The Sherman Act to-Morrow


IN the March issue of the Atlantic, in a paper entitled ‘The Sherman Act To-day,’I made an effort to point out some of the baneful effects of our so-called antitrust laws, due almost wholly to the perverted economic philosophy that has been set up as a basis for the administration of these laws. Chief among those effects was a direct responsibility for that prevailing ‘profitless prosperity’ so amply disclosed by official statistics, and for furnishing the incentive for a large part of the increasing tendency toward ‘horizontal’ combinations of capital that would otherwise be unnecessary. It is therefore the purpose of this present discussion to focus attention more fully upon the type of remedy needed, and to consider the principal objections that have heretofore been advanced against efforts to bring about this long-delayed solution.

Perhaps this delay has in no small measure been occasioned by the fact that until lately this question has been generally treated as primarily a legal one, and therefore as a question involving that nicety of definition, based upon the heritage of legal lore, into which the economist or the lay practitioner of business may not safely venture. It is perhaps for this same reason that most of the remedies that have been suggested have failed to find substantial favor, even with those who have most felt the need for relief, since they have usually been based upon existing legal tradition rather than upon the demonstrated experience of the past or upon their probable economic consequence in the future. There is therefore a distinct prophecy of hopefulness in this pungent statement from the 1927 report of the American Bar Association’s Committee on Commerce: ‘The Sherman Law is economic legislation. It can only be helpful if it is subservient and not in opposition to economic laws,’for recognition of this fundamental fact by the legal profession, and hence by public opinion, will be essential in accomplishing a form of relief dictated by economic requirements.

It is a self-evident fact that men of business have no greater right to enter into discussion of the mysteries of legal technique than they accord to the legal fraternity to settle complicated questions of economic import. But just as lawyers, in common with all oilier elements of the social fabric, have a right to insist that the laws under which business operates shall not destroy the incentive to business efficiency, so has business, in common with these other elements, a similar right to insist that the laws shall be so drawn and interpreted as to be clear and unmistakable in their meaning, for one thing, and to be such in their effect as will afford protection to the ‘reasonable’ requirements of business thus efficiently conducted rather than to the so-called nonconformist or disturber of sound business conditions. For it is the latter who is either unaware of or disregards the established principles of prudent business conduct in favor of the consumer’s temporary interest and ‘volume without profit,’ and at the ultimate expense of himself and the future of the entire industry to which he belongs. As the cartoonist would say, ‘There is one in every industry.’ With overcapacity still rampant as a war relic, fortunate indeed is the industry which counts but one.

Upon this theory, then, it would seem clear that further attempts to cure prevailing ills by tinkering with the existing structure will continue to be abortive. What is needed is not so much a change in the law as a change in the economic philosophy underlying the law. We shall therefore be forced sooner or later to let experiment give way to experience, complexity to simplicity, and to abandon reluctantly, but nevertheless definitely, the fetish that the consumer is entitled to his cut-rate bargain before either capital or labor efficiently conducted is entitled to its fair wage; either that or definitely to adopt for the ‘land of opportunity’ the principles of regulated monopoly applied to industry and distribution, where management will become exclusively the hired servant of absentee capital and the worker will always be known as No. 44,688. Having consumed itself in catering to the consumer, the ‘industry’ will then, of course, be in position to commune with itself and arrive at a price that will at least ensure the maximum profit allowed by law —without undue concern for the efficiency required. In the intricate, although relatively simple, problems of railroad and utilities, supervision can find no parallel for the many commissions that would be necessitated to attempt the regulation of the myriad forms and problems of industrial activities. Subject only to tariff protection, our chief problem as workers will then be whether we wish to take our prosperity in our envelopes or at the market place! Chain manufacturing and chain distribution, followed presumably by chain financial control, arrived at last at the goal of monopoly — regulated, to be sure, but without the stimulation of intelligent competition.


If only as a ‘straw man’ for the shooting gallery, let us therefore consider, before it is too late, one alternative the underlying philosophy of which has at least withstood the assaults of the consumers of all other civilized lands but ours, and which bids fair so to continue to do.

1. Retain in a new law the antitrust and antimonopoly provisions of the Sherman Act.

2. Change the phrase ‘restraint of trade’ to ‘unreasonable restraint of trade,’ and define the latter as a case where ‘ the restraint upon one party or upon the public interest is greater than protection of the other party’s interest requires, giving due weight to the interests of capital, labor, and consumer.’

3. If it be necessary to retain the Clayton Act rather than merge it with a new Sherman Act, change ‘substantially lessen competition’ to ‘unreasonably lessen competition’ under the above definition.

4. Adopt the principle of the Australian Industries Preservation Act, which would transfer the burden of proof from the plaintiff to the defendant in case, upon receipt of complaint, the Federal Trade Commission feels justified in summoning the party or industry complained of to show cause why it is not guilty of an ‘unreasonable restraint of trade’ as above defined.

5. Provide that ‘the punishment fit the crime ’ in accordance with the findings (giving consideration both to the effect and to the intention), which may result either in a warning to ‘cease and desist,’ a penalty, or even a criminal suit.

6. Repeal, not amend, the Sherman Act. Oil and water will not mix.

Whether or not the legal machinery could be simplified by including in one ‘Business Regulation’ or ‘Industries Preservation’ Act the business purposes of the present Sherman, Clayton, and Federal Trade Commission Acts; whether and how the triple damage, labor phases, and other present provisions should be tied in with the courts — these are, of course, purely legal and social questions that would have their proper consideration in the reduction of the changed philosophy to its legislative application. The vital thing is that past interpretations of the undefined provisions of the antitrust acts, past shadings of doubtful meaning, past perversions of the intended purpose, would all go overboard together; a definite, fair, and workable economic philosophy would be established upon which a governmental business body could gradually build anew as changing times and conditions in the uncharted future might necessitate. It. is a significant corollary of such an undertaking that this business body would necessarily be mandated by this new philosophy to surround its hearings with an atmosphere of sympathetic neutrality toward the legitimate aspirations of industry such as has not often characterized similar occasions in the past.

Not the least of the benefits of this new Magna Charta for business would be the permanent scrapping of the present illogical practice of definitely proscribing an action that is often capable of beneficial effect, without even permitting consideration of either the actual or the probable extenuating consequence of the act thus outlawed. For, to quote again from the Bar Association’s Committee on Commerce: ‘The facts constituting unreasonable restraint of trade cannot be catalogued. What is clearly an unreasonable restraint of trade in one case may in another case be a reasonable restraint.’

One example of varying circumstances will serve very clearly to illustrate the truth of that statement. The meat packers, owing to the nature of their business, require a profit margin of only something like 2 per cent upon their sales in order to net 10 per cent to 20 per cent on their capital, such is the possible frequency of their turnover. Many other industries require heavy investments relative to volume of sales and can do little, if any, better than one turnover of capital per year; thus each sale has to bear the same percentage of profit as is fair for the annual return upon capital invested. The question, therefore, that such a government business commission would have to decide is whether any price that might be questioned is extortionate in the light of the particular conditions affecting that industry, and whether the act complained of is contrary to a broad view of the true public interest.

Another evil of growing tendency would also be avoided by such a broad remodeling of the Sherman Law — the necessity for perpetuating and extending the list of exemptions. The truth is that the law as enacted has been recognized even by its parents to have been so unworkable as to have required a number of specific exemptions. Recent modifications by the houses of Congress have granted exemption from its workings to the following privileged classes: railroad corporations financially interested in competing water lines; labor, producers of farm products, and associations of farmers; national banks in respect to their foreign operations; American steamship lines; persons and corporations conducting an exclusively export business. And many other classes of interest have sought similar exemptions.

With the problems of the coal and oil industries pressing for solution, the necessity for additional legislative exemptions for the special benefit of these industries has been suggested, and if granted others would inevitably follow. Therefore the wisdom of revamping the entire structure of the law alt at once can scarcely be doubted. It is possible, as has been frequently said, that mere relaxation of the ‘restraint of trade’ provisions of the Sherman Law will not suffice to solve the coal problem. Where such a degree of maladjustment exists and so radical a deflation is required, it may well be that additional measures will be needed, but it is at least certain that no substantial solution can be accomplished without the inclusion of this precise relief, since reduction of capacity and sacrifice of property require mutual and voluntary concessions that are clearly inhibited by that law. And the same thing applies to-day to every industry where overcapacity exists; therefore the law must be broad enough to permit each case to be dealt with on its merits, for only chaos would result from an attempt to frame an all-inclusive list of ‘unreasonable’ restraints of trade. That has already been sufficiently demonstrated by our experience with ‘interpretations’ even where no nice distinction between ‘reasonable’ and ‘unreasonable’ was involved.

According to this changed philosophy, then, there would be no broad or general prohibitions in the new Sherman Law other than antitrust, antimonopoly, and ‘unreasonable restraint of trade.’ Just as in our social lives, within broad limitations, this new law would let conscience be our guide, with the Government assuming the prerogative of determining whether conscience guides us within limits compatible with the public interest — this prerogative, of course, supplying the necessary deterrent against willful or detrimental abuse of the freedom conferred. And since in the solution of this question economic demands so far outweigh legalistic considerations, it is meet again to observe what simplicity of definition, fact finding, and enforcement underlies the objectives of a law so conceived.


In view of the cumulative effects of the workings of mass psychology that have been building for a generation past upon a false hypothesis which was never intended, and certainly never demonstrated by proof, it is not to be expected that such a philosophy can be advanced at this late day without encountering objections of no small proportions. To many, especially to the more recent accretions to the ranks of economic thought, such a programme will inevitably seem like harking back to the limbo of forgotten things. It would, however, require only a steamer trip — in almost any direction — to permit a first-hand inspection of that limbo operating to the general satisfaction of even the omnipresent consumer. ‘Ah, but that would not be workable as we are organized in America’ is a familiar refrain — although one has yet to hear a convincing reason why. That our forty-eight states without tariff or racial barriers, one against the other, afford us a primary market which permits mass production, that we have carried machine power to its greatest development, that the combination of these facts has permitted us to secure the greatest production at the lowest cost while paying the highest wages known to civilization, and that these wages have in turn further enlarged our consuming power as a result of the highest standard of living existing anywhere — how can any or all of these facts alter either the dictates of economic law or the uniformity of human nature the world over? Are not these accomplishments as applied to America merely ‘children of a larger growth’? Must we, because of the very ingenuity and natural endowment which caused this growth, choose now between ‘profitless prosperity’ and ‘consolidation,’ or both? If so, will someone plausibly tell us why?

Again, it is said — and by lawyers, too — that the conception of the Sherman Law which brings forth so widespread a demand for revision no longer exists in fact, that the more liberal construction recently given to the law by the Supreme Court makes further relief unnecessary. Most all alert business men are, of course, keenly aware of every crumb of comfort that a sympathetic court is permitted to cast upon the waters. But when almost in the same breath the court tells one crowd of ‘conspirators’ that the nature of their agreement ‘looks good,’ to use the vernacular, but that they are ‘out of luck’ for agreeing at all; and then, at the same time that they liberalize further, they are careful to point out to the ‘defendants’ that they must not ‘reach or attempt to reach any agreement or any concerted action with respect to prices or production or otherwise restrain competition,’ regardless of the reasonableness thereof, one may be pardoned for assuming the court’s prerogative of a ‘reasonable doubt’ as to how this liberalization is going to retard either ‘profitless prosperity’ or the capital consolidation incentive!

This same liberalization with respect to the recently extended scope of permissible trade-association activities has led more than one official and semiofficial spokesman for the governmental philosophy to point to the further development of the trade association as a necessary condition — precedent to any logical expectation of legislative relief on the part of business. The promotion of ‘more intelligent competition’ through trade-association activities is the suggested panacea, on the ground that ‘a preponderance of producers and distributors do not know, or at least do not, take cognizance of, their costs. It is the continuance of this unintelligent competition that is responsible for most of this business mortality to-day.’ The italics have been inserted to emphasize the very reason why legislative relief is so universally needed. Again, ‘there is one in every industry’ — or more. It is the ‘will to volume’ that causes even some of the cost-knowing to disregard their costs. Those who do not know their job costs should know them at least collectively through their profit-and-loss accounts. But the combination of overcapacity in the industry, of misleading information, from the purchaser, of inability under the law to verify such information, of absentee capital relying upon the excuses of the very management which often created the existing price levels complained of, of oversanguine hopes of ‘outsmarting’ competitors, and of learning just enough about cost-keeping to think every additional job an overhead burden reducer regardless of price—all these factors together are simply far too strong for human nature in most industries.

As a closely related phase of the same subject, how few managements in industry to-day realize what their service to their customers should be worth in relation to the skill and risk involved in their particular industry, the need for reproduction and improvement of their equipment, and the various other reserves which prudent management and assurance of survival require, and then act upon that knowledge by figuring a profit sufficient to cover such charges over and above taxes and a moderate dividend! Again the cartoonist might well wonder ‘what some managers think about’!

There is therefore a very obvious confusion of thought in the suggestion of the development of the trade association as a panacea for industry’s troubles under our present laws. The trade association can do much toward reducing costs for the industry by research often too expensive to be conducted by an individual unit; it can do much to increase markets, to improve and unify cost-finding methods, and to function in other respects that will constitute a public benefit, and to that extent an industry benefit in improving the position of the industry relative to other competing processes — as, for example, coal versus oil versus gas versus electricity; but, as that cooperative benefit necessarily accrues to the entire industry, it must inevitably be passed on to the public. In a sense, therefore, it will not improve the earning capacity of that industry except indirectly, as stated. For this reason trade associations under existing law are not, and never can be, a cure either for increase of the capital consolidation incentive or for that ‘profitless prosperity’ which means satisfactory volume of sales for an industry at prices yielding little, if any, profit; and it is therefore difficult to understand how the contrary can be claimed by anyone acquainted with their workings, notwithstanding their ample justification along other lines than those concerned with distribution. This distinction as to the possible accomplishments of trade associations cannot be overemphasized and is one flaw in the philosophy so prevalent at Washington.


What industry desperately needs, therefore, is protection for the efficient leading units in the smaller industries — the companies which spend money to know and to reduce their costs and insist that no sale is worth making that does not yield a fair profit, which will not only pay a reasonable return to the shareholder consistent with the risk and skill involved, but will also provide a surplus profit for necessary reinvestment in improved facilities, research, and such other requirements of conservatively managed companies as will ensure their survival in business for the future service of the public. This fair margin of profit is to-day denied to most industries because the law encourages the selfish or inefficient unit instead of the industry. If it were the fact, as is casually supposed, that these low prices are usually the reflection of a greater efficiency that enables a fair profit to be realized at a price level with which the less efficient cannot compete, then there would be no economic justification for any complaint, on the part of those who might find themselves in that unfortunate position. Nor would it be in the public interest to permit artificial interference with the law of survival of the fittest.

But ‘profitless prosperity’ is not the complaint of the defeated competitor; it is, on the contrary, in many cases the complaint of an entire industry, whose members without exception are suffering identically and almost equally from an excess of supply and a shortage of competitive information that give an unwarranted advantage to the consumer, as represented by the organized buyers. It is also quite commonly the complaint of the more efficient units, who can make the product just as cheaply, or more so, than the ‘volume without profit’ devotee, but who are not willing to work without a profit, because they know that to do so can serve no useful or permanent economic purpose. The complaint against ‘profitless prosperity,’ therefore, is that those who create and perpetuate this condition are invariably the very ones who fail to show earnings. Is the existence or perpetuation of this condition in the public interest? And is it a sufficient answer to cite the inexorable law of the survival of the fittest, if in the eliminating process the efficient are thus denied a fair reward for their efficiency — except as the gradual attrition of the offending units may be termed a reward ?

It is sometimes asserted by the advocates of the prevailing ‘exclusively consumer’ philosophy that to permit financially independent competitors to do together what they are permitted to do immediately they pool their financial resources would result in ‘profiteering,’ for one thing, and also in undue protection of the ‘high cost’ units. This might be true if it were economically practical, but obviously it is not. The efficient have never yet conceded that the world owes a living to their less efficient brethren, and it is safe to say that they never will do so voluntarily. Nor are cither the efficient or the inefficient anxious to keep prices up to a point so far above cost that new capital will be attracted to the competitive opportunity. These factors would of themselves constitute a slow but sure balance wheel to rapacity even if the ‘public interest’ were not the concern of the law. On the other hand it is well to remember that the law itself compels the competitor of outstanding low-cost efficiency to beware of giving too much of this benefit to the public, lest his competitors be unable to follow him and he therefore become a monopoly, and hence a menace instead of a benefactor. This, it will be recalled, was the dominant factor in the United States Steel Corporation dissolution suit.

How do the exponents of ‘competition— the life of trade’ reconcile these antithetic hypotheses which prevail in to-day’s philosophy? And why did not the Steel Corporation lose all incentive to further progress, since it was not permitted to use its lower costs to put its competitors out of business? For the obvious reason that the more it can reduce its costs, the more it can earn, and the better it can protect its prestige and enforce its power to control its own policies, should survival so require at some time in the future. And that is exactly what any other outstandingly efficient unit in any other industry will continue to strive to do whether prices are uniform or not. In sum, if the advocates of laissez faire are right in their reasoning, then Mr. Roosevelt, Mr. Taft, the majority of economists, and the thousands of business men who have had practical experience of these conditions in industry in all countries, arc so eternally wrong that compelling proof of their error should be a simple matter.

It would therefore be not only enlightening but of vital interest to business generally to be informed of truly valid objections to this broader economic philosophy that can be founded just as fully upon the demonstrated experience of the past as upon that confusion with the trust question with which exchanges of information and ‘agreements’ have heretofore been surrounded. But, given a system of law embodying prohibitions of trusts, monopolies, unreasonable restraints of trade, as well as unfair trade practices, and making detriment to the public interest the yardstick by which specific acts are measured, it is difficult indeed to imagine, even should a few shortlived abuses occur, how a law so conceived could possibly work as adversely to the public interest as has this ‘ Sherman-Consumer ’ Law for these many years.

With every reason to assume that a proper settlement of this question is one of the chief concerns of business interests to-day, how can that longdesired result be brought about? Obviously only by the pressure of public opinion induced by a campaign of public education. The percentage of individuals who are familiar with the effects of to-day’s conditions is small indeed. Various means of bringing the facts out from the cellar of prejudice into the sunlight of truth have been discussed for years, but without result, chiefly because such plans have contemplated the random voluntary contributions and efforts of the inadequate few.

If, then, only leadership and faith in the justice of conviction be required, should not the larger basic commodity associations, representing such staples as oil, coal, steel, wool, cotton, rubber, lumber, and the like, whose sales run into billions, assume their proper initiative in organizing a national tradeassociation sponsorship of a movement for revision of our antitrust laws, to be accomplished by a widespread campaign of education and based upon a suggested remedy adopted in advance? If in this way the facts could be sufficiently spread abroad to receive the light of sunshine, misunderstanding and prejudice would have to give way to the facts — and economic law would be crowned king.