Boston Tea Party
The Boston Tea Party is often remembered as a rebellion against taxation. It was also a rebellion against the British East India Company’s trade monopoly. As Samuel Adams and John Hancock wrote in a 1773 letter protesting the Tea Act, the company was “introductive of Monopolies which, besides the trains of evil that attend them in the commercial view, are forever dangerous to public liberty.” Independent merchants expressed concern that the British East India Company would use its monopoly power to take control of other lines of commerce. This early protest inspired Americans to develop anti-monopoly principles to keep marketplaces open and to preserve democracy by breaking up concentrations of economic power.
With this legislation, Congress rejected concentrated land ownership in the territories that would later become the states of Ohio, Michigan, Indiana, Illinois, and Wisconsin. It did so by banning slavery in those regions and by promoting the division of the land into small homesteads. The legislation, which often proved detrimental to Native Americans, also encouraged the breaking up of large estates by requiring that when a landowner dies, his or her lands “be distributed among their children, and the descendants of a deceased child, in equal parts.” The law further encouraged the broad distribution of economic power by declaring the navigable waters of the Mississippi, Ohio, and St. Lawrence rivers to be “common highways and forever free.” This provision ensured that essential river transport would not become monopolized as it had in Europe.
The Constitution addresses monopoly in two explicit ways. First, it specifies that the federal government, rather than private monopolies, will control the postal service and postal roads.
Second, to promote science and the arts, it establishes a system for granting monopolies in the form of patents and copyrights to individual creators. James Madison, one of the main framers of the Constitution, later wrote that although, “monopolies…ought to be granted with caution and guarded with strictness against abuse,” patents and copyrights should be “considered as a compensation for a benefit actually gained to the community.” But Madison and the other Framers also specified that these forms of monopolies be carefully limited in time and scope.
Bill of Rights
Delegates to the Constitutional Convention debated whether to include a provision banning all private monopolies and charters of “special privilege.” Delegates from six states also advocated a clause that would have prohibited Congress from granting monopolies or giving any company “exclusive advantages of commerce.” These measures did not win majority support, but were taken up again in the debate over the Bill of Rights.
A small group of delegates, known as the anti-federalists, proposed including language that outlawed monopolies. Thomas Jefferson, then serving as ambassador to France, in a 1788 letter to James Madison, supported the idea, writing: “It is better to…abolish… monopolies, in all cases, than not to do it in any.”
Madison, however, felt the Constitution provided citizens with sufficient means of protecting themselves against private monopoly:
“Monopolies are sacrifices of the many to the few,” he said. “Where the power is in the few it is natural for them to sacrifice the many to their own partialities and corruptions. Where the power, as with us, is in the many not in the few, the danger cannot be very great that the few will be thus favored.”
Although no anti-monopoly language was included in the ratified Bill of Rights, the debate over monopoly continued to reveal how strongly the Founders opposed concentration of economic power.
At a time of when undeveloped roads made it hard to transport crops from farms to markets, frontier farmers often distilled their crops into whiskey, which was easy to transport and which did not perish. Thus, when Treasury Secretary Alexander Hamilton persuaded Congress to impose a tax on whiskey production in the United States, the threat to frontier farmers was severe. Adding to the farmers’ outrage was the regressive nature of the tax; industrial-scale whiskey producers paid a lower rate. Soon, the so-called Whiskey Rebellion broke out. Hamilton raised a large army, marched into Western Pennsylvania, and arrested protestors. In 1802, President Thomas Jefferson convinced Congress to repeal the tax.
Postal Service Act
Congress established the United States Post Office Department, as called for by the Constitution’s Postal Clause. In doing so, Congress created a neutral, open network of mail communication serving all Americans wherever they lived.
During debate over the bill, Congress concluded that if private couriers administered mail service, they would favor larger cities to smaller locales and fail to cater to a growing citizenry settling westward. Intent on preserving equal access to information and ideas, they designed a system in which profits earned on busy routes would “cross-subsidize” the service to rural and Western parts of the nation.
Supported strongly by President Washington, Congress also voted to subsidize postal rates for newspapers, charging only a penny to send a newspaper from one part of the country to another. To pay the cost of distributing information to Americans, Congress established a de facto tax on merchants, who were responsible for sending most letters, charging 6 cents per stamp.
General Incorporation Acts
Individual states passed a series of Acts during the early 19th century to make it possible for Americans to start new businesses without needing a special charter from the government. The Acts eradicated the system of ‘special privilege’ and ‘monopoly rights’ that the British Crown had imposed on Americans during colonial times. Americans increasingly viewed freedom to incorporate a new business or cooperative — and to compete with entrenched interests – as a fundamental right.
Veto of the Second Bank of the United States
President Andrew Jackson vetoed the extension of the charter of the Second Bank of the United States, a privately controlled financial institution that monopolized all fiscal operations of U.S. Government. Jackson charged that the bank “enjoy[ed] an exclusive privilege” that resulted in the “concentration of power in the hands of a few men irresponsible to the people.” The veto animated the antimonopoly cause and encouraged the growth of open markets and distributed power in banking.
New York Free Banking Act of 1838
This Act, inspired by Andrew Jackson’s Bank Veto, made it easier for New York citizens to start and operate their own financial institutions. By allowing citizens to use general incorporation laws to form banks, the Act encouraged the growth of local independent banks to meet local needs, thereby reducing “the evils of the money monopoly.” Other states soon followed with similar legislation.
New York Telegraph Act of 1848
This anti-monopoly law simplified the procedure for obtaining a telegraph charter in New York. It limited the special privileges lawmakers gave wealthy industrialists when chartering new businesses, introduced new competition into the telegraph industry, and reduced economic concentration.
Understanding that the telegraph would become a key way to spread information about public affairs, lawmakers also permitted journalists to transmit “general and public interest” messages ahead of regular dispatches. This law, like the New York Free Banking Act, served as a legislative template that other states would soon adopt.
The Civil War
America’s Civil War, in addition to being a fight over slavery, was in many ways also a fight over monopoly. Senator Thomas Morris of Ohio was typical of leading abolitionists when he characterized “Slave Power” to be “the goliath of all monopolies.” Similarly, Helen Douglass, wife of the Free Soiler and abolitionist Frederick Douglass, wrote that his opposition against any type of coercion “not only made him a foe to American slavery, but also to all forms of monopoly.”
The Free Soil movement, a spearhead of opposition to slavery, was founded on the conviction that both land monopoly and chattel slavery were “combinations of wealth against the liberty of the masses.” As history scholar Jonathan Earle explains, Free Soilers “went beyond simple hostility to the Slave Power and its pretenses, linking their antislavery opposition to a land reform agenda that pressed for free land for poor settlers, in addition to a land free of slavery.”
At the conclusion of the War, Congress and the States enacted the 13 Amendment to the Constitution to outlaw slavery. But paradoxically, the rapid concentration of corporate and banking power used to finance the war also helped to accelerate the concentration of economic power in the years immediately after the War.
National Banking Acts of 1863 & 1864
The Banking Acts of 1863 and 1864, passed by Congress during the Civil War, established the groundwork for a system of federally chartered banks. In so doing, it carried forward language already found in state bank charters that prohibited banks from trading in stocks or engaging in other lines of business.
This idea for a wall between banking and other forms of commerce traces back hundreds of years within English law. One goal of this wall was to limit the exposure of banks to risks. A second, perhaps even more important goal, was to check the ability of financiers to gain monopoly power over other people’s business.
National Telegraph Act of 1866
This Act set the groundwork for a competitive telegraph industry, compelling providers to compete on price and ensuring that all Americans had equal access to the then revolutionary technology. Congress passed the Act after a series of mergers that gave Western Union control over more than 104,000 miles of wire, compared to the 26,000 miles operated by all other telegraph companies.
Congress made clear in the Act that the government had the right to set rates for all government traffic on the telegraph. It also made clear the government had the right to buy out private telegraph companies at any time. Finally it established rules to encourage other companies to go into competition against Western Union.
Low crop prices, a lack of credit, and the rise of railroad and other interstate agricultural monopolies triggered the largest farmers’ movement in American history. Farmers demanded that government break or regulate the monopolists; during the 1870s, a group of farmers known as The National Grange—or, the Grangers—succeeded in passing laws in several Midwestern states that made railroad rates more favorable to farmers and set a maximum on the price that grain storage facilities could charge.
Farmers also responded by establishing purchasing and marketing cooperatives to counter the market power of seed and crop monopolists. By the late 1880s, the movement was a leader in advocating federal anti-monopoly legislation.
14th Amendment to the Constitution
This amendment outlawed racially discriminatory laws like the Black Codes. The law, at the time, also was seen as a way to prohibit all grants of monopoly or class privilege. An 1866 article in the Boston Daily Advertiser said it “thr[e]w the same shield over the black man as over the white, over the humble as over the powerful.”
One of the earliest applications of the law was by a group of independent Louisiana butchers who argued a state sanctioned 25-year slaughterhouse monopoly violated the 14 Amendment. But the Supreme Court in 1873 ruled 5 to 4 that the monopoly did not violate the clause, and that the 14 Amendment only pertained to the rights of citizens at the federal level.
One result of this case was to buttress the power of state and local governments to regulate activities that affect health and environment. Another result, however, was to make it more difficult for the Federal government to police anticompetitive actions, thus making it easier for businesses to exert market power over their smaller competitors. Worse yet, the ruling that state rights were beyond federal protection also opened the door for Jim Crow laws in the South.
Munn v. Illinois
This Supreme Court case developed from protests by the National Grange, which argues that grain storage facility owners intentionally charged high prices to farmers to drive them out of business. The ruling clarified the right of government to regulate private properties that are “affected with a public interest.” Specifically, it allowed states to regulate grain elevator prices, made the amount of grain in each elevator public information, and stabilized markets. It also laid the foundation for later federal regulation of the railroad industries.
Interstate Commerce Act of 1887
Building on previous initiatives by state governments to regulate railroads, this law created the federal Interstate Commerce Commission, the nation’s first independent federal regulatory body. Through this and subsequent legislation, the ICC would gain the power to set safety standards, maximum prices, and service levels for railroads and later bus and trucking companies, as well as telephone, telegraph, and wireless companies. By prohibiting price discrimination against lower volume shippers and smaller cities and towns, the Act helped to promote small business and regional equality.
Sherman Antitrust Act of 1890
Passed by Congress almost unanimously and signed into law by Republican President Benjamin Harrison, this legislation was a response to the rise of “trusts,” an informal cartel in which large companies would be tied together through contract and cross-ownership. The Act outlaws any “restraints of trade” that reduce competition and any concentrations of market power that restrict interstate commerce. Senator John Sherman (R-OH) defended the bill as essential to preserving freedom and democracy:
“It is the right of every man to work, labor, and produce in any lawful vocation and to transport his production on equal terms and conditions and under like circumstances. This is industrial liberty, and lies at the foundation of the equality of all rights and privileges.”
A wide collection of farmer and labor groups—including the Farmers Alliance and the Knights of Labor—formed a national political party that advocated for direct election of Senators, a graduated income tax, the dissolution of national banks, and anti-monopoly principles that broke up railroad and agricultural trusts. In 1892, the Party ran James B. Weaver for president, and won 8.5% of the vote, a significant number for an independent party. In 1896, the Party fused with the Democratic Party and ran William Jennings Bryan for President, on a platform that aimed to combat economic concentration and promoted an inflationary monetary policy.
United States v. Trans-Missouri Freight
In this case, the Department of Justice sought to break up a cartel among Western railroads, arguing that their collusion in setting freight rates violated the Sherman Antitrust Act. The defendants countered that the Act did not apply to them because their collusion did not result in higher prices. The Supreme Court explicitly rejected this defense, making it clear that monopolists could not justify their actions by asserting that their collusion brought benefits to the buyer. On the contrary, the case affirmed that the purpose of anti-monopoly law is to protect the independent producer and trader—or, in the words of Justice Peckham, the “small dealers and worthy men.” As Peckham concluded:
“Mere reduction in the price of the commodity dealt in might be dearly paid for by the ruin of such a class and the absorption of control over one commodity by an all-powerful combination of capital.”
This Act strengthened the Interstate Commerce Act by outlawing the railroads’ use of price discrimination, such as by charging large shippers lower prices than smaller shippers or favoring lower rates on some routes than on others. By reducing such price discrimination, the legislation helped to even the playing field between big and small businesses and between different regions of country.
Northern Securities Co. v. United States
Republican President Theodore Roosevelt ordered the Department of Justice to pursue antitrust litigation against Northern Securities, a “trust” created by rail tycoons James J. Hill and Edward H. Harriman and financed by J.P. Morgan and John D. Rockefeller.
Finding that the combination had monopolized rail traffic between the Chicago and the Pacific Northwest, the Supreme Court ruled in 1904 that Northern Securities be disbanded. The case broke with the largely pro-monopoly policy of Roosevelt’s predecessor, William McKinley, and helped Roosevelt secure a reputation as a “trust buster.” Within a few years, however, Roosevelt came to see concentration as natural and inevitable, and he largely abandoned his support for antitrust actions.
Hepburn Act of 1906
Passed in response to steep rises in the cost of shipping and traveling by rail, this legislation expanded the Interstate Commerce Commission’s (ICC) powers by giving it unilateral rate-making powers in railroading. The ICC used these powers to prohibit price discrimination against businesses, regions, and buyers that lacked the market power to stand up to railroad monopolies. The Act also outlawed the longtime railroad practice of favoring large shippers and friendly politicians with free travel passes.
Food Regulation Acts of 1906 & 1907
The Pure Food and Drug Act of 1906 and the Federal Meat Inspection Act of 1907 established federal food and drug safety standards for the first time and increased transparency in the meatpacking and drug markets. The laws were passed in response to investigations by muckrakers like Samuel Hopkins Adams, who exposed the patent medicine industry’s deceptive practices, and Upton Sinclar, who investigated meatpackers’ anticompetitive practices.
The legislation had the effect of re-structuring competition within food and drug markets; instead of competing just on price, producers were forced to also compete on safety and scientifically established effectiveness.
Congress used this legislation to extend the Interstate Commerce Commission’s common carrier provisions to the telephone, telegraph, and wireless industries. The Act protected the welfare of individual entrepreneurs, communities, and the public at large by granting them “just and reasonable” access to communications infrastructure. Congress also further increased the ICC’s regulatory control of railroad rates. President Taft signed the Act into law.
Dr. Miles Medical Co. v. John D. Park and Sons Co.
This case centered on a dispute between a drug manufacturer and a drug retailer about which actor had the right to price the drug. The Supreme Court ruled in a split decision that it is a violation of the Sherman Antitrust Act for suppliers to set a minimum price at which independent retailers may resell their products. The Court reasoned that such “Resale Price Maintenance” agreements amount to price-fixing.
Justice Holmes, in a famous dissent, charged the Court with allowing “knaves to cut reasonable prices for some ulterior purpose of their own, and thus to impair, if not to destroy, the production and sale of articles which it is assumed to be desirable that the public be able to get.”
Congress and state legislatures subsequently passed various “fair trade laws” that specifically allowed for such agreements. These laws were designed to prevent large chain stores from stripping out the profits of their suppliers and from using discounting and loss-leading to drive smaller retailers out of business.
Standard Oil Co. v. United States
The action reduced concentration in the oil industry, but also angered many anti-monopoly advocates by establishing the precedent that monopolies were not per se illegal under the Sherman Act and could only be convicted in cases of proven price-fixing and collusion. The decision also held that the courts, not Congress or the executive branch, would determine which monopolies were “good” and which were “bad.”
Presidential Election of 1912
This election became an extended debate over what to do about monopoly and the concentration of economic power. President William Howard Taft, a Republican seeking a second term, stood for the “stand pat” position of only weakly opposing monopolies and trusts. Theodore Roosevelt, running as a standard bearer of the Progressive Party (which he renamed the Bull Moose Party), by this point in his career had renounced his earlier philosophy of “trust-busting” and called instead for the government to closely manage all private monopolies. “The effort at prohibiting all combination has substantially failed,” Roosevelt concluded. “The way out lies, not in attempting to prevent such combinations, but in completely controlling them in the interest of the public welfare.”
The Democratic candidate, Woodrow Wilson, under the strong influence of his advisor Louis Brandeis, ridiculed the ideas that monopolies were inevitable, and vowed to break them up, warning that they were a threat to liberty and democracy:
“What we have to determine now is whether we are big enough, whether we are men enough, whether we are free enough, to take possession again of the government which is our own.”
Wilson won the election, and in the first 16 months of his Presidency enacted many major pieces of legislation attacking market concentration, until the outbreak of World War I put a stop to political economic reform.
Louis Brandeis Appointed to the Supreme Court
Known as the “People’s Lawyer,” Louis Brandeis spent his life fighting market concentration and the political power of trusts. As an advisor to President Woodrow Wilson during the early 1910s, he successfully advocated for stronger anti-monopoly laws, including both the Clayton Antitrust Act and the Federal Trade Commission Act. In 1916, Wilson bucked strong anti- Semitic attitudes to appoint Brandeis to the Supreme Court.
Brandeis believed the “curse of bigness” suppressed competition, corrupted politics, and threatened individual liberty. Through Supreme Court rulings and his direct influence over policymakers, Brandeis’ critique of bigness would become institutionalized over the next several decades, reaching its maximum influence over policy-making by both parties in the 1960s.
Federal Reserve Act of 1913
President Wilson and Congress worked together to create the Federal Reserve System. Their aim was to democratize access to capital and to stabilize the U.S. financial system, after a long series of financial crashes. They did so by shifting control of monetary and financial policy from a group of private bankers in New York to a transparent public board, with voting power dispersed across 12 member banks headquartered in cities across America, including in such communities as St. Louis, Minneapolis, and Kansas City. The structure of the Federal Reserve reflected the belief that, government policy must manage competition in order to maintain equality of opportunity not only among firms of different sizes, but also among different regions of the country.
Federal Trade Commission Act of 1914
Signed into law by President Woodrow Wilson, this Act created the Federal Trade Commission, a federal agency with the broad mission to “prevent unfair methods of competition, and unfair or deceptive acts or practices in or affecting commerce.” The agency developed from the Bureau of Corporations, which collected information on American industries, and grew into a more active agency, policing anticompetitive actions and protecting consumers. The agency reached its maximum power in the 1960s, and still has great latent ability to prevent concentration wherever it occurs in the American economy.
Clayton Antitrust Act of 1914
This legislation strengthened the Sherman Antitrust Act by helping to counter the rising tide of mergers during the early 1900’s. The law also explicitly blocked most forms of price discrimination, tying arrangements, exclusive dealing, mergers that result in more consolidated industries, and interlocking directorates (membership on the boards of directors of two or more firms by the same individual).
Another provision of the law undid a previous Supreme Court ruling, Loewe v. Lawlor. In that case, involving a non-union fur hat manufacturer, the Supreme Court had ruled that unions were in violation of the Sherman Antitrust Act if they engaged in secondary boycotts.
Deprived of an important organizing tool, the labor movement successfully pushed for a provision in the Clayton Antitrust Act that provides an antitrust exception for unions by stipulating that “the labor of a human being is not a commodity or an article of commerce.”
Packers & Stockyards Act of 1921
This law broke up the meatpackers’ control of stockyards and butcher shops. Congress passed the Act in response to muckraking journalism that exposed collusion by the “Big Five” meatpackers and a 1918 FTC report that found stockyard owners were manipulating markets.
Signed into law by President Warren G. Harding, the law granted the Department of Agriculture the power to monitor stockyards greater than 20,000 square feet; it required that stockyard owners register with the government, maintain accurate weights of livestock, and compensate shippers promptly. Additionally, the Act fostered “fair and open competition, and guarded against deceptive and fraudulent practices which affect the movement and price of meat.”
This law strengthened legal protections for agricultural coops previously protected under the Clayton Antitrust Act. It created more competitive marketplaces by letting farmers, without fear of antitrust prosecutions, use their collective purchasing power to negotiate with corporate producers. The purpose of the bill, according to Senator Capper, was to “give to the farmer the same right to bargain collectively that is already enjoyed by corporations.”
Maple Flooring Manufacturing Association v. United States
The Supreme Court ruled that it is permissible for members of trade associations to share information about pricing and production with each other as long as they also share the information with the pubic and do not use it to fix prices. The ruling reflects a view championed by Louis Brandeis and other anti-monopoly advocates that groups of independent proprietors should be able to share market information and coordinate terms of trade in order to improve processes, better serve customers, and compete more effectively against dominant firms.
McFadden Act of 1927
This legislation empowered state governments to regulate both nationally chartered and state-chartered banks headquartered within their borders. The Act protected against market concentration by preserving the flow of capital within local communities and incentivized bankers to stay attuned to their community’s needs. It also prevented out-of-state owners from acquiring locally owned banks, and addressed the public’s concern that if large banking organizations operated in multiple regions, they would evade adequate supervision.
National Industrial Recovery Act of 1933
Under this early New Deal legislation, the government suspended anti-monopoly enforcement against companies that promised to adopt government-specified minimum wages, establish minimum prices, and work closely with competitors and “code authorities” in government-sponsored cartels. The central idea was a carryover from the Hoover Administration, which had encouraged the growth of colluding business associations under the theory that this would lead to less ruinous competition and thereby help stem the job losses and destructive deflation that characterized the Great Depression. The Supreme Court repealed the law in 1935 in Schechter Poultry Corp. v. United States.
Glass-Steagall Act of 1933
This legislation targeted market concentration in two key ways: it created the Federal Deposit Insurance Corporation to insure the savings of small depositors and it limited the power of financial speculators by separating commercial banking from investment banking. Both actions, in turn, helped stabilize the financial system as a whole.
Securities Exchange Act of 1934
This Act created the Securities and Exchange Commission and requires companies to disclose financial information. Greater transparency in the securities market countered the market power of dominant firms and provided small investors protection from financial manipulation by executives and large investors.
Communications Act of 1934
This law created the Federal Communications Commission to regulate radio and, later, television broadcasters. In return for the free, licensed use of the public airwaves, the FCC required broadcasters to “make available, so far as possible, to all the people of the United States a rapid, efficient, nationwide, and worldwide wire and radio communication service with adequate facilities at reasonable charges.”
The Act also gave the FCC power to place limits on how many and what kinds of media outlets a single company could own. In 1941, for instance, the FCC imposed geographic restrictions on ownership, barring a company from owning two or more TV stations that “would substantially serve the same area.” Additionally, in 1953, under the 7-7-7 rule, the FCC prohibited any company from owning more than seven AM radio, seven FM radio, and seven TV stations.
Schechter Poultry Corp. v. United States
This unanimous ruling by the Supreme Court declared the National Industrial Recovery Act unconstitutional. Antimonopoly advocates and small producers had criticized the Act because it suspended the antitrust laws and increased the concentration of power both in business and in the government. Supreme Court Justice Louis Brandeis compared the program to the “business of centralization.” With this decision, the New Deal completely changed course. Rather than trying to suppress market competition, public policy shifted aggressively and successfully for the next half century to making markets more open and competitive.
National Labor Relations Act of 1935
Building on the exemption to antitrust enforcement provided to unions by the Clayton Antitrust Act, this New Deal legislation, also known as the Wagner Act, formalized and extended the rights of workers to bargain collectively. Large employers, who complained that unions had become “labor monopolies,” would later curtail union power with the passage of the Taft-Hartley Act of 1947.
Public Utility Holding Company Act of 1935
Congress used this Act to break up along state line the highly concentrated electrical utility industry, then widely known as the “Power Trust.” The Act banned utility holding companies from investing in unrelated energy-dependent businesses and confined the holding companies to certain geographic areas to ensure effective oversight. Additionally, the law assigned the SEC the task of policing the industry’s anticompetitive actions.
The Act was based largely on an FTC study launched in 1925, when the agency reported that 20 holding companies controlled 60% of the operating capacity of commercial electric power plants. In a 1946 court case upholding the legislation, Justice Francis W. Murphy explained the Act’s purpose as the:
“Political and general economic desirability of breaking up concentrations of financial power in the utility field too big to be effectively regulated in the interest of either the consumer or the investor.”
Robinson-Patman Act of 1936
This federal legislation prohibited loss-leading, or the practice of selling an item below cost to drive a competitor out of business. It built on many similar “fair trade” laws passed at the state and local level during the Brandeisian Era. The Act also prohibited businesses from using their market power to extract price concessions from smaller suppliers, an action that drove consolidation both among retailers and producers.
Miller-Tydings Act of 1937
This Act allowed the states to pass “fair trade” legislation that enabled producers to set a floor on how cheaply big retailers could sell their products. Chain stores often used their market power to extract concessions from producers. By allowing producers to put a floor on retail prices through Resale Price Maintenance (RPM) agreements, the Act ensured that competition among retailers would center not on discounting but on efforts to provide the best service and product selection. It also aimed at reducing financial pressure on the producers to combine and merge.
Thurman Arnold Heads the Department of Justice’s Antitrust Division
President Roosevelt named Thurman Arnold chief of the Department of Justice’s Antitrust Division in 1938. Over the next five years, Arnold boosted the staff from 18 to nearly 600 and launched a wave of antitrust cases. By February 1941, the DOJ was prosecuting 90 different antitrust cases involving 2,909 defendants and had 30 additional grand juries authorized or in progress. Arnold also established a practice of forcing dominant industrial corporations to license out key patents for free. This resulted in a surge in innovation as, for example, General Electric was forced to license its light bulb patents, and AT&T was forced to share transistor patents that became the basis for the digital revolution.
Civil Aeronautics Act of 1938
This Act created the Civil Aeronautics Board, a federal agency that managed competition in the airline industry as a “public convenience and necessity.” By keeping the industry de-concentrated, this policy had the effect of promoting fair access to transportation services in all regions of the United States. It also ensured that smaller cities received airline service equal in quality and price to that offered larger cities.
Great Freight Rate Case
Over a period of thirteen years, Southern manufacturers worked to overturn discriminatory railroad freight pricing. At a time when many Americans relied on railroads as a key mode for selling and transporting goods, these practices disadvantaged Southern manufacturers.
The discriminatory practices inflicted damage on the South’s economy in two ways. First, railroads established lower rates on transporting goods from South to North on raw materials, but higher—often prohibitive—rates on products manufactured from those materials. The rate to ship ceramic clay, for instance, was near identical on railroads in both the North and South, but producers of clay ceramic ware in the South paid 55 percent more to ship these goods on railroads than did their Northern counterparts. This price discrepancy made it near impossible for Southern merchants to compete across state lines.
Second, Southern class rates— the cost for items to be shipped from any origin to any destination—were, on average, 39% higher than Northern rates. The difference in price traced to a railroad practice called “laminating the scales.” This was particularly detrimental to the South’s industrial economy, which relied on shipping agricultural products and raw goods to the rapidly industrializing North.
To address the first problem, in 1939 the Interstate Commerce Commission (ICC) conducted a six-year examination, Rate Investigation. The ICC ordered railroads to stop charging higher rates for the movement of manufactured goods from the South to the North than from North to South in 1945; producers would pay one scale of rates between all points east of the Rocky Mountains.
That same year, the Supreme Court also heard Georgia v. Pennsylvania Railroad Co., which alleged a conspiracy in restraint of trade among railroad owners. In describing the railroad industry’s practices, the State argued:
“Discriminatory [railroad] rates … affect the prosperity and welfare of a State as profoundly as any diversion of waters from the rivers. They may stifle, impede, or cripple old industries and prevent the establishment of new ones.”
While the Court ultimately dismissed the case, Georgia v. Pennsylvania Railroad Co. raised public awareness of freight rate discrimination against Southern producers. It also spurred the ICC to continue equalizing the competitive playing field for merchants.
In 1952, the Commission addressed the second issue involving class rates, by modifying regional shipping rates. The Atlanta Constitution celebrated the equalizing of rates as the end of the South’s “industrial bondage,” and the South’s industrial base began to grow quickly.
United States v. Alcoa
The Supreme Court ruled in this case that monopolies were per se illegal. Aluminum producer Alcoa, which held 90% of the fabricated aluminum market at the time, used its market power to control the cost of raw aluminum and fabricated aluminum to its customers. The government further promoted competition in aluminum production by selling publicly-funded WWII-era aluminum plants to Alcoa rivals Kaiser and Reynolds. Additionally, the suit required Alcoa to license its patents to competitors. This created a more balanced marketplace and lessened concentration in the aluminum industry.
In his decision, Judge Learned Hand argued that the power to control the supply of aluminum curbed competition and resulted in a “price squeeze.” “Congress,” he said, “did not condone ‘good trusts’ and condemn ‘bad ones’; it forbade all.” He also famously stated that Congress, in passing the Sherman Act, was motivated not just by narrow economic concerns:
“[I]t is possible, because of its indirect social or moral effect, to prefer a system of small producers, each dependent for his success upon his own skill and character, to one in which the great mass of those engaged must accept the direction of a few.”
Occupation Authorities Enact Anti-monopoly Law in Germany and Japan
At the end of World War II, U.S. Occupation forces enacted American anti-monopoly concepts and practices in the American-occupied zones of Germany and Japan. In a memo entitled “Principles to Govern the Treatment of Germany in the Initial Control Period,” Harry Truman, Joseph Stalin, and Clement Atlee agreed that:
“At the earliest practicable date, the German economy shall be decentralized for the purpose of eliminating the present excessive concentration of economic power as exemplified in particular by cartels, syndicates, trusts, and other monopolistic arrangements.”
Anti-monopoly law was considered necessary to the reorganization of these Axis powers. Concentration of power was believed by some, including Thurman Arnold, to be intrinsic to German fascism and to the Third Reich’s capacity for military aggression. A U.S. Senate report concluded that the Third Reich would be officially dissolved only if the nation’s industry was deconcentrated; democracy could not thrive in the presence of concentrated economic power.
In occupied Germany, U.S. authorities divided eight corporate groups into 23 steel companies, split German company Vereinigte Stahlwerke AG’s steel division into 13 separate companies, and dissolved chemical firm IG Farben into BASF, Bayer, and Hoechst. Additionally, the authorities divided the banking industry into 30 small-scale regional banks, with specific bank operations limited to specific state regions.
U.S. occupation authorities took a similar course of action in Japan, where ten giant zaibatsu (family-dominated firms) controlled more than half of Japan’s industry. President Truman gave General Douglas MacArthur an order “to favor a program for the dissolution of the large industrial and banking combinations which have exercised control of a large part of Japan’s trade and industry.” The U.S. occupation authority also worked with the Japanese Diet (parliament) to write Japan’s Anti-monopoly Law of 1947 and dissolved 83 holding companies, including four major Zaibatsu. According to legal scholar Ariga Michiko, the occupation’s policy was “the most important factor in making the Japanese industrial structure competitive.”
This law strengthened prohibitions against vertical mergers and clarified that antimonopoly laws also applied to “conglomerate” mergers— companies that are not engaged in the same line of business. This law had the effect of reducing consolidation and mergers among companies in unrelated industries. Congress passed the Act partly in response to federal studies showing how market concentration through conglomerate mergers hurt small business.
This Act strengthened “fair trade” legislation by making it easier for states to enforce resale price maintenance agreements. As Rep. John E. Miller (D-Ark.) put it, the law helped “to equalize, to some extent at least, the difference between large and small business, and to strike down the unfair advantages the big operator enjoys.” By fostering competition and curbing market concentration, the McGuire Act also slowed the “breakdown in social status of those once engaged in conducting their own independent businesses.”
Bank Holding Company Act of 1956
This law prohibited bank holding companies from engaging in non-financial actions and from acquiring nonbank companies like commercial and industrial businesses. The Act also granted the Federal Reserve Board veto power over bank mergers and expansion as a way to preserve both community banks and a stable national banking system.
Federal Trade Commission Tetracycline Conspiracy Case
In 1958, the Federal Trade Commission (FTC) authored a report on antibiotic makers in which it found that a handful of companies had kept prices high for tetracycline, a broadly useful antibiotic. After the report’s release, the FTC charged five drug companies with blocking new competitors and price fixing. Though the FTC could never prove price fixing in court, the agency forced the companies to cheaply license out their tetracycline patents. In so doing, the agency broke apart the oligopoly that had previously dominated the sale of tetracycline and ensured a more competitive market for the new and powerful drug.
Brown Shoe Co. v. United States
The Supreme Court rejected a merger between Brown Shoe, the third largest U.S. shoe manufacturer which accounted for 4% of the U.S. shoe manufacturing market, and Kinney, the largest U.S. shoe store chain which accounted for 1.2% of the retail shoe market. The court said the merger would increase the likelihood of other consolidations and contribute to the “rising tide of economic concentration in the American economy.” In writing the Court’s decision, Chief Justice Warren warned against the growth of chain stores and noted, “we cannot fail to recognize Congress’ desire to promote competition through the protection of viable, small, locally owned businesses.”
Emergence of Chicago School
In an article for Fortune magazine, Robert H. Bork and fellow Yale law professor Ward S. Bowman, Jr. launched an early and influential attack on the American tradition of antimonopoly, calling antitrust laws “less a science than an elaborate mythology, that has operated for years on hearsay and legends rather than on reality.” Bork would go on to champion libertarian ideas associated with the University of Chicago that discounted or denied the social and economic harms caused by most forms of monopoly. The publication of his 1978 book, The Antitrust Paradox, carried Bork’s views into the mainstream of American thought.
Thurgood Marshall Appointed to Supreme Court
President Johnson named Thurgood Marshall to the Supreme Court. As a lawyer for the National Association for the Advancement of Colored People, Marshall successfully argued Brown v. Board of Education, and today he is widely celebrated as the first black Justice.
Marshall also proved to be the last Justice to strongly champion America’s traditional anti-monopoly policies. In the case of United States v. Topco Associates, for instance, he argued in a majority opinion that “antitrust laws, in general, and the Sherman Act, in particular, are the Magna Carta of free enterprise.”
Breakup of the Bell System
The Ford Administration’s Department of Justice brought an antitrust suit against AT&T, claiming the company had conspired to monopolize the telecommunications industry and that its subsidiary, Western Electric, acted anticompetitively in the consumer telephone market. After eight years of litigation, AT&T in 1982 agreed to a Department of Justice consent decree that led to the breakup of AT&T into seven independent companies nicknamed the “Baby Bells.” This decision resulted in lower long-distance phone rates and increased competition in the telecommunications sector. But a sharp decline in antitrust enforcement in the 1980s, combined with the Telecommunications Act of 1996, allowed four of the seven “Baby Bells” to re-combine with AT&T.
This legislation, formally known as the Antitrust Procedures and Penalties Act of 1974, required courts to wait at least sixty days before ruling on mergers. The waiting period allowed federal courts more time to review each consent decree to ensure the remedy proposed “was in the public interest” and let third parties provide comments on impending deals. The legislation was passed in response to claims that the courts “rubberstamped” DOJ merger settlements.
Consumer Goods Pricing Act of 1975
This law repealed federal “fair trade” legislation, repealing the Miller-Tydings Act and McGuire Act. Supported by liberal economists like Alfred Kahn and by the Chicago School, the law made it legal for large retailers like Wal-Mart to sell products below cost, thereby making it harder for producers and smaller retailers to compete on the basis of product quality, selection, and service.
Hart-Scott-Rodino Antitrust Improvement Act of 1976
Robert Bork & The Antitrust Paradox
Yale law professor and former Solicitor General in the Nixon and Ford administrations, Robert Bork, published The Antitrust Paradox, in which he attacked almost every basic assumption of American anti-monopolism. Most importantly, he argued that anti-monopoly should be viewed as a technical “science” that aims at economic efficiency, rather than a philosophy that guides how Americans regulate the political economy among citizens. Bluntly, he said the laws should promote the “welfare” of the “consumer” rather than the liberty of the individual or the preservation of democracy. As Bork wrote:
“A consideration of the virtues appropriate to law as law demonstrates that the only legitimate goal of antitrust is the maximization of consumer welfare. Current law lacks these virtues precisely because the Supreme Court has introduced conflicting goals, the primary one being the survival or comfort of small business…. The courts, and especially the Supreme Court, have failed to give proper weight to the crucial concept of business efficiency.”
In the years since, the Antitrust Paradox has become the main guide to more than a generation of policymakers and enforcers.
Airline Deregulation Act of 1978
Encouraged by liberals such as Ralph Nader and Sen. Edward Kennedy (D-MA) and by “free market” conservatives associated with the emerging Chicago School of Economics, Congress and the Carter Administration eliminated the Civil Aeronautics Board. Proponents billed the action as the “deregulation” of the airline industry, but in actual fact it was a shift of regulatory authority from the public government to private corporate government, which then theoretically would be kept in check by antitrust enforcers.
In practice, the elimination of the CAB system, combined with the collapse in antitrust enforcement in the 1980s, unleashed a period of concentration in the industry, with only four major carriers left today. This consolidation has left many cities and regions without effective airline competition and subject to monopoly pricing. It has also contributed to a sharp decline in the quality of air service, as evidenced by fewer direct flights, overbooking, shrinking seat sizes, and baggage fees. The industry’s safety performance, however, which remained subject to strict government regulation, continues to improve.
Depository Institutions Deregulation and Monetary Control Act of 1980
This legislation eliminated limits on the amount of interest a lender could charge and allowed out-of-state savings banks and loan companies to “export” higher interest rates to states with more restrictive interest rate restrictions. Combined with the 1978 Supreme Court Decision in Marquette National Bank of Minneapolis v. First of Omaha Service Corp., which ruled states could not enforce anti-usury laws against federally chartered banks, this development weakened the nation’s protections against usurious lending. The legislation contributed to economic concentration within the financial sector, while also enabling the creation of the payday loan and subprime mortgage lending businesses.
Staggers Railroad Act of 1980
Signed into law by President Jimmy Carter, this legislation substantially removed the regulatory structure that had governed railroads since passage of the Interstate Commerce Act of 1887. By allowing railroads to eliminate unprofitable lines and raise freight rates to whatever the market would bear, the Act did allow the industry to regain financial health at a time when much of the nation’s rail network was facing insolvency.
Subsequent lack of antitrust enforcement, however, would soon allow railroads to regain monopoly power over captive shippers. Since 1980, mergers have reduced the number of major railroads from 26 to seven, with just four of these mega-systems controlling 90% of the country’s rail infrastructure. Meanwhile, many cities and town have lost access to freight rail transportation altogether as railroads have abandoned secondary lines and consolidated service on a few busy mainlines. In fact, the three railroads once controlled by Northern Securities in the late 1800s—the Burlington, the Great Northern, and Northern Pacific—have once again merged with one another as well with the Santa Fe to form BNSF, a company that controls nearly half of all grain traffic in the United States.
1982 Merger Guidelines (Reagan Administration)
Under the guidance of the Reagan Administration, Associate Attorney General William Baxter amended the Department of Justice’s merger guidelines, creating an entirely new framework for evaluating mergers and acquisitions. The new guidelines instructed regulators to no longer consider the effects on smaller businesses and entrepreneurship. Instead, regulators were instructed to consider only whether a deal would promote “efficiency” and “consumer welfare,” and to base merger approvals mainly on whether managers promised to lower prices.
These guidelines directly contradicted both Senator Sherman’s statements in defense of the Sherman Antitrust Act in 1890, and the ruling of the Supreme Court in 1895 in United States v. Trans- Missouri, the first major antitrust case. The practical effect was an immediate drop in the number of federal antitrust suits during the Reagan administration and until the present day.
Federal Reserve Reinterprets Glass-Steagall Act
The Federal Reserve ruled that banks could secure up to 5% of gross revenues from investment banking businesses. In doing so, Fed regulators dramatically reinterpreted Congress’s intention as expressed in the Glass- Steagall Act’s restriction on financial institutions engaging in both commercial and securities transactions. Additionally, this adjustment weakened the Banking Act of 1863’s intent to de-concentrate financial institutions and allowed banks to participate in underwriting transactions. These two changes favored larger banks, which became incentivized to acquire and merge with other institutions to take advantage of the new rules.
Democratic Party Platform Removes Mention of Antitrust
For more than a century, the Democratic Party included language in its party platform that emphasized the importance of fighting monopoly. During the campaign of 1992, however, representatives of then candidate Bill Clinton removed this plank. In 2016, during Hillary Clinton’s presidential campaign, the Party restored the language, writing:
“We support the historic purpose of the antitrust laws to protect competition and prevent excessively consolidated economic and political power, which can be corrosive to a healthy democracy.”
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
Passed by Congress and signed into law by President Bill Clinton, these two pieces of legislation lifted restrictions on opening bank branches across state lines, effectively repealing the McFadden Act. Specifically, the Act permitted banking companies to acquire and merge with other financial institutions in any other state, concentrating financial activity in certain locales.
The law has contributed to a decline in the number of independent banks that serve local communities. Since 1984, for instance, the number of independent banks has fallen by more than half, from 15,663 to 6,799 in 2011. Of those nowdefunct banks, more than 8,352 either merged or were consolidated.
Telecommunications Act of 1996
This Act overturned the Communication Act of 1934’s ban on one company owning both radio and TV outlets, loosening the ownership restrictions on media and telecommunications industries. Additionally, it raised the limit on the number of TV stations and newspapers one media outlet could own, freeing large broadcasters to acquire local media companies. The Act has contributed to a highly consolidated telecommunications industry; six media companies control 90% of the market in the U.S., down from fifty companies in 1983.
United States v. Microsoft Corp.
President Clinton’s Department Justice charged that Microsoft had violated the Sherman Antitrust Act by bundling its web browser with its Windows operating system. The suit was based in large part on work done by 20 states’ attorneys general, led by those from Connecticut, Iowa, and New York. More specifically, the case involved a vertical tying claim; the government argued that Microsoft, by installing its internet browser Internet Explorer on its Windows 95 operating system, gave Microsoft an unfair advantage in selling its browser.
In November 1999, Judge Thomas Penfield Jackson ruled in favor of the government and ordered the breakup of Microsoft into an operating system unit and a software component unit. But after the election of George W. Bush, the government backed away from demanding the breakup of Microsoft and instead negotiated a settlement that required Microsoft to share some of its computer code with competing companies. It also barred Microsoft from entering into exclusive Windows agreements with computer manufacturers. Nonetheless, this was enough to stall Microsoft’s growing market dominance, and some observers believe the action paved the way for the next generation of digital innovators, such as Google and Facebook.
The Gramm-Leach Bliley Act, also known as the Financial Services Modernization Act of 1999, removed two key sections of the Glass-Steagall Act: (1) a ban on bank board members from serving on the same corporate boards of securitiesdealing companies and (2) a restriction on banks affiliating with companies that speculate in stocks. The Act contributed to consolidation in the financial industry by allowing mergers such as commercial bank Citicorp’s combination with Travelers Group (owner of investment banks Smith Barney and Salomon Brothers) in 1999.
Republican Party Removes Mention of Antitrust
For many decades, the Republican Party’s platform emphasized the importance of enforcing anti-monopoly laws and maintaining competitive marketplaces. In 1900, for instance, the platform read:
“We condemn all conspiracies and combinations intended to restrict business, to create monopolies, and to limit production… and favor legislation as will effectively restrain and prevent all such abuses.”
The Party maintained this antimonopoly focus through most of the 20 century until delegates removed it during President George H. W. Bush’s presidential campaign in 2000.
Verizon Communications Inc. v. Trinko
This Supreme Court case centered on a claim that Verizon refused to share its telephone network with its competitor, AT&T, as part of a common carrier provision under the 1996 Telecommunications Act. The plaintiff, Trinko, a commercial AT&T customer, brought a case alleging that Verizon impaired AT&T’s ability to provide competitive telecommunications service, which amounted to exclusionary conduct.
The Court, in a unanimous opinion written by Justice Antonin Scalia, ruled in favor of Verizon, holding that the telecommunications company’s “monopoly power” was “an important element of the freemarket system,” a display of “business acumen,” and resulted in “the incentive to innovate.” This ruling buttressed the Chicago School view that monopoly is good for “consumers.” The decision made it harder for businesses and entrepreneurs to negotiate with private companies that use their market power to cut off their competitors—or even its own customers—from products, facilities, or markets.
Energy Policy Act of 2005
This bill repealed the Public Utility Holding Company Act of 1935, which had banned utility holding companies from investing in unrelated energy-dependent businesses and confined the holding companies to certain geographic areas to ensure effective oversight. The bill also made it easier for utilities to merge.
Over the past ten years, the top eight companies in the utilities sector have increased their proportion of total sales by 66.7%. Some of the largest utility corporations, Exelon and Duke Energy, have used their acquisition of smaller utilities— like PEPCO and Baltimore P&G ET ETC—to consolidate control over entire regions. They also appear to use their power in ways that slow or even stop the introduction of newer and cleaner electrical technologies.
Bell Atlantic v. Twombly
The Supreme Court made it harder to bring Sherman Antitrust Act Section I cases to the Court. In Twombly, the plaintiffs claimed that Bell Atlantic and other telecommunications companies conspired to preserve monopoly conditions by not entering each other’s territory (“parallel conduct”). In his majority opinion, Justice Souter ruled: “A statement of parallel conduct… needs some setting suggesting the [conspiratorial] agreement.”
This made it more difficult for the DOJ and FTC to police anticompetitive actions.
Financial Crisis & Dodd-Frank Act
On September 15, 2008, investment bank Lehman Brothers went bankrupt, triggering a massive stock market crash that ended with a government bailout of the U.S. financial system. In the aftermath of the collapse, many policymakers concluded that a fundamental problem was that the financial system was too interconnected and that banks had become ‘too big to fail.’
Decades of loose regulatory policy contributed to what proved to be the worst financial crisis since the 1930s. One such policy was the Gramm-Leach-Bliley Act of 1999, which overturned key sections of the Glass-Steagall Act. Another was deregulation of over-the-counter derivatives in 2000, which enabled big financial institutions to package and resell huge volumes of low-grade securities, many of which were composed of subprime mortgages. A third factor involved the Securities and Exchange Commission’s 2004 decision to allow the top five brokerage firms to cut their assets by more than half, leaving them more exposed to sudden downturns in the market.
To help solve the Crisis, Congress in 2010 passed the Dodd-Frank Act, more formally known as the Wall Street Reform and Consumer Protection Act. The law aimed to “promote the financial stability of the United States by ending ‘too big to fail.’” The bill created the Consumer Financial Protection Bureau to help keep financial institutions accountable to their customers and also tightened the regulation of credit rating agencies. But with the exception of derivatives legislation, the law did little to correct the financial industry’s highly consolidated market structure.
Unlike previous anti-monopoly laws that de-concentrated the financial sector to mitigate risk, Dodd-Frank further centralized control in the Federal Reserve and further concentrated power in big banks at the expense of smaller ones. As a result, the U.S. banking industry today is now more consolidated than it was prior to the Crisis. In 2010, for instance, banks with more than $100 million of assets held only 7% of U.S. deposits; today they hold 58%. Additionally, since the passage of the Act the number of community banks has fallen by 14%.
Merger Deal Record
$3.8 trillion in merger and acquisition activity took place in 2015, surpassing the previous record of $1.57 trillion in 2007. Notable deals included drugmakers Charter Communications and Time Warner Cable’s $79.6 billion combination, Anheuser-Busch InBev’s $107 billion acquisition of SABMiller, and Berkshire Hathaway’s merger with Precision Castparts for $30 billion. 26.3% of all mergers during 2015 were in consumer industries and 19.8% in the financial sector.
Executive Order 13725
In April 2016, in the last year of his Administration, President Obama signed an Executive Order that recognized that market concentration was harming workers, entrepreneurs, and the general public.
In September of 2016, Renata Hesse, the Acting Head of the DOJ’s Antitrust Division, responded both to this Order and to a major speech by Senator Elizabeth Warren on the political and economic threats posed America’s monopoly problem. In her speech, Hesse took direct aim at the Chicago School vision of antitrust, noting:
“Rather than focusing on measuring consumer welfare in an academic fashion, we are looking more broadly at the effects of business practices on competition, and that is getting us back to what the drafters of the Sherman and Clayton Acts intended.”