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The Law To Make Free Enterprise Free
First among all nations the United States made “restraint of trade” a crime, and voted an economic ideal into law. One of its most energetic exponents looks back on that unique, vague, and unenforceable bit of legislation: the Sherman Antitrust Act
October 1960 | Volume 11, Issue 6
Ever since the Civil War there has been a continuous conflict between two opposing ideals in American economic thinking. The first of them says that business management, if relieved from the rigors of cutthroat competition, will be fair and benevolent. The age of competition is over, the theory continues, and great corporations with the power to dominate prices benefit the economy. In the field of big business, this philosophy justifies giant mergers. In the field of small business, it leads to the passage of fair trade laws and similar forms of legalized price fixing.
J. P. Morgan is the traditional hero of this philosophy. He organized United States Steel, our first billion-dollar enterprise, to make investments secure, and to eliminate cutthroat competition in steel. Andrew Carnegie, who was doing pretty well as an aggressive competitor, was paid twice what he thought his business was worth to go along. Morgan made the steel business safer for the investor but tough on the consumer, and it has been so ever since.
The opposing economic ideal says that industrial progress can best be obtained in a free market, where prices are fixed by competition and where success depends on efficiency rather than market control. Under this theory it becomes the government’s function not to control or regulate but only to maintain freedom in the market place by prosecuting combinations whenever they become large enough to fix prices. Henry Ford represents this ideal. By producing cars at cut prices on a nationwide scale, he helped wreck many of the existing automobile companies. But at the same time he revolutionized the industry.
This second ideal is also represented by a remarkable piece of legislation called the Sherman Antitrust Act, passed by Congress on July 2, 1890, which states that “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal.” The act goes on to authorize the federal government to proceed against trusts which violate the act, and empowers federal circuit courts with jurisdiction over such violations.
If I may be permitted to say so, as one who has had some experience with enforcing it, this law is historically unique. Prior to the Second World War, no other nation had any legislation like it. It is different from any other criminal statute because it makes it a crime to violate a vaguely stated economic policy—and a policy, what is more, on which public: attitudes often change. The average American citizen—and, indeed, the average court which administers the Sherman act —would like to believe simultaneously in both of the conflicting economic ideals described above. For that reason, the Supreme Court swings back and forth in Sherman act cases, in more important ones splitting five to four. The history of the Sherman act is the history of the conflicts and compromises between these two economic ideals.
But the dominant ideal in our American economic thinking has been the ideal of the Sherman act. The business pressures against its actual enforcement are great, but support of the principle of the act is so unanimous that no one ever suggests its repeal. Big business, labor, farmers—each economic group wants the Sherman act strictly enforced, against everyone but itself.
In meeting these pressures the Sherman act has shown extraordinary elasticity. It may bend at times, but it always bounces back. Thus it is like a constitutional provision rather than an ordinary statute, and its history tells much about our national attempt to create an economy that will be at the same time both disciplined and free.
How was this ideal born in the first place? The most improbable feature of the Sherman act is that this apparently anti-big business measure was introduced by a senator who was a high-tariff advocate and an extreme conservative, and was passed with only one dissenting vote by a big-business Republican Congress.
The initial pressure for it came from agriculture, which since the Civil War had been reduced to a fairly steady depression. Railroad monopolies were charging farmers all the traffic would bear, and sometimes a little more. Rates were rigged to favor big railroad customers and ruin small ones. As farm income fell, prices that farmers had to pay rose steadily. Monopolies kept them high. If the pressure from the agricultural states was strong, so was the rebellion against other aspects of the dog-cat-dog business ethics of the times. The necessity of some restraint on such practices came at last to be recognized even by business itself.
Big business during the latter half of the nineteenth century had come to regard competition as an unmitigated evil which could be alleviated only by combination. At first the combinations took the form of “pools” or agreements—regional rather than national—to restrain trade, to control prices, to restrict output and divide markets. But businessmen soon learned that agreements between members of an industry were too weak. Only the surrender of business independence by the units could make domination of the market certain.