Domestic Protectionism

by Don Boudreaux on July 14, 2008

in Antitrust, Competition, History, Myths and Fallacies, Politics

This letter of mine appears in today’s edition of the Wall Street Journal:

Edwin Rockefeller accurately describes antitrust proceedings as “the debris of past political demagoguery” (Letters, July 10).  Research shows that the 1890 Sherman Antitrust Act was not sparked by fears of high, monopoly prices: Real prices charged by the so-called trusts fell steadily during the decade leading up to the passage of that statute. Instead, that first national antitrust statute was the result of hostility to the low prices charged by the innovative entrepreneurs who pioneered the use of new technologies that, for the first time, enabled individual firms to serve a transcontinental market.

Populist hostility to the efficiency of firms such as Standard Oil filled congressional debate over the act. Congressman William Mason (R., Ill.), for example, thundered on June 20, 1890, that “Trusts have made products cheaper, have reduced prices; but if the price of oil, for instance, were reduced to one cent a barrel, it would not right the wrong done to the people of this country by the ‘trusts’ which have destroyed legitimate competition and driven honest men from legitimate business enterprises.”

Donald J. Boudreaux

The pioneering piece of research to consult here is Thomas J. DiLorenzo, “The Origins of Antitrust: An Interest-Group Perspective,” International Review of Law and Economics (June 1985).

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Floccina July 14, 2008 at 10:30 am

IMO there is an optimal size for organizations engaged in any given activities and that tech changes change constantly change this optimal size. Thus it is important to allow organizations of any size as long as they do not use coercion to keep there competition down. This allows organizations to continually move toward that unknown optimal.

Floccina July 14, 2008 at 10:46 am

I should add and so that even with monoply profits we consumers could be still better off if the increased effciency due to being close to the optimal size swamps the monoply profits.

hutch July 14, 2008 at 12:28 pm

For what it's worth, I'm halfway through Titan by Ron Chernow (about John D.) and am really enjoying it. The funny thing to me is that the author often talks about competition as if that's goal. He mentions how something or another was bad simply because it was anticompetitive (like predatory pricing or significantly overpaying for a refinery simply to reduce capacity). He misses the point that the goal is to make stuff that people want to buy at a price they want to pay. There's no point in enforcing competition simply for its own sake. Unless a monopoly is granted by the g-ment, it will face competition in some form or another.

My favorite story I've read about so far is about how they discovered some oil in Ohio that was inferior to Pennsylvania oil b/c it had a lot of sulphur in it. John D. basically told some guy to figure out how to make it work b/c they needed new supply to replace the existing supply that was running out. In the meantime, John essentially subsidized the firm's investment in that part of Ohio by personally taking on all the risk of loss but passing the gains on to the firm. Of course it worked. Chernow ended the story by quoting someone as saying "The greatest invention of the 19th century was the invention of the method of invention." There's more to it than that, but it's a cool story.

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