Review by Howard Dickman, Research Director, Manhattan Institute for Policy Research, of the book by Dominik T. Armentano, Antitrust and monopoly: Anatomy of a policy failure. New York: John Wiley and Sons, 1992. Taken with adaptations from Public Choice 41: 337-349 (1993).
In 1888, the self-taught economist and trade union theorist George Gunton examined the growing pupular clamor against the trusts. The ‘concentration of capital,’ he wrote in the recently established Political Science Quarterly, is said to result in four evils. Trusts allegedly ‘build up monopolies and drive small capitalists out of business,’ ‘destroy competition, the great minimizer of profits and equalizer of prices,’ ‘amass fortunes’ for their owners ‘at the expense of the community, thereby undermining personal and political freedom, and endangering the existence of democratic institutions.’ If indeed these industrial leviathans could arbitrarity lower output, raise prices, and dominate legislation, then, Gunton agreed, ‘it is clearly the duty of the public to check their development,’ of socialism would be inevitable.
But were the charges true? Gunton concluded they were not. The experience of the railroad, telegraphic, petroleum, cotton-seed oil, and sugar refining industries demonstrated beyond cavil that, even as concentration occurred, output increased enormously while prices continuously declined; the profits dominant firms enjoyed clearly resulted from their dramatic success in lowering the costs of production. Gunton resolved the apparent paradox using the hypothesis that dominant firms, continually looking over their shoulders, kept their prices ‘at least sufficiently low,’ and their output sufficiently lange, ‘not to invite the organization of counter enterprises which may destroy their existing profits.’ As long as there were no legal barriers to entry, the ‘active influence of the potential competitor is ever present.’ There was no basis in fact for anti-monopoly legislation.
Mr. Gunton’s counsel was ignored, of course, and shortly thereafter America embarked on its antitrust odyssey. Now, some ninety-odd years later, Dominick Armentano has re-evaluated the evidence and the theory, and concluded that Gunton was right after all. It was all a ghastly mistake.
Antitrust and Monopoly: Anatomy of a policy failure is a revised, updated, and enlarged version of the author’s previous volume, The Myths of Antitrust (1972). Like its prodecessor, the present book draws on a wide range of literature, most importantly from the ‘Austrian school,’ to systematicaly and roundly criticize the ‘pure and perfect competition’ paradign of neoclassical theory that has come to be the main prop of the law. The theory of pure and perfect competition, the author argues, is simply irrelevant and invalid; moreover, the inevitably structuralist-oriented antitrust policy derived from it is thoroughly dangerous to true, real-world, consumer-welfare-serving competition.
There are now more economists and social scientists than in previous years who would agee, at least to some extent, with the author’s theoretical perspective. But ‘conventional wisdom’ still has it that, if somewhat obsolete, antitrust laws were still very helpful protecting competition in the past. Not so, Armentano argues. His close empirical examination of the famous antitrust cases, from E. C. Knight right on down to IBM, shows that not a single case in which a firm was found guilty of violating the laws was correctly decided on economic criteria. The villains dancing through the pages of history and the law books were not in fact restricting output, raising prices, and otherwise successfully preventing entry by various allegedly nefarious, unfair means. there is no support in the historical record for the thesis that antitrust is or was necessary to ‘protect competition from itself.’ And, Armentano adds, these laws are undesirable as well, since many kinds of behavior (antitrust laws) suppress of inhibit are very much to consumers’ advantage.
Armentano urges complete abolition, or repeal, of all the antitrust statutes. In so doing, he goes considerably beyond other well-known critics, who would confine the reach of the laws to price fixing conspiracies or the occasional horizontal merger. As a libertarian individualist, the author insists that even ‘contracts in restraint of trade’ are properly part of the right individuals have to use and dispose of their property as they see fit, which goverment ought to recognize and not to interfere with (though should courts abandon ancient common law precedents and actually enforce price fixing agreements as contracts, the current argument about their inherent instability would no longer wash). Government policy toward competition, in Armentano’s view, should consist of laissez-faire: it should grant no monopoly or monopolistic privileges to private individuals or groups, period.
Antitrust and Monopoly is a strongly and vigorously argued polemic; it is also the single best book-length treatment of this vital public policy issue in print, and it should become a, if not the standard work in economics, history, and political science curricula. Since I share the author’s philosophical assumptions and economic point of view, and concur on the basis of my own research with his economic history findings, I have little to criticize from these directions.
On one issue, however, Armentano gets carried away: his attempt to squeeze an answer to the question, ‘who is responsible for antitrust’ into the procrustean bed of socalled ‘revisionist history,’ particularly the variety popularized by Gabriel Kolko in The Triumph of Conservatism (1963). It strains credulity to imply that the Sherman Act was the result of a plot hatched by dominant business interests to protect their competitive position against smaller rivals.
The obverse thesis is at least superficially more appealing. But the individuals and groups in favor of ‘doing something’ about the trusts in the 1870s and 1880s were a diverse lot. Some concerned themselves with consumer welfare (prices and output); some with political corruption; some with the implications for social and economic mobility resulting from the alleged decline of the independent businessman; and some, like the influential journalist Henry Demarest Lloyd, kept the pot boiling in a vain hope that Americans would come to embrace socialism. And one suspects most citizens were concerned with all these issues. What grounds exist for singling out business interests who stood bo benefit from antitrust protection as the ‘real’ reason we have the laws? The ‘reality’ -- in Gunton’s day, as well as now -- is that most people (including many economists!) don’t see any contradiction in protecting competition by protecting copetitors. That belief, coupled with vague if deep suspicion of bigness in business generally, lack of confidence in or understanding of competitive processes, and generation of careless history writing, seems adequate explanation for the origins and persistence of antitrust law and policy.
ENGLISH TEST - 1992
In the sixth paragraph.
Item 0- Armentano goes further than other critics in his arguments against antitrust legislation.
