DRI-275 for week of 8-24-14: The Movie Law of Inverse Relevance

An Access Advertising EconBrief:

The Movie Law of Inverse Relevance

Beginning in the late 1940s and early 50s, more Hollywood movies were made to push a polemical agenda or send a political message. Prior to that, the major Hollywood studios followed “Mayer’s Maxim.” Metro Goldwyn Mayer’s boss Louis B. Mayer is credited with the dictum: “When I want to send a message, I’ll call Western Union.” Mayer objected to “message movies” because he didn’t think they were good box office.

This space has taken a different tack, objecting to Hollywood message movies a posteriori, doubting not their entertainment value but rather their veracity. The problem is that Hollywood producers, directors and screenwriters cannot keep their thumbs off the scales. Since reality stubbornly refuses to accommodate itself to their warped vision, they film their “true stories” by lying about the facts in order to satisfy the audience and themselves simultaneously. The problem is so endemic that the only safe approach is for viewers to assume that filmmakers are lying until proven otherwise.

This tempts us to the conclusion that truth and movies are mutually exclusive. We’re congenitally suspicious of entertainment-oriented Hollywood films. For example, we know that action movies defy the laws of physics and suspense movies end happily whereas real-life suspense often does not. If movies that advertise “This is a true story” are almost certainly lying to us, where can we hope to find a semblance of reality?

The surprising answer is that some of the most entertaining movies from Hollywood’s Golden Age, movies made with no apparent thought for social relevance, occasionally offer stunningly accurate illustrations of history and economics. This forms the basis for an empirical dictum called the Movie Law of Inverse Relevance: The more entertaining the movie, the greater the likelihood of encountering truth within it; the more socially conscious the movie, the less likely it is to be true.

Boom Town: More Than Just Another Hollywood Potboiler

Oil has been the lifeblood of life on Earth for over a century. You’d never know it from depictions of the oil business on screen, which have tended to treat petroleum as a commodity freighted with tragedy and the oil business as populated by psychotics. Yet it was not ever thus.

The 1940 movie Boom Townwas one of the biggest box-office movies in the year after Hollywood’s legendary year of 1939. It starred Clark Gable, the “King of Hollywood,” and Spencer Tracy, winner to consecutive Best Actor Academy Awards in 1937 and 1938. The female lead, Claudette Colbert, had teamed with Gable in 1934’s It Happened One Night, the first film ever to win Academy Awards in the five major categories – Best Picture, Best Actor, Best Actress, Best Director and Best Screenplay. This was their “reunion” film, long-awaited by movie audiences throughout America. As if this blockbuster combination of stars weren’t enough to assure the film’s success, they were joined by Hedy Lamarr, perhaps the most beautiful woman in the world, and Frank Morgan, a scene-stealing character actor and eventual Oscar nominee in both the Best Actor and Best Supporting Actor categories.

The movie’s formidable assemblage of talent was enough to lure people into the theaters and keep them in their seats. But the script, by Gable’s favorite screenwriter, John Lee Mahin – based on a story by another Gable favorite, James Edward Grant – told more than the usual Hollywood tall tale. It told a true story of the oil business and the men who made it work – and a government that tried to torpedo it.

The Plot

The time is 1912. The place is a dusty Texas town called Burkburnett, which some spring rains have turned into a mudhole. Two men are crossing the muddy street from opposite directions on a narrow, rickety bridge of planks built from two-by-fours. They meet in the middle. The tall one (Gable) addresses the other (Tracy) as “Shorty” and cordially invites him to stand aside, knowing this would entail a side trip into the mud. This meets with a stony refusal. The two trade insults and the impasse is about to escalate into fisticuffs – then gunfire splits the air when a man flees the nearby saloon with a deputy sheriff in hot pursuit. The two men abandon their dignity and leap head-first into the mud rather than risk meeting a stray bullet.

Thus is born a famous friendship between “Big John” McMasters and “Square John” Sand. The two share more than a first name. They are both wildcat oil prospectors, freshly arrived in town thanks to the discovery of oil that has turned a tiny Texas fly-speck into a legendary boom town. They have both staked out a likely looking stretch of ground outside of town. They pool their meager assets and find they lack sufficient funds to purchase drilling equipment and supplies. McMasters allows Sand to choose the precise spot to “sput in” (drill) but promises to produce the necessary materiel. At his urging, the two stage a skit to deceive a local equipment dealer, Luther Aldrich (Frank Morgan) into supplying the necessary stuff in exchange for a small share in their well which, they assure him confidently, is a sure thing to succeed.

The well fails. Sand reluctantly admits that McMasters’ choice of drilling location would have been better. Now the pair must raise their roll again – after first fleeing town one jump ahead of that same sheriff’s deputy whose bullets they had earlier dodged, one Harmony Jones (character actor Chill Wills). The film skillfully uses montage to concisely depict the succession of odd jobs and travails that eventually takes them back to Burkburnett. They have enough money to pay for tools and equipment now, but not enough to pay off the debt for their previous dry hole.

Undaunted, the two bluff their way past Luther Aldrich a second time. They’d be crazy to try the same routine on him again, wouldn’t they? This time they’ve really got a sure thing, and they’ll increase his stake as an incentive to agree to an ownership share against what they owe. Luther is imprudent enough to agree, but not completely crazy; he dispatches Harmony as a security guard over their claim to make sure they don’t run out on him a second time. McMasters gives Sand the naming rights over their claim and Sand chooses “Beautiful Betsy” in honor of the girl he left behind back East.

As the drilling progresses, the restless McMasters leaves Sand on duty at the rig one Saturday night and goes into town to relieve the monotony. He bumps into a proper Eastern girl (Claudette Colbert) who has journeyed to Burkburnett to meet a friend. She and McMasters experience the classic Hollywood “love at first sight” evening. By morning, they are married. Sand returns to their boarding house to break the news that their gusher has come in and the time-honored plot device of unknown identity unfolds – Colbert is Betsy Bartlett, the woman Sand is expecting to marry, while Sand is Betsy’s best-friend-who-she-doesn’t-feel-that-way-about. McMasters, in true Gable fashion, steps forward and invites Sand to take a poke at him. But Sand quietly asks Betsy if McMasters is the man she really wants. Upon verifying the truth, he calmly leaves the scene, implicitly giving the two his blessing. “Honey,” McMasters concludes admiringly, “that is a man.”

The movie’s next few minutes set the scene for the rest of the film. The audience learns that McMasters’ love for Betsy is true but equaled by his love of the chase and conquest. Betsy’s real rival is not other women but oil; women only tempt McMasters when he is tied down and prevented from exercising his talent for serial exploration and exploitation of oil. And Sand remains faithful to Betsy, his romantic ardor now sublimated into friendship. The movie resolves into the kind of romantic triangle that only Hollywood could dream up. McMasters and Sand make and lose a succession of fortunes and their friendship is broken and mended repeatedly. The cause of these episodes is Betsy; Sand will not allow McMasters to abuse Betsy’s love.

When McMasters meets the illegally lovely Karen Vanmeer (Hedy Lamarr), the two are drawn to each other. Vanmeer is a skilled business analyst who wants to acquire McMasters in a hostile takeover from his wife. Sand won’t permit it. He proposes marriage to Vanmeer and offers her lavish financial terms including a draconian divorce settlement that would enrich her. Astonished, she mutters, “I see. Greater love hath no man than…”

Eventually, the long-delayed fisticuffs between McMasters and Sand explode. The movie culminates in a battle over control of the oil business.

The plot summary highlights the entertainment value of Boom Town. It says nothing about the movie’s contributions to our understanding of history and economics.

Boom Townas History

There is no narrative or visual prelude assuring us that “this is a true story.” Nevertheless, there is no movie that tells the story of wildcat oil exploration and drilling in the early 20th century as vividly and truthfully as Boom Town. Burkburnett was a real Texas boom town where oil was discovered in 1912. The discovery turned the town upside down in just the manner portrayed in the movie.

How many movies shown today are as relevant to life today? The Burkburnett of 1912 is uncannily like parts of Texas and North Dakota today – scruffy, muddy, starved of infrastructure, crowded with roughnecks, troubled with petty crime but bursting at the seams with opportunity and unbridled vitality. Both today and a century ago, this was a frontier region – not in the geographic sense but in an economic sense. This was entrepreneurship at its most raw and visceral, not something out of business school.

Perhaps the most neglected feature of Boom Townis the role played by this scenic backdrop. The movie is so dominated by its multiple stars and impeccable supporting cast that the audience is unconscious of the background. We feel it acutely nonetheless. The critic James Shelley Hamilton wrote long ago of the elements that make up “the feet a movie walks on.” Boom Town owes its jaunty strut to its brilliantly observed picture of the life of an oil town, whether in Texas, Oklahoma, Pennsylvania, California or Central America.

Boom Town as Economic Theory and Logic

Boom Townshould be shown in university courses on economic history and theory. We could leaf diligently through reference sources like Halliwell’s Film and Video Guide or Leonard Maltin’s Movie Guide without encountering another movie so rich in economic meaning.

The physical, geologic circumstances of petroleum evolution and extraction create an age-old problem of economic investment and consumption. In the movie’s final third, McMasters discovers that the refining of oil offers even more scope for entrepreneurial skill and profit than does exploration and production. Characteristically, he charges into the market full-bore, determined to risk going down in flames in order to become a leader. He forms a partnership with wily veteran Harry Compton (character actor Lionel Atwill). But when Sand and McMasters feud over the latter’s treatment of Betsy, Sand enlists Compton in an effort to break McMasters by double-crossing him. In retaliation, McMasters calls on his countless contacts among the country’s small wildcatters, persuading them to forsake the partnership of Compton and Sand and sell their oil to him instead.

McMasters uses an argument that must have seemed obscure to most movie audiences – and probably still does. But knowledgeable industry observers and economists will recognize within it a time-honored conundrum. “Sand will make you force-pump your wells,” he insists to the wildcatters. “Pretty soon you’ll be looking at dry holes. Go with me and I’ll keep you pumping years longer.” Hollywood was – and still is – famous for dishing out all manner of baloney in the service of its plots. But this wasn’t the usual nonsense.

According to orthodox geological theory, petroleum is created by fossilized deposits that crystallize in the ground over many millennia. These deposits eventually liquefy and congregate in underground reservoirs called “traps.” That term is particularly apt when the liquid is literally trapped within rocks like the shale or sandstone that now supplies much of the oil being produced in the northern United States and Canada. Oil exploration has traditionally consisted of the location, identification and confirmation of these traps.

But just locating oil isn’t enough; that’s just the beginning of the process. Getting the oil out of the ground was no picnic in the early 20th century. Drilling holes in the ground using percussive methods – e.g.; knocking holes with heavy machines – enables the oil to be reached and exhumed. Raising it to the surface isn’t like dropping a dipper in a pail of water lifting it to your lips. It takes great physical persuasion to accomplish. McMasters’ use of the term “force-pumping” referred to the practice of pumping compressed air down the drilling shaft to force the oil to the surface. This term involved a certain amount of time, trouble and danger. But the worst thing about it was the tradeoff it implied. Its use eventually made the trap unproductive – not because the oil was fully extracted but instead because the remaining oil could no longer be withdrawn from the ground. Given the technology currently in use, it was stuck there. We know it was there, or at least those in the know did. But it didn’t count as “reserves,” because “proven reserves” only consisted of oil that was actually extractable. Depending on particular circumstances, this might be anywhere from 30% to 60% of the original petroleum deposit in the trap.

These facts of geologic and economic life are particularly germane today. The U.S. economy today is getting a shot in the arm from oil exploration and production in Texas and North Dakota, not to mention the oil coming from our longtime leading supplier to the north, Canada. Strictly speaking, this oil comes not from “new” discoveries but from long-existing fields and rigs that only recently became economically useful. New techniques of “enhanced recovery” like horizontal drilling (over fifty years old but newly profitable) and “fracking” have given these sources a new lease on life – which aptly describes the effect the oil has had on the America economy.

The wildcatters McMasters and Sand fought over faced a classic economic dilemma. They could pump more oil now and a lot less later or pump somewhat less now and somewhat more in the future. Sand himself alludes to this in courtroom testimony by calling McMasters a “conservationist… although he didn’t know it.” We are taught – conditioned is a better word – to view “conservation” as a good thing, as the antonym of “waste.” That is simply not true, though. There is no inherent, technological logic of efficiency that allows us to prefer consumption in the future to consumption now; only human preferences and purposes can resolve this issue.

That is where the interest rate enters the picture. Interest rates balance the supply of saving funds and the demand for investment funds – that is, the desires of those who want to consume more in the future and those who want to produce things to be consumed in the future. In pure theory, there is an optimal rate of extraction for natural resources such as petroleum that depends on the level of interest rates. Relatively low interest rates suggest that people want to consume lots in the future and that we should economize on consumption now and concentrate on production for the future. High interest rates encourage current consumption and discourage saving and investment geared toward the future.

The movie presents conservation in a whole new lightas governed by economics. Boom Towndoesn’t present this relatively sophisticated analysis explicitly; it just treats McMasters as a hero for promoting “conservation.” The implications of this, however, are unprecedented.

For one thing, Sand suggests that McMasters is acting entirely in pursuit of his own profit, yet his actions promote the general interest. That is, he is providing an operational definition of Adam Smith’s famous invisible hand at work. Celebrations of Adam Smith in Hollywood movies occur roughly as often as Halley’s Comet visits our solar system. For another, conservation in the movies is practiced by environmentalists or mavericks or nut jobs that are portrayed as really smarter than successful people – but never by successful businessmen. In 1940 as today, businessmen weren’t allowed to act nobly or altruistically within the framework of a movie unless they were portrayed as deliberately scorning profit.

Compton matter-of-factly uses the antitrust laws as a tool to harm his competitor, McMasters, thus serving his own business advantage. When Compton (Atwill) muses, “I wonder what the federal government would say about McMasters’ activities…,” and we then witness McMasters’ trial for violating the provisions of the Sherman Antitrust Act, it is a seminal movie moment. It would be over twenty years before radical historian Gabriel Kolko would advance his famous theory of “regulatory capture,” which was eventually co-opted by the right wing as a key plank in its opposition to the regulatory state. Kolko’s research showed that the first great regulatory initiative, the Interstate Commerce Commission (ICC) in 1887, was ushered in by the corporate railroad interests it ostensibly was created to regulate. The railroad business was beset by the age-old bugbear of industries with high fixed costs and low variable costs: price wars among competitors. The ICC cartelized the industry by raising prices and ending the price wars. Subsequent research has shown that antitrust enforcement has specialized in suppressing competition by concentrating on protecting competitors from competitive damage rather than safeguarding the competitive process itself.

McMasters successfully persuades wildcatters to forsake Compton and Sand in his favor. Yet his actions are criminalized as “monopolization.” It is true that orthodox economic theory describes a monopolist as one who “restricts” output in his own interest. But his ability to do that derives from restrictions on entry into the industry. The oil business is legendary for the absence of just those restrictions; indeed, that is what Boom Town is all about. Even the smallest wildcatter, whose fraction of total oil output is so tiny as to foreclose any influence on the market price of oil, still faces a problem of optimizing the time structure of oil extraction and sale. This problem is absent from orthodox theory only because that theory is timeless; it foolishly treats production and consumption as though occurring simultaneously in a single timeless instant.

In the event, the movie and the jury both vindicate McMasters by finding him innocent of monopolization. Unfortunately, he has spent so much money in his legal defense that he is now broke again, for what seems the umpteenth time. And this is yet another sophisticated economics lesson: somebody can be right and win in court, yet still be defeated by the magnitude of legal expenses.

Entertainment Wins Out in the End – as Usual

We are seemingly set up for a downbeat ending. But not in 1940, not when Clark Gable, Spencer Tracy and Claudette Colbert are heading the cast. At the fadeout, we find ourselves on a California hillside, overlooking a valley. McMasters, Betsy and Harmony and broke but happy, living out of a trailer and working the one small section of oil property that McMasters has left after his devastating brush with antitrust law. Who should come wandering over the hill but Luther Aldrich and John Sand? Aldrich has persuaded Sand to invest in the property as a devious scheme to reunite the old partners. Grudging at first, they spar over where the oil structure is located and where the rig will sput in. They turn their aggressive humor on their old target; Aldrich will naturally float them the tools and equipment in exchange for an ownership share in the property, in lieu of cash payment. “Oh, no!” Aldrich exclaims. “You two go broke on your own this time. There’s a dry hole in every foot of this place.”

As the background music score swells, the four principals stroll arm in arm toward the camera, grinning happily. “What’s the name of this sucker’s paradise?” demands Aldrich. “They named it after some old guy called Kettelman,” McMasters explains nonchalantly. “They call it ‘Kettleman Hills.'”

“Kettleman Hills?” Aldrich scoffs. “Doesn’t even sound like oil.”

The 1940 movie audience knew what today’s audience, for whom American history is a lost pastime, never learned. The gigantic Kettleman Hills discovery was one of the greatest oil booms of its day. McMasters, Sand, Aldrich and Betsy will soon be richer than ever. It’s happy-ending time for the cast of Boom Town.

The Moral

Metro Goldwyn Mayer never set out to make Boom Town a “relevant” movie, slake an executive’s social conscience or satisfy a star’s altruistic longings. If anybody associated with the project sensed its historical or economic uniqueness, it was a well-guarded secret. Its singular goal was entertainment, one that it fulfilled admirably.

The bleached bones of failed socially conscious and message movies litter the pages of Variety and other trade publications. The lies told by the numerous “true stories” and exposes await exposure by an investigator with the intestinal and anatomical fortitude for the job. Buried within the boundless entertainment of gems like Boom Town are the real lessons Hollywood can teach us about economic history and theory, freedom and free enterprise.

The relationship between socially relevant pretension and truth in movies is inverse. The more relevance, the less value; the less relevance and the more entertainment, the more truth.