Antitrust in the Formative Era: Political and Economic Theory in Constitutional and Antitrust Analysis, 1880-1918*

Antitrust in the Formative Era: Political and Economic Theory in Constitutional and Antitrust Analysis, 1880-1918* JAMES MAy** TABLE OF CONTENTS I. INTRODUCTION .......................................................... 258 II. THE CONCEPTUAL CONTEXT OF FEDERAL AND STATE ANTITRUST ANALYSIS: LAISSEZ-FAIRE CONSTITUTIONALISM AND CONTEMPORARY POLITICAL AND ECONOMIC THEORY ..................................................... 262 A. State Power and PrivateRight in Contemporary Constitutional Adjudication ....................................................... 262 B. Political and Economic Perspective in Contemporary Jurisprudence ..................................................... 269 1. The Interrelationof Political and Economic Theory .......... 269 2. The Natural Laws and Just Harmonies of Classical Economics .................................................... 270 3. Security, Freedom, and State Power in Political Liberalism and Classical Economics ..................................... 275 4. Laissez-FaireConstitutionalism and Political, Moral, and Economic Theory ............................................. 277 C. TraditionalTheory and New Realities in Progressive Era Am erica ........................................................... 281 D. The Economic and Intellectual Origins of Early Antitrust Law .... 283 II. THE LEGISLATIVE HISTORY OF THE FEDERAL ANTITRUST LAWS AND THE CURRENT DEBATE OVER CONGRESSIONAL GOALS ......................... 288 IV. JUDICIAL INTERPRETATION OF THE SHERMAN ACT ......................... 300 V. STATE JURISPRUDENCE AS A SOURCE OF ILLUMINATION .................... 309 VI. STATE COMMON LAW BEFORE THE SHERMAN ACT ........................ 311 A. The Addyston Pipe Restatement ................................... 312 B. The Common Law in New York and Missouri ..................... 313 1. The Virtues of Ancillary Agreements and Vertical Restraints ..................................................... 314 2. Naked Restraints and the Virtues and Perils of Competition ................................................... 320 C. Addyston Pipe and the State of Pre-Sherman Act Common Law ............................................................... 330 * @ Copyright by James May 1989. ** Associate Professor of Law, Washington College of Law, The American University. B.A. 1973, Carleton College; J.D. 1976, Harvard University. I am grateful to James Boyle and Andrew Popper for their helpful comments on an earlier draft. I thank Rosemarie Kelley, Jeffrey Karlin, Martha Knutson, Rita St. John Gunther, Carolyn Grigg, and Ann Dorigan for their valuable research assistance, Anne Guy for her expert production assistance, and the members of the Ohio State Law Journal for their patience and publication assistance. I especially thank Heather Huyck for her editorial suggestions and invaluable support. This research was generously assisted by The American University Washington College of Law Research Fund. OHIO STATE LAW JOURNAL [Vol. 50:257 VII. THE POLITICAL, LEGAL, AND CONCEPTUAL CONTEXT OF ANTITRUST ACrivIrY IN NEW YORK AND MISSOURI .................................. 331 A. New York: Antitrust Law and the Natural Economic Order ....... 331 B. Missouri and the Antitrust Crusade ............................... 337 VIII. ANTITRUST AND RESTRAINT OF TRADE THEORY AND PRACTICE IN THE STATE COURTS ......................................................... 340 A. Ancillary Restraints and the Question of General Standards ...... 341 B. Naked Restraints and the Perceived Importance of Antitrust Law ............................................................... 343 C. Innocent Monopoly and the Dilemma of Efficient "Trusts" .. ...... 347 1. Property Rights, Freedom of Exchange, and Legitimate Market Dominance ............................................ 347 2. The Problem of Market Dominance Through Efficient Combination ................................................. 348 D. Economic Rights and the Rigors of Competition: The Judicial Treatment of Concerted Refusals to Deal .......................... 361 E. Vertical Restraints ................................................. 374 1. Exclusive Dealing and Sole Outlet Arrangements ............. 374 2. The Status and Contexts of Resale Price Maintenance ........ 383 IX . CONCLUSION ............................................................ 391 I. INTRODUCTION Early antitrust analysis developed in a setting of enormous economic and political change. Between the close of the Civil War and the start of the First World War, American productive capacity soared, economic concentration and collusion increased tremendously, and conflict between labor and capital intensified greatly, as large-scale corporate capitalism increasingly displaced a familiar, decentralized small business economy.' These massive changes evoked varied responses from both jurists and legislators, as they did from Americans more generally. 2 In large measure, however, judges and legislators developed and applied their diverse approaches to antitrust and other issues within the broad theoretical confines of a widely accepted general frame of reference, which embodied certain fundamental perspectives on politics, economics, and judicial methodology. Progressive Era judges commonly perceived themselves to be guardians 3 of a free political and economic order that naturally tended to produce harmonious, just, and optimal results for both individuals and society at large. State and federal jurists believed that this political and economic order was potentially threatened by the rapid and profound changes of the era and sought to meet this threat through continual, 1. See, e.g., M. SKLAR, THE CORPORATE RECONSTRUCTIONOFAMERICAN CAPITAUSM, 1890-1916: THE MARKET, TnE LAW, ANDPOLmCS (1988); H. THORELUI, THE FEDERAL ANTrmUST Poucy: ORIGINATIONOFAN ArERICAN TRADmON 54-96, 235-308 (1955). 2. See infra text accompanying notes 199-266. 3. See, e.g., S. FINE, LAISSEZFAIRE AND THE GENERAL-VELFARE STATE: A STUDY OF CONFuCr IN AMERICAN TnouGr 1865-1901, at 140 (1964); L. FkiEDMAN,A HISTORY OF AMERICANLAw 361 (2d ed. 1985). 1989] ANTITRUST IN THE FORMATIVE ERA close scrutiny of public and private developments potentially subversive of the essential bases of American freedom and prosperity. Laissez-faire constitutionalism provided the theoretical vehicle for scrutiny of governmental developments. Above all other branches of contemporary adjudication, this body of jurisprudence most clearly reflected and reinforced the political and economic vision at the center of late nine- teenth and early twentieth century judicial activity in general. In a very fundamental sense, Progressive Era antitrust analysis constituted the "flip side" of laissez-faire constitutionalism or, more accurately, its essential logical complement. While laissezfaire constitutionalism addressed the potential dangers arising from the most prominent governmental innovations of the time, antitrust analysis addressed the potential dangers arising from the most profoundly disturbing private innovations of the time. As a result of this complementarity, close examination of contemporary constitutional theory powerfully illuminates the theoretical foundations not only of Progressive Era constitutional jurisprudence, but also of early antitrust analysis as well. This Article seeks to contribute to such illumination through an extensive exploration of historical developments that have been given little or no attention in most recent accounts of early antitrust history. Concentrating almost exclusively on federal developments, 4 leading antitrust scholars repeatedly have minimized the role of general economic philosophy in early antitrust analysis, 5 and have labeled particular formative era approaches the unfortunate, if predictable, outcome of ignorance of economic theory. For example, in describing the historical development of antitrust jurisprudence in his landmark book The Antitrust Paradox:A Policy at War with Itself,6 Robert H. Bork has declared: Law tends to arrive at basic answers before the right questions have been asked. Disputes that must be decided arise before there is a theory to handle them, so that the participants in the litigation often do not perceive the implications of a decision either way. By the time the realquestion is perceived, if it ever is, an answer has not only been given but has become dogma, and it is too late. 7 As an earlier article explains at length, however, important aspects of the historical record severely undercut such a "theoretical vacuum" interpretation of early antitrust analysis.8 The fact that this historical interpretation has generated so little scholarly dissent reflects an ongoing irony in current antitrust discourse. 4. On the relatively little scholarly attention to early state antitrust developments, see May, Antitrust Practiceand Procedure in the Formative Era: The Constitutional and Conceptual Reach of State Antitrust Law, 1880-1918, 135 U. PA. L. REv. 495, 498, 505 (1987). 5. See id. at 553-61, 589 & n.466 (discussing this interpretative tendency in leading recent accounts of antitrust history). For examples of this tendency, see, for instance, L. FRmDAN, supra note 3, at 465 (declaring that the Sherman Act "hardly reflected any coherent economic theory at all"); T. MCCRAW, PROPHETSOFREGULATION 78 (1984) (stating that Americans fearful of the trusts had "only their personal sensibilities and traditional political ideologies to guide them"); Rowe, The Decline ofAntitrust and the Delusions of Models: The FaustianPact

Load more