An Example of Price Fixation by a Union

From Capitalism and Freedom (1982) by Milton Friedman:

To some extent, labor unions have served as a means of enforcing monopoly in the sale of a product. The clearest example is in coal. The Guffey Coal Act was an attempt to provide legal support for a price-fixing cartel of coal-mine operators. When, in the mid-thirties, this Act was declared unconstitutional, John L. Lewis and the United Mine Workers stepped into the breach. By calling strikes or work stoppages whenever the amount of coal above the ground got so large as to threaten to force down prices, Lewis controlled output and thereby prices with the unspoken co- operation of the industry. The gains from this cartel management were divided between the coal mine operators and the miners. The gain to the miners was in the form of higher wage rates, which of course meant fewer miners employed. Hence only those miners who retained employment shared the cartel gains and even they took a large part of the gain in the form of greater leisure. The possibility of the unions playing this role derives from their exemption from the Sherman Antitrust Act.

This price fixation was great for the union members and especially great for the union leaders (they could continue to exact the same level of union dues) but not so for the coal-mine customers. Then again unions only care about their members not the customers or anyone else outside the union. That’s where union bosses drive their income from---the members.

The Coal Act was FDR’s attempt to nationalize the coal industry. That’s probably why the Supreme Court found it unconstitutional. Then in 1937 the act got a face lift and was passed in Congress. It was basically the same as the 1935 act but had some minor changes. Later on in 1943 it was allowed to expire.