The American KGB: The Department of Justice’s Antitrust Department (Part 6)

by | Mar 14, 2000

The antitrust laws are based on the economic theory of “pure and perfect competition” and deeper, on the ethical theory of altruism, or self-sacrificial service to others. What do the laws require? What illegal behavior do they cite? What punishments do they endorse? The antitrust laws are as arbitrary as the “perfect competition” doctrine and […]

The antitrust laws are based on the economic theory of “pure and perfect competition” and deeper, on the ethical theory of altruism, or self-sacrificial service to others. What do the laws require? What illegal behavior do they cite? What punishments do they endorse?

The antitrust laws are as arbitrary as the “perfect competition” doctrine and as anti-business as altruism requires. Consider only those provisions relating to price setting. If a business sets a price above the prices of its rivals, it can be charged with “intent to monopolize.” If it sets a price below those of rivals, it can be charged with “predatory pricing” or “unfair competition” or “restraint of trade.” If it charges a price similar to those of rivals, it can be charged with “collusion” and joining a “conspiracy to fix prices.”

In short, the minute you go into business, whatever price policy you adopt, you violate the antitrust laws. You’re guilty for being in business as such. You’re presumed guilty until you prove yourself innocent, a direct perversion of proper justice. Does this mean every enterprise is prosecuted under the antitrust laws? No. But the wide discretion and limitless capacity to attack anyone, anywhere, at anytime, gives the trustbusters enormous power. What, then, is the standard or signal justifying prosecutorial action? The trustbusters target those firms that it feels exhibit what it deems, subjectively, to be “excessive” pricing power, “excessive” contracting powers, “excessive” profits, or “excessive” market share. By “powerful” they mean: economic power is political power. By “excessive” they mean: more than what altruism and “perfect competition” can allow.

The trustbusters seek out and persecute the most visible “imperfections” in the market–that is, they seek out and attack the biggest, most distinct, most successful, most profitable, most widely advertised and most frequently patronized firms. The antitrust advocates call it “leveling the playing field” but it’s really leveling of the ability, the skills and rewards of the players on the field. Objectivity entails the rule of law, not the rule of men and their whims. It provides a level playing field, but with the state as a referee, not as a brazen and biased intruder, running riot on the field, or roughshod over ability, in pay to incompetence, by changing the rules and the score at will to achieve his twisted aims.

There are other elements of antitrust law which codify altruist and egalitarian theories of perfection and sabotage business freedom. There is the “essential services” doctrine which says a product or service that becomes widely used and relied upon loses its private character and effectively becomes public property, to be shared with rivals and the government. If this is not penalizing success for being success nothing is. Here, the successful exercise of one’s property rights, the successful creation and distribution of a product throughout an entire economy causes one to lose those rights, to be robbed of the product of one’s creative efforts. These values are stolen and given to those who did not and could not create them. The wealth is stolen “from each according to his ability” and given “to each according to his need.” That’s Karl Marx’s phrase; Marx, codified in law.

An example of the arbitrariness of these laws can always be found in the way the trustbusters define a firm’s “market share.” They define it anyway they wish, to maximize guilt. In a case against DuPont they said the firm monopolized the market for food wrap. It created cellophane. Few others made it as well. What’s the market, cellophane? Why not define the market as all food wrap? Include aluminum foil, zip-lock bags, or Tupperware? Too big a market? How about the market share of these things, not in the US but only in Cambridge? Or only in the stores around Harvard Square? You get the idea. The government defines the market as narrowly as possible to show “excess share.”

What about the interpretation of that share? Why is it called a “share?” Are markets fixed things, grabbed at by competitors? Or are markets made possible by and expanded by the producers? We’re told, ominously, that Microsoft “controls” 80% of the market for operating systems for personal computers, that it has a “dominant” market share.” Has it been forgotten that Microsoft made these products? That it owns them until they’re sold? That the products were bought voluntarily? The right to private property means the right to hold it, to alter it, to exchange it–that is, to control it. Is a firm guilty of controlling its own property? To prosecute a firm for that is to obliterate the right to private property. Is that justice? Can a firm be said to “control” goods it sold in an open-market, goods now owned by others? How? Don’t others have the right to their property?

I’ve not even mentioned the array of other antitrust provisions that violate simple justice. There are the retroactive elements–definitions of wrong-doing that are so murky, firms can’t know in advance what they might become charged with, what they may be guilty of, when, or for what reason. That’s called retroactive law, and its forbidden by the US Constitution. The rights of criminals are better protected than those of businessmen. Add to this the fact that most antitrust cases are decided by precedent–not what’s written in the law itself, but what thousands of judges have written in thousands of antitrust case spanning an entire century. And it gets worse every year. And if all this were not bad enough, convictions under these laws bring heavy fines, dismemberment, even jail terms.

Two specific tactics used by trustbusters involve the consent or sanction of the victims. One is the old tactic of “divide and conquer,” in which the government uses the testimony of one company against another, and then goes after the first company with the help of yet another. Thus Intel testified against Microsoft; as did IBM. Then the government went after Intel. This happens all the time. It happened at the start, a century ago, when the farmers were used against the railroads. The trustbusters count on threats, intimidation, extortion and revenge–you know, the tactics of mobsters. The other tactic is called the “consent decree.” It’s an oxymoron suggesting both agreement (consent) and compulsion (decree). It’s a document drawn up by trustbusters for the signature of the target, telling it how to conduct its business, how to split it up, transfer patents, dismantle products, and refrain from competing. The decree is promised as an allegedly “easy way out,” to preclude a full trial. And firms sign these, as Bill Gates did, in 1994. To sign an antitrust “consent decree” is to agree, voluntarily, to abide by the decrees and dictates of an unjust inquisitor. The decrees are equivalent to executing a death sentence for your own business, certainly for your freedom. For you write your own ticket for entry into the jungles of antitrust law. A businessman can’t win. But that’s the whole idea! And not even consent decrees preclude a full trial. IBM signed a consent decree in 1956 and was micro-regulated by trustbusters for 13 years before a full-fledged case, lasting another 13 years, was launched in 1969. That’s a full quarter century of government oversight of IBM. No wonder it couldn’t stay on top. Nor was a trial against Microsoft prevented when Gates signed the decree in 1994. In fact the decree hastened it. Gates passed willfully through the antitrust Gates of Hell.

The antitrust laws are the epitome of Soviet-style laws. They are an obscene hash of vague, undefined, arbitrary rules and edicts, of oxymoronic “consent decrees,” forced testimony, presumptions of guilt, paid informants, show trials, retroactive penalties and jail terms. These laws, in sum, are a rank injustice–but one that’s been perpetrated for over a century now against America’s greatest producers. Perhaps the most grotesque, Orwellian aspect of their injustice is the fact that the Antitrust Department of the United States government is a division of the U.S. Justice Department. Trustbusters operate in the most unjust, unconstitutional, rights-violating bureaucracy in the entire government. It has been said that “if you build a better mousetrap, the world will beat a path to your door.” Yes, they will–voluntarily. But under antitrust, so will Janet Reno–in a KGB-style campaign to exterminate commercial speech, freedom of contract and voluntary exchange.

Firms that are not yet even direct targets of trustbusters nevertheless engage in what’s known as “self-regulation;” that is, in trying to anticipate and pre-empt trust-busting assaults, threatened firms selectively choose not to create products, not to expand operations, not to merge with other firms, not to profit “too much”. Microsoft, you may recall, did this with its April re-organization, with it’s decision in 1997 to abandon its planned purchase of Intuit; in 1996, when it invested $100 million in Apple Computer, a failing rival; in 1995, when it gave away some of its hard-earned technical secrets to competitors. Self-regulation is a hallmark of any totalitarian regime.

Do I exaggerate? Why would a top antitrust official himself, a man by the name of Lowell Mason who once headed the Federal Trade Commission, call these laws “a system of tyranny?” He should know, shouldn’t he? Why would he be so candid? Because, as the former head of an antitrust agency, he is now finally free to speak the truth?

Injustice permeates every antitrust case ever launched, especially those against big businesses: Standard Oil (1911), ALCOA (1945), General Electric (1962), DuPont (1960s), IBM (1969-82), AT&T (1982), Wal-Mart, American Airlines, Staples, Intel, Microsoft, Visa & Mastercard (1990s). The list is a “Who’s Who” of great American businesses. That should tell you that greatness, not coercion, is the target. Notice, it’s precisely big businesses, the firms with the genius and the vast capacity to organize and mass produce on a large scale that create the products and services which are so widely purchased and used. But the altruists aren’t satisfied when the masses receive such values, for the hated giants are still, to them, evil profit-mongers. As are firms of lesser size. They all seek to grow and profit. But lest you worry that the “perfect competition” doctrine targets only big firms, be assured that scores of smaller firms also are persecuted. There are hundreds of antitrust cases initiated every year. Mergers leading to as small a market share as 5% have been forbidden. Remember, no firm must stand out.

Antitrust says success is a sin. Here are a just a few representative excerpts from judicial decisions in three major antitrust cases tried in this past century (1911, 1945, 1995):

  • Standard Oil Company (1911): “Much has been said in favor of the objects [products] of the Standard Oil Trust, and what it has accomplished. It may be true that it has improved the quality and cheapened the costs of petroleum and its products to the consumer. But such is not one of the usual or general results of a monopoly and it is the policy of the law to regard, not what may happen, but what usually happens.”[xii]
  • ALCOA (1945): “It was not inevitable that [ALCOA] should always anticipate increases in the demand for ingot and be prepared to supply them. Nothing compelled it to keep doubling and redoubling its capacity before others entered the field. It insists that it never excluded competitors; but we can think of no more effective exclusion than progressively to embrace each new opportunity as it opened and to face every newcomer with new capacity already geared into a great organization, having the advantage of experience, trade connections, and the elite of personnel.” [Judge Learned Hand, presiding trial judge]
  • Microsoft Corporation (1995): “Microsoft has a monopolistic position in a field that is central to this country’s well-being, not only for the balance of this century, but also for the 21st Century.” If the Department of Justice does not break it up and transfer its patents, “the message will; be that Microsoft is so powerful that neither the market not the government is capable of dealing with all its monopolistic practices . . . Microsoft is a potential threat to this nation’s economic well-being.” [Judge Stanley Sporkin][xiii]

These opinions demonstrate how antitrust laws seek not to prevent force or fraud but to penalize success. The opinions twist every which way, in contradictory ways if necessary, to penalize. Note the use of the “essential services” theory in the Microsoft opinion. The firm has created products of such value and importance that even this judge recognizes them as “central to the country’s well-being.” Yet he says the firm’s “a threat to the nation’s well-being.” Allegedly it’s evil, like China; strong, like the US Defense Dept; dangerous, like a virus. Yes, the firm created great products, but the fact of its greatness is what makes it “dangerous.” Its patents and products must be seized, to dilute its “power.”

The black man from the Deep South was assaulted because he is black. For no other reason. Microsoft is being assaulted because it’s the biggest, because it’s the most profitable, because it’s the most successful, because it’s so widely-recognized, because its products are widely and productively used, because it’s chairman is a young multi-billionaire and the world’s wealthiest man, because it has thousands of millionaire employees and because its stock has soared. This is my main theme tonight: Microsoft is being assaulted, in short, because it is, not simply good, but greatthe best in the business. Microsoft has risen above all competitors and mediocrities–not through force or fraud but through voluntary exchange and with no favors or handouts from government. Microsoft stands tall and its stands alone. Usually, it also stands proudly. To some, that is it’s worst sin. After all, we’re taught, “pride always goes before the fall.” But if Microsoft stumbles or falls it won’t be from pride–it will have been kicked, crippled and pushed into falling, because it’s a success, because it has something to be proud of. The virtue of pride precedes no fall unless pride is met with envy and coercion.

Microsoft is in the process of being lynched, plain and simple. Even though it resides in the United States of America, in the nation inspired by Thomas Jefferson and erected by the founding fathers of constitutional liberty, in the nation that used guns to abolish slavery and reason to dispel prejudice, in the nation with “hallowed halls of justice”–it is receiving no justice. Justice consists of punishing the bad for being the bad and rewarding the good for being the good. Injustice involves punishing the good for being the good.

The above article is an adaptation of a lecture Mr. Salsman gave at Harvard University, in May of 1999. The print version has been edited lightly in order to retain it’s spontaneous quality. Mr. Salsman has not reviewed the edited version.


Endnotes


[i] “What Bill Gates Really Wants,” Fortune, January 16, 1995, p. 63.

[ii] Hatch: “It seems far better to have antitrust enforcement today than heavy-handed regulation of the Internet tomorrow.” From a speech, cited in Information Week Daily, February 6, 1998.

[iii] Cited in Salsman, “Antitrust Returns with a Vengeance,” The Intellectual Activist, May 1995, p. 13.

[iv] The Ayn Rand Institute, “Antitrust Assault on Microsoft is Immoral: Tanya Harding Approach to Competition is Anti-American,” Press Release, May 22, 1998.

[v] Frank Knight, Risk, Opportunity and Profit (Chicago: University of Chicago Press, 1921).

[vi] Frank Knight, The Ethics of Competition (Augustus M. Kelley, 1935), p. 45, 48, 72.

[vii] Friedrich Hayek, Individualism and Economic Order (1948), pp. 114, 111.

[viii] Friedrich Hayek, The Constitution of Liberty (1960), p. 265.

[ix] Milton Friedman, Capitalism and Freedom (1962), p. 119-120.

[x] John Ridpath, “The Philosophic Origins of Antitrust, The Objectivist Forum, June 1980, p. 14.

[xi] M. Northrup Buechner, “Ayn Rand and Economics,” The Objectivist Forum, August 1982, p. 6.

[xii] From the Supreme Court decision breaking up the company; cited in George Reisman, “Microsoft and It’s Enemies: Which is the Monopolist?” March 30, 1999.

[xiii] Cited in Richard M. Salsman, “Antitrust

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Dr. Salsman is president of InterMarket Forecasting, Inc., an assistant professor of political economy at Duke University and a senior fellow at the American Institute for Economic Research. Previously he was an economist at Wainwright Economics, Inc. and a banker at the Bank of New York and Citibank. Dr. Salsman has authored three books: Breaking the Banks: Central Banking Problems and Free Banking Solutions (AIER, 1990), Gold and Liberty (AIER, 1995), and The Political Economy of Public Debt: Three Centuries of Theory and Evidence (Edward Elgar Publishing, 2017). In 2021 his fourth book – Where Have all the Capitalist Gone? – will be published by the American Institute for Economic Research. He is also author of a dozen chapters and scores of articles. His work has appeared in the Georgetown Journal of Law and Public Policy, Reason Papers, the Wall Street Journal, the New York Times, Forbes, the Economist, the Financial Post, the Intellectual Activist, and The Objective Standard. Dr. Salsman earned his B.A. in economics from Bowdoin College (1981), his M.A. in economics from New York University (1988), and his Ph.D. in political economy from Duke University (2012). His personal website is richardsalsman.com.

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