The Abolition of Antitrust

Vol. 15 No.9 (September 2005), pp.843-846

THE ABOLITION OF ANTITRUST, by Gary Hull (ed). New Brunswick, NJ: Transaction Publishers, 2005. 176pp. Cloth. $39.95. ISBN: 0-7658-0282-1. Paper. $24.95. ISBN: 1-4128-0502-3.

Reviewed by Scott E. Graves, Department of Political Science, Georgia State University. Email: polseg [at] langate.gsu.edu.

Although the title of THE ABOLITION OF ANTITRUST makes clear its prescriptive conclusion, it may obscure the proper audience for the book. In the Introduction, editor Gary Hull promises economic, historical, and moral critiques of antitrust, and the book is divided into three parts reflecting these dimensions. However, the chapters devoted to the economics and legal history of antitrust are less up-front than the two chapters addressing the moral issues raised by antitrust. None of the essays offers a sincere attempt to assess the alleged harms antitrust law is intended to contend with or its effectiveness (or lack thereof) in dealing with those harms.

The title of the last chapter, “Antitrust is Immoral” written by Hull, could usefully serve as the title of the book itself, since even the chapters purportedly concerned with other objections focus on the incompatibility of antitrust law with fundamental philosophical principles. Almost all of the authors, therefore, remain at a high level of abstraction. Readers expecting a serious engagement with the efforts of judges, administrators, and economists over the last century to define and identify anticompetitive behavior will be disappointed. Those anticipating a provocative treatment of the philosophical issues raised by the existence of antitrust offenses will find plenty to satisfy.

Gary Hull is identified on the back cover of the book as, among other appointments and positions, coeditor of THE AYN RAND READER. Although readers less than enthusiastic about Rand’s philosophy might, as a consequence, approach this book with some skepticism, this detail alone does not justify that attitude. However, copious references to Rand’s works are made throughout the book and some essays lean rather heavily on citations to Objectivist texts. The back cover also indicates that the book was “[d]esigned for the uninformed but educated layman,” but readers unfamiliar with Rand may be frustrated by references to arguments that are more grounded in epistemology or ethics than economics and are not adequately explained. Having to supplement the text with appropriate supporting materials makes this book more suitable to an economic philosophy class than an economics or law course.

Like most edited volumes, the chapters vary in quality, but are quite consistent conceptually. Part One, dedicated to the economics of antitrust, begins with a concise and accessible essay by Dominick Armentano, reprinted from a 1999 publication. Armentano addresses conditions and practices alleged to erect illegal barriers to entry, such as product differentiation, advertising, and predatory practices. The essay clearly [*844] explains several widely accepted criticisms of mid-20th century antitrust policy crafted to protect competitors, rather than competition, often at costs to consumers, but assumes perfectly revealed consumer preferences in order to argue that firm practices, decried as anticompetitive, actually serve competition. Armentano uses the FTC’s ready-to-eat cereals case to demonstrate the erroneousness of the product differentiation offense, a popular but curious example for antitrust critics, since the case was unsuccessful before the administrative law judge and the commission. Demonstrating the flaws in a successful prosecution would make a stronger case for the abolition of antitrust. Armentano’s critique of antitrust proponents is a bit dated as well. There are only two citations in the essay published less than 20 years ago, and both are to the author’s previous works.

The second chapter, by John Ridpath, republished from THE OBJECTIVIST FORUM, begins with a castigation of antitrust laws from Ayn Rand and is the most reliant on Rand’s work (fiction and non-fiction) for its substance. Ridpath is primarily concerned with the “metaphysical and epistemological” errors of Frank H. Knight upon which antitrust law is based. The chapter is brief, stridently condemning the fictions that underlie antitrust law such as the unreality of perfect competition models and the “Kantian false dichotomy between reality as it really is, and reality as it appears to us” (pp.21-22). Although it appears in the economics section, the chapter’s substance is philosophical and is actively hostile to economic modeling.

The last chapter in Part One, by Richard M. Salsman, is original to this volume and is probably the most crucial, explaining several concepts and conclusions vital to all the essays. Salsman also dispels any notion the reader might have that the collection is conventionally pro-conservative, as he criticizes classical, Austrian, and neo-classical economists like Adam Smith, Ludwig von Mises, and Milton Friedman as vigorously as socialist thinkers. Along with a condemnation of perfect competition theory, Salsman argues that false notions of profit have distorted economics for centuries, justifying the tragic injustice of antitrust. The two are related, as under pure perfect competition (an unattainable ideal, all economists agree) there are no economic profits, as markets achieve allocative efficiency and drive prices down to average marginal costs.

Salsman’s essay suffers from several conceptual confusions, such as his mistaken understanding of how economists define profit. He claims that under perfect competition theory, profit is the difference between price and the variable cost of production, which he equates with the marginal cost (p.30). Since this excludes fixed costs, all businesses incurring fixed costs must necessarily operate at a loss. But marginal cost is not the same as variable cost, and economic profit (distinct from accounting profit, although Salsman refers to both interchangeably as “profit”) is the difference between price and the sum of average variable cost and fixed cost or the cost function at a given quantity. Marginal cost is not even the average total cost; it is the derivative of the cost function with respect to quantity. Perfect competition theory [*845] naturally seems bizarre under such a misapprehension.

Crucially, Salsman rejects both the labor and utility theories of value in favor of a theory of value rooted in intellectual labor (p.47). Consistent with the individualist commitments of Objectivism, Salsman accuses neo-classical economics of allowing heroic entrepreneurs to vanish and “deifying the consumer” (p.41) by locating value in the subjective utility of buyers, the willingness to pay. Ironically, Salsman’s preferred theory of value causes consumers to disappear and even characterizes consumption as “the destruction of wealth” (p.46). Equating production and profit leads to peculiar statements like “[a] firm that produces more also profits more, since the two are synonymous” (p.51). The essay also fails to distinguish between profit and surplus, referring to both as “profit.”

The next two essays are grouped as the legal history of antitrust. The first, by Eric Daniels, traces the history of monopoly from 17th century England to the passage of the Sherman Act in 1890. Daniels notes the shift in the general understanding of monopolies from government-protected grants of exclusive economic rights to the accumulation of private economic power the Sherman Act was enacted to address. The shift does not date exactly to 1890, however, as 26 states had already passed laws regulating restraint of trade before the Sherman Act was passed (Gellhorn and Kovacic 1994). Daniels explains the checkered history of the common law’s protection of free trade against state-sponsored monopoly, but neglects the roots of modern antitrust in the medieval common law proscription of “forestalling,” defined as “all unlawful efforts to raise prices” (Letwin 1965, at 33).

More fundamentally, the separation of political and economic power maintained by Daniels and Thomas A. Bowden in Chapter 5 does not take into account the unprecedented consolidation of wealth and productive capacity made possible by the growth of the modern corporation and the industrial revolution. Economic power, based on contractual relations, is ultimately backed by the coercive power of the courts to enforce contracts. Government enforcement of contractual obligations requires close consideration of the voluntariness and oversight of contracts and the externalities of contractual arrangements, which neither of these essays acknowledge. More than one author refers to Joseph Schumpeter, but there are no mentions of Berle and Means.

The final two chapters of the book provide the clearest statements of why antitrust policy is illegitimate by squarely challenging the moral basis of government intervention in productive decisions. Harry Binswager’s essay introduces several of the standard objections to theories of market failure and unfair competition raised by neo-classical economists without the formalization, rigor, and nuance of Robert Bork, for instance, who recognized the anticompetitive potential and predatory practices of Microsoft, while Binswager defends Microsoft (Bork 2003). Binswager, and Hull in the last essay, both indict antitrust for violating principles of Randian ethics that demand the primacy of the individual as understood by Objectivism. [*846] All authors in the collection concur explicitly or implicitly that any profits, even monopoly profits, are earned legitimately by entrepreneurs, so the loss of consumer surplus does not justify government intervention.

Binswager explicitly rejects the social welfare, wealth-maximization foundations of economic policy as “altruism-collectivism” (p.140). Salsman’s essay, the most self-sufficient in the book, concludes by stating the assumption that successful production of profit follows from freely competitive practices (p.55) and the moral case against antitrust is similarly based on the assumption that profits result from valorous market success. Without honestly confronting the possibility that this might not always be the case, the argument for abolishing antitrust presented here merely begs the question.

REFERENCES:

Bork, Robert. 2003. “HIGH STAKES ANTITRUST: THE LAST HURRAH?” In Robert W. Hahn (ed). HIGH STAKES ANTITRUST. Washington, DC: AEI-Brookings Joint Center for Regulatory Studies.

Gellhorn, Ernest, and William E. Kovacic. 1994. ANTITRUST LAW AND ECONOMICS. St. Paul, MN: West Publishing.

Letwin, William. 1965. LAW AND ECONOMIC POLICY IN AMERICA. Chicago: University of Chicago Press.

Rand, Ayn. 1999. THE AYN RAND READER. Gary Hull (ed). New York, NY: Plume.

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