As rival antitrust catechisms contest over the one true creed (Neo-Chicago, Post-Chicago, Behavioral, Game Theoretic), as the eternal quest continues for the single economic construct capable of scientifically settling all antitrust issues (allocative efficiency, consumer welfare, wealth transfers), and while econometricians battle in court wielding hyper-sophisticated statistical techniques drawn from n-space, this conference affords an opportunity to recall that the crux of the antitrust problem is private economic power and its destructive consequences in a free society. In fact, recognition of this problem, and of the vital role of antitrust policy in combating it, comprises what can be called the lost vision of an economic conservatism from the heartland.
This certainly was the case for Senator John Sherman, rock-ribbed Republican from Ohio, along the eastern edge of the nation's middle border. In a major speech delivered in the Senate advocating passage of what would become the Sherman Antitrust Act, he pointed out that "the popular mind is agitated with problems that may disturb social order, and among them all none is more threatening than the inequality of condition, of wealth, and opportunity that has grown within a single generation out of the concentration of capital into vast combinations to control production and trade and to break down competition." (1) The problem, as he saw it, struck to the foundation of the traditional American fear of power and its abuse: "If we will not endure a king as a political power," he thundered, "we should not endure a king over the production, transportation, and sale of any of the necessaries of life. If we would not submit to an emperor we should not submit to an autocrat of trade, with power to prevent competition and to fix the price of any commodity." (2)
But, the most incisive articulation of this traditional conservative fear of economic power, the menace it poses in a free society, and the challenge of neutralizing and containing by promoting a decentralized economic system of competitive checks and balances came four decades later from the citadel of economic conservatism--at the geographic epicenter of the heartland.
HENRY SIMONS AND A CONSERVATIVE CASE AGAINST ECONOMIC POWER
Henry Simons has been called the "Crown Prince" of the Chicago school of economics. (3) Born in downstate Illinois, his professional life from 1928 until his death in 1946 was spent at the University of Chicago. (4) At the University, he taught economics and law, and wrote a series of articles commencing in the 1930s, which were posthumously published in a 1948 collection, Economic Policy for a Free Society. (5)
Simons's conservative economic credentials were impeccable. Profoundly skeptical of the New Deal policies and new Keynesian macroeconomic theory of his day, he condemned such government programs for amounting to a "promiscuous spreading of governmental activities ... in a mass of miscellaneous undertakings for which [government] has little competence...." (6) They invited endless government borrowing and debt, raised interest rates for the private sector while draining investment funds from it, () and they bought votes in the present at the cost of greater government debt and inflation in the future. (8) As for monetary policy, Simons advocated a strict fixed rule governing the money supply in order to avoid "discretionary (dictatorial, arbitrary) action" (9) by an independent, powerful, and unpredictable central bank. (10) Imbued with classical liberalism, he considered individual freedom the prerequisite for, and ultimate measure of, human progress, and its preservation and promotion the lodestar for all economic policymaking. (11)
Throughout, however, Simons considered private economic power to be as great a threat as government power to a free society and a free economy, both in narrow, conventional microeconomic ways, as well as in more fundamental, more far-ranging "macro" ways. As he saw it, "the great enemy of democracy is monopoly, in all its forms: gigantic corporations, trade associations and other agencies for price control, trade-unions--or, in general, organization and concentration of power within functional classes." (12)
At the micro level, Simons identified the problems of economic power as: (1) the conventional ones of artificially inflated prices (and wages in the case of labor unions), (2) the resulting misallocation of resources due to artificially reduced consumption, production, and investment, and (3) waste and bureaucratic inefficiency. Every economic power bloc strives to "guard itself against the competition of newcomers (new enterprise and new investment, and new workers) and to advantage itself at the community's expense by increases of prices and wages and curtailment of output and employment." (13) Simons saw the goal of monopolists "to prevent such influx of resources as would bring the monopolized industry down to the common level." (14) This goal results in the "exclusion of available resources for uses which, on the market-value standard, are more important, and, therefore, means diversion of resources to less important uses." (15)
With the exception of the public utilities, Simons rejected concentrations of economic power as being dictated by any efficiencies of large-scale organization: "[flew of our gigantic corporations can be defended on the ground that their present size is necessary to reasonably full exploitation of production economies," he observed. (16) Instead, they were the result of "corporate imperialism run mad, of the fantastic, monstrous aggregations of businesses which ... we mistakenly regard as monuments to our economic efficiency." (17) He asserted that
[t]he afflictions of bureaucracy and ossification fall no less surely on vast private than on governmental enterprises. The efficiency of gigantic corporations is usually a vestigial reputation earned during early, rapid growth--a memory of youth rather than an attribute of maturity. Grown large, they become essentially political bodies, run by lawyers, bankers, and specialized politicians, and persisting mainly to preserve the power of control groups and to reward unnaturally an admittedly rare talent for holding together enterprise aggregations which ought to collapse from excessive size. (18) With regard to oligopoly and market dominance by a few, he considered it "a hopeless task to prevent effective collusion in industries dominated by giant enterprise aggregations with vast concentration of financial power." (19)
But, in a representative democracy, Simons saw economic power as having deeper, wider, far more serious pathological consequences.
Economic power blocs--business and labor alike--were in a position to engage in sabotage and to hold society hostage to their self-aggrandizing demands, jeopardizing the viability of the entire economic and political system in the process. "In an economy of intricate division of labor," he explained, "every large organized group is in a position at any time to disrupt or to stop the whole flow of social income; and the system must soon break down if groups persist in exercising that power or if they must continuously be bribed to forgo its disastrous exercise." (20) As such, these groups wield "tremendous power for exploiting the community at large and even for sabotaging the system." (21)
Moreover, economic power blocs coalesce, and cooperate, to reinforce and enlarge their influence and control. Simons considered this to be the case in labor markets: "Popularly regarded and defended as counterpoises to industrial concentration or enterprise monopoly, unions in fact serve mainly to buttress effective monopoly in product markets where it already obtains and to call it into existence when it does not." (22) In the bargaining between powerful employer groups and powerful labor organizations, he pointed out, they "will contest over division of the swag," but their larger common interest is against the community, and "every increase of monopoly power on one side serves to strengthen and implement it on the other." (23)
Inevitably, these economic power complexes reach out to manipulate the state and pervert government policy to support and defend their monopolistic schemes and, in the process, undermine the legitimacy of democracy itself. Producers, Simons wrote, "are, from a political point of view, organized, articulate groups; and it is in the nature of the political process to conciliate such groups", while "consumers are unorganized and inarticulate, and, representing merely the interests of the community as a whole, they always will be." (24) Because of this, the gains from monopoly in a representative democracy tend to "accrue ,predominantly to the strong and to be derived at the expense of the weak." (25) An insidious longer-run consequence occurs as monopolists "run to the government for protection from any threat...." Simons further notes, "every suppression of competition gives rise to an apparent need for regulation; and every venture in regulation creates the necessity of more regulation; and every interference by government on behalf of one group necessitates, in the orderly routine of democratic corruption, additional interference on behalf of others." (26) The result is "degradation of democratic government in the promiscuous dispensation of special privileges and immunities to organized, articulate producer minorities[,]" (27) while the longer-run drift is toward political organization along functional, occupational lines--into a miscellany of specialized collectivisms, organized to take income away from one another and incapable of acting in their own common interest or in a manner compatible with general prosperity." (28) The trajectory points toward "an enterprise economy paralyzed by political control" and "the moral disintegration of representative government in the endless contest of...