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.
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.
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.
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.
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.
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.
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.
2008 Financial Crisis
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%.