Sunday, May 07, 2023

Trusts and Trustbusters

By Douglas V. Gibbs
Author, Speaker, Instructor, Radio Host

Excerpt from my new book coming this Summer: A Promise of Truth Self-Evident - History of the United States of America.


The American Revolutionaries fought against mercantilism that manifested when English merchants used their influence on the British Parliament to ensure laws that protected their commercial interests were passed.  With the advent of the innovations and inventions of the late nineteenth century the methods of managing business and manufacturing evolved as well.  The railroad business managers worked together to reach their goals, and used government to ensure their lines were united and ran from ocean to ocean.  Other businessmen followed the model provided by the railroads, forming agreements with their rivals commonly called “trusts.”  The agreements, since they diminished competition or rivalry among businesses, allowed the trusts to fix prices as they pleased.  The trusts claimed their aim was to introduce more economical methods of conducting business, and once their enormous fortunes were established they used their power of wealth and strategic connections in government to influence the law so that laws could be made in their favor.  The formation of trusts controlled the railroad lines, iron and steel, tobacco, petroleum, meat, sugar, cotton, leather, and other industries. 

John D. Rockefeller formed the first trust in 1882 with the establishment of the Standard Oil Company.  With the dependency on oil for the daily existence of families and businesses increasing across the country, and throughout the world, the trust formed by Rockefeller forced consumers to pay whatever price he wanted to charge for his oil.  The trust had eliminated all competition, pulling the entire industry under one umbrella.

The Sherman Antitrust Act in 1890 signed by President Benjamin Harrison outlawed trusts and monopolies.  However, Rockefeller and other wealthy men in the country used their money to contribute to political campaigns, which led to the government being reluctant about enforcing the Sherman Antitrust Act.

President Theodore Roosevelt campaigned that he would enforce the Sherman Act with regularity.  He became known as the “trust-busting” president.  More than forty lawsuits were launched against companies, but Roosevelt was more interested in regulating trusts rather than dissolving them.  He believed there were good trusts and bad trusts, and through government regulation they could be dealt with on an individual basis.  Congress did not agree.

The history that we have been provided has placed all of the blame of the problems we see with big corporations, crony-capitalism, and corporatism that reminds us a lot of British mercantilism that we fought a revolutionary war to get away from, on the rise of big businesses, and powerful, wealthy business tycoons who cared more about profit than the well-being of the average citizen.  Then, government came to the rescue to save the people from predatory business practices.  “Power to the People.”

Except, there’s more to the story than meets the eye, as are the usual tendencies of history.  While in the end the partnership between government and big business became a problem, and remains a problem in today’s society, one has to ask, which came first, the chicken?  Or, the egg?

America, at its founding, believed in two very specific principles.  A consolidation of any power in any one location is dangerous and must not be allowed, hence the limitations on the federal government and the move away from democracy towards republicanism; and laissez-faire, which is a principle based on the idea that things must be left to follow their own course without government influence, collusion, or control.  Trusts challenged both principles.  Trusts were a consolidation of business power, seeking control over the market, and a squashing of any competition that dared to rise up against it.  But, if government got involved and did what it could to regulate business activity to ensure that the trusts did not become too powerful with monopolies and predatory business practices, the government would be violating the concept of laissez-faire, and in the process likely encourage, since the arrogance and search for power is always present among statists who sit in government offices, collusion and interference that mirrors the sins of mercantilism which we fought an American Revolution to get away from.

Theodore Roosevelt ran on using the federal government to take charge of the out-of-control situation by regulating the huge trusts that many believed were in the pockets of many politicians.  Roosevelt believed monopolies were a detriment to the economy, and to society as a whole.  He was not going to stand by and let American citizens be abused and overcharged by predatory "Robber Barons."

The progressive view of history, which is happy to use the popular term “Robber Barons” when conveying their message about the time period around the turn of the twentieth century, is partly right, and partly wrong, in the explanation.  Two kinds of business developers existed at the time (and in today’s market, one might observe) “market entrepreneurs” and “political entrepreneurs.”  As explained earlier chapters, the beginnings of the business titans of the era reveal that characters like Rockefeller, Carnegie, Dow, Vanderbilt, and even J.P. Morgan, were market entrepreneurs that had found their niche, and were very good at it.  Early on making a comparison of these businessmen to the robber barons of the medieval period would not be accurate.  “Robber Barons,” or “political entrepreneurs,” seek and obtain wealth through using coercion through their partners in government.  They become subsidized by government, were sometimes granted a monopoly status by government, and they would encourage political officeholders to provide legal support that might, for example, discourage competition by market entrepreneurs who may be challenging levels of profit. 

An honest examination of history reveals that while the Whigs and early Republicans like Abraham Lincoln, claimed to be “pro-business,” through policies such as subsidies, grants of special privileges, protective tariffs, and governmental interference through slanted regulatory practices, they promoted collusion between government and the businessmen who were willing to sell their soul to government interference, which eventually leads to the destruction of the private sector.  The practices of the Whigs and nineteenth century Republican Party led to an unholy relationship between business titans and government that would eventually bring into the picture central planning, and a host of restrictions upon competitors who either refused to play along, or were from foreign markets.  In the grand scheme of things the collusion between big business and government created an environment that quelled innovation while encouraging incompetence.  As the incompetence and dirty dealings without fear of government reprisal arose, the people began demanding more control over the big bad businesses, and the government was happy to oblige with increased regulations, and increased central government planning regarding the industry.  If such practices continue, they can ultimately lead to a government takeover of industrial operations.  The government blames big business for misbehaving, and then arrogantly takes control of them with a promise of order, when it was them who caused the problem in the first place.  Once in control of the industries they drive them into the ground; sort of like the federal government did to the South after the War Between the States.

Theodore Roosevelt, in obedient Hamiltonian and John Marshall fashion, during his final State of the Union address in 1908, said that he firmly believed the way to prosecute trusts, despite arguments by his opponents that the federal government had no authority to regulate the business sector in the manner Roosevelt had been pursuing, was by using the Commerce Clause.

The Roosevelt Presidency produced the Hepburn Act, the Pure Food and Drug Act, the Federal Meat Inspection Act of 1906, and the Elkins Act.  Each increased federal regulatory control over the business sector.

In his autobiography, Roosevelt explained, “I have always believed that it would also be necessary to give the National Government complete power over the organization and capitalization of all business concerns engaged in interstate commerce.”

Antitrust legislation and judicial rulings destroyed Pan American World Airways by disallowing the acquisition of domestic routes which deprived it of “feeder traffic” for its international flights.  Federal antitrust control restricted IBM for thirteen years because it possessed 65% of the computer market, and the federal government did not back off until it had been eclipsed by its competitors.  The policy of General Motors going back to 1937 was to purposely limit its growth for fear that if the company surpassed 45 percent of the automobile market, antitrust prosecution would commence against them.  Could the self-imposed restrictions be a part of the reason American companies lost so much market share to the Germans and Japanese over the last sixty years?

Why would America punish its own businesses for being the best in their industries?

This is not to suggest that the opposite should be the norm, and that the business sector should be essentially the wild-wild-west without any kind of regulations or restrictions.  The U.S. Constitution was written based on the idea of moderation, compromise, and a diverse distribution of power.  But, if the federal government is going to be getting involved in placing restrictions and control over the business sector, the commerce clause is not sufficient authority; an amendment must be proposed and ratified by three-quarters of the states providing authority for domestic activity regarding private businesses if the federal government is going to act clearly in a constitutionally authorized manner on the issue.

It is difficult to judge how much damage the economy has suffered from federal intrusion into private industries.  Even the wickedness of a powerful player in the corporate world is subject to be challenged in a free market where subsidies and special privileges by government are not given, and the red tape to go into business to challenge the corporate giants is a minimal obstacle.  When given the chance to operate without government interference, laissez-faire economics works wonderfully.  Rivals battle for position, driving down prices and driving up quality.  Eventually, large corporations make a misstep, and their smaller rivals attack, and absorb the pieces like vultures in the desert.  Then, a new top player rises to the top.  The new top dog remains a consumer favorite for a while, then becomes too big for its britches, and the consumers once again vote with their dollars, and the next rival jumps into place.  It is not constitutional, or within the realm of American principles, to allow the players to use government to punish and break up their efficient competitors.  The irony regarding the whole thing is that the federal government claims it is protecting the American People from the greed and power of monopolies, but in the place of the monopolies is the federal government, the most powerful and unbending monopoly ever to exist.

In 1914 the Woodrow Wilson administration established the Federal Trade Commission tasked with protecting the public from unfair business practices.  As trusts became a thing of the past, corporations emerged providing a method of limiting the liabilities of a company, and consolidating power in a different name.  The first corporation established in this manner was U.S. Steel by J.P. Morgan on March 2, 1901.  The corporation was formed by a merger of Andrew Carnegie’s “Carnegie Steel Company” with Elbert H. Gary’s “Federal Steel Company” and William Henry “Judge” Moore’s “National Steel Company.”

Franklin Delano Roosevelt commented, “A nation must believe in three things.  It must believe in the past.  It must believe in the future.  It must, above all, believe in the capacity of its own people so to learn from the past that they can gain in judgment in creating their own future.”

The triumph of American industry led to the United States becoming the world’s leading economic power.  During the late nineteenth century entrepreneurs were encouraged by the fact that government remained limited, and remained largely out of the way.  When slavery was abolished, so was the income tax.  There was no direct tax against wages from 1872 (the year Lincoln’s income tax was determined to be unconstitutional) to 1913 (the year the Sixteenth Amendment was ratified, which began the process of reinstituting a direct income tax against Americans).  Federal spending was between three and four percent of the Gross Domestic Product (GDP).  Federal budgets enjoyed surpluses every year.  And industry innovated and grew in a manner never seen before in history.  When the federal government embraced liberty by staying out of domestic affairs and internal economic issues it created more freedom and a stable marketplace which entrepreneurs excelled in.  During the “Gilded Age” politicians had learned from their mistakes.  Federal subsidies for steamships and railroads dismally failed.  Politicians realized the freer the market, the better the economic development.  The rise of business titans like Rockefeller, Carnegie, Charles Schwab, and Vanderbilt validated the concepts of limited government and laissez-faire.  Historically, it is easy to see that American economic progress is hampered when the government intervenes with tariffs, high taxes, anti-trust prosecution, and over-regulation.  While political entrepreneurs may succeed for a season through federal aid and mercantilist legislation, market entrepreneurs who avoid subsidies and create better products at lower prices are the true engine that fires up America’s economic engine.  Not all entrepreneurs are “Robber Barons,” even if they are successful and grow to a very large size.  Large corporations are not the problem.  Large corporations who collude with other powerful corporate entities, or collude with government (or both) are the problem.  Even then, the way to end the cycle of evil among corporate giants is not to use government intrusion to save us from greedy businessmen, the solution is found in the pockets of consumers, and how they decide to spend their money in the marketplace.

If we continue to allow the federal government to insert its regulatory control mechanisms into the free market, and control the means of production and the movement of products and services in the name of saving the consumers from predatory wealthy corporate giants, at what point does our American System become no different than that of a fascist or communist regime which maintains total control over domestic markets and industries through governmental ownership or heavy regulatory imprisonment?

-- Political Pistachio Conservative News and Commentary

No comments: