaper, butter-like spread that the poorer people could afford. This substitute butter was made from animal fat, milk, water and a dye to give the product a yellow color. This oleomargarine process was patented in the United States in 1873, and the substitute butter soon became popular.
The United States Dairy Company announced ownership of the patent and its intention to grant licenses for manufacture in The New York Times (January 27, 1874). Harper’s Weekly reported two months later that 8 million pounds of oleomargarine had been consumed in the United States within the past year.
Consumption figures are unreliable for the early 1880s, but meatpacking plants like Armour & Company of Chicago were selling oleomargarine as a byproduct for domestic consumption and export. Exports reached 39 million pounds by 1884, almost twice that of butter, and an almost exact reversal of the 1880 numbers.
Dairymen were so concerned about losing butter’s market share that they organized campaigns to reduce oleomargarine sale through prohibition, taxation and/or labeling. The National Association for the Prevention of Adulteration of Butter was formed in 1882. By the mid-1880s, 17 states regulated the packaging and labeling to distinguish it from butter, and seven states prohibited its manufacture and sale.
Because of the limited success of patchwork state regulation, Congress was convinced in 1886 to pass “The Oleomargarine Act” which defined butter to distinguish it from imitations and taxed oleomargarine two cents per pound. It also assessed annual license fees of $600 for manufacturers, $480 for wholesalers, and $48 for retailers.
Senator Warner Miller of New York, sponsor of the bill, was clear about using the taxing power of the government to control competition. He said in the debate, “My object in bringing forward this bill and supporting it is not to secure a large increase to the revenue of our Government; but … in order that under it the Government might take absolute control of this manufacture…”
Taxing a food puts it in a category of items, such as whisky and tobacco, which were later taxed to (purportedly) reduce consumption – and reducing consumption was the purpose of the 1886 law. It was settled early on that oleomargarine was as healthy as butter. Georgia Sen. Joseph E. Brown pointed this out in debate: “By taxing it, instead of exterminating it, the government recognizes it as a wholesome article of food.”
But taxation didn’t solve the problem, oleomargarine production quadrupled to 80 million pounds by 1900. So, in 1902, Congress tried another tack. The tax was reduced to ¼ cent per pound, if uncolored, but raised to 10 cents per pound on oleomargarine colored to look like butter.
Production of oleomargarine grew slowly until the butter shortages of World War II, when oleomargarine production grew by 542 million pounds per year and butter production fell by a similar amount.
In 1950, Congress removed the tax, and by the late 1950s, the two were produced in similar amounts. In the 1980s twice as much oleomargarine was produced, but by 2010, more butter was again being produced. Once the protective tax was removed, competitive consumption depended mostly on perceived health benefits.
It is not very obvious now, nor was it then, that butter (dairymen) needed protection, any more than sugar, cotton, or horses (all of which could have later justified it as much as butter did). Nor did legal protection solve the problem.
To emphasize the unfair protective nature of the 1886 Act, a representative from New York offered an amendment that would tax chicken incubators “in order that the great American hen may be properly protected.” Including hens in the Oleomargarine Act wouldn’t have saved their jobs from the incubators and taxes are the poorest protection any group can hatch.
University of Georgia Professor Emeritus Harold Brown is a Senior Fellow with the Georgia Public Policy Foundation and author of “The Greening of Georgia: The Improvement of the Environment in the Twentieth Century.” The Georgia Public Policy Foundation is an independent think tank that proposes market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the views of the Georgia Public Policy Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.
© Georgia Public Policy Foundation (April 3, 2015). Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.