Too Big? Not Big Enough?
Too Big? Not Big Enough? These are questions that have been grappled with in American politics from the very beginning. The questions are complicated, and they do not always split nicely and neatly between conservative and liberal ideals. In other words there is a balancing act equilibrium to seek out. When our founding fathers declared independence from the British, the side that favored a nation of written laws won out over the side of the divine right of kings to do whatever he wished to his subjects.
Patriots 1 and Loyalists 0.
During the time of President Washington, Thomas Jefferson believed the citizens should fight like a mob, if necessary, against a federal government with power to levy taxes and a US Bank. His opinions were countered by Alexander Hamilton who argued that a strong federal government and US Bank are absolutely essential for a struggling new nation to remain intact. President Washington sent in an army to put down Shay’s Whiskey Rebellion, and Hamilton’s position on federalism for the new US Treasury prevailed.
Ruling Class 1 and populists 0
During the next 90 years there was not much of a fight over businesses being too big. Alexis de Tocqueville observed the exceptionalism of Americans who loved the opportunity to become rich instead of demonizing any American for being rich. Then in 1890, Sen. John Sherman (R-OH), younger brother of General William Tecumseh Sherman, wrote the Sherman Anti-Trust Act. President Benjamin Harrison, a grandson of President William Henry Harrison, signed it into law in July, 1890. Unfortunately, when it passed the Sherman Act, Congress deliberately used vague terms such as monopoly and restraint of trade, the meaning of which were undergoing substantial changes in the popular and legal culture at the time. Thus Congress left for the courts the crucial task of interpreting the provisions of the law and determining precisely what sort of business practices it made criminal.
If a businessman charges prices which some bureaucratic judge believes is too high, he can be prosecuted for monopoly, or, rather, for a successful “intent to monopolize.” If he charges prices lower than those of his competitors, he can be prosecuted for “unfair competition” or “restraint of trade,” and if he charges the same prices as his competitors, he can be prosecuted for “collusion” or “conspiracy.” This reminds me of the phrase “Heads I win and Tails you lose.”
Marxist progressives 1 Capitalists 0
Some may rationalize that the breakup of big businesses resulted in the offshoots being successful, but this rationale overlooks the narrative that is fixed in everyone’s mind that capitalists are evil monsters who eventually become “Too Big To Exist.” At the Master Resource website there is a new series of articles. This five part series is about John D Rockefeller, and the first of the series is titled Vindicating Capitalism: The Real History of the Standard Oil Company (Part I: The Fallacious Textbook Story).
In the absence of antitrust laws, the fallacious textbook story goes, Standard attained a 90% share of the oil-refining market through unfair and destructive practices such as preferential railroad rebates and “predatory pricing”; Standard then leveraged its unfair advantages to eliminate competition, control the market, and dictate prices. This article challenges the mythology of the Standard Oil case and, more broadly, the notion that a coercive monopoly can arise in the absence of government intervention. By implication, it illustrates that there is nothing standing in the way of a truly free, competitive energy market–an energy market free of antitrust law.
Rockefeller was no autocrat. The standard lesson of Rockefeller’s rise is wrong – as is the traditional story of how it happened. Rockefeller did not achieve his success through the destructive, “anti-competitive” tactics attributed to him – nor could he have under economic freedom.
Rockefeller had no coercive power to banish competition or to dictate consumer prices. His sole power was his earned economic power – which was no more and no less than his ability to refine crude oil to produce kerosene and other products better, cheaper, and in greater quantity than anyone thought possible.
A shakeout of the efficient men from the inefficient boys was inevitable. In the mid-1860s, no one imagined that the best of the men, by orders of magnitude, would turn out to be a 24-year-old boy named John Davison Rockefeller.
Another man who deserves vindication is James J. Hill. In 1878, Hill joined with partners in the purchase of the St. Paul and Pacific Railroad. He planned to take the line westward through the Rockies and northward into Canada. His early efforts were dubbed “Hill’s Folly” by his critics, given that competing transcontinental lines already existed and Hill’s route took his rails through unpopulated wilderness areas.
Undeterred by the doubters, James J. Hill pushed ahead, and reached Seattle by 1893. While most of his competitors failed during the depression, Hill prospered, proving the wisdom of his conservative building plan. He laid track in small increments, usually about 200 miles. He then stopped construction and concentrated on attracting farmers and other settlers to the temporary terminus. He thus built up a population base to support his rail line. This segmented approach required 10 years to complete, but the result was financially sound.
Also noteworthy about James J. Hill’s effort was that he received no government aid — unique among the transcontinental lines. This feat was all the more remarkable because of the difficult topographical challenges posed by the Rockies and Cascades. Hill also prospered because of his willingness to construct “feeder lines” – short tracks that branched out from the main line to serve specific mines, logging enterprises, ranches, and other businesses.
A notorious example of the injustice of antitrust law from the turn of the last century involved James J. Hill. When Hill created the Northern Securities Company, a holding company combining his and his partners’ railroads into a larger company in order to avert a hostile takeover attempt by the Harriman interests who controlled the Union Pacific, the Company was immediately targeted by President Teddy Roosevelt’s “trust-busting” campaign. The Justice Department brought suit under the Sherman Act; and the Supreme Court, in a 5-4 opinion written by Justice Harlan, found the Company in violation of the Act as a “restraint of trade,” even though the creation of the Company in fact had enhanced competition.
The “Too Big To Exist” narrative lasted for about 100 years. By 1999, there were a lot of big Wall Street bankers who were prominent patrons of the Democrats. Fannie Mae and Freddie Mac also were big in housing mortgages, and Clinton Treasury Secretary Robert Rubin worked with Sen. Phil Gramm and Rep. Leach for new banking laws. “Too Big To Exist” was replaced with “Too Big To Fail” as the legislation with this new language was signed into law by Bill Clinton.
Liberal Fascists 1 Capitalists 0
I am trying to be a Tubthumper optimist, but I am also a little jaded and cynical about any quick changes and destruction of the fallacious textbook story about American capitalism. The best phenomenon of late is the emergence of the Tea Party. It is not a defined political party per se, but it is a refreshing state of mind and attitude toward the course and direction of our nation. Horrific statements have been made recently about the Tea Party by people who have never loved this country. So if we can get involved in the Republican party, and get constitutional conservatives to take charge on the local level, and elect constitutional conservatives to public office, then I will happily recognize the newest best score.
Patriots 1 Loyalists 0
Cross-posted at Unified Patriots