Antitrust in American History: Law, Institutions, and Economic Performance

The Chicago School’s weakening of antitrust law hurt the economy

The canonical antitrust principles developed by the Chicago School have dominated the thinking of both judges and the federal agencies that enforce the antitrust laws in the United States for almost four decades. The Chicago School assumed that reduced regulation and more permissive antitrust enforcement would unleash a period of big business efficiency, innovation and growth. My paper shows that these predictions were illusory. Instead, the evidence is that economic performance, including growth, productivity, employment, and income equality were superior in the period just before the rise of the Chicago School.

My new working paper reevaluates the entire history of the antitrust laws and shows that its dramatic paradigm changes were part of larger policy regime transformations. It examines how the economic and political power of competing economic classes and groups in specific historical contexts shaped these dominant policy regimes. The dominant policy determined the legitimacy and limits of the antitrust narrative in every economic era. For example, today, the scholars that are part of the New Brandeis School of antitrust that thoroughly reject Chicago School assumptions have been labelled as proponents of “hipster” antitrust, a clear effort to deprive one side in the current antitrust debate of legitimacy. In contrast, the “post-Chicago” school of industrial organization, economists who are critical of many of the Chicago School economic tenets, have been careful not to deviate from such core Chicago School concepts as the exceptionally narrow “consumer welfare” goal for antitrust enforcement.

My paper considers six economic epochs: the Gilded Age, the Progressive Era, the New Deal, the golden age of post-World War II capitalism, the crisis of the 1970s and the age of neoliberalism. Associated with these economic eras are three distinct antitrust policy regimes: the laissez-faire regime of the Gilded Age and the Progressive Era, the New Deal policy that lasted from the 1930s to the 1970s, and neoliberalism, of which the Chicago school is a component, and which we are living through today.

The first federal antitrust law, the Sherman Act of 1890, passed during the Gilded Age, was a political compromise, enacted before big business had achieved political dominance. The ambiguity in the Act’s language reflected this political stalemate. However, as revisionist historians like Gabriel Kolko have shown, by the Progressive Era, big business had achieved the clout to shape the other two major antitrust acts, the Clayton Act and the Federal Trade Commission Act, securing their economic interests and heading off potentially more radical legislation. The New Deal, especially in its latter years, represented a revolutionary change in policy regime. The laws passed during the New Deal reduced the income and power of big business and finance, strengthened union power, raised wages, and reduced income inequality. My paper argues that this policy contributed to the remarkable period of economic prosperity that the US experienced at that time.

Until the 1970s, neoliberalism was a conservative fringe movement. The Chicago School antitrust scholars were leaders and participants in this movement. In the crisis of the 1970s, neoliberalism managed to replace the New Deal policy regime, and in antitrust circles, the Chicago School rose to prominence. Judges and leaders of the antitrust agencies accepted the core Chicago School conjecture that the unfettered right of big business to pursue virtually any profitable strategy would lead to tangible efficiencies (allegedly held back under the New Deal approach) and leading to improved economic performance and social welfare.

But it did not, as the paper shows. Instead, virtually every important economic metric indicates the superiority of the immediate post-World War II period compared to the neoliberal epoch. These findings support what is becoming more and more obvious. The Chicago School claims about issues like predatory pricing, merger efficiencies, the benefits of vertical integration, and their advocacy that concerns about labor and privacy are outside the scope of antitrust are superficial and baseless. As a new generation of antitrust scholars and economists sort through these claims and assess their relevance to the problems of the information age and the growth of vast logistical enterprises like Google, Facebook and Amazon, it is useful to keep in mind that the strategy of deferring to the interests of big business have so far been an historical failure.

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