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Economic Inquiry, April 1992 v30 n2
p263(14)
The legislative history of
the Sherman Act re-examined. (Economics and 100 Years of Antitrust) Thomas
W. Hazlett.
Full Text: COPYRIGHT Western Economic Association International
1992
According to Robert Bork's influential analysis, the Sherman Act was
expressly instituted by the 51st Congress to advance consumer welfare, but
has often been misinterpreted by federal courts handing down anticonsumer
decisions. This paper suggests that the political coalition backing the
1890 antitrust statute sought multiple social ends and did not faithfully
seek to impose economic efficiency. The key evidence includes historical
economic trends, congressional debate, the legislative agenda of Senator
John Sherman, and the political conflict generated by the most contentious
(and most electorally important) issue of the 51st Congress: the highly
protectionist McKinley Tariff Act.
I. THE CONSUMER WELFARE HYPOTHESIS
Economists have singled out the Sherman Antitrust Act as a uniquely
proconsumer piece of legislation. While the general economic analysis of
political processes has proceeded from George Stigler's presumption that
"[A]s a rule, regulation is acquired by the industry and is designed
and operated primarily in its benefit" (Stigler [1971, 114]), no
similar cynicism has enveloped the nation's preeminent antitrust statute.
Strong evidence that the Federal Trade Commission Act of 1914 was shaped by
the protectionist vision of Louis Brandeis (McCraw [1981]), or even a solid
economic consensus as to the anticompetitive sentiment behind the 1936
antitrust law, the Robinson-Patman Act (see Sowell [1980, 210]; Ross [1984,
243]; Schwartz [1986]) has failed to cloud the Sherman Act's good name. As
Stigler himself has concluded: "I like the Sherman Act So far as I can
tell, it's a public interest law--in the same sense in which I think having
private property, enforcement of contracts, and suppression of crime are public
interest phenomena" (Stigler [1984, 46]; see also Stigler [1985]).[1]
This proconsumer view of antitrust is all the more ironic in light of
recent dissatisfaction with anticonsumer consequences of antitrust policy
generally. (See Goldschmid et al. [1974]; Demsetz [1978]; Baxter [1980];
Brozen [1982]; Armentano [1982]; Johnson [1983]; Baumol and Ordover [1985];
Hazlett [1986]; Bittlingmayer [1992]).
There is widespread concern that antitrust law has been employed against
competitive market rivalry. Moreover, the central paradox of an 1890
antimonopoly law remains: Why should an economy rapidly expanding outputs
in virtually all major industrial sectors move to quash restrictions of
output (Baxter [1980], DiLorenzo [1985]), particularly when such output
increases were intrinsically tied to the emergence of large corporate forms
(Chandler [1977])? It is also troubling that the Interstate Commerce Act of
1887, generally rejected as a proefficiency measure, occurred under such
close and similar political auspices (Hilton [1966]). Indeed, a recent
re-examination of the Commerce Act has nicely revealed a multiple interest
group demand for legislation (Gilligan et al. [1989]). Perhaps, the
consumer welfare model differs sharply from the popular notions of monopoly
that the Sherman Act sought to discourage in law. Yet, this would tend to
jeopardize the notion that the Act was wholly proconsumer. And American
economists of the Sherman Act era, in typically viewing competition as a
dynamic market phenomenon, largely rejected the antitrust approach as
failing to advance the consumer's long-run interests (DiLorenzo and High
[1988]).
The proconsumer view of the Sherman Act has been most thoroughly
elaborated by Robert Bork, who writes: "The legislative history of the
Sherman Act displays the clear and exclusive policy intention of promoting
consumer welfare" [1978, 61]. While competing motivations for
antitrust legislation were admittedly advanced, with only trivial
exceptions "It is impossible to find even colorable language
suggesting most of the other broad social or political purposes that have
occasionally been suggested as relevant to the application of the Sherman
Act" (Bork [1966, 42]). The law, argues Bork, should be interpreted as
wholly devoted to maximizing economic efficiency, for even though "The
legislators did not, of course, speak of consumer welfare with the precision
of a modern economist, their meaning was unmistakable'' [1966, 10]. And,
more inclusively: "Congress' position with respect to efficiency
cannot be explained on any hypothesis other than that the consumer welfare
was in all cases the controlling value under the Sherman Act" [1966,
26].
The policy importance of this interpretation is vast. Antitrust courts
have repeatedly found various "noneconomic" grounds for
preserving particular firms or market forms, the classic being Justice
Peckham's concern over the "small dealers and worthy men" (U.S. v.
Trans Missouri, [1897]) who deserved a judicial reprieve from competitive
extinction. This line of reasoning forms the basis of the protectionist
thrust in antitrust law. In his famous Alcoa decision, Judge Learned Hand
supplies the paradigmatic counterefficiency hypothesis:
Throughout the history of these [antitrust] statutes, it has been
constantly assumed that one of their purposes was to perpetuate and
preserve, for its own sake and in spite of possible cost, an organization
of industry of small units which can effectively compete with each other.
(148 F.2d. 416,429, 1945)
It is this interpretation which Bork finds everywhere in the courts, and
nowhere in the Congress of 1890, and which has led antitrust to be "a
policy at war with itself." This paper seeks to explore evidence
suggestive of an alternative hypothesis that, similar to other special
interest legislation, the Sherman Act was primarily intended not to improve
consumer welfare but to satisfy the demands of an array of political
interest groups, including the facilitation of rent creating legislation by
the Republican congressional majority.
II. SENATE DEBATE
The Senate debate on the Sherman Act evidences several anticonsumer
turns. In an alarmingly prescient discussion concerning the possibility
that the Sherman Act would be used to attack economically efficient firms,
Senator Kenna (West Virginia) questioned the Act's Section 2, outlawing
monopolization:
Is it intended...as the
section seems to indicate, that if an individual engaged in trade between
States...by his own skill and energy, by the propriety of his conduct
generally, shall pursue his calling in such a way as to monopolize a trade,
his action shall be a crime under this proposed act?... Suppose a citizen
of Kentucky is dealing in shorthorn cattle and by virtue of his superior
skill in that particular product it turns out that he is the only one in
the United States to whom an order comes from Mexico for cattle of that
stock for a considerable period, so that he is con - ceded to have a
monopoly of that trade with Mexico; is it intended by the committee that
the hill shall make that man a culprit? (21 Cong. Rec. 3151)
Senator Gray (R-Delaware) arose to offer an amendment to limit
monopolization to those "who shall combine or conspire with any other
person," and, therefore, to clearly exempt from the Act a person (or
firm) who gained a monopoly "on his own." It is instructive that
the members of the Judiciary Committee3 (who had, in actuality, written
most of the bill and were energetic in pushing it through the Congress)
denounced the Gray amendment as unnecessary because, as Senator Edmunds
responded to Kenna's hypothetical example, "Anybody who knows the
meaning of the word 'monopoly' as the courts apply it, would not apply it
to such a person at all" (21 Cong. Rec. 3151). But Mr. Gray, honestly
admitting that he was ignorant of the legal interpretation the courts had
attached to "monopoly,"4 suggested that "we avoid the danger
by this amendment of incorporating in the bill words that are not
susceptible of exact legal interpretation, and we confine the provisions of
this bill to an inhibition of the combination or conspiracy to monopolize,
which we all agree should be the object of its denunciation" (21 Cong.
Rec. 3152).
"All agree[ing]" in their aims or not, the bill's backers were
steadfast in protecting the Act from Gray's proposed amendment. Senator
Hoar informed the doubters that the courts, under common law, entertained
an exact standard of monopoly, which was
a merely technical term which
has a clear and legal signification, and it is this: It is the sole
engrossing to a man's self by means which pre - vent other men from
engaging in fair competition with him. (21 Cong. Rec. 3152)
But this definition is hardly a neat, technical delineation (as a
century of expensive litigation has shown),s and instantly raises precisely
the questions Mrs. Kenna and Gray were keen to ask: What constitutes
"fair competition"? Is ruthless efficiency, which drives
competitors to extinction, "fair"--or "the sole engrossing
to a man's self by means which prevent other men from engaging in fair
competition"? The sharp deviation from common law which Sherman Act
enforcement soon took (Grady [1990]) only adds to this confusion. The
senators were able to stare the "antitrust paradox" squarely in
the face as they sat in session in 1890.
They flatly rejected Gray's suggested amendment to clarify the
legislation on a simple voice vote.
The need to clear up any such confusion was made apparent by the overtly
protectionist congressional sentiment which surfaced in support of the
Sherman Act without objection from the bill's backers (some of the
sentiment flowing from the bill's backers). Judiciary Committee member
Senator George (Mississippi) spoke for the bill by attacking the
"trusts":
By use of this organized
force of wealth and money the small men engaged in competition with them are
crushed out, and that is the great evil at which all this legislation ought
to be directed. (21 Cong. Rec. 3147)
Senator Edmunds attacked the trusts even though "for the time being
the sugar trust has perhaps reduced the price of sugar, and the oil trust
certainly has reduced the price of oil immensely" (21 Cong. Rec 2726).
And Congressman Mason sang his praises of the Sherman Act thusly:
Some say that the trusts have
made products cheaper, have reduced prices; but if the price of oil, for instance,
were reduced to one cent a barrel it would not right the wrong done to the
people of this country by the 'trusts' which have destroyed legitimate
competition and driven honest men from legitimate business enterprises. (21
Cong. Rec. 4100)
III. THE POLITICAL ECONOMY OF SENATOR JOHN SHERMAN
If Senator Sherman possessed any longlived commitment to the alleged
efficiency goals of his Act, he kept them to himself.[6] In a 382-page
volume of his letters (sent between 1837 and 1891) to his renowned brother,
General William Tecumseh Sherman, the subject of monopoly (or antitrust,
cartels, pools, price-fixing, collusion, or industrial combinations) is
raised not once. In John Sherman [1906], his biographer, Theodore E.
Burton, spends just 12 of 429 pages on the trust question, all of it in
reference to the Sherman Act. Most of this discussion concerns Sherman's
legal and political views on the matter; what economic analysis there is
involves Sherman's Senate speech on March 21, 1890 and one other item of
interest: Sherman, writes Burton, "attacked the theory that such
combinations reduced prices to the consumer by better methods of
production. All experience showed, he said, that this saving of cost went
to the pockets of the producer" (p. 360). Of course, the analysis is false:
cost reductions lower output prices and (excepting the special case of
perfectly elastic input supplies)7 raise profits.
This reveals that Sherman's statement that the law "will
distinguish between lawful combinations in aid of production and unlawful
combinations to prevent competition and in restraint of trade" (21
Cong. Rec. 2456), clarifies the issue a good deal less than Bork supposes:
"Sherman could hardly have said more clearly that the law was to
delegate to the courts the task of distinguishing between those agreements
and combinations which increase efficiency and those that restrict
output" [1966, 36]. An equally convincing interpretation would hold
that Sherman was attacking even output-expanding combinations which, he
claimed (erroneously) would not benefit consumers. To Senator Sherman,
"combinations in aid of production" may have meant aid to small,
beleaguered firms forming cartels as a defense against the gales of
competition. Sherman's class of inoffensive combinations may have simply
been limited to localized corporations or some other ad hoc categorization
unrelated to criteria of economic efficiency.
The latter view is also supported by comments on the trusts in Sherman's
autobiography to which are devoted but five pages of 1216, mostly consumed
again by his March 21 speech, a printing of the final bill, and a scant
legislative history (in contrast, he devotes 77 pages to his discussion of
the tariff). Sherman's sentiments regarding the control of "one
man" and the profits accumulated by trusts, concomitant with his
rejection of cost-efficiencies being realized in the form of lower prices,
belies a nonefficiency concern for the combination issue. This concern was
ably articulated in his March 21 Senate speech, his major public address on
the issue:
If the concentrated powers of
this combination are intrusted to a single man, it is a kingly prerogative
in - consistent with our form of government, and should be subject to the strong
resistance of the state and national authorities. If anything is wrong,
this is wrong. If we will not endure a king as a political power we should not endure a king over the production, transportation, and sale of any of the necessaries of life. If we would not submit to an emperor, we
should not submit to an autocrat of
trade, with power to pre - vent competition, and to fix the price of any commodity. (Burton [1906, 359])
One interpretation of this passage is that Sherman is concerned with
"noneconomic" (or nonefficiency) issues, such as the distribution
of wealth and power. This is precisely the position Judge Leaned Hand took,
in fact, in Alcoa. Hand's interpretation is disputed by Bork, who focuses
on Sherman's allusion to the state-like power of combinations and the "power
to fix the price of any commodity" [1966, 39]. This, deduces Bork, is
synonymous with "the power, in short, to injure consumers"
(ibid.). Yet it is not clear. In that the senator was not of the
"Chicago School," his attack on price-fixing may have been
motivated by distributional, and not efficiency, issues. Moreover, as an
eloquent politician, Sherman's reference to prices may involve little more
than aplomb. While Bork sees the price-fixing concern as key and the
"noneconomic" rhetoric as gratuitous, an alternative perspective
could easily reverse the shadings--as Learned Hand plainly did.
It is at just this point that we should seek out some evidence to
separate these competing interpretations of Sherman. Fortuitously, Sherman
and the 51st Congress provide just such an issue to serve as a test:
"The most important measure adopted during this Congress," wrote
Sherman in his autobiography, "was what was popularly known as the
McKinley Tariff Law" (Sherman [1895, 1083]). Passed on October 1,
1890, the tariff was "a matter of constant debate in both houses"
between 1883 and 1890 (ibid., 1085), as opposed to the monopoly law, which
came and went with little discussion.[8] Whatever cross-currents were
evidenced in the analysis of the trust question, the tariff was then well
understood as a restriction of output resulting in dead-weight losses. Most
conveniently, the tariff appears on a neat continuum in our consumer
welfare analysis. Compared to a free-market cartel which restricts output
and still manages to sustain itself against potential competitors, a
tariff, which enjoys state-enforcement of output restrictions, is bound to
create a clearly more objectionable interference with "free and full
competition." Certainly, this was the prevailing, "orthodox"
view; according to mainstream economists of the day, monopoly problems
"would arise only if such groups or classes were permitted to
appropriate the political powers of the state...and create... 'artificial'
monopolies by tariff and other class legislation" (Thorelli [1955,
115]).
Contrary to the public interest hypothesis, not only was Senator John
Sherman a Republican (high tariff) vote on Senate tax questions, he was one
of the protectionist system's most vocal proponents.9 Sherman went to some
lengths, in fact, to differentiate his views from the "least
burden" (pro-efficiency) approach in public finance:
On the one hand, the Democratic party believes in a tariff for revenue
only, sometimes they say, with incidental protection, but what they mean is
a tariff intended solely to raise money to carry on the operations of the
government. On the other hand, the Republican party believes that we should
so levy the duties on imported goods that they not only yield us an ample
revenue but that they do more; that they would protect, foster, and
diversify American industry. We think that this tax ought to be put at such
a rate as will give to our people here a chance to produce the articles and
pay a fair return for the investment made and for the labor expended at
prices higher in this country than in any country in the world. That is the
first rule, and I believe that the rule has been carried out, and I think
liberally, and so as to secure increased production at home and a larger
market. (Sherman [1895, 10861)
Surely, any attempt to set this statement in a pro-consumer lexicon
based upon Sherman's parting assurance that a tariff creates
"increased production and a larger market" would be highly
tenuous. In fact, Bork excuses Representative Taylor's (ROhio) anticonsumer
position on such reasoning: "Even when defending the protective
tariff...Taylor did so on the ground that it created lower prices
beneficial to consumers. Despite the fallacy of his argument, this
demonstrates that Taylor, like most other legislators, was not willing to
argue for a policy of preferring producers to consumers" [1966, 20].
Exactly correct: he was unwilling to argue for it; he was only willing to
vote, lobby, and politick for it.[10]
The senior senator from Ohio was, by all accounts, a polished political
figure with staying power. As such, he was in the forefront of devising GOP
strategy, often having to fight off zealous factions of the party who
endangered long-term Republican success by seeking excessive industry
protection. As big business became an issue of popular concern,
"Senator Sherman thought and said frequently before 1889 that the
trusts could only be reached through the revenue laws" (Tarbell [1912,
200]). Yet, radical Republican protectionists and particularly the formidable
Senator Nelson Aldridge (R-R.I.) would have nothing to do with a lowering
of tariffs in "trust-dominated" industries.
The Democratic president, Grover Cleveland, had effectively welded the
tariff and trust questions together in a famous 1887 speech, and during the
Sherman Act debate populists had charged that "Tariffs are the mother
of trusts" (Telser [1987]). Hence, Senator Sherman's instant concern
about conspiracies in restraint of trade other than those nurtured by the
protective tariff was viewed as cynical. "At all events," wrote
Tarbell of the Sherman Act, "the measure was passed ahead of the
tariff bill. Thus, an answer was ready for the critics. As Senator Morgan
said, 'The bill was a good preface to an argument upon the protective
tariff"' [1912, 201].
IV. THE MCKINLEY TARIFF AND THE SHERMAN ACT
Lately, with a great shout
and flourish of trumpets, you passed a bill against trusts. When your actions in this bill are considered it is impossible
to believe you were in earnest in
passing that measure. You now give
the trusts everything they want. (Representative
William Elliot [D - S.C.] debating the McKinley Tariff of 1890, 21 Cong. Rec. 291)
Tariff rates had been raised substantially during the Civil War, but had
not been pared postbellum. Table I shows the persistence of a high tariff.
The goal of the 1890 tariff reform was to lower revenues--the U.S.
federal budget in 1888-89 had run a $53 million, or 13.4 percent,
surplus--and this, the Congressional leadership candidly proposed to
accomplish via a perverse Laffer Curve effect. William McKinley, Sherman's
Ohio colleague and Republican Speaker of the House, "accepted the
principle...that the way to reduce revenue from customs is to make foreign
goods which might compete with domestic products too dear to buy"
(Tarbell [1912, 190]). In answering Democratic critics who charged that the
McKinley bill would increase taxes and, thereby, revenues, the Congressman
boldly responded:
That statement is entirely
misleading...[T]here is not a member of the House on either side, who does not know that the very instant you have increased the duties to a fair protective point, putting them
above the highest revenue point,
that very instant you diminish importation and to that extent diminish the revenue. (Tarbell (1912, 190])
Knowledge of the tariff's anticonsumer consequences was entirely common.
The New York Times, for instance, made a near crusade out of highlighting
the pro-monopoly impact of protectionism, and in tying the trust question
to the tariff. "In January of 1888, one month after Cleveland's tariff
message, the Times ran 20 editorials denouncing combinations. The majority
of these articles showed how specific combinations were fostered by the
high protective system" (Gordon [1953, 120]). This was a point
incessantly made by Democrats both in the Congress and out. Gordon [1953,
163] even cites an arresting passage from the Congressional Record (12
September, 1888, p. 8521), wherein Senator Hoar took issue with a
Democratic senator (George from Mississippi) for limiting his political
attacks only to trusts protected from competition by tariffs:
Does it not occur to the
Senator from Mississippi that it
might be well to include some of
these trusts...which, notably the
Whisky, the Cotton-Seed and
Cotton-Oil Trusts, the Anthracite Coal
Trust, and the Standard Oil Trust
are not protected by tariffs? Why
does the Senator steer so care - fully in his proposed legislation not to hit these great trusts...? Indeed, Senator Gray was again quick to
offer an amendment to the tariff, one which presumably promoted consumer
welfare. It read, in part: That the
President may suspend the rate of
duty on any imported article when,
in his judgment, the production, manufacture, or sale of such articles is monopolized...by any trust or combination. (21 Cong. Rec. App. 291)
Gray was clearly at loggerheads with the GOP leadership; his tariff
amendment received healthy Democratic support, but only two Republican
votes in the House (21 Cong. Rec. App. 291).
Critics of the tariff were only too eager to relate the problem of
protectionism to the redistribution away from consumers and the deadweight
losses from reduced trade. One Democratic senator noted that, "For the
want of cheaper raw material, in the years 1888 and 1889 one hundred and
twenty manufacturers of woolen goods and dealers in goods went into
bankruptcy and the establishments which did not fail are to be kept going
by duties on woolen goods which for the most part are prohibitory of
foreign importations and are an unspeakable grievance to the
consumers" (21 Cong. Rec. 7701). Representative Charles Tracey of New
York complained that tariffs limited domestic markets (i.e., restricted
output) by noting that "in my district, it is the manufacturers that
are loudest in complaints of injury done by this too high tariff" (21
Cong. Rec. App. 292). He quotes the mayor of Albany, who testified:
I am informed by the head of
one of the largest manufacturing
establishments in this city that the tariff taxes his establishment is required to pay annually from which it derives no benefit, but, on the contrary, injury in the curtailment of its market, are fully ten times larger than the entire amount of taxes it pays .... (Ibid.)
The Tariff Vote
Robert Bork believes that evidence of the Sherman Act's single-minded
concern for consumer welfare is to be gleaned from the public statements of
the Senate Judiciary Committee which framed the Act. A more subtle reading
of the disposition of these legislators vis-a-vis consumer welfare
maximization would be to scrutinize their votes on the McKinley Tariff of
1890. We have seen that Senator Sherman was himself an outspoken backer of
the measure. It is also interesting to note that every Republican member of
the Judiciary Committee voted for the tariff (21 Cong. Rec. 9113). The fact
that each of the bill's important Senate backers registered an up-front
anticonsumer vote brings the efficiency explanation of the Sherman Act into
question.
A further gauge of protectionist sentiment can be constructed from the
House of Representatives tariff vote. The state congressional delegation
proportion which votes pro-McKinley Tariff is a proxy for that state's
protectionist (anticonsumer) leanings. (Even where a state was represented
by a small contingency, such congressional votes should be very suggestive
of the influence of protectionist political constituencies, as the McKinley
Act was hotly debated, was that session's key vote, and was of great
interest to industry lobbyists and the popular press alike.) In Table II,
we observe the House tariff vote by state delegation ranked in order of
protariff sentiment. Each of the Republican senators on Judiciary hailed
from a visibly "protectionist" state. Only Evarts' New York (at
57 percent pro) fell below 83 percent ' "protectionist".
The vote in the House of Representatives, where a substantial
anti-Sherman sentiment was recorded, supports the view that the Sherman Act
and the McKinley Tariff were seen by the legislators as fundamentally
related. Of the 62 House Democrats to vote "No" on the Sherman
Antitrust Act, none voted "Yes" on the McKinley Tariff (see Table
III). Conversely, of the 117 Republican congressmen to vote "Yes"
on the Sherman Act, none voted "No" on the McKinley Tariff.
Examining the aggregate House vote for the two measures in a two-by-two
matrix yields strong results. Table IV reveals that, among those
congressmen who voted "Yes" or "No" on both bills
(i.e., excluding those who abstained on either), 142 members voted
identically on the bills, while only 17 crossed over (i.e., voted
"Yes" on one and "No" on the other). The hypothesis
that the votes on these laws were independent of each other can be
dismissed at the 99.9 percent confidence level (%2=90.3). Adding
abstentions into the "No" column for both votes waters down the
results (as would be anticipated from inclusion of data which can be
interpreted as half-yes, half-no), but independence can still be rejected
at the 99.9 percent confidence level (%2--43.3). A similar pattern does not
evidence itself in the Senate, where there was only one "No" vote
on Sherman, and a close party line vote on the tariff. (This distribution
is without proconsumer implications. The proconsumer thesis would be
suggested by a high correlation between "Yes" votes on Sherman
and "No" votes on the tariff.) Still, the clear pattern exhibited
by Republican members of the Senate and by both parties in the House
suggests that those who voted for the Sherman Act were likely to abandon
the consumer welfare cause on the tariff, while those who promoted consumer
welfare by opposing the tariff were highly likely to oppose the Sherman
Antitrust Act. This is direct electoral evidence against the proconsumer
hypothesis.
V. CONCLUSION
Looking simply at the history
of the bill from the time it was introduced
in the Senate until the time it was
finally passed, it would be
impossible to say what were the
views of a majority of the members
of each house in relation to the
meaning of the act. All that can be
determined from the debates and
reports is that various members had
various views. United States v.
Trans Missouri Freight Association
1897, 318
A politically optimal distribution of rents is, a priori, the intent of
legislation. For a law to be unicausal requires an overwhelming influence
to dominate the legislative process. Given the numerous checks embedded in
the American legislative process, multiple-purpose outcomes (or
log-rolling) are likely to be the rule. The Sherman Act appears not to be
an exception.
The evidence reveals that the Sherman Act was not part of a generally
proconsumer campaign to remedy market power problems in the U.S. economy.
Rather, it emerged as a political compromise with the following
characteristics: (1) It provided incumbent Republican legislators (and
their prevailing distributional coalition) with a cosmetic defense on the
trust question, in anticipation of the upcoming consumer-to-industry
transfers in the McKinley Tariff. (2) It gave advocates of small, localized
firms some prospect of a buffer against the waves of creative destruction.
(3) It did not augur to be a particularly consequential measure, as only
twenty-two government actions were brought through 1904 (Posner [1970,
366]); indeed, it was not thought to do much more than codify and
federalize the common law (Letwin [1965]). Senator Hoar believed after passage
of the Sherman Act that cartels were still legal when
"reasonable," and the actual enforcement of anticartel policy in
U.S. v. Trans Missouri [1897] and U.S. v. Addyston Pipe [1898] was such a
shock to the marketplace that the great merger wave was tripped
(Bittlingmayer [1985]). (4) Hence, the prevailing distributional coalition
got its legislative priority-higher tariffs--at what it took to be a good
price. Populist critics of big business found it difficult to oppose the
Sherman Act, while large scale corporate interests found it unnecessary,
particularly as how it bought the GOP room to maneuver on its tariff hike.
The central anomaly in American antitrust legislation is that, were
eliminating monopolistic distortions the aim of public policy, the late
19th and early 20th centuries would appear a strange moment for such
concerns to emerge. The American economy was at just that point
experiencing vigorous expansions of output, firms were aggressively
lowering prices, bidding up real wages, introducing new products and
industrial techniques, and drastically shifting cost curves downward
(Baxter [1980]). Moreover, new-found technologies were causing dramatic
structural changes in the U.S. economic landscape such that the
exploitation opportunities of local monopolies were everywhere evaporating.
It may well be said that the distinguishing economic characteristic of the
activist antitrust legislative period (roughly 1880-1914), paradoxically,
was a quantum leap in the cross-elasticities of substitution for American
consumers.[13]
It would appear mysterious if the 51st Congress had attempted to
legislate a late twentieth century analytical model into policy existence,
any more than contemporary Congresses are motivated by the welfare
implications of neoclassical price theory. And they would not have been
shown the way to the Sherman Act by the economics profession. According to
Sanford Gordon, "...a big majority of the economists conceded that the
combination movement was to be expected, that high fixed costs made larger
scale enterprise economical, that rivalry under these circumstances
frequently resulted in cutthroat competition, that agreements among
producers were a natural consequence, and the stability of prices usually
brought more benefit than harm to the society. They seem to reject the idea
that competition was declining or showed no fear of decline" ([1963,
166]; see also Wells [1889]; Gunton [1899]).
If the Sherman Act had been crafted in the spirit of minimizing
allocative inefficiencies, it would have been a theoretical case of
immaculate conception. There was not an economist eligible for paternity.
As Stigler muses: "A careful student of the history of economics would
have searched long and hard on July 2 of 1890, the day the Sherman Act was
signed by President Harrison, for any economist who had ever recommended
the policy of actively combating collusion or monopolization in the economy
at large" [1982a, 3].
This paper, then, has questioned the unicausal efficiency explanation of
the Sherman Act's origin with direct and indirect evidence of decisive
anticonsumer elements in the 51st Congress. It points towards a more
economic appraisal of the intent of this critical bill of public policy.
"The world is full of mistaken policies," observes Stigler
[1982b, 10], "but they are not mistaken for their supporters."
That "A bill to protect trade and commerce against unlawful
restraints and monopolies" would have unquestionably been of greater
benefit to U.S. consumers had it been taken as a pro-efficiency mandate, is
not, in itself, evidence that this is what Congress intended. Indeed, in
light of our lengthy "Antitrust Paradox," the riddle may largely
be solved by reflection upon congressional intent; a judicial legacy of
hostility to efficiency and conflicting priorities in antitrust does not
contradict the vision of the 51st Congress, but mirrors it.
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