Antitrust and Economic History: The Historic Failure of the Chicago School of Antitrust

Published date01 September 2019
Date01 September 2019
Subject MatterArticles
Antitrust and Economic History:
The Historic Failure of the Chicago
School of Antitrust
Mark Glick*
This article presents an historical analysis of the antitrust laws. Its central contention is that the history
of antitrust can only be understood in light of U.S. economic history and the succession of dominant
economic policy regimes that punctuated that history. The antitrust laws and a subset of other related
policies have historically focused on the negative consequences resulting from the rise, expansion, and
dominance of big business. Antitrust specifically uses competition as its tool to address these prob-
lems. The article traces the evolution of the emergence, growth, and expansion of big business over six
economic eras: the Gilded Age, the Progressive Era, the New Deal, the post–World War II Era, the
1970s, and the era of neoliberalism. It considers three policy regimes: laissez-faire during the Gilded
Age and the Progressive Era, the New Deal, policy regime from the Depression through the early
1970s, and the neoliberal policy regime that dominates today and includes the Chicago School of
antitrust. The principal conclusion of the article is that the activist antitrust associated with the New
Deal that existed from the late 1930s to the 1960s resulted in far stronger economic performance than
have the policies of the Chicago School that have dominated antitrust policy since the 1980s.
Chicago School Economics, antitrust law, history of antitrust law, New Brandeis School, antitrust
economics, neoliberal economic theory
Antitrust policy has historically functioned as an integral part of a broader policy regime. These policy
regimes are associated with distinct ideologies, which have evolved during different economic epochs
in the United States. The assumptions of a prevailing policy regime guide individual actions and
analyses of economic problems, while alternative approaches outside this framework are typically
perceived as lacking in legitimacy. The struggle between different economic groups for political power
shapes the dominant ideology. Policies and the ideologies that support them evolve with the political
fortunes of such groups. Antitrust policy is not an exception. While advances in economic theory and
policy experience over time do influence antitrust, larger policy paradigm shifts are responsible for the
major disjunctions in antitrust theory and enforcement.
*Department of Economics, University of Utah, Salt Lake City, UT, USA
Corresponding Author:
Mark Glick, Department of Economics, University of Utah, 201 Presidents Cir., Salt Lake City, UT 84112, USA.
The Antitrust Bulletin
2019, Vol. 64(3) 295-340
ªThe Author(s) 2019
Article reuse guidelines:
DOI: 10.1177/0003603X19863586
Antitrust policy is part of a subset of policies (e.g., corporate law, labor legislation, and regulatory
law) focused on the perceived negative consequences attendant to the rise, expansion, and dominance
of big business. The hunt for ever-higher profits by big business has yielded significant economic
progress, but has also often spawned anticompetitive behavior, harm to the other classes in society,
including labor and small business, and created macroeconomic instability.
These forms of harm, as
Joseph Schumpeter observed, can result in suboptimal economic performance and the impairment of
democratic institutions.
For example, when big business prevents real wages from increasing, it can
erode economic incentives to innovate.
Antitrust has traditionally sought to protect and enhance the
competitive process as its policy tool to address such issues.
The first section of this article identifies six epochs in the economic history of the United States,
reflecting the milestones and transition periods in the development of antitrust law.
To be clear, this
article does not purport to fully address the economic history of these eras. Its principal objective is to
show that over these six economic epochs, there were three major policy regimes each reflecting quite
distinct antitrust approaches. Up to the Great Depression, policy in the United States was broadly
associated with laissez-faire consisting of an unmanaged economy and adherence to the gold standard.
Although several new antitrust statutes emerged under this policy regime, there was minimal antitrust
enforcement. This changed dramatically after the Great Depression. In the later part of the New Deal, a
new policy consensus emerged that included strong regulation of finance, income equalization, high
wages, support for unions, and strong antitrust enforcement. As detailed below, this new policy regime
coincides with the greatest period of economic growth and prosperity in U.S. history. During the crisis
of the 1970s, neoliberalism rose to policy prominence. This new policy regime expressed confidence
that the unfettered actions of big business would result in positive economic outcomes for everyone.
The Chicago School of antitrust is an integral part of the neoliberal policy program. This policy regime
has resulted in significantly inferior economic performance compared with the New Deal policy that it
I. The Periodization of Antitrust History
This section introduces the long-term data series of the rate of profit in the United States from 1869 to
2015 as a device to help illustrate the periodization of antitrust history.
The periodization adopted here
1. For an economic model and evidence on this point, see eRARD DUM´eNIL AND DOMINIQUE LEVY,THE ECONOMICS OF THE PROFIT
RATE, Chs. 11 and 12 (1993); G´erard Dum ´enil & Dominique Levy, Profitability and Stability, in PROFITS,DEFICITS AND
INSTABILITY (D.B. Papadimitriou ed., 1992).
2. JOSEPH SCHUMPETER,CAPITALISM,SOCIALISM AND DEMOCRACY 76 (1950) (“But between realizing that hunting for a maximum of
profit and striving for maximum productive performance are not necessarily compatible ....”).
3. Economists as diverse as John Hicks and Karl Marx have recognized the notion that high wages create incentives to innovate.
JOHN HICK,THE THEORY OF WAGES 124–25 (1932); KARL MARX,CAPITAL VOL I (1971) ch. 15, § 3. See, e.g., H. J. HABAKKUK,
ALLEN,GLOBAL ECONOMIC HISTORY:AVERY SHORT INTRODUCTION 33 (2011). G´erard Dum´enil & Dominique Levy, A Stochastic
Model of Technical Change, Applications to the U.S. Economy (1869-1985),46M
ETROECONOMICA 213 (1995); G ´erard
Dum´enil & Dom inique Levy, Competing Factors in Inducement of Technical Progress (CEPREM AP Working Paper,
563 (2016); Lance Taylor & Ozlem Omer, Race to the Bottom: Low Productivity, Market Power, and Lagging Wages (INET
Working Paper No. 80, Aug. 8, 2018), at 5. Additional references can be found in VERNON RUTTAN,ISWAR NECESSARY FOR
4. The dating of these economic epochs derive from an earlier paper, G´erard Dum´enil, et al., The History of Economic Policy as
Economic History,62A
NTITRUST BULL. 373 (1997). I have made modifications to this earlier periodization in order to capture
the changing antitrust policy approaches.
5. The data come from G´erard Dum ´enil & Dominique Levy, The historical trends of technology and distribution in the U.S.
economy. Data and figures (since 1869), 2016; Appendix 1 reproduces these data.
296 The Antitrust Bulletin 64(3)
consists of six periods: the Gilded Age, the Progressive Era, the New Deal,
the post–World War II
golden age of capitalism,
the crisis of the 1970s, and the age of neoliberalism which encompasses
the present.
One can identify in Figure 1 the six major periods used in this article. From 1869 to the turn of the
20th century, there is a dramatic fall in profitability. It was the period of the emergence of big business,
their struggle to contain “ruinous competition,” the rise of the trusts, and the Sherman Act response.
After 1900, the profit rate stabilizes, as the corporate and managerial revolutions unfold, along with the
Progressive Era effort to revise and supplement the Sherman Antitrust Act. At the end of the 1920s, the
Great Crash occurred, attributable in part to the instability that accompanied the rise of large, highly
managed, and interconnected firms. At the bottom of the Depression (1933), a new policy regime
emerged with the New Deal, replacing the pre–Depression laissez-faire policy. The New Deal policy
Figure 1. Rate of profit in the United States. Source: G. Dum´
enil and D. L´
evy, “The historical trends of
technology and distribution in the U.S. Economy. Data and figures (since 1869)”. See Appendix 1.
6. I will also refer to the New Deal period as the “great leap forward” as used in ALEXANDER FIELD,AGREAT LEAP FORWARD:
1930s DEPRESSION AND U.S. ECONOMIC GROWTH (2011); and adopted by GORDON,supra note 3.
7. I will refer to this period as simply the “golden age of capitalism,” following Field and Gordon.
8. The reason that I have chosen the rate of profit is because it reflects the most important measures of economic performance
and itself is the goal of firm performance. The rate of profit is the ratio of firm profits (the numerator) and the stock of
equipment and structures or the capital stock (the denominator). In the figure, profit variable is defined as Net National
Product less total compensation, this yields a measure of total profit that includes interest and indirect taxes. The rate of profit
can be divided into the share of profit, p/y, where “y” represents national income, and the capital to output ratio, k/y, which is a
(inverse) measure of the productiveness of capital assets and a function of innovation. This can be seen from the following
equation: ðP=KÞ¼ðP=YÞðY=kÞ:Over most of U.S. history (until the late 1970s), the profit share was roughly constant.
The rate of profit tends to measure the dynamic efficiency of the U.S. economy. To be clear, we need to focus only on long
run changes over say, a decade or more. This is because short-run changes over the business cycle influence output, the
variable “y”. The vertical axis on Figure 1 represents the percent rate of profit, and the horizontal axis are years.
9. Source: Appendix 1.
Glick 297

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