11.
Anti-Trust
The conventional
theory of anti-trust laws (laws against monopolies) is that after the Civil War
with the rise of large scale enterprises, businesses had power over consumers
in being able to corner their markets.
Responding to a public need, the Congress passed the Sherman Anti-trust
Act and the laws have done good ever since. This conventional view is grossly mistaken.
Actually, the origins
of the anti-trust laws lie in politically influential businesses getting a
national law passed to pre-empt state laws, to use the power of the state
against their business rivals, and from a political vendetta by the bill's
author against the head of a major firm.
Likewise, the laws have not served the consumer but have done the exact
opposite, harming productive, cost and price-cutting businesses to the
detriment of consumers.
Two famous anti-trust
cases illustrate these points: The
1911 Standard Oil Case divided the company into thirty-three separate
organizations. What was Standard
Oil guilty of? The judge decided
that by integrating stages of the oil business--wells, pipelines, refineries,
etc.--and by buying small unintegrated stages, Standard was preventing these
separate businesses from competing with one another. Nowhere was it found that Standard had raised prices (prices
fell continuously), or had restricted output (output rose continuously)--the
classical complaints against a monopoly.
Standard Oil had earned its position as the largest domestic oil producer
by serving the needs of consumers and serving them very well.
By the time the court
case was settled, Standard had dropped from a 90% market share to a 60% market
share because of the natural developments in the market itself. Even assuming that the court case was
originally necessary, it was made obsolete due to free competition from the
Texas oil discoveries and by the move from kerosene to other petroleum products
and from the advent of electricity.
There was nothing Standard Oil could do to stop these events--compare
that to a government-authorized monopoly!
The Standard Oil Case
set the precedent for a theory in anti-trust law known as the "rule of
reason." But, as D. T.
Armentano has explained, how can this be reasonable when there is no reference
to the facts?
The 1945 Alcoa
Aluminum Case is equally absurd.
Alcoa had been the dominant primary aluminum producer for decades,
having first begun production when aluminum was so rare and unknown that it was
more valuable than gold! Over the
years Alcoa developed its facilities and methods enabling it to lower the price
with its lowered costs and to expand its market. As in the Standard Oil Case, there was no claim that Alcoa
was charging high prices or restricting output. So what did the judge find offensive? The judge's verdict included this
incredible paragraph:
It was not inevitable that it [Alcoa] should always anticipate increases in the demand for ingot and be prepared to supply them.
Nothing compelled it to keep doubling and redoubling its capacity before others entered the field.
It insists that it never excluded
competitors; but we can think of no more effective exclusion than progressively
to embrace each opportunity as it opened, and to face every newcomer with new
capacity already geared into a great organization, having the advantage of
experience, trade connections and the elite of personnel.
Clearly, anti-trust
theory had been turned literally on its head with good service to the consumer
becoming a black mark in the courtroom.
Imagine if, instead, Alcoa had been an incompetently run organization,
never gaining a significant share of the market, the judge (had he had occasion
to rule on Alcoa) would have found Alcoa to be the very essence of a good
citizen company, patted it on its head and sent it on its way to continue its
blunders, all obviously to the detriment of consumers. At the same time the judge was finding
Alcoa guilty, the U. S. Congress was granting a commendation to Alcoa for doing
such a fine job during the effort of WWII.
Notice further that
the market these companies was found guilty of monopolizing were the domestic oil market--overlooking the competition from
imported oil--and the primary
aluminum market--overlooking the competition from reprocessed aluminum. In other words, the courts had to first
artificially narrow the market in order to find these companies guilty!
Other equally absurd
tales could be told of cases such as Brown Shoe, Von's Grocery, IBM and the
shared monopoly in ready-to-eat breakfast cereals and can all be found in
Armentano's Anatomy. Suffice it to say here that most other
advanced countries do not have anti-trust laws and think it very strange indeed
that the U.S. government would spend its time beating up on the businesses in
its own jurisdiction. And notice
as well, that crippling these companies would benefit their rivals who were
better politically connected--one of the real motives behind this law.
Now the vendetta
story: Senator Sherman had his
heart set on being President of the United States and appeared destined for the
Republican nomination in 1888. His
life's ambition was thwarted when Russell Alger--of the Diamond Match
Company--threw his support to Benjamin Harrison, the eventual president. In an effort to get Alger, Sherman
sponsored the anti-trust law. As President
Harrison signed the bill into law he is reported to have said, "Ah, I see
Sherman is getting back at his old friend Russell Alger!" By the way, Diamond Match was never
indicted and Sherman's true position was revealed soon afterwards as he sponsored
a bill to levy a tax on imported consumer goods. Thus the Sherman Act was a mere smokescreen for Congress to
hide behind while it did its dirty business of sacrificing the consumer to
political pull among businesses via the power of law.
With all of the
anti-competitive, monopoly-creating regulations and laws, the only proper place
for anti-trust indictments is against government agencies--a practice which
Congress has managed to outlaw.
-
Armentano, D. T.
Antitrust and Monopoly: Anatomy of a Policy Failure,
(New York: John Wiley & Sons, 1982)
-
Armentano, D. T.
Antitrust Policy: The Case for Repeal,
(Washington, D. C.: Cato Institute, 1986)
-
Bork, Robert
The Antitrust Paradox: A Policy at War with Itself,
(New York: Basic Books, 1978)
-
Burris, Alan
A Liberty Primer,
(Rochester, New York: Society for Individual Liberty, 1983)
pp. 209 - 225.
-
Greenspan, Alan
"Antitrust" in Capitalism the Unknown Ideal edited by Ayn Rand,
(New York: New American Library, 1967)
pp. 63 - 71.
-
Rothbard, Murray N.
Man, Economy, and State,
(Los Angeles: Nash Publishers, 1970)
p. 840, pp. 1 - 60.
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