A History of US Economic Law- Part 1

Beyond Saving's picture

 It has been repeatedly said that the Great Depression was caused by "no rules" laissez-faire capitalism. This is a completely absurd claim as the Great Depression occurred after several decades of laws that were revolutionary at the time and completely changed the nature of our economy from one that was heavily influenced at the state level, to one that was heavily influenced by the federal government.

 

I don't care to argue about whether or not the changes were positive at this time. Anyone who has read my posts knows what my opinions are. I simply want to deal with the facts of what laws were passed. My contention is that while the economy at the time of the 1929 crash was free by today's standards, it occurred in an economy that was in the process of becoming more regulated. Hardly the free, no rules, anarchic economy that some on this site, and the vast majority of teachers suggest there was.

 

I don't know about you, but my middle school economics discussion regarding this era consisted of talking about the expansion of the railroads in the 1800's then magically skipping to "the 20's boomed and then there was a crash, lets talk about Roosevelt"  while ignoring the period of 1890-1929. Any discussion of the era was of the new technologies while virtually ignoring the laws. So hopefully you might learn something you were not aware of before.

 

I intend to offer a brief summary of each significant economic law passed during this period and if I can find it, link to a copy of the original text- don't be afraid to read them yourself, laws back then were MUCH shorter than they are today. I will make every attempt to keep my personal bias out of it, as my goal is to simply provide an account of what happened. When I am done with this laborious task I might go back and state my opinions on the laws as stated, and my reflection on what the actual consequences of the laws were.

 

Feel free to discuss your opinion of the law as to whether or not you think it was a good thing in concept, and if you feel informed enough as to whether or not it worked well in practice. 

 

The first law I will discuss is the Sherman Antitrust Act passed July 2nd 1890. This was a time when the national economy had experienced massive (and sometimes turbulent) growth and industry tycoons were becoming amazingly rich as the country was in the process of modernizing from an agricultural economy to an industrial economy. Railroad tycoons, oil tycoons, steel tycoons, banking tycoons had built their fortunes. People like Rockefeller, Carnegie and the Vanderbilts were wealthy beyond belief. Adjusted for inflation, they make Bill Gates look poor having up to six times his purchasing power.

http://www.neatorama.com/2008/07/09/10-richest-people-of-all-time-and-how-they-made-their-fortunes/

 

One of the reasons these tycoons got so wealthy is that they owned trusts and had business agreements that caused them to have virtual monopolies on the market. Standard Oil for example had roughly 90% of the market share. These tycoons lived very lavish lifestyles and used their profits to buy up smaller firms by the dozens, not just in their original industry but in many other industries as well. 

 

Politicians supported the antitrust act by making the argument that monopolies=bad and that these large tycoons could manipulate the market in ways that harmed the consumer. 

According to the congressional record the purpose of the bill was 

Quote:
To protect trade and commerce among the several States or with foreign nations against unlawful restraints and monopolies

 

In the nice straight forward way they used to write laws, it stated pretty bluntly

 

Sherman Antitrust Act wrote:

Section 1: Every contract, combination in the form of trust or otherwise, or

conspiracy, in restraint of trade or commerce among the several

States, or with foreign nations, is declared to be illegal...

 

Section 2: Every person who shall monopolize, or attempt to monopolize, or

combine or conspire with any other person or persons, to monopolize

any part of the trade or commerce among the several States, or with

foreign nations, shall be deemed guilty of a felony....

 

Section 3: Every contract, combination in form of trust or otherwise, or

conspiracy, in restraint of trade or commerce in any Territory of

the United States or of the District of Columbia, or in restraint

of trade or commerce between any such Territory and another, or

between any such Territory or Territories and any State or States

or the District of Columbia, or with foreign nations, or between

the District of Columbia and any State or States or foreign

nations, is declared illegal.

I edited out the punishment details and left out sections 4-7 as they simply provide the enforcement mechanisms which are not really relevant here. The entire act is available for your reading pleasure here.

 

Initially, the Sherman Antitrust Act didn't get much use. Ironically, the first use of the act was by President Cleveland using its violation as an excuse to send in US Marshalls and military troops to break up a strike. http://en.wikipedia.org/wiki/Pullman_Strike

 

In 1895 the law suffered a setback in United States vs. E.C. Knight Co. 156 U.S. 1 (1895) a case where E.C. Knight Co. controlled 98% of the sugar refining in the US. The Court ruled 8 to 1 that manufacturing was intra state commerce, not interstate commerce and therefore was not covered by the Sherman Act. 

http://www.oyez.org/cases/1851-1900/1894/1894_675

 

It was in the early 1900's when the Sherman Antitrust Act started being aggressively used to break up larges trusts, mostly due to President Theodore Roosevelt who made it a central issue during his campaign for president. He went on to sue dozens of companies under the act and President Taft continued the trend leading to the breakup of many trusts, perhaps most famously Standard Oil was broken into 34 different companies. Many of which you can recognize as the big oil names today- Exxon, BP, Mobil, Conoco, Amoco, Pennzoil and Chevron can all trace their lineage back the Standard Oil Trust.

 

As a side note, the breakup of Standard Oil ironically is what made Rockefeller the wealthiest man in the world. At the time he was retired but still owned a large stake the value of which multiplied exponentially as investors flocked to buy up the shares of a very profitable industry.

I just usually go with my own taste. If I like something, and it happens to be against the law, well, then I might have a problem.- Hunter S. Thompson

digitalbeachbum's picture

Today people, rich people

Today people, rich people that is, avoid the Sherman Antitrust Act by diversifying their investments. This is why people like Mitt Romney is so wealthy.

 

Free will is an illusion. People always choose the perceived path of greatest pleasure.

-Scott Adams

Kapkao's picture

Apparently, Antitrust Act

Apparently, Antitrust Act was not amended to include the (HIGHLY anti-consumer) behaviors of MPAA, RIAA and ESA trade groups (which are basically intercorporate entities that protect the content "rights" of corporations.) There's probably another, separate organization that covers written or typed creative works, but I'll be damned if I can find it.

The OPEC is another example of an organization which is immune to American antitrust legislation, but shouldn't be nonetheless. (My principle in saying that is "if you want to sell something to us, you need to play by our rules, first" )

 

“A meritocratic society is one in which inequalities of wealth and social position solely reflect the unequal distribution of merit or skills amongst human beings, or are based upon factors beyond human control, for example luck or chance. Such a society is socially just because individuals are judged not by their gender, the colour of their skin or their religion, but according to their talents and willingness to work, or on what Martin Luther King called 'the content of their character'. By extension, social equality is unjust because it treats unequal individuals equally.” "Political Ideologies" by Andrew Heywood (2003)

Beyond Saving's picture

digitalbeachbum wrote:Today

digitalbeachbum wrote:

Today people, rich people that is, avoid the Sherman Antitrust Act by diversifying their investments. This is why people like Mitt Romney is so wealthy.

The act wasn't meant to prevent diversification or prevent people from getting wealthy, it was solely meant to break up trusts that had gained a large portion of market share. Romney has never owned anything close to the large market shares that occurred during that time period (Romney isn't even rich in comparison to what these trusts created). Later amendments to the Sherman Antitrust Act focused more on the activities that could lead to such large monopolies and is far more strict. 

 

Even Google, the next company facing a real possibility of a lawsuit under the Sherman Antitrust Act only holds about 66% of market share. http://www.nytimes.com/2012/04/27/technology/google-antitrust-inquiry-advances.html?pagewanted=1&_r=1 A far cry from the 90%-98%+ market shares that occurred at that time in our history. 

 

 

Kapkao wrote:

The OPEC is another example of an organization which is immune to American antitrust legislation, but shouldn't be nonetheless. (My principle in saying that is "if you want to sell something to us, you need to play by our rules, first" ) 

 

 Add in China and every other country we trade with that has economic advantages because our rules are so dramatically different. 

 

I just usually go with my own taste. If I like something, and it happens to be against the law, well, then I might have a problem.- Hunter S. Thompson

Brian37's picture

Here is your biggest problem

Here is your biggest problem Beyond, you think life is static and a script. How hypocritical of you to point out conditions, admit that conditions change, and then hypocritically think a static script(ideological motif) will cure a complex society and complex economy.

Slavery was a benefit to society of the founders, so anything that works we should continue doing?

PAY GAP, If you refuse to address that, no matter what principles you advocate as a general idea, will fail. Address the pay gap, and the middle man(government) wont have the opportunity as much to step in.

But at this moment in history there is NOT enough investment in the worker, or education, or pay. So if the private sector at the CORPORATE LEVEL is unwilling to do it on it's own, government, since is is OF THE PEOPLE, and not OF THE CORPORATE CLASS, has no choice RIGHT NOW but to step in.

I often bring up my owner. If I owned the joint instead of him. I WOULD LIVE IN ONE HOUSE, close to work, and not an hour away. I would own a cheap hybrid and not an Audi. And the money I would save on all that WOULD GO into better worker pay and benefits. And advertising to bring in business to fill in the slower times. The less my employees have to struggle, and if they only have to focus on ONE JOB, the happier they are going to be and the more loyal and productive they will be. AND the less likely they will take government help.

Point being, if you want to say "What does your owner owe you". NOTHING, but by taking that attitude of "fuck you" you'll get back in your face.

 

 

"We are a nation of Christians and Muslims, Jews and Hindus -- and nonbelievers."Obama
Check out my poetry here on Rational Responders Like my poetry thread on Facebook under BrianJames Rational Poet also on twitter under Brianrrs37

Beyond Saving's picture

Pot, meet kettle

Brian37 wrote:

Here is your biggest problem...blah blah blah scripted response about me thinking life is a script....

 

Does anything you said have any relevance to the post whatsoever? Maybe I'm not smart enough to see it, you need to clarify. 

 

The inspiration of this blog was from your apparent ignorance of the legislation that was passed in the years preceding the Great Depression, an ignorance that is probably shared by pretty much everyone who went to public school, a liberal university and doesn't have a natural interest in economic history.

 

You should read it, you might learn something. Feel free to correct me if any of my facts are wrong- I tried to document everything of consequence but if you feel like I didn't provide enough evidence for any of the statements feel free to ask me for it. I have hundreds of links on the subject and more than a few books if I have to get old fashioned. 

 

You are right that things do change. There are a lot of differences today due to our technology and communication abilities. However, we can still learn a lot from the past. Many of the issues they dealt with back then are very similar to the debates we are having today. We have to account for technological and cultural differences but we also have the additional advantage of knowing what the results were of their decisions. We would be (and are) utterly foolish to ignore the failures and successes of past economic decisions. It is much less painful to learn from the mistakes of others than to learn from your own. 

I just usually go with my own taste. If I like something, and it happens to be against the law, well, then I might have a problem.- Hunter S. Thompson

Kapkao's picture

Brian37 wrote:Here is your

Brian37 wrote:
Here is your biggest problem Beyond, you think life is static and a script.

ANd here's your biggest problem: you describe people and ideologies in ways that neatly dodge the facts of what they've said or posted in reality, as opposed to what you think they've said or expressed in Brian37 fairytale land.

“A meritocratic society is one in which inequalities of wealth and social position solely reflect the unequal distribution of merit or skills amongst human beings, or are based upon factors beyond human control, for example luck or chance. Such a society is socially just because individuals are judged not by their gender, the colour of their skin or their religion, but according to their talents and willingness to work, or on what Martin Luther King called 'the content of their character'. By extension, social equality is unjust because it treats unequal individuals equally.” "Political Ideologies" by Andrew Heywood (2003)