- Capitalism and Alternatives -

anti trust fallacies

Posted by: Gee ( lifting the veil off anti trust ) on March 23, 1999 at 13:50:45:

In Reply to: We're not finished, not by a longshot posted by Samuel Day Fassbinder on March 23, 1999 at 11:35:10:

: SDF: But this assumes that forcing people to pay tolls is a wealth-LOSING scheme, which it doesn't have to be.

It does if it isnt the most efficient price, which for things like roads and other high user services is low.

: G: Against property rights if its theft of 'intellectual capital'

: SDF: Who is to enforce or even DEFINE "intellectual capital" if there is no government? This is another demonstration of the impracticality of anarcho-capitalism -- with no government, who arbitrates between competing definitions of property?

My turn to supply a link.

: SDF: NOT NECESSARILY, Gee. Capitalists might find the cash to buy out everyone, they certainly did so in the era of the robber barons in the US, read Mathew Josephson's book THE ROBBER BARONS and you'll find out who bought out whom, who was then bought out by whom.

Then read "The myth of the Robber Barons" (Folsom) to find out how politicians tried to manipulate the railroad industry with arbitrary rules and controls (creating a fiasco in California) leaving, very deliberately, a private railroader the choice of not investing or bribing, then enjoy how these mediocrities failed to ruin Vanderbilt, twice. - ive detailed aome below.

: look at Standard Oil in the US of the early 19th century.

And its low prices, that once rose cause competition to return (and govt interference likewise)

Govt can and is used by some to make profits, they do so because they know that the hard work of actually making things people want is not always as profitable as employing govt force.

: SDF: With no competitors, the monopolist can make what is cheapest for the industry, and people will have no choice but to buy, at whatever price.

Until a competitor sees the poorly supplied market and enters it woth better products.

: Once the requirement for capital formation becomes expensive enough in terms of the necessary technological capacity to run a competitive business, business has to be big.

or made so by joint ventures.

: Once businesses get big enough, only government keeps the resultant oligopolies from becoming monopolies.

Or, makes the monopolies by protecting them from competitors - see below.

: What sort of "start-up capital" do you think it would take to stay in business?

Hence their high margins - but if they charge too much they wont sell. Market price includes advantages of large capital volumes, but in each case companies can and have grown up inside dominated industries. Observe the many smaller oil, car, software companies who gain niches and build capital.

: SDF: Denial is not demonstration, Gee. You haven't proved anything. Everyone knows what anti-trust laws are for. Prove they're unnecessary.

In asnwer to this I'll paraphrase some texts to suit this challenge.

From the very beginning, the antitrust laws have been a protectionist vehicle. While in theory they guard consumers against monopoly, in reality they politically protect uncompetitive (but well-connected) businesses. In a 1985 International Review of Law and Economics article, you can find evidence showing that in the ten years before the 1890 Sherman Anti-Trust Act, the industries accused of being monopolized" by trusts were all dropping their prices faster than the general price level was falling at that time and were expanding output faster than GNP was growing some as much as ten times faster. The
late-nineteenth-century trusts were the most innovative and fastest-growing industries of their time, which is why they were unfairly targeted by antitrust laws.

Congress at the time recognized the great advantages of the trusts for
consumers. Congressman William Mason stated during the U.S. House of
Representatives debate over the Sherman Act 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." Senator George F. Edmunds added that "Although 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, that does not alter the wrong of the principle of any trust."

Well, I wonder what they were after.

Thus, members of Congress acknowledged that the trusts had caused lower prices to the great benefit of consumers, but objected that higher-priced businesses many of which were political supporters had lost market share or had been driven out of business.

aha, now we see their goal.

The Sherman Act was a protectionist scheme in more ways than one. The real source of monopoly power in the late nineteenth century was government intervention. In October 1890, just three months after the Sherman Act was passed, Congress passed the McKinley tariff the largest tariff increase in history up to that point. The bill was sponsored by none other than Senator John Sherman himself. Sherman, as a leader of
the Republican Party, had championed protectionism and high tariffs since the Civil War. In the Senate debate over his antitrust bill he attacked the trusts because they supposedly "subverted the tariff system; they undermined the policy of government to protect American industries by levying duties on imported goods." That is, the price-cutting by the trusts undermined the manufacturing cartel that was created and sustained by the Republicans' high-tariff policies.

The Sherman Act was a political fig leaf designed to deflect attention away from the real source of monopoly power the tariff and the true price-fixing conspirators Congress and protectionist manufacturers. The New York Times saw through this charade when it editorialized on October 1, 1890, that the "so-called Anti-Trust law was passed to deceive the people and to clear the way for the enactment of this law relating to the tariff. It was projected in order that the party organs might say to the opponents of tariff extortion and protected combinations, Behold! We have attacked the Trusts. The Republican Party is the enemy of all such rings.'"

Economists were almost unanimously opposed to the Sherman Act because they viewed competition as Austrian school economists view it as a dynamic, rivalrous process of discovery. According to historian Sanford D. Gordon, who surveyed all professional journals in the social sciences and all books written by economists regarding the
late-nineteenth-century trusts, "a big majority of the economists conceded that the combination movement was to be expected, that high fixed costs made large scale enterprises economical, that competition under these new circumstances frequently resulted in cutthroat competition, that agreements among producers was a natural
consequence, and the stability of prices usually brought more benefit than harm to society. They seemed to reject the idea that competition was declining, or showed no fear of decline."

A popular argument made at the time was that antitrust was necessary to stave off something even worse the more extreme forms of regulation or outright socialism. Antitrust was adopted, but Americans were subjected to the more extreme forms of regulation and socialism anyway. As Friedman pointed out in Free to Choose (oh horrors!), by the 1970s the entire Socialist Party Platform of 1920 had been adopted in
the United States. Socialism, F.A. Hayek pointed out in The Road to Serfdom, no longer meant nationalization of industry and central planning, but rather the institutions of the welfare and regulatory state. Antitrust did nothing to stop the spread of socialism in

Quite the contrary; the adoption of antitrust helped speed up the adoption of socialism. By weakening the competitive process, it has led to slower productivity growth and diminished prosperity. Government always reacts to slower economic growth, unemployment, and economic crises by adopting even greater economic interventions. The late-nineteenth-century proponents of antitrust had it all backwards. This is why it is so disingenuous, to say the least, of contemporary proponents of antitrust, such as the Wall Street Journal's Murray, to repeat this same discredited argument, urging Bill Gates to "place trust in trustbusters," or else "he may eventually find the Justice
Department and Congress considering more-radical remedies."

Incidently, the real robber barons are those in the late nineteenth and the late twentieth centuries, the 'business' people who, having failed to achieve competitive success in the marketplace turned to government and asked it to enact laws and regulations granting them special privileges and harming their competitors. A century ago, such immoral special pleaders included Leland Stanford, who became wealthy by using his political connections to obtain a government-created monopoly
franchise in the California railroad industry; Thomas Durant and Grenville Dodge, who pocketed millions in government subsidies to build the Union Pacific railroad; Henry Villard, who "rushed into the wilderness to collect his government subsidies" to build the Northern Pacific railroad; and steel industry magnate Charles Schwab, who championed the disastrous 1930 Smoot-Hawley tariff. Their modern-day
counterparts would include all companies that have lobbied the federal government to use the antitrust laws to diminish or destroy the competitive efficiency of their most effective rivals.

For over 100 years antitrust regulation has allowed politicians to deceitfully pose as "populists" while stifling competition with politically motivated attacks on the most innovative and progressive companies. These attacks have been supported for over a century by socialist intellectuals and journalists who have taught many Americans to hate capitalism, to envy successful people, and to support government policies that undermine or destroy them both.

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