The Curse of Bigness: Antitrust in the New Gilded Age

by Tim Wu

If we learned one thing from the Gilded Age, it should have been this: The road to fascism and dictatorship is paved with failures of economic policy to serve the needs of the general public.

Louis Brandeis called the “Curse of Bigness,”

What else can one say about a time when we simply accept that industry will have far greater influence over elections and lawmaking than mere citizens?

Are extreme levels of industrial concentration actually compatible with the premise of rough equality among citizens, industrial freedom, or democracy itself?

Hayek would say no

By the midpoint of the last century, antitrust became widely understood in the Western world as a necessary part of a functioning democracy, as an ultimate check on private power.

“Shall the industrial policy of America be that of competition or that of monopoly?”

Rejecting laissez faire’s rule by the wealthy, communism’s dictatorship of the proletariat, and fascism’s state-directed economy, the West took a different path—the re-democratization of economic policy and a politics of wealth redistribution. That path yielded decades of economic growth that built middle classes, and saw a level of prosperity previously unknown to human history, reducing what had become a massive gap between rich and poor.

Advocating antitrust revival is not meant to compete with other economic proposals to address inequality. But laws that would redistribute wealth are themselves blocked by the enhanced political power of concentrated industries.

The new monopolists of the Gilded Age preferred to believe that they were not merely profiteering, but building a new and better society.

In the same way that Silicon Valley’s Peter Thiel today argues that monopoly “drives progress” and that “competition is for losers,” adherents to the Trust Movement thought Adam Smith’s fierce competition had no place in a modern, industrialized economy.

In politics, Social Darwinists embraced laissez-faire, opposing any interventions that might be thought to stop the strong from displacing the weak.

For the American tradition had, to that point, been defined by resistance to centralized power and monopoly.

As such, the movement posed a new challenge for a Constitution that was committed to limited and separate powers, and never contemplated the rise of private power as great as any of the branches of government, and able to corrupt governmental operations to suit its ends.

He feared that as the corporations became large and powerful, they took on a life of their own, becoming increasingly insensitive to humanity’s wants and fears.

what Brandeis thought a democratic economy was for. Nowadays, we may think that the economy serves to make us rich, or at least to pay the bills. Democracy, meanwhile, is about voting for a government that reflects our preferences. Brandeis demanded more from the economy and democracy. For him, the very purpose of life was the building of good character and the development of self. The “ideal” of democracy, he once said, should be “the development of the individual for his own and the common good.” He was in accord with the position taken by contemporary philosopher Wilhelm Von Humboldt, who wrote that “the true end of man, or that which is prescribed by the eternal or immutable dictates of reason … is the highest and most harmonious development of his powers to a complete and consistent whole.”*

“The ‘right to life’ guaranteed by our Constitution” should be understood as “the right to live, and not merely to exist. In order to live men must have the opportunity of developing their faculties; and they must live under conditions in which their faculties may develop naturally and healthily.”

the American founders had understood this, that “[t]hey valued liberty both as an end, and as a means. They believed liberty to be the secret of happiness, and courage to be the secret of liberty.”

Economic security was a foundation on which one could really be free in a meaningful sense—hence the importance of steady but not oppressive work,

Where Hayek would disagree

That is why Brandeis saw real freedom as freedom from both public and private coercion.*

He distrusted big government almost as much as big business, especially at the federal level, but felt that antitrust laws needed to be vigorously enforced.

If he had a unifying principle, politically and economically, it is what we have said: that concentrated power in any form is dangerous, that institutions should be built to human scale, and that society should pursue human ends. Every institution, public and private, runs the risks of taking on a life of its own, putting its own interests above those of the humans it was supposedly created to serve.

The doctrine of laissez-faire, a cousin to Social Darwinism, suggested that economic problems would tend to work themselves out, and hence government intervention would usually do more harm than good. Its American translation was, “Let well enough alone!” That was the faith, and as such it took on Constitutional dimensions.

He also understood, as we should today, that ignoring economic misery and refusing to give the public what they wanted would drive a demand for more extreme solutions, like Marxist or anarchist revolution.

“When aggregated wealth demands what is unfair, its immense power can be met only by the still greater power of the people as a whole.”

“a man of great wealth who does not use that wealth decently is, in a peculiar sense, a menace to the community.”

In the end, Northern Securities was an important victory for Roosevelt and his premise that the trusts must obey the state, for he had challenged and humbled a man, J. P. Morgan, who had once seemed beyond the reach of any law, a man whom nations might obey rather than order. As Roosevelt later reflected, “it was imperative to teach the masters of the biggest corporations in the land that they were not, and would not be permitted to regard themselves as, above the law.”

“power that controls the economy should be in the hands of elected representatives of the people, not in the hands of an industrial oligarchy.”

Hence, antitrust law was serving as a new kind of limit: a check on private power, by preventing the growth of monopoly corporations into something that might transcend the power of elected government to control.

“excessive concentration of economic power will breed antidemocratic political pressures.”

Increased industrial concentration predictably yields increased influence over political outcomes for corporations and business interests, as opposed to citizens or the public.

Olson’s memorable conclusion is that the small and organized will dominate the large and disorganized.

Consider, by contrast, the problem of collective action that faces “the middle class,” a large group with some 100 million members.

large groups—the majority—will often be losers in the legislative process.

The more concentrated the industry, the fewer who need to coordinate, and the fewer among whom the stakes need be divided. If an industry has sixty or eighty firms in it, they may squabble, be incapable of acting as a group, and also face the problem of collective action.

The more concentrated the industry, the more corrupted we can expect the political process to be. Here, by corrupted, we mean a political system that does not serve its stated goals—service of the public’s interests—but instead favors a few groups at the expense of the general public.

Rockefeller liked to offer his smaller rivals the choice first popularized by Genghis Khan: Join the empire, or face complete destruction.

“there was no more faithful baptist in Cleveland than he … He gave to its poor. He visited its sick.” And yet “he was willing to strain every nerve … to ruin every man in the oil business.”

“A man always has two reasons for the things he does,” Morgan once told an associate. “A good one and the real one.”

But what was new were the lengths taken to justify certain conduct, as opposed to hiding it, making the unethical into the necessary, indeed the proper.

The proponents of the trust argued that their size and monopoly control was natural and necessary: that the larger firm was simply more efficient than the small operators of old.

I know about economies of scale and all the other advantages that are supposed to come with size. But when you get an inside look, it’s easy to see how inefficient big business really is.”*

As a business gets larger, it begins to enjoy a different kind of advantage having less to do with efficiencies of operation, and more to do with its ability to wield economic and political power, by itself or in conjunction with others. In other words, a firm may not actually become more efficient as it gets larger, but may become better at raising prices or keeping out competitors.

When running for president in 1912 as the head of his own party, Roosevelt became the advocate of a different approach—one then new to American history, but with a difficult legacy in the twentieth century. Roosevelt campaigned on a platform he called “New Nationalism,” where he promised not to break up, but to nationalize or supervise the remaining trust monopolies. In other words, Roosevelt proposed abandoning the very idea of a competitive or decentralized economy, in favor of one dominated by monopolists who were then, in turn, subject to the direction and regulation of the state—the paradigm of “regulated monopoly.” Roosevelt’s approach, later termed “corporatism” by political scientists, was at some level not really so different from the Crown monopolies loyal to the British King, nor, as we discuss more in a moment, was it that much different than the corporate-state alliances adopted by Japan, Germany, and Italy in the 1930s.

There was more here than a rejection of antitrust: It was a rejection of the entire idea of a competitive economy, and that is what makes the 1912 election so important to our story. With Roosevelt and the socialist candidate Eugene Debs both calling for state-supervised monopolies, it became one of the few elections in history where the public was clearly engaged with and voting on what kind of economic order they wished to live in.

If Roosevelt had won the 1912 election, and managed to enact his program, the history of the United States would have been profoundly different, and probably far darker, given the fact that such cooperation was so closely linked to the rise of fascism in other countries.

the monopolist and dictator tend to have overlapping interests.

“Germany became organized to such an extent that a Fuehrer was inevitable; had it not been Hitler it would have been someone else.”

“Germany under the Nazi set-up built up a great series of industrial monopolies in steel, rubber, coal, and other materials. The monopolies soon got control of Germany, brought Hitler to power, and forced virtually the whole world into war.”

When they lose the power to direct their economic welfare they also lose the means to direct their political future.

Like Thurman Arnold, Estes Kefauver, and other Americans, the Ordoliberals believed that the true origins of Nazi totalitarianism were the concentrations of economic power that had begun under Bismarck.