The Goals of Antitrust: The Legislative Perspective
Tuesday, November 6, 2018
The Goals of Antitrust: The Legislative Perspective
With publication of Louis Brandeis: A Man for This Season by the Colorado Technology Law Journal, Jon Sallet and the Benton Foundation are offering this new series, Updating Antitrust for a New Age, adapted from that article to demonstrate that progressive competition policy incorporated both the goals and the means that Brandeis believed would provide the strongest tools to fight against the trusts and the monopolies of his day. This series is part of an ongoing examination of how to update Brandeis—and, more importantly, antitrust—for the digital age. Jon will be presenting the key conclusions from his Brandeis article to the Federal Trade Commission, in its hearing on the Consumer Welfare Standard on November 1, 2018 and in an event hosted by the Washington Center for Equitable Growth on November 14, 2018.
For Louis Brandeis, antitrust would serve both social and economic goals. He saw complete harmony in critiquing the economic justification for corporate power, on terms familiar to modern antitrust analysis, while pressing the larger case for democracy and industrial liberty. Legislatures can, and should, take an expansive view.
Antitrust, Democracy, and Individual Liberty
As a starting point, Brandeis believed that values other than economics would be served by the protection of competition through antitrust, chief among them the preservation of democracy and individual initiative. This was not a subtle view. He went so far as to say that “we cannot maintain democratic conditions in America if we allow organizations to arise in our midst with the power of the [U.S.] Steel Corporation.”
For Brandeis, democracy was more than just the ability to cast a vote; it rested on the ability of Americans to participate fully in the industrialized economy. When he described the harm from monopoly, Brandeis bemoaned the passage of the day when “nearly every American boy could look forward to becoming independent as a farmer or mechanic, in business or in professional life.” Brandeis saw this “industrial liberty” as integral to political liberty. He held a Jeffersonian view of the world, believing “that in a democratic society the existence of large centers of private power is dangerous to the continuing vitality of a free people.”
This was a view shaped by his times–the populist opposition to the power of the trusts in the late 19th and early 20th century and then the arrival of the Great Depression, when he warned of the “gross inequality in the distribution of wealth and income which giant corporations have fostered.”
In 1913, after publishing a series of articles critical of large financial institutions, which he labeled “the money trust,” Brandeis agreed to meet with a banker, Thomas Lamont, who took exception to Brandeis’s views. When the J.P. Morgan partner questioned Brandeis’s belief that bankers wielded dangerous power, Brandeis responded simply:
Yes, I do think it is dangerous, highly dangerous. The reason I think it is, is that it hampers the freedom of the individual. The only way we are going to work out our problems in this country is to have the individual free, not free to do unlicensed things, but free to work and to trade without the fear of some gigantic power threatening to engulf him every moment, whether that power be a monopoly in oil or in credit.
Brandeis believed that giant corporate power stifled the “courage, the energy and the resourcefulness of small men.” He said restraining monopoly power would create additional “opportunities for leadership,” which would help “Americans secure the moral and intellectual development which is essential to the maintenance of liberty.”
Antitrust and Society
From a Brandeisian viewpoint, antitrust does not reside on an island apart from society. It helps to form society. When Brandeis connected economic opportunity to democracy, whether in the early years of the 20th century or during the Great Depression, it was because he understood that a democracy could not function well if many people felt that their economic well-being was being ignored. In other words, he believed that corporate power that threatened industrial liberty threatened political liberty as well. As he said,
[Democracy] substitutes self-restraint for external restraint. It is more difficult to maintain than to achieve. It demands continuous sacrifice by the individual and more exigent obedience to the moral law than any other form of government. Success in any democratic undertaking must proceed from the individual.
In emphasizing the importance of democracy and industrial liberty, Brandeis did not believe he was sacrificing consumer interests for the protection of competitors. Rather, he understood that laws could protect both at once. The text and legislative history of the Sherman Act focus attention on the protection of small business, and it is axiomatic that a monopoly can harm consumers through its injury of competitors. And Brandeis offered specific examples of such tactics, most notably in his work on the La Follette-Stanley Antitrust bill of 1911.
Economic Critique of Monopoly
Brandeis joined his larger criticism of the impact of the trusts on democracy with a very specific economic critique of monopoly. He argued that “[t]here are no natural monopolies today in the industrial world.” Accordingly, he believed that U.S. Steel had built its monopoly power through anti-competitive acquisitions and collusion and not by creating and reaping scale efficiencies. Among the adverse effects arising from monopoly power Brandeis identified were monopoly profits and lessened incentive to innovate. Similarly, he became famous (and almost infamous) for his criticism of United Shoe Machinery Company for barring its customers, shoe manufacturers, from using any other company’s shoe-manufacturing equipment.
Brandeis also took head-on arguments that the power of trusts resulted from economic efficiency. He believed that “[t]he wastes of competition are negligible [but the] economies of monopoly are superficial and delusive.” He was quite careful to argue that monopolies gained power through misdeed, not through greater efficiencies. Brandeis defined efficiency to include “whether there has been an advance in the art as to the quality of the products [or] whether there has been an advance lessening the cost of the article,” and saw little evidence that the trusts were passing along any resource savings to consumers: “The trusts have not reduced prices. So far as prices have been reduced, it has been in spite of the trusts.”
Purpose and Mechanism
To Brandeis, legislatures have great latitude to determine the appropriate circumstances of economic regulation. But equally important, of course, are the words they use to construct the legal standard that will implement those goals. In my next article, I look at how to move from broad goals to legislative standards.
Jonathan Sallet is a Benton Senior Fellow. He works to promote broadband access and deployment, to advance competition, including through antitrust, and to preserve and protect internet openness. He is the former-Federal Communications Commission General Counsel (2013-2016), and Deputy Assistant Attorney General for Litigation, Antitrust Division, US Department of Justice (2016-2017).
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