-Caveat Lector-
Well my computer has been 'ill' ...
This is total and absolute nonsense:
Das GOAT wrote:
<snip>
1901
"The Spindletop [oil] gusher in Beaumont, Texas, gives
John D. Rockefeller's Standard Oil Trust its first
major competition. The Beaumont Field contains more
oil than the rest of the United States combined ... The
Gulf Oil Co. has its beginnings as [the investors] get
backing from [Anglophile] banker Andrew W. Mellon ...
"More than half the world's oil output is from Russia's
Baku fields developed by Ludwig Nobel, brother of
dynamite inventor Alfred Nobel, and by
<snip>
1902:
"'History of the Standard Oil Company' by Ida Minerva Tarbell
appears in McClure's magazine installments, revealing that
John D. Rockefeller controls 90 percent of US oil-refining
capacity ... US Steel Co. has two-thirds of US
<snip>
MJ:
Anti-Trust serves business interests who cannot compete in
the marketplace <period>. This propaganda nonsense about
monopolies and 'Robber Barons' is bunk. Read and research
rather than regurgitate the indoctrinated myths.
The Ghost of John D. Rockefeller
by Thomas J. DiLorenzo
At the Senate Judiciary Committee hearing on competitiveness
in the computer industry last March, Microsoft chairman Bill
Gates was compared to the infamous 'robber baron' John D.
Rockefeller and his company likened to the Standard Oil Company
of the late nineteenth century. Federal Trade Commission
chairman Robert Pitofsky made a similar analogy in a Washington
Post op-ed, where he self-servingly argued for more money for
antitrust investigations. Gates's competitors, too, are
working diligently to implant the Rockefeller analogy in the
public consciousness.
Even the Wall Street Journal has joined in this attack; reporter
Alan Murray claimed in a page-one article that Gates supposedly
enjoys 'monopoly power' that 'even John D. Rockefeller could
envy'.
Microsoft's critics are right. There are many similarities
between Bill Gates's company and the old Standard Oil
organization.
Like Gates, Rockefeller was the victim of a political assault
for the 'sin' of rapid innovation, a vast expansion of output,
and rapidly declining prices -- just the opposite of what the
antitrust laws ostensibly police. As with Microsoft, the
political attack on Standard Oil was launched by less-efficient
rivals who wanted to achieve through the political process what
they failed to achieve in the marketplace.
There is indeed a lesson to be learned from Rockefeller's antitrust
ordeal, but it is not the one Microsoft's critics have in mind.
Rockefeller's Economic Legacy
The firm of Rockefeller, Andrews, and Flagler was formed in 1865
and was a marvel of efficiency because of Rockefeller's
penny-pinching ways and the managerial genius of his brother
William. (1) Even Rockefeller's harshest critic, the muckraking
journalist Ida Tarbell (whose brother's firm -- the Pure Oil
Company -- was driven from the market by the more efficient
Standard Oil), described the company as 'a marvelous example of
economy'. (2)
The efficiencies of economies of scale and vertical integration
caused the prices of refined petroleum to fall from over 30 cents
a gallon in 1869 to 10 cents by 1874 and to 5.9 cents by 1897.
During the same period, Rockefeller reduced his average costs
from 3 cents to 0.29 cents per gallon.
The production of refined petroleum increased rapidly throughout
this period of increasing dominance by Standard Oil as well, as
increased competition was provided by Associated Oil and Gas,
Texaco, the Gulf Company, and 147 independent refineries that had
sprung into existence by 1911 -- the year in which the government
forced the breakup of Standard Oil.
Contrary to popular mythology, Standard Oil's market share
DECLINED from 88 percent in 1890 to 64 percent by 1911. Because
of intense competition the company's oil production as a percentage
of total market supply had declined to a mere 11 percent in 1911,
down from 34 percent in 1898.
Moreover, Standard Oil's decades-long price-cutting was not
'predatory pricing' -- the theoretical practice of pricing below
average cost to drive competitors from the market and establish a
monopoly. Any business person would be a fool to intentionally
lose money by pricing below average cost for decades. As economist
John McGee concluded in his classic analysis of the Standard Oil
case, "whatever else has been said about [it], the old Standard
organization was seldom criticized for making less money when it
could readily have made more" through other means. (3)
Indeed, Standard Oil never came close to cornering the market; by
the time the antitrust case against it was filed in 1906, it had
hundreds of competitors. Nevertheless, Standard Oil was convicted
of violating the antitrust laws in 1911 and partially dissolved,
despite the fact that the courts conducted no economic analysis of
its conduct and performance. That is, they completely ignored the
effects the company had on prices, output, and innovation in the
petroleum industry, just as Microsoft's critics tend to ignore that
there are tens of thousands of software development firms in the
world and that during the period of Microsoft's rise to dominance
the cost of computing has fallen spectacularly while product
quality has soared.
Standard Oil was convicted because of a general anti-business
animus stoked by socialist intellectuals and journalists such as
Henry Demarest Lloyd and Ida Tarbell and urged on by the company's
higher-cost and higher-priced rivals. As a result the most
efficient industrial organization of the time was crippled, weakening
competition and pushing prices up.
The Protectionist Roots of Antitrust
>From the very beginning, the antitrust laws have been a protectionist
vehicle. While in theory they guard consumers against monopoly, in
reality they politically protect uncompetitive (but well-connected)
businesses. In a 1985 International Review of Law and Economics
article, I showed that in the ten years before the 1890 Sherman
Anti-Trust Act, the industries accused of being 'monopolized' by
trusts were all dropping their prices faster than the general price
level was falling at that time and were expanding output faster than
GNP was growing-some as much as ten times faster. (4) The
late-nineteenth-century trusts were the most innovative and
fastest-growing industries of their time, which is why they were
unfairly targeted by antitrust laws.
Indeed, Congress at the time recognized the great advantages of the
trusts for consumers. Congressman William Mason stated during the
U.S. House of Representatives debate over the Sherman Act that the
"trusts have made products cheaper, have reduced prices; but if the
price of oil, for instance, were reduced to one cent a barrel, it
would not right the wrong done to the people of this country by the
'trusts' which have destroyed legitimate competition and driven
honest men from legitimate business enterprises." (5) Senator
George E Edmunds added that "Although for the time being the sugar
trust has perhaps reduced the price of sugar, and the oil trust
certainly has reduced the price of oil immensely, that does not alter
the wrong of the principle of any trust." (6)
Thus, members of Congress acknowledged that the trusts had caused
lower prices to the great benefit of consumers, but objected that
higher-priced businesses -- many of which were political
supporters -- had lost market share or had been driven out of
business.
The Sherman Act was a protectionist scheme in more ways than one.
The real source of monopoly power in the late nineteenth century
was government intervention. In October 1890, just three months
after the Sherman Act was passed, Congress passed the McKinley
tariff -- the largest tariff increase in history up to that point.
The bill was sponsored by none other than Senator John Sherman
himself. Sherman, as a leader of the Republican Party, had
championed protectionism and high tariffs since the Civil War.
In the Senate debate over his antitrust bill he attacked the trusts
because they supposedly "subverted the tariff system; they undermined
the policy of government to protect ... American industries by levying
duties on imported goods." (7) That is, the price-cutting by the
trusts undermined the manufacturing cartel that was created and
sustained by the Republicans' high-tariff policies.
The Sherman Act was a political fig leaf designed to deflect attention
away from the real source of monopoly power -- the tariff -- and the
true price-fixing conspirators -- Congress and protectionist
manufacturers. The New York Times saw through this charade when it
editorialized on October 1, 1890, that the "so-called Anti-Trust law
was passed to deceive the people and to clear the way for the enactment
of this ... law relating to the tariff. It was projected in order that
the party organs might say to the opponents of tariff extortion and
protected combinations, 'Behold! We have attacked the Trusts. The
Republican Party is the enemy of all such rings." (8)
Economists were almost unanimously opposed to the Sherman Act because
they viewed competition as Austrian school economists view it -- as a
dynamic, rivalrous process of discovery. (9) According to historian
Sanford D. Gordon, who surveyed all professional journals in the social
sciences and all books written by economists regarding the
late-nineteenth-century trusts, "a big majority of the economists
conceded that the combination movement was to be expected, that high
fixed costs made large scale enterprises economical, that competition
under these new circumstances frequently resulted in cutthroat
competition,
that agreements among producers was a natural consequence, and the
stability of prices usually brought more benefit than harm to society.
They seemed to reject the idea that competition was declining, or showed
no fear of decline." (10)
The Myth That Antitrust 'Saved' Capitalism
A popular argument made at the time was that antitrust was necessary
to stave off something even worse -- the more extreme forms of
regulation or outright socialism. Antitrust was adopted, but Americans
were subjected to the more extreme forms of regulation -- and
socialism -- anyway. As Milton and Rose Friedman pointed out in Free
to Choose, by the 1970s the entire Socialist Party Platform of 1920
had been adopted in the United States. Socialism, F.A. Hayek pointed
out in _The Road to Serfdom_, no longer meant nationalization of
industry and central planning, but rather the institutions of the
welfare and regulatory state. Antitrust did nothing to stop the spread
of socialism in America.
Quite the contrary; the adoption of antitrust helped speed up the
adoption of socialism. By weakening the competitive process, it has
led to slower productivity growth and diminished prosperity. Government
always reacts to slower economic growth, unemployment, and economic
crises by adopting even greater economic interventions. The
late-nineteenth-century proponents of antitrust had it all backwards.
This is why it is so disingenuous, to say the least, of contemporary
proponents of antitrust, such as the Wall Street Journal's Murray, to
repeat this same discredited argument, urging Bill Gates to 'place trust
in trustbusters,' or else 'he may eventually find the Justice Department
and Congress considering more-radical remedies.' (11)
The Real Robber Barons
John D. Rockefeller, like Bill Gates, achieved his economic success
by offering the best products for the lowest prices on the free market.
The real 'robber barons' of the late nineteenth and the late twentieth
centuries are the business people who, having failed to achieve
competitive success in the market-place turned to government and asked
it to enact laws and regulations granting them special privileges and
harming their competitors. A century ago, such immoral special pleaders
included Leland Stanford, who became wealthy by using his political
connections to obtain a govemment-created monopoly franchise in the
California railroad industry, Thomas Durant and Grenville Dodge, who
pocketed millions in government subsidies to build the Union Pacific
railroad; Henry Villard, who 'rushed into the wilderness to collect his
[government] subsidies' to build the Northern Pacific railroad; and
steel industry magnate Charles Schwab, who championed the disastrous
1930 Smoot-Hawley tariff. (12) Their modern-day counterparts would
include many of Bill Gates's competitors, such as the chief executive
officers of Netscape, Sun Microsystems, Novell, and other companies that
have lobbied the federal government to use the antitrust laws to
diminish
or destroy the competitive efficiency of their most effective rival,
Microsoft.
For over 100 years antitrust regulation has allowed politicians to
deceitfully pose as 'populists' while stifling competition with
politically motivated attacks on the most innovative and progressive
companies. These attacks have been supported for over a century by
socialist intellectuals and journalists who have taught many Americans
to hate capitalism, to envy successftil people, and to support
government policies that undermine or destroy them both. Being the
most successful businessman in the world, Bill Gates was an inevitable
target of the anti-capitalistic crusaders. It's time we recognized
antitrust for the protectionist racket that it is and repealed the
antitrust laws.
1. The following information about Standard Oil is from
Dominick Armentano, Antitrust and Monopoly, Anatomy
of a Policy Failure (New York: Wiley, 1982).
2. Ida Tarbell, The History of the Standard Oil Company
(New York: Peter Smith, 1950), pp. 240-41.
3. John S. McGee, "Predatory Price Cutting: The Standard
Oil (N.J.) Case," Journal of Law and Economics, October
1958, p. 168.
4. Thomas J. DiLorenzo, "The Origins of Antitrust: An
Interest-Group Perspective," International Review of Law and
Economics, 1985, pp. 73-9(3.
5. Congressional Record. 51st Congress, 1st Session, House, June 20,
1890, P. 4100.
6. Ibid., p. 2558.
7. Ibid., P. 4100.
8. New York Times, October 1, 1890, p. 2.
9. Thomas J. DiLorenzo and Jack C. High, "Antitrust and Competition,
Historically Considered," Economic Inquiry, July 1988, pp, 423-34.
10. Sanford D. Gordon, "Attitudes Toward Trusts Prior to the Sherman
Act," Southern Economic Journal, 1963, p. 158.
11. Alan Murray, "It's Time Gates Placed Trust in Trustbusters,"
Wall Street Journal, March 9, 1998, P. 1.
12. Burton W. Folsom, Jr., _The Myth of the Robber Barons_
(Hernon, Va.: Young Arnerica's Foundation, 1991).
Regard$,
--MJ
It is easier to perceive error than to find truth, for the former
lies on the surface and is easily seen, while the latter lies in
the depth, where few are willing to search for it.
-- Johann Wolfgang von Goethe
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