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Saturday, January 2, 2010

Review Questions for Daniels's Essays on Antitrust

This set of review questions is part of the Liberty In the Books program, a monthly discussion group. These questions cover two works by Eric Daniels on antitrust that go well together for a single meeting. These essays are part of a cycle on antitrust. Previously I published questions for Alex Epstein's essay, "Vindicating Capitalism: The Real History of the Standard Oil Company." In the future Liberty In the Books will cover Dominick Armentano's book, Antitrust: The Case for Repeal.

The first work covered here is Daniels's essay, "Reversing Course: American Attitudes about Monopolies, 1607-1890." It is contained in the book The Abolition of Antitrust, edited by Gary Hull.

Daniels's second essay is "Antitrust with a Vengeance: The Obama Administration's Anti-Business Cudgel," published by The Objective Standard.

As noted previously, these review questions are intended to inspire discussion of the material, not establish a tight outline for discussion.

Reversing Course

1. What was the general change in federal economic policy from the mid 1800s to the early 1900s? (Pages 63, 65-66)

2. What was the most common understanding of "monopoly," before and after 1890? (Page 64)

3. What were the English origins of monopolies? (Page 67)

4. What was the nature of the English revolt against monopolies? (Pages 67-68)

5. What was the significance of the English Case of Monopolies and subsequent Parliamentary action? (Pages 68-69)

6. What was the colonists' view of monopolies? (Pages 69-70)

7. What was the fundamental ideological conflict that divided the English Parliament and the colonists? (Pages 70-71)

8. What was the position of state constitutions on monopolies? (Page 71)

9. According to Daniels, what is the difference between American patent law and the establishment of coercive monopolies? (Pages 71-72)

10. In what ways was the Constitutional Convention friendly toward monopolies? What were the concerns about monopolies raised in that debate? (Page 73)

11. In what ways, and on what grounds, did Congress empower monopolies? (Page 74)

12. How did Alexander Hamilton, Daniel Webster, and Joseph Story defend monopolies? How did their arguments lead from protecting coercive monopolies to breaking up large free-market businesses? (Pages 75-76)

13. How did free enterprise challenge coercive monopolies? (Page 76)

14. How did the fight over the steamship monopoly play out? What was the impact of the 1824 Supreme Court ruling in Gibbons v. Ogden? (Pages 77-78)

15. What were the arguments that continued to be made in favor of monopolies in the 1800s? (Pages 78-79)

16. What was the Charles River Bridge case, and what was the significance of the arguments made in that case? (Pages 79-83)

17. In what ways did Andrew Jackson restrict coercive monopolies? (Page 83)

18. How did judicial definitions of monopoly change after the Civil War? (Page 84)

19. What were the Slaughterhouse Cases of 1873, how were they decided, and what was the impact of the ruling? (Pages 84-85)

20. What were the circumstances of the case of Munn v. Illinois, and what was the impact of the case's legal resolution on property rights? (Pages 86-87)

21. What was the nature and impact of Henry Demarest Lloyd's works on monopoly in the 1880s? (Pages 88-89)

22. What arguments were presented in favor of the Sherman Antitrust Act? (Page 89)

23. What is Daniels's critique of the "public good" as a standard of law? (Page 90)

Antitrust with a Vengeance

24. Why did C. T. Dodd and John D. Rockefeller create a trust in the late 1800s? (Page 22)

25. What were the cultural and political conditions that led to the Sherman Antitrust Act? (Page 22)

26. In what ways are the antitrust laws nonobjective? (Page 23)

27. Why do producers need a stable legal environment, and how does antitrust legislation undercut this? (Pages 23-24)

28. How has antitrust legislation brought business under federal control? (Page 24)

29. How did antitrust enforcement change (and how did it remain the same) from the Bush to the Obama administrations? (Pages 21, 24-25)

30. How have other federal economic controls undermined free-market competition? (Page 25)

31. What is Daniels's critique of Steve Forbes and L. Gordon Crovitz, who also oppose stepped-up antitrust enforcement? (Pages 26-27)

32. What does Daniels see as the proper role of government with respect to business organization and operation? Is he right? (Page 27)

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Tuesday, December 15, 2009

Review Questions for Epstein's Essay on Standard Oil

As I recently noted, Liberty In the Books, which I co-moderate, reviewed Alex Epstein's essay, "Vindicating Capitalism: The Real History of the Standard Oil Company."

I strongly recommend that free-market activists join a reading group in their area -- or start a new one. See my notes for some ideas about how to do that. (Alternately, if you live out in the boondocks, you can follow the Denver group's lead on your own.)

Following are my review questions that we used to guide our discussion. Remember, the point of review questions is to inspire discussion and keep it basically attached to the assigned reading. There is no need to discuss every question on the list. Page numbers here refer to the printed edition; I also include the section headers. This reading, assigned in advance of our meeting, worked great for a two-hour discussion.

1. Describe the views of John D. Rockefeller expressed by:‎
a) Henry Demarest Lloyd, 1881 (Pages 29-30)
b) Ida Tarbell, 1904 (Page 30)
c) Howard Zinn, 1980 (Page 31)
d) Paul Krugman, 1998 (Page 31)

2. What is the view of free markets expressed by Ron Chernow and John Sherman? (Pages 31-32)

The "Pure and Perfect" Early Refining Market

3. What is the theory of "pure and perfect competition?" (Pages 32-33)

4. What is Epstein's basic economic critique of the doctrine of "pure and perfect competition?" (Page 33)

5. What were the benefits of kerosene to human life? (Page 33)

6. What caused the dramatic increase in kerosene refineries from 1859 to 1864? What were some of the problems with earlier refineries? (Pages 33-35)

7. What was the trend in refineries from 1865 to 1870? (Page 35)

The Phenomenon

8. What regional advantages contributed to Cleveland's oil refineries of 1863? (Page 36)

9. What were the characteristics of Rockefeller's first refinery? (Page 36)

10. What in Rockefeller's background contributed to his success in business? (Pages 36-37)

11. In what specific ways did Rockefeller improve efficiency, expand markets, and advance technology in his industry? (Pages 37-39)

12. What is "vertical integration," how did Rockefeller practice it, and what are the benefits? (Page 38)

13. What was the state of Rockefeller's venture in 1870? (Page 40)

The Virtuous Rebates

14. What was Ida Tarbell's view of the railroad rebates granted to Rockefeller, and what is Epstein's criticism of Tarbell? (Page 41)

15. Why did railroads grant Rockefeller rebates? (Pages 41-42)

16. Were Rockefeller's practices "anticompetitive?" (Pages 42-43)

The Missing Context of Standard's Rise to Supremacy

17. From 1870 to 1880, what challenges did oil refineries face, what was the growth of Standard Oil, and what was the shift in oil prices? (Pages 43-44)

18. Why doesn't Epstein believe that cartels can succeed? (Pages 44-45)

19. What was the strategy of the South Improvement Company, and what were the results? (Pages 45-46)

20. What was the Pittsburgh Plan, and what were the results? (Pages 45-46)

From 10 to 90 in Eight Years

21. According to Epstein, what motivated Rockefeller to buy out various competitors? (Pages 46-47)

22. Did Rockefeller's treatment of some competitors to "a good sweating" constitute "predatory pricing?" (Pages 47-48)

23. What was the state of Standard Oil in 1873 and 1874? (Pages 48-49)

24. What arguments did Rockefeller make to competitors to persuade them to sell their businesses to him? (Pages 47, 49)

25. How did the Pennsylvania Railroad attempt to compete with Standard Oil, and what was the result? (Pages 49-50)

26. How did Standard Oil operate from 1870 to 1880, and what happened to the level of oil production and to kerosene prices? (Pages 50-51)

The 1880s and the Peril of the "Monopolist"

27. Did Standard Oil operate according to standard antitrust theory in the 1880s? (Page 52)

28. What was the "peak oil" theory articulated in the mid 1880s? Was was the problem with this theory? (Sound familiar?) (Page 52)

29. Why did Rockefeller expand oil production in the 1880s, what did he find, how did he cope with "skunk oil," and what did this do for Standard Oil? (Pages 52-53)

30. What new competitors did Standard Oil face in the 1880s? (Pages 53-54)

31. What was the difference between Standard Oil and government monopolies? (Pages 54-55)

The Standard Oil Trust and the Science of Corporate Productivity

32. What was a trust, and what legal problems did it overcome? (Page 56)

33. What were Standard Oil's successes as a trust? (Pages 57-58)

34. What were Rockefeller's skills as a business manager? (Pages 59-60)

35. What changing market conditions did Standard Oil face from 1899 to 1914, and what happened to the company's output and market share? (Page 60)

36. What were the journalistic and political responses to the successes of Standard Oil? What was the motivation of this reaction? (Pages 61-62)

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Thursday, November 12, 2009

Outlawing Low-Priced Books Robs Your Wallet and Freedom

The following article was originally published online by the Denver Post under the title, "Why we should keep selling low-priced books."

Outlawing low-priced books robs your wallet and freedom

by Ari Armstrong

Some stores sell popular books to willing customers at low prices, and they must be stopped! At least that's what the American Booksellers Association (ABA) argued in an October 22 letter to the Antitrust Division of the Department of Justice.*

The letter, signed by the ABA Board of Directors, including Cathy Langer of Denver's Tattered Cover, complains that Amazon, Wal-Mart, and Target sell some "hardcover bestsellers," including books by John Grisham and Sarah Palin, for only around $9. Moreover -- horror of horrors -- Amazon sells digital books for only $9.99.

The letter argues that selling low-priced books to people who want to buy them constitutes "illegal predatory pricing that is damaging to the book industry and harmful to consumers."

You might think that "lower prices will encourage more reading and a greater sharing of ideas in the culture," but you would be wrong, the ABA claims. Low-priced books will drive out "many independent bookstores," put book buying "in very few hands," and eventually allow "mega booksellers to raise prices," the ABA asserts.

The ABA's position ultimately is self-destructive. Free speech, and freedom of conscience more broadly, depends on property rights and voluntary association, liberties the ABA undermines.

Writers, publishers, sellers, and buyers have the right to agree to terms they find mutually beneficial. A publisher that wishes to prevent a retailer from selling a book below a certain price may properly set that as a condition of the transaction.

Once a retailer purchases books from a willing publisher without pricing restrictions, the retailer properly has the right to sell the book for any amount it deems proper. If the retailer wants to sell books below cost as a loss leader, give them away, or pay people to take them, that's between them and their customers.

When politicians control the physical conveyance of ideas, they can control the ideas themselves. As a villain in Ayn Rand's Atlas Shrugged explains, "If you breathe the word 'censorship' now, they'll all scream bloody murder... But if you leave the spirit alone and make it a simple material issue -- not a matter of ideas, but just a matter of paper, ink and printing presses -- you accomplish your purpose much more smoothly."

The ABA helps establish the principle that people with guns -- for ultimately brute force is what imposes Department of Justice rulings -- can invalidate people's independent decisions. This same principle opens the door to outright censorship.

The ABA's position also rests on economic myths. Part of the cost savings of large retailers comes from publishers selling books in large orders. The ABA would force publishers and readers to eat the costs of more tiny orders.

Independent bookstores that cannot compete on price should find other ways to attract willing customers if they wish to stay in business. For example, Tattered Cover hosts many public events featuring authors and other speakers. (I spoke at a media panel hosted by the store on September 24.) Tattered Cover also carries a large selection of books that customers can physically look at and buy instantly.**

The ABA's suggestion that "mega booksellers" would eventually "raise prices" higher than what independent stores now charge is laughable. Not only will many competing booksellers remain in business despite low-priced books, but attempts to raise prices inevitably attract new competitors.

The ABA absurdly argues that low-priced books will cut off writers' ability to get published. As a book author, I can attest that writers today have unprecedented opportunities to publish their works. Amazon is particularly friendly to writers and publishers.

Tattered Cover does not carry my book, and if I had to rely on independent bookstores my book never would have been published. Yet I did not seek government action to force Tattered Cover's decisions. Tattered Cover has the right to stock the books it wants at the prices it wants, and it should respect the rights of others to do likewise.

We should expect better from the ABA and from Tattered Cover, often a champion of free speech in Colorado. Ultimately the business of ideas depends upon the integrity of the unforced mind.

Ari Armstrong is the author of Values of Harry Potter and publisher of FreeColorado.com. He lives in Westminster.

* See some of the resulting media coverage.

** November 13 update: As somebody noted in the comments, Tattered Cover now plans to sell used books as well. The Denver Post has the story. Offhand this strikes me as a good idea. The standard fee for shipping and handling for used books at Amazon is $3.99, sometimes more than the price of the book. Tattered Cover can't offer as wide a selection of used books, but the customer can physically examine the used book and get it right away with no additional transport costs.

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Monday, November 2, 2009

Dropping Redbox Over Antitrust

I just upgraded my Netflix account, and I'll no longer use Redbox, the DVD vending service that I've used at the local McDonalds.*

A few days ago I learned about "Redbox’s antitrust case against several major studios." Redbox is seeking to force the terms by which studios sell videos, and that is wrong. A contract properly involves the voluntary consent of both parties. Redbox is trying to replace voluntary consent with political force.

And Redbox will not get another dollar of mine until it drops its antitrust suits. I called Netflix, on the other hand, and was assured by customer service that Netflix is not involved in any antitrust actions.

Redbox relates:

Redbox Files Federal Lawsuit Against Warner Home Video
For Immediate Release: August 19, 2009
Oakbrook Terrace, Ill. – Redbox Automated Retail, LLC, filed suit in Delaware Federal Court against Warner Home Video on Tuesday, August 18, 2009, to protect consumers' rights [sic.] to access new release DVDs. Redbox filed the action in response to new distribution terms imposed by Warner Home Video that would prohibit redbox from providing consumers access to Warner Home Video titles until at least 28 days after public release. ...

Federal Court Rules redbox Can Pursue Antitrust Suit Against Universal Studios Home Entertainment
For Immediate Release: August 17, 2009
Oakbrook Terrace, Ill. – The United States District Court for the District of Delaware announced today that it has denied Universal Studios Home Entertainment's motion to dismiss the antitrust lawsuit filed by redbox. ...


The Obama administration has signaled that it will ramp up antitrust persecutions. Predictably, various unscrupulous business have sought to take advantage of this by trying to get the federal government to step on competitors and suppliers. This is wrong. Businesses should respect private property and voluntary trade, not try to override people's rights with political force.

* I just called McDonalds corporate and was told that that its contract with Redbox has ended, so it's unclear to me whether any or all Redbox machines will be pulled from McDonalds locations. My local McDonalds still has an operating machine. Redbox also operates out of select local Walmarts and grocery stores. Update: I just learned from a local King Soopers manager that Redbox will expand into some of those stores.

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Tuesday, May 19, 2009

Armentano Versus Antitrust

Dominick Armentano has penned an op-ed against antitrust for the Christian Science Monitor, "The problem with Obama's antitrust plan."

He summarizes:

The free market does not need more strict antitrust policy; it needs simple protection from fraud. The problem is that, in the 119 years that antitrust laws have existed, there is little empirical evidence that "vigorous enforcement" of them can promote the interests of consumers... Indeed, antitrust history is riddled with silly theories and absurd cases that themselves have restricted and restrained free-market competition and hampered an efficient allocation of resources.


Read Armentano's brief history of antitrust laws -- particularly if you are one of those "conservatives" who thinks central economic planners should play a role here.

A competitive market means a free market, which means a world in which the unjust antitrust laws have been repealed.

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Friday, May 15, 2009

PJ on Antitrust

Recently I argued briefly against the Obama administration's threat to beef up antitrust persecution.

Now Pajamas Media has offered an outstanding video, "Obama Administration Cracking Down On Monopolies." Both Terry Jones of Investor's Business Daily and Alex Epstein of the Ayn Rand Institute do a fantastic job summarizing the flaws and destruction of the antitrust laws. If you are one of those "conservatives" who advocates central political control of this economy in this area, it is past time for you to reevaluate your views.

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Wednesday, May 13, 2009

Antitrust Punishes Success

Devlin Barrett of the Associated Press performs a useful service in reporting the Obama administration's plans to expand antitrust enforcement. It would have been pleasant had Barrett bothered to quote a single critic.

The antitrust laws are a fraud. The premise behind them is that on a free market companies can reach unjust or unfair or economically damaging levels of economic success. But this is simply not the case. On a free market, customers can choose whether to buy a company's product, and others can choose to enter competition.

Instead, it is political power that creates harmful monopolies -- though such monopolies generally are exempt from antitrust enforcement.

Throughout the history of the laws, antitrust actions have been brought by less-successful competitors and governmental agents with an axe to grind to punish successful companies at the expense of consumers and economic health.

Companies targeted by antitrust action are characterized by skillful and efficient management and operations, economies of scale, and wildly successful products at competitive prices. Typical results of antitrust action are higher prices and less-useful products. (This is merely a summary; for details see The Abolition of Antitrust and The Causes and Consequences of Antitrust.)

As Barrett summarizes, the Obama administration claims "lax enforcement by the Bush administration contributed to the current economic troubles." But nowhere in the article is any support offered for that view. The fact is that lax antitrust enforcement had absolutely nothing to do with the modern economic crisis, which was instead caused by federal encouragement of risky loans and investments. Increased antitrust enforcement will only dampen economic recovery.

Barrett suggests that two companies at high risk of antitrust action are Intel and Google -- two companies that have been enormously successful because they provide enormously valuable goods and services. The idea that these companies should be politically punished because they are successful is grotesque. (I personally benefit enormously from both companies; for instance, I am using Intel processors and Google software to publish this blog post.)

Here is Barrett's most chilling line: "[Assistant Attorney General Christine] Varney said the Obama administration would try to follow the historic lessons of The Great Depression in pursuing antitrust cases even in a troubled economy."

The historic lessons of the Great Depression are that politicians hampered economic recovery by going on witch hunts against businesses and business leaders. The fact that the Obama administration sees the Great Depression as some sort of model is truly frightening.

Here is a telling passage from Amity Shlaes's The Forgotten Man (page 344):

[Robert] Jackson... had collected a set of specific instructions from Roosevelt... to define and prosecute antitrust violations, and, especially, to go after individuals. Sometimes -- when he knew the targets, or liked them -- Roosevelt suggested that Jackson soften. And always, Roosevelt took care not to harm those with special power to harm him. Learning from Jackson of a possible action against motion picture combines, Roosevelt said, "Do you really need to sue these men?" and asked that they be brought in for a talk. But other times he egged Jackson on.


This typifies what antitrust actions are all about -- arbitrary political power brought against the successful for the "crime" of success.

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Friday, March 6, 2009

FTC Goons Force Whole Foods Fire Sale

As discussed, in this tough economic time the Federal Trade Commission continues to punish Whole Foods for the "crime" of conducting business. The antitrust laws that form the pretext of the FTC's abuses are inherently unjust, though even within antitrust dogma the crusade against Whole Foods is insane.

Even though Whole Foods is buying out Wild Oats, the chain still faces stiff competition from King Soopers, Albertsons, Safeway, Sprouts, Sunflower, Vitamin Cottage, and numerous independent and ethnic markets. The FTC is putting the screws on Whole Foods out of sheer vindictiveness, just to prove that it can. The FTC's thug, who ultimately threaten armed enforcement if their dictates are not obeyed, are destroying economic wealth -- hurting both businesses and their consumers -- for the sake of destruction.

The AP reports, "Whole Foods Market says it will sell 13 stores to resolve the Federal Trade Commission's challenge against the grocer over its purchase of Boulder, Colo.-based Wild Oats Markets. ... Once it gets approval from the FTC, the company says it will take a non-cash charge of no more than $19 million for the sale of the stores."

Never mind what the stores might be worth on an open market, never mind that Whole Foods has the right to run them, never mind that whoever buys the stores is unlikely to reduce prices in them, the FTC is forcing Whole Foods to sell stores even at a loss just to get the goon squad off their backs. It is a deal they can't refuse.

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Thursday, December 18, 2008

FTC Continues Whole Foods Witch Hunt

The thugs at the Federal Trade Commission continue to flog Whole Foods for the sin of selling people groceries they want to buy. You see, the FTC thinks -- strike that, pretends -- that by merging with Wild Oats, Whole Foods would somehow constitute a monopoly. Yet, beyond the inherent flaws of the antitrust mentality, it is obvious to anyone who's ever been to local grocery stores that Whole Foods doesn't hold a monopoly.

Yet we can rest easy, in this time of economic trouble, knowing that the FTC is passing along millions of dollars in legal fees to people trying to buy food.

Vincent Carroll wrote up some comments about the case a couple days ago. Ryan Puzycki does a good job explaining the basic errors of antitrust doctrine.

My goal here is simply to point out that Whole Foods in no way holds any monopoly power over the market. In addition to the fact that the huge grocery chains such as King Soopers carry a wide variety of organic products, two markets have expanded in Colorado to compete even more directly with Whole Foods.

Sprouts "offers a large selection of vitamins and supplements, all natural meats, fresh seafood, bins full of bulk foods, an extensive selection of natural and organic grocery items, rBST free milk, imported cheeses, deli meats, old fashioned bakery and more." The market has two Colorado locations open and plans to open two more.

The Denver Post reported on May 13, 2008, "Natural-food and organic-produce offerings along the Front Range will expand again when Phoenix-based Sprouts Farmer's Market arrives in the fall."

Sunflower Farmers Market -- which I visited just yesterday -- has open nine Colorado stores and plans to open two more. Progressive Grocer reported on January 16, 2008, "Sunflower Farmers Market, a rapidly growing organic and natural supermarket chain based here [in Boulder], said yesterday it plans to grow its store base in Utah and Colorado this year."

And let us not forget about Vitamin Cottage, yet another natural market, with its 25 Colorado stores and two more on the way.

The only monopoly Colorado consumers need to worry about is the FTC's monopoly on stupidity and vindictiveness.

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Thursday, July 3, 2008

The Controlled Press

If liberty means anything, it means freedom of the press. "Congress shall make no law... abridging the freedom of speech, or of the press..."

The freedom of the press means not only the right of newspapers to print what they want (though libel is subject to tort), but to hire the reporters they want, sell papers the way they want, and structure their business the way they want.

But Congress has made a law abridging the freedom of the press. It is enforced by the Department of Justice's antitrust division.

As David Milstead writes for the Rocky Mountain News, "It was just eight years ago that The Denver Post and the Rocky Mountain News hung up the gloves and went to the federal government for permission to combine business operations."

A free press does not need to beg the federal government for permission -- permission! -- to conduct its business the way it sees fit.

Even if the antitrust laws did not influence the outcome of journalism -- the stories that appear on the printed page -- the controls would still constitute an unjust imposition on the freedom to conduct business, control one's resources, and contract by mutual consent.

But it is obvious that the antitrust laws do influence what appears on the printed page. Milstead notes that the two papers are struggling financially, and one might have to shut down. He writes, "The biggest obstacle to this scenario is the Justice Department, which blessed the JOA in the first place. In the past, government antitrust attorneys have made it difficult to end one of these partnerships early... [P]erhaps they would block any substantive change, forcing Scripps and MediaNews to pile up more losses in the name of editorial independence." Not only can the unjust policies of the Justice Department force businesses to run at a loss, in the process they strongly influence which reporters a paper hires. Two papers forced to compete at a loss cannot afford to keep on all of their top-notch talent, nor hire away talent from outside or the other paper. The result is not direct censorship, in that the federal government is not restricting what the papers can write about, but it is indirect censorship, in that the federal government is partly determining what the papers are able to publish.

A free market is not controlled by lawyercrats of the federal government. In a free market, the two papers would be free to openly compete, merge partly or completely, offer to buy the other out, or do anything whatsoever that does not involve force or fraud. It is simply not properly any business of any bureaucrat or federal official.

As an aside, assuming the Department of Justice grants permission for one of the papers to close, I sincerely hope it's the Post, but I doubt that it will be. I hope that at least the Rocky's editorial staff stays in business. If they're let go, too, I hope somebody has the brains and resources to keep that talent in Colorado.

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