WEBVTT NOTE Presidential Use and Abuse of the Sherman Act: Cleveland to Clinton 1 00:00:00.000 --> 00:00:10.000 I gather there's a libertarian principle at work. I'm just supposed to go. I'm on my own. There's no authority here. 2 00:00:10.000 --> 00:00:19.000 It's hard for me to come to this part of the country without thinking about the Civil War. 3 00:00:19.000 --> 00:00:29.000 At first glance, there doesn't seem to be an obvious tie-in to my topic. But if you think about it, there actually is. 4 00:00:29.000 --> 00:00:35.840 that is economic policy in general is often a type of civil war and you know 5 00:00:35.840 --> 00:00:40.200 that point was made a little earlier actually in passing by David Gordon when 6 00:00:40.200 --> 00:00:44.200 he when he referred to the the origins of the civil war I think we tend to 7 00:00:44.200 --> 00:00:49.480 confuse the results of the civil war with the reasons that northerners were 8 00:00:49.480 --> 00:00:56.120 willing to to fight and southerners were were willing to fight which some people 9 00:00:56.120 --> 00:01:08.120 A little bit more recently, as some of you may remember, the energy crisis of the 1970s. 10 00:01:08.120 --> 00:01:18.120 You may also recall that the president who came from Georgia at that time, Jimmy Carter, 11 00:01:18.120 --> 00:01:37.120 He had a slogan for dealing with the energy crisis, and you recall what that was, he called it the moral equivalent of war, that the energy crisis was the moral equivalent of war, and we needed policies along those lines. 12 00:01:37.120 --> 00:02:05.120 Now, one of my economist colleagues wrote a wonderful piece that looked at this, and if you recall, the net effect of the policies back then was really to take money from net energy producers, Texas, Louisiana, Alaska, and send it to net energy consumers, Massachusetts, New York, and New Jersey, for example. 13 00:02:05.120 --> 00:02:18.120 And he wrote a wonderful piece on this for the Regulation magazine. He called the energy policy of the Carter administration the moral equivalent of civil war. 14 00:02:18.120 --> 00:02:28.120 And so I think that's the tie-in in my mind as I was coming into the Atlanta airport. 15 00:02:28.120 --> 00:02:39.120 and my thoughts inevitably turn to the great conflict, the recent unfortunate conflict, and the topic I was going to talk about today. 16 00:02:39.120 --> 00:02:48.120 In fact, antitrust you can regard as a type of civil war as well. 17 00:02:48.120 --> 00:02:56.120 Right now, with my co-author, Thomas Hazlitt, who some of you may know from the Reason column, 18 00:02:56.120 --> 00:02:59.120 we've been looking at the case against Microsoft. 19 00:02:59.120 --> 00:03:02.120 Now, you know, there's more than just the case against Microsoft. 20 00:03:02.120 --> 00:03:06.120 There's also an investigation underway against Intel. 21 00:03:06.120 --> 00:03:12.120 There's also, as of about a week and a half ago, news that the Federal Trade Commission is looking at Cisco. 22 00:03:12.120 --> 00:03:18.160 Journal. So you take the three giants in one of the most rapidly expanding industries 23 00:03:18.160 --> 00:03:24.760 we have in this country, one of the most successful export stories, Microsoft, Intel and Cisco, 24 00:03:24.760 --> 00:03:30.800 and they are all under attack. Now, the National Journal had a recent article that I thought 25 00:03:30.800 --> 00:03:40.080 was kind of interesting. They talked about this in terms of sort of Silicon Valley versus 26 00:03:40.080 --> 00:04:10.080 Washington DC, and I think there's a good deal of truth to that. They talked about suits versus sweaters, geeks versus wonks, and there's certainly some truth to the notion that if you had just let this computer industry go where it was going to go, writing cool software, making cool chips, hooking everybody on the web, the relative influence of the geeks, predominantly on the west coast, although there's some east coast centers as well, 27 00:04:10.080 --> 00:04:14.560 uh... the relevant influence of the geeks over the suits in washington was going to 28 00:04:14.560 --> 00:04:15.520 increase 29 00:04:15.520 --> 00:04:17.800 and it was time to show them 30 00:04:17.800 --> 00:04:19.480 to show them uh... 31 00:04:19.480 --> 00:04:23.760 uh... who uh... who who would have the last say 32 00:04:23.760 --> 00:04:28.600 i'm going to go further in my analogy uh... that is to say my assertion that 33 00:04:28.600 --> 00:04:32.720 you could regard anti-trust as a type of civil war 34 00:04:32.720 --> 00:04:33.800 uh... 35 00:04:33.800 --> 00:04:38.480 uh... by going back to some readings that uh... that i came across during the uh... 36 00:04:38.480 --> 00:05:08.440 to Dealing with the Progressive Era. I was reading some of the debates that occurred at that point, and I remember, you know, the middle of the Progressive Area came only 40 years after the Civil War ended, and one of the speakers at one of these conventions got up and said that the Sherman Antitrust Act had created more damage than any federal action since the Civil War. 37 00:05:08.480 --> 00:05:17.480 And this seems like a very provocative statement. It seems like an extreme statement. It even seems like an implausible statement. 38 00:05:17.480 --> 00:05:25.480 But I am going to contend that it is actually fundamentally correct. 39 00:05:25.480 --> 00:05:35.480 Now, struggles between the President and big business have been a constant feature of the United States, I think, for a long, long time. 40 00:05:35.480 --> 00:05:51.480 Certainly going back, let's say, to the days of Andrew Jackson. But the most famous example, of course, involves Teddy Roosevelt and the trusts and his struggle with the early corporations. 41 00:05:51.480 --> 00:06:01.480 We can think of some other examples of FDR, particularly later on during the New Deal, had some major run-ins with big business. 42 00:06:01.480 --> 00:06:27.480 And some of you may also recall that John F. Kennedy had a tussle with steel companies in 1962 that involved the FBI actually showing up at the corporate offices of various steel companies for the alleged infraction having been to raise their steel prices for the first time in over a decade. 43 00:06:27.480 --> 00:06:32.480 and this is during a period of wage and general inflation. 44 00:06:32.480 --> 00:06:43.480 The historians in this area have done a remarkable job of putting together the basic facts. 45 00:06:43.480 --> 00:06:48.480 We know a lot about the struggle between presidents and business. 46 00:06:48.480 --> 00:06:51.480 But two things we don't know and that's the why. 47 00:06:51.480 --> 00:07:02.480 Why? Why do you get these occasional or sporadic run-ins between business and the chief executive? 48 00:07:02.480 --> 00:07:10.480 And we also don't know the so what. What difference does it make? A lot of the historical accounts are sort of moralistic accounts. 49 00:07:10.480 --> 00:07:21.480 You know, power struggles, struggles between two personalities, Roosevelt and J.P. Morgan, Roosevelt and John D. Rockefeller. 50 00:07:21.480 --> 00:07:32.480 Well, let me first go to the why of antitrust. And here, I'm not breaking a whole lot of new ground. 51 00:07:32.480 --> 00:07:42.880 The why really comes about, it comes about because of economic progress, economic change. 52 00:07:42.880 --> 00:07:49.320 The economic historian, Gary Lidcap, wrote a wonderful piece about the origins of the 53 00:07:49.320 --> 00:07:55.560 hostility toward the meatpackers, Armour, Swift, and so on, the big Chicago meatpackers 54 00:07:55.560 --> 00:07:59.680 that grew up at the turn of the century. 55 00:07:59.680 --> 00:08:05.840 He explained what was really going on there. What had changed was the introduction of 56 00:08:05.840 --> 00:08:14.720 the refrigerated rail car. With the refrigerated rail car it was possible to slaughter cattle 57 00:08:14.720 --> 00:08:21.560 and hogs centrally, Chicago was a good location, pack them in tightly, move them more efficiently 58 00:08:21.560 --> 00:08:26.440 to the east coast and even abroad. So you had a tremendous restructuring in an industry 59 00:08:26.440 --> 00:08:33.000 that up until then had involved live cattle being shipped to the east coast and being 60 00:08:33.000 --> 00:08:37.320 slaughtered locally. Now, you can imagine there are a lot of people who are unhappy about 61 00:08:37.320 --> 00:08:49.520 this development. And this sort of picture can be replayed in a lot of different industries. 62 00:08:49.520 --> 00:08:55.560 When you go back and think of the major developments at the turn of the century and later, chemicals, 63 00:08:55.560 --> 00:09:01.960 Deal, food processing, sugar refining, for example, and then later on, automobiles, think 64 00:09:01.960 --> 00:09:06.640 of the major changes that occurred as a result of the introduction of the automobile and 65 00:09:06.640 --> 00:09:14.040 its widespread use in the 20s, what that did to existing businesses, people involved with 66 00:09:14.040 --> 00:09:15.040 horses and so on. 67 00:09:15.040 --> 00:09:28.040 To get an idea of the feelings, the sonnets that were around, I have a little picture here from one of the turn of the century newspapers. 68 00:09:28.040 --> 00:09:36.040 And this one I'm using because it actually has armor, one of the big meatpacking companies here, as a pirate. 69 00:09:36.040 --> 00:09:43.040 And the pirates on the ship are about to push Uncle Sam off the plank. 70 00:09:43.040 --> 00:09:53.040 And you probably can't see that way from the back there, but underneath it says, 71 00:09:53.040 --> 00:09:58.040 one sees his finish unless good government retakes the ship. 72 00:09:58.040 --> 00:10:08.040 So there was a deep-seated, well-founded fear of the trust, and I think some other sort of more vague fears, 73 00:10:08.040 --> 00:10:16.040 People fearing that with the rise of the modern corporation, the fundamental liberties were going to be at stake. 74 00:10:16.040 --> 00:10:24.040 To give you one more picture, this is King Kong anticipated. 75 00:10:24.040 --> 00:10:30.040 That's liberty that King Kong has in his arm there. 76 00:10:30.040 --> 00:10:44.440 He's got a republicanism discus and the Arab democracy has wounded but not really killed him. 77 00:10:44.440 --> 00:10:55.440 This is one of the main issues, political issues that arose at the turn of the century. 78 00:10:55.440 --> 00:10:59.760 uh... 79 00:10:59.760 --> 00:11:03.800 i mention one reason for the rise of antitrust new forms of business that 80 00:11:03.800 --> 00:11:09.000 would destroy existing businesses and and raise and and and raise fears 81 00:11:09.000 --> 00:11:12.960 the second reason has really been and i i i think this is where where where 82 00:11:12.960 --> 00:11:17.080 things moving to to to slightly different territory is the is that the 83 00:11:17.080 --> 00:11:18.640 rise of antitrust 84 00:11:18.640 --> 00:11:21.240 has been uh... has has uh... 85 00:11:21.240 --> 00:11:24.240 uh... has been wonderful pretext to cover up business 86 00:11:24.240 --> 00:11:25.360 to cover up 87 00:11:25.360 --> 00:11:28.120 Policy Failures 88 00:11:28.120 --> 00:11:33.960 you may recall nineteen seventies when we had double-digit inflation 89 00:11:33.960 --> 00:11:35.440 that uh... 90 00:11:35.440 --> 00:11:36.400 that many 91 00:11:36.400 --> 00:11:38.920 on the left i would say when the government 92 00:11:38.920 --> 00:11:41.160 actually help business accountable 93 00:11:41.160 --> 00:11:44.520 okay the idea was that monopolistic practices 94 00:11:44.520 --> 00:11:46.280 bad things that business did 95 00:11:46.280 --> 00:11:51.240 were causing prices to rise had nothing to do with monetary policy 96 00:11:51.240 --> 00:11:52.640 and uh... uh... 97 00:11:52.640 --> 00:12:02.440 and similar kinds of issues came up for example during the first world war. Given our proximity 98 00:12:02.440 --> 00:12:10.120 to warm springs I have to mention another example and this one from the 1930s. In the 99 00:12:10.120 --> 00:12:16.720 late 30s FDR's advisors had a problem and the problem was that they were already in 100 00:12:16.720 --> 00:12:23.720 The Great Depression was continuing as it had before. In contrast to earlier cases, like the panic of 1907, the economy did not rebound quickly, and they needed an explanation. They went back in this grab bag of rhetoric and pulled out the old antitrust law. 101 00:12:46.720 --> 00:12:52.880 stuff, that there was big business, it was the monopolistic practices, the rigidities 102 00:12:52.880 --> 00:12:59.680 of big business that was preventing a readjustment of the economy, it was preventing the economy 103 00:12:59.680 --> 00:13:05.600 from coming out of the depths of the Great Depression. And the result was something that 104 00:13:05.600 --> 00:13:10.240 many of you know about, the TNEC hearings, the Temporary National Economic Committee, 105 00:13:10.240 --> 00:13:17.560 and the celebrated trust-busting of Thurman Arnold, where he went after a wide stretch 106 00:13:17.560 --> 00:13:21.600 of American business for war. 107 00:13:21.600 --> 00:13:24.780 Now that's sort of the why. 108 00:13:24.780 --> 00:13:35.780 One, economic change creates sentiment against that change, secondly, you've got something 109 00:13:35.780 --> 00:14:05.780 Let me turn now to the question of so what, the so what of antitrust. I'm going to be blunt about this. Sporadic, politically charged tax on business undermined business confidence. That is to say, trust busting hurt the stock market and it hurt economic activity. Now these are issues that if you've read 110 00:14:05.780 --> 00:14:11.100 around in the history of the progressive era are sort of familiar, but I don't think the 111 00:14:11.100 --> 00:14:16.580 literature here really resolves this. What I need to do is to make a short excursion 112 00:14:16.580 --> 00:14:25.580 into the origins of the laws that we're now using against Microsoft. The origins, of course, 113 00:14:25.580 --> 00:14:32.980 go back to 1890, the Sherman Act, and it's intriguing that initially the courts were 114 00:14:32.980 --> 00:15:02.980 The Federal Reserve is very reluctant to hold a favorable view of the Sherman Act, and for example in 1895, in the famous E.C. Knight case involving the Sugar Trust, the court said that merger was not subject to the Sherman Act. You could create a holding company and you couldn't touch it. You couldn't touch it with the federal law because corporations were creatures of the state. 115 00:15:02.980 --> 00:15:11.980 As a result, it is not surprising that between 1895 and 1901, about half of US industry merged. 116 00:15:11.980 --> 00:15:26.980 They found a safe haven from attack. The various kinds of arrangements they had had, cooperative arrangements, were given a safe haven. 117 00:15:26.980 --> 00:15:56.980 This ended when Teddy Roosevelt, through accidents of the assassination of McKinley, became president and he was determined to overturn the E.C. Knight case. And he did that in Northern Securities, a case involving Morgan Hill Railroads in the northwest, from Minneapolis off to Washington State. And with Northern Securities in hand, that's really the beginning of modern and I trust Paul. 118 00:15:56.980 --> 00:16:04.860 Policy. Sherman Act was passed in 1890 but not really effective until later. But of course 119 00:16:04.860 --> 00:16:12.900 the case came down in 1904. 1904 was an election year. There had already been claims that the 120 00:16:12.900 --> 00:16:17.620 attempt to overturn EC night was hurting the economy. There was a so-called rich man's 121 00:16:17.620 --> 00:16:25.480 panic of 1903. So March 1904 the case comes down. Immediately the attorney general goes 122 00:16:25.480 --> 00:16:30.960 goes out and says there's going to be no running amok on antitrust. We will not use this precedent 123 00:16:30.960 --> 00:16:39.960 to beat up on business. And they didn't for a while. In 1906, November of 1906 and 1907, 124 00:16:39.960 --> 00:16:48.040 Roosevelt, who got reelected, filed a case against Standard Oil. And this was the big 125 00:16:48.040 --> 00:16:53.480 one. Standard Oil was the largest industrial corporation in the world at that time. And 126 00:16:53.480 --> 00:17:03.480 and if he could successfully break up standard oil, he would have a precedent that he could use against the other half of the U.S. industry. 127 00:17:03.480 --> 00:17:13.480 In other words, a successful campaign here would have put a lot of the existing structure at risk. 128 00:17:13.480 --> 00:17:22.480 Now, at the same time you had this panic, about a 50% drop in stock prices, a one-third drop in industrial production. 129 00:17:22.480 --> 00:17:30.480 Roosevelt's critics and even many of his friends blamed his policies for the panic. 130 00:17:30.480 --> 00:17:35.480 Let me show you three contemporary renditions. 131 00:17:35.480 --> 00:17:42.480 This is such a common thing that it came up in the political cartoons of the time. 132 00:17:42.480 --> 00:17:49.480 Here's Teddy Roosevelt beating the big drum, nerve-tonic for business, but he's actually making noise. 133 00:17:49.480 --> 00:18:00.480 And there's capital, big business, sick in bed, and the nurse, Columbia, an old expression for the United States, saying, will you please, will you please hush? 134 00:18:00.480 --> 00:18:05.480 That's sort of the one version of it. 135 00:18:05.480 --> 00:18:09.480 Then it got a little bit more extreme, that is the interpretation. 136 00:18:09.480 --> 00:18:15.480 Here's Teddy Roosevelt, the trust buster, sort of in his Rough Rider outfit, 137 00:18:15.480 --> 00:18:24.480 Blowing his bugle, throwing sticks, and the big trusts, they're throwing sticks back at the trust busters. 138 00:18:24.480 --> 00:18:29.480 Who's caught in the middle? The plain businessman, the usual victim. 139 00:18:29.480 --> 00:18:38.480 And this was a common interpretation at the time that the struggle between Roosevelt and the trusts was ruining prosperity, 140 00:18:38.480 --> 00:18:43.480 and fairly good prosperity under the McKinley years it had been. 141 00:18:43.480 --> 00:19:07.480 And then finally, and this is my favorite, here is Roosevelt as Samson, about to, well I think in the actual biblical account he pushed the pillars out, but here he's pulling, he's going to knock the pillars down, and up on top is the rich malefactor. 142 00:19:07.480 --> 00:19:18.480 Now, this is a reference to a phrase that resonates through decades afterwards, because at the depth of the panic, 143 00:19:18.480 --> 00:19:25.480 Roosevelt defended himself and said, no, not he had created the panic with his policies, 144 00:19:25.480 --> 00:19:33.480 but rather rich malefactors or malefactors of great wealth had deliberately provoked the stock market panic 145 00:19:33.480 --> 00:19:36.480 in order to discredit the policies of this government. 146 00:19:36.480 --> 00:19:40.480 And that's where the rich malefactor comes from. 147 00:19:40.480 --> 00:19:42.480 The original has the caption, 148 00:19:42.480 --> 00:19:52.480 to trap the mouse, don't raise the house. 149 00:19:55.480 --> 00:19:57.480 There are a number of others. 150 00:19:57.480 --> 00:20:10.920 Now, this is, I think of it as the Rosetta Stone, the Rosetta Stone in this area of how does antitrust affect economic output. 151 00:20:10.920 --> 00:20:23.720 Similar things happened with Taft, for example. Taft in 1911 succeeded Roosevelt in the White House. He actually filed more cases. 152 00:20:23.720 --> 00:20:41.720 The difference between Taft and Roosevelt was Roosevelt was agile. When this happened in 1907, 1908, Roosevelt immediately was sort of retreated and said, gee, you know, maybe what we need is we need to reform the antitrust laws. And he stopped filing cases. 153 00:20:41.720 --> 00:20:51.800 Taft, on the other hand, in 1910, 1911, 1912, went after business with a sheer, with stubbornness. 154 00:20:51.800 --> 00:20:59.120 And when similar things happened at that point, the economy was not doing too well, the stock 155 00:20:59.120 --> 00:21:04.160 market was kind of jittery. He said, he said, well, you know, I know that reform is kind 156 00:21:04.160 --> 00:21:10.440 of painful, but, you know, and that these things might make business halt, but we have 157 00:21:10.440 --> 00:21:19.440 In a prophetic letter to his brother, he said, we are going to enforce the law or die in the attempt. 158 00:21:19.440 --> 00:21:24.440 And what happened in the 1912 election was essentially fought on one issue, the trust issue. 159 00:21:24.440 --> 00:21:34.440 He created an opening for Roosevelt, ironically, to come in as the guy who was sort of the pro-trust guy. 160 00:21:34.440 --> 00:21:47.440 and then we had two anti-trust guys, Taft and Wilson, the two Republicans split the vote and Wilson came into the White House. 161 00:21:47.440 --> 00:21:57.440 There are other instances of this. Let me just mention what I believe to be the most important one and involves Hoover. 162 00:21:57.440 --> 00:22:01.440 This is my hero here. 163 00:22:01.440 --> 00:22:22.440 William Donovan, Colonel Wild Bill Donovan, who later went on to found the CIA, or the Office of Special Services, in the 1920s, he was the chief of antitrust, and his attempt was essentially to make the Sherman Act a dead letter. 164 00:22:22.440 --> 00:22:30.440 and he came darn close. Over three years, despite a huge merger wave that was going on at the time, 165 00:22:30.440 --> 00:22:36.440 booming stock prices, booming output, they filed only one case against the public, 166 00:22:36.440 --> 00:22:44.440 only one merger case against the publicly listed firm. Donovan was not, when Hoover came into office, 167 00:22:44.440 --> 00:23:14.440 Donovan, against much expectation, was not appointed to be attorney general, he went back into private practice, and Hoover, Hoover is sort of a good boy scout, Hoover comes in and says, oh my god, we haven't been enforcing the laws, and he got his attorney general to reverse the policies that Donovan had been pushing at the time, and in a series of acts, 168 00:23:14.440 --> 00:23:20.320 Actions, really provided a turnaround. Now, some of you are going to say, 169 00:23:20.320 --> 00:23:27.680 Bittling-Meier is saying that Hoover's switch on antitrust caused the Great Depression. 170 00:23:27.680 --> 00:23:33.400 That's not what I'm saying. I think the switch in policies, which were announced actually 171 00:23:33.400 --> 00:23:44.360 on October 25th, 1929, sort of a familiar date, the switch in policies probably 172 00:23:44.360 --> 00:23:50.360 I think they're the best explanation we have for the stock market crash, the crash of 29. 173 00:23:50.360 --> 00:23:56.360 Now the fact of the crash doesn't mean the fact of the depression, as we know from 87, 174 00:23:56.360 --> 00:24:02.360 but it probably offers an explanation for the recession of 1930. 175 00:24:02.360 --> 00:24:07.360 The depression has other causes having to do with the money supply and the price level. 176 00:24:07.360 --> 00:24:13.360 There are a few other instances like this we could go into. 177 00:24:13.360 --> 00:24:23.360 Eisenhower in the late 50s, revving up the antitrust apparatus, and the fact that Nixon lost. 178 00:24:23.360 --> 00:24:28.360 That was sort of an economy issue, that we were in a recession, 58, 59, 60. 179 00:24:28.360 --> 00:24:32.360 But there are a number of instances. 180 00:24:32.360 --> 00:24:50.360 So, the bottom line I have here is, if you look at Bush more recently, Bush lost the 92 election because the economy wasn't doing well. 181 00:24:50.360 --> 00:25:04.360 One interpretation was that he had created a regulatory recession with the Americans for Disabilities Act, with the Clean Air Act, and with some of these antitrust initiatives. 182 00:25:04.360 --> 00:25:09.360 There were major investigations going on. He had sort of let that thing adrift. 183 00:25:09.360 --> 00:25:20.360 So, arguably, without antitrust, there would have been no Square Deal, no New Deal, and no Monica Lewinsky.