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Conscious Commitment: The New Deal and a New Start

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NewDealheader.jpgPart 4 of 5 in a series, "The History of Antitrust"

Nearly all historians agree that the crash that took place on October 29th, 1929, was inevitable. The noninterference of the Harding, Coolidge and Hoover administrations, combined with a trend of reckless investing choices, formed an environment in which national prosperity was unprecedented but not sustainable. However, it was not speculation itself that led to the Great Depression - it was the rampant consolidation in the market. Investors poured their resources into companies such as U.S. Steel, General Electric, the Union Pacific, and other organizations which did not face substantial competition; if the one of these corporations wavered, as they began to do in September of 1929, the market was not balanced out by gains in the value of others in the same industry. This lack of choice increased the risk to stockholders and was a major catalyst of the economic collapse.

When President Roosevelt began his revolutionary New Deal program upon assuming office, however, his focus was primarily upon raising prices and wages. He accomplished this goal partially by federal subsidies and large government purchases of commodities from grain to gold, and partially by enabling and encouraging businesses to promulgate agreements of "fair practices," which artificially inflated prices, limited manufacturing, and operatively curtailed competition. For a time these programs proved effective, but when the government began to scale back its spending in 1937 the economy slumped again. By the following year two million laborers had lost their jobs, production had come to a virtual standstill, and the stock market had precipitously declined, undoing much of the progress of the past four years. Clearly, despite the appearance of progress that the first phase of reforms had generated, some important ingredient was missing in the "alphabet soup" of the New Deal agencies.

On April 29th, 1938, Roosevelt delivered his fifty-ninth message to Congress. This time, he recognized that stringent regulation and massive spending could only serve as temporary fixes for the underlying economic problem; in order for a free economy to begin supporting itself again, it would have to be a truly free economy. In his address he announced a renewed commitment to the core principles of antitrust, suggested revision of the relevant statutes, authorized a massive study of current conditions, and declared that anticompetitive conduct would no longer be tolerated: 

"It is a program to preserve private enterprise for profit by keeping it free enough to be able to utilize all our resources of capital and labor at a profit... It is a program whose basic thesis is not that the system of free private enterprise for profit has failed in this generation, but that it has not yet been tried. Once it is realized that business monopoly in America paralyzes the system of free enterprise on which it is grafter, and is as fatal to those who manipulate it as to the people who suffer beneath its impositions, action by the government to eliminate these artificial restraints will be welcomed by industry throughout the nation."

TArnold.jpgThe main writers of the speech were also the men tasked with honoring this pledge over the next months. Thurman Arnold, a plainspoken professor from Wyoming whose approach to the antitrust laws focused almost solely on the interests of the consumer, and Robert Jackson, a former prosecutor who had recently concluded the celebrated tax evasion case against multimillionaire Andrew Mellon, quickly began acting to enforce the Sherman Act. They established an unprecedented pattern of instituting criminal proceedings, procuring indictments against both companies and individuals, and settling the majority of cases with nolo contendere pleas and stringent but fair consent decrees. In May a suit was commenced against Ford, Chrysler, and General Motors: a grand jury investigation into the coercive practices of these three titans returned eighty-six indictments, and while the other two companies quickly consented to cease their unlawful conduct, General Motors was criminally convicted. The dairy industry, which for years had kept milk off the shelves of retail stores and hiked the price of door-to-door deliveries by over two-fifths in the preceding years, came under scrutiny the following month: this investigation broadened until collusion was demonstrated between farm cooperatives, suppliers and jobbers, labor unions, and even local government officials. The construction conglomerate came next, and a massive effort ensued to ensure competition at all levels and lower both the cost of labor and the prices of commodities such as lumber, windows, gravel, sand, roofing, pipes, and even paint - by Arnold's estimate, this flurry of litigation saved individual Americans a total of $300,000,000. Chemical companies DuPont and Monsanto were accused of inflating the prices of various compounds sold to industries, researchers, and the government. The American Medical Association was sued for illicitly attempting to curb the availability of group health plans, duly convicted and fined, and defeated unanimously upon appeal to the Supreme Court. Under Jackson's direction, the primary players in the energy industry were indicted for a conspiracy to buy up all oil entering the market and reselling it at prohibitive rates to any companies attempting to compete with this cartel; the case made its way to the Court and resulted in another resounding antitrust decision. Several major pharmaceutical companies were prosecuted for restraining sales of antitrustradio.jpggeneric medicines. Prioritizing free competition above the possibility of negative publicity, the DOJ under the leadership of Arnold and Jackson filed complaints and criminal charges against major Hollywood producers for unfairly restricting showings of movies. The Associated Press was accused of geographical market division, and though it responded by denouncing Arnold as, among other things, an "idiot in a powder mill" (a term of opprobrium he proudly repeated at every opportunity for the next thirty years), on final appeal this case was also decided unequivocally in favor of the government. The record of this administration reflects an attempt to protect competition in industries receiving little public attention as well as those impacting nearly all Americans - tobacco cartels, meatpackers, tire makers, clothing fabricators, owners of petroleum pipelines, cheese companies, nearly every major railroad, optical equipment patent holders, produce distributors, shoe manufacturers, trucking conglomerates, gas station chains, glassware manufacturers, the radio broadcasting oligopoly, and even a popsicle stick monopoly were among the defendants in antitrust suits brought by Jackson and Arnold. Additionally, the renowned Alcoa prosecution was ongoing throughout these years.

Initially brought in 1937, the Alcoa case had been undertaken by Jackson to test whether "a 100 percent monopoly with the absolute power to exclude others constitutes an illegal monopoly per se under Section 2 of the Sherman Act." Although Roosevelt was dubious at the time, suggesting that a case of this magnitude could shift focus away from the central programs of the New Deal and hinting that a solution could be worked out in other ways, the Division persisted, and the following year the aluminum giant was brought to trial. The trial was the longest in American history at the time, lasting from June 1st of 1938 to August 14, 1940, and though heavily covered by the press in its first days, quickly dropped out of the public's eye. Over these twenty-five months, the government introduced over five thousand pages of exhibits and successfully proved that Alcoa had unlawfully restrained trade by entirely monopolizing commerce in pure aluminum ingot; slowly gaining control over the supply of raw ore until competition became impossible; entering into a conspiracy with a shady entity known only as "Limited" to restrict imports of raw aluminum and bauxite; selling selectively to two manufacturing companies in which it owned a large stake; and unlawfully pooling patents until it owned the rights to every automobile piston design in the nation. During the course of the case the DOJ not only presented the factual basis of their case, but also the  social and political importance of unhindered competition. As Jackson declared in December of 1937:

"The trend toward concentration is also a very real threat against the individual competitive system. This private socialism, this private regimentation of industry, finance and commerce, if not stopped, is the forerunner of political socialism. Our democratic forms of government offer a periodical chance at election time to check and change political administrations. But there is no practical way on earth to regulate the economic oligarchy of autocratic, self-constituted and self-perpetuating groups. With all their resources of interlocking directors,... with all their power to giver or withhold millions of dollars worth of business, with their power to contribute to campaign funds, they are as dangerous a menace to political as they are to economic freedom."

The government's vision of economic freedom was eventually rewarded. Though the federal district judge before whom the case was tried rejected their arguments and the Supreme Court could not muster a quorum to hear a direct appeal, the Second Circuit Court of Appeals reversed the lower decision and enjoined Alcoa from any future anticompetitive practices in an enduring decision authored by Judge Learned Hand. United States v. Aluminum Co. of America, 148 F. 2d 416. One seemingly unexceptional case had redefined our body of antitrust law to read not only that "unreasonable" trusts were illicit, but that any deliberate attempt, action, or conspiracy to restrain trade was impermissible. For the first time since the beginning of the antitrust movement, more than sixty years before, the goal of a truly free market seemed within reach.

Then, in 1941, the United States entered World War II. Almost all the products and commodities in which the Division had finally ensured fair trade practices were suddenly in short supply, and the need for a constant flow of manufactures to aid the Allied powers was prioritized above the economic rights of citizens and small businesses. As Arnold observed in 1943, "the war is being used as an excuse to soften provisions of the antitrust laws to pave the way for domination of industry after the war." The same year Roosevelt offered him a judgeship on the D.C. Circuit, and though many suspected this maneuver was less to reward Arnold for his work at the Division than to remove him from his post when rigorous implementation of the Sherman Act was no longer politically exigent, he did accept. His judicial career lasted only three years before he left to form a partnership with his trusted friend (and future Justice) Abe Fortas. Together, Arnold and Fortas pioneered the private civil suit as a tool of antitrust enforcement, as well as taking on several important civil liberties cases such as Gideon v. Wainwright, 372 U.S. 335 (1963). Jackson had long since left the DOJ for a seat on the Supreme Court, where he served for eleven years. Though the blueprint of successful prosecution which the pair had pioneered is still followed to this day, Arnold's departure still marked the end of any serious attempt to prevent unhealthy consolidation and coercion in American industry. The temporary suspension of free competition beginning with the war would not be fully lifted until the Eisenhower administration ended our involvement in Korea; and by then, politicians and the public had all but forgotten about the existence and importance of the Sherman Act.

Read the last part of the series, "The Golden Age of Antitrust"

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