In Restraint of Trade In Restraint of Trade' The Business Campaign Against Competition, 1918-1938 Butler Shaffer The Ludwig von Mises Institute Auburn, Alabama 2008 O 1997 by Associated University Presses, Inc. All rights reserved. Authorization to photocopy items for internal or personal use, or the internal or personal use of specific clients, is granted by the copyright owner, provided that a base fee of $10.00, plus eight cents per page, per copy is paid directly to the Copyright Clearance Center, 222 Rosewood Dr., Danvers, Massachusetts 01923. [0-8387-5325-6197 $10.00 + 8Q pp, PC.] Associated University Presses 440 Forsgate Drive Cranbury, NJ 08512 Associated University Presses 16 Barter Street London WClA 2AH, England Associated University Presses P.O. Box 338, Port Credit Mississauga, Ontario Canada LSG 4L8 The paper used in this publication meets the requirements of the American National Standard for Permanence of Paper for Printed Library Materials 239.48-1984. Library of Congress Cataloging-in-Publication Data Shaffer, Butler D. In restraint of trade : the business campaign against competition, 1918-1938 I Butler Shaffer p. cm. Includes bibliographical references and index. ISBN 0-8387-5325-6 (alk. paper) 1. Industrial policy-United States-History-20th century. 2. Competition-United States-History-20th century. 3. Competition-United States-Case studies, 4. Trade regulation- -United States-History-20th century. 5. Business and politics- -United States-History-20th century. 6. Businessmen-United States-Attitudes. 7. United States-Economic Conditions191 8-1 945. I. Title HD3616.U46S43 1997 338.973'009'041-dc 20 96-14519 CIP SECOND PRINTING 1999 PRINTEDIN THE UNITEDSTATES OF AMERICA To the memory and the investigative spirit of John T. Flynn Contents Acknowledgments Introduction 1. Making the World Safe from Competition 2. Trade Associations and Codes of Ethics 3. Political Alternatives 4. Under the Blue Eagle and Beyond 5. The Steel Industry 6. The Natural-Resource Industries 7. Retailing and Textiles 8. In Retrospect Notes Bibliography Index Acknowledgments I wish to acknowledge my gratitude to a number of persons whose assis- tance was helpful in the bringing of this book to publication. First, I would like to thank Robert Love who, knowing of my interest in this subject matter, first encouraged me to write this book more years ago than I care to remember. Shortly thereafter, I received valuable assistance from the late F. A. Harper and Kenneth Templeton, who helped me to focus the scope of this inquiry. I must also acknowledge the help provided by Mills F. Edgerton, Jr., of Bucknell University Press, as well as Julien Yoseloff and the editors of Asso- ciated University Presses. I further wish to express my gratitude to Janet Knoedler for her critical review and analysis of my work. Her perspective and constructive suggestions helped greatly to improve the original manu- script. I also wish to thank my daughters-Heidi, Gretchen, and Bretigne- for their invaluable assistance in helping to produce the graphics contained in this book. I also want to acknowledge the help of Jeannie Nicholson and Martha Fink. Acknowledgment must also be made to the Southwestern University Law Review, which published portions of my research as separate articles in vol- umes 10 and 20 of the law review. I wish also to acknowledge the following permissions to reprint copyrighted materials contained in this book: "Business and Government," by John T. Flynn. Copyright 63 1928 by Harper's Magazine. All rights reserved. Reproduced from the March issue by special permission. The Logic of Collective Action, by Mancur Olson. Reprinted by permission of the pub- lishers from The Logic of Collective Action: Public Goods and the Theory ofGroups, by Mancur Olson. Cambridge, Mass.: Harvard University Press, Copyright O 1965, 1971 by the President and Fellows of Harvard College. The Epic of American Industry, by James Walker, 1949. Permission granted by HarperCollins Publishers. "Toward Stability," an editorial appearing in Business Week, 10 May 1933, at page 32. Permission granted by Business Week. 10 ACKNOWLEDGMENTS An article appearing in volume 131 of The Iron Age, 25 May 1933, at page 835. Permis- sion granted by Chilton Company, Capital CitieslABC, Inc. "A Current Appraisal of the National Recovery Administration," by Dudley Cates, in volume 172 of The Annals of the American Academy of Political and Social Science, March 1934, at pages 132-34. Reprinted by permission of Sage Publications, Inc. Two articles, appearing in volume 26 of The Oil and Gas Journal, 2 February 1928, at page 36, and 12 April 1928, at page 36. Permission granted by Oil and Gas Journal. In Restraint of Trade Introduction [Tlhe forces which count toward a readjustment of institutions in any modern industrial community are chiefly economic forces; or more specifically, these forces take the form of pecuniary pressure. Such a readjustment as is here contemplated is substantially a change in men's views as to what is good and right, and the means through which a change is wrought in men's apprehension of what is good and right is in large part the pressure of pecuniary exigen- cies. Thorstein Veblen Until relatively recent times, the symbiotic relationship existing between eco- nomic and political institutions has only been vaguely comprehended. It has been popular to view these two major sectors of American society as having a generally antagonistic relationship, with political institutions serving as a countervailing force to economic influence. This view is reflected in the tra- ditional conception of economic history that suggests the American business system had, during the late nineteenth and early twentieth centuries, main- tained an existence largely independent of, and indifferent to, the interests of the American public. The business community in this era is seen by many as ruthless and hegemonic, exercising nearly unlimited corporate power that threatened the very foundations of a free and competitive economic system. Those who hold to this view insist that the interests of the public required the imposition of political controls to regulate such matters as trade prac- tices, pricing policies, and the size and entry of business firms in the market. It supports a consensus that government regulation of economic activity rep- resents a national policy commitment to elevating the "ethical plane" of competition in order that market influences may more freely serve some vaguely defined "general welfare." One business scholar has reflected this attitude well: It is not always safe to leave business to its own devices; experience has shown that its freedom will sometimes be abused. Competitors have been harassed 14 IN RESTRAINT OF TRADE by malicious and predatory tactics, handicapped by discrimination, excluded from markets and sources of supply, and subjected to intimidation, coercion, and physical violence. Consumers have been victimized by short weights and measures, by adulteration, and by misrepresentation of quality and price; they have been forced to contribute to the profits of monopoly. , . [Tlhe nation's resources have been dissipated through extravagant methods of exploitation. These abuses have not characterized all business at all times, but they have occurred with sufficient frequency to justify the impo- sition of controls. Regulation is clearly required, not only to protect the inves- tor, the worker, the consumer, and the community at large against the unscru- pulous businessman, but also to protect the honest businessman against his dishonest competitor.' This impression of the purposes and effects of the regulatory process is reinforced by a common historical view of the 1920s as the declining years of laissez-faire capitalism, in which "big business" had its last profligate fling before being brought under the discipline of rational, politically super- vised economic planning. Indeed, the so-called Great Depression that ended this decade is generally perceived as one of the high-water marks of corpo- rate dissipation and irresponsibility, ushering in the uncomfortable afteref- fects of the 1930s. The New Deal is, to this day, regarded as a major turning point in government and business relationships, and represents to many the inevitable consequences of undisciplined market power. The National In- dustrial Recovery Act, the Agricultural Adjustment Act, the National Labor Relations Act, and the Fair Labor Standards Act, as well as the operation of intraindustrial agencies such as the Federal Communications Commission, the Securities Exchange Commission, the Civil Aeronautics Board, and the Federal Power Commission, are commonly depicted by historians as having imposed competitive discipline and socially responsible behavior upon a re- calcitrant business community. Paralleling this view of history, however, is a recognition that govern- ment regulation has generally served to further the very economic interests being regulated. The economist-and later United States senator-Paul Douglas was not the first to become aware of this fact when, in 1935, he observed with some bewilderment, "Public regulation has proved most inef- fective. Instead of the regulatory commissions controlling the private utili- ties, the utilities have largely controlled the regulatory cornmissi~ns."~Nor was he the last to perceive the truth of that proposition. Indeed, in the inter- vening years, research has revealed the dominant influence of commercial and industrial interests