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The Curse of Bigness: New Deal Supplement The Curse of Bigness: New Deal Supplement

Tim Wu Columbia Law School, twu@law.columbia.edu

Follow this and additional works at: https://scholarship.law.columbia.edu/faculty_scholarship

Part of the Antitrust and Trade Regulation Commons, and the Business Organizations Law Commons

Recommended Citation Recommended Citation Tim Wu, The Curse of Bigness: New Deal Supplement, (2020). Available at: https://scholarship.law.columbia.edu/faculty_scholarship/2671

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SUPPLEMENT

THECURSEOFBIGNESSAntitrustintheNewGildedAge

TimWu†

ColumbiaUniversity

Notefromtheauthor:Thissupplementistobereadbetweenchapters3and4.

AnAmericanExperimentinCentralPlanning ThecyclicaltheoryofAmericanhistoryholdsthatthecountry

movesthroughperiodsofgreaterandlesserregardforgovernmentandprivateinterests,whichthentranslateintoperiodsofliberalismandconservatism.Thereismorethanonesuchtheory:thebestknownbelongstothefather-sonteamofArthurSchlesingerSr.andJr.whosuggestedapredictableswingbetweenperiodsofa“publicpurpose”and“privateinterest.”1

Withoutembarkingonafulldefenseofcycletheories,itishard

todenythatthepublic’sopinionofAmericanbigbusinessseemstogothroughrecognizablepeaksandvalleys.Itswingsbetweenavisionofcorporateleadersasadmirablecaptainswhoseconductservesthenationalinterest(asinthe1880s,1920s,and1980s)tothecontraryproposition,thatlargecorporationstendtowardevilandarerunbyself-servingbarons(asinthe1900s,1910s,1930s,1960s,and1970s).

The1900sandthroughthe1930switnessedjustsuchdramaticswings.Duringtheprogressiveera,corporateleadersweredecriedasrobberbaronsandsawtheirreputationsbesmirchedanddestroyed,particularlyduringtheRooseveltandWilsonadministrations.Yetbythe1920s,underCoolidgeandHoover,business’sreputationwasrehabilitatedandbecamethebelovedandglamorousengineofallthingsAmerican.Thatlasted,ofcourse,untiltheGreatDepression,whichdamagedthereputationofboththe

† For assistance with the preparation of this supplement, I thank Ella Solovtsova Epstein and Maya Barr Katalan. 1ArthurM.Schlesinger,Jr.,TheCyclesofAmericanHistory27(1986)(explainingthecycletheoryas“acontinuingshiftinnationalinvolvement,betweenpublicpurposeandprivateinterest.”).TheelderSchlesingersuccessfullypredicted,in1924,thattheAmericanaffectionforbusinesswouldendinabout1932.Id.at24.

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financialindustryandbigbusinessinawaythatmany,atthetime,thoughtirreparable.

Itmaynotbesurprisingtohearthatantitrustlawandits

enforcementhasbeeninfluencedbythesecycles,forenforcementofthelawamountstoanassertionofpublicresistancetoprivatepowerandisaidedbyhavingtheforceofpublicopinionbehindit.Thatiswhy,tounderstandthestoryofantitrustduringtheNewDeal,weneedtobeginwiththeperiodthatprecededit.

Wecanreturnto1914,whenantitrustlawreacheditshourof

greatesttriumphintheelectionofWilson,asadvisedbyBrandeis,andthepassageoftwolaws(theClaytonActandtheFTCAct)meanttostrengthenandcomplementtheShermanAct.Yetnottoolongafterthoselawswerepassed,theUnitedStatesenteredintotheWar,afterwhichcametherehabilitationofbigbusinessunderCoolidgeandHoover.Byconsequence,antitrustlawhadfallenintonearlyasdeepahibernationbythe1920sasithadinthe1890sunderPresidentMcKinley.

Thereasonsforthiswerenumerous.Onewasthedefeatofthe

movementthathadinspiredtheantitrustlawsinthefirstplace.Threepresidentialadministrations--Roosevelt,TaftandWilson--hadcollectivelytakenarunatjustabouteverymajortrustinexistenceandmanyoftheminoronesaswell,fromtobaccotocanningtofilmmaking,andhadachievedeitherbreakupsorsettlements.J.P.Morgan,thegreatmonopolizer,wasdead,hisfortuneandcontroldiminished.TheRockefellershadmellowedandturnedtophilanthropy,founding,amongotherinstitutions,theUniversityofChicago,aschoolwhoseinfluenceoverantitrustwasstilldecadesaway.Withthegreatesttrustsbroken,therewaslessofanappetiteforthebreakupof“gentleman”monopolists--thatis,thosewithoutaclearrecordofvillainyandabuse.

Anindicatorofhowthemoodhadshiftedbytheearly1920swas

thetreatmentoftheU.S.Steelcompany,thebehemothwhichMorganhadcreatedin1901bybuyingoutAndrewCarnegie.Atonepoint,U.S.SteelwasactuallyalargertrustthanStandardOil,andhadbeenafrequenttargetofBrandeis’ireandCongressionalthreats.Yetthefirm,forsomeunclearreason,didnotattractanearlylawsuitfromRooseveltorTaft.Whensuitwasfinallyfiledin1911,neartheendoftheTaftadministration,U.S.Steelhadweakenedconsiderablyandwasnolongerclearlyamonopoly.Ithadalsoeithermellowedwithageorcleanedupitsact.Atleast,that’swhattheSupremeCourtthoughtwhenitannouncedthatthefirmhad“resortedtononeofthebrutalitiesortyranniesthatthecasesillustrateofothercombinations[likeStandardOil.]”2 2UnitedStatesv.UnitedStatesSteelCorp.,251U.S.417,440-41(1920)(summarizingthedistrictcourtopinion).

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TheSupremeCourtpardonedU.S.Steelonthegrounds,roughly,

thatitwasagoodtrust,runbygentlemen,nothooligans.Alongtheway,theCourtweakenedthelawconsiderablybyannouncingaprinciplethatwasatoughpilltoswallowforthose,likeJusticeHarlan,whobelievedthatmonopolywasaneviluntoitself.Forthefirsttime,theSupremeCourtsuggestedthatbeingamonopolisticgiantwasn’tbyitselfenoughtomeritdissolution.TheCourtputitthisway:“[T]helawdoesnotmakemeresizeanoffense,ortheexistenceofunexertedpoweranoffense.It,werepeat,requiresovertacts,andtruststoitsprohibitionofthemanditspowertorepressorpunishthem.Itdoesnotcompelcompetition,norrequireallthatispossible.”3

Thatwasthe1920s.Bytheearly1930s,afterthecrashofWall

Streetandtheonsetofaruinousdepression,theaffectionforbigbusinesshadmeltedaway.Butamongmanyprogressivethinkers,thediscussionhadshifted.Itwasnolongeraboutreinvigoratingantitrust,butcenteredonanideaconsideredevenmoreforward-thinking:migratingtoacentrallyplanned,state-managedeconomy.

Knownvariouslyas“statecapitalism,”“planning,”or

“corporatism,”theideawastomigratetoastate-directedeconomywhichwouldacceptindustrycartels,andevenmonopolies,butdemandthattheyservethenationalinterest.ThiswasanideafirstpromotedintheUnitedStatesbyTheodoreRooseveltinthe1910s(his“NewNationalism)butthethinkersofthe1930sweremorefocusedonexpertiseandplanningthanhehadbeen.TopreventthemistakesthathadledtotheDepression,theideawent,expertgovernmentplannerswoulddirectproductionandpricing.Bythistheory,thesmallproducersandprocessofcompetitionsoprizedbyantitrustaficionadoswouldberenderedunnecessary,foreveryonewouldnowbeworkingtogether.

Withtheglobaleconomyinwreckage,itisnotsurprisingthat

boldsolutionswereinfashion.Capitalism’sfailingsmadecentralplanningandcorporatismseemtomanyalogicalandperhapsunavoidablesolutiontoeconomicdistress.ThatsensewasamplifiedbyglowingaccountsofthesuccessofJosephStalin’sfirst“FiveYearPlan,”whichwascreditedwithamassiveincreaseintheindustrialoutputoftheSovietUnionfrom1928-1933,atimeinwhichcapitalism’smaineconomieswereshrinking.AsympatheticandinfluentialcorrespondentfortheNewYorkTimes,WalterDuranty,laudedStalin’sapproachandwrotethat“[t]hewholepurposeoftheplanistogettheRussiansgoing—thatis,tomakeanationofeager,consciousworkersoutofanationthatwasalumpofsodden,driven

3Id.at451.

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slaves.”4Duranty,unfortunately,didtheworldadisservicebyneglectingtoalsoreportonthemassfaminescreatedbytheplan,whichmayhavekilledasmanyas7million.

IffollowingStalin’seconomicvisionmighthaveseemedabit

muchfortheaverageAmerican,theeconomicpoliciesofMussoliniinItalywere,tosomeatleast,anattractiveandmoremoderatealternative.UnlikeStalin,Mussolinihadnotbannedprivateownership,butinsteadpromoted“economicdirigisme,”oraneconomydirectedbythestate.TheMussolinigovernmentexplicitlylicensedindustrycartelsandcreatedstatebankstoprovidecredittofailingcompanies.ThesewereattractiveideastomanyintheUnitedStates,wheremanyeconomistsandbusinessmentook“ruinouscompetition”and“lowprices”(deflation)tobetheprimarycausesoftheeconomy’scollapse.Thecurewasamarriageofstrongergovernmentandstrongerindustry,which,withtheagreementoforganizedlabor,woulddoabetterjobofrunningtheeconomyforthecollectivegood.Whatcouldpossiblygowrong?

Thestatecapitalismcrazeoftheearly1930scaughttheearof

thenewPresident,FranklinDelanoRoosevelt,whohadbeenelectedbasedonamandatethathe’d“dosomething”abouttheDepression.Todosomething,Rooseveltneededideas,forwhichheturnedtohis“braintrust”—agroupofthinkersatfirstmainlycomprisedofprofessorsfromColumbiaUniversity,includingfigureslikeRaymondMoley,AlfordBerleand,mostimportanttoourstory,aneconomistnamedRexfordTugwell.Tugwell,whomonecriticcalled“theideologicalphilosopherofthePlanners,”5wasaleadingadvocatefortheplannedeconomy,onethatwouldreplacewhathecalled“theanarchyofthecompetitivesystem.”6

Letusconsiderthecaseforaplannedeconomyasitwasmadein

theearly1930s.Purelaissez-fairecapitalismhadclearlyfailed;everyonebutHerbertHoovercouldagreeonthat.Astheplannerssawit,acriticalproblemwithmarketeconomieswasthechaoticmismatchofsupplyanddemand.Producersoverestimatedthedemandfortheirproducts,inpartbecauseadvertising—thenanewart—hadtemporarilyenhancedit.Thathadledtooverproduction,fallingprices(deflation),andfailingindustries.Thebetterapproachwouldbetoseektomatchsupplyanddemandnotbyachaoticmarketprocess,butthroughtheexerciseofcentralizedexpertise.

TugwellproposedthattheU.S.economybeoverseenbya21-

memberNationalEconomicCouncilwhichwouldtakeontheroleof

4WalterDuranty,RedRussiaofTodayRuledbyStalinism,NotbyCommunism,N.Y.Times,June14,1931,at1.5HerbertHoover,TheMemoirsofHerbertHoover:TheGreatDepression1929-1941,at388(1952).6RexfordG.Tugwell,DesignforGovernment,48Pol.Sci.Q.321,326(1933).

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balancingsupply,demand,andpricesacrossindustries.TheCouncilwouldestimateconsumerdemandforallgoodsandcoordinateproductiontomeetdemand.Onlythatway,Tugwellsaid,couldonebe“certainthattheamountofgoodsflowingintothemarketsisproportionaltothepurchasingpowerofconsumers.”7Usingthebestavailabledata,theCouncilwouldalsosetpricesandpreventoverproduction.Suchplanning,Tugwellsuggested,wasnecessary“ifwearenotperiodicallytosufferfrominflation,wronglydirectedproductiveefforts,wasteofcapitalresources,andconsequentperiodsofstagnation….”8

Theplannershadanotherpoint,thisonemoretiedtothe

processofcompetitionitself:thatcompetitionwasnotonlyinefficientbutalsowastefuland,insomecases,failedtotakeadvantageofeconomiesofscale.Whyshouldtherebe10hotelsalongabeachinsteadofonegiant,moreefficienthotel?Orwhy,forexample,havetwogasstationsononecornerwhenonemightdothejob?

Theseexamplesmightmakeobvioustothereaderthatamajor

challengeforeconomicplannersisinformational.Itmightbetruethat,givenperfectinformationabouteverything(andperfectexecution)asinglecentralizedplannerwouldoutperformadecentralizedeconomy.Theproblemlieswiththeassumptionthatitmightbepractical,orevenpossible,foranysingle,centralizedentitytoaccumulateallofthenecessaryinformationandactuallymakeaccuratepredictions.9Tooutperformthemarket,Tugwell’sNationalEconomicCouncilwouldhaveneededtoestimatetherightlevelsofsupplyanddemandforthousandsofgoodsforhundredsofmillionsofbuyersinacomplexanddynamiceconomy.

Asanyonewhohasplannedalargedinnerpartyknows,planningisdifficultevenatthatscale,letaloneatthescaleofanentireeconomy.Andamistakeinpartyplanningisonething;whenmistakesaremadeatthelevelofawholenation,theconsequencescanbesevereindeed.Inretrospect,theexperimentswithplannedeconomiesintheSovietUnion,China,andEasternEuropeannationsdemonstratedjustthepowerofthisinformationalproblem, 7RexfordG.Tugwell,TheBrainsTrustapp.at526(1968).8Id.appat525.9FredrickHayekexpressedtheproblemthisway:Ifwepossessalltherelevantinformation,ifwecanstartoutfromagivensystemofpreferencesandifwecommandcompleteknowledgeofavailablemeans,theproblemwhichremainsispurelyoneoflogic....This,however,isemphaticallynottheeconomicproblemwhichsocietyfaces....[T]he“data”fromwhichtheeconomiccalculusstartsareneverforthewholesociety“given”toasinglemindwhichcouldworkouttheimplications,andcanneverbesogiven.F.A.Hayek,TheUseofKnowledgeinSociety,35Am.Econ.Rev.519,519(1945).

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compoundedbyotherproblems,likedeliberatefalsificationofinformationforpropagandapurposes.Occasionally,plannersgotthingsright(amattermademuchofatthetime).Buttheyalsomademistakes,andwhentheydid,theunbufferedconsequenceswerecatastrophic.Ifoneweretochoosejustoneexampleofhowbadlycentralplanningcanfail,considertheGreatChinesefamineof1959-61,whereaconfluenceofnaturaldisasters,terriblemistakesintheexecutionofcollectivefarming,andwidespreadeffortstohidethosemistakesledanestimated30milliontodeathbystarvation.

In1933,unawareofthisgrimfuture,theRoosevelt

administrationbegantoimplementaplanningmodelfortheU.S.economywiththepassageofanewlaw,theNationalIndustrialRecoveryActof1933,andthecreationofanewagency,theNationalRecoveryAdministration(NRA).Lessextremethan,butsimilarto,thecartelizationprograminMussolini’sItaly,thislawallbutreplacedantitrustasthesystemgoverningcompetitionintheUnitedStates.HereishowthefirstheadoftheNRA,GeneralHughJohnson,explaineditsgoals:“[T]heveryheartoftheNewDealistheprincipleofconcertedactioninindustryandagricultureundergovernmentsupervisionlookingtoabalancedeconomyasopposedtothemurderousdoctrineofsavageandwolfishcompetitionandruggedindividualism,lookingtodog-eat-doganddeviltakethehindmost."10

TheActaskedindustriestodosomethingnewandquiteradical:

towritetheirowncodesofcompetition,promisinganexemptionfromtheantitrustlawsinexchange.Theywerehappytooblige,forthelaw,inpractice,allowedbusinessestodowhatantitrustlawforbade:namely,toagreenottocompete.

Tobesure,thelawwasnotasstrongorcoerciveassimilar

effortsinItalyorGermany.Itwasn’ttheSovietseizureofprivateindustrytoservetheendsofthestate.NorwasiteventhenationalizationthatyieldedCrownCorporationsinBritainandothercountries.Instead,itincludedparadoxicalandconflictingprovisionsdesignedtocreateaneweconomicorderwhilestillservingtraditionalAmericanideals,liketheaidofsmallbusiness,thussomehowtryingtopromotebothcompetitionandcartelizationatthesametime.ButtheideologyoftheActremainedfundamentallycorporatist—andassuchwasintension,ifnotindirectconflict,withtheverypremisesoftheantitrustlawsandBrandeisianidealsofadecentralizedeconomy.Forherewasaprogramthatpromotedcartelsormonopoliesacrosstheentireeconomy,aidedandsupervisedbythegovernment,introducingtheterrifyingpossibilityofthestatecontributingtowhatBrandeissawasthe“curseofbigness.”

10HughSamuelJohnson,TheBlueEaglefromEggtoEarth169(1968).

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Overitstwoyearsofoperation,theNRAgavebusinessesbroadlicensetosettheirownpricesandpractices.Morethan1,000codesweresubmitted,exemptingmostofAmericanindustryfromantitrustlaws.Intheory,theNRAdiscouragedexplicitprice-fixing,butallowedthingslikeagreementsonminimumpricing,supply,andproductstandardization--price-fixinginallbutname.

Havingresetthebasicrulesofcompetition,JohnsonandTugwell

satback,likefarmerswhohadplantedseeds,waitingfortheresults.Unfortunately,totheirsurpriseanddisappointment,nothinghappened.Thehoped-foreconomicgrowthdidnotarrive.Itneedssometime,itsadvocatessaid,buttheywaited--andstillnothinghappened.Whilethereisgreatdisagreementastowhy,perhapsthesimplestexplanationwasthattheeconomictheorywaswrong.

Aswe’vesaid,thediagnosiswasthatpricesweretoolowand

businessesthushadnoincentivetoproduceanything.Butmerelyallowingdefactocartelstoraisepricesdidnot,infact,stimulateeconomicgrowth.Instead,itmadethingsmoreexpensive,which,givenslumpingwagesandwideunemployment,madepeoplebuylessinsteadofmore.Whattheeconomyneededwasstimulus—thekindlingofdemand,apointmadefamousbyMaynardKeynes.Unfortunately,theartificiallyhighpricesallowedbytheNRAweretheoppositeofstimulus.Thatiswhytoday,economistsarenearlyunanimousintheircondemnationoftheexperiment:theharshestcriticsestimatethatitmayhaveprolongedthedepressionbyyearsandreducedGDPbysomesixto11percent.

Thetruebelieverincentraleconomicplanningmightarguethat

theNRAwasn’tgivenenoughtimeorwasn’tforcefulenough.Perhapsindustryshouldhavebeenorderedtoproduceatcontrolledlevelsofsupplydictatedbythegovernment,andalsoorderedtopriceatlowlevels,therebyspurringconsumption.SomeofTugwell’sdefendersarguethatRooseveltwasjusttooconservative,stilltooattachedto“competition,smalleconomicunits,andfeesimpleproperty.”11ButtheNRAhadother,possiblyfataladministrativeproblems.Inpractice,theNRA’scode-draftingprocesswasdominatedbylargefirmswhichusedthecodestosettermsfavorabletotheirwaysofdoingbusiness.Thatpromptedsmallerfirmstoignorethecodes—thecheatingthatistypicalofcartels.Enforcingthecodeswascostly.Bytheendof1933,justsixmonthsafterthebill'spassage,theNRAhadabacklogofmorethan10,000codeviolations.

TheNRAalsoenvisionedaneweraofpeacefullaborrelations,

hopingtofacilitatehigherlaborstandardsandanewtoleranceofunions,butbigbusinessesresistedthosedictatesaswell,asmany 11PaulK.Conkin,TheNewDeal39(AbrahamS.Eisenstadt&JohnHopeFranklineds.,HarlanDavidson,3ded.1992).

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refusedtorecognizeunionsatall.Laborunionsretaliatedwithstrikes.Bytheendof1934,theideaofcooperationbetweenlabor,government,andindustrycollapsedintoindustrialwarfareandactualviolence.Ultimately,thisfailuremayhavereflectedtheintransigenceofindustry,orperhapsthefactthattheNRAwasjustnotasbrutalastheItalianorGermanregimesandhencewasineffectiveasanattemptatcorporatism.Inanyevent,inafewyears,itwasjustabureaucraticmess.

Despitethisfailure,alongwithfarworseonesincommunist

nations,thetruthisthattheconceptofcentralizedplanninghasneverfullylostitsallure.Itseemstohaveaspecialappealtoacertainkindofmind,themandeterminedtomakehismark,likeRobertMoses,NewYorkCity’splannerextraordinaire,whoproposedbulldozingmanyofManhattan’shistoricneighborhoodstomakewayforfreeways,soastoconnectNewJerseytoBrooklyn.Resistancetothoseplanscamefromadifferentbreedofprogressiveinthe1960sand1970s,liketheurbanplanningexpertJaneJacobs,orE.F.Schumacher,whoin1973wroteSmallIsBeautiful:EconomicsAsIfPeopleMattered.

Fromthis,itshouldbeapparentthatthereisnopermanent

politicalvalenceassociatedwithcentralizedordecentralizedapproachestotheeconomy.Whileintheory,theFirstNewDealwas“liberal”andtheearlyTrustmovement“conservative,”wecanseethat,infact,theyhadmuchincommon.Bothwerereactionstolargeeconomicshocks—thedepressionsofthe1890sand1930s.Bothtooktheviewthatacentralizedandplannedeconomywassuperiortothechaosandunpredictabilityofcompetitivemarkets.Andbothsawprogressintheshapeofbeneficentgiantsthathopedtoleavebehindamoreprimitive,selfishtimeandenteraneweramarkedbyarulingclasswhosemotivestranscendedindividuals’concerns.Therealdifferencebetweentheapproacheslayinwhomthatrulingclasswouldconsistof.TheTrustmovementsawthemasprivateplannersofthesortrepresentedbyRockefeller–industrytycoons–andMorgan–majorbankers.TheFirstNewDealputitstrustinenlightenedgovernmentplanners.Butbothmovements,atsomelevel,believedincentralizedauthority–atanextreme,onethatapproachedeconomicdictatorship.

By1935,theAmericanexperimentinplanningandcorporatismwasnotgoingverywellwhentheSupremeCourtabruptlystruckdowntheActitselfasunconstitutional.12TheunanimousmajorityincludedJusticeBrandeisandotherliberalmembersoftheCourt.Onthedayofthedecision,BrandeisgavetheWhiteHouseawarningofwhatwascoming.“Thisistheendofthisbusinessofcentralization,”hetoldaWhiteHouseaide,“andIwantyoutogobackandtellthePresidentthatwe'renotgoingtoletthisgovernmentcentralize 12A.L.A.SchechterPoultryCorp.v.UnitedStates,295U.S.495(1935).

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everything.”13Whenthedecisioncamedown,PresidentRoosevelt,shaken,askedhisadvisors,“[W]hataboutoldIsaiah?”(meaningBrandeis).“Withthemajority,”cametheanswer.14

WiththeNRAgone,therewas,allatonce,avacuumleftinthat

ratherkeymatterofeconomicpolicyduringdepression.TheRooseveltadministrationwassuddenlylookingfornewideasandnewstaff.AsissometimesthewayinAmericanpolicy,havingtriedoneapproachforawhile,theadministrationwashappytoswingovertoitsopposite.

TheNeo-BrandesiansandtheSecondNewDeal

Inthemid-1930s,FelixFrankfurterwas,officiallyatleast,anacademic,aprofessoratHarvardLawSchool,withnopositioningovernment.Hisstatuswasamatterofchoice:offeredtheroleofSolicitorGeneralinthenewRooseveltadministration,hehaddeclined.YethewasnonethelessamongthemostinfluentialfiguresinAmericanpolicymaking,especiallyeconomicpolicy,asaleadingarchitectofRoosevelt’ssecond(andlasting)NewDeal.Livingfull-timeinWashingtonD.C.andactingbothindependentlyandthroughhisnetworkofdisciples,alliesandmentees(sometimesdescribedas“Felix’shappyhotdogs”),hedidmorethananyonetobringtheideasofBrandeisianpolicybackintothemainstream.Foritwastheywhoresurrectedantitrustanditsenforcementtraditionsinwhatwas,atthetime,describedasaneo-Brandeisianmovement.

Frankfurter’sconnectiontoBrandeisandhisideaswasmore

concretethanwasfullyrealizedatthetime.ForFrankfurterwas,infact,anunofficialagentofJusticeBrandeis,whowassequesteredattheCourt;FrankfurterevenacceptedBrandeis’sfinancialsupportashecarriedoutpoliticalactivities.ItwasthusthatBrandeis,throughFrankfurterandhismentees,wasactivelyinvolvedintheunexpectedrebirthofantitrustinthelate1930s,despitetheriseofanimportantrival:the“centralplanning”movementthatwasthenattheheightofitspopularity.

UnlikethebackersoftheFirstNewDeal,theBrandeis-

Frankfurterschoolconsideredcartelsanimpedimenttogrowth,andbelievedthatinmostindustries,itwasmonopolization,excessivefirmsizeandthemisfeasanceofbankers,notcompetition,thathadhelpedcreatetheDepression.Whilesympathetictoaroleforgovernmentinhelpingtheneedy,theunemployed,andretirees,Frankfurter’sfollowerswere,inmostcases,morehostiletotheideaofalargefederalgovernmentundertakingthecentralizedplanningoftheeconomy.AshistorianEllisWayneHawleyputsit,

13ArthurM.Schlesinger,Jr.,TheAgeofRoosevelt:ThePoliticsofUpheaval280(1960).14EugeneC.Gerhart,America’sAdvocate:RobertH.Jackson99(1958).

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IfthephilosophyoftheBrandeis-Frankfurteradherentsandtheiralliescouldbesummedupinoneword,thatwordwouldprobablybe“decentralization.”…Large,monopolisticorganizations,theyheld,werenottheresultoftechnologicalimperatives.Theygrewinsteadfromthedesiretoavoidcompetition,thedesireforpromoters'profits,andthefactthat“finance”simplywentoutandforciblymerged"aflockoflittlebusinessconcernsformilkingpurposes."…Competition,inotherwords,couldandshouldberestoredandmaintained.15

Theneo-Brandeisiansthoughtthatthegovernment’sjobwas“torecreateasystemofeconomicdemocracyasthebasisforpoliticaldemocracy….”16Echoingthecriticismswe’vealreadymade,theyfeltthat“detailedeconomicplanninginacountryasvastastheUnitedStateswassimplyincompatiblewithademocraticsociety.”17

TheFrankfurter-BrandeisiansalsotookaviewlaterassociatedwithconservativeslikeFredrickHayek:thatexcessiveconcentrationandmonopolymightleadtoagovernmentofdangeroussizeandpower.Createdtocounterbalanceindustrialgiants,governmentsmightinsteadformaunionwiththem,combiningprivateandpublicpower.Fortheneo-Brandesians,theFirstNewDealrepresentedadangerousflirtationwithfascism.Inthis,theypartedwayswithTugwell,whobelievedthattheSovieteconomicmodelwas“worthyofseriousconsideration.”18

Theincreasingacceptanceofsuchviewswouldtakethenationin

adirectiondifferentfromthatoftheFirstNewDeal,whichiswhyhistoriansrefertotheperiodfrom1935onwardasthe“Second”NewDeal.Thefullinfluenceoftheneo-Brandeisiansoneconomicpolicyistooextensivetochroniclehere,butitincludedtheestablishmentoftheSecurityandExchangeCommissionin1934,thepassageoftheBankingActof1935,and,mostimportantlyforourstory,theresurrectionofthelostantitrustenforcementtradition.ThatcamethroughRoosevelt’sappointmentoftwomentoheadtheJusticeDepartment’santitrustdivision,twomenwhomaysetanexampleforourtimes:RobertJacksonandThurmanArnold.

RobertJacksonisthebetterknownofthetwo,forhewouldlater

serveasaSupremeCourtJusticeandastheheadprosecutorfortheNurembergwarcrimetrials.Jacksonhad,bythetimeofhis

15EllisW.Hawley,TheNewDealandtheProblemofMonopoly286-87(PrincetonUniv.Press2015)(1966).16Id.at288.17Id.18RexfordTugwell&HowardHill,OurEconomicSocietyanditsProblems(1934)521-525.

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appointment,alreadygainedameasureofnationalfamebyprosecutingAndrewMellon,thePittsburghmagnatewhohadservedasTreasurySecretaryformorethanadecadeunderHarding,CoolidgeandHoover,fortaxevasion.(Jackson’sprosecutionled,amongotherthings,toMellonagreeingtobuildtheNationalGalleryinWashingtonD.C.asasettlement).

JacksonwasRoosevelt’s“legalace,”andin1937,underthe

influenceoftheneo-Brandeisians,FDRappointedhimtorehabilitatetheJusticeDepartment’santitrustdivision.19Inthatrole,Jacksonpersonallyrebootedamoribundofficethathadallbutabandonedlawenforcementintheageofgovernment-licensedcartels.AsJacksonlaterrecounted,“ItwasnotuntilIcameintotheDepartmentthatthe[planning]philosophywasdefinitelyabandonedandwerevertedtotheWoodrowWilsondoctrinethatfreecompetitionisthewisestandmostliberalmeasureofbusinessregulation.”20

Jacksonfireduptheenginesofprosecutionwithtwomajor

cases.Thefirstwasabroadindictmentofprice-fixingintheoilindustry:hecharged24majoroilcompaniesand46officersinacriminalaction.21Thesecondwasa130-countindictmentofAlcoa,thealuminummonopolistandoneofthelastoftheoldtrusts(andalsoafirmcloselyassociatedwithAndrewMellon,hisbêtenoir).WithsuitsagainsttheoilindustryandtheAluminumtrust,Jacksonwasassertingwhathecalled“asovereigntyofpublicoverprivateinterestinbusiness.”22

Ifthesetwobigcasessuggestedanewvigor,theyweremerelya

hintofwhatwastocomenext.ForafterpromotingJacksontoAttorneyGeneralin1938,Rooseveltselectedalittle-knownprofessorandWashingtonoutsidertotakeoverantitrustenforcement.HisnamewasThurmanArnold,andthemarkhewouldleaveonthetrust-bustingtraditionwould,intime,becomparableonlytothatofTheodoreRoosevelt’s.

Arnoldhimselfmayhaveseemedanunlikelyfiguretowearthe

trustbuster’smantle.Borninsmall-townWyoming,hehad,bythe1930s,developedareputationforbeinganeccentricalloosecannon. 19MatthewStoller,Goliath130(2019).20R.HewittPate,RobertH.JacksonattheAntitrustDivision,68Alb.L.Rev.787,789-90(2005)(quotingRobertH.Jackson,DraftAutobiography86-87(Box190,June-July1944)(onfileintheRobertH.JacksonPapers,LibraryofCongress,ManuscriptDivision)).21Theprice-fixinginquestionwasthesystemofcontrollingthesupplyofoilthathadbeenexplicitlyblessedbytheNationalRecoveryAct,whichledtheindustrytocomplainthattheyweresimplydoingwhatthegovernmenthadsuggested.Jackson’sprosecution,inthatsense,establishedthereturntoantitrustpolicy.22RobertH.Jackson,ShouldtheAntitrustLawsBeRevised?,71U.S.L.Rev.575,576(1937).

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Hehadtheacademic’smannerofdisheveleddress,carriedapipeatalltimes,andlikedtomakeinappropriatejokes.Hehadwrittenabook,TheFolkloreofCapitalism,thatcomparedtheantitrustlawstolawsbanningprostitution—inotherwords,lawsmerelyhonoredinthebreach.Onecontemporarycalledhimjust“anotherMarxbrotherwhohadstrayedintothegovernmentbymistake.”23Butallthiswasnotinconsistentwithafierce,courageous,crusadingcharacterthatcouldbealmostfoolhardyinitsextremes.

Arnold’sapproachtoantitrustenforcementborrowedfrom

criminalprosecution.Hefavoredwhathecalled“shocktreatment”—suingnotjustonemonopolist,butallthemembersofanoligopolyatonce,alongwithanyverticalco-conspirators.Hewouldlatercomparehimselftoatrafficofficer:hethoughtitwasimportanttospellout,frequentlyandclearly,therulesoftheroad,andthoughtthatonlythrougharrestsandpunishmentsmightatruedeterrenteffectbeachieved.AslawprofessorSpencerWeberWallerwrites,“Arnoldbelievedthattheonlythingthatwouldmakebusinessmenbehavewasthethreatofindictment.Whenhebroughtacase,hewouldindicttheindividualdefendantsandhavethemfingerprintedlikeordinarycriminals.”24

EnforcementandpublicitywenthandinhandforArnold,who

hadatasteforthetheatrical.Hisstrategy,heoncesaid,wasto“hithard,hiteveryoneandhitthemallatonce.”25Soonafterarrivinginoffice,hepennedalengthyfeatureintheNewYorkTimesentitled“AnInquiryIntotheMonopolyIssue”whereinhedescribedmonopolyasbothataxonsocietyandathreattodemocracy.Themonopoly,hewrote,“isadictatorialpowersubjecttonopublicresponsibility,whichistheantithesisofourdemocratictradition.”26Hepromisedthepublicprosecutionscoupledwith“publicstatementsgivingthereasonsfor[the]prosecutionpolicyinparticularcasesorthereasonswhytheparticularprocedurewasselected.”27

Butbehindhistrust-bustingtheatricswasamacroeconomic

theoryofhowantitrustcouldfightthestill-lingeringDepression.TheFirstNewDealhadencouragedprice-fixingandcartelization,whichhaddonenothingtohelpthemoribundeconomyand,Arnoldbelieved,hadleftbehindcartelsandotherbarrierstoeconomicgrowth.Hebelievedthatifhesystematicallybrokethecartels,prices

23Hawley,supranote15,at423.24SpencerWeberWaller,ThurmanArnold:ABiography86(2005).25JosephAlsop&RobertKintner,TrustBuster:TheFolkloreofThurmanArnold,SaturdayEveningPost,Aug.12,1939,at5.26ThurmanArnold,AnInquiryintotheMonopolyIssue,N.Y.Times,Aug.21,1938,§7,at1.27ThurmanW.Arnold,ProsecutionPolicyUndertheShermanAct,24A.B.A.J.417,417(1938).

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wouldfall,whichwouldleadconsumerstobuymore,therebyincreasingproductionincentivesandgeneratingmoreemployment,whichwouldallowformoreconsumption,spursupply,andfurtherincreaseemployment.Arnoldsawhischargeasbreaking“bottleneckstobusiness”.28

Andbringcaseshedid,unlikeanyotherantitrustenforcer

beforeorsince.By1939,hehadfiled1,375complaintsin213prosecutionsinvolving40industries,whilepursuing185ongoinginvestigations.Hisantitrustdepartmentgrewtonearly600attorneys.Hisfirstsuccesscameearlyon,intheformofasuitagainstthethreebigcarmanufacturers(GM,FordandChrysler)whohadforceddealerstousetheirfinancecompanies(atie,inantitrustterms).Arnoldreinvigoratedanattackonthefilmindustry,callingit“distinctlyun-American,”asitwasorganizedwitha“verticalcartelliketheverticalcartelsofHitler’sGermany,Stalin’sRussia.”29Arnold's1938lawsuitagainstthefilmstudioscharged28separateviolationsoftheShermanActanddemandedthatthefilmstudios“divorce”theirtheaterholdings.30Hetookonthedairyindustry,impanellingagrandjuryinChicagoandquicklybringingchargesofawidespreadconspiracytopropupthepriceofmilkandkeepoutcompetitors.Inanactofparticularcourage,hefiledsuitagainsttheAmericanMedicalAssociation,whichhechargedwithpreventingcompetitionamonghealthinsuranceplans.

Throughoutthesewars,Arnoldlikedtopublicizewhathehad

doneforthepublicgood.Forexample,in1939,theconstructionindustrycameinfora“shocktreatment”—amassiveprosecutorialdriveproducingsome99criminalactionsand22civilsuitsthat,Arnoldclaimed,savedthepublicover$300millioninbuildingcosts.Thefrenzyofactivitycontinuedevenintotheearlydaysofthewar,untilArnoldcalleditquitsin1943.EvenwiththewarbeginninginEurope,theagencyfiledanother180antitrustcasesbetween1939and1941.

Didhisshocktreatmenthavemacroeconomiceffects?Itishard,

ifnotimpossible,toisolatetheeffectsofantitrustenforcementfromotherfactors,butatleastsomescholarsbelievethatthemassiveenforcementcampaigncontributedtoendingtheDepression.EinerElhaughenotesthatpricesreallydidbegintodropacrossindustries,andthatindustrialproductionbegangrowing,forthefirsttimeinyears,in1938,beforewarspendinghadbegun.31Tobesure,there

28SeeThurmanW.Arnold,TheBottlenecksofBusiness(1940).29ArnoldDemandsaMovieNewDeal,N.Y.Times,Apr.23,1940,atL19.30HissuccessorsinofficewonthecaseandachievedasweepingreorganizationoftheAmericanfilmindustrythatendedtheoldstudiosystem.SeeUnitedStatesv.ParamountPictures,Inc.,334U.S.131(1948).31 Einer Elhaughe, Horizontal Shareholding, 109 Harv. L. Rev. 1267, 1286-90 (2016).

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wereotherfactorsandregulatoryprogramsunderway,butElhaughemakesaconvincingcasethatArnold’senforcementcampaignhelpedrestarttheenginesoftheU.S.economy.Thefactwas,withsomanyeconomiccartelsinexistence,Arnoldhadplentyoflow-hangingtargets.

If,inretrospect,Roosevelt,TaftandWilsonhadtakenonthe

monopolytrusts,JacksonandArnold’sgreatestcontributionlayinthedefeatofthecartel.Arnoldwrotethat“[a]fteraperiodoffiftyyearsofonlyoccasionalenforcement,violationsoftheantitrustlawshavebecomesocommonastocausenocomment.Lawyersinmanycommunitieshavebeenscarcelyawareoftheirexistence.”32Hereversedthisbysystematicallybreakingeachandeverycartelinnearlyeveryindustry,andreestablishingthebiteinthe“perse,”orcategorical,ruleagainstprice-fixing.

Theantitrustrevivalistsofthe1930sand1940salsohad

somethingtosayaboutmonopoly,andweshallgettothefamousAlcoacaseinamoment.Butfirst,letusturnbrieflytoadifferenttopicoftremendousimportancetotoday’seconomy:thematterofretail,andtheeffort,overthe1930s,tosavesmallbusinessesfromthearrivalofnationalchains.

TheChains,SmallRetailersandtheRobinson-PatmanActWellintothe1920sand1930s,retailremainedanexceptionto

thegreatconsolidationsoftheoriginalTrustmovement.TheUnitedStatesremainedalandofsmallhardwarestores,grocers,pharmacies,andgeneralstores,whilethe“giants”oftheindustrywerelargedepartmentstores,likeMacy’sofNewYorkorMarshallField’sofChicago,whichhadafewbranchesatmost.AssociologistsPaulIngramandHayagreevaRaowrite,“theindependentretailerwasadeeplyinstitutionalizedelementofAmericaneconomicandsociallife,ingrainedintheprevailingconceptofcommunity,andakeylinkintheopportunitystructurethatwasthenseenasafoundationofAmericandemocracy.”33

Itwasthe“chainstore”thatchallengedandtransformed

Americanretail.AmongthefirstwereJ.C.Penney,Sears,andWoolworths;perhapsthemostaggressivewasthegrocerychainA&P,shortfor“TheGreatAtlantic&PacificTeaCompany.”Thesestoresdifferedfromdepartmentstoresintworespects:scaleandstandardization.Whereasmostretailershadbeenlocal,thechainswereregionalinscope,sometimesnational,withhundredsandeventhousandsofstoresaroundthecountry,allofwhichoperatedina

32ThurmanArnold,AntitrustLawEnforcement,PastandFuture,7Law&Contemp.Probs.5,12(1940).33PaulIngram&HayagreevaRao,StoreWars:TheEnactmentandRepealofAnti-Chain-StoreLegislationinAmerica,110Am.J.Soc.446,447(2004).

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similarfashion.J.C.Penneyexpandedfrom312storesin1920to1452storesin1930;A&Preachedover10,000storesbythemid-1920sandby1930wastheworld’slargestretailer,with16,000storesandsome$2.9billioninsales.

Letusturnforamomenttotheeconomicsofthechains.As

businesses,thechainswerefarlargerthananyoftheircompetitors,includingdepartmentstores.Theyclaimedthattheyweremoreefficient,basedontheir“scientificmanagement”practices.Butletusfocusontheirsize,whichgavethemtwoadvantages:volumeandbuyingpower.Thereisanimportantdistinctionbetweenthetwo.Avolumediscountreferstothefactthat,aswithanylargerretailer,thechainscouldseekadiscountonlargeorders.Butbeyondthis,thechains,basedontheirsize,couldalsoexercisebuyingpower:thatis,demandalowerpricenotmerelybasedonthesizeoftheorder,butalsoontheirrelativeimportanceasbuyers.

Tomakethispointconcrete:mostproducersoffervolume

discountsbecauseofthecertaintyandreducedtransactioncostsinherentinonelargeorder.Assuch,acoffeegrowermighthavecostsof$1perpoundforprocessingabulkorderand$1.50forasmallorder,andmightthereforegivethevolumebuyerapriceof$2apoundinsteadof$3.Butifthelargerbuyer(say,Starbucks)representsenoughofthemarket,thebuyercandemandthatthecoffeegrowercutintoitsownmargin—say,bysellingitcoffeefor$1.50insteadof$2—onpainoflosingStarbucks’business.

Thisgave(andcontinuestogive)thechainslowercoststructures,whichallowedthemtocuttheirpricesandbillthemselvesascheaperalternativestotraditionalstores.Lowerpriceswerealways,andwillalwaysbe,thecallingcardofchainretailandlargeretailestablishments.

Buyingpower(alsoknownasmonopsonypower)wasthe

trademarkeconomicissuecreatedbychainretail.Incontrast,thechains,evenattheirheight,rarelyhadamonopolyinsales,atleastbytheusualdefinition.Attheheightoftheconcernsoverthechainmovement,intheearly1930s,thechainscollectivelycomprisedsome20%ofretailsalesand40%ofgrocerysales,whichisconsiderable,butnowherenearthe>90%monopolyonoilrefiningcontrolledbyStandardOil,orthe100%monopolyonvirginaluminumenjoyedbyAlcoa.Furthermore,unlikeproductionmonopolies,whichtendtoraisepricesacrosstheeconomy,thechainstendedtocutprices.Butinadifferentway,thechainsalsowieldedtheirpowerinawaythatwentbeyondthatofthetrusts.Thetrustsheldapowerthatwasmoredistant;thechainsreachedintoeveryAmericantownandoverturnedthetraditionoflocalownershipofmainstreetretail.

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Asyoumightimagine,chainswerenotpopularamongexistingretailers,wholesalers,andmanufacturers.Theywerealsoresistedbylocalcivicgroupsandanti-monopolists,yieldingan“anti-chain”movementthatlaunchedinthe1920sandgainedconsiderablepoliticalpower.By1929,therewereanti-chainassociationsinsome400cities;amongtheprominentindividualsandgroupsinoppositionwereadiversemixoffiguresthatincludedpopulistslikeHueyLong,thefutureSupremeCourtJusticeHugoBlack,unions,agrariansandfarmers.ThatboththeKuKluxKlanandAfrican-Americangroupswereintheanti-chainmovementgivesasenseofthebreadthoftheopposition.

Meanwhile,thepopularcampaignsagainstthechainswere,at

somelevel,fundamentallydifferentthantheanti-trustcampaigns.Whereasthecaseagainstthetrustswaseconomic,socialandbroadlypolitical,thecaseagainstthechainswascenteredontheidealsoflocalism.Themovementwasgroundedintheidealsofself-rulebytownsandregions,theimportanceofprotectinglocalbusinessesandcommunities,andawayoflifeimpliedbysmallretailers.

Withtheanti-chainmovementcamethebirthof“shoplocal”

campaigns,billedasaformofresistancetotheintrusionsof“foreign”chainswhichwouldtakelocalmoneyandsenditofftoadistanthomeoffice.Hence,forexample,asoutherncampaignto“KeepOzarkDollarsintheOzarks.”34Thefearwasthatregionswouldlosenotjusttheireconomiclife,butalsotheiridentity.Asonepamphletputit,thechainswerea“privilege-seekingfew—[that]seek...thedictatorshipofbigmoney—astateoffinancialfeudalism...privilege-seekingtycoons...would-bedictators.”35

HereisNewDealerandfutureSupremeCourtJusticeHugoBlack

onthesubject:“Wearerapidlybecominganationofafewbusinessmastersandmanyclerksandservants.Thelocalmanandmerchantispassingandhiscommunityloseshiscontributiontolocalaffairsasanindependentthinkerandexecutive.Afewoftheseusefulcitizens,thussupplanted,becomeclerksofthegreatchainmachines,atinadequatesalaries,whilemanyenterthegrowingranksoftheunemployed.”36

Theanti-chainmovementdidnotlimititselftorhetoric,but

pursuedlawsdesignedtoslow,ifnotstop,the“invasion”ofthechains.AstheGreatDepressionhitandstayed,hurtingmostbusinessesandbankruptingmany,thecallsforactionbecamestronger.Bytheearly1930s,numerousstateshadenactedanti- 34 Hayagreeva Rao, Market Rebels: How Activists Make or Break Radical Innovations 123 (2009). 35Id.at451(quotingNat.Assoc.RetailDruggistsJ.,Apr.2,1938,at397).3672CONG.REC.1239-40(1930).

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chaintaxationschemes;theSupremeCourt,whichstruckdownsomuchregulationduringthisperiod,upheldanIndianataxschemethatimposedincreasingtaxesonbusinessesthatoperatedlargenumbersofstoresinthestate.Federalanti-chainadvocatespressedforafederaltax.AmongthemostprominentofthesewasWrightPatman,aTexasCongressmanwhomadethemovementintohiscallingandcareer.

Bythemid-1930s,astheneo-Brandeisiansgainedpowerin

Washington,theanti-chainmovementbegantoborrowfromtheanti-trusttraditionbyfocusingontheideathatthechainsusedmethodsthatamountedtounfaircompetition.By1935,WrightPatmanhadopenedCongressionalhearingsintothebuyingpracticesofthechainsthatattractednationalattention,especiallywhenherevealedvariouspredatorypracticesonthepartofA&P,includingboth“killingprices”deliberateddesignedtodestroyindependentrivalsandwhatwasallegedtobeasystemofsecretkickbacksdemandedbythechainsfromproducers.Thekickbacksweretiedtotheideathatthechainsusedtheirbuyingpowertoinducemanufacturerstofavorthemanddiscriminateagainstsmallerrivals.

Itwaswrong,Patmanbelieved,forthechaintogobeyond

merelygainingvolumediscounts(whichmightbeavailabletoall)andinsteadassertitspowerandsizetodemanddiscriminationintheformlowerpricesforitselfandhigherpricesforitsrivals.Itseemedtohimparticularlyunfairwhensuchlowerpricesweredisguisedasrebatesoradvertisingfees.MenlikePatmansawthatasnothingotherthanunfaircompetition—ormoreprecisely,whatbegantobeknownas“pricediscrimination.”

Thepushtobanpricediscrimination,inaCongress

overwhelminglyonthesideofsmallbusinessesandwholesalers,becametheRobinson-PatmanActof1936.Asenacted,itbannedtwotypesofpricediscrimination.Thefirstwastargetedat“killingprices”usedbyachaininoneareabutnotothers.ItwouldnowbeillegalforachaintolowerpricesinAnnArbor,forexample,whilekeepingpriceshigherelsewhereiftheapparentgoalwastodestroythelocalcompetitor.

Thesecondandfurther-reachingbanpreventedwholesalers

fromgivingintodemandsforrebates,kickbacks,andotherdiscriminatorypricingschemes.Hence,ifWalmart,thegiantretailer,demandsalowerpriceonbicyclesfromamanufacturerthananothersportsstoreinthesametownandthewholesalercomplies,thewholesalerwouldbeinviolationoftheRobinson-PatmanAct.TheSupremeCourtwouldlatermakeclearhowseriouslyittookthisprohibition,whenitfoundMortonSaltinviolationoftheRobinson-PatmanActforofferingalowerpriceonsaltforthosewhoboughtover50,000cases.Notingthatonlyfivechainstoreswereabletotakeadvantageofthelowestprice,JusticeBlackwrotethat

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“Congressconsideredittobeanevilthatalargebuyercouldsecureacompetitiveadvantageoverasmallbuyersolelybecauseofthelargebuyer'squantitypurchasingability."37

TheRobinson-PatmanActandrelatedstatelawshadamajor

effectonthechainsoverthe1930s,haltingtheirfurthergrowth.Themajorgrocerychainssuffereda57%lossintheirstockvaluein1936,andtheirshareofsales,whichpeakedin1935,begantodecline.

However,attheriskofstatingtheobvious,thechaindidnot

disappear,andinfact,intheformofWal-Mart,andlaterAmazon,thelarge,centralizedretailercontinuedtogainstrengthfromthe1980sonward.Sowhathappened?

Byitsletter,theRobinson-PatmanActwouldseemtomake

illegalthebusinessmodeloffirmslikeWalmart,whichrosetoprominencebyexercisingitsbuyingpowertocutintothemarginsofsuppliers.Amazondoesthesame;itssupplierscommonlycomplainofbeingsqueezed.That’swhyitmustbeunderstoodthattheriseofWalmartandAmazonandthetriumphofthechainsisabyproductofthedefactonullificationoftheRobinson-PatmanActthatbeganinthe1980s.

Thelawhasnotbeenlegallyrepealed,butrather,informally

repealedbyjudgesandenforcerswhodonotagreewithitseconomicphilosophy.Thathappenedinpartinthecourts,wherejudgesallowedmanufacturerstoescapethescrutinyofthelawthroughtheartificeofsellingtriviallydifferentproductstoindependentretailersandbigboxstores(thelatteratlowerprices).Thelawwasalsoseverelyweakenedbyincorporatingtherequirementsofotherpartsoftheantitrustlaw,suchasproofofrecoupmentofmonopolyprofit.38Andfinally,theFederalTradeCommissionhasallbutabandonedthestatute,effectingarepealbyprosecutorialdiscretion.

Thereis,tobefair,averystrongeconomiccaseagainstthe

Robinson-PatmanAct–namely,thatitisanti-consumer.FirmslikeWalmartandAmazon,bysqueezingtheprofitmarginsofsuppliers,makethingscheaperforbuyers.Hence,iflowerpricesforcustomersistobethegoaloftheantitrustlawswritlarge,thelawiscounterproductiveinallbutveryrarecases.TheRobinson-PatmanAct,criticscharge,canalsoprotectinefficientretailers—thelocalhardwarestore,say—insteadofallowingtheirreplacementbylargerandmoreefficientfirms.

37FTCv.MortonSaltCo.,334U.S.37,43(1948).38SeeBrookeGroupLtd.v.Brown&WilliamsonTobaccoCorp.,509U.S.209(1993).

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AstrongRobinson-PatmanActlikelymakesgoodsmoreexpensive,butmightalsoprotectlocalstoresfromdisplacementandhelpregionaleconomies.TherealquestioniswhetherCongressisallowedtomakethatchoice:tofavorlocalismoverefficiency.Andwhetherornotyoubelieveinlocalism,andthinksmallerretailersdeservesuchprotections,theideathatCongressdoesn’tgettochooseisprofoundlyanti-democratic.

ThisiswhyitisamistaketoviewtheRobinson-PatmanActasan

anti-trustlaw,asopposedtoananti-chainlaw,designedtopromotedifferentvalues.Fromthatperspective,tosaythatCongresscannotleveltheplayingfieldforlocalbusinessesistotakeanarrowviewofeconomicefficiencyandgiveitanillegitimateconstitutionalstatus.Fortheremustberoom,inademocracy,foreconomiclegislationdesignedtopromotesomethingotherthanlowerpricesforconsumers.Weareconsumers,yes,butalsoworkers,employees,producers.Wedomorethanbuy.Thesqueezingofsuppliersandthebankruptingofrivalretailersextractscoststhatmaynotbemeasuredintermsoflowerprices,butinsteadarereflectedbylowerwages,depressedregionsofthecountry,andsoon.Surely,thelawisallowedtoprotectnon-economicvaluesaswell,suchthepromotionoflocalownership,avibrantmainstreet,andthepossibilityofregionaldifferencesinsteadofhomogeneity.

Thatsaid,thereisroomforthosewhoagreewiththegoalsofthe

Robinson-PatmanActtoquestionitsmeans.Monitoringthepricingpracticesofwholesalersmay,inpractice,beanunworkablydifficultmeansofprotectinglocalstoresfromchains.Itmightbebetterforregionstokeepoutchainsthemselvesusingzoninglaws(asVermontdoes),ortousethetaxcodetosubsidizesmallbusinesses,orfindotherwaystohelpmainstreetagainstchainsandonlineretail.

Thisdebateoverretailhasnotandwillnotdisappear,becauseit

implicatesvaluesthattranscendthemerelyeconomic.Howpeoplebuythingsprofoundlyimpactswhatcitiesandtownslooklike,andhowmuchdifferentpartsofthecountryresembleeachother.IthasalottodowithwhatJaneJacobscalledthelifeanddeathofgreatAmericancities:changestothestructureofretailhelpexplainwhyAmericancitiesandtownstransformfromvibrant,ifcrowded,downtowns,tomallsandstrip-mallsandbigboxstores,totoday’sgiantwarehouses.

Inourtimes,similarly,thetrendtowardonlinesaleswill

unquestionablytransformurbanlandscapes;indeed,italreadyhas.Itmayleavebehindcitiesthataremainlyshowroomsforstufftobeboughtonline,interspersedwithcoffeeshops.Theimpactonsmalltownsmaybeevenharsher,asthebigboxstoresaredrivenoutofbusinessandretailceasestoemploypeopleoutsideofwarehouses

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anddelivery.AndifCongressorstateshavesuchconcerns,theyshouldhavethepowertoact.

That’swhyitisnothardtoimagineanewsetofrulesdesigned

tosupportlocalorregionalretailers.Toexpressthataimisnottoprovideaclearmeanstoachieveit.Theideaofpolicingeverydistributionagreementforpricingdisparitieswouldseemadauntingtask.Insomeareas,government-runretail,likegrocerystoresoperatedbythetownatcost,areappearinginAmericantowns,operatedbylocals.TheremayberoomformorepublicownershipoflocalretailfollowingthemodeloftheGreenBayPackers,theonlyNFLteamownedandoperatedbythepublic.Or,iflocalretailisunderstoodasapublicgood,itmightbeworththinkingdifferentlyabouthowitissupported.

Inanyevent,thisremainsapublicpolicychallengethatisripe

forfreshthinking. But letusnowleavebehindretailsalestoreturntothe1930s,andourpettopic,thetreatmentofmonopoly.

AlcoaandTheProblemofPersistentMonopoly

Theoriginaltrust-bustingeraofthe1900syieldedan

enforcementtraditionwithtwomaintargets.Thefirstwastheabusivetrust,exemplifiedbyStandardOil.ThesecondwastheMorganTrust--thatis,thefirmspecificallycreatedtomonopolizeanindustry.Yetstillunansweredwasthequestionofhowthegovernmentshoulddealwithadifferentkindofmonopolist—the“persistenttrust”:thefirmthatdominatesitsindustryfordecades,butdoesnothaveanobviouspileofcorpsesinitsbackyard.

Alcoawouldbecomethetestcaseforpersistentmonopoly.Co-foundedbyAndrewMellon,itwasoneofthefewsurvivorsofthefirstwaveofattacksonthetrust.That’snottosayitgotawayunscathed:inthe1900s,itsprice-fixingagreementswithforeigncartelsandexclusiveagreementswithpowercompaniesattractedalawsuitfromtheTaftadministration,butAlcoasettledin1912andavoidedabreakup.Bythe1930s,ithad,fordecades,heldontoapersistentmonopolyinaluminumproductmarkets—mostimportantly,“virginingot,”orrawaluminum,inwhichitheldapure(100%)monopoly.

TosayAlcoawasn’tobviouslyabusiveisn’ttosuggestthatitwas

universallyloved.AsMattStollerhighlightsinGoliath,Alcoa’sco-founder,AndrewMellon,wasasymbolofcorporatevillainy.39MellonservedasTreasurySecretaryforHerbertHooverandhadinitiatedwidelyunpopularbudgetcutsthathaddeepenedtheDepression.HealsoevadedtaxeswhileservingasTreasurySecretarybyfalselyclaimingtohavesoldstocks(ataloss)thathe 39Stoller,supranote19,at67-73.

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hadactuallygiventofamilymembers.“Alcoahadbecometheverymodelofindustrialconcentration,”GeorgeSmithwrites,“anditsprincipalownershadbecomeexemplarsofthekindofcorporatebaronythatseemeddistant,powerful,anddangeroustothepopularmind.”40AndrewMellon,meanwhile,wasthe“dourpersonificationofthepoliticalandsocialbankruptcyofcorporatecapitalism.”41

ThequestionposedbytheAlcoacasewasadifficultone:whatto

doaboutafirmthatdominatesanindustryfordecades,enjoysanuncontestedmonopolyposition,detersordefeatsanywould-becompetitor,allwithoutevidenceofwrongfulconduct?42Itisaproblemwecontinuetofacetodayinmanyareas.Manybroadbandprovidersseemtoenjoyalocalmonopoly.Isthatsimplysomethingthatmustbeacceptedlikeafactofnature,orshouldsomethingbedone?Googledominatessearchandsearchadvertising:whatofit?

ThepositionofamanlikeJusticeJohnMarshallHarlanwas

unequivocal:ifyouthinkofmonopolyitselfasascourgeandanevil,thenthelawshouldeliminateallmonopolies,notjustthosewithbadmanners.Hehasbeenjoinedinthisviewbysomeeconomists,likeNobelLaureateOliverWilliamson,whoagreeontheeconomicmerits.Ifmonopolyisbyitsnatureharmful,ataxonthepublic,thenwhocaresifthemonopolisthimselfisanangeloradevil?AsWilliamsononceputit,“[The]persistentdominanceofanindustrybyasinglefirmisnottobeexpected”andlong-term,sustaineddominance“shouldberegardedasanactionablemanifestationofmarketfailure.”43

Buttherehaslongbeenresistancetoactionagainstthe

“innocent”monopolist,orthetreatmentofmonopolyitselfasanoffense.Thelawyer’sinstinctrebelsagainstpunishmentabsentsomewrongfulact,anactusreus.Thebusinesspersonrebelsagainsttheideaofpunishingafirmforitssuccess.Hencetherehaslongbeensomeline,reflectedearlyoninTheodoreRoosevelt’sdistinctionbetweenthe“goodtrusts”andthe“badtrusts,”withevildoing,abuse,andpublicangerdrawingtheline.44Ofcourse,theselinesaresubjectivebynature:WilliamRandolphHearstoncechargedthatthe“goodtrusts”were“[those]thatpoliticallysupportedRoosevelt.”45 40GeorgeDavidSmith,FromMonopolytoCompetition:TheTransformationsofAlcoa,1888-1986,at196(1988).41Id.at198.42Contrarytoeconomiclogic,becauseclassiceconomicspredictsthatanundefendedmonopolistwillattractchallengersseekingprofitsavailabletothemonopolistandthuserodeitsmarketpower.43OliverE.Williamson,DominantFirmsandtheMonopolyProblem:MarketFailureConsiderations,85Harv.L.R.1512,1514(1972);Id.at1516.44TherewassupportforbothpositionsinthehistoryoftheShermanActitself.45WilliamRandolphHearst,TruthsAbouttheTrusts4(1916).

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Nonetheless,thereisapowerfulintuitiveappealtothegoodtrust/badtrustapproach.Manyofthefirmsthatachievemonopolyare,especiallyintheirearlyyears,magnificentoperations,anditmayseemthatdismantlingthemwouldbemoreofatragedythanavictory.Thejudgemightrefusetoconvictamanabsentwrongfuldeedsoranevilintent.Morepractically,theprosecutionofawidelybelovedbusinessmightbepoliticalsuicide.Hencetheinstincttodrawsomekindoflinethatdifferentiatesthebadmonopoliesfromthegood.

Jacksonpromptedareexaminationofthemonopolyquestion

whenhechargedAlcoawith130violationsoftheShermanActandsoughttodissolvethecompany.Heserved26defendantswithindictments,includingAndrewMellonhimself.InamemototheAttorneyGeneral,Jacksonwrotethathebelievedthata“100percentmonopolywiththeabsolutepowertoexcludeothersconstitutesanillegalmonopolyperseunderSection2oftheShermanAct.”46

Alcoaimmediatelyprotestedthatithaddonenothingwrong.

Callingitselfthe“mostinvestigatedcompanyinAmerica,”ittoldtheNewYorkTimesthatithadalreadybeen“cleared…ofanychargesofmonopolisticpractices”(inthe1912lawsuit)andthat“therearenobarstostayanyonewhowantstoengageinthemanufactureofvirginaluminum.”47IthadnotabuseditspoweroverthechannelsofcommercelikeStandardOilhad,andhadneversoughtextraordinaryprofitsbutmaintainedreasonableprices.Inotherwords,Alcoathoughtitselfinnocentandwasreadytofightitout.

Therewere,however,internationaldimensionstoAlcoathat

madeitmorecomplexthanthe“innocentmonopolist”storymightsuggest.ThegovernmentallegedthatAlcoamaintaineditsmonopolybyvirtueofworld-widecartelthatitmanagedthroughitsCanadiansubsidiary,whosepresident,EdwardK.Davis,wasthebrotherofAlcoachairmanArthurV.Davis.TheCanadianfirm,foritspart,waspartofanopen,andthen-legalSwisscartel,knownastheAllianceAluminiumCompagnie,whichrestrictedworldproductionandsetaglobalprice.Accordingtothegovernment,therewasadeal:inexchangeforAlcoanotinvadingEuropeanandJapanesemarkets,itscompetitorshadagreedtostayoutofAmericanmarkets,leavingAlcoaunmolested.

TheAlcoatriallastedformorethanfiveyears,produceda

58,000-pagerecord,andendedwithavictoryforAlcoain1941.The

46Pate,supranote20,at793(quotingMemorandumfortheAttorneyGeneralfromRobertH.Jackson,AssistantAttorneyGeneral2(Mar.16,1937)(onfileintheLibraryofCongress,ManuscriptDivision,Box77)).47MellonCompanyisSuedasAluminumMonopoly;ItsDissolutionisSought,N.Y.Times,Apr.24,1937,at1.

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trialjudge,JudgeCaffey,seemedtotakethecaseasaquestionofcorporatecharacter:adeterminationofAlcoawasagoodtrustorbad.Hebelievedthatthegovernmentneededtoshowsomethingmorethan“mere”monopolization,somethingwrongfulorbrutal,somethingmorethanjustafriendlycartelarrangement.Attrial,JudgeCaffey(describedbyTIMEas“bright-eyed[and]scrawny-necked”48)wasseeminglycharmedbyAlcoa’scharismaticchiefexecutive,andimpressedbythenumberofcustomersandcompetitorsAlcoawasabletoputonthestandto“praise[]itsfairnessaswellasitshelpfulness.”49Maybemostimportantly,CaffeydismissedtheinternationalcartelallegationbycreditingdenialsbyAlcoa’sCanadianPresident,whomhefound“reliable”and“candid.”50Tohismind,Alcoawasagoodcompany,runbygoodmen,andtherefore,evenifamonopolist,oneofgoodcharacterandhencenotanillegalone.Heannouncedhisjudgmentbyreadingitoutinopencourtoverthecourseofninedays.TosaythatthisdroveThurmanArnoldcrazywouldbeanunderstatement.

Arnoldfiledforanappeal,butjustaboutthen,theJapaneseNavy

bombedPearlHarborandeverythingwasputonholdforthewar.Overthe1940s,Alcoa’sprojectedimageofa“goodtrust”wasdamagedbyagovernmentinvestigationthataccusedAlcoaandotherfirmsofcomplicitywithGermanindustrypre-War,inwhatcriticscalledthe“peaceatDüsseldorf.”TheappealwasalsocomplicatedbythefactthatRobertJackson,whohadbroughtthecase,hadnowjoinedtheSupremeCourt,alongwiththreeotherlawyerswhohadbeenattheJusticeDepartmentduringsuitsagainstAlcoa.51Atthetime,thegovernmenthadthepowertoappealallantitrustcasesdirectlytotheSupremeCourt.Inahighlyunusualmove,Congressauthorizedthemostseniorjudgesofalowercourt,theSecondCircuitCourtofAppeals,toheartheAlcoaappeal,andthetaskofwritingtheopinionwasassignedtoitsmostfamousjudge,LearnedHand.

LearnedHandwas,atthetime,surelythemostdistinguished

juristnotontheSupremeCourt,andhisreputationasoneofthegreatestjudgesofthe20thcenturyhassurvived,ifnotgrown.Hewasaself-styledprogressive,andinthe1910shebackedTheodoreRoosevelt,whobythattimehadcometobelieveinregulatedmonopolyastheidealformofbusiness.Hand’sprivatelettersindicatedstrongpersonalmisgivingsabouttheAlcoacase,andevenperhapsaboutantitrustitself.Nonetheless,heandhisfellowjudges“strovetofulfillwhattheyregardedastheirdutytoapplythe

48Aluminum:JudgeCaffeySaysIt’sLegal,Time,Oct.13,1941.49UnitedStatesv.AluminumCo.ofAm.,44F.Supp.97,309(S.D.N.Y.1941).50Id.at282.51StanleyReedandFrankMurphywereinRoosevelt’sJusticeDepartment,andChiefJusticeHarlanStonehadrepresentedtheUnitedStatesagainstAlcoainthe1920s.

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ShermanActastheyperceivedCongresstohaveintended.”52Ashewroteinaninternalmemo:“Alcoahashadundisputedcontroloftheingotmarketfromthestart;ithaskeptitdeliberatelyandindeedinthefaceofsomeeffortstobreakin.Ifweholdthatitisnotamonopoly,deliberatelyplannedandmaintained,everyone…will,quiterightlyIthink,writeusdownasasses.”53

Handreversedthedistrictcourt’sdecisionandauthoredaclassic

opinionthatisamongthemostimportantinantitrusthistory.54Aswe’veseen,Alcoa’sdefensewasthatithaddonenothingwrong.Itarguedthat,evenifitheldamonopoly,itspriceswerefair,andtherewasnoeconomicharmtobeseen.Tothis,Handrespondedthat“[t]he[Sherman]Acthaswiderpurposes…Manypeoplebelievethatpossessionofunchallengedeconomicpowerdeadensinitiative,discouragesthriftanddepressesenergy;thatimmunityfromcompetitionisanarcotic,andrivalryisastimulant,toindustrialprogress;thatthespurofconstantstressisnecessarytocounteractaninevitabledispositiontoletwellenoughalone.”55

Thispoeticsentence,translatedintocontemporaryeconomic

language,stressesthedynamiccostsofmonopoly--thatis,thedeadeningimpactofmonopolyontheeconomy,amatterdistinctfromthethreatofhigherprices.Inotherwords,thecostsincludestagnationandlackofinnovation.Handwassuggestingthattheseeconomicills—resultingnecessarilyfromthemerefactofmonopolisticdomination—couldbethebasisforlegalaction.

Beyondthiseconomicpoint,Hand,returningtotheoriginsofthe

ShermanAct,repeatedthatithadpoliticalgoalsaswell.“Wehavebeenspeakingonlyoftheeconomicreasonswhichforbidmonopoly,”hewrote,“but,aswehavealreadyimplied,thereareothers,baseduponthebeliefthatgreatindustrialconsolidationsareinherentlyundesirable,regardlessoftheireconomicresults.”56Amongthosewere“adesiretoputanendtogreataggregationsofcapitalbecauseofthehelplessnessoftheindividualbeforethem.…Itispossible,becauseofitsindirectsocialormoraleffect,topreferasystemofsmallproducers,eachdependentforhissuccessuponhisownskillandcharacter,tooneinwhichthegreatmassofthoseengagedmustacceptthedirectionofafew.”57

52MarcWinerman&WilliamE.Kovacic,LearnedHand,Alcoa,andtheReluctantApplicationoftheShermanAct,79AntitrustL.J.295,304(2013).53Id.at295-96.54Hestatedthathepersonallydidnotthinkthecompanydeservedit,butthatitwould“makeanass”ofthesystemnottobreakupadominantmonopolylikeAlcoa.55UnitedStatesv.AluminumCo.ofAm.(Alcoa),148F.2d416,427(2dCir.1945).56Id.at428.57Id.at427-28.

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WasHandsayingthateverytrust,then,wasillegal—thateverymonopolywastobecondemned,asJusticeHarlanhadthoughtwastherealpurposeoftheantitrustlaw?Notquite:LearnedHandsustainedRoosevelt’solddivisionbetweengoodtrustsandbad,butdescribeditdifferently.58Asheputit,“[a]singleproducermaybethesurvivoroutofagroupofactivecompetitors,merelybyvirtueofhissuperiorskill,foresightandindustry.…Thesuccessfulcompetitor,havingbeenurgedtocompete,mustnotbeturneduponwhenhewins.”59

Butifheallowedfortheideaoftheinnocentoraccidental

monopolist,Hand,inAlcoa,madesureitwasanarrowcategory.Alcoahadkeptitsmonopolyfordecadesand,Handargued,useditssizetoensurenochallengerwouldgrowenoughtochallengeitsdominance.Ashewrote,“[Alcoa’s]size,notonlyoffereditan‘opportunityforabuse,’butit‘utilized'itssizefor‘abuse,’ascaneasilybeshown...[Alcoa]insiststhatitneverexcludedcompetitors;butwecanthinkofnomoreeffectiveexclusionthanprogressivelytoembraceeachnewopportunityasitopened,andtofaceeverynewcomerwithnewcapacityalreadygearedintoagreatorganization,havingtheadvantageofexperience,tradeconnectionsandtheeliteofpersonnel.”60Ultimately,nottofindAlcoaguiltyofmonopolizationwould“emasculatetheAct;wouldpermitjustsuchconsolidationsasitwasdesignedtoprevent.”6162

WithAlcoa,thebigcasetraditiontookanewstep:sustaining

monopoly(herecoupledwithenteringintoaforeigncartelagreement)wasnowaviolationoftheShermanAct.Thisviewisverysimilartotheviewthattakesmonopoly,byitself,asaplagueonthecompetitiveeconomy.ThejudicialelaborationofthisviewreacheditsfullestextentinthehandsofdistrictJudgeWyzanskiinthemid-1960s.Ashewrote,“MorethansevendecadesofShermanActenforcementleavetheinformedobserverwiththeabidingconvictionthatdurablenon-statutorymonopolies…are,toamoralcertainty,duetoacquisitionsofcompetitorsorrestraintsoftrade.”63

58Atsomelevel,HandwascompelledtofollowtheholdingofU.S.Steel,whichhadinsistedthatholdingsizeandpoweralonewasnotanoffenseandthatthereneededtobeanticompetitiveconducttoproveaviolationoftheShermanAct.59Id.at430.60Id.at430-31.61Id.at431.62WhilethegovernmentwonthecaseagainstAlcoa,ittechnicallydidnotbreakupthecompany,forthingshadchangeddramaticallybytheendofthelitigation.Bytheendofthewar,thegovernmentitselfhadbuiltitsownaluminumproductioncapacitiesthatamountedtotwothirdsofnationalproduction,andcompetitioninthemarketwasachievedbysellingwartimealuminumassetstoAlcoa’scompetitors.63UnitedStatesv.GrinnellCorp.,236F.Supp244,248(D.R.I.1964).

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Theyare,hewrote,“theachievementofthequietlifeaftertheenemy'scapitulationorhisdefeatiningloriousbattle.64

***TheWorldWarwasnowover,theUnitedStateswasatthepeak

ofitspowerandconfidence,andsupportfortheantitrustmovementwasatperhapsanall-timehigh.ThatreflectednotjustresistancetoAmericanbigbusiness,butthesensethatahorriblelessoninthedangersofmonopolyhadbeentaughtbytheThirdReichandtheJapaneseEmpire.Itistothoselessonsthatwenowturn.

64Id.TheSupremeCourt,affirmingthedecision,didnotendorsethepresumption.Instead,itstatedthefollowing,moreambiguousstandard:

Theoffenseofmonopolyunder§2oftheShermanActhastwo

elements:(1)thepossessionofmonopolypowerintherelevantmarketand(2)thewillfulacquisitionormaintenanceofthatpowerasdistinguishedfromgrowthordevelopmentasaconsequenceofasuperiorproduct,businessacumen,orhistoricaccident.

UnitedStatesv.GrinnellCorp.,384U.S.563,570-71(1966).

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