Q: How many conservative economists does it take to change a light bulb?
A: None. The darkness will cause the light bulb to change all by itself.
History is loaded with myths, and they are often used to lead is in one direction when a more accurate historical account might provide a rather different lesson.
Take, for instance, the Whale Oil Myth — the idea that the free market, without any government intervention, is fully capable of making energy technology transitions. People who believed in the myth have argued against environmental regulation, technology policy and even federally-funded energy research. They say we need to “let the market decide.” It’s a fair debate, and there are many good points to be made on both sides.
But what about the history lesson implicit in the whale oil myth? Doesn’t that tell us that conservative economists are right? And the question is, and must always be in these situations, whether we have an accurate history in the first place.
Origins of the whale oil myth
I first heard about the Whale Oil Myth as a journalist covering a speech by Sen. Henry (Scoop) Jackson (D-WA) in 1979 at the American Stock Exchange in New York. I wasn’t used to commuting into New York, so I was a little late. The AMX people ushered me (as press) right to the front row, and Jackson paused from the podium as he watched me sit down and whip out my notebook. Then he smiled a little, and gave me that “get this, kid” look.
And then he gave the assembled oil industry executives holy damned hell. It great to watch him pounding the podium while they winced. He railed against their control of the economy, the danger they’d put the country in with dependence on the Saudis, their blinkered approach to technology and, most of all, their demand for deregulation.
Oil deregulation was just hypocrisy, he said. It was the “whale oil myth.” What the oil and gas industry has always demanded were subsidies and price controls when it suited them and deregulation when it didn’t. Examples? “What about the Connelly Hot Oil Act?” he thundered. “What about the oil depletion allowance? What about the foreign tax credit? If that’s not regulation, I’m stupid.”
What I didnt quite realize at the time was that Jackson was specifically reacting to s0on-to-be president Ronald Reagan’s economic adviser, Walter Wriston. He often used the Whale Oil Myth to argue that we didn’t need a federal energy policy, for example in this presentation called “The Whale Oil, Chicken, and Energy Syndrome” at The Economic Club of Detroit 25 February 1974. All we needed was deregulation, and the market would move in the right direction.
Acting on this advice, Reagan crippled federal environmental regulation and energy research during the 1980s. He would have done away with the Dept. of Energy and the EPA if he could have.
Picking up the same thread in 1992, economist James S. Robbins provided a more concise account of the Whale Oil Myth in Capitalism Saved the Whales. “The whales were saved because of the march of technology,” rather than environmentalism, Robbins said. The technology of petroleum gave the whales their reprieve. Robbins goes on:
“Stopping technology in its tracks in the 1850s would have doomed the whales. But suppose whaling had been outlawed then, as it is now? The immediate effect would have been a dramatic decline in quality of life. Would kerosene and electric lamps have come on the scene any faster, in reaction to the sudden surge in demand for substitutes?”
“In the 19th century, we were using whale oil for lighting. It was the best way to get light at night. The problem was that there are only so many whales, and we had more people around. And so basically there just wasnt enough whale oil. So what happened was that in Western Pennsylvania, they discovered oil.”
But what if — and I’m just asking here, but what if — these examples are dead wrong?
Despite their differences in political orientation, Wriston and Robbins (the conservatives) and Lave (the liberal) simply haven’t done the homework. It’s a fact that kerosene did not arrive just in time to replace the dwindling supply of whales. It’s a fact, also, that the petroleum industry was born with a very strong tax advantage.
A variety of lamp oils
It wasn’t just whale oil back in the 1850s, when Edwin Drake was thinking about drilling a well. Consumers had a wide choice of lamp fuels in the years before the Civil War. Every sizable town had a store devoted to a variety of lamps and lamp fuels and a “manufactory” for the various fuels. The illustration to the left is H.H. Spalding’s store in Boston, MA around 1850. At Spalding’s store, a consumer would have a choice of five or six types of fuel as well as candles:
- Whale oil — $1.30 to $2.50 / gallon
- Camphene — 50 cents / turpentine and camphor oil without alcohol / not as bright as burning fluid
- Burning fluid — 50 cents / gallon (blends of alcohol, turpentine and camphor oil – bright, sweet smelling)
- Lard oil — 90 cents (low quality, smelly)
- Coal oil — 50 cents (sooty, smelly, low quality) (the original “kerosene”)
- Candles — by 1850 used in rural and low-income urban areas
At the time, street lights from manufactured coal gas were also being installed in cities across Europe and America, but most homes used lamps. According to an IRS report to Congress, alcohol production for the burning fluid market was around 90 million gallons per year at its height in 1860.
But whale oil had already peaked at 18 million gallons in 1845, according to Starbuck’s whaling history of 1878. And kerosene from petroleum was about 200 million gallons ten years later, in 1870. So the picture of a diverse market with a demand ceiling rising from about 100 to 200 million in the 1840s – 1860s, and with whale oil being only a small part of that, is entirely consistent before and after the Civil War.
What happened to change the picture was not some hypothetical market shortage of whales but rather a government market intervention that changed the fuel picture overnight and signaled the beginning of the first oil boom.
In 1862, a tax of $2.00 per gallon was imposed on alcohol, as part of the creation of the Internal Revenue Service, which of course was needed to pay for the Civil War. The tax was intended to apply to beverage alcohol, but it also applied to industrial alcohol for fuel. It wrecked the camphene and burning fluid markets, and in turn, created the oil boom in Pennsylvania.
So the point, then, is that kerosene came into an already well established liquid fuel system with full scale production, distribution and end-use technology already well in place. Whale oil had already been replaced by a variety of other fuels, and the markets for those fuels far exceeded the original markets for whale oil.
Petroleum did not suddenly emerge to light up a world quickly going dark as the supply of whales ran out. In fact, it emerged because its competitors were taxed out of business.
The argument that the petroleum industry did not need the government to replace whale oil, then, is incomplete and misleading. The fact is that the government intervened heavily in the market, and then did not act when manufacturers who were disadvantaged asked for relief from an unfair tax. (The industrial alcohol tax was finally repealed in 1906, against heavy lobbying by the Standard Oil Co.).
So the petroleum industry did not arise in response to market conditions, but rather in response to government intervention. Petroleum did not save the whales in the 1860s. Other technologies had already done that. In effect, the petroleum industry was born with the silver spoon of subsidy wedged firmly in its teeth.
—————– COMMENTS ———————————-
Comment (By Dr. Lave): There was a piece in the NY Times Sunday on whale oil (Peter Appelbome, “Once they thought whale oil was indispensable too).” He (Appelborne) says that whaling was the 5th largest US industry in the 1850s – 735 ships out of 900 in the world.
He says that whale oil was considered far superior to campher, lard, and other substitutes. He claims that whaling was in severe decline by 1861 – even though the first oil well (in Titusville) was 1859 – there could not have been much kerosene coming to market yet. He traces the decline to depletion of the easily accessible whale population – 8,000 whales killed in 1853 alone. A economic view is that the cost of whale oil rose as the whale population was depleted. Ships had to go further and stay out longer to get their quota. The price rose, only the rich were willing to pay for this luxury good, and so the number of ships declined. The implication is that the whaling industry killed itself by depleting the whales. Kerosene filled the market until Edison came long in 1894 with the Pearl Street Station. This seems to be a tempest in a tea pot. 8,000 whales caught with perhaps 20 barrels of oil each is 160,000 barrels of oil or 6 million gallons. With more than 1 billion people in the world, that is 1/170 of a gallon per person.
Even if you consider just the USA and Europe, that would be 1/20 of a gallon each. That is not much light. Clearly, only the rich lighted their homes with whale oil. I don’t understand how a government tax on alcohol had anything to do with this. Burning alcohol for light is not wonderful – they have to turn out the lights for you to see the flambe. I don’t understand the subsidy argument.
The Civil war certainly distracted the US whaling industry, but that just left more whales for the Europeans. The US could have gone back to whaling after the war, if kerosene had not taken over the market and the cost of a gallon of whale oil not become too high. So, free market? Subsidization? I interpret the story to indicate that depletion of the whale population was the primary culprit. I don’t see any evidence of subsidization. Applebome cites Eric Jay Dolan, “Leviathan: The history of whaling in America.” To elaborate: We switched from wood to coal because Europe ran out of trees – and it took some time to learn how to make iron from coal (you have to make it into coke first, eliminating the sulfur and other impurities and just leasing carbon). We have learned to use less tin (tin cans) because of high prices. In general, scarcity or just high prices prompt technological change. We are farming salmon, shrimp, catfish, beef, chickens, etc. because there aren’t enough wild animals to satisfy demand.
So high prices are one source of changes in materials and energy use. A second source is technology. We didn’t run out of kerosene or city gas – electric lights were superior. We didn’t run out of horses – motor vehicles were superior. We didn’t run out of hydropower to run factories, electricity and internal combustion engineers were superior. Thus, developing superior products and processes are another motive for innovation.
Response by Dr. Kovarik: As arcane as it may seem, the whale oil myth is a good illustration of the ongoing debate over energy policy. It matters because the implication that conservative economists draw from the “whale oil myth” is that the invisible hand of the marketplace is appropriately the main (if not only) driving force behind change in energy use.
Liberals see a stronger role for government. In fact, the last time energy was this high on the public agenda, liberals like Sen Henry Scoop Jackson railed against the deregulation of petroleum industry as bowing to Walter Wriston’s “whale oil myth.” I think Jackson would be happier with where things are now and the general recognition (even by conservatives) that national security (at least) indicates a stronger role for government.
Its hard to imagine why Dr. Lave would say: “I don’t understand the subsidy argument.” The argument is simple. In 1862, the dominant fuel (camphene) is taxed at over $2.00 a gallon, while the emerging new fuel (kerosene from Pennsylvania) is taxed at 10 cents a gallon. Not a subsidy? Perhaps tax advantage is a more precise term than subsidy. Even so, the point is that the policy, more than the market, is what changed the way Americans used energy in the 1860s.
I agree, this is not an earth-shaking question, but it is at least a notch up from “tempest in a teapot.” Drawing the wrong lesson from inaccurate history can have impacts. Also, it’s not entirely correct to say: “Burning alcohol for light is not wonderful – they have to turn out the lights for you to see the flame.” That’s true for pure alcohol, but camphene was a blend of turpentine, alcohol and camphor oil. It tested brighter than kerosene, according to Congressional testimony from the Edison Testing laboratory in 1906.
Additional notes Free alcohol hearings, U.S. Senate 1907, p. 320. Also, Free Alcohol Hearings, House Ways & Means Committee, 59th Congress, Feb.-Mar. 1906. (National Agricultural Library, Beltsville, MD).
Henry Ford, Charles Kettering and the Fuel of the Future, by Bill Kovarik has a lot more about camphene and whale oil, from sources such as the History of Light, pamphlet by the Welsbach Gas Co., Philadelphia Penn, 1909; on file in the Smithsonian collection of Advertising, Museum of American History, Washington, D.C.; and The Free Alcohol Law, Senate Finance Committee Hearings on HR 24816, Feb. 1907, Doc. No. 362.
Walter Wriston, The Whale Oil, Chicken, and Energy Syndrome at The Economic Club of Detroit 25 February 1974.
Lester Lave, Harry B. and James H. Higgins Professor of Economics and Finance, Carnegie Mellon University
Public Broadcasting Service News Hour story: “Greening Pittsburgh Paul Solman explores how an old steel city is implementing green energy.”
Alexander Starbuck, History of the American whale fishery from its earliest inception to the year 1876 Washington, Government Printing Office, 1878.
(Note: This site was featured in an August 2008 discussion with Paul Solmon (PBS News Hour business desk) and economist Lester Lave of Carnegie Mellon University. Thanks to both for taking history seriously and for their kindness in answering my questions.