By Douglas V. Gibbs
Author, Speaker, Instructor, Radio Host
Excerpt from my new book coming this Summer: A Promise of Truth Self-Evident – History of the United States of America.
― TRUSTS AND TRUSTBUSTERS ―
The
American Revolutionaries fought against mercantilism that manifested when
English merchants used their influence on the British Parliament to ensure laws
that protected their commercial interests were passed. With the advent of the innovations and
inventions of the late nineteenth century the methods of managing business and
manufacturing evolved as well. The railroad
business managers worked together to reach their goals, and used government to
ensure their lines were united and ran from ocean to ocean. Other businessmen followed the model provided
by the railroads, forming agreements with their rivals commonly called
“trusts.” The agreements, since they
diminished competition or rivalry among businesses, allowed the trusts to fix
prices as they pleased. The trusts
claimed their aim was to introduce more economical methods of conducting
business, and once their enormous fortunes were established they used their
power of wealth and strategic connections in government to influence the law so
that laws could be made in their favor.
The formation of trusts controlled the railroad lines, iron and steel,
tobacco, petroleum, meat, sugar, cotton, leather, and other industries.
John
D. Rockefeller formed the first trust in 1882 with the establishment of the
Standard Oil Company. With the
dependency on oil for the daily existence of families and businesses increasing
across the country, and throughout the world, the trust formed by Rockefeller
forced consumers to pay whatever price he wanted to charge for his oil. The trust had eliminated all competition,
pulling the entire industry under one umbrella.
The
Sherman Antitrust Act in 1890 signed by President Benjamin Harrison outlawed
trusts and monopolies. However,
Rockefeller and other wealthy men in the country used their money to contribute
to political campaigns, which led to the government being reluctant about enforcing
the Sherman Antitrust Act.
President
Theodore Roosevelt campaigned that he would enforce the Sherman Act with
regularity. He became known as the
“trust-busting” president. More than
forty lawsuits were launched against companies, but Roosevelt was more
interested in regulating trusts rather than dissolving them. He believed there were good trusts and bad
trusts, and through government regulation they could be dealt with on an
individual basis. Congress did not
agree.
The
history that we have been provided has placed all of the blame of the problems
we see with big corporations, crony-capitalism, and corporatism that reminds us
a lot of British mercantilism that we fought a revolutionary war to get away
from, on the rise of big businesses, and powerful, wealthy business tycoons who
cared more about profit than the well-being of the average citizen. Then, government came to the rescue to save
the people from predatory business practices.
“Power to the People.”
Except,
there’s more to the story than meets the eye, as are the usual tendencies of
history. While in the end the
partnership between government and big business became a problem, and remains a
problem in today’s society, one has to ask, which came first, the chicken? Or, the egg?
America,
at its founding, believed in two very specific principles. A consolidation of any power in any one
location is dangerous and must not be allowed, hence the limitations on the
federal government and the move away from democracy towards republicanism; and laissez-faire,
which is a principle based on the idea that things must be left to follow their
own course without government influence, collusion, or control. Trusts challenged both principles. Trusts were a consolidation of business
power, seeking control over the market, and a squashing of any competition that
dared to rise up against it. But, if
government got involved and did what it could to regulate business activity to
ensure that the trusts did not become too powerful with monopolies and predatory
business practices, the government would be violating the concept of laissez-faire,
and in the process likely encourage, since the arrogance and search for
power is always present among statists who sit in government offices, collusion
and interference that mirrors the sins of mercantilism which we fought an
American Revolution to get away from.
Theodore
Roosevelt ran on using the federal government to take charge of the
out-of-control situation by regulating the huge trusts that many believed were
in the pockets of many politicians. Roosevelt
believed monopolies were a detriment to the economy, and to society as a
whole. He was not going to stand by and
let American citizens be abused and overcharged by predatory “Robber
Barons.” https://www.gilderlehrman.org/history-resources/lesson-plan/theodore-roosevelt-and-trusts
The
progressive view of history, which is happy to use the popular term “Robber
Barons” when conveying their message about the time period around the turn of
the twentieth century, is partly right, and partly wrong, in the
explanation. Two kinds of business
developers existed at the time (and in today’s market, one might observe) “market
entrepreneurs” and “political entrepreneurs.”
As explained earlier chapters, the beginnings of the business titans of the era
reveal that characters like Rockefeller, Carnegie, Dow, Vanderbilt, and even
J.P. Morgan, were market entrepreneurs that had found their niche, and were
very good at it. Early on making a comparison
of these businessmen to the robber barons of the medieval period would not be
accurate. “Robber Barons,” or “political
entrepreneurs,” seek and obtain wealth through using coercion through their
partners in government. They become
subsidized by government, were sometimes granted a monopoly status by
government, and they would encourage political officeholders to provide legal
support that might, for example, discourage competition by market entrepreneurs
who may be challenging levels of profit.
An honest examination of history reveals that while the Whigs and early
Republicans like Abraham Lincoln, claimed to be “pro-business,” through
policies such as subsidies, grants of special privileges, protective tariffs,
and governmental interference through slanted regulatory practices, they promoted
collusion between government and the businessmen who were willing to sell their
soul to government interference, which eventually leads to the destruction of
the private sector. The practices of the
Whigs and nineteenth century Republican Party led to an unholy relationship
between business titans and government that would eventually bring into the
picture central planning, and a host of restrictions upon competitors who
either refused to play along, or were from foreign markets. In the grand scheme of things the collusion
between big business and government created an environment that quelled
innovation while encouraging incompetence.
As the incompetence and dirty dealings without fear of government
reprisal arose, the people began demanding more control over the big bad
businesses, and the government was happy to oblige with increased regulations, and
increased central government planning regarding the industry. If such practices continue, they can ultimately
lead to a government takeover of industrial operations. The government blames big business for
misbehaving, and then arrogantly takes control of them with a promise of order,
when it was them who caused the problem in the first place. Once in control of the industries they drive
them into the ground; sort of like the federal government did to the South
after the War Between the States.
Theodore
Roosevelt, in obedient Hamiltonian and John Marshall fashion, during his final
State of the Union address in 1908, said that he firmly believed the way to
prosecute trusts, despite arguments by his opponents that the federal
government had no authority to regulate the business sector in the manner
Roosevelt had been pursuing, was by using the Commerce Clause.
The
Roosevelt Presidency produced the Hepburn Act, the Pure Food and Drug Act, the
Federal Meat Inspection Act of 1906, and the Elkins Act. Each increased federal regulatory control
over the business sector.
In
his autobiography, Roosevelt explained, “I have always believed that it would
also be necessary to give the National Government complete power over the
organization and capitalization of all business concerns engaged in interstate
commerce.”
Antitrust
legislation and judicial rulings destroyed Pan American World Airways by
disallowing the acquisition of domestic routes which deprived it of “feeder
traffic” for its international flights.
Federal antitrust control restricted IBM for thirteen years because it
possessed 65% of the computer market, and the federal government did not back
off until it had been eclipsed by its competitors. The policy of General Motors going back to
1937 was to purposely limit its growth for fear that if the company surpassed
45 percent of the automobile market, antitrust prosecution would commence
against them. Could the self-imposed
restrictions be a part of the reason American companies lost so much market
share to the Germans and Japanese over the last sixty years?
Why
would America punish its own businesses for being the best in their industries?
This
is not to suggest that the opposite should be the norm, and that the business
sector should be essentially the wild-wild-west without any kind of
regulations or restrictions. The U.S.
Constitution was written based on the idea of moderation, compromise, and a
diverse distribution of power. But, if
the federal government is going to be getting involved in placing restrictions
and control over the business sector, the commerce clause is not sufficient
authority; an amendment must be proposed and ratified by three-quarters of the
states providing authority for domestic activity regarding private businesses
if the federal government is going to act clearly in a constitutionally authorized
manner on the issue.
It
is difficult to judge how much damage the economy has suffered from federal
intrusion into private industries. Even
the wickedness of a powerful player in the corporate world is subject to be
challenged in a free market where subsidies and special privileges by
government are not given, and the red tape to go into business to challenge the
corporate giants is a minimal obstacle.
When given the chance to operate without government interference,
laissez-faire economics works wonderfully.
Rivals battle for position, driving down prices and driving up
quality. Eventually, large corporations
make a misstep, and their smaller rivals attack, and absorb the pieces like
vultures in the desert. Then, a new top
player rises to the top. The new top dog
remains a consumer favorite for a while, then becomes too big for its britches,
and the consumers once again vote with their dollars, and the next rival jumps
into place. It is not constitutional, or
within the realm of American principles, to allow the players to use government
to punish and break up their efficient competitors. The irony regarding the whole thing is that the
federal government claims it is protecting the American People from the greed
and power of monopolies, but in the place of the monopolies is the federal
government, the most powerful and unbending monopoly ever to exist.
In
1914 the Woodrow Wilson administration established the Federal Trade Commission
tasked with protecting the public from unfair business practices. As trusts became a thing of the past, corporations
emerged providing a method of limiting the liabilities of a company, and
consolidating power in a different name.
The first corporation established in this manner was U.S. Steel by J.P.
Morgan on March 2, 1901. The corporation
was formed by a merger of Andrew Carnegie’s “Carnegie Steel Company” with
Elbert H. Gary’s “Federal Steel Company” and William Henry “Judge” Moore’s
“National Steel Company.”
Franklin
Delano Roosevelt commented, “A nation must believe in three things. It must believe in the past. It must believe in the future. It must, above all, believe in the capacity
of its own people so to learn from the past that they can gain in judgment in
creating their own future.”
The
triumph of American industry led to the United States becoming the world’s
leading economic power. During the late
nineteenth century entrepreneurs were encouraged by the fact that government
remained limited, and remained largely out of the way. When slavery was abolished, so was the income
tax. There was no direct tax against
wages from 1872 (the year Lincoln’s income tax was determined to be
unconstitutional) to 1913 (the year the Sixteenth Amendment was ratified, which
began the process of reinstituting a direct income tax against Americans). Federal spending was between three and four
percent of the Gross Domestic Product (GDP).
Federal budgets enjoyed surpluses every year. And industry innovated and grew in a manner
never seen before in history. When the
federal government embraced liberty by staying out of domestic affairs and
internal economic issues it created more freedom and a stable marketplace which
entrepreneurs excelled in. During the “Gilded
Age” politicians had learned from their mistakes. Federal subsidies for steamships and
railroads dismally failed. Politicians
realized the freer the market, the better the economic development. The rise of business titans like Rockefeller,
Carnegie, Charles Schwab, and Vanderbilt validated the concepts of limited
government and laissez-faire.
Historically, it is easy to see that American economic progress is
hampered when the government intervenes with tariffs, high taxes, anti-trust
prosecution, and over-regulation. While political
entrepreneurs may succeed for a season through federal aid and mercantilist
legislation, market entrepreneurs who avoid subsidies and create better
products at lower prices are the true engine that fires up America’s economic
engine. Not all entrepreneurs are “Robber
Barons,” even if they are successful and grow to a very large size. Large corporations are not the problem. Large corporations who collude with other
powerful corporate entities, or collude with government (or both) are the
problem. Even then, the way to end the
cycle of evil among corporate giants is not to use government intrusion to save
us from greedy businessmen, the solution is found in the pockets of consumers,
and how they decide to spend their money in the marketplace.
If
we continue to allow the federal government to insert its regulatory control
mechanisms into the free market, and control the means of production and the
movement of products and services in the name of saving the consumers from
predatory wealthy corporate giants, at what point does our American System
become no different than that of a fascist or communist regime which maintains
total control over domestic markets and industries through governmental ownership
or heavy regulatory imprisonment?
— Political Pistachio Conservative News and Commentary
