Not yet a year into its term, the initially popular Obama administration has plummeted in popularity. In light of Washington’s escalated meddling in the economy, many Americans are expressing deep concerns and anger about the statist direction in which this administration is steering the country. Unfortunately, however, few Americans are aware of—and the media is ignoring—one of the administration’s most serious threats to our freedom: its stated intention to bolster antitrust enforcement.

Since May, Christine Varney, the newly appointed assistant attorney general for the Justice Department’s Antitrust Division, has conducted a speaking tour promoting the Division’s new mandate under Obama and affirming the president’s many campaign promises to “reinvigorate antitrust enforcement.” Varney and her counterpart at the Federal Trade Commission, Jon Leibowitz, are publicly threatening “possible investigations” of businesses ranging from Google to Monsanto to IBM. In response to this new climate, antitrust advocates from Senator Charles Schumer to the American Booksellers Association have called on Varney to undertake new prosecutions. And New York Attorney General Andrew Cuomo recently joined the push by filing a suit against Intel.1

Americans should not only be aware of this ominous trend; they should be up in arms about it. Antitrust laws violate the rights of American businessmen and consumers, thwart economic development, and stifle our quality of life in myriad ways. To see why, we must first understand what antitrust law is.

During the second half of the 19th century, as American companies grew and acquired assets around the country, they found themselves in a difficult position. Although companies could achieve economies of scale by acquiring smaller firms and unifying their efforts, state laws prevented them from doing so. Whereas some state legislatures imposed special taxes on out-of-state corporations doing business in their states, other legislatures forbade corporations in their state from holding the stock of companies based elsewhere. (Legislators established such restrictions in the hope that they would force successful companies to incorporate—and thus pay taxes—in their state.) In response to these restrictions on acquisitions, C. T. Dodd and John D. Rockefeller of Standard Oil created a new form of business using the device of a legal trust, which enabled them to hold the stock of dozens of companies and thus effectively manage vast productive assets.2 The operational and financial advantages of this novel corporate structure were immense, yet critics alleged that the newly created trusts were “odious monopolies,” charging them with “making competition impossible,” “raising prices,” and “disregarding the interests of the American consumer.”3

Critics condemned this new legal device as a “problem” and branded businessmen who employed it as “robber barons.” Yet these businessmen used this legal device to create their vast fortunes by increasing competition, lowering prices, and providing American consumers with more and better products.4 The problem was not that their novel form of business had generated economic inefficiencies—it had done the opposite. Rather, the problem was a political one. Because these businesses were becoming fabulously successful and their owners enormously wealthy, egalitarian-minded and envious Americans pressured politicians to “do something,” and politicians, seeking approval, got “tough” on the issue.

A solution to the trust “problem” came in the form of the Sherman Antitrust Act of 1890. Senator John Sherman and his colleagues claimed that trusts were “combinations that affect injuriously the industrial liberty of the citizens of these States.”5 Critics of the trusts claimed that their high profits were achieved—not through the entrepreneurial, managerial, and productive genius of men such as Rockefeller, Edison, and Carnegie—but by “the few extorting the many.”6 Because of the “public outcry on the trust question” and the alleged need to protect the “interests of the consumer,” Sherman and his colleagues advocated the creation of a broad law that outlawed “monopolization” and “restraint of trade.” That law was the Sherman Antitrust Act, and since its passage in 1890 Congress has added five other antitrust laws to the books, prohibiting dozens of supposedly “anticompetitive” business practices.7

Although antitrust laws outlaw practices such as “monopolization,” “restraint of trade,” and “collusion,” they do not define these practices in clear, unequivocal terms. Rather, the government is charged with determining “the precise line between lawful and unlawful combinations . . . in each particular case” by reference to whether a defendant’s actions could be demonstrated to be “injurious to the public”—a phrase itself left open to interpretation.8

Under antitrust laws, the legality of a business’s activities and practices can be determined only after the fact. The same actions are sometimes legal and other times not, depending on which business takes them, their effect on competition, the “interests of the consumer,” and the mood of a bureaucrat, judge, or jury.9 Moreover, as philosopher Ayn Rand observed in 1962, complying with one antitrust law entails violating others:

Under the antitrust laws, a man becomes a criminal from the moment he goes into business, no matter what he does. If he complies with one of these laws, he faces criminal prosecution under several others. For instance, if he charges prices which some bureaucrats judge as too high, he can be prosecuted for monopoly or for a successful “intent to monopolize”; if he charges prices lower than those of his competitors, he can be prosecuted for “unfair competition” or “restraint of trade”; and if he charges the same prices as his competitors, he can be prosecuted for “collusion” or “conspiracy.”10

In the years since Rand made this observation, countless businessmen have been deemed criminals for simply producing, pricing, and trading with one another on voluntary terms to mutual consent.11

Businessmen such as Steve Jobs and John Mackey are not armed thugs who steal from bodegas or Mafia dons who protect their racket by breaking the legs of their “competitors.” Such men create wealth by producing goods and services and offering them for trade, and to do so they must think long range and engage in complex planning with respect to their businesses, ceaselessly pursuing innovation according to their vision. Such planning enables them to enlist millions of dollars in capital expenditures, establish contracts with suppliers for future deliveries, and create expectations for their workers, customers, partners, and stockholders. In order to do all of this, businessmen require a predictable and stable legal environment.

Antitrust laws destroy this environment. Under antitrust, before signing a given contract or making a decision, a businessman knows that the actions he takes today may be declared illegal tomorrow. Rather than focus fully on the requirements of running a profitable business, he must expend substantial effort attempting to forecast the shifting winds of antitrust, driven by the fickle moods of bureaucrats, politicians, and judges. If his forecasts are correct, then he will have merely lost a great deal of time and money that would have been better spent developing innovative products and services, improving his business’s efficiency and profit margins, and delivering life-serving goods to the marketplace. If his forecasts are incorrect, then he will have lost not only that time and money, but also the time and money he will now have to expend attempting to demonstrate that his particular action in a particular instance does not constitute harm to the “common good.”

Many of America’s most successful businesses—from Standard Oil to Alcoa to IBM to the Brown Shoe Company to Microsoft—have been prosecuted and, in some cases, broken up under antitrust laws. All the while, the breadth and enforcement of these laws have only increased. Every major merger or acquisition in the past thirty years has been subject to government approval, making such transactions slower and more costly—if they are not blocked altogether. Antitrust suits are now brought against companies by the Department of Justice (DOJ), by the Federal Trade Commission (FTC), by state attorneys general, and even by private parties in civil suits.

In late 2008, the Bush administration’s DOJ issued the so-called “Section 2 Report,” which called for taking a softer stance with respect to single-firm “anticompetitive” behavior, the goal being to scale back enforcement in order to prevent “over-deterrence” and maximize “consumer benefit.” Although the Bush DOJ never brought a major case against an individual business for anticompetitive behavior, the government’s concern with subjugating businesses for the “benefit” of consumers remained. During the Bush administration, the FTC investigated, delayed, blocked, and imposed conditions on dozens of mergers and acquisitions—from the XM and Sirius satellite radio merger to the Whole Foods acquisition of Wild Oats.

As bad as things were under Bush, they promise only to get worse under the Obama administration. At a speech before the Center for American Progress in May 2009, Varney retracted the Bush DOJ’s Section 2 Report and outlined her vision for a new era of antitrust. Invoking the step-up in antitrust enforcement that followed the New Deal in 1937, Varney made clear the administration’s intention to use antitrust in response to the economic crisis. The Obama White House is using a government-created crisis as an excuse to expand the reach of government: The DOJ and FTC promise to wield their antitrust powers against businesses in the very sectors of the economy that are already among the most highly regulated—financial services, agriculture, and railroad shipping—sectors in which existing regulations have created the problems that antitrust supposedly will solve.

For instance, Varney seeks to “increase competition” in agribusiness, an industry whose problems, to the extent they exist, stem not from unregulated market activity, but from decades of price controls, government subsidies in the form of direct payments to farmers, and tariff protection for favored crops.12

Likewise, Varney says her department will pay special attention to businesses that have received money from the American Recovery and Reinvestment Act.13 Her message amounts to the threat: Succeed beyond a certain, unspecified point, and we will target you with the antitrust cudgel. Whereas the Obama administration first distorted markets with its “stimulus package” in order to “help” struggling businesses, it will now distort markets by attacking those same businesses for becoming too successful or engaging in as-yet unspecified “collusive” or “anticompetitive” behavior. In this capacity, the DOJ might accuse “stimulus package” recipients General Motors and Chrysler of collusion for coordinating their sales and marketing strategies—and demand that they end their arrangement or face prosecution.

Under Obama’s DOJ, the government seeks to be a financial lifeline for failed businesses so that, through the threat of antitrust prosecution, it can then compel them to act against their best judgment and for the sake of the “common good.” Such “assistance” with strings attached is a recipe for a massive increase in government control of the economy.

In addition to rejecting her predecessors’ concerns about “over-deterrence,” Varney wants the DOJ’s Antitrust Division to dispense with its so-called “disproportionality test.” Under the Section 2 Report guidelines, Bush’s DOJ attempted to reduce administrative and legal costs by establishing criteria for the determination of anticompetitive conduct. Though such a test would not have removed the underlying injustice of antitrust law, it would have added a modicum of predictability by mitigating the case-by-case nature of antitrust and providing businessmen with conduct-based guidelines. But Varney complains that this “disproportionality test” would limit the government’s ability to prosecute: By reference to the test, a business’s conduct is considered anticompetitive only “where it results in harm to competition that is disproportionate to consumer benefits and to the economic benefits to the defendant.”14 Hostile to any change that in any way restricts its ability to prosecute anticompetitive behavior, the Division has jettisoned the rule and adopted the method set forth by the D.C. Circuit Court in the Microsoft case. According to Varney, the DOJ will now “look closely at both the perceived pro-competitive and anti-competitive aspects of a dominant firm’s conduct, weigh those factors, and determine whether on balance the net effect of this conduct harms competition and consumers.”15 Varney’s approach places businessmen entirely at the mercy and whims of the government.

If the Obama administration continues apace, businessmen will find it even harder to merge firms, to acquire less successful competitors, to cut costs, and to pursue new product and profit opportunities. America’s leading firms will have to spend millions to fight off competitors’ lawsuits and to lobby Washington for some reprieve. Businesses will be even less free to operate efficiently and produce the goods and services on which their and our standard of living depends. Americans who value freedom and prosperity must oppose the Obama administration’s efforts to bolster antitrust enforcement—and oppose antitrust as such.

Unfortunately, the current arguments of antitrust’s most vocal opponents are doomed to fail.

Steve Forbes, for instance, recently argued that antitrust laws “serve no public good” and that free markets “are much more efficient antitrust enforcers than Washington politicians could ever be.”16 By granting the premise that service to the “public good” should be the metric by which to judge the legality of business conduct, Forbes accepts the basic premise of antitrust: that the government should intervene in the economy if and when doing so is for the “common good.” In the current climate of antibusiness sentiment—in which many Americans have been led to believe that conniving executives and exotic financial instruments caused the financial crisis and thus harmed the “common good”—the proponents of antitrust need only answer Forbes by asserting, as they always have, that free markets cannot be trusted to achieve the “common good.”

Likewise, L. Gordon Crovitz, writing in the Wall Street Journal, opposed the new administration’s antitrust vigor on the grounds that it will no longer protect “consumer interests.” Because companies such as Microsoft and Google innovate in a rapidly changing marketplace, argues Crovitz, antitrust enforcement will “postpon[e] consumer benefits,” keeping valuable new products and services out of the hands of consumers.17 Although this is true, by framing his argument in terms of “consumer interest” and “consumer benefit,” Crovitz, like Forbes, concedes that the so-called “public good” should be the standard by which to determine whether the government should prosecute a company. On this view, if the government performs some calculations and concludes that prohibiting a merger or prosecuting a company will protect “consumer interests” or advance “consumer benefits,” then the government should prohibit the merger or prosecute the company. Having granted this premise, Crovitz has relinquished all principled objections to antitrust, which is based on this very premise.

Along similar lines, supporters of productive companies undergoing FTC or DOJ investigations, such as Intel and Whole Foods, often argue that these companies contribute significantly to the economy and thus should be left alone. Indeed, such companies do provide highly popular products at generally affordable prices. But, again, such arguments rest on the antitrust premise that a business’s contribution to the “common good” constitutes the grounds on which it should or should not be left alone by the government. To justify the use of force against such companies, an advocate of antitrust need only point to competitors who are having trouble competing with these firms, or to consumers who cannot afford their products, or to the “danger” of these companies one day becoming “too anticompetitive” or “too monopolistic” and thus operating outside the parameters of the “common good.”

When critics of antitrust argue that such laws are a poor means of achieving the “common good,” they grant the moral high ground to advocates of antitrust. By reference to both history and logic, so long as Americans accept service to society as the justification for a business’s existence, support for antitrust will remain strong, and antitrust enforcement will continue to wreak havoc on markets, producers, and consumers.

The moral justification for a business’s existence does not lie in its ability to serve the “common good”; it rests in the moral right of each individual to act on his own judgment, on behalf of his own life, and to profit from his success. The only proper function of government in accord with this moral right is to protect individuals from force and fraud, thereby ensuring that they remain free to pursue their own goals and profits. The government’s proper position with respect to businesses—which are nothing more than freely associating individuals—is to leave them alone to operate as their owners see fit.

Whether a given company has a small portion of its respective market or becomes literally the only producer in that market, the government has no moral right to meddle in its affairs. Just as consumers morally must be free to use or avoid use of a company’s products, so companies morally must be free to produce and trade on their own terms. The only proper question with regard to a given firm’s market share is whether it was attained through production and voluntary exchange—or through force or fraud.

Antitrust laws violate the rights of Americans to produce and trade according to their own judgment. Such laws are immoral. Americans should denounce not only the Obama administration’s reinvigoration of antitrust enforcement, but antitrust laws as such.

Endnotes

1 Michael Gormley, “Feds to Probe Low Milk Prices Paid to NY Farmers,” Google News, November 15, 2009, http://www.google.com/hostednews/ap/article/ALeqM5jQ5m-idpiNqRyMf3M2G990PgmgJQD9C04QN00; “Reaction to ABA’s Letter to Justice Department Abounds,” October 29, 2009, http://news.bookweb.org/news/7140.html; Arik Hesseldahl, “NY AG Files Antitrust Suit Against Intel,” BusinessWeek,November 9, 2009, http://www.businessweek.com/the_thread/techbeat/archives/2009/11/ny_ag_cuomo_fil.html.

2 Dominick Armentano, Antitrust and Monopoly: Anatomy of a Policy Failure (Oakland, CA: The Independent Institute, 1999), pp. 64–65.

3 Many examples of such language describing the trusts can be found in the newspaper debates of the late 1880s. See, for example, “An Odious Monopoly,” New York Times, November 30, 1886, p. 4; Henry Demarest Lloyd, “The Story of a Great Monopoly,” Atlantic Monthly,vol. 47, March 1881, pp. 317–34; Henry Demarest Lloyd, “The Lords of Industry,” North American Review,vol. 138, June 1884, pp. 535–53; Senator John Sherman, 21 Congressional Record,p. 2457 (1890). For more contemporary examples of attitudes about the trusts, see Arthur P. Dudden, “Men Against Monopoly: The Prelude to Trust-Busting,” Journal of the History of Ideas, vol. 18, no. 4, October 1957, pp. 587–93.

4 For elaboration on this point, see Alex Epstein, “Vindicating Capitalism: The Real History of the Standard Oil Company,” The Objective Standard, vol. 3, no. 2, Summer 2008; and Burton W. Folsom, The Myth of the Robber Barons: A New Look at the Rise of Big Business in America (Herndon, VA: Young America’s Foundation, 1991).

5 Senator John Sherman, 21 Congressional Record,p. 2456 (1890).

6 Morrison Isaac Swift, “What Shall Be Done with Trusts,” Andover Review,August 1888, p. 124, quoted in Sanford D. Gordon, “Attitudes Towards Trusts Prior to the Sherman Act,” Southern Economic Journal,vol. 30, no. 2,October 1963, p. 166.

7 A good narrative of the origins and justification of antitrust can be found in William F. Shughart II, Antitrust Policy and Interest-Group Politics (New York: Quorum Books, 1990), pp. 11–35. See also Robert Bork, The Antitrust Paradox: A Policy At War with Itself (New York: Basic Books, 1978); George J. Stigler, “The Origin of the Sherman Act,” Journal of Legal Studies,vol.14, January 1985, pp. 1–12; A. D. Neale, The Antitrust Laws of the USA: A Study of Competition Enforced by Law (Cambridge: Cambridge University Press, 1970); Hans B. Thorelli, The Federal Antitrust Policy: Origination of an American Tradition (Baltimore: The Johns Hopkins Press, 1955); and William Letwin, Law and Economic Policy in America: The Evolution of the Sherman Antitrust Act (Edinburgh: Edinburgh University Press, 1967). For a discussion of the origins of antimonopoly laws and antimonopoly thought in America, see Eric Daniels, “Reversing Course: American Attitudes about Monopolies, 1607–1890,” in Gary Hull, ed., The Abolition of Antitrust (New Brunswick, NJ: Transaction Publishers, 2005), pp. 63–94. See also Gretchen Ritter, Goldbugs and Greenbacks: The Antimonopoly Tradition and the Politics of Finance in America, 1865–1896 (Cambridge: Cambridge University Press, 1997).

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8 Senator John Sherman, 21 Congressional Record,p. 2460 (1890).

9 This is an example of what Ayn Rand called nonobjective law. See Ayn Rand, “Antitrust: The Rule of Unreason” and “The Nature of Government,” in Capitalism: The Unknown Ideal (New York: Signet, 1967). There is also a useful discussion of nonobjective law by Ayn Rand available as an audio interview at http://atlasshrugged.com/ayn-rand-works/ar-objective-law.html. Another insightful discussion of nonobjective law can be found in Tara Smith, “‘Humanity’s Darkest Evil’: The Lethal Destructiveness of Non-Objective Law,” in Robert Mayhew, ed., Essays on Ayn Rand’s Atlas Shrugged (Lanham, MD: Lexington Books, 2009), pp. 335–62.

10 Ayn Rand, “Choose Your Issues,” The Objectivist Newsletter, January 1962, p. 1.

11 See Armentano, Antitrust and Monopoly,pp. 133–66.

12 See Monica Hughes, “A Brief History of U.S. Farm Policy and the Need for Free-Market Agriculture,” The Objective Standard, vol. 4, no. 2, Summer 2009.

13 Christine Varney, “Vigorous Antitrust Enforcement in this Challenging Era,” Department of Justice, remarks as prepared for the Center for American Progress, May 11, 2009, http://www.usdoj.gov/atr/public/speeches/245711.htm.

14 Varney, “Vigorous Antitrust Enforcement.”

15 Varney, “Vigorous Antitrust Enforcement.”

16 Steve Forbes, “Who Needs Antitrust? We Don’t,” Forbes, August 24, 2009, http://www.forbes.com/forbes/2009/0824/opinions-steve-forbes-who-needs-antitrust.html.

17 L. Gordon Crovitz, “The Antitrust Anachronism,” Wall Street Journal, August 3, 2009, http://online.wsj.com/article/SB10001424052970204313604574326250751120772.html.

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