Regulation: The Helping Hand That Harms
167
How Anti-Trust RegulationBrings About Monopolies
Most Americans, and most economists as well, believe that anti-trust regulation prevents monopolies and fosters competition. They believe consumers are protected by the government from big corpo-rations that reduce their production in order to raise prices, or runsmaller weaker companies out of business, so that they can enjoy highpro
ts at the expense of the rest of society. This argument is fallacious.The truth is that anti-trust laws exist in order to allow the cre-ation of monopolies that could not otherwise exist: the governmentprotects less e
cient but politically favored companies from moree
cient competition. The companies themselves are usually the onesto originate and promote the regulation. Companies use governmentpower to prevent the mergers, acquisitions, expansions, or particular investments or production of rival
rms so as to make them less com-petitive. In some cases, two
rms that would have as small as a com- bined 3 percent market share in their industry have been prevented by the government from merging.
103
The government also preventsnewer, smaller competitors from competing with larger corporations because the immense amount of time, money and hurdles requiredunder regulation is often unaffordable to smaller companies thathave not yet acquired as much capital as their larger competitors. Theresulting failure of these small
rms is, of course, the intention of theregulation.
Trust-Busting
But surely, you must be thinking, what about all the historicalcases you’ve heard about concerning the large trusts (early forms of corporations) of the late 1800s that were broken up because of their monopoly control and presumed damage to citizens, right? The sto-ries are myths…complete myths. Indeed, the government broke upthese companies and destroyed or diminished their productive capa- bilities, but the trusts were not harmful economic entities; theycontributed greatly to increased prosperity for all. It is true that some
103
An example is the 1962 case of Kinney Shoes being prevented from acquiring theBrown Shoe Company.
168
The Case for Legalizing Capitalism
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Kelly
of those who owned or ran the trusts eventually asked the govern-ment for protection from competitors (regulation), and this is shame-ful. It is also true that many other companies became powerful andwealthy through government-assigned privileges. But without ques-tion, the trusts did not become large and successful by somehow“unfairly” competing in an otherwise free market.Thomas J. DiLorenzo showed in the June 1985 issue of the Inter-national Review of Law and Economics
104
that the industries accusedof being monopolies at the initiation of the Sherman Antitrust Actwere expanding production four times more rapidly (some as muchas ten times faster) than the economy as a whole for the entire decadeleading up to the Sherman Act. These
rms were also dropping their prices faster than the general price level (remember that prices fell dur-ing most of the 1800s). One of the senators in favor of antitrust lawsat the time, Representative William Mason, admitted that the trusts“have made products cheaper, have reduced prices.”
105
Nonetheless,he argued that in accomplishing this, the trusts put honest compet-itors out of business, which implies that the trusts were dishonestand that they had engaged in wrongful acts by simply competing in business. He stated this because he, along with most congressmen atthe time, wanted to protect less e
cient companies in their districtsfrom the more e
cient competition of the trusts.
106
Economic policyactions are almost always taken for political reasons.Similarly, Dominick Armentano found that of the
fty-
ve mostfamous antitrust cases in U.S. history, in every single one, the
rmsaccused of monopolistic behavior were lowering prices, expanding production, innovating, and typically benefiting consumers.
107
Hefound that it was their less e
cient competitors, not consumers, whowere harmed. As further evidence of the lack of any harm trusts caused indi-viduals, economic historians Robert Gray and James Peterson pointed
104
Thomas J.DiLorenzo, “The origins of antitrust: An interest-group perspective,”
Inter-national Review of Law and Economics
(June 1985), pp. 73–90
105
Thomas J. DiLorenzo, “Anti-trust, Anti-truth,” Mises Daily (June 1, 2000).
106
Ibid.
107
Dominick T. Armentano,
Antitrust and Monopoly: Anatomy of a Policy Failure
(1990).
Regulation: The Helping Hand That Harms
169out that between 1840 and 1900, the proportion of national incomereceived by workers remained unchanged: Labor received 70 percentand owners of capital, property, and materials received 30 percent.This means that companies did not gain at the expense of the public.The most famous trust is probably that of John D. Rockefeller’sStandard Oil. The company re
ned oil that was mostly used in kero-sene products (gasoline and automobiles were just being developed).The oil business was very small as compared to today. Standard Oil began as a smaller company, and grew in size through normal busi-ness competition—providing a better product at lower prices. As aresult of its innovation and the competition it fostered, the price of refined petroleum fell from over 30 cents per gallon in 1869 to 5.9cents in 1897.
108
Competition did in fact force many companies into bankruptcy, which is what happens to any company that fails to com-pete e
ectively. Still, such occurrences formed the basis of accusationsof wrongdoing against Standard Oil in court. However, unlike mostcases, companies that could not compete with Rockefeller were usu-ally able to sell their assets to him. One man so bene
tted from Rock-efeller’s buying him out that every time he went out of business, hestarted a new oil company that Standard Oil could once again out-compete and buy out. He became very wealthy by having Rockefeller buy him out eleven times.
109
Even though Rockefeller outcompetedmost companies, there were other companies that in fact gainedground on Standard Oil and prevented it from having a monopoly—inthe free market, without government help.
What is a Monopoly?
A key way in which the government
nds
rms guilty of being monopolies is in defining monopoly in both vague and unrealisticterms. According to the government’s and government economists’view, there should always exist a world they describe as having “pureand perfect competition,” in which there are numerous
rms in anindustry, selling identical products, each having a small market share,
108
Thomas J. DiLorenzo,
How Capitalism Saved America
(2004).
109
Robert LeFevre, “The Age of the Robber Barons” (lecture), http://mises.org/mp3/lefevre/131.mp3.
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