Antitrust Regulation

The last chapter of my book on The Great Merger Movement includes a discussion of antitrust policy during the Progressive Era. When I wrote that chapter, I accepted the conventional wisdom that the states could not regulate giant consolidations operating on a national or even international scale and, as a consequence, the federal government had to take over responsibility for antitrust policy. I was also influenced by Charles McCurdy’s argument that the federal government had a more limited and less effectual toolkit for this purpose than the states, which possessed the power to charter and hence dissolve corporations. After I finished the book I went on to work on other topics and did not give much more thought to these issues until I began to work on “Regulatory Races: The Effects of Jurisdictional Competition on Regulatory Standards,” coauthored with Bruce Carruthers. The article had its origin in a conference sponsored by the Tobin Project in 2008. The motivating session involved Barney Frank, then a senior congressman from Massachusetts who was involved in drafting what ultimately became the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Frank was discussing businesses’ effectiveness in protesting proposed regulations by claiming that the costs of the new rules would force them to move their enterprises elsewhere. I raised my hand and asked whether he and his colleagues had any way of assessing those threats, and Frank responded that that was the kind of question on which they needed the guidance of the scholars in attendance. Bruce and I talked after the session and decided to find out what was known about the extent of “regulatory arbitrage” (that is, the movement of business activity across jurisdictions in response to differences in the cost of regulation) and also “regulatory races” (jurisdictions changing their regulations in response to the threat of such movements). With funding from the Tobin Project, we surveyed the literature with respect to four broad areas of regulation: labor, the environment, corporate governance, and finance. To our surprise, we found that actual instances of regulatory arbitrage and races were rare. We also discovered that the example of a regulatory race most often cited—the chartermongering competition instigated by New Jersey in 1889—was, to say the least, overstated.

This discovery led me to rethink the history of antitrust policy and particularly the role of the states. In a new paper for the Tobin Project (“Antimonopoly and State Regulation of Corporations in the Gilded Age and Progressive Era”), I argue that the literature has been disproportionately influenced by the experience of a few Northeastern states that abandoned antitrust enforcement by the early twentieth century. There was in fact considerable heterogeneity in states’ antitrust efforts, and some states actually stepped up their enforcement activities during this period. The avidity with which states pursued an antitrust agenda generally followed an East-West gradient. In the East, where big businesses interests were particularly strong, there was less activity than in the West, particularly in the plains region, where farmers and other oppositional groups had greater strength. These patterns suggested that the political economy of the states was as important in explaining the locus of antitrust activity as was the growth in power of the federal government.

In “Voting Trusts and Antitrust: Rethinking the Role of Shareholder Litigation in Public Regulation, 1880s to 1930s,” Laura Philips Sawyer and I opened up another front in this debate. Stimulated by the recent literature on private enforcement regimes, we documented the role in antitrust policy played by the private law suits that shareholders brought against their own companies under states’ general incorporation laws. Historically judges had been reluctant to intervene in corporations’ internal affairs and had been wary of the potential for opportunism in shareholders’ lawsuits. By the end of the nineteenth century, however, they had begun to revise their views and see shareholders as useful allies in the struggle against monopoly. Although the balance between judges’ suspicion of and support for shareholders’ activism shifted back and forth over time in response to events like Congress’s “money trust” investigation, in the end the lawsuits provoked state legislatures to strengthen competition policy by making devices like voting trusts unsuitable for purposes of economic concentration. We argue that these revisions to state incorporation statutes were as important as the Clayton Act in limiting finance capitalism’s reach over the American economy and, in combination with both state and federal antitrust statutes, exerted an enduring check on monopoly power in the US economy.

None of this means that national antitrust policy was unimportant, and I have revised my thinking about that as well (see “The Problem of Bigness: From Standard Oil to Google”). Although it took some time for the federal government to develop appropriate policy tools, given that it lacked the states’ direct powers over corporations, the basic elements came together with the Supreme Court’s articulation of the Rule of Reason in 1911 and Congress’s enactment of Clayton Antitrust and Federal Trade Commission Acts in 1914. Although policy makers spoke facilely about good trusts and bad trusts, the real problem was that even good trusts (that is, firms that had grown large relative to the market because they made a superior product or were more efficient) could resort to anticompetitive tactics to preserve their advantages. After 1914 policy makers had the tools they needed to police the boundary between anticompetitive practices and those that enhanced efficiency, but striking the right balance proved difficult. Over the last century they have sometimes swung too far in the direction of seeing bigness itself as an evil, but at other times they have been blind to the possibility that efficient firms could behave in nefarious ways.

Related Publications:

Naomi R. Lamoreaux, “Antimonopoly and State Regulation of Corporations in the Gilded Age and Progressive Era,” in Antimonopoly and American Democracy, eds. Daniel A. Crane and William J. Novak (New York: Oxford University Press, 2023), 119-167.

Naomi R. Lamoreaux and Laura Phillips Sawyer, “Voting Trusts and Antitrust: Rethinking the Role of Shareholder Litigation in Public Regulation, 1880s to 1930s,” Law and History Review 39 (August 2021), 569-600.

:Naomi R. Lamoreaux, “The Problem of Bigness: From Standard Oil to Google,” Journal of Economic Perspectives 33 (Summer 2019), 94-117.

Naomi R. Lamoreaux, “The Dartmouth College Decision as a Pillar of the Regulatory State,” HistPhil, https://histphil.org/2019/07/11/the-dartmouth-college-decision-as-a-pillar-of-the-regulatory-state/.

Naomi R. Lamoreaux and Peter A. Coclanis, “Roundtable Review of Alan L. Olmstead and Paul W. Rhode, Arresting Contagion,” Agricultural History 93 (Spring 2019): 385-396

Naomi R. Lamoreaux and William Novak, eds., Corporations and American Democracy (Cambridge, Mass.: Harvard University Press, 2017).

Bruce G. Carruthers and Naomi R. Lamoreaux, “Regulatory Races: The Effects of Jurisdictional Competition on Regulatory Standards,” Journal of Economic Literature 54 (March 2016): 52-97.

Ruth H. Bloch and Naomi R. Lamoreaux, “Property v. Liberty: The Supreme Court’s Radical Break with Its Historical Treatment of Corporations,” in AHA Roundtable: Historians Weigh in on Hobby Lobby (July 2014), Perspectives on History, https://www.historians.org/publications-and-directories/perspectives-on-history/summer-2014/property-v-liberty.

“Brief of Amici Curiae: Historians and Legal Scholars Supporting Neither Party,” in the Supreme Court of the United States, Sebelius v. Hobby Lobby Stores (28 Jan, 2014).

Naomi R. Lamoreaux, “Entrepreneurship, Business Organization, and Economic Concentration,” Cambridge Economic History of the United States, Volume II: The Long Nineteenth Century, eds. Robert E. Gallman and Stanley L. Engerman (New York: Cambridge University Press, 2000), 403-34.

Naomi R. Lamoreaux, The Great Merger Movement in American Business, 1895-1904 (New York: Cambridge University Press, 1985).

Naomi R. Lamoreaux, “The Regulatory Agencies,” Encyclopedia of American Political History (New York: Charles Scribner’s Sons, 1984).

Naomi R. Lamoreaux, “From Antitrust to Supply Side Economics: The Strange History of Federal Intervention in the Economy,” Essays on Supply Side Economics, ed. David G. Raboy (Washington, DC: Institute for Research on the Economics of Taxation, 1982), 153-73.