History, it is said, is written by the winners. But that has not been true in the case of the history of American business that the American public thinks it knows. In popular discourse, the history of antitrust in the United States is treated as a melodrama pitting good Davids against evil Goliaths. In the late nineteenth century, so the story goes, American capitalism and democracy were threatened by the rise of “trusts” (large firms), the instruments of sinister “robber barons.” Democracy was saved by the Sherman Antitrust Act of 1890 and by “trust-busters” like President Theodore Roosevelt who stood up to big business on behalf of small business and ordinary Americans. Nevertheless—so the popular story goes—today the control of the US economy by monopolies is a growing danger that must be prevented by thwarting corporate mergers, breaking up large firms, and rigging markets to favor small firms.
The tendency to mistrust big and favor small has a long tradition and is reflected in many aspects of American political institutions. One is competition policy, which in the United States is defined as what it is against: “antitrust.” The historian Richard Hofstadter has observed, “Antitrust must be understood as the political judgment of a nation whose leaders had always shown a keen awareness of the economic foundations of politics.”1 The very term “antitrust” is peculiar because it refers to a particular form of business organization—the trust—which became obsolete around the time of the Sherman Antitrust Act of 1890.
Other nations use the term “competition policy.” But that is not a perfect synonym for the antitrust tradition in the United States, which has always had two, somewhat contradictory goals, reflecting the division of the American antimonopoly school among producer republicans and market fundamentalists. For the producer republicans, the purpose of antitrust policy should be to maximize the number of small producers—at the price, if necessary, of efficiency and consumer well-being. For market fundamentalists, however, the purpose of antitrust should be to maximize short-term efficiency and consumer well-being by maximizing competition.
These rival conceptions of antitrust policy have always existed in tension with each other. From the passage of the Sherman Antitrust Act in 1890 until the 1930s, the champions of antitrust policy were chiefly to be found among the producer republicans. Their social base was among small merchants, small bankers, and other small business owners threatened by competition from large enterprises. The less industrialized South and parts of the Midwest were the regional bases of twentieth-century producer republicanism. Among the tools they supported to limit competition that threatened small enterprises were federal antitrust law, unit banking laws, anti–chain store laws, and resale price maintenance laws. The purpose of these policies was to rig markets artificially to favor small firms and banks and penalize large ones. Although it invoked the rhetoric of Jeffersonian producer republicanism, the twentieth-century producer republican movement was anything but populist. It served the interests of elite local southern and midwestern retailers and bankers while reducing the access of local workers and farmers to cheaper goods and cheaper credit. Imagine Mr. Potter in Frank Capra’s It’s a Wonderful Life protecting himself not from the Bailey Brothers Building and Loan but from Chase Manhattan Bank.
Beginning in the 1930s, the emphasis of US antitrust policy shifted from protecting small producers from competition posed by larger and more efficient firms to freeing the economy from what Thurman Arnold, the head of Franklin Roosevelt’s Antitrust Division of the Justice Department, called the “bottlenecks of business.”2 Meanwhile, after World War II advocates for small business sought low-interest loans, tax breaks, and other subsidies, such as those provided by the Small Business Administration, created in 1953, instead of the older agenda of small-producer protectionism, such as anti–chain store laws. As the small business lobby focused on subsidies and regulatory exemptions, the emphasis of antitrust policy shifted from protecting producers to protecting consumers.
What might be called, with apologies to C. Vann Woodward, the strange career of antitrust in America is the subject of this chapter and the next. This chapter discusses the rise and fall of the producer republican school of antitrust. The next discusses the evolution of antitrust policy from the mid-twentieth century to the present day.
The antitrust regime established by the Sherman Antitrust Act of 1890 cannot be viewed in isolation. Nor can the familiar story of antitrust as a rational reaction to abuses of power by large corporations stand up to scrutiny. In reality, American antitrust policy has been simply one of a number of policies of small producer protectionism devised in the nineteenth and twentieth century to protect small, inefficient firms from larger, more efficient firms by privileging the small firms and penalizing the big ones, in the process punishing American consumers and workers, who are forced to pay higher prices or interest rates. The intended beneficiaries of small producer protectionism in the United States have included small banks, small farmers, small manufacturers, and small retailers.
In popular memory, many of these policies are associated with the progressive-liberal tradition in American politics. In few areas is the public perception of American history so at odds with the reality. The truth is that for much of the twentieth century the rise of large, modern industrial and commercial enterprises was viewed as inevitable and desirable across the political spectrum from organized labor and most progressives on the left to the pro-business right. His reputation as a “trust-buster” to the contrary, Theodore Roosevelt, like his cousin Franklin D. Roosevelt, wanted to regulate modern corporate capitalism in the public interest, not turn back the clock to the premodern society of small producers and shopkeepers. Ronald Reagan began his career of commentary on public policy issues as a spokesman for the wonders of mass production and modern consumerism on behalf of one of America’s largest corporations, GE.
If large-scale industrial capitalism was so uncontroversial, where did the opposition come from? Part of the answer stems from people’s natural unwillingness to accept change. For the economic changes of this era were profound. As the business historian Roland Marchand writes, “It was the strong tradition of localism, the awareness of community as expressed geographically in the small town, that the new power of the giant corporation had disrupted.”4
But geography also supplies part of the answer: the American periphery of the time, the South, West, and Midwest. Most of the twentieth-century patron saints of today’s American small-is-beautiful school were born and raised in the South (Louis Brandeis of Kentucky, Woodrow Wilson of Virginia and Wright Patman of Texas) or the West (Thurman Arnold of Wyoming). And support for small-producer protectionist policies was concentrated in agrarian states, not industrial, urban states. These peripheral regions resented the rise of large “eastern” corporations that sought through greater efficiency to take market share from the peripheral petty bourgeoisie. But knowing that they couldn’t very well frame their case as one of one group of capitalists against another, they pitted it as David and Goliath, just what we see in the global economy of today in which many peripheral nations—India, Indonesia, various African nations—rail against the perfidies of “northern” big business seeking to take market share from their local petty bourgeois producers.
The major disagreement about the legitimacy of large-scale enterprise in the last century has not been between left and right but between the industrial core of the Northeast and the Great Lakes region and the agrarian and commodity-exporting periphery of the South and the West. From the Civil War until after World War II, the United States was in effect two economies—a modern industrial economy in the northeastern-midwestern core and a traditional agrarian, natural resource economy in the periphery. The former exported industrial products to the latter in exchange for food, fiber, and minerals. With the coming of the railroad and telegraph, the expansion of national corporations and markets from the northeastern-midwestern core threatened local elites whose income and status came from their ownership of general stores, small-town banks, mid-sized farms, or other local businesses. It was these local elites who stood to lose—not the workers or farm laborers of the southern and western periphery, who stood to gain—and who provided the social base for the defense of the small and provincial against the large and national. It is no coincidence that as patterns of urbanization and industrialization in the South and West caught up with those of the older industrial states after World War II, the public and the politicians in those regions lost interest in the once influential small producer protectionist agenda. In the age of the newly industrialized Sunbelt, crusades for antitrust, unit banking, and fair trade laws were anachronisms left over from the vanished age of agrarian populism. At that point, small businesses shifted their emphasis to small business subsidies like those provided by the Small Business Administration, while the mission of antitrust policy changed to protecting consumers, not small producers.
These fights to protect powerful local business elites united small producers in many industries. During debates in the House of Representatives about the Sherman Antitrust Act in 1890, Congressman William Mason of Illinois declared that large firms (the “trusts”) may have reduced prices, “but if the price of oil, for instance, were reduced to one cent a barrel, it would not right the wrong done to the people of this country by the ‘trusts’ which have destroyed legitimate competition and driven honest men from legitimate business enterprise.”5
Like the small business owner, the traveling salesman was another fixture of the preindustrial economy whose livelihood and status were threatened by the rise of national retail firms and manufacturers that marketed their own products, enabled in this enterprise by the spread of the railroad. P. E. Dowe, a representative of an association of traveling salesmen, lamented that many could no longer hope to work for others and then go into business for themselves: “The history of this country gives examples of poor boys who became great men, beginning at splitting rails, tanning hides, driving canal horses, etc. … Trusts have come, however, as a curse for this generation and a barrier to individual enterprise. What will be the prospects for our children? God-Almighty alone knows.”6
“Who is this small or independent businessman—the independent producer and the independent distributor?” The rhetorical question was asked by Millard E. Tydings, US senator from Maryland, in 1938:
Why, he is an American institution. He is just as much a part of the life of every community as its church or schoolhouse. He knows when there is sickness in the neighborhood, when there is a wedding, a death, or a birth. … He is local business with a heart, and often too much heart for his own good. … I see this great humane and worthy institution, this bulwark of democratic Government—the small independent businessman.7
In a 1949 antitrust case, Supreme Court Justice William O. Douglas wrote in dissent:
… There is the effect on the community when independents are swallowed up by the trusts and entrepreneurs become employees of absentee owners. Then there is a serious loss in citizenship. Local leadership is diluted. He who was a leader in the village becomes dependent on outsiders for his action and policy. … Clerks responsible to a superior in a distant place take the place of resident proprietors beholden to no one.8
The civic-minded leader of the village to whom Douglas referred? The independent gas station owner.
For Mason, the small oil producers were the “honest men” who were “driven from legitimate business enterprise” by larger, more efficient and corrupt competitors. For Dowe, the independent traveling salesman rather than the corporate representative was the symbol of republican virtue. For Douglas, the health of the republic required gas station operators to be owners, not corporate employees or franchise holders. For all of them, the goal of antitrust policy was to preserve the existence of inefficient small producers—at the expense, if necessary, of technologically driven productivity and consumer welfare.
In American politics, this kind of producer republicanism peaked around the turn of the twentieth century. In 1890 Congress passed the Sherman Antitrust Act, which purported to outlaw “every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations.”
Then in 1892 the People’s Party or Populist Party was founded in Omaha, Nebraska. With its strongest support in the agrarian South and the Great Plains states, the Populists, alone or in fusion with other parties, campaigned for reforms, including government ownership of railroads and telegraphs, the abolition of national banks, and an income tax that would have fallen chiefly on the millionaire industrial capitalists. Their Omaha Platform declared: “We meet in the midst of a nation brought to the verge of moral, political, and material ruin. Corruption dominates the ballot-box, the Legislatures, the Congress, and touches even the ermine of the bench.”9
In 1896 the Populists supported the Democratic candidate for president, the charismatic orator William Jennings Bryan, whose support for adding silver to gold as the basis of the US currency was intended to produce inflation, thus reducing the debts of farmers to creditors, many of them in the East. In 1896, Bryan was defeated by Republican William McKinley in the first of three elections in which he was the Democratic nominee. Alarmed by populist radicalism, conservative elites in the one-party Democratic South used devices like poll taxes and literacy tests to purge almost all blacks and many poor whites from the voting lists until the civil rights revolution of the 1960s. The young progressive thinker Walter Lippmann in 1914 described William Jennings Bryan as “the true Don Quixote of our politics,” at odds with “the economic conditions which had upset the old life of the prairies, made new demands on democracy, introduced specialization and science, had destroyed village loyalties, frustrated private ambitions, and created the impersonal relationships of the modern world.”10
Lippmann’s contempt for Bryan and Bryanism was widely shared among the metropolitan progressives of his time. As Nicholas Lemann has observed,
The dominant line of liberalism, in the past century, has been in the tradition they favored, based on the conviction that the age of small economic units had ended, and the way to tame the formidable power of the corporation was to have equally large forces on the other side. These could take various forms—a vast, centrally organized labor movement, or new kinds of federal regulation, or even centralized economic planning—but the common thread was the idea of one great liberal power center.11
By the late nineteenth and early twentieth centuries, the advantages of large firms were widely recognized by leading American economists. John Bates Clark observed that large industrial companies were “the result of an evolution, and the happy outcome of a competition so abnormal that the continuance of it would have meant widespread ruin. A successful attempt to suppress them by law would involve the reversion of industrial systems to a cast-off type, the renewal of abuses from which society has escaped by a step in development.”12 The economist and leader of the progressive movement Richard T. Ely agreed that “owing to discoveries and inventions, especially the application of steam to industry and transportation, it became necessary to prosecute enterprises of great magnitude.”13
Welcoming industrial efficiency if not industrial capitalism, most American socialists, labor activists, and progressives accepted the inevitability of large-scale enterprises and viewed industrial combination as a necessary development on the way to a superior social order. Socialists in the Marxist tradition shared Marx’s contempt for “the idiocy of rural life” and welcomed the emergence of large-industrial concerns. In the long run the giant corporations would be socialized, they believed. In the short run, former small producers such as craftsmen and small farmers and shop owners would be forced to join the wage-earning class, swelling the ranks of the proletariat. According to the Socialist Campaign Book of 1900:
It is but natural that a squeezed pig should squeal. The shopkeeper and the manufacturer coming out of the bankruptcy court would endeavor to enlist public sympathy, but the march of progress cannot be stopped because the unfit are eliminated. The industries are becoming still more consolidated, and the gates of economic opportunity are one by one closed to the middle class. The laboring class opens its ranks and tries to give the newcomer a place.14
Non-Marxist socialists also viewed the rise of the trusts as a positive development. For Eugene V. Debs, the five-time presidential candidate of the Socialist Party of the United States, the rise of large corporations made it easier to nationalize industry: “Monopoly is certain and sure. It is merely a question of whether [there] will be collectively owned monopolies, for the good of the race, or whether they will be privately owned for the power, pleasure and glory of the Morgans, Rockefellers, Guggenheims and Carnegies.”15
William Dean Howells in his utopian novel A Traveler from Altruria and Edward Bellamy in Looking Backward envisioned a gradual and peaceful transition from big business capitalism to big government socialism. Bellamy’s novel inspired a network of Nationalist Clubs, whose publications declared: “The combinations, trusts, and syndicates, of which the people complain, demonstrate the practicability of our basic principle of association. We merely seek to push this principle a little further and have all industries operated in the interest of all by the nation.”16 The democratic socialist Jack London praised the mechanization that big manufacturers were driving, proclaiming, “Let us not destroy these wonderful machines that produce efficiently and cheaply. Let us control them. Let us profit by their efficiency and cheapness. Let us run them by ourselves. That, gentlemen, is socialism.”17 The radical economist Thorstein Veblen favored large-scale industry but wanted financiers to be expelled by “a practicable Soviet of technicians.”18 In 1933 the socialist Stuart Chase published Technocracy: An Interpretation.19 In 1921 Chase and Veblen had joined the Technical Alliance, which, renamed Technocracy Inc., promoted the short-lived technocracy movement during the Great Depression. The technocracy movement presaged NAFTA by sixty years, proposing an integrated North American production system dominated by large corporations and massive public works projects.
The American labor movement favored industrial consolidation for a different reason. It would be easier for unions to bargain with large, centralized companies than with many small firms, and large technology-based firm would produce more profits, which union members could share. Union members in the industrial states often sided with industrial capitalists against southern and western agrarian populists, whose farmer-friendly policies, such as a low tariff, threatened the industries in which they worked.
Samuel Gompers, the president of the American Federation of Labor, told his associates that organized labor should be more concerned with the well-being of poor and landless farm workers than with family farmers.20 In a 1907 speech titled “Labor and Its Attitude toward Trusts,” Gompers declared that the trust was “the logical development of the present economic era. With the invention of good artificial light, of machinery and power, and their application to industry, came the modern industrial plants. With their advent and development the day of individual workman and individual employer passed, never to return.”
Gompers went on to say,: “Organized labor has less difficulty in dealing with large firms and corporations today than with many individual employers or small firms.” He criticized corporations for abuses and courts for siding with employers against labor unions. But he dismissed antitrust as a panacea: “For the consumer to shout ‘down with the trusts’ because he finds his pocket-book affected is no more reasonable than the cry of ‘smash the machines’ which was once heard from wage-workers whose means of livelihood were threatened during the period of adjustment in certain trades while machinery was replacing hand labor.”21
The progressive movement of the early twentieth century was divided on the issue of scale in business. One wing was represented by Theodore Roosevelt, who called for a “new nationalism” in a speech in Osawatomie, Kansas, in 1910. When it came to protecting consumer interests, the method preferred by many US progressives since the early twentieth century has been the regulation of corporations, not their pulverization by means of antitrust decrees.
In The Promise of American Life (1909), the founding editor of the New Republic, Herbert Croly, wrote: “The new organization of American industry has created an economic mechanism which is capable of being wonderfully and indefinitely serviceable to the American people” as long as it was supervised and aligned with the national interest.22 For Croly, the purpose of regulation was not to “level the playing field” by penalizing big firms to help small firms. On the contrary, Croly wrote approvingly, “the regulation of the large corporation is equivalent to the perpetuation of its existing advantages,” to the extent that these depended on “abundant capital,” “permanent appropriation of essential supplies of raw materials,” “possibilities of economic industrial management,” and other advantages that were foreclosed to smaller firms.23
Today Theodore Roosevelt is often remembered only as a trust-buster. This is a distortion of history, since he distinguished between “good” and “bad” trusts and preferred federal licensing and regulation of corporations to the adversarial methods of antitrust litigation. In his 1905 Annual Message to Congress Roosevelt declared:
I am in no sense hostile to corporations. This is an age of combination, and any effort to prevent all combination will be not only useless, but in the end vicious, because of the contempt for law which the failure to enforce law inevitably produces. We should, moreover, recognize in cordial and ample fashion the immense good effected by corporate agencies in a country such as ours, and the wealth of intellect, energy, and fidelity devoted to their service, and therefore normally to the service of the public, by their officers and directors. The corporation has come to stay, just as the trade union has come to stay. Each can and has done great good. Each should be favored so long as it does good. But each should be sharply checked where it acts against law and justice.24
Roosevelt insisted that business “cannot be successfully conducted in accordance with the practices and theories of sixty years ago unless we abolish steam, electricity, big cities, and, in short, not only all modern business and modern industrial conditions, but all the modern conditions of our civilization.”25 The historian Martin J. Sklar notes that “Roosevelt’s position was not that of ‘Trust-Buster’ but of ‘Trust-Muster’—he would muster the trusts into the national service.”26 As the legal scholar Daniel A. Crane notes: “By 1912, Roosevelt was staking a position against any trustbusting at all. Far from honoring his “trustbuster” moniker, Roosevelt argued for just the opposite—the legality of large combinations of capital, nonetheless subject to pervasive governmental regulation.”27
Although his administration had brought the antitrust case against Standard Oil, TR privately regretted the decision of the Supreme Court in 1911 to break up the company:
I do not myself see what good can come from dissolving the Standard Oil Company into forty separate companies, all of which will still remain really under the same control. What we should have is a much stricter governmental supervision of these great companies, but accompanying this supervision should be a recognition of the fact that great combinations have come to stay and that we must do them scrupulous justice just as we exact scrupulous justice from them.28
Roosevelt sought to shift competition policy from the courts to an expanded federal Bureau of Corporations, whose decisions would be shielded from judicial review, on the grounds that “a succession of lawsuits is hopeless from the standpoint of working out a permanently satisfactory solution.”29
The Progressive Party Platform of 1912 reflected the views of Roosevelt, its presidential candidate. According to the platform,
The corporation is an essential part of modern business. The concentration of modern business, in some degree, is both inevitable and necessary for national and international business efficiency. But the existing concentration of vast wealth under a corporate system, unguarded and uncontrolled by the Nation, has placed in the hands of a few men enormous, secret, irresponsible power over the daily life of the citizen—a power insufferable in a free Government and certain of abuse.30
The solution was not antitrust—a word that does not appear in the Progressive platform—but regulation: “We therefore demand a strong National regulation of inter-State corporations.” The discussion of the Sherman Act treated competition policy solely as a matter of policing the conduct of corporations, not their scale: “We favor strengthening the Sherman Law by prohibiting agreement to divide territory or limit output; refusing to sell to customers who buy from business rivals; to sell below cost in certain areas while maintaining higher prices in other places; using the power of transportation to aid or injure special business concerns; and other unfair trade practices.”31
In addition, the Progressive Party called for the federal government to help large corporations become more competitive, including by export promotion efforts of the kind later carried out by the Export-Import Bank of the United States (EXIM) and the Overseas Private Investment Corporation (OPIC): “The time has come when the Federal Government should co-operate with manufacturers and producers in extending our foreign commerce. … In every way possible our Federal Government should co-operate in this important matter.” The Progressives also called for “the establishment of industrial research laboratories to put the methods and discoveries of science at the service of American producers.” Ironically, agencies like these are often denounced today as examples of corrupt “crony capitalism” by twenty-first century populists and progressives who falsely claim to be the heirs of TR the “trust-buster” and the Progressive Party of a century ago.32
But while socialists, unionists, and nationalists like Herbert Croly and Theodore Roosevelt welcomed large industrial firms under certain conditions, the progressive movement of the early twentieth century also included a group influenced by the antimonopoly tradition. In politics they were represented by William Jennings Bryan, Woodrow Wilson, and, later, Wright Patman. Among intellectuals, their leading proponent was Louis Brandeis.
Brandeis grew up in a prosperous Jewish immigrant family in Louisville, Kentucky, and although he made his career in the Northeast, his worldview was that of a member of the southern merchant-gentry class. Brandeis started his legal career in the 1890s defending small firms against large firms, and developed a distinct animus toward large corporations.33 For him the only reason firms sought bigness was to exploit monopoly power and the only way they attained bigness was through cheating. As the economic historian Thomas K. McCraw writes, “Early in his career, Brandeis decided that big business could become big only through illegitimate means. By his frequent references to the ‘curse of bigness,’ he meant that bigness itself was the mark of Cain, a sign of prior sinning.”34 Moreover, Brandeis went to great pains to try to paint small firms as being as efficient as large ones, declaring in testimony before the US Senate in 1911, for example, that “a corporation may well be too large to be the most efficient instrument of production and of distribution.”35
Woodrow Wilson at times sounded like Theodore Roosevelt in his acknowledgment of the benefits of big business: “Modern business is no doubt best conducted upon a great scale, for which the resources of the single individual are manifestly insufficient.” Wilson denounced “retro-reformers” who wanted “to disintegrate what we have been at such pains to piece together in the organization of modern industrial enterprise.”36 But, like Brandeis, Wilson was a product of the southern gentry elite and shared its suspicion of Teddy Roosevelt’s centralizing, corporation-friendly New Nationalism. Brandeis influenced Wilson’s alternative, the New Freedom, which put greater emphasis on states’ rights and decentralization. In 1912, Brandeis, advising Wilson during the presidential campaign, dismissed Roosevelt’s belief in regulating large enterprises, writing: “We believe that no methods of regulations ever have been or can be devised to remove the menace inherent in private monopoly and overweening commercial power.”37
Daniel A. Crane has observed: “A striking and often misunderstood fact about the 1912 election is that, although all four major candidates generally agreed that something needed to be done about the trusts, only two of them—the conservative Taft and the progressive Wilson—thought that anything like antitrust law, as we currently think of it, was the solution. The two other candidates—Roosevelt and Debs—favored either regulation taking the place of antitrust or complete nationalization of industry.”38
In 1914, President Wilson signed the Clayton Antitrust Act, which created the Federal Trade Commission and sought to toughen the antitrust regime created by the 1890 Sherman Act. But the mobilization of the US economy by the federal government under the Wilson administration during World War I created a degree of national regimentation far beyond anything proposed by Theodore Roosevelt. Following the war, the antimonopoly tradition sank to a low ebb. The Republican presidential administrations of the 1920s, including Herbert Hoover both as president and as commerce secretary, favored allowing a high degree of interfirm cooperation in the interest of efficiency under the name of “associationalism.” Most leaders of the era understood that large corporations were permitting the United States to emerge on the global stage as a leading economy and a great power. Between the two world wars, the US government tolerated the participation of American corporations in transnational cartels beyond US borders.39
In this era both antitrust enforcers and the courts were generally willing to accept large firms, in part because they believed that firms needed scale for efficiency. As the innovation policy scholar David Hart notes, in the formative period from the Sherman Act to the New Deal, antitrust was characterized by the establishment of judicial supremacy and laissez-faire thinking.40 He writes, “The Act is perhaps best read as an effort to recreate the norms of self-governing markets under the watchful eye (and perhaps iron fist) of the Department of Justice and the Federal Courts, without prejudging the specific organizational forms that would evolve in those markets or worrying much about their consequences.”41 Likewise, William H. Page argues that during this period, “The goal of government intervention [was] the restoration of a competitive market rather than the establishment of fair outcomes.”42 And the courts were focused on abusive behavior to attain or retain market share, not possession of significant market share itself. The Supreme Court wrote in the Alcoa case of 1945, “The successful competitor, having been urged to compete, must not be turned upon when he wins.”43 As applied by the courts, antitrust law enforcement in the early twentieth century frequently fell heavily on small businesses, which were charged with collusion, and on labor unions (which won limited exemptions from antitrust laws in the Clayton Act of 1914).
Although he was a Democrat, Franklin D. Roosevelt was closer in his public philosophy to his distant cousin Teddy Roosevelt than to Wilson, whom he served as assistant secretary of the Navy. As president from 1933 to 1945, FDR presided over shifting coalitions with different views of the legitimacy of large-scale private enterprise.
In a speech he delivered at the Commonwealth Club in San Francisco during his 1932 campaign for the presidency, a speech written with the help of Adolph Berle, who with Gardiner Means developed the idea of the separation of ownership from control in modern public corporations, FDR expressed skepticism about antitrust policy: “In retrospect we can now see that the turn of the tide came with the turn of the century. … In that hour, our anti-trust laws were born. The cry was raised against the great corporations. … If the government had a policy it was rather to turn the clock back, to destroy the large combinations and to return to the time when every man owned his individual small business.” “This was impossible,” FDR told his audience. Like his cousin, FDR preferred regulating large corporations to breaking them up:
We did not think because national government had become a threat in the eighteenth century that therefore we should abandon the principle of national government. Nor today should we abandon the principle of strong economic units called corporations, merely because their power is susceptible of easy abuse. In other times we dealt with the problem of an unduly ambitious central government by modifying it gradually into a constitutional democratic government. So today we are modifying and controlling our economic units.44
During what historians call the First New Deal, Brandeisian progressives and Bryanite populists were marginalized. Organized labor as well as progressive nationalists like Adolf A. Berle, an influential member of FDR’s Brains Trust, supported the Agricultural Adjustment Act and the National Industrial Recovery Act (NIRA). The NIRA, modeled on government-brokered employer-labor relations during World War I, sought to raise mass purchasing power in the Great Depression by allowing industries to cartelize, on condition that they shared higher profits in the form of both wages and benefits with their workers.
In 1934, Adolfe Berle warned President Roosevelt that Brandeis, then a Supreme Court justice, and his allies were turning against the New Deal, which they saw as too favorable to big business:
His idea was that we were steadily creating organisms of big business which were growing in power, wiping out the middle class, eliminating small business and putting themselves in a place where they rather than the government were controlling the nation’s destinies. He added that he had gone along with the [New Deal] legislation until now; but that unless he could see some reversal of the big business trend, he was disposed to hold the government control legislation unconstitutional from now on.
Berle told FDR, “His view, if ever stated, would command wide popular support. But as long as people want Ford cars they are likely to have Ford factories and finance to match.”45
Berle was right to warn FDR against Brandeis. In 1935 a unanimous Supreme Court, to which Brandeis then belonged, struck down the NIRA as unconstitutional; in 1936 it struck down the Agricultural Adjustment Act. The latter was revived with slight modifications in the Agricultural Adjustment Act of 1938. The NIRA, however, remained dead. Following the waves of producer republicanism that produced the Sherman Antitrust Act and the Clayton Act, a second wave was rolling toward Washington, D.C.
With the development of the railroad, mass production factories, and a more sophisticated accounting system, by the turn of the twentieth century larger retail stores organized into national chains emerged. By the 1920s, national chains included what would become a number of familiar names, including A&P, Woolworth, Kroger, and J. C. Penney. For many small farmers, the rise of national retail companies was a welcome development, liberating them from the tyranny of the local rural merchants. Following the establishment by the US Post Office of rural free delivery (1896) and parcel post service (1913), southern and midwestern farmers found alternatives to local merchants in the form of mail-order houses. The Amazon.com of its day, Sears, Roebuck was the most important. Farmers would wait with excitement for the latest edition of the Sears, Roebuck catalog because it gave them choice. These new national retailers weakened the exploitative monopolies of the local gentry families who controlled the general store, the unit bank, and much of the farmland. Chain stores improved and diversified American diets by carrying refrigerated meat and dairy products and preserved foods. They made shopping less time-consuming, particularly to the benefit of women. And A&Ps in urban areas provided an alternative for African Americans, who were charged high prices by independent stores.
But the chain stores threatened the local monopolies of general stores and drugstores owned by local elites, particularly in rural areas. A&P, the nation’s largest retail chain, was demonized by populists in the 1920s and 1930s in the same way that Walmart and other “big box” stores were vilified by populists in the 1990s and 2000s for putting out of business “Main Street” stores. During the Great Depression, when local stores lost market share at rapid rate, political attacks on chain stores escalated.
The battle over resale price agreements was first raised in the 1911 Supreme Court case, Dr. Miles Medical Company v. John D. Park and Sons Company. Miles, a seller of drugs, sold only through contracts that prevented druggists from discounting the price of the product. Favored by small local businesses, which feared being undercut by chains that could engage in discount pricing, the policy was challenged as a violation of the Sherman Act by a larger wholesaler, Park, who wanted to sell at a discount. The Court ruled against such resale price agreements. As a result, small merchants went first to state legislatures and then Congress for protection. Brandeis railed against the decision (this was before he was on the court), writing that “prohibition on price-maintenance imposes upon the small and independent producers a serious handicap.”46
A “fair trade” law passed by California in 1931 was copied by nine other states, including New York and Illinois, by 1935. Around the same time, fifteen other states enacted resale price-fixing legislation that prevented the chains from offering discounts.47 In Jackson (1931), the Supreme Court upheld an anti–chain store law passed by the Indiana legislature that imposed higher taxes on chain stores, and later upheld a similar Georgia law. Between 1931 and 1940, twenty-two states adopted anti–chain store tax laws that survived court tests.48 But not all did. The Court struck down a Florida law targeting chain stores in Liggett (1933), in a decision in which Brandeis wrote a passionate dissent. Former governor of Louisiana Huey Long, then a US senator but still the dominant Louisiana politician, declared: “I would rather have thieves and gangsters than chain stores in Louisiana.”49
Another southern populist, Wright Patman, became the national leader of the anti–chain store movement in the 1930s. Born in a log cabin in East Texas in 1893, Patman was elected to the House of Representatives in 1928 in a campaign in which he denounced the “money barons of the East” and declared his opposition to “monopolies, trusts, branch banking and excessive and discriminating freight rates.”50 An agrarian populist in the William Jennings Bryan tradition, Patman in 1934 authored a self-published tract, Bankerteering, Bonuseering, Melloneering.
In Congress, Patman served as a front for lobbyists representing small distributors. What became the Robinson-Patman Act of 1936, which outlawed various kinds of discounts that advantaged large chain stores, was drafted by H. B. Teegarden, the general counsel of United States Wholesale Grocers, and backed by that lobby, along with the National Association of Retail Druggists.51 Patman’s nationwide speaking tour the following year, 1937, was paid for in part by McKesson & Robbins, a drug wholesaler that was financing the anti–chain store campaign to gain support of independent drug stores, all the while secretly assembling its own retail drug store chain. Patman’s patron, the president of McKesson, had adopted the name David F. Coster to conceal his earlier life as Philip Musica, a convicted gunrunner, smuggler, and bootlegger; the revelation of his crimes in 1938 led to his suicide.52
In 1937, mom-and-pop operations won another victory with the Miller-Tydings Act, which amended the Sherman Antitrust Act to allow contracts to prescribe minimum prices for the resale of products sold in interstate commerce, essentially making Dr. Miles moot. This was intended to prevent volume discounts by chain stores. But the passage of the Robinson-Patman Act and the Miller-Tydings Act marked the peak of the influence of the anti–chain store movement. Consumer groups and labor unions joined retail chains to fight back. The Roosevelt administration and leading Democrats in Congress, among them House Speaker Sam Rayburn, distanced themselves from Patman. In 1938 the Texan populist introduced a bill to impose a federal tax on chain stores, declaring: “A democracy of opportunity and the freedom of individual initiative cannot survive in competition with the unnatural and inherent economic and financial advantages of the chains.”53 Despite Patman’s increasingly inflammatory rhetoric—“Let’s keep Hitler’s methods of government and business in Europe”—the bill died in committee in 1940.
In addition, states and localities, pressed by small retailers, pushed for other legislation to protect them, including Sunday closing laws (to limit competition with mom-and-pop stores whose owners took Sunday off), licensing of florists to keep big chains from selling flowers, and laws curbing advertising of prices. As Stanley C. Hollander wrote in 1980, “The list of all such laws is almost infinite.”54
After World War II, retail chains and supermarkets became such a familiar feature of the new suburban middle-class lifestyle that the once passionate crusade against chain stores faded from memory. In 1951 the Supreme Court in Schwegman Bros. v. Calvert Distillers gutted the Miller-Tydings Act, and in 1976 the act was formally repealed. The Robinson-Patman Act remains on the books but is only rarely enforced. Patman remained in Congress until his death in 1976, but in 1975 he was stripped of his chairmanship of the US House Committee on Banking and Currency as younger Democratic reformers overthrew the old seniority system that benefited reactionary members from what was then the one-party South.
The goal of Brandeis, Patman, and other producer republicans was to maximize the number of small, independent proprietors, if necessary through price-fixing “fair trade laws” and punitive antitrust laws that artificially raised prices for consumers. The Brandeis-Patman approach is not accurately described as “populism” because it served the interests of the relatively affluent and politically powerful petty local bourgeoisie in small-town America, not wage earners and farm laborers and small family farmers whose lives were dramatically improved by the low prices offered by large manufacturing companies and national retail chains, just as their lives are improved today by large efficient retailers.
One of the ironies of the antimonopoly tradition is that the rhetoric of the small business owner as the backbone of democracy was deployed most vigorously in the twentieth century in the least free and most hierarchical part of the United States, the American South.
In the South, the rhetoric of the antimonopoly tradition was employed to defend, among other things, the small-scale local monopolies of the rural “furnishing merchant.” Between Reconstruction and the New Deal of the 1930s, the old slave plantation system was replaced by the crop-lien system. Under the crop-lien system, farmers, many of them tenants of landlords, would sign away the rights to the future sales of their crops to local merchants as collateral for loans of seed and tools. During this era, there were alliances or even mergers among the petty local despots in the South, the rural merchants and the large landowners. Merchants often used their profits from exploiting local farmers to invest in local land, becoming major landowners themselves. In other cases, landlords opened up general stores for their tenants and neighbors.
According to one contemporary observer, the rural store keeper “was all things to his community. … His store was the hub of the local universe. It was the market place, banking and credit source, recreational center, public forum, and news exchange. There were few aspects of farm life in the South after 1870 which were uninfluenced by the country store.”55 In the words of one study, “The rural merchant of the Cotton South was a monopolist who held a local, territorial monopoly over credit. As a monopolist he exploited his customers by charging exorbitant prices.” The terms on which the merchants made loans to farmers were highly exploitative. The “cash price” offered to farmers who could pay in cash was usually much lower than the “credit price,” which sometimes translated into an interest rate of 40 or 60 percent.56
The southern country merchants, while fleecing local farmers and laborers, damaged the southern economy. The merchants pressured their debtors to grow more cotton and fewer crops of other kinds, reducing the diversification of the southern agrarian economy. The southern journalist Henry Grady observed in 1899: “When [the farmer] saw the wisdom of raising his own corn, bacon, grasses and stock, he was NOTIFIED that reducing his cotton acreage was reducing his line of credit.”57 This overreliance on cotton worsened the impact on the regional economy of the boll weevil infestation of the early twentieth century and reinforced the dependency of many farmers.58
In the early twentieth century, in US counties in which an elite of landowners had disproportionately large landholdings, there were fewer banks and credit was costlier, according to a study whose authors conclude: “The evidence suggests that elites may restrict financial development in order to limit access to finance, and they may be able to do so even in countries with well-developed political institutions.”59
Unit banking laws protected small local banks from competition by outlawing branch banking among states and sometimes among cities within a single state. As we have seen, the small-town unit bankers and the furnishing merchants were sometimes the same individuals. When the McFadden Act of 1927 sought to require states to provide the same branching rights to national banks that were provided to state banks, congressional opposition came largely from counties in which landholdings were concentrated in a local elite and in which bank credit was expensive.60
Far from defending freedom and democracy for ordinary Americans against plutocracy, the antimonopoly tradition served the selfish economic interests and social prestige of the “local notables” or petty oligarchs of rural and small-town America, particularly in the South and Southwest and Midwest. The very regions—such as the South—that were the most supportive of anti–chain store and unit banking laws that preserved local monopolies for local oligarchs also tended to be the regions of the country most hostile to laws protecting African Americans, organized labor, women’s rights, anticensorship reforms and sexual and reproductive rights. Those reforms all enlarged individual freedoms but threatened the provincial elite’s domination of the social order. When they spoke of freedom, the antimonopolists of the Brandeis-Patman school did not mean political and civil freedom for nonwhite Americans, or the economic freedom for consumers to buy goods at the lowest price from the greatest number of producers or distributors, or the freedom of borrowers to obtain credit at the lowest possible rates. No: when the Brandeisian antimonopolists of the first half of the twentieth century spoke of freedom, they meant freedom from competition that could undermine the income and social status of small-town merchants and small-town bankers.
What Thomas K. McCraw has written of Brandeis applies as well to Patman and other champions of the producer republican tradition:
In the last analysis, Brandeis’s emphasis on bigness as the essence of the problem doomed to superficiality both his diagnosis and his prescription. … It meant, finally, that he must become in significant measure not the “People’s Lawyer” but the mouthpiece for retail druggists, small shoe manufacturers, and other members of the petite bourgeoisie. These groups, like so many others in American history, were seeking to use the power of government to redress or reverse economic forces that were threatening to render them obsolete. And in Brandeis they found a great advocate.61