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Previously in Politics & Prose:

  • The Price of Longevity -- March 1998
    Medicare and what we have to look forward to.

  • The King of Drudge -- February 1998
    A look at a new biography of the man behind the assembly line -- whose ideas need to be acknowledged and abandoned.

  • Color Us Green -- January 1998
    A heretical new approach to economics puts ecology first -- and may change the way we think about growth.

  • The Deep Slumber of Decided Opinion -- December 1997
    Those who hail the virtues of trade without limits are this era's reactionaries.

  • A Barbarous Frenzy -- November 1997
    A new book documents the Rape of Nanking, China's "forgotten Holocaust."

  • Let Them Eat Empathy -- October 1997
    The era of big government has given way to the era of sharing leftovers.

  • Down With Majority Rule -- September 1997
    Imagine an America where the majority does not rule. That may be what's needed to resuscitate our political system.

    More by Jack Beatty in Atlantic Unbound

  • Games of Monopoly
    The striking parallels between two of America's most powerful -- and controversial -- capitalists

    by Jack Beatty

    April 8, 1998

    Surveying the raw Darwinian capitalism of the middle years of the nineteenth century, Karl Marx diagnosed its main problem as "the anarchy of production" -- the senseless, self-defeating price wars waged by businesses that would not curtail production when the market was glutted but that instead engaged in suicidal competition. John D. Rockefeller agreed with Karl Marx not only about the anarchy of production but also about its inevitable cure. By the early 1870s the cutthroat competition in the fledgling oil business, unleashed by the discovery of oil in Pennsylvania in the previous decade, manifested the ruinous effects of the anarchy of production. The twenty-nine-year-old Rockefeller, who had just launched the Standard Oil Company in these perilously competitive waters, sought to replace competition with what he called "cooperation" -- a genteelism for monopoly. Toward that end, in November, 1871, Rockefeller met with officials of the three major eastern railroads -- the Pennsylvania, the New York Central, and the Erie -- to create among themselves a shell organization called the South Improvement Company (SIC), which a Congressional committee would subsequently label a "gigantic and daring conspiracy." Rockefeller's latest biographer, Ron Chernow, takes up the story in his magnificent new book, Titan: The Life of John D. Rockefeller, Sr., to be published later this month by Random House. Chernow writes:

    Under the terms of the proposed pact, the railroads would sharply raise freight rates for all refiners, but refiners in the SIC would receive such substantial rebates -- up to 50 percent off crude- and refined-oil shipments -- that their competitive edge over rivals would widen dramatically. In the most deadly innovation, the SIC members would also receive "drawbacks" on shipments made by rival refiners -- that is, the railroads would give SIC members rebates for every barrel shipped by other refiners. On shipments from western Pennsylvania to Cleveland, for instance, Standard Oil would receive a forty-cent rebate on every barrel it shipped, plus another forty cents for every barrel shipped to Cleveland by competitors! One Rockefeller biographer has called the drawback "an instrument of competitive cruelty unparalleled in industry."

    The threat of the SIC, critics alleged, was the invisible club that Rockefeller waved over Cleveland refiners, forcing them to submit to his domination. Between February 17 and March 28, 1872, Rockefeller swallowed up twenty-two of his twenty-six Cleveland competitors. During one forty-eight hour period alone in early March, he bought six refineries. As one refiner, John H. Alexander, recalled:

    "There was pressure brought to bear upon my mind, and upon almost all citizens of Cleveland engaged in the oil business, to the effect that unless we went into the South Improvement Company we were virtually killed as refiners; that if we did not sell out we should be crushed out."

    Rockefeller defended Standard Oil by arguing that, measured against the world market, it was not a monopoly -- and that even if, for the sake of argument, it was a monopoly, it was one in the public interest, something akin to a public utility, since it did not exploit its market position to charge extortionate prices for oil. There was something to be said for the second argument. The economies of scale and scope achieved by Standard Oil allowed it to keep prices low, though they would have been lower still if Standard had not swallowed its competition. The difference between those two prices was the premium that Standard charged -- and, Rockefeller felt, deserved -- for taming the anarchy of production: the resource-wasting, job-destroying maelstrom of competitive capitalism.

    Bill Gates, whose $43 billion fortune makes him about $20 billion richer than Rockefeller at the height of his wealth, argues similarly that Microsoft's scale and scope benefits the consumer. His competition vehemently denies this. In a dramatic hearing before the Senate Judiciary Committee earlier this year, one of Gates's competitors, Scott McNealy, the CEO of Sun Microsystems, did not attack Gates's low-prices claim but rather the methods Microsoft used to achieve the scale and scope that let it keep prices low -- "illegal, predatory, and exclusionary business practices." In language resonant of the jeremiads against Standard Oil that created the climate of opinion that in turn led to the court-ordered break-up of the oil trust, McNealy charged that Gates, sitting two seats away from him on the panel of witnesses, was trying to control "the written and spoken language of the digital age." In a metaphor that would have delighted Ida Tarbell, Rockefeller's literary nemesis, he added, "[The] only thing I'd rather own than Windows is English, because then I could charge you two-hundred and forty-nine dollars for the right to speak it, and I could charge you an upgrade fee when I added new letters."

    An article on Microsoft-bashing by David Shenk in the January 26 New Republic illustrates how closely Microsoft's anti-competitive tactics resemble those pioneered by Rockefeller. "The simplest -- and perhaps the soundest -- critique of Microsoft," Shenk writes, "is the one that preoccupies the Justice Department": that Microsoft has created a monopoly in the software industry. "Microsoft," he continues -- and here the parallel with Standard Oil amounts to historical plagiarism -- "was able to establish MS-DOS and subsequently Windows as the standard PC operating system by exacting a royalty for every PC sold regardless of whether its operating system was installed." In words echoing John H. Alexander's lament about Standard Oil, Andrew Shapiro, a fellow at Harvard Law School's Center for Internet & Society, told Shenk, "The basic model in the industry today is to be bought by Microsoft or to go out of business."

    The century is ending as it began, with the representative corporation of the age seeking to escape the tameless risks of competitive capitalism.


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    More by Jack Beatty in Atlantic Unbound


    Jack Beatty is a senior editor at The Atlantic Monthly and the author of The World According to Peter Drucker (1997) and The Rascal King: The Life and Times of James Michael Curley (1992).

    Copyright © 1998 by The Atlantic Monthly Company. All rights reserved.
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