This article is from TOS Vol. 4, No. 4. The full contents of the issue are listed here.
Antitrust with a Vengeance: The Obama Administration's Anti-Business Cudgel
Not yet a year into its term, the initially popular Obama administration has plummeted in popularity. In light of Washington’s escalated meddling in the economy, many Americans are expressing deep concerns and anger about the statist direction in which this administration is steering the country. Unfortunately, however, few Americans are aware of—and the media is ignoring—one of the administration’s most serious threats to our freedom: its stated intention to bolster antitrust enforcement.
Since May, Christine Varney, the newly appointed assistant attorney general for the Justice Department’s Antitrust Division, has conducted a speaking tour promoting the Division’s new mandate under Obama and affirming the president’s many campaign promises to “reinvigorate antitrust enforcement.” Varney and her counterpart at the Federal Trade Commission, Jon Leibowitz, are publicly threatening “possible investigations” of businesses ranging from Google to Monsanto to IBM. In response to this new climate, antitrust advocates from Senator Charles Schumer to the American Booksellers Association have called on Varney to undertake new prosecutions. And New York Attorney General Andrew Cuomo recently joined the push by filing a suit against Intel.1
Americans should not only be aware of this ominous trend; they should be up in arms about it. Antitrust laws violate the rights of American businessmen and consumers, thwart economic development, and stifle our quality of life in myriad ways. To see why, we must first understand what antitrust law is.
During the second half of the 19th century, as American companies grew and acquired assets around the country, they found themselves in a difficult position. Although companies could achieve economies of scale by acquiring smaller firms and unifying their efforts, state laws prevented them from doing so. Whereas some state legislatures imposed special taxes on out-of-state corporations doing business in their states, other legislatures forbade corporations in their state from holding the stock of companies based elsewhere. (Legislators established such restrictions in the hope that they would force successful companies to incorporate—and thus pay taxes—in their state.) In response to these restrictions on acquisitions, C. T. Dodd and John D. Rockefeller of Standard Oil created a new form of business using the device of a legal trust, which enabled them to hold the stock of dozens of companies and thus effectively manage vast productive assets.2 The operational and financial advantages of this novel corporate structure were immense, yet critics alleged that the newly created trusts were “odious monopolies,” charging them with “making competition impossible,” “raising prices,” and “disregarding the interests of the American consumer.”3
Critics condemned this new legal device as a “problem” and branded businessmen who employed it as “robber barons.” Yet these businessmen used this legal device to create their vast fortunes by increasing competition, lowering prices, and providing American consumers with more and better products.4 The problem was not that their novel form of business had generated economic inefficiencies—it had done the opposite. Rather, the problem was a political one. Because these businesses were becoming fabulously successful and their owners enormously wealthy, egalitarian-minded and envious Americans pressured politicians to “do something,” and politicians, seeking approval, got “tough” on the issue.
A solution to the trust “problem” came in the form of the Sherman Antitrust Act of 1890. Senator John Sherman and his colleagues claimed that trusts were “combinations that affect injuriously the industrial liberty of the citizens of these States.”5 Critics of the trusts claimed that their high profits were achieved—not through the entrepreneurial, managerial, and productive genius of men such as Rockefeller, Edison, and Carnegie—but by “the few extorting the many.”6 Because of the “public outcry on the trust question” and the alleged need to protect the “interests of the consumer,” Sherman and his colleagues advocated the creation of a broad law that outlawed “monopolization” and “restraint of trade.” That law was the Sherman Antitrust Act, and since its passage in 1890 Congress has added five other antitrust laws to the books, prohibiting dozens of supposedly “anticompetitive” business practices.7 . . .
1 Michael Gormley, “Feds to Probe Low Milk Prices Paid to NY Farmers,” Google News, November 15, 2009, http://www.google.com/hostednews/ap/article/ALeqM5jQ5m-idpiNqRyMf3M2G990PgmgJQD9C04QN00; “Reaction to ABA’s Letter to Justice Department Abounds,” October 29, 2009, http://news.bookweb.org/news/7140.html; Arik Hesseldahl, “NY AG Files Antitrust Suit Against Intel,” BusinessWeek,November 9, 2009, http://www.businessweek.com/the_thread/techbeat/archives/2009/11/ny_ag_cuomo_fil.html.
2 Dominick Armentano, Antitrust and Monopoly: Anatomy of a Policy Failure (Oakland, CA: The Independent Institute, 1999), pp. 64–65.
3 Many examples of such language describing the trusts can be found in the newspaper debates of the late 1880s. See, for example, “An Odious Monopoly,” New York Times, November 30, 1886, p. 4; Henry Demarest Lloyd, “The Story of a Great Monopoly,” Atlantic Monthly,vol. 47, March 1881, pp. 317–34; Henry Demarest Lloyd, “The Lords of Industry,” North American Review,vol. 138, June 1884, pp. 535–53; Senator John Sherman, 21 Congressional Record,p. 2457 (1890). For more contemporary examples of attitudes about the trusts, see Arthur P. Dudden, “Men Against Monopoly: The Prelude to Trust-Busting,” Journal of the History of Ideas, vol. 18, no. 4, October 1957, pp. 587–93.
4 For elaboration on this point, see Alex Epstein, “Vindicating Capitalism: The Real History of the Standard Oil Company,” The Objective Standard, vol. 3, no. 2, Summer 2008; and Burton W. Folsom, The Myth of the Robber Barons: A New Look at the Rise of Big Business in America (Herndon, VA: Young America’s Foundation, 1991).
5 Senator John Sherman, 21 Congressional Record,p. 2456 (1890).
6 Morrison Isaac Swift, “What Shall Be Done with Trusts,” Andover Review,August 1888, p. 124, quoted in Sanford D. Gordon, “Attitudes Towards Trusts Prior to the Sherman Act,” Southern Economic Journal,vol. 30, no. 2,October 1963, p. 166.
7 A good narrative of the origins and justification of antitrust can be found in William F. Shughart II, Antitrust Policy and Interest-Group Politics (New York: Quorum Books, 1990), pp. 11–35. See also Robert Bork, The Antitrust Paradox: A Policy At War with Itself (New York: Basic Books, 1978); George J. Stigler, “The Origin of the Sherman Act,” Journal of Legal Studies,vol.14, January 1985, pp. 1–12; A. D. Neale, The Antitrust Laws of the USA: A Study of Competition Enforced by Law (Cambridge: Cambridge University Press, 1970); Hans B. Thorelli, The Federal Antitrust Policy: Origination of an American Tradition (Baltimore: The Johns Hopkins Press, 1955); and William Letwin, Law and Economic Policy in America: The Evolution of the Sherman Antitrust Act (Edinburgh: Edinburgh University Press, 1967). For a discussion of the origins of antimonopoly laws and antimonopoly thought in America, see Eric Daniels, “Reversing Course: American Attitudes about Monopolies, 1607–1890,” in Gary Hull, ed., The Abolition of Antitrust (New Brunswick, NJ: Transaction Publishers, 2005), pp. 63–94. See also Gretchen Ritter, Goldbugs and Greenbacks: The Antimonopoly Tradition and the Politics of Finance in America, 1865–1896 (Cambridge: Cambridge University Press, 1997).