In May 1935, Louis Brandeis spoke some of his most famous words, not in testimony to Congress or in a Court opinion, but rather in a personal message to Franklin Roosevelt. A unanimous Supreme Court had just declared a key program of the early New Deal unconstitutional.1 Meeting afterward with one of the president’s aides, Brandeis wanted to make sure Roosevelt fully understood the decision.
“This is the end of this business of centralization,” Brandeis said. “I want you to go back and tell the President that we’re not going to let this government centralize everything. It’s come to an end. As for your young men, you call them together and tell them to get out of Washington—tell them to go home, back to the states. That is where they must do their work.”2
What so enraged Brandeis was the National Industrial Recovery Act (NIRA). Entering the White House at the worst period of the Great Depression, Roosevelt had carried into office an unwieldy alliance. This included many officials who viewed the world through the lens of Wilson and Brandeis and who believed the main challenge was to break any concentration of private or public power that threatened liberty and democracy. It also included a number of officials who, in the tradition of Theodore Roosevelt and Herbert Croly, promoted what at the time was often called “overhead control” of the economy.3 This second group was led by a Columbia University economist named Rexford Tugwell, a strong advocate of using the state to radically restructure social and economic relations. Indeed, Tugwell had traveled to the Soviet Union in 1927 in large part to study the Communist regime’s political economy.
As one leading historian of the New Deal, Arthur Schlesinger Jr., later wrote, the result was a “struggle between the social planners, who thought in terms of an organic economy and a managed society; and the neo-Brandeisians, who thought in terms of the decentralization of decision and the revitalization of choice.”4
What the planners had come up with in the NIRA was a scheme for direct government control over pricing, wages, and production levels for almost every industry in America. When Brandeis promoted trade associations in the 1910s and 1920s, his vision was that they be governed by their members. The NIRA planners’ version, by contrast, called for top-down direction of these businesses through government-run cartels, whose diktats would be enforced by fines and other punishments. Their immediate goal, the planners said, was to engineer commercial interactions in ways that would somehow create inflation and thereby drive the economy out of depression. In the specific case that the Supreme Court had ruled on, A.L.A. Schechter Poultry Corp. v. United States, the federal government had brought a long list of charges against a small New York company for how it slaughtered and sold chickens and treated its employees. The rules that Schechter had allegedly violated had been published as the Live Poultry Code of the NIRA.
The Court found that the president did not have authority to establish such rules in the first place, and that even if he did, Schechter was simply too small and too local for any such federal rules to apply. The NIRA as a whole thus represented a dangerous centralization of power in the federal government. Not only was the Court’s decision unanimous, but Brandeis—whom Roosevelt worshipped—was adamant that the NIRA betrayed the vision of political economics Wilson and he had promoted in the New Freedom. And, for that matter, what the founders had established in the earliest days of the Republic.
Of all the myths in American history, none is stronger than that the New Deal was mainly a project to impose top-down, command-and-control systems on American society. To be sure, the American people did ask the federal government to assume new responsibilities, such as providing old-age insurance and—for a short period of time—temporary jobs for unemployed men. (Roosevelt’s predecessor, the Republican Herbert Hoover, had experimented with similar programs, albeit implemented at the state level.)
In fact, Schechter marked the end of almost any real effort by the administration to concentrate economic power or control. From this point on, Roosevelt directed the New Deal to reinforce, expand, and complete the work that Wilson and Brandeis had begun in 1912, hence what the populists had begun in the 1890s. The true history of the New Deal, in other words, is of the distribution of power, opportunity, and property, on a plan almost entirely in keeping with the principles of the New Freedom and the founding. As in the first days of the Republic, citizens had no qualms about using government to regulate corporations, banks, financial and commodity markets, even land use. But they did so in ways designed to promote the liberty of the individual and the independence of the local community.
Tugwell, in the mid-1950s, still bitter over his failure, took a last swipe at his opponents. Roosevelt, he wrote, had rejected “modernism” in favor of an “atomism” based on the antique idea that “make them all little and all would be safe.”5 Yet it would be a mistake to see Brandeis’s stance, or Roosevelt’s, as in any way shaped by a romantic view of some better past. It was based, instead, on a highly realistic appraisal of human nature, directly in the tradition of James Madison. Brandeis and his allies, just as in their 1912 fight against Teddy Roosevelt’s corporatism, saw the combination of private monopoly and public power as a direct threat to democracy. As Schlesinger put it, the populists believed that it was Tugwell and his allies who were “hopelessly naïve.”6
Once again, the American System of Liberty had been put to the test, and once again the American people withstood the challenge of concentrated power. Even at this most desperate moment in the worst economic crisis in the nation’s history, citizens retained full faith in the American System of Liberty, with its checks and balances and careful distribution of power. And for 50 years to come, right through a series of new challenges—posed by a cataclysmic Second World War, the nuclear threats of the Cold War, and a racial and social crisis at home—the foundations would hold.
Franklin Roosevelt is often described as a pragmatist, a leader who did not so much wield an ideology as simply exhibit a willingness to test one idea after another until something worked. And certainly, compared to Woodrow Wilson—who published five scholarly books, including major studies of constitutional government—Roosevelt did not fit the mold of a traditional intellectual.
Unlike Wilson, however, Roosevelt had been extensively schooled in real-world power and policy. This included an intimate knowledge of American finance and American financiers. Much of this was from personal experience. Roosevelt could trace his mother’s family to the Mayflower, and his father’s to 1650s New Amsterdam, and the great wealth he inherited came from banking, shipping, sugar growing, Manhattan real estate, and trade with China.7
Roosevelt’s knowledge also came—after he opted not to go into any of the family businesses or his own original plan to work in admiralty law—from extensive public service both in the federal government and in New York state politics. He served as assistant secretary of the Navy through the entire Wilson administration, overseeing a vast workforce and complex contracting procedures during the First World War. Then as governor of New York he ran America’s largest and most complex state government in the days and months immediately after the devastating crash of 1929.
To the extent Roosevelt had developed a practical vision of political economics by the time he entered the White House, it was the traditional democratic republican belief that banks and corporations exist ultimately to serve the public interest.
Indeed, Roosevelt had already proved highly adept at bending the actions of corporate executives to the will of the people. He did so most dramatically in 1919 when, in order to develop a modern radio system for the U.S. Navy, he forced General Electric, Westinghouse, and AT&T to combine their radio patents with those of the American Marconi Corporation in a new enterprise known as the Radio Corporation of America, or RCA.8 During his time in Washington, Roosevelt was also exposed to many other experiments in the use of the federal government to harness and neutralize the power of business without destroying all the incentives that led private people to invest money in a particular venture. This included the wartime nationalization of America’s railways and telephone system and the use of the War Industries Board to force businesses to modernize and expand their factories and sometimes to coordinate their activities with one another.9 Later, in Albany, it included a close education in the ways that utility monopolies price electricity and restrict the development of new generation and distribution systems.10
While in Washington, Roosevelt also came to know many of the main actors in both the New Freedom and the New Nationalism camps.11 In part, this was due to the fact that Wilson himself, during the 1916 election, had welcomed many of the veterans of Theodore Roosevelt’s Bull Moose Progressive campaign of 1912, with its focus on centralization of the political economy, into the Democratic Party. Even though many retained their centralizing instincts, without the autocratic and self-admiring Teddy Roosevelt riling them up, these intellectuals seemed far less dangerous to the Republic.
By 1933 Franklin Roosevelt was also intimately familiar with the practical uses of populism. This was true of the intoxicating political qualities of the 190-proof “soak-the-rich” language of men like Louisiana governor Huey Long. And it was true of the more sober structural policies of Wright Patman, a congressman from rural Texas who in addition to fighting for the pensions of soldiers and impeaching Herbert Hoover’s treasury secretary Andrew Mellon helped to draft some of the more complicated antitrust legislation in American history (as we will discuss shortly).
When Roosevelt entered the White House in 1933 he brought both groups in tow, along with a reputation for giving both a lot of rope. Indeed, even as Roosevelt was signing off on what would become the NIRA, he was also siding very dramatically with the populists on how to deal directly with the money power itself.
We see this perhaps most dramatically in the very first days of his presidency. The Hoover administration had recently bailed out many bigger banks, and the office that Hoover had created to oversee that task—the Reconstruction Finance Corporation (RFC)—now proposed the permanent closure of more than 2,000 smaller banks that remained shuttered, mostly in rural areas. Jesse Jones, the Texas banker whom Roosevelt had appointed to run the RFC, said it would be more “efficient” to allow “larger bank chains with more capital to establish branches in their place.”12
Roosevelt, however, forced Jones to develop a plan to bail these smaller banks out as well.13 And this model almost immediately became a main part of the New Deal. In the years to come, even at the height of the NIRA’s power, the RFC would provide emergency loans to small credit unions, building and loan associations, industrial banks, land banks, farm cooperatives, and insurance companies.14
Early on, Roosevelt made other high-profile decisions to expand and federalize control over certain activities, such as by creating the Civilian Conservation Corps and the Civil Works Administration to improve on Hoover’s work programs. But the list of actions we normally associate with the New Deal is made up mainly of efforts to carry the basic principles of the New Freedom into specific sectors of the American political economy. All were passed in tandem with a Democratic Congress generally loath to embrace any idea from the command-and-control wing of the administration. Most used the power of the federal government to structure markets in ways that helped the independent businessperson and farmer rather than the speculator and financier, and generally in ways that shifted power away from Washington to regulators in the state capital and the town hall.
Their resolutions include the Glass-Steagall Act to separate investment banking from commercial banking, the Securities Act of 1933 and the Securities Exchange Act of 1934 to govern trade in stocks, and the Commodity Exchange Act of 1936 to govern trade in agricultural futures. They include the Public Utility Holding Company Act of 1935, which broke up the entire electrical industry of the United States along state lines, and the Rural Electrification Act of 1936, which provided loans to the new cooperatives now able to compete. They include the Agricultural Adjustment Act of 1933, which introduced a system of supply management into farming and much stronger enforcement of antitrust law against slaughterhouse corporations and grain traders.15 And they include the Motor Carrier Act of 1935 and Civil Aeronautics Act of 1938 to promote constructive competition in the trucking and airline industries. They include the Communications Act of 1934 to rein in the power of private broadcasters and to promote locally controlled and locally oriented news and information. And they include the National Housing Act of 1933, with its aim to protect the mortgage of the independent homeowner. They also include the National Labor Relations Act of 1935 to make it easier for workers to form unions and to protect their skills and to win better pay and benefits.
Perhaps most tellingly, they include increasing the number of antitrust lawyers at the Justice Department from 60 to more than 600.16
Importantly, the list also includes the adoption of more inflationist monetary and fiscal policies, such as those widely associated with the famous British economist John Maynard Keynes, who strongly urged governments to spend their way out of the Depression. “The second New Deal,” Arthur Schlesinger Jr. later wrote, “was eventually a coalition between lawyers in the school of Brandeis and economists in the school of Keynes.”17
Tugwell, looking back from the 1950s, believed Roosevelt had decided to follow the New Freedom model of Wilson and Brandeis even before the Democratic convention in the summer of 1932.18
If any doubts lingered in Roosevelt’s mind about the wisdom of the New Freedom approach, the Schechter decision resolved them and unleashed his inner populist.19 In his July 1936 acceptance speech at the Democratic National Convention in Philadelphia, the president eagerly and expertly wielded the old American language of liberty. “The privileged princes of these new economic dynasties, thirsting for power, reached out for control over Government itself,” he said. “They created a new despotism and wrapped it in the robes of legal sanction. In its service new mercenaries sought to regiment the people, their labor, and their property. And as a result the average man once more confronts the problem that faced the Minute Man.”
By mid-October of 1936, Roosevelt was speaking lines straight from the pages of Wilson and Brandeis. This “concentration of economic power in all-embracing corporations does not represent private enterprise as we Americans cherish it and propose to foster it. On the contrary, it represents private enterprise which has become a kind of private government, a power unto itself—a regimentation of other people’s lives … The struggle against private monopoly is a struggle for, and not against, American business. It is a struggle to preserve individual enterprise and economic freedom.”20
Thus did Roosevelt’s New Dealers work with Congress to complete the New Freedom of Wilson and Brandeis. Or rather, thus did the American people force the Roosevelt administration to complete their efforts to restore the American System of Liberty, albeit carefully updated to account for the fantastic new technologies of the late nineteenth and early twentieth centuries.
Antimonopoly law is not merely about preventing mergers or breaking big companies into smaller pieces. It is also, as the Interstate Commerce Act demonstrates, a matter of setting clear rules on whether one company can charge other companies different prices for the same service. And it is about determining who along a chain of commerce has the right to price a good or service.
When Franklin Roosevelt took office, America’s pricing laws were in chaos. This was due to a series of highly contradictory decisions by the Supreme Court. In the first, from 1911, a drug manufacturer named Dr. Miles sued a retailer named John D. Park & Sons for violating a sales contract that required the drug to be sold at a particular price. In deciding against Dr. Miles, the Court shifted much of the pricing decision away from the actual maker of the good or provider of the service to the retailers, traders, wholesalers, and other middlemen who handled or represented the good or service on its way to market.21
The command-and-control pricing policies of the NIRA had only complicated the debate. Whereas in their Dr. Miles decision the justices had accepted the argument that a prime goal of competition policy should be to drive prices down, the New Dealers, as we have seen, in the years before their discovery of Keynesian economics, aimed to use NIRA to drive prices up.
To the extent there was clarity anywhere on pricing, it was the Interstate Commerce Act’s outright prohibition against price discrimination. In 1910 Congress had fortified this most fundamental of antimonopoly regimes by passing the Mann-Elkins Act, which formally extended common carrier rules to the telegraph, telephone, wireless industries, and pipelines.
But the reach of the Interstate Commerce Act (ICA) was limited, and first-degree discrimination in pricing and terms remained a big problem within the rest of the political economy. Although the railroads and other network monopolists covered by the ICA could not engage in such practices, many other powerful intermediaries—such as retailers, distributors, and wholesalers—still could. And even though many of these corporations were quite small compared to the great national monopolists, they could be just as vital to the lives of individuals and businesses in a particular community. Similarly, powerful manufacturers were also free to use first-degree price discrimination to manipulate smaller retailers and other providers of services.
One of the most important outcomes of the New Deal years would be to clarify U.S. pricing policy and to restore the traditional requirement that middlemen charge every seller who relies on their services, no matter how small or powerless, the same price in exchange for the same service. A closely related outcome was to force big manufacturers to treat all retailers—no matter how small—the same and not to use price discrimination to buttress their power and control within a market. In doing so, citizens essentially restored the open market structures established in the first years of the nation.
As we have seen, the citizens who first structured the American System of Liberty spent almost all their time thinking about how to protect individual liberty and democracy, not how to drive prices lower. Their basic thinking on pricing was essentially the same as that of Adam Smith, who held that if you structure markets in ways that prevent concentration of power, by either a producer or a trading company, the competition that would result would take care of pricing all by itself.
In a famous passage in The Wealth of Nations, Smith had written: “The market price of every particular commodity is regulated by the proportion between the quantity which is actually brought to the market, and the demand of those who are willing to pay the natural price of the commodity, or the whole value of the rent, labour, and profit, which must be paid to bring it thither.”
This price, Smith went on, is “not always the lowest at which a dealer may sometimes sell his goods, it is the lowest at which he is likely to sell them for any considerable time; at least where there is perfect liberty, or where he may change his trade as often as he pleases.”22
This same line of thinking clearly guided Senator John Sherman, who believed that casting all monopolists from the marketplaces would restore this basic interaction between supply and demand. In a Senate resolution, Sherman wrote that his antitrust law “will tend to preserve freedom of trade and production, the natural competition of increasing production, [and] the lowering of prices by such competition.”23
Then in his speech defending his bill, Sherman made clear he strongly opposed the idea that price should ever be the result of “dictates” of “terms” by one company to another. And he bluntly rejected the argument that monopoly led to efficiencies that lowered prices. “It is sometimes said of these combinations that they reduce prices to the consumer by better methods of production, but all experience shows that this saving of cost goes to the pockets of the producer. The price … depends upon the supply, which can be reduced at pleasure by the combination.”24
During these same years, Americans also developed a third way of preventing middlemen from exercising arbitrary power over the companies and people who actually grow and make the goods and services we use. In addition to the more traditional tactics of simply preventing concentration where possible and imposing common carrier laws where concentration was more or less “natural,” the new rules aimed to prevent any middleman from interfering in the act of pricing that product, so as to leave the job of setting prices to the producer of that product. Such rules are often referred to as resale price maintenance, or RPM, and we can trace them, and court decisions defending such practices, to the middle of the nineteenth century.25
In combination with common carrier rules on middlemen, such pricing laws—by carefully placing the decision on how to price a product squarely in the hands of the creator and manufacturer of the good—helped to achieve six fundamental aims, each of which buttressed the overall goal of preventing concentration of power and control. These were to:
As we will see in chapter seven, one of the main goals of the academics who in the 1970s and 1980s helped to overthrow the American System of Liberty was to recharacterize the nature of predatory pricing. Rather than an aggressive effort by a monopolist to use a pile of capital to buy up or bankrupt all competitors, they contended that predatory pricing by banker-backed corporations promoted the “welfare” of the “consumer.”
But the pro-monopoly academics did not invent this line of reasoning about the intersection of capital, pricing, and monopoly power. On the contrary, monopolists more than a century ago used these same basic arguments to sway the majority of the Supreme Court in the Dr. Miles case, thereby shattering the whole carefully structured system of using pricing rules to help limit the concentration of power.
The Dr. Miles decision did provide Justice Oliver Wendell Holmes with an opportunity to deliver one of the most eloquent and blunt attacks on price predation and manipulation in U.S. history. “I cannot believe,” Holmes wrote in his dissent, “that in the long run the public will profit by this Court permitting knaves to cut reasonable prices for some ulterior purpose of their own, and thus to impair, if not to destroy, the production and sale of articles which it is assumed to be desirable that the public be able to get.”27
By 1919 the Court had begun to backtrack on Dr. Miles. But the string of contradictory decisions left American pricing law riddled with great ambiguities. In response, citizens began to use their state governments to pass their own versions of RPM laws, which they called “fair trade” laws, in the 1920s and 1930s.
Then in 1936, Congress stepped into the debate. It did so first by passing the Robinson-Patman Antitrust Act, which in essence extended common carrier pricing principles to powerful middlemen other than railroads—such as retailers, wholesalers, distributors, and other trading companies. Co-sponsored by Wright Patman and Senate majority leader Joseph T. Robinson of Arkansas, Robinson-Patman is the single most important amendment to antitrust law after the Clayton Antitrust Act.
Its main aim, in the words of Patman, was to prohibit “unfair price discriminations in their various forms.”28
Congress returned to the subject a year later with the Miller-Tydings Act, which legalized fair trade laws and state-level RPM agreements, after a Supreme Court decision had held that states could not engage in such regulation. The overall effects of this law were mixed at best. As one historian of the era has explained, “sloppy draftsmanship” of the bill meant Miller-Tydings ended up applying only to commerce that took place entirely within a single state and did not affect commerce across state borders.29 The overall result was to generally prevent manufacturers from using fair trade statutes and to make them “of quite limited usefulness for most manufacturers.”30
But Robinson-Patman did work exactly as intended. One of the main architects of the overthrow of antitrust law in the late 1970s and early 1980s was the legal scholar Robert Bork. We will look at Bork’s thinking and the influence of his book The Antitrust Paradox in more depth in later chapters. But for now, it’s worth noting that although Bork despised Robinson-Patman more than perhaps any other law, he readily admitted that its effects on American commerce were extensive and profound. “[E]very antitrust practitioner knows,” Bork wrote in 1978, “that tens of thousands, perhaps hundreds of thousands, of pricing decisions every year are altered through fear of Robinson-Patman.”31 Bork then went on to lament how the law had taken away all the many discriminatory tools that retailers and manufacturers used to extract cash or kindnesses, political and economic, from companies subject to their power.32 Which was, of course, exactly the intent of the law’s authors.
In short, by the mid-1930s, the American people had—after a poorly reasoned and destructive decision by the Supreme Court—fully restored a pricing system that had proven remarkably effective in protecting both the independent manufacturer and the independent retailer from the predations of the capitalist while also keeping prices as low as possible.
Americans during the Great Depression were, in anything, far more sensitive to high prices than Americans are today. Yet in writing antimonopoly law, citizens did not ever aim specifically to lower prices. Instead, they believed that if they got the market structures and corporate behaviors right, the competition that resulted would ensure that prices would be as low as they reasonably could be.
And thus it proved. Market structures designed to protect the liberties and well-being of every American as a producer, worker, grower, seller, and thinker also forced citizens to compete to bring higher-quality goods and services to market, for ever-lower real prices. The result, over the next half century, was the world’s first true consumer paradise, created by the freest makers and creators in the world, for themselves.
Adam Smith would have been very proud.
Wright Patman’s law was more than a way to ensure that bigger companies treated smaller companies fairly. It also marked the culmination of a popular rebellion against chain stores that had been growing for years. In tandem with the more generalized rebellion against concentration in the U.S. political economy, and the more specific efforts to protect the ability of the independent farmer to make a living on a compact plot of land, the new law helped to restore the American community envisioned at the founding, in which business would be conducted mainly by residents of the community itself.
In the 1920s, Woolworths, the A&P, and other chain stores had greatly expanded their hold on American commerce and on the storefronts of America’s Main Streets. By the 1930s individuals across the country had come to view these chain stores as direct threats not only to the ability of citizens to compete but the ability of local communities to govern themselves and to ensure that the money of local citizens stayed within the community.33
One of the more widely read books of the period was called The Forgotten Man. In it, Ernest G. Shinner, who ran a small meat business in Michigan, condemned “the many evils of excessive capitalization and over-centralization” and demanded “a federal law forbidding monopoly in every form.”34
But with the Republican Party in control of the White House and both houses of Congress through the entire decade, there was little interest in protecting Main Street. If anything, the opposite was true. In 1927, for instance, Congress pushed through the McFadden Act, which made it easier for many banks to create branch systems, and allowed banks to own subsidiaries.35
In the years before the New Deal, citizens were sometimes able to use state law to battle the giants. Floridians, for instance, passed a law that taxed chain stores at a higher rate than independent stores, and in January 1933 the Supreme Court held the law to be constitutional.36 Over the next two years, 15 more states imposed new chain store taxes.37
Patman’s main political aim with the Robinson-Patman Act was to speed this process along. For a sense of Patman’s thinking, consider these words from a speech he gave a few years later. “The small business men and women of America are essential to our democratic way of life,” he said. And sounding like a dustbowl Madison, he went on, “They are necessary to our social order. They [are the] bulwark [of] our greatest institutions, around which all civilization is built—the home, the church and the school.”38
Of the Robinson-Patman Act specifically, Patman wrote that Congress had passed the law “in the belief that it was in the public interest to keep trade and industry divided among as many different parties as possible and to protect the weak against the strong.”39
Robinson-Patman—and to a lesser extent Miller-Tydings—had a revolutionary effect on America’s communities, both small and large. The banning of both predatory pricing and first-degree price discrimination eliminated two of the main tools the big financier had traditionally used to bankrupt and displace the local retailer and trader. By the late 1930s the financiers and their chain store model were in sharp retreat across the country.
For the next half century, the great majority of America’s retail businesses—groceries, drugstores, general merchandise stores, gas stations, garages, restaurants, clothing stores, department stores, book stores, electronics stores, stationers, banks, car dealerships, movie theaters, shoe stores, tire stores, hardware stores, music clubs—would be owned and operated by individual proprietors.
So too doctors and dentists, optometrists and opticians, insurance agents, plumbers, and services such as warehousing, distribution, trucking, bottling, printing, ice making, music and book publishing, and tree trimming. So too most light manufacturing and food processing, such as bottlers, bakeries, tool and die shops, lumber mills, paper mills, textile mills, and clothing manufacturers. So too most of the businesses that supplied farmers with inputs such as seeds and machinery or bought their crops, produce, and livestock on the open market.
The magnitude of this revolutionary shift of power to local citizens has been somewhat obscured by the practice of franchising. Under such arrangements, a successful company expands not by direct ownership of new stores, restaurants, or other business outlets but through a symbiotic partnering with local families who provide much if not all of the capital and much of the labor in exchange for branding, stock and supplies, and coaching in business and sales practices.
By 1950, almost 100 companies were using franchising to some extent to expand either regionally or nationally. By 1960 the number had exploded to more than 900, engaged in a total of some 200,000 cooperative arrangements. Top brands in the early days of franchising included Tastee Freez, Dairy Queen, Dunkin’ Donuts, McDonald’s, Burger King, Kentucky Fried Chicken, Lee Myles, Midas, 7-Eleven, and Orange Julius. During these years many service-oriented businesses also began to use the franchise model, including H&R Block, Holiday Inn, and Roto-Rooter. Then there was the fact that national brand corporations like Coca-Cola and Holsum Bread relied on local bottlers and local bakeries to manufacture and distribute their products.
The Robinson-Patman law and taxation were not the only tools that supported this revolution. Trustbusters at the Justice Department and Federal Trade Commission also helped, for example, by bringing antitrust cases against the A&P in the 1930s and again in the 1950s. Some of the most dramatic instances of enforcement took place at the local level; in 1962 the Supreme Court upheld a decision that blocked a Los Angeles grocery merger that would have brought just under 9 percent of the local market under the control of one owner.40
These efforts to distribute ownership and control over business were further supported by the New Deal’s focus on ensuring that every citizen and every community (again, with the marked exception of black Americans) enjoy reasonably fair access to all basic networked services like electricity, telephones, air and bus travel, freight carriage, and roads and highways.
One result was a phenomenally modern and prosperous America, with individual entrepreneurs competing with one another to provide cleaner, brighter, better staffed, and more efficient stores. Trustbusters did not try to prevent local entrepreneurs from setting up bigger and more modern stores, such as supermarkets and department stores. They just limited the total number of big stores that any one person or corporation could own.
Another result was an incredibly wide distribution of prosperity. This was true in terms of the types of manufacturing and retail businesses that were headquartered in smaller cities and towns.41 And it was true in terms of what individuals in those communities earned for a day’s work, with incomes across the nation converging dramatically between 1929 and 1979.42
There were, to be sure, huge flaws in the political economy of this era, as well as in the larger American society of these years. Government development policy, backed by powerful private interests, promoted sprawling suburban developments and energy-intensive transportation systems that needlessly destroyed farmlands, emptied cities, locked millions into hours-long commutes, locked millions more into urban ghettos, and unnecessarily released vast amounts of hydrocarbons into the atmosphere.
But in terms of the actual distribution of power over any particular community, industrial activity, or corporation, the overall result of this highly coordinated use of federal, state, and local law amounted to something very close to a full reestablishment of the American System of Liberty. As in the days of the Northwest Ordinance, citizens consciously used their government to carve properties into citizen-sized portions and then acted to ensure these independent businesses were distributed among as many individuals and communities as possible, in as fair a way as possible. As also in the Northwest Ordinance, citizens then buttressed this effort with the subsidization of education and basic communications and transportation services. Their main reasons for doing so were the same as those of the founders—to engineer a particular type of independent, self-regulating citizen and a particular form of self-governing community.
It was during these years that America’s citizens engineered the Bentonville that in 1950 would welcome and sustain Sam Walton and his family. These same antimonopoly measures also ensured that the commercial systems in thousands of similar towns in America were geared to promote the well-being of the owners of America’s independent farms, stores, and small factories, and also of the individuals who worked as employees in these businesses.
But this was not merely a remaking of small-town America. The effects of this renewed democratic republicanism were also felt even in the biggest of America’s cities, where most businesses would also continue to be owned by families within the community.
In 2016, Brian Feldman from our Open Markets team published an article in the Washington Monthly on the political economy of St. Louis from the end of the Second World War into the 1980s. Our goal in that article, in focusing so closely on the business structure of a single city, was to give readers a sense of the complexity and robustness of the American political economy of that time. We chose St. Louis specifically mainly because it provided such a perfect snapshot of midcentury middle America.
For one thing, St. Louis has a character that is neither of the East nor West, neither of the South nor the North, neither mainly white nor mainly black. Rather St. Louis is a purple city in a populist state and the home of many of the most quintessentially American voices of the twentieth century, including Maya Angelou, Josephine Baker, Yogi Berra, Chuck Berry, Miles Davis, T. S. Eliot, Walker Evans, Redd Foxx, Joe Garagiola, Betty Grable, Al Hirschfeld, Vincent Price, Phyllis Schlafly, Dick Gregory, Tennessee Williams, and William Burroughs, all of whom were born there or moved there as children.
For another, St. Louis well into the 1980s combined a robust community of small- and medium-sized businesses with some of the nation’s most advanced industrial activity. Yes, St. Louis was the city of “shoes, booze, and blues,” the home of the International Shoe Company, Southern Comfort, and a style of piano based on jump blues that was very popular in the 1940s. But it was also a city of steel mills, the second-largest manufacturer of automobiles after Detroit, and the home to electronics pioneers like the Burroughs Corporation and Emerson Electric.43
Post-war St. Louis was a center for the farming and food industries, the home to Monsanto, Ralston Purina, and Anheuser-Busch. It was a city of powerful banks like Boatmen’s and Mercantile, which did business across the South and Southwest, as well as many community banks.44 St. Louis was home to one of the best-known department stores in the nation, the May Department Stores Company, with its Famous-Barr store downtown. And its citizens led the way in retailing investment services to independent citizens through such brokerages as A. G. Edwards, Edward Jones, and Scottrade. St. Louis also helped lead the way in creating America’s modern advertising industry. Not only did the city birth such agencies as Fleishman-Hillard, D’Arcy, and Gardner, which for many years stood as peers of even the strongest of Madison Avenue companies. It was thanks to a St. Louis ad agency that Santa Claus grew fat and happy while drinking Coca-Cola. And it was thanks to a St. Louis agency that Americans first learned that “this Bud’s for you.”45
Finally, there were TWA and Ozark Airlines, which helped to pioneer the modern airline system. And McDonnell Douglas, which developed and built such key early airliners as the four-engine DC-8, the twin-engine DC-9, and the wide-body DC-10.
McDonnell Douglas also made fighter jets. And in January 1975 the pilot of a brand-new F-15 turned the aircraft’s nose directly up and, on twin Pratt & Whitney F100 turbofan engines, accelerated, the first time ever that a jet-powered aircraft was able to gain speed while climbing.46
The main lesson of our close study of the St. Louis political economy? That the American people, living in checkerboard fields within a checkerboard economy, their minds and hands unshackled from Wall Street, had responded by building not only the most prosperous and free community of communities in history but also the most powerful.
In 1944, the Roosevelt administration invited delegates from 44 allied nations to meet in the Grand Hotel in Bretton Woods, New Hampshire, to structure the international system that would exist after the war. With Europe, China, and Japan in ruins, it was clear the United States had become the world’s main financial and manufacturing power, and the main question for attendees was how would Americans use this power in the years to come.
The two main institutions established during the meeting—the World Bank and the International Monetary Fund—both gave the United States a great deal of sway over the economies of other nations. As a result, the Bretton Woods system has long been criticized for being overly colonial in nature. Increasingly, with the rise to power of China, India, and other nations, it is also seen as simply no longer necessary.
Yet at the time, the idea that the United States might impose a new international order was not especially controversial. After the trauma of two industrialized world wars, not only America’s allies but even most neutral nations simply wanted a restoration of peace and predictability—and some reasonable degree of rule of law. Indeed, the Second World War itself was often interpreted as the result of the failure by the Wilson administration to impose precisely such an order in 1919, at the end of the First World War.
Among many Americans, the belief that the United States would have to impose such a system dated to well before the German invasion of Poland. In 1937, for instance, Walter Lippmann, who had long since abandoned his youthful embrace of socialism, had written of the need to impose a system able to “conserve the existing order of things in the field of ultimate power.”47 The question was not whether America should impose its own rules on the nations of the world but how truly “liberal” those rules should be. Should they aim at centralizing control over industry in ways that made other nations dependent on the United States, much in the style of the British imperial system, with its careful closing off of such Commonwealth economies as India, Australia, and Canada? Or should the aim be something more like what Americans had built at home, in which every individual should have as much freedom as possible to trade with every other individual?
Lippmann, for one, believed that Americans, once they had established the basic rules of the system, must then “concede an increasing equality of rights in all other fields” to the people of other nations.48
From the first days of the United States, Americans had viewed trade policy as a form of antimonopoly policy. The immediate practical goal of 1776, and of the Embargo Act of 1807, and of the War of 1812, was, after all, independence of both the nation and of individual Americans from the concentrated power and control of the British imperial trading system.
The intimate interconnection between trade policy and antitrust policy was made clear by John Sherman himself. In a resolution in the Senate in 1888, Sherman said that the law that now bears his name would help ensure that citizens enjoy “the full benefit designed by and hitherto conferred by the policy of the government to protect and encourage American industries by levying duties on imported goods.”49
Add to this history the degree to which the Franklin Roosevelt, Truman, Eisenhower, and Johnson administrations were guided by antimonopoly principles, and it is hardly surprising that in the years after the war Americans ended up building a world system designed not to monopolize power in the hands of Americans but to share out, to a truly remarkable degree, prosperity and opportunity with other peoples.
As we saw in the first chapter, Truman and Eisenhower used America’s position as the dominant power in both occupied Germany and occupied Japan to impose on those two nations the most robust antimonopoly regimes in the world, outside the United States. This included strong antimonopoly language in the Potsdam Declaration with the Soviet Union as well as the famous “four D” policy for Germany: “denazification, demilitarization, democratization, and decartelization.”50 And it included the adoption in Japan, under the occupation government overseen by General Douglas MacArthur, of a far-reaching and mature antimonopoly law in April 1947, more than two weeks before the new democratic constitution was adopted.51
The American focus on antimonopolism is even more clear in the competitive and open market systems the U.S. government engineered—in tandem with allies—during and immediately after the war. We see much of the basic thinking in the plans for the International Trade Organization (ITO)—the projected third institution of Bretton Woods—which was designed to enforce a non-discriminatory global trade system within a multinational framework.52 This included mechanisms to establish aggressive antimonopoly powers, close restrictions on the actions of private investors, and strong labor standards.53
But after the Senate voted in 1950 to reject the ITO, the Truman and Eisenhower administrations responded by using the Marshall Plan and their powers as occupiers to engineer an even more deeply integrated industrial system spanning the world from Western Europe to East Asia. Or rather, they engineered two different systems, which they then linked together.
The first was a system of liberal trade within Europe and across the Atlantic. This centered on the vision of an integrated European political economy first fully delineated in the process of creating the European Coal and Steel Community in 1951. The other was a system of relatively liberal trade that the United States engineered initially with Japan, Taiwan, and South Korea, beginning at roughly the same time. As I wrote in End of the Line, this Pacific-centric effort amounted to “a sort of mini–Marshall Plan.” In the case of Taiwan, for instance, U.S. officials helped that country “rewrite its laws regulating business, structured trade agreements to promote imports from the island, funded efforts to lure American companies to invest in Taiwan, arranged for the transfer to Taiwanese electronics firms of radar, avionics, and other advanced technologies developed in the United States, and paid to educate thousands of Taiwanese engineers and scientists at American universities.”54
America’s trustbusters also played a huge role in building this new and open international system, with enforcers actively encouraging patent-rich corporations like AT&T and RCA to transfer technologies not only to U.S. competitors but to their European and Japanese rivals. One of the more famous instances took place in 1952 when AT&T, facing an antitrust suit by the Justice Department, licensed the technology for a device it called an “electronic transistor” to 25 U.S. corporations and 10 foreign corporations.55 Nowadays we call this device the semiconductor. The U.S. government during these years similarly worked closely with allies to structure open, neutral, and stable international systems for communications, transportation, banking and finance, trade in food and energy, and ultimately, the Internet.
The result was a world system based largely on the same antimonopoly principles Americans had been advocating both at home and around the world since 1776. It was a system that was as open as possible, not just in terms of trade but in terms of technology and the componentry of complex networks.
It was a system protected with great care by every U.S. administration, right through the Reagan administration, which despite its radical libertarianism in the domestic area eagerly used traditional antimonopoly tools in the international political economy. Indeed, one of the best examples of the American vision of international commerce came in the mid-1980s, after IBM responded to an antitrust suit by the government by opening up the technologies within its personal computer. When the Japanese subsequently sought to capture control over DRAM and EPROM chips and other key computer components, the Reagan White House responded with tariffs and quotas. But the Reagan administration also made clear that its goal was not so much to transfer production from Japan back to the United States as it was to transfer production from Japan to South Korea, Taiwan, Malaysia, and Singapore. Put another way, the U.S. government’s goal was not to hoard the technologies and industrial capacities within the borders of the United States but to ensure the safe distribution of these capacities among many nations.56
The overall result of America’s post-war trade policy was the greatest burst in prosperity and the longest period of major-power peace in the history of the world.
Time and again during the twentieth century the world had intruded into the lives of Americans. Time and again some in America had responded to these threats and crises with calls to close the border and to concentrate power in monopolies at home. But even as other nations responded to the shocks of world war and depression by embracing fascism and communism and other forms of command-and-control industrialism, Americans went in the exact opposite direction.
Not only did Americans move to protect their system of liberty in the 1930s, they expanded it and made it stronger. Then after the Second World War, even while facing new forms of existential threats, citizens exported our system of liberty to our allies and friends.
On New Year’s Eve 1964, in the Hotel Teresa in Harlem, Malcolm X spoke to 37 teenagers from McComb, Mississippi, about the promise of America. “Imagine that,” he said. “A country that’s supposed to be a democracy, supposed to be for freedom, and … they want to draft you and put you in the army and send you to Saigon to fight for them, and then you’ve got to turn around and all night long discuss how you’re just going to get a right to register and vote without being murdered. Why it’s the most hypocritical government since the world began.”57
A half century had passed since W. E. B. Du Bois, in the early days of American involvement in the First World War, demanded that President Wilson address this fundamental hypocrisy, of a nation fighting for democracy abroad while denying the right to vote to millions of citizens at home. Now, the fundamental contradictions of American society had again become impossible to ignore.
The problem was not only that most African Americans in the South were effectively barred from the polling place and from many basic public services. There was also the raw rankling racism and segregation in the North, if not on public buses then certainly by neighborhood, school, and job. America, the great classless society, had a very obvious second-class population—millions of Americans barred from full citizenship for no reason other than the color of their skin.
President Truman in 1948 had desegregated both the military and the federal workforce. But in the decade before Malcolm X spoke, Dwight Eisenhower had done little to promote civil rights, and John Kennedy not much more. Woodrow Wilson’s great summary statement in the New Freedom, that “America was created to break every kind of monopoly, and to set men free, upon a footing of equality, upon a footing of opportunity,” read less as unmet promise than outright fraud.58
As we saw in the last chapter, American citizens, both black and white, had made many efforts over the years to join hands across the race line. Famously this included the early days of Reconstruction. And it included, even more dramatically, black and white populists marching side by side in many parts of the South in the 1890s.59 Yet as we also saw, the white man’s grip on the better jobs and privileges of the nation had held strong, sometimes with the help of the demagogue but just as often without.
All this while another great revolution in America was growing. It was a revolution that stood on the same footing as every previous successful battle in America for true liberty.
In the early twentieth century Du Bois had helped to set clear goals. The aims of the struggle for black Americans included the full independence of the individual, according to the basic rules of the American System of Liberty. Every citizen, Du Bois wrote, must have “land,” “learning,” and “liberty.” The aims also included full integration. In 1935 Du Bois had made clear that without full integration, there could be no true liberty or democracy. “This the American black man knows: his fight here is a fight to the finish. Either he … will enter modern civilization here in America as a black man on terms of perfect, and unlimited equality with any white man, or he will not enter at all. Either extermination root and branch, or absolute equality. There can be no compromise.”60
Over the next two generations, African Americans—as well as citizens of other oppressed races—used the same understanding of American liberty that had guided white Americans, the same arguments and the same intellectual tools, to fight for true and complete equality and liberty.
This included members of a rising cohort of African American professionals, such as Thurgood Marshall. Born in Baltimore, Marshall grew up working in the grocery stores of his grandparents as well as for other shopkeepers in his integrated middle-class neighborhood. Later, as chief counsel at the NAACP, it was Marshall who developed a sophisticated legal strategy that included using antimonopoly law to win equal access to businesses and services.
But it was also a matter of ordinary citizens using their properties and what independence they had thus far won to concentrate sufficient power to fight for more. For decades, segregationists were able to threaten African Americans who stood for civil rights with dismissal from their jobs or eviction from their tenant farms. But those African Americans who owned their own businesses and lands had much greater liberty to speak out and act in public. It was these “independent” citizens who were most free to fight to make more “independent” citizens.
And thanks to the same antimonopoly laws and policies that had been designed to protect America’s white citizens against concentrated capital and corporate monopoly, the number of independent black-owned businesses had also grown rapidly. Between 1935 and 1939, for instance, the number of African American retail stores increased by 31 percent. As a coalition of black wholesale grocers put it, in reference to a 1947 New York fair trade law that prohibited loss leading, the law “will afford additional protection to the small businessman, be he Negro or white.”61
Across the South it was independent black citizens who often led the fight for liberty. In Biloxi, Gilbert R. Mason, owner of a drugstore, fought to integrate a public beach. In Tallahassee, Daniel Speed, who owned a grocery store, allowed black leaders to meet in his shop, then financed a boycott of the local segregated bus service. This was nowhere more true than in Selma, Alabama, where a “strong community of black business owners offered critical logistical, financial, and other forms of support,” and where the great march east to Montgomery was made possible by the ability of marchers to camp on freehold farms along state highway 80.62
Many citizens other than Marshall also used antimonopoly policy as a tool to win civil rights. In 1961, the black owners of ten independent medical practices in Chicago used the Sherman Antitrust Act against 61 local hospitals and medical organizations that barred African Americans from the medical staff.63
Many factors played on the minds of America’s white and black citizens during these years and helped to shape their attitudes about racism and segregation. The general prosperity of these years made many white Americans less anxious about black prosperity. And the competition for world leadership with the Soviet Union made many Americans feel embarrassed by the fundamental hypocrisies highlighted by Du Bois and Malcom X. But another psychological effect may also have been at play. As we saw in chapters three and four, a main goal of the founders of the American System of Liberty was that true independence would result not only in individuals who feel secure in their liberty and prosperity, as they stand squarely on their properties, but who to some extent come to be “enlightened” and “liberal.” The great success of the second American economic revolution, of the New Freedom and New Deal, may have helped open hearts as well as minds, much as happened in the run-up to the Civil War.
This is all, of course, mere speculation. And the fact remains that the full weight of the fight to break segregation and win true equality was carried by African Americans.
History books, for instance, tell us that the great civil rights bills of the 1960s were hammered through Congress by the Texas-born populist Lyndon Johnson, working in close alliance with Martin Luther King Jr. And there is no doubt Johnson fought hard, consciously aiming to outdo even Lincoln. Indeed, as Thurgood Marshall later recalled of Johnson’s work on civil rights, his “ambition was, ‘That history must show that compared to me, Lincoln was a piker.’”64
But Johnson himself made clear he understood who was responsible for winning these battles. In his speech in support of the Voting Rights Act of 1965, just before the Selma march, Johnson said that what was happening in Selma “is part of a far larger movement which reaches into every section and State of America. It is the effort of American Negroes to secure for themselves the full blessings of American life. Their cause must be our cause too. Because it is not just Negroes, but really it is all of us, who must overcome the crippling legacy of bigotry and injustice. And we shall overcome.”65
Yet again in America, to those who sought liberty nothing was given. Again in America full civil rights was a case of liberty taken by the people who would have it. And now finally African Americans, a small minority in an overwhelmingly white nation, were in a position to take their liberty, using the same tools as every previous generation of citizens.
Time and again, over the course of two centuries, as soon as an African American family grasped some property or other, whites would often take that property away. Other times, they simply destroyed those properties, as in the Tulsa, Oklahoma, race riot and massacre of 1921 in which white men killed hundreds of black citizens and burned down 35 square blocks of that city’s Greenwood neighborhood, then the most prosperous black community in America.66 But the final destruction of Jim Crow and of government-sanctioned segregation and property theft in America did finally come close to redeeming the promise on our nation’s first page. For the first time, every American—white as much as black—was truly free, if not yet in the eyes of every other citizen, or yet in every town, at least under the law and practice of the federal government.
In 1965, President Johnson named Thurgood Marshall to the Supreme Court to protect the system of civil rights, much in the way Wilson had named Brandeis to the Court to protect the New Freedom. In the years to come Marshall would serve that purpose—and many others—exceedingly well. But his career proved to be more than that; Marshall was the last justice on the Court who fully understood the role that citizen-sized property holdings had played in protecting American democracy and liberty.67 In one of the last great defenses of antimonopoly law before Bork and his allies wiped such thinking from the Court, Marshall wrote that antitrust laws “are the Magna Carta of free enterprise. They are as important to the preservation of economic freedom and our free-enterprise system as the Bill of Rights is to the protection of our fundamental personal freedoms.”68
In the dark days of the mid-1930s, a time when Jim Crow still lounged on the porch of almost every police station in the nation, W. E. B. Du Bois had dared to dream of this day. In that greatest of all cries for American liberty, the book Black Reconstruction, he distilled the American System of Liberty into words more eloquent perhaps even than those of Madison and Brandeis. America’s great contribution to the world, Du Bois wrote, is “a vision of democratic self-government: the domination of political life by the intelligent decision of free and self-sustaining men.”
And then, after a beat, Du Bois concluded: “What an idea.”69