The Law To Make Free Enterprise Free

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When Knox finally released to the press his intention to prosecute Northern Securities, there was consternation and panic in the financial world. Root, a Wall Street lawyer, was dismayed and resentful. Morgan and his like-minded friend, Senator Chauncey Depew of New York, descended upon the White House like the emissaries of some independent sovereignty whose rights were being invaded. But by that time the prosecution was a fait accompli.

On this case all of Roosevelt’s antitrust program depended. It came before the Supreme Court in March, 1904. By that time, Roosevelt had appointed Oliver Wendell Holmes to the Court, believing that Holmes’s reputation as a liberal was an indication that he would vote against the tremendous extension of monopoly power. In this hope he was to be bitterly disappointed. Had Holmes been able to win over to his side Justice David Brewer, as he thought he had, the legitimacy of monopoly would have been established, perhaps for all time, in this country as it was in Europe.

The Court was bitterly divided, five to four. The majority held that the Sherman act was intended to prevent giant combinations formed under any device and that such exercise of congressional power over industry was not unconstitutional.

Holmes, who wrote one of the two principal dissents, made the statement, believed by many at that time, that the Sherman act was not intended to prevent combinations in restraint of trade. He said: “It was the ferocious extreme of competition with others, not the cessation of competition among the partners, that was the evil feared.”

Justice Holmes had faith in the benevolence and efficiency of the rich. He believed that the Constitution should protect them in their efforts to create industrial empires. But the ideal of a dynamic competitive economy and government-maintained freedom of industrial opportunity, I believe, was beyond him. He would have sincerely approved of the system of domestic and international cartels that dominated industry and caused it to stagnate in Europe before World War II.

Roosevelt, though a rich man himself, was one of the few men of his time to realize the destiny of America as a land of economic freedom. He had the ability to infuse the public with his point of view. Senator Sherman initiated the antitrust act, but it was Teddy Roosevelt who gave it vigor and meaning, made the policy of the Sherman act an economic religion and its violation an economic sin, and, finally, made it emotionally impossible for American business to co-operate in the European cartel system.

To appraise the effect of the Sherman act on American business institutions correctly we must view it apart from particular prosecutions, or particular periods of enforcement or nonenforcement. Theodore Roosevelt’s achievement was to enshrine the ideal of the act as part of our national folklore. And its influence has continued in a far more potent way than perhaps any other statute on the books. The image of the Sherman act has not prevented tremendous concentrations of economic power, but it has prevented such concentrations from obtaining legitimate status.

Only once since its passage has the principle of the act been repudiated. That was in production codes of the National Recovery Administration during Franklin D. Roosevelt’s New Deal. They were designed to raise prices and restrict production, after the European model. The theory was that this would protect investments and rescue business from insolvency.

But the competitive tradition represented by the Sherman act was too strong for the NRA. The Sherman act over the years, even when it was unenforced, had built up an abiding faith that the elimination of competition in business was morally and economically wrong. Then the Supreme Court threw out the NRA, and Franklin Roosevelt turned back to the antitrust laws as a major instrument of economic policy, and placed me in charge of their enforcement.

When I took office, years of disuse of the Sherman act, culminating in its repudiation by NRA, had made violation of the antitrust laws common, almost respectable. I will never forget the amazement of the Wisconsin Alumni Research Foundation, an organization whose profits were used to support the University of Wisconsin, when the Justice Department charged it with using a vitamin patent to raise prices and restrict manufacture of important food products. It never occurred to the high-minded management of this foundation that it was doing anything wrong. The indictment was considered an attack on education itself.

I believed that my principal function was to convince American businessmen that the Sherman act represented something more than a pious platitude; second, that its enforcement was an important economic policy. But there was very little support among economists for the latter notion.