Phase III: The Historical Perspective of Sherman Antitrust
Deflation-Inflation around the turn of the century
Populists were restive in the late 19th century partly because a mild deflation was in progress. The country was on the gold standard. Productivity growth was greater than the growth of the money supply. The deflation caused the transfer of resources from indebted farmers in the South and Mid-west to lenders in the East.
Approaching the turn of the century new finds of gold were made. Advances in gold processing techniques also arrived. Together they inserted more gold into the system. That in turn ended the period of deflation and caused the start of inflation. When inflation began the transfer of resources process reversed.
Complaints about the cost of living grew. Blame was placed on the trusts. The process of growth of efficient large nationwide manufacturing and distribution firms advanced. Smaller, less efficient businesses came under significant pressure. They turned to the government for relief from the pressure to change or perish.
They endorsed and adopted the antimonopoly language and sentiment of the populists. For better or worse ill defined terms like ‘Wall Street’ and ‘trust’ became the buzz words of the day. They came to be descriptions of whatever economic forces worried any particular businessman at any given point in time.
A near death experience for the Sherman Act
Progressives came to embrace the inevitability and desirability of greater size. They urged that greater size could be an advantage with proper planning and scientific management. Their champion became Teddy Roosevelt who believed he could distinguish between good trusts and bad trusts. He offered gentleman’s agreements to the good trusts and prosecuted the bad trusts. Roosevelt wanted to replace judicial antitrust with an executive branch agency.
The agency was to supervise business and dictate behavior to them. Some business executives appreciated the concept of a more predictable world than Sherman Antitrust. Roosevelt drafted a bill that alienated labor, small business, and big business all at the same time. It went down to defeat. Taft replaced Roosevelt as President. The Sherman Antitrust Act escaped a near death experience. Taft went on to file more Sherman Antitrust suits than any administration until the New Deal.
The Wilson approach
When Woodrow Wilson became president he inherited all the ongoing issues in the economy. Wilson believed in preserving a system of small business which was a reversal of Teddy Roosevelt. For Wilson this was a moral issue not an economic one. He feared the moral costs of large scale capitalism. At the same time Wilson accepted Sherman Antitrust as adequate precisely because of the uncertainty it caused business.
He believed being familiar with the methods and practices of monopoly made it possible to forbid by statute the unacceptable parts of business practice. What he believed was untrue. So, when he attempted to initiate legislation reflecting his beliefs, there was no way legislation could articulate clear and simple rules to accomplish the goal. Small business bridled at the criminal penalties for ordinary business practice included in the Clayton Act.
Congress stripped the criminal sanctions from the bill. Anticompetitive practices were made more vague in the bill. Wilson still felt business was ‘entitled’ to definite guidance and information. Business should get it from an executive branch administrative body. He then moved in support of a more powerful commission as Teddy Roosevelt had.
He wanted an agency with power to issue cease and desist orders which was added to the bill. And so, the precursor to the Federal Trade Commission (FTC) was born. Behind this administrative configuration was no coherent account of competition. There still was no articulation of what exactly constituted anticompetitive practices or restraints of trade. Uncertainty remained the order of the day with populist political action the motive force.
More to come
Tomorrow we will look at predatory pricing as we build toward an understanding of what viable applications for Big Tech might be available and why they may be advisable or avoidable.
