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Enough Already with the Potted History of America’s Gilded Age and of Antitrust

Here’s a letter to USA Today:

Glenn Reynolds correctly notes that were Pres. Trump to use antitrust to break up or regulate Amazon, Google, and other of today’s large and cutting-edge companies he would follow in the footsteps of Pres. Teddy Roosevelt (“Donald Trump must bust Facebook, Amazon, Netflix, Google monopolies like Teddy Roosevelt,” Nov. 19). But Prof. Reynolds incorrectly assumes that such government intervention by Roosevelt was necessary and beneficial.

Economic historians who look at the actual data know that Standard Oil, Swift & Co., and the other alleged monopolists of the so-called “gilded age” generally pushed prices lower and outputs higher. And contrary to Prof. Reynold’s suggestion, these companies where extraordinarily innovative. To pick only the most famous example: John D. Rockefeller repeatedly managed to lower Standard’s costs of operation and to find ever-larger numbers of useful products to make from petroleum.

Yet despite Rockefeller’s large market share – which he earned by successfully serving consumers – Standard remained subject to vigorous market competition. By the time Roosevelt launched his antitrust assault on Standard in 1907, that company’s market share had fallen from more than 90 percent in the late 1890s to 68 percent. And when Standard was broken up four years later, its market share was down even further, to 64 percent.*

Also, Prof. Reynold’s celebration of Roosevelt’s use of antitrust to break-up the Northern Securities railroad conglomeration is ironic. As Prof. George Bittlingmayer showed in a famous 1985 paper,** the merger wave of the early 20th century – which included the merger that created Northern Securities – was itself the result of the use a few years earlier of antitrust to prevent individual firms (especially those with high fixed costs, such as railroads) from pricing their outputs in ways that help them to remain solvent during economic slumps. That is, without antitrust there would have been no Northern Securities for Roosevelt to break-up.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

* See Donald J. Boudreaux and Burton W. Folsom, “Microsoft and Standard Oil: radical lessons for antitrust reform,” Antitrust Bulletin, Fall 1999, pp. 555-576.

** George Bittlingmayer, “Did Antitrust Cause the Great Merger Wave?Journal of Law & Economics, April 1985, pp. 77-118.