Episode #43: Manufacturing Revolution: John Gardner on Local Production and Economic Independence
In this episode of U.S. Manufacturing Today, hosted by Veryable, the focus is on American industry and its critical role in national independence and economic self-determination. The guest, John Gardner, author of 'Manufacture Local' and a seasoned professional in precision machining, discusses the historical significance of localized production in the US and its implications today. Highlights include the socio-economic impact of outsourcing, the importance of manufacturing for national security, and the need for a reformed tariff policy. Gardner criticizes economists like Milton Friedman for their detrimental free trade policies and advocates for a return to the founding fathers' vision of financing the government through tariffs rather than income taxes. Key historical insights and modern policy recommendations are discussed, offering listeners a comprehensive look at the necessity and benefits of revitalizing American manufacturing.
Links
- Manufacture Local on Amazon
- John Gardner Website
- Navigating Trump 2.0
- Veryable Is Revitalizing U.S. Manufacturing
- Sign Up on the Veryable Platform
- Veryable Shop
Timestamps
- 00:00 Introduction to US Manufacturing Today
- 00:15 Meet John Gardner: Author of 'Manufacture Local'
- 00:43 The Historical Context of American Manufacturing
- 01:52 John Gardner's Personal Journey in Manufacturing
- 04:44 Challenges and Realities of Modern Manufacturing
- 06:08 The Impact of Policies on Manufacturing
- 08:30 The Importance of Manufacturing for National Sovereignty
- 15:01 Current State of US Manufacturing
- 16:52 Tariffs and Industrial Policy
- 22:57 The Importance of Manufacturing Independence
- 23:35 World War II: A Manufacturing Miracle
- 24:39 Challenges in Modern Manufacturing
- 27:23 The Ideological Shift: Milton Friedman and Free Trade
- 32:01 The Case for Tariffs and Economic Security
- 33:21 Historical Context of Tariffs in the U.S.
- 38:48 The External Revenue Service: A New Vision
- 45:30 Conclusion and Future Directions
Episode Transcript
Matt Horine: [00:00:00] Welcome back to US Manufacturing Today, the podcast powered by Veryable, where we talk with the leaders, innovators, and change makers, shaping the future of American industry, along with providing regular updates on the state of manufacturing, the changing landscape policies and more.
Today's guest is John Gardner, a lifelong manufacturing guy, and the author of Manufacture Local, a powerful new book about the critical role of localized production. And the forgotten industrial heritage of the United States. John's journey in precision machining and tools has given him a front row seat to the changes and challenges within American manufacturing in manufacture local.
He highlights not just how we make things, but why we make them, and how that mission shaped the very birth of our nation. One quote from his book really jumped out. The cause of the American Revolution is often inaccurately reduced in history classes to taxation without representation. While that was a major contributing factor, taxation without representation was just the tool.
Great Britain deployed as a means to their end goal of stopping the colonies from engaging in [00:01:00] manufacturing activity. The historical lens helps frame today's conversation about tariffs, taxes, and economic sovereignty in a way we don't normally hear on man. A manufacturing podcast. We'll talk about why manufacturing matters, not just for jobs in GDP, but for national independence and economic self-determination.
On top of that, we'll dig into the modern tax and tariff landscape, additional policies and other hot topics. We'll look at how tariff revenues are now surging to record levels with US. Customs duties topping a hundred billion this fiscal year, a sharp shift from their long history as a minor part of federal receipts over the past 80 to a hundred years.
John, welcome to US manufacturing today.
John Gardner: But thanks for having me on that. I'm excited to be here.
Matt Horine: We're very excited to have you. I picked up your book off of X. Admittedly, I came across it. Things jumped out off the pages, and your point of view is so critical in this reindustrialization movement and what's going on in the broader sense in our country today.
But I'd love to jump in right with your background. First, just tell us how you got involved in manufacturing and kind of take us back to the beginning.
John Gardner: My dad was in [00:02:00] the manufacturing industry, mechanical engineer, but he started off in high school, in the shop, straight on a lathe, manual, lathe. And then he worked his way up to being a mechanical engineer and a tool designer.
And when I was in my 9, 10, 11, he started a, a cutting tool, a company out of our garage. And I ground carbide inserts for him in our garage at night and on weekends. And he paid me really well. And I love, I love doing something with precision and holding tolerances of a thul on a World War II era grinder.
When I was 14, I got hit by a car and had brain surgery, was in a coma. I grew up without a TV or a phone. And so I read a lot of books, mostly about the American Frontier heading west and just the Manifest Destiny and Americana. And when I was in the hospital for two weeks, I got to watch a lot of movies and they just jumped off the screen to me and I was like, wow, what a great to tell these stories that had lived in my own head.
I said, I want to go to Hollywood. I dropped outta high school and left home at age 18 with just a bag of books and a bag of clothes and arrived in Los Angeles. I didn't know a soul. [00:03:00] Slept in a garage, slept in my car, and I, I, after a while I realized I didn't really like that industry. You stand around a lot.
I'm an action guy. I like to do stuff with my hands or just thinking. And I also like to be independent and you're really not in that industry. And so just trying to figure out what I wanted to do. And I remember my dad had started his own business and owning your own business signified independence to me.
So I borrowed money from a bartender's dad and tried to revive my dad's old cutting tool business and I was visiting a ex-girlfriend's dad in Oklahoma and he was a good friend of mine and he said I was visiting his company, which is a manufacturing company, electric Motor Manufacturing. He said, man, if I had a tool that could, a cutting tool that could do this.
So I had my dad draw it up on a napkin. I got a prototype made and I brought it to him. And next thing I know, I had a $9,000 purse sorter and I was a waiter and didn't know what to do next. So I borrowed more money and got bill order filled and got an article written about the products performance in a modern machine shop.
And then from 2005, 2009, I still worked in the restaurant industry at night and then I was able to. Afford to [00:04:00] survive on my own with the sales. And so I've been in the manufacturing industry now for 20 years and, and feel very blessed and grateful that I've been able to survive the largest downturn in manufacturing activity in US history, COVID and the Great Recession, and all the offshoring to be able to afford to have a family in America.
And my experience is through it all, I wanted to share it because I, because I felt the importance of manufacturing was lost on the American people today. And so that's why I decided to write the book and, and that's why we're here today.
Matt Horine: That's a great American story. I think it's one that when people think about the classic American story, can we do that anymore?
And there's people among us who've done it and they continue to do it. So it's one of those things that people think about a lot. So it's great to hear your experience and how you came into the industry. You know, in that timeframe, how did running a real shop, a real manufacturing shop, shape your views differently than someone approaching manufacturing?
Purely from just policy? In theory, there's a lot of great thinkers out there, but somebody with a hands-on experience, how did that inform your view that differentiates in the [00:05:00] market
John Gardner: started during the great recession because I, we just saw all this care was given to the banks and no care was given to American people and to American small businesses.
Also hearing firsthand from hundreds and hundreds of customers that, Hey, I got a whole, I got this whole part China sent to me, but I need to fix the part with your tool. I, I would hear that all the time, and I'd be like, why? And they're like, oh, it's just cheaper to make it over there. Now. They wouldn't do make the whole part, they'd be sent it to fix the problems in.
It was cheaper to do the whole part in China, but sent here to fix it really bothered me. Also, hearing a lot of jobs, people would have higher volume in 2005 to 10, and all of a sudden it'd be like I got 30 pieces to make instead of 300 or 3000. And I remember noticing clients. That had known for years and years complaining to me about their volume shrinking and that the jobs they were getting to were to fill in batches from overseas for product errors or missed shipments from overseas instead of making the whole part here as they used to.
And I [00:06:00] felt that was a really bad direction for our country. And it galvanized me to start to look at trade policy and how we got here as a nation. And so that's probably when the first seeds and I, and then I started to watch politicians talk about manufacturing and what they said sounded absurd to me.
They didn't know what they were talking about. Hearing President Obama just say, uh, he was talking to some car manufacturers in Detroit. Folks, those jobs just aren't gonna come back from overseas. And that defeatist mentality, like it doesn't have to be that way. They can come back if we make some changes.
And so then we headed into, within the pandemic and seeing the supply chain crisis and how many things that we needed came from overseas that we couldn't get, and how it caused prices to spry spiral up and hearing so many Manu politicians talk about manufacturing, but not knowing anything about it, and then not doing anything about it once they got elected.
Started to really affect me.
Matt Horine: Yeah, it's a recurring theme, a gap between talking about something and doing something a little different. For manufacturers, they have to do something right to survive, to thrive in the market, [00:07:00] and for politicians and policy makers, sometimes it's just a constant ideation and thinking through things or saying things or not thinking through things and or saying the right thing.
Sounds like that was the big motivation behind writing your book. And you, are you in the book, and this is just a maybe overgeneralization, but would love to hear your thoughts on this, that America has somewhat forgotten its manufacturing heritage. And starting back from the beginning, what do you think we misunderstand most about our own history in relation to manufacturing?
John Gardner: My responses in. Affects the last question as well in that when the pandemic hit, I got a letter from the Under Secretary of Defense saying that my products work for the US Naval Nuclear Propulsion Program was considered essential service and that I wasn't allowed to shut down and I need to fulfill this purchase order.
And I thought that was great. My sales had died 60%. I was like, I can, I need a loan to cover certain things and keep it the ball rolling. I took that letter to banks and they were like, this is a direct quote, quote. They're like, this letter [00:08:00] means nothing to us. We'd rather lend to a Taco Bell, a normal business like a Taco Bell.
That's a direct quote. I went to several banks and I was stunned that their, that the mindset was that essential products for the US Naval Nuclear Propulsion Program, there's nothing in place to make sure we didn't go away during the pandemic, and that really was rock bottom for me as far as. Our nation's understanding of once you lose something, you can't get it back.
And that affected me. That kind of is an answer a bit to your last question. It also applies to the question you just asked, which I think when I was researching my book and you know, the causes of American Revolution went so far beyond what we've been taught in class. We were considered a resource colony, and there is the, the Iron Act, I think seven of 1750 said that the American colonies shall only ship pig iron, which is a block or a rod on a Great Britain ship to Great Britain, and we shall only buy finished goods back from Great Britain.
And it mandated this and even [00:09:00] went so far as to say we, we could have certain furnaces and forges. To produce wrought iron, cast iron steel, and back then the daily goods of life, like a cast iron pan or a cast iron stove are so much more important than they are to us today. Wrought iron was used at wagon wheels, which are very tough nails.
We weren't allowed to make the nails, we weren't allowed to make the wag oils. You can send the raw stuff overseas, but you have to buy the finished good. And why that was so smart economically by Great Britain is. We've lost the understanding in America of what value added means. Value add. When you take a block of steel, say it's worth a penny, right?
A, a pig iron. You take a block of pig iron, but when you turn it into a finished product, the value of that goes up exponentially. A hundred x, whatever it is. And that, that, that's called value add. The ability to do that is manufacturing ability. And we lost our appreciation for that and focus on monetary policy, financial systems.
Rather than, how can a nation be an independent nation if it can't make the bare necessities? It needs [00:10:00] to be independent of a nation's in time. Not even times of crisis. In times of, Hey, some other nation just decides they don't wanna sell us masks anymore, or rubber gloves. For the medical industry, we, we only, American only produces 1% of the.
Rubber gloves we use in the medical industry, the manufacturing industry. We use a lot of rubber gloves in the manufacturing industry and magnet manufacturing, so we only produced 1% of those. That struck according. It is also interested me that during the er, before the American Revolution, we, American and Colonies never manufactured a cannon, and so that's why Henry Knox and Ethan Allen had to go attack Fort Ticonderoga.
It was also a strategic place, but they needed those cannons. That's why Henry Knox had to drag them through the snow. For the siege of Boston, New York. I can't remember. He wouldn't have to make that perilous journey over frozen lakes and rivers to get those cans there. If we were able to produce our own, and actually I did some research on this and when we tried to produce them, there's a direct quote that's fascinating to me that when we poured the molten steel into the cannon molds, they shot up out of the molds.
And this is direct quote, like so many molten serpents [00:11:00] injuring the men working on 'em. And it took hundreds and hundreds of practice tries to figure out how to make them without this happening. Then once they did make them, they had to fire them and they cracked, the cannons cracked, and so it took months and years to figure out how to make cannons as Great Britain did because they had the manufacturing experience.
That really struck home to me that not only the need to make an ability, the, uh, a product, but also the human capital required in the experience because our manufacturers in the colonies were great craftsmen, but they didn't have the experience in canon manufacturing. I don't know if that's answering your question.
Matt Horine: It definitely frames it in terms of the sense of the sovereignty of what manufacturing provides in terms of sovereignty. It provides. This baseline understanding that, you know, true independence is the ability to be selfsustaining, self-sufficient. And to your point, that translates directly to modern times that you know the amount of IP that goes into manufacturing products and processes [00:12:00] and offshoring that and relinquishing the process of building something and handing it over to a service-based economy, contributing to most of your economy.
It does just leave you a little empty handed in times of crisis, which are certain.
John Gardner: Yeah, it does. And another note on how Draconian, the great Britain's laws of manufacturing. They had the War Act, the navigation act, dozens of laws over from like the late 16 hundreds. This wasn't happening in a decade before the revolution.
This was happening 70, 80, 90 years before the Revolution. It was a nearly a century. These laws. One of them, the Wool Act, said you, American colonists weren't allowed to make wool because wool industry was a big deal in England. They wanted to protect it. They weren't allowed to sell wool garments on the open market.
They weren't even allowed to sell them in their own colonies. So the reason why the spinning wheel is still the symbol of the daughters of the Revolution is because they have spinning party and it would make clothes and they would trade them and barter to get around. You can't sell the law that you can't sell them.
And per decade, upon decade, we tried to work around the [00:13:00] laws. I think that beyond just the taxation without representation that we've been taught, just the basic human right to make something and craft it and then sell it. Was stopped. And I think that needs to be talked about more in history, US history class.
Matt Horine: Yeah, absolutely. Because it reframes the proposition. Most people probably look at it through this lens of the colonists were upset that T was taxed. It's really baseline, which is true, but it's also the stamp back. There were other things. Going on, it reaches a boiling point, not after just a couple years, but around decades of I should be able to make, buy, sell whatever I need to not only survive to conduct commerce, and then that's where big ideas come from, right?
We're conducting commerce ourselves and we're geographically separated maybe than independence. Makes a lot more sense
John Gardner: on your comment about the innovation that comes from manufacturing is in a 2021 or 22 defense department. So they, the conclusion was that for every dollar invested or spent in the manufacturing industry.
It creates $2 and 79 cents [00:14:00] in return, giving it the highest multiplier effect of any sector of the economy higher than Wall Street, higher than Silicon Valley Also. The manufacturing industry creates more patents, 50 to 70% of US patent filings than any other sector, and it also creates three to five jobs for every one job created in the manufacturing industry because it creates jobs that are relying on it, and it's truly the most dynamic sector of the economy, yet there's not much being done for it.
Matt Horine: And you can see why I think that there are people who had ulterior motives, people who saw like the debasement and the de-industrialization that we've experienced over the past couple decades is a critical national security threat. And for us it's, we think in terms of labor arbitrage and productivity and can we get more out of this and can we do it on a cost basis?
While meantime, other nations are absorbing your ip, your manufacturing process, and your industrial might. So. It's certainly a DA different reframing kind of pivots us. We'll go back to the history here in just a few minutes, but I think we've touched on something in the current manufacturing landscape, in this [00:15:00] reindustrialization movement, this broader movement.
How would you describe the current state of US manufacturing from your vantage point? As somebody who has run a manufacturing facility and business, and as somebody who's been a pretty keen observer of it over the last couple decades.
John Gardner: Currently I am encouraged and discouraged on both. I think business to business is gonna do very well on business to business, and we had a record year last year.
I think business to consumer is. Not doing great because I think the tariff, I'm a big tariff fan obviously, but I think they need to be targeted and consumer good. Tariffs from overseas need to be targeted higher, whereas the tariffs right now are a valorem, very blanket broad and hit manufacturers. A tariff rate on olive oil from Spain can, as a general rate, tariff rate, can affect machine tools that we need from Germany.
The goal is to get. Machine tool manufacturers from Germany to make their machine tools here in America and sell 'em here on our soil. That's a great cause. But until we become a manufacturing superpower and we still need those machines, for [00:16:00] example, I had a friend of mine, he was getting a herley CL axis lathe from Germany.
And his price went from 400 grand to 540 grand because of tariffs. But then check this out. That's just the cost of machine. To automate it, automate that machine so it can run for a week without him having to touch. It was another 600 grand. Bring it up to about 1.1 million, and there's a tariff on that.
I believe in tariffs to drive goods here, but you has to signal to industry, Hey, these tariffs are coming. Get what you need. We also in the industry, have to have access to funds. If you're gonna have terrorists, we have to have the consumer goods to make, to justify the purchase. Politicians are like, oh, just buy new machines and then you'll be ready for the goods.
I'm not gonna just buy a machine if I don't know. I have the business. I have to see the business. I get the purchase orders in hand, reach capacity first before I spend the money in the machine. And so they, because they've never ran a business, they don't understand that. And I think that President Trump is doing a good job of trying to get the building blocks of low energy costs.
Drill baby [00:17:00] drill. He's attacking the rare earth critical mineral crisis very heavily and he's, he has hefty tariffs on steel. I'd like to see massive tariffs on aluminum, copper be beyond the tariffs. Industrial investment. No sector of the American economy has been hurt worse by 50 years of free trade ideology.
Yet tariff money is being designated for farmers. We give money away to foreign entities. We give funds to Argentina, we all these things. But if you talk about industrial policy, which is direct government investment to build up capabilities, I know for a fact that has been said within the halls of this current administration that's communist.
I know that for a fact from the horse's mouth. And so the reason why we're not seeing government money into factories being built is because they are stuck on this idea that's picking winners and losers. And to me, the government, if the government's gonna pick winners and losers, they should always pick something that creates $2 and 79 cents in an economy when you invest $1.
But [00:18:00] also the government picks winners and losers all the time. They give banks 90% guarantees on small business loan. That's a picking a winner and loser. They don't guarantee 90% of my business. I had a friend of mine fly around in a Black Hawk helicopter overseas every month carrying hundreds of millions of dollars in a bag that he would hand out to tribal leaders and he's, we would never know if they did what they're promising to do.
So the government picks winners and losers all the time, hands out money all the time. But for some reason when it comes to industrial policy, there's this, oh, we don't wanna be commies. Guess what? Most other governments that have manufacturing might have subsidized their industry. And so I think that if all these things, the tariffs have hurt small businesses, I know my buddy Steel price and not just my buddy, many clients are complaining about the cost of steel, the cost of copper.
My own price, price of copper and brass has gone up. My cost of carbide is nearly doubled because they're now, we have higher sales. But I think that we need to be building so many aluminum foundries have [00:19:00] shut down in the last three years. Like we're, I think we have a three left in the nation about that.
We should be using government money to reopen them at scale so that then we can get American made non tariff aluminum for a cheaper price rather than just paying more for an overseas price. And I think that's what this administration is missing, although I'm a big fan of what they're doing with the general idea.
I think you have some people who. Do not listen to people from the manufacturing industry. I can't think of one person who is from the manufacturing industry that works in administration unless they were in the C-suite of the manufacturing industry. So that's my opinion on the current state of manufacturing there is.
I don't see the price of steel and the price of raw materials coming down because we're not opening up more domestic production. It's gonna be a long road till the current domestic production gets enough demand. Right now we're in a fre a frenzy just to get what we need as the prices go, and raising our own prices that it's frustrating because I feel they're not listening.
Matt Horine: Yeah, no, that's a really good point because a lot of the impetus for [00:20:00] this, the tariff structure, is that it was to the effect, there were other countries that were subsidizing their industry, and so it created that unfair advantage and the reciprocity. Of this is what was attempting to level the playing field.
You made a great point. It's right direction. Almost like 80, 90% there and the focus on the consumer. That's what I think that we've seen a recurring theme about this, like scare tactic. If you can remember, there was a certain Senate majority leader who as soon as tariffs came out, was talking about the price of his corona beer and avocados, and that's not what we're, that's not what we're talking about here. We're not talking about to re industrialize the country. And so mostly used as a scare tactic. And quite frankly, consumers are pinched as it is, and it forces other decisions, but they do pick winners and losers.
You've seen it in banking, to your point, small business loans. You look at the bailouts that occurred. Automotive companies were bailed out in 2008, whatever banks were consolidated and pulled together. It was because it was more of a survival. For the service economy that we were building and still we doubled downed on.
And you see a lot of the same things happening [00:21:00] today that were happening just before the financial crisis.
John Gardner: We're picking winners and losers. When we get federal funding to colleges, we're picking the people who go and get a degree. And so the people that go into the trades, and I had a client of mine complaining about the copper price of copper is that we mine a lot of copper in America, but we don't refine a lot.
So the copper that a lot of the copper that gets mined here gets sent overseas to be refined. Then it gets tarone it's way back. Now why isn't the government taking a lot of that tariff money, which they're bragging. They have a lot of, and building refining capability here for copper so that then the price of copper for our goods domestically made comes down.
And so I think it takes time to do that and it better get started.
Matt Horine: So yeah, it's some point. It's gotta. It's gotta move. That's, I think, what everybody's anxiously awaiting for. Cautiously optimistic. Another thing on this before we, we pivot to the evolution of federal revenue strategy, but I do have one more question based on this Reindustrialization movement, local manufacturing, patriotic, economically rational, those morals, patriotism, [00:22:00] and national interests, they guide the ec, the economics of all of this.
But according to today's global free market capitalist. If they don't think so necessarily, and I'm paraphrasing from your book, some of the greatest economic minds that have been lauded over the past several decades were in that prism of the Cold War mentality of capitalism versus communism. That relates directly to manufacturing.
'cause like you just said, it has real world impact. They say they don't want to because they don't wanna pick winners and losers. But let's, I, if you don't mind, we could read, deconstruct that a little bit and in your book you say that post-industrial is actually pre-industrial. And I think that's a nice framing to think about thinkers such as freedmen or the post-World War II economy.
What does that look like to you?
John Gardner: I remember hearing the Bushes and the Obamas and the Clintons bragging that we are industrial reporters. Bragging. I remember a reporter bragging that President Trump saying, oh, we're, we're post-industrial. Now, why do you keep talking about manufacturing? It's because if you're post-industrial, you can't make the goods that your nation needs, meaning you're pre-industrial.
Being pre-industrial means that [00:23:00] you don't have the ability to be independent of other nations. And what they don't understand is that 80, 80% of global commerce is based on a product, something physical, something real. Only 20% is based on services. So if you embrace only 20% of the. Global economy and brag that you're a service oriented economy.
That seems stupid to me. I just, I say that flat. It seems very stupid. And not only is it just the economy, the dollar production, but the time it would take to reshore those things and the, not just the time to build a new fact, but time to train people. The reason why we were able to win World War II was because we had massive civil manufacturing by human capital knowledge that we could pivot.
Two, military manufacturing and time of need. Uh, just a couple statistics from that. There is a event that I think it's. It needs to be taught US history. It was called the Miracle in 1942 when we dramatically expanded our military production powers, and for a few examples are in [00:24:00] 1941, the United States made uh, 3,900 tanks.
But by 1942, just a year later, we produced 24,700 tanks. But 1941, we produced 318 B 17 bombers, but by 1942 we produced 2,600. And the Saginaw steering gear company were supposed to supply the government with 280 machine guns. By March, 1942, when that date came, they shipped 28,000 machine guns. The United States was producing more war material than all three access powers.
Germany, Italy, Japan, combined before 1942 was out a year later. Now, what's mind blowing about that? Is that there? The United States, it took us two to three years to figure out how to make torpedoes again. Just how to make them again, let alone produce 'em at scale. We stopped making torpedoes after the Cold War ended.
We stopped making 'em. In 2008, 2018, we decided, hey, we should probably know how to make torpedoes. It took us two to three years to figure out how to make torpedoes again, two to three years. Now, why did it take so [00:25:00] long now when things should be more high tech Manufacturing should be better now. Right?
Than it was in the forties when we could outproduce stuff. And I, there's a great article in Defense News that I'll quote is that the primes have done feel that they have done everything they can, the primes being the five defense contractors. And it says the large defense contractors say they've done their part in recent years to expand their production facilities, hire and trained workers, and modernize their processes until key suppliers.
Deliver critical components faster, including Rocket Motors, electronics. Overall munitions Production rates can't increase, meaning the tier 2, 3, 4 suppliers, guys like me, that they, until we get the civil manufacturing jobs from the consumer goods to plug the holes between intermittent defense spending.
Defense spending should never be how the nation's manufacturers stay in business. But we should be able to pivot to it in times of need. So the Navy's plan to solve these bottlenecks. Was included $380 million in [00:26:00] fiscal year 2024 budget plans. That's not a lot of money. That's, and certain electronic productions, for instance, are slowing down torpedo production.
There's a really good quote elsewhere in this article that I wanna get to because in 2020, the Navy said they would buy 48 long range missiles. The industry struggled to respond to build 48 missiles. Vendors on the heavyweight torpedo program needed three years to rework the 1990s era torpedo design, which was riddled with parts that were no longer available before they could start production.
We couldn't make parts that used to be made why didn't have the human capital. Things are made differently now. Automation, robotics, we could not make the greatest generation my, the engineers of the eighties and nineties, seventies, eighties, nineties, they knew how to make stuff that we cannot make now and that should be terrifying for our country.
Absolutely terrifying. And I think that, I think that is an unseen danger, and I think it. Answers the question as to what should we be what? What are the important things we should be focusing on as a nation?
Matt Horine: It is terrifying because you [00:27:00] can't really recall any point in history that was the case. Maybe because somebody wasn't around to write that history, if they've forgotten their way or their ability, or the human capital or that knowledge transfer just didn't take place, that's where it all comes to a close.
There's some kind of transition or some type of. Big event that transitions into a new era of history and it's daunting and it's scary. I'm glad we're having the conversation though, and we've identified it.
John Gardner: Yeah. You asked me what, where the ideology went wrong and it really in in it really came about when Milton Freeman published his book, capitalism and Freedom.
The idea is that it is more limited government and more personal liberty for you to have more choices on the market. Shelves of goods made possibly with slave labor overseas. That is more freedom than paying our bills with tariffs and not having income tax. That was pitched to the American people as more freedom and more personal, Reba, and that was built, he was built up by every conservative economists and influencer and all the [00:28:00] more liberal economists like Paul Krugman joined him in saying that unilateral free trade.
Here's what I want the listeners to understand. I'm a capitalist and I believe in free trade. I'm an America first capitalist, and my definition of America First Capitalism is a production based economy behind protective tariffs accompanied by free trade. Only within our borders. Only within our borders.
And if you doubt for a second that Milton Friedman meant unilateral free trade, what does unilateral mean? What does it mean? It means that we lower our tariff barriers, whether other nations do or not. What if India tariffs us at 300%? We don't tariff them. If China steals our ip, we don't tariff them. No matter what another nation does, we don't tariff them and that is what he meant.
And I can read from his book, page 88 in Capitalism Freedom. He says, we are a great nation and it Ill behooves us to require reciprocal tariffs. From Luxembourg before we, we reduce a tariff on Luxembourg products or to throw thousands of Chinese refugees suddenly outta work by imposing import quotas.[00:29:00]
On textiles from Hong Kong, it is far greater for us to move to unilateral tariffs. He meant that, but what he did is he didn't look at the cost he pitched to you that it was, it would be cheaper for us at the supermarket shelf. But what he did missed in his calculation was the societal cost of lost national security when we struggled to make our own weapons and defense goods.
The societal cost of intellectual property theft, which General Keith Alexander testified in 2015 before Congress that the amount of IP stolen by Congress China is the greatest transfer of wealth in history in the history of civilization. Yet that wasn't on the ledger line for Milton Freeman to do his calculations for free trade, the societal cost of economic.
Consumer spending is two thirds of America's GDP, and that's tough to sustain when you h3ave jobs at Walmart or Starbucks. It's better to sustain consumer spending when you have middle class jobs making 50, 60, 70, $80,000 a year, a hundred thousand dollars a year in the steel industry. You can maintain your consumer spending.
That's [00:30:00] economic security. He didn't calculate the loss of economy of scale and increasing returns. And I think this is the DI dynamic most misunderstood by economists is they don't understand that when a manufacturer produces 10,000 parts per piece, price goes way down. But if a manufacturer in America makes 10 parts as a filler order for goods coming from overseas, the price goes way up.
'cause you gotta cover your shop time and your setup time. Then we all look at American Made goes, oh, Boohoo, they're too expensive. Like we don't get the economy scale to even come in the ballpark. And I could go on and on about the societal cost, supply chain issues. When you know you have disruptions, oh, there's a disruption in the Red Sea costs go up.
The societal cost of reliance on adversarial nations who can cut off our supply to medicine, societal cost of the loss of great cities and middle class communities like Pittsburgh, Detroit, New York, Philadelphia, Baltimore had. Bethlehem Steel, which employed 30,000 people at one plant in 1953. Now look at Baltimore.
It's crime rain because there's not a middle class community there. And what does that societal cost? And none of that went in his calculations, [00:31:00] in his little high school. Economic theory of unilateral free trade will just bet better because we're a great nation. And so that gave American business the justification to go overseas because some famous economists said it.
Then we never looked at, the moral obligation is we fought a civil war and slavery on our own within our borders, but we have no moral obligation to not pursue slave labor overseas, and we engage in other companies who don't have the same labor standards like we have to pay for vacation time if a woman gets pregnant.
We have all these things that burns environmental burdens that we have to pay for. Other nations don't have that.
Matt Horine: I think that the overriding theme of all this is that a nation is more than the sum of its GDP. When you look at it through the consumer lens and think, how much variety, how much can I get, how much can I buy?
It triggers other things like we see record levels of debt, household debt, credit card debt, student loan debt, all these things striving to be a consumer instead of a producer. And that is something that is probably [00:32:00] foundational to this strategy. And I think a really great lead in to talking about tariffs overall and why historically tariffs were the primary source of federal revenue.
And why did that change? I,
John Gardner: I, I, I wanna get to that. I just love what you said, though. A nation is more than the sum of its GDP, and that's such a brilliant insight into how economists think. They think that numbers are plug and play, and, oh, we wanna build up GDP, we'll just move manufacturing over here.
They don't understand the human capital involved and the time it takes because they've never experienced industry. And I, I really believe that was a, that's a really good insight.
Matt Horine: Yeah, no, thank you. And I, the tariff discourse, I don't think people have this viewpoint of history, much like we were talking about with the American Revolution, that for most of our history.
Tariff revenue actually funded the federal government, and it was the primary source of federal income and revenue. There was a big case, Pollock, the Farmer's Loan and Trust Company that ruled income taxes unconstitutional in the 1890s. How did the 16th Amendment fundamentally alter that relationship and how did we get away [00:33:00] from it so quickly?
The tariff structure of being the primary funder? I think you, you told me this, I think when we spoke before, we flirted with a personal income tax during the Civil War, like national survival, not like anything longstanding, but if there's anything true, no tax is temporary. When the 16th Amendment came around, what was this fundamental shift and why did it happen?
John Gardner: I think to answer that we need to bring an audience back to the beginning and the founding fathers, which all these conservative talking heads who love Milton Freeman say they love the founding fathers yet, except when it comes to the most important aspect of what they believe in. The founding fathers never believed that the citizen.
Should become an indentured servant to the government, and they prove this to us with their choices to fund the government. Income tax was not even a topic when Tom, when Jefferson, Madison, Hamilton, Washington formed the government, the first legislative act passed after the oath of Office Act was the tariff Act of, and it, they passed on July 4th, 1789 and July 4th [00:34:00] was a big day for the founders.
It was Independence Day, it was a date the Declaration of Independence was declared. This all has symbolism to the American people and should to this day, but it doesn't, and the Tariff Act said, it says in detail how they envisioned our great nation to be funded. It said, where is it is necessary for the support of the government, for the discharge of debts and the encouragement and protection manufacturers that duties be laid on goods where, and merchandise imported.
Now it's notable to me that this was the first order of business, the very first order of business, and why it was, is. Hear a lot of the government spends too much. They shouldn't have any money, which we all, I think we can all agree to that. But the founding fathers also said the government needed energy.
They called money, energy for the government, that's a di, that's a direct concept from the founders. So the government needed money to execute its duties. So the current economic mandate is that we should have income tax and no tariffs to create this energy for the government. That it needs, we can all agree should be much less, but how [00:35:00] it does get any energy that it needs should be in the form of tariffs.
According to the founding Fathers, somehow Milton Freeman's idea of energy for the government superseded the founding fathers, and he has now become almost on par of the founding father, father, according to Dennis Prager and Rush Limbaugh and Paul Rand and all these libertarians. What's fascinating to me is that Milton Freeman himself.
Idol lives the American government when it ran on tariffs, and this is a direct quote that he had from 1994, an interview with Brian, do Doherty, when asked what his idea of a pretty much a perfect government was, he said, the United States from 1780 to 1929 is not a bad example of a limited government libertarianism that lasts for a long time.
What's so sick to me is this man props up the period of time that America functioned under tariff revenue. That does not reveal to his acolytes that it was tariff revenue that does that. And he said later on in the interview, the two things he stands against firmly are property rights and terrorists.
And he said There's some, except, except [00:36:00] exceptions to property rights, but never any exceptions to tariffs. That's sick. That's twisted in my mind. So the, the average tariff rate in 1824 to 1934 for 110 years was 40 to 50% in America. And the idea of an income tax wasn't even talked about in the halls of DC until, I believe the 1820s.
It wasn't even on the radar of the founding fathers. So in the Civil War, they passed income tax because the high war funds, but it was a very minor one, and that actually was stood up to a Supreme Court scrutiny. I don't remember why. Then in, I believe, 1781, this Pollock versus Farmer's Loan Trust, they passed an income tax, I believe it was like 4% on wages, over 4,000, 2% on wages over or on income, over 2000, which affected like 1% of Americans.
And this was struck down because. The, there's an apportionment rule, an Article one, section nine I believe, of the Constitution that says you can't pass a [00:37:00] direct tax on people, it has to be on states via the census, via the population. So that then struck down the income tax, and this actually caused a big populous uprising because they said there's no way to tax the wealthy who have grown outta control rich, and they wanted to target the wealthy.
And so that opened the doors to 1913 and the 16th amendment. Now from my perspective, the 16th amendment, which pretty much put unfettered income tax in place and allow the US government to not tax based on census in states, but tax directly on any asset you own, need some limits. And how we could attack this as a nation is we passed another man called 18th Amendment, which pro, pro prohibited alcohol.
But the reason we overturn that was we, we felt it infringed on personal liberty. That was the reason. I think a good rallying cry to put some limits on the 16th amendment would be. To renew that call for more personal liberty. 'cause right now [00:38:00] there's no restraint on the 16th amendment that the government could decide tomorrow to tax 99.9% of our income and put us all in in shades.
And so I think that they did not follow the founding fathers. And what's interesting to me is Milton Freeman worked for the IS, he actually helped create the withholding system that comes right outta your paycheck because they had income tax in place. But World War II came in. During World War ii, Milton Friedman worked for the IRS and he helped craft how do we keep this money before he even gets to the person so that then they don't have to send his money.
At the end of the year. He helped create the withholding system, so this per, so he was a monetarist. He believed in all, everything can be controlled in the economy by moving numbers around, and so that is why he gravitated toward money moving and not toward real production, real comedy, put no value on it.
Matt Horine: That's very insightful because I think it informs a lot of what's going on right now and a lot of what's upcoming. One thing that I think where you caught my attention was that you may have coined the phrase, or I believe you did coin the phrase, the external revenue service.
John Gardner: I did. I coined the phrase when I wrote my [00:39:00] book, July, 2024.
I talked about it first Pub beyond my book publicly on Steve Bannon's War Room podcast, January 11th. He brought it to the president. The president loved it. Announced that he was gonna create the external revenue service in Jan on January 13th, and then he announced the external revenue service creation, his inaugural address, and then he in his America, first executive order.
He created the task of creating an external revenue service, and so they've raised, I think $300 billion in tariffs to re-embrace the founder's vision of removing income tax. Now, a lot's been said about, oh, income tax is the primary funder for the American government, and that's $2.2 trillion, and we're never gonna replace that with tariff revenue.
That's a good point. However, a good start would be that you can, 90% of America pay $600 billion in income tax. The other 10% pay the other, you know what? One and a half trillion. So they, the wealthy already pay a lot. They pay a lot of taxes. But we can replace $600 billion of income tax with our [00:40:00] current tariff levels.
They're still small compared to the 40 to 50% from 1824 to 1934. So you imagine the consumer spending that would be unleashed in America if we replace income tax for 90% of America. I think that's a good balance because I'm, I don't have a problem. Economic nationalists. Populists nationalists, we don't have a problem with the wealthy paying a little bit of income tax.
I don't think we do. But for the middle class, the working class, in my book, I point out that for the first time in history. Middle class did not make up the majority of Americans in the 2015 census. And I was on another podcast and I had the gentleman point out, well, I looked at that census and that was talking about the lower class and the middle, that lower middle class and the middle class, but upper middle class crew.
I said, that's exactly the problem is we're kicking out the rungs of the ladder. How you get to the upper middle class. By being in the lower middle class and then the middle class and climbing your way up. But when we kick out those ladders we're kicking out. No, society has lasted long without a [00:41:00] strong middle class in history, manufacturing history is the greatest catalyst to build a middle class.
So back to the external revenue service, I think that's where we were. We can easily do this with the current tariff rates to replace income tax, and I know that's on President Trump's agenda. I believe that'll there'll be some action happening with that this coming year to create the actual agency.
Start to replace that for 90% of Americans. And so I think that's very exciting.
Matt Horine: Yeah, I think it's very exciting because it really, one, it's something that folks like yourself have thought about for a long time and have the historical framework to understand why and when the rest of us found out about it or thought about it from tariff revenues.
You look at it and you say, if we trim the budget a little bit, tighten the deficit and you can replace 600 billion at current run rate at pretty moderate tar levels. These are nothing excessive. You have a game changer.
John Gardner: And here's how this creates more freedom and more personal liberty for in the audience who are arguing with me in their head.
'cause they went to econ class and heard Milton Friedman was a genius and everything he said was gospel. Like the red letters in the Bible that Jesus Christ spoke. What's more [00:42:00] personal liberty when you go to the store and you can choose to spend your dollar and a tcom made piece of junk and pay a tariff fee?
Or you can choose to be taxed and not be taxed and buy an American good. Right now with income tax, there is no choice. There's less personal liberty in American for the citizen, not for multinational corporations, not for chicon businesses, not for Indian businesses. There's more personal liberty for their American when they can go to the store and choose to be taxed.
I like this Tcom product. I like this Indian product. I'm gonna sp be taxed and pay this tax. Not gonna be taxed. I'm gonna buy American made product. That's a greater personal liberty. And Milton Fried missed that and he was wrong. And what the main goal I wanna do is start this revolution in cultural thinking, because Andrew Breitbart said Politics are downstream of culture.
And you look at the massive shift in business culture to where let's just manufacture our stuff overseas. Who cares if it's made with slave labor? Haha, it's made in China. Instead, there used to be a patriotic moral duty to be made in American, provide a job for [00:43:00] American people. And I think to change that business culture from thinking that.
Milton FEMA was right and that there is more limited government in having chi comp products here and more li more personal liberty for American citizens. That is what I want to do. Ironically, when 1913, when the income tax passed, income tax code was only 15 pages. It's two or 3000 now. So how is this metastasized into a cancer that is less personal liberty for the American citizen, and how simpler would it be to just replace that income tax and go back to the system the founders intended?
Matt Horine: Absolutely. It's funding government without penalizing work and production. Right? It's you're penalizing productivity versus optimally paying, optionally paying into your own consumption. And I go back to this example that I've given people a lot when we had this round of stimulus that caused inflation.
If you had taken the same amount that was spent on the two stimulus checks and basically just said full tax refund for the entire year of 21 or 2020 or 2021, it would've had the same amount of spending. There would've been the same amount of [00:44:00] spending to it. There's no revenue coming in. You gave out stimulus based on obviously a national emergency, but it does say a lot about the flexibility and the ability of our government to be more adaptable and maybe to return.
To how they were originally funded and provide for manufacturers the type of environment where they thrive.
John Gardner: One last beef with Freedman is he talked about the four ways you can spend your money, and in it he said, he described there's four ways to spend your money or money can be spent. And number one, the best way that money can be spent is when you spend your own money on yourself.
He said the worst way to spend money, number four is spending someone's someone else's money. Someone on something else for someone else, which is how government spends money, which is, and this is a direct quote from him. He is famous for saying it, so wouldn't even in his own words, spending your own money on yourself, keeping you, your, your income rather than being taxed on it, be optimal.
And tariffs would then supersede his aversion to tariffs. Rather than the government taking your money, it's, I think he was a little confused.
Matt Horine: Yeah, it's absolutely, yeah. It's a case of [00:45:00] the choice in your consumption versus having the freedom to produce what you believe is right to provide for you and your family, to create a middle class, to build something, to have a manufacturing business, to do all those things where you're incentivized by your own labor versus being penalized for making it.
John Gardner: No, nobody's applying what he actually said to the economic situation. They're just taking what he said and building it up, and I think we really need to start questioning that. And all the economists for the last few years because look at the state of the American economy and ability to produce goods.
Matt Horine: So no spot on. John, this is a fascinating conversation that I think we're gonna have to do a volume two on, if that sounds okay to you. Anytime. Absolutely. Where can listeners find more about your book and your business and what you're doing next?
John Gardner: My book's, manufacture Local, how To Make America The Manufacturing Superpower, again, is on Amazon and Barnes and Nobles.
Just Google Manufacture local. John Gardner. I'm on x. John Gardner, VOH, and Instagram, John Gardner, VOH, and I'll have a new website up in the next week, actually. JohnGardnerauthor.com. I did a little. [00:46:00] Well web design and yeah, that's where to find me at.
Matt Horine: Excellent, John, I think this is again, a very fascinating conversation.
We're gonna have to have you back and we'll link all those in the post and so people will be able to check out the book and check out what you're working on next. Thanks for having me on that. Real, real pleasure talking to you. To stay ahead of the curve and to help plan your strategy, please check out our [00:26:00] website at www.veryableops.com and under the resources section titled Trump 2.0, where you can see the framework around upcoming policies and how it will impact you and your business. If you're on socials, give us a follow on LinkedIn, X, formerly Twitter, and Instagram. And if you're enjoying the podcast, please feel free to follow the show on Apple Podcasts, Spotify, or YouTube, and leave us a rating and don't forget to subscribe. Thank you again for joining us and learning more about how you can make your way.