Here’s a letter to a retired attorney in Houston who saw a reference to me in a recent column by George Will. This gentleman – who describes himself as “a fellow Cajun” – was displeased with what he learned of my views on economics and politics.
Mr. Louis D. Dufrene
Dear Mr. Dufrene:
Thanks for your letter of January 2nd.
…..
You make two claims that are in tension with each other. First, you “long for a return of the bold anti-trust actions of the 1950’s and 1960s” because, according to you, this active antitrust policy “protected us from monopolists that sought ownership of as many facets of production and distribution that they could get.” Second, in the same paragraph you accuse me of “fool-hardily ignoring … corporate raiders and short-run CEO’s that sell off their companies in pieces just to inflate quarterly earnings.”
I mention in passing that I neither share your happy assessment of Uncle Sam’s mid-20th-century active antitrust policies nor join in your opposition to corporate takeovers. Instead, I point out that it’s odd that you praise bureaucrats who, using antitrust, dismantled some firms back in the ‘50s and ‘60s, while you denounce business people who, using the market for corporate control, dismantled some firms in later decades.
If (according to your first claim) owning “as many facets of production and distribution that they could get” really is a sure source of monopoly profits for corporate owners, why did corporate raiders often disgorge the firms they bought of many of these firms’ “facets of production and distribution”? Yet if (according to your second claim) selling off “companies in pieces” is the most profitable strategy for corporate owners, why in middle of the 20th century were firms so reluctant to so dismantle themselves that antitrust bureaucrats had to force them to do so?
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
Of course, sometimes it is profitable and socially valuable to scale-down or otherwise to shrink firms while other times productive efficiencies are best captured by firms operating at large scales or otherwise with many divisions and at different stages of production. The question is: what is the best set of institutions for ensuring that firms grow when, and only when, they should? I trust market mechanisms to perform best at discovering when firms should grow and when they should shrink. Other people (such as Mr. Dufrene) trust bureaucrats and politicians.
