Competition, Unions, and Antitrust
JULY 01, 1964 by SYLVESTER PETRO
Dr. Petro is Professor of Law at New York University School of Law. He has written several books, including The Labor Policy of the Free Society (1957) and Power Unlimited: The Corruption of Union Leadership (1959), and is a noted lecturer and contributor to magazines.
Few things seem more apparent than the existence of conflict between much of the conduct of American trade unions and the policies of the American antitrust laws. Yet it does not follow, even if one admits the apparent conflict, that the antitrust laws ought necessarily to be extended to cover trade-union conduct as pervasively as they govern the conduct of businessmen.
A variety of positions may be taken on the issue. Some may offer a confession and avoidance: yes, union conduct often conflicts with antitrust policy; but a superior imperative, premised on inequality of bargaining power between workers and their employers, dictates that worker organizations be permitted to engage in types of conduct which the antitrust laws would proscribe, as a means of securing an otherwise unattainable fair share of the production to which workers contribute. Others, equally accepting the fact of conflict, may insist that the relevant imperative is the rule of law. These would contend that if the antitrust laws are properly based on the public interest, it is nonsensical, even from the point of view of workers, since they compose so large a segment of the public, to limit the application of those laws; for the ensuing harm must be to the very public interest in which workers critically share. Still others, equally committed to the rule of law, might conclude that the antitrust laws rather than the trade-union conduct which those laws would proscribe, are contrary to the public interest; and accordingly propose repeal of the antitrust laws rather than extension of those laws to trade-union conduct.
Among those who would take a relatively uncomplicated position on the issue, there might be some, finally, who would consider it desirable to extend every conceivable kind of regulation, whether called an antitrust law or not, to the conduct of businessmen, while at the same time insisting that there is very little to gain and very much to lose in regulating any kind of trade-union conduct at all; for persons of this type there can be no conflict between trade-union conduct and antitrust, or any other prescriptive legal policy. Their view, one surmises (for it is never made explicit), is simply that businessmen can do no right and unions can do no wrong.
More complex positions have been developed. There have been proposals in and out of Congress to apply the antitrust laws to selected unions or to certain narrowly defined types of trade-union action while explicitly releasing other unions and other kinds of union action from antitrust liability. The idea that unions should be reduced by law or administrative discretion to smaller units has also been circulating for a long time. Finally, some have even argued that fundamental antitrust policy will be served better by governing union conduct through labor relations statutes such as the Taft-Hartley Act than under the odd combination of very general and very specific statutes lumped together under the heading, "antitrust laws."
My purpose in this paper is mainly to clarify thinking on the merits of the foregoing positions. Pursuing this objective, I intend first to measure trade-union action against antitrust policy, in order to determine whether the apparent conflict between them does in fact exist. I intend thereafter to evaluate antitrust policy itself. The third section of this paper will offer a critique of the more significant proposals that are circulating today with respect to unions and antitrust policy, and draw attention to the basic question: Do we want a free competitive enterprise system?
Part I: Antitrust Policy and Trade Union Action
The professed ideal of antitrust policy is a competitive economic order.’ Promoting and maintaining such an economic order, it is felt, will bring about the material conditions which everybody wants—prices as low as possible, quality as high as possible, allocation of resources in accordance with consumer wishes, in short, continuing economic progress. It will also contribute substantially to the achievement of one of the most highly prized noneconomic objectives of the free society, that is, opportunity for each individual to realize his potentialities to the utmost degree, consistent with the public interest."
The antitrust method of promoting a competitive economic order has called for governmental intervention into many phases of peaceful and consensual economic activity. Such intervention occurred even under the original and the most general of the antitrust statutes, the Sherman Act of 1890;³ and it has gone much further under succeeding antitrust statutes, most notably the Clayton Act of 1914*4 and the Robinson-Patman Act of 1936.5
Owners of separate businesses were told under the original Sherman Act that they could not voluntarily join together in programs which would in all probability lead to their charging uniform prices for their respective products.6
More recently, but still under the original Sherman Act, businessmen have been found guilty of unlawful price-fixing combinations despite the absence of proof of definitely concerted action, under the theory of guilt sometimes referred to as "conscious parallelism."7 The Supreme Court of the United States has gone so far as to say in some cases that businessmen violate the Sherman Act, regardless of the outcome of their efforts, whenever they concertedly "tamper with price structures."8
Other Business Practices Forbidden
Antitrust prohibition of peaceful, consensual activity has by no means been confined to the so-called "price-fixing" cases. Both horizontal and vertical integration of business firms has been prohibited under the Sherman and Clayton Acts, and it has not made any difference in these cases that the owners of the businesses involved might have been anxious to effectuate the prohibited merger, consolidation, or other form of integration." The disinterested observer may have some difficulty in understanding why some integrations are prohibited while others are permitted,’" but there can be no doubt that in the large number which have been prohibited it has not made any difference that they were voluntarily and even avidly sought by the parties involved.
Besides prohibiting such consensual, contractual arrangements, the antitrust laws have provided the basis for prosecuting aggressive business activity—the kind of conduct which, though nonviolent and nonfraudulent, is commonly called "predatory." Here, too, the basic idea was originally developed under the Sherman Act and then made more conscious and specific in the Clayton Act of 1914 and the Robinson-Patman Act of 1936.
The classic example has always been thought to be the old Standard Oil case,¹¹ where the defendant "trust" was accused and found guilty of hounding competitors out of business, engaging in fierce price wars, insisting upon favorable treatment from railroads, and so on. In more recent times, especially under the Clayton Act and the Robinson-Patman Act, business firms have found that even such mild conduct as exclusive purchasing arrangements’ and price discrimination (i. e., variation) among their customers¹³ may place them among the ranks of the lawbreakers.
Penalties of Success
The antitrust mode of preserving a competitive economic order is perhaps most characteristically illustrated by the decisions which at least seem to find illegality in natural and even blameless conduct—when it is the conduct of an outstandingly successful firm. Consider, for example, the Schine case," where the Supreme Court held it unlawful for the owner of a chain of movie theaters to insist upon first-run exhibition rights from film distributors in towns where there were competing theaters as a condition to leasing films from those distributors at all in towns where there were no competing theaters.
One may understand how the Supreme Court arrived at the decision: the defendant was pursuing its own interest vigorously; although there was no evidence of a malicious intention to destroy the competition, a logical outcome of the defendant’s course of action—if it could have been carried out with persistent success—would have been additional advantage in the form of greater returns on investment over the less successful competitors. But understanding the decision is one thing, and approving it as an intelligible implementation of a policy ostensibly in favor of free competition is another. For the moment, we merely cite the case as an example of the antitrust laws as they are characteristically applied.
Or consider the relatively recent prosecution of the United Shoe Machinery Company." There, with the subsequent per curiam approval of the Supreme Court," Federal District Judge Wyzanski held that the defendant’s practice of leasing its machinery rather than selling it outright violated the Sherman Act."
There was nothing immoral, nothing dishonorable, not even anything which a scrupulously decent person might be ashamed of in United Shoe’s leases. Indeed, Judge Wyzanski warmly praised the defendant’s management for its "clean" record.¹8 Nevertheless, the judge felt constrained to find that the leasing practices—being those of a firm which accounted for some 75 per cent of the production of shoe machinery in the United States—were unlawful.
Careful reading and rereading of the opinion leaves one with the firm conviction that precisely the same leasing practices would be regarded as perfectly lawful if adopted by any but a firm so "dominant" in its industry. In short, United Shoe’s success precluded it from using exactly the kind of arrangement with customers that other firms use with impunity.’ 9
Size Makes the Difference
The burden of such cases as United Shoe and Schine seems to be that successful businesses, especially if they are relatively "large" businesses, may not strive for competitive advantage against smaller and less successful firms in the same line of business.²º It would not be accurate to say that the right to compete is entirely denied them. But it would be at least equally inaccurate to say that the full range of competitive methods remains available to them. Many types of conduct which are neither violent, nor fraudulent, nor in any other sense malum in se are quite plainly withdrawn from their use. It goes without saying that any firm which set out upon a course of conduct deliberately designed to eliminate competitors, even though by peaceful and honest means, would be found guilty of violating one or another, and quite possibly all, of the antitrust laws.
Monopoly Aims of Unions
The purpose of the large trade unions of the United States, as their leaders put it, is to bring the benefits of collective bargaining to all workers, or at least to as many as they can. It is probably more accurate, possibly less question-begging, and certainly more realistic to say that the purpose of each of the national and international unions is to secure a monopoly of the working force in the industries or fractions of industries in which they claim "jurisdiction"—the auto workers in the auto industry, the teamsters in the trucking industry, the carpenters in the appropriate branch of the construction industry, and so on.
Perforce, then, the objective of the large unions is to eliminate competition. There is no other meaning to the deliberate pursuit of a monopoly of any given type of goods or services.
The monopoly is sought, not as an end in itself, but because of the results which it is expected to bring about. Here, too, there is no mystery. The labor monopoly is sought as a means of gaining what economists call a monopoly price—i.e., something more than the competitive or the "free-market" price for labor.
I intend no ethical, moral, or legal evaluation here. I simply observe that which should be evident to all. American trade unions are frankly disinclined to rest content with competitive prices for labor. The Keynesian-Marxian thesis that competitive labor markets will necessarily return to workers less than their contribution to production—and thus lead to depressions—is the dominant belief of trade union leaders. It is also, incidentally, the rationale of the National Labor Relations Act, as any reader may see for himself by consulting the statement of policy of that legislation.
Documenting the foregoing generalizations is a matter merely of recounting what unions do in the two main branches of their activity: organizing employees and collective bargaining.
Elimination of Competition
A pervasive preoccupation, to repeat, whether in organizing or in collective bargaining, is with eliminating competition. The competition which unions seek to eliminate is the competition implicit in alternative methods of doing the work over which the unions claim or seek jurisdiction.
I do not wish to be understood as saying that unions are now successful, or that they will ever be successful, in gaining their end. Discussion further on in this paper will disclose the significance of this disclaimer. At present it is necessary only to emphasize that our concern is with the objectives of and the means used by the large unions, not with their ultimate prospects.
A material proportion of current litigation of labor disputes, as of the historic labor cases, grows out of attempts by unions to extend their organizations. Of course, a mere desire on the part of any group of men to extend their activity does not in and of itself run afoul of antitrust policy—not even current policy, let alone the somewhat more lenient policy which has prevailed at times in the past.
But when an organization which has achieved notable size manifests an obvious intention to keep on expanding, and when, moreover, its expansionism takes the form of aggressive conduct toward its competitors (whether those competitors are isolated individuals or associations)—then a violation of the antitrust laws is held to exist. This is the burden of the development which has occurred from the old Standard 0i121 and American Tobacco Company²² cases through the more recent American Tobacco:²³ Schine:²4 and United Shoe cases.²5 The crime of monopolizing, as it is often said, inheres in "the power to exclude coupled with the intent to exclude.²6
Every time a union sets up a picket line, its aim is to exclude competition. And the means of accomplishing that end involve at least as severe pressure or duress as has earned for competitive business practices the description "predatory."
Consider picketing in large numbers. When hundreds or perhaps thousands of men parade before a business establishment, their intention is to frighten people; and it is self-evident that all, even the boldest of us, must feel qualms upon entering a place—whether as workers, customers, or suppliers—when so many persons make it plain that they intensely wish that we would not do so. If the picketing is in such masses that penetration would actually involve physical contact, the case is even clearer. If there has been some violence associated with the picketing, the case is clearest of all.
Picketing in large numbers, especially with violence, is designed to exclude competition of various kinds, and in various ways. If associated with a strike against the picketed employer, its purpose is to shut off the employer’s access to competitive methods of keeping the establishment in operation, or of restoring it to operation. The pickets seek to discourage nonstriking employees from continuing to work, or striker-replacements from taking jobs vacated by the strikers, or customers and suppliers from continuing their dealings with the employer.
Violation of Antitrust Policy
There has been some tendency to dismiss these violent or intimidatory methods of excluding competition as "not the kind of thing that the antitrust laws were aimed at." That may be. But the problem here is not whether legislators in 1890 intended to govern violent union conduct (or indeed any union conduct at all); it is whether unions today engage in conduct which violates current antitrust policy.
With the problem so defined, only one answer seems accurate: Violent union conduct, when considered from the point of view of present antitrust conceptions, is not only anticompetitive conduct but in fact the most predatory monopolistic conduct visible in the country today. One must not assume that the only way competition and its benefits can be frustrated is through the peaceful and consensual modes of conduct characteristic of modern business.
Picketing is not always in large numbers, and it is not always associated with strikes. Frequently, picketing is done by one or a few persons, entirely peaceably parading before an establishment with signs identifying it as a "nonunion company" and requesting all corners to note that fact. Such picketing has been defined, variously, as "publicity" or "organizational" or "recognition" picketing. However defined, it normally has one objective—to establish the picketing union as bargaining representative for the employees of the picketed business.
It is equally accurate, and more relevant to the purposes of this paper, to describe such picketing as a means of extending the union’s monopoly of the labor supply or as a means of removing the competition of nonunion employees and employers. Indeed, one commonly hears that a union has sought to "organize" a given employer mainly because some already "organized" employer has complained of the competition.
It may be argued with much force that such picketing, when genuinely peaceable, represents nothing more than the exercise of a basic right—the right of freemen to advance their interests by honest and peaceful methods. But when one remembers that businessmen are constantly being held guilty of antitrust violations though their conduct is honest, peaceable, and consensual (as in the price-fixing, price-discrimination, and tying-clause cases), it will be seen that the argument, however powerful, is of no relevance to our inquiry.
On the contrary, perhaps the most striking feature of current antitrust policy is that it is essentially directed at honest, peaceful, and even consensual methods of coping with competition. When a union brings economic pressure to bear upon a nonunion business—as all, even the most peaceable, picketing is designed to do—it is engaging in precisely the same kind of conduct that leads to antitrust prosecutions in the case of businessmen. Economic pressure is used to reduce or to eliminate competition, with a view ultimately to producing labor prices higher than those which would otherwise prevail.
Interest Rather than Accomplishment
Again, it is necessary to remember that antitrust convictions do not turn upon the question whether the objective has been demonstrably gained; the Antitrust Division and the Federal Trade Commission are never required to prove either that competition has actually been destroyed or, much less, that prices are actually higher than they would have been in the absence of the conduct found unlawful.
If in a dispute with one employer the union pickets or strikes another, as a means of bringing pressure to bear upon the first, it is engaged in the type of conduct most usually referred to as a "secondary boycott." When one pursues the facts of such cases with some persistence, one is bound to see that the "secondary boycott" is nothing more than a somewhat extended form of the same kind of pressure which the so-called "primary" picket line seeks to impose, and usually for the same ultimate objectives. The "secondary boycott" differs from the primary picket line mainly geographically; the locus of application of the pressure is different; the end sought is the same: the removal of competitive resistance.
Unions frequently pursue their monopolistic or anticompetitive objectives by "contractual" devices. Some unions insist that collective agreements provide for hiring only by supervisors who are themselves members of the contracting union. If such unions have by-laws which require members to prefer fellow-members over nonmembers in hiring,²7 the insistence upon the contractual clause in question is a means of eliminating competition from nonunion workers. Contracts requiring union membership as a condition of employment ("closed shop" or union shop) are obvious examples of the same sort of thing.
Another common device is the clause requiring employers to deal only with unionized suppliers or, in any event, with employers whom the union does not characterize as "unfair." From the point of view of current antitrust policy, the use of such clauses by a union which occupies a "dominant" position must be regarded as anticompetitive. The analogy to the Schine and United Shoe cases is clear. And so too with clauses limiting the subcontracting rights of employers; the union is using its dominant position in order to foreclose markets, as the phrase goes.
Common Union Practice
The reader familiar with labor relations will perceive that the modes of conduct thus far recounted are not only common forms of union action but also among the most common form of union action. There are only a few union activities which do not fall, at least in principle, within the categories of conduct thus far described. Indeed, if one were to push the logic of current antitrust policy all the way, collective bargaining would itself have to be considered unlawful as a combination in restraint of trade. It involves "collective" price-setting, not individual agreements establishing the price of labor. The same would be true of the simple, peaceable, primary strike for higher wages and better working conditions.
When Justice Douglas said in Socony-Vacuum²8 that the Sherman Act prohibited all tampering with price structures, he certainly was not thinking of combinations of workers. But consistent application of his doctrine would nevertheless bring collective bargaining and strikes within the ban of the antitrust laws. For the object is always to secure labor prices higher than those which would prevail in the "free and untrammeled" labor market.
Few people are likely, however, to take seriously the idea that collective bargaining violates antitrust policy when the union engages in bargaining only on behalf of employees who voluntarily ask it to do so. The more cogent analysis would seem to be that the union in such a case (at any rate when it falls short of a full monopoly of the entire working force) is the analogue of the single firm, which, too, is normally an aggregate of human beings in some legal form or other. Thus, just as the individual (nonmonopoly) firm does not violate the antitrust laws in holding out for the prices it wants, the individual union may not be regarded as violating those laws when it bargains or strikes for the labor prices it wants.
The conceptual, legal difficulty arises when the union asserts the authority or power to bargain not only for its members but also for employees who would rather bargain for themselves. For then, in the very act of collective bargaining the union is eliminating competition in what may fairly be called a "predatory," or at least an aggressive, way. The people who prefer to bargain for themselves presumably wish to establish labor prices different in some way from those which the union seeks to impose; whether higher or lower is of no significance; the fact of difference is what makes them competitors, and the union’s assertion of exclusive bargaining authority a competition-suppressing (or "predatory") activity.
Exclusive Bargaining Status
For the reader unfamiliar with current labor legislation perhaps it is desirable to add that exclusive bargaining status is a privilege which the National Labor Relations Act confers upon unions which are selected by a majority of employees in any appropriate bargaining unit as their representative.²9 For example, if in a unit of 1,000 employees 301 vote in favor of union representation, 300 vote against union representation, and the remaining 399 do not vote at all, the union becomes the exclusive bargaining representative of all the employees. The 300 who voted against union representation and 399 who did not vote at all may not under the law deal directly with the employer. In fact, the employer would be guilty of an unfair labor practice if he attempted to deal directly with the 699 employees who showed either no interest in the union or active opposition. Here we have an example of one statutory scheme apparently in deliberate conflict with another.
One dramatic phase of contemporary unionism remains to be measured against current antitrust concepts. In holding the Aluminum Company of America in violation of the Sherman Act,³º Judge Learned Hand placed considerable emphasis on the fact that Alcoa was practically the sole producer of aluminum ingot in the United States. It had never before been thought that the mere possession of the status of exclusive producer of any good or service automatically violated the antitrust laws; some kind of aggressive exclusionary, "monopolizing" conduct had previously been required.
But Hand pointed out that price-fixing was a per se violation of the antitrust laws, certainly when the price-fixing combination was dominant in the "relevant market." And this being true, he felt constrained to conclude that Alcoa must necessarily have violated antitrust policy and law every time it set a price, since it by itself occupied the same kind of dominant market position as the price-fixing combinations which had so frequently been found guilty of Sherman-Act violations.³1
Whatever its legal, logical, or common-sense merits may be, if the rationale of the Aluminum case still holds good, it is difficult to avoid the conclusion that all collective bargaining, at least on an industry-wide level, is contrary to antitrust policy when a union enjoying a near-monopoly of the working force in the particular industry is involved. The labor-price which the United Steelworkers of America agrees to, at whatever level, is as much (or as little) a monopoly price as the prices at which Alcoa agreed to sell its products. For the Steelworkers’ control of the labor force in the industries in which it operates is as extensive as Alcoa’s was with respect to the production of aluminum ingot. This would be true even if the Steelworkers never engaged in mass picketing as a means of securing its demands. The fact that its strikes are at times attended by mass picketing³2 makes the case against it an a fortiori one. The same reasoning applies, of course, to all other unions which share the foregoing characteristics. And they are many.
The Conflict Summarized
By way of summary and recapitulation, a number of significant points seem evident. The avowed objective of trade unions is to secure for their members higher labor prices in one form or another than they could achieve without unionization. When thus stated, the objective does not infringe upon antitrust policy any more than the profit-maximization goal of an individual firm does. If unions did nothing more than peacefully, honestly, and otherwise lawfully represent in collective bargaining those employees who asked them to do so, there could be no conflict with antitrust policy (assuming conditions in which the rationale of the Alcoa case did not control). The same is true in respect of the simple, direct, and peaceful strike for higher wages.
But unions seek their maximization by monopolistic means. They expressly set as their goal the enrollment of all workers in what they refer to as their jurisdiction. Their argument is that in the absence of such complete unionization the competition of nonunionized employers will make it impossible for the unionized employers to stay in business while paying union wages. But this is a classic monopoly argument, being no more or no less true or acceptable when made by a union than when made by any other aggregate of persons banded together for their economic advancement.
Moreover, unions pursue their monopolistic objective to a considerable extent by physically and economically aggressive means: mass picketing, stranger picketing, secondary boycotts, compulsory-unionism agreements, and the other methods of foreclosing competition which have been heretofore described.
Finally, having reached monopoly- or near-monopoly-control of the labor supply in a number of labor markets, they are in the same position as all other monopolists; when conditions are otherwise propitious, they are able, that is, to exact monopoly prices for the services they contro1.³³
The foregoing pages do little more than briefly summarize the monopolistic objectives and the anticompetitive methods which characterize contemporary trade unionism. But I take the summary, skimpy as it is, to be sufficient to establish that the apparent conflict between trade-union activities and antitrust policy does in fact exist.
As indicated at the beginning of this paper, I am aware that establishing the existence of conflict does not automatically resolve the problem of what to do about it. However, it does help some. For example, I cannot imagine how anyone who is in favor of free competitive markets can take the position, after becoming aware of how unions are hampering such markets, that nothing at all needs to be done about the conflict. On the other hand, such a person must be quite sure that antitrust policy is the defender of free markets which it is advertised to be, before insisting even upon its retention, let alone its extension to trade-union activity.
It is at least logically possible that antitrust policy, despite its claims, is as inimical to free markets as much of trade-union activity is. If this logical possibility should turn out to be a fact, it would follow that applying the antitrust laws to trade-union conduct could not promote free markets—and that, indeed, it might even hamper them still more. Thus it seems indispensable to examine the contention that antitrust policy is necessary to free competition.
Part II: Free Competition & Antitrust Policy
It is a remarkable fact that the only determined opposition to antitrust policy which exists today is coming from proponents of that school of thought which is probably best identified as laissez faire." Communists, socialists, new dealers, new frontiersmen, and all other proponents of government ownership or extensive governmental control of the means of production are to a greater or less degree in favor of the antitrust policies which have been developing ever more extensively in this country since 1890.
What makes this fact remarkable is that free competition is as central to laissez-faire thinking as it is said to be to antitrust policy. For a laissez-fairist, the concept of free competition, or its social embodiment, the free enterprise system, is in fact the basic principle of social organization.
The credentials of laissez-fairists as friends of free competitive enterprise are in somewhat better order than those of the socialists, new dealers, and other proponents of more powerful government who find so much to praise in recent antitrust trends. Purely on the basis of this fact one might be inclined to challenge the contention that antitrust is indispensable to the free competitive enterprise system. For it does seem strange that antitrust, allegedly indispensable to free enterprise, should find friends among people who are at least very cool to free enterprise and at most its deadliest enemies.
However, establishing guilt by association is always less satisfactory than rational demonstration of the truth of a charge. The laissez-fairist charge is that antitrust is the enemy of free competitive enterprise;³5 the antitruster insists that it is an indispensable friend. There is only one way to resolve the issue rationally: the key concepts, free competition and free enterprise, on the one hand, and antitrust policy, on the other, must be defined, and their relationships to each other explicated.
A Useless Definition of Freedom
Free competition and free enterprise may be defined as whatever area of freedom of action and choice government and law leave to the economically active members of any political community. One suspects that this is the way in which many persons today, especially interventionists, think of free enterprise and free competition. But the trouble is that when they are so defined our key terms become useless, as well as actually not what the average intelligent person is likely to think of when they are used. Russia today would be a free-enterprise nation, under the definition.
So defined, to be brief about it, free competition and free enterprise would exist always and forever, while men are men. For it is simply inconceivable that government could ever completely eliminate choice from either economic or social life. While men are men, they will be left choices of action, they will have to choose among alternatives, and they will choose, no matter how powerful or how interventionist their government may be.³6
As a useful semantic entity, immune to erosion by subjective and arbitrary manipulations of meaning, the freely competitive enterprise system denotes a society in which each of its members has his property and contract rights intact. This is not only a workable semantic entity; it is also the historical meaning of the expression—the meaning attached to it both by historical development and the general understanding of that historical development. The free competitive enterprise system is distinguished semantically and historically from mercantilism, on the one hand, and socialism, on the other, by the fact that it recognizes full property rights in its members and envisions government as a limited-purpose tool designed mainly to protect property rights and to enforce contracts.
Property and Contract Rights
This is not the place to trace in detail the tortured events which led Western society from feudalism through mercantilism to the free competitive enterprise and limited government system. Every student of law knows that in early feudal days there was virtually no such thing as a concept of private property, only a system of limited tenures adding up in principle and largely in fact to an essentially tenant and landlord relationship, with the king as landlord and all others as tenants. Every student of law knows too that in the beginning, the concept of freedom of contract was equally unknown, with custom and law making interpersonal relationships largely a matter of status rather than one of consent. As Sir Henry Maine put it in the nineteenth century, "the movement in the progressive societies has hitherto been a movement from status to contract."³7
Out of the feudal tenures, the concept of the fee-simple absolute grew; and out of the intricate web of legal and customary status relationships the concept of freedom of contract grew. The right of private property gave each person control of himself, of that which he produced, and of that which he came by in any other lawful manner, whether by finding, by gift, or by inheritance. The right of freedom of contract, actually a corollary of the right of control implicit in the right of property, gave each man the freedom to dispose by consensual arrangement of all the subjects of his property right. Serfdom, slavery, and all the other burdens and restrictions which limited men’s freedom of action were sloughed off as time went on, till in the middle of the eighteenth century it was possible for men to reason clearly and systematically about the system of political economy that was growing up about them. And this systematic reasoning was set forth in the works of David Hume and Adam Smith, the decisions of the great English judges, such as Mansfield, and the dramatic eighteenth century political developments here and in France.
Constellation of Freedoms Inherent in the Right of Private Property
What made ours a free competitive enterprise system was the constellation of freedoms found to be inherent in the right of private property: freedom to go into any business at will; to form associations; to produce at will; to exchange at will, upon terms mutually satisfactory to the parties to the exchange. As the House of Lords pointed out in the Mogul case³8—in my opinion the most enlightening analysis of competition to be found in any authoritative legal source—the exclusive job of the common law is to see that competitors do not assault each other, cheat, or rob. When the law goes beyond that point, when it seeks to impose standards of "fairness" in addition to the basic standards of honesty and peacefulness, by implacable necessity it introduces purely subjective standards which know no limitations other than those which the prejudices and predilections of the judges and legislators may suggest. More important than that, the result is a substitution of governmental regulation in place of free competition.
These are the considerations which Bowen, L.J. had in mind when he held in the Mogul case that even the most aggressive kind of competition could not be considered tortious as long as it was honest and peaceable. He said:
Until the present argument at the bar it may be doubted whether shipowners or merchants were ever deemed to be bound by law to conform to some imaginary "normal" standard of freights or prices, or that Law Courts had a right to say to them in respect of their competitive tariffs, "Thus far shalt thou go and no further." To attempt to limit English competition in this way would probably be as hopeless an endeavor as the experiment of King Canute. But on ordinary principles of law no such fetter on freedom of trade can in my opinion be warranted. A man is bound not to use his property so as to infringe upon another’s right. Sic utere tuo ut alienum non laedas. If engaged in actions which may involve danger to others, he ought, speaking generally, to take reasonable care to avoid endangering them. But there is surely no doctrine of law which compels him to use his property in a way that judges and juries may consider reasonable: see Chasemore v. Richards, 7 H.L.C. 349. If there is no such fetter upon the use of property known to the English law, why should there be any such a fetter upon trade?…
The substance of my view is this, that competition, however severe and egotistical, if unattended by circumstances of dishonesty, intimidation, molestation, or such illegalities as I have above referred to, gives rise to no cause of action at common law. ³9
If I am correct in saying that free competition is a useful and meaningful expression only when defined as a condition which exists when men have their property and contract rights intact, it necessarily follows that antitrust policy is inexorably in conflict with it, and this is as true empirically as it is logically.
For, as already shown in some detail, antitrust policy is essentially characterized by more or less arbitrary and unpredictable restrictions upon the property and contract rights of antitrust defendants. The one thing almost never seen is an antitrust prosecution against businessmen for violent or fraudulent conduct. Every successful antitrust prosecution in one way or another attacks and limits a peaceful and honest exercise of a property or contract right. The antimerger decisions prevent people from disposing of their properties as they wish. The antiboycott decisions tell people they cannot withhold their patronage as they wish. The decisions against tying clauses drastically limit contractual rights. The decisions against price discrimination tell both sellers and buyers what kind of price contracts they are to make.
To repeat: in none of these instances do the courts find the defendants guilty of fraud or violence; in each, their property and contract rights are drastically limited.
Consequences of Restrictions
And what are the empirical consequences of these comprehensive restrictions upon property and contract rights? Well, one immediately perceptible consequence is that—if antitrust prosecutions are effective—the shape and structure of American industry are different from what they would be if the parties had been allowed to do as they wished with their businesses, subject, of course, to ultimate approval by the consumers on the free market. The point may be made vividly by calling the reader’s attention to the fact that such firms as General Motors, Chrysler, U.S. Steel, and General Electric would probably not be in existence today if current antitrust policies had been applied consistently in the past 75 years.
Anyone who doubts this need only read the U.S. Supreme Court’s decision in the Brown Shoe case," and his doubts will be removed. Our "big business" is easily the most characteristic, creative, and unique of all American institutions. I can think of no more compelling way of establishing the anomalous character of our antitrust policies than to bring attention to the fact that strict and consistent pursuit of those policies would have aborted this most productive of all American institutions.
Another equally perceptible consequence—again if antitrust prosecutions mean anything—is a drastic modification of business practices. Consider the price-discrimination cases.41 They hold that sellers must charge all their buyers the same prices for goods of like grade and quality.4² A seller may escape liability for an instance of price discrimination among his buyers, if he can prove that he responded to a move in the direction of lower prices by one of his competitors.43 Again, liability may be escaped if the seller can prove to the satisfaction of the Federal Trade Commission that the actual cost of selling to one buyer was less than the cost of selling to another.44
These are not easy defenses to make. But that is not the point. The point is that pricing is one of the most sensitive and most profoundly significant aspects of property and contract rights—and of free competition. To compel a seller in general to charge all buyers the same price is drastically to restrict free competition.
What is true empirically of the antimerger and the antiprice-discrimination phases of antitrust policy is true also of all other phases of that policy. These sharp invasions of property and contract rights necessarily confine and limit the condition which exists only when property and contract rights are intact—free competition.
Special attention must be paid to price-fixing agreements, for they seem an interesting anomaly. On the one hand, they are undoubtedly exercises of contract; but on the other, it is difficult to see how they can be considered to be forms of competition. The anomaly disappears upon resort to further analysis of the nature of a free society. Such analysis must necessarily conclude that there is nothing in the concept of freedom which commands all people to compete with each other. One acts the free man, in short, as well when he declines to compete as when he chooses to compete. Moreover, everyone can think from his own experience of examples of voluntary withdrawals from competition which were in no way censorable.
The common law dealt with price-fixing agreements in a peculiar way; it simply refused to enforce them. It might perhaps have gone so far as to hold such combinations fraudulent, at least in collusive-bidding cases where the parties deliberately convey the impression that they are in competition. It is too bad that this idea was never developed; but at any rate, the common law was quite correct in finding that price-fixing combinations were in no other way violations of property or contract rights.
The fact that price-fixing combinations, while exercises of contract rights, are not competitive does not mean that property and contract rights must be limited if we are to have competition. On the contrary, the notorious fragility of price-fixing combinations is directly attributable to the continued possession and exercise of property and contract rights by members of price-fixing combinations.
These combinations break down as swiftly and as consistently as they do precisely because the participants remain in control of their business—and responsible for its losses. When a businessman sees that his goods are not moving at the prices established by such a combination, he does the natural thing: he lowers his price. Perhaps he does this furtively; but he still does it. The American experience with the so-called "Fair-Trade" laws makes the point as vividly as possible. These laws are an attempt to establish price-fixing by force of law. But so unwilling are businessmen to stick with price-fixing of any kind, whether by government or private contract, that they have made the job of enforcing "Fair-Trade" laws extremely difficult.
The Common Law Refused To Enforce Price-Fixing Pacts
Once again the appropriate conclusion seems to be that the common law was its usual fair and common-sense self when it confined itself merely to refusing to enforce price-fixing agreements. On the one hand, it could not hold such agreements unlawful, since they were valid exercises of property rights. On the other hand, their relationship to competition was at best imperceptible and at worst destructive. Denied legal enforcement, they would probably soon break down as a consequence of the ineradicable tendency of all businessmen to respond to changing demand and supply conditions (for bankruptcy is the alternative). Hence, while denying enforcement to price-fixing contracts might not have been the most elegant and logical solution, it was a fair and practical way out of the dilemma.
And it still seems so to me—far more practical, and just, than to send men to jail because they have peacefully agreed among themselves as to what they should charge for their property. There is in my opinion no way to justify this kind of savage treatment of some people for doing the very kind of thing that all of us—including lawyers—do at one time or another. For everybody does engage in what amounts to price-fixing agreements at one time or another—working men when they participate in union activity, professional men when they set their fees in accordance with prevailing views among themselves, retailers, farmers, air lines, shipping companies, and so on.
The situation is not improved when one considers the contradictory conduct of the federal government in the premises. While sending some people to jail for agreeing on prices, it considers nationwide price-fixing agreements laudable if exacted by trade unions; it visits penalties on farmers for departing from the prodigious price-fixing scheme known as our agricultural policy; it forces uniform prices on air lines and other participants in the transport industry; and finally, as we have seen, it forbids individual businesses to vary their prices downward at will.
I am sure that human ingenuity is capable of rationalizing each of these contradictory programs. The one thing that no amount of rationalization can do, however, is to demonstrate that they are consistent with the principle that every member of a free and decently run society is entitled to the same kind of rights.
A Tendency To Break Down
We have yet to develop the most illuminating of all the insights to be derived from consideration of price-fixing agreements. As already suggested, price-fixing agreements, even those enforced by government, are under constant pressure, constantly in danger of breaking down. The reason for this is to be found in the law of incessant change. Supply and demand conditions are always changing. Hence, no matter how sheltered the market may be in which a price-fixing combination operates, the fixed prices are nearly always out of date—and always on the verge of being out of date. A price-fixing combination sheltered from competition by government power can hold out relatively long. The government can keep price-cutting competitors from entering the field at all; or it can throw into jail those members of the combination who depart from the fixed prices; or it can through the subsidy process make up the losses of the combination members who are compelled by law to sit quietly by while the unregulated competition takes the customers who refuse to pay the erroneous prices.
But none of these methods of keeping down or discouraging competition is available to a strictly private, nongovernmental price-fixing combination in a free competitive enterprise system. One of the basic features of such a system is that everyone has a legal right to seek his fortune in any field of activity; therefore, the members of a price-fixing combination cannot keep out competitors who are always attracted when they see prices out of line with existing supply and demand conditions.
Another basic feature is that everyone has a right to charge whatever he wishes for that which is his; therefore, the members of a price-fixing combination cannot prevent the competition from charging prices lower than they feel are proper. Finally, the common law refuses t