Not Your Grandfather’s Gilded Age
By Amity Shlaes
This review is from Amity Shlaes’s regular column “The Forgotten Book,” which she pens for “Capital Matters” as a fellow of National Review Institute.
Back in 2008, conservatives for some reason went along with the doctrine of Too Big to Fail. We’ve been paying for it ever since.
After all, in truth, just about nothing is too big to fail. Even money center banks in a financial crisis can be allowed to fail. The arbitrary fashion in which the federal government applied Too Big to Fail in 2008 stank of cronyism. Rescue set the stage for more rescue. If government can rescue deserving banks, it can rescue deserving individuals during a COVID epidemic.
As a result, when it comes to government, we’ve suffered, since 2008, from a kind of Curse of Bigness, to borrow a phrase from another context and time. The public’s logic on financial crises has of course shifted also. And so has financial regulation, as in the 2010 Dodd-Frank law.
But that’s not all. By ceding to Washington discretion in what was too big to fail in 2008, the country in some way also ceded to Washington license to determine what is too big to survive—and to act on that determination.
Disappointed people develop an appetite for revenge. They enjoy it when the government launches vengeful litigation actions. Hence the revival of a questionable doctrine such as antitrust. To be sure, those who advocate a vast expansion of federal antitrust powers haven’t managed to win those powers. But give them time. Though the courts have—for now—frustrated her, Federal Trade Commission chair Lina Khan is the most radical commissioner in recent memory.
Democrats on the Hill are advocating more antitrust actions. Republicans, too, jump into the business of managing giants when it suits them, excusing their own participation in antitrust actions by claiming antitrust represents some kind of lesser evil among the measures government can undertake against companies.
Classic antitrust action in our lifetime—or for that matter, our parents’—has made for fine political theater. Few who’ve seen the clips can forget the image of Bill Gates squirming in his deposition chair during a late 1990s action against Microsoft.
But the record of antitrust prosecution has been worse rather than mixed. One of the premises of the Justice Department’s case in the Microsoft action was that Microsoft was squeezing out innovation in the browser field. This contention emerged as risible when, even as Mr. Gates squirmed, Google popped up on the national screen.
Shamed by the recent record, revivalists therefore lean hard on an era they believe proved the need for antitrust prosecutions: the Gilded Age—roughly 1880–1900. It was to describe the transgressions of the industrial giants of that period upon the small man that the jurist Louis Brandeis coined the phrase “The Curse of Bigness.”
Popular culture reinforces that storyline, as in the HBO series Gilded Age, in which the George Russell character represents a version of the robber baron Jay Gould. The best nonfiction job of reinforcing the Gilded Age narrative comes from Tim Wu, a respected legal scholar who has advised President Joe Biden on antitrust.
Wu published The Curse of Bigness: Antitrust in the New Gilded Age in 2018. But since his Curse is fast becoming a primer for antitrust revival, and since Wu himself bids fair to become the Brandeis of our age, it makes sense to take a moment to retrace his argument.
The Rise of Antitrust
The industrialists and bankers of the 1890s, Wu makes clear, weren’t mere office men. They were octopi, with tentacles in every company. Or, to be more precise, one great octopus. For the trusts of the era united, in the Wu telling, into a veritable movement, and one that “envisioned an economy with every sector run by a single, almighty monopoly, fashioned out of smaller firms, unfettered by competitors or government restraint.”
With each year that passed, the octopus squeeze on the U.S. economy tightened. The monopoly was permanent. The government, Wu contends, permitted “laissez-faire’s rule by the wealthy.” The gap between the earnings of the robber-baron titans and those of the immigrant worker was enormous, as such gaps always are in innovative eras—new technologies make unknown men titans overnight.
Regular Peter Thiels, these industrialists not only destroyed the competition but also hawked the advantage of monopolies. Their temerity drove lawmakers to create the first antitrust institution, the Interstate Commerce Commission, in 1887. The 1890 Sherman Act outlawed “monopolization” and “any contract or combination in restraint of trade.”
If that sounds vague, it was. The clear part was that the act gave the Department of Justice the authority to institute criminal proceedings against companies, fine them treble damages, and imprison their executives.
Stories need heroes, and Wu’s hero is the jurist Brandeis, who saw in the income gaps a permanent threat to our very polity. “We must make our choice,” Brandeis once said, according to a friend. “We may have democracy, or we may have wealth concentrated in the hands of a few, but we can’t have both.”
When Theodore Roosevelt went on safari, J. P. Morgan reportedly raised a toast: “America expects that every lion will do his duty.”
Octopus Hunter
The next hero in the Wu telling is the great “octopus hunter”—they really called him that—President Theodore Roosevelt. Roosevelt converted Brandeis’s thought into action. The president went after titan J. P. Morgan and his railroads, breaking up a conglomerate called Northern Securities in America’s first great trust-busting case.
Roosevelt also signed a new law, the Hepburn Act, broadening the Interstate Commerce Commission to aggressively police railroad pricing. Roosevelt’s campaign against “certain malefactors of great wealth” continued under his successors William Howard Taft and Woodrow Wilson.
Wilson elevated Brandeis to the Supreme Court. The president and Congress also established another antitrust agency, the Federal Trade Commission, and saw the Clayton Act of 1914 into law. It was all messy but worthwhile, Wu suggests, because “extreme economic concentration yields gross inequality and material suffering.”
The first part of Wu’s walk through the Gilded Age, the economic concentration, is factual: large industries did consolidate rapidly around the turn of the century. But after that, he strolls off into the thicket. Contra Wu, the Gilded Age was hardly an age of pure laissez-faire.
The trust men, and the Northeast in general, benefited from a massive government-arranged subsidy: the tariff. It was the tariff, always tailored to the preferences of the giants, that raised prices of basic goods for farmers and workers, right down to prices of tin plates.
Wu verges farther from the evidence in his characterization of trusts and their leaders. The prospects for railroad’s permanent domination may have looked as assured in that era, as, say, the domination of Amazon or Google looks today. But they weren’t. Trucking waited just around the bend.
And trusts were hardly a “movement,” let alone an octopus. True, the trust men sat on one another’s boards. But as Burton Folsom has shown in a revealing volume, titans of industry were distinct individuals who not only differed from but often detested one another. So much so that they trashed each other in the press: “You have my authority for stating that I consider Mr. Jay Gould a damned villain,” Cornelius Vanderbilt told the New York Sun.
Wu wanders further when he turns to the workers in the Gilded Age. It is true that workers, especially new Americans, earned fractions of their bosses’ pay. But with worker poverty, as with monopolies, the question was whether their poverty was permanent. Most immigrant workers wagered it wasn’t.
What mattered to many immigrants was not where they were when they arrived but what they or their children could become. While his fellow titans may have quarreled with Jay Gould, workers hoped their sons would be like him.
The data suggest that this hope was justified. Between 1870 and 1900, real wages of nonfarm employees grew by half, a rate we can only envy today. The illiteracy rate and infant mortality plummeted. Children of day laborers acquired the language, skills, employment, and, sometimes, Gilded Age–scale empires of their own.
Such possibilities don’t perturb Wu, and they didn’t perturb the Gilded Age trustbusters. A taste of the arrogance of the trustbuster in chief, President Roosevelt, comes through in a 1902 story. Flummoxed by the Department of Justice suit against Northern Securities, J. P. Morgan called at the White House to talk it over.
The octopus hunter proved immovable, and Morgan, growing irate, asked Roosevelt whether the president would attack Morgan’s other interests. “Certainly not,” the president replied, “unless we find out that in any case they have done something we regard as wrong.”
Afterward, Roosevelt commented, “Mr. Morgan could not help regarding me as a big rival operator.” But operating as a big rival was precisely what Roosevelt was doing. Morgan must have wondered, “Who’s the octopus now?”
A Record of Failure
To what extent antitrust law could damage the economy became clear in the Panic of 1907, a disaster that Wu ambles past in his book. A multiplicity of well-parsed factors triggered the panic, including monetary troubles. But the crisis was made worse by the Hepburn Act, which ate at railroad profits. Even as credit tightened in 1907, Standard Oil was hit with heavy fines for antitrust violations.
“Owing to the assaults of those high in authority and adverse legislation by Congress and the State legislatures,” opined the Commercial and Financial Chronicle, an influential weekly, “confidence is completely gone.”
When the market crashed, the same J. P. Morgan of the White House standoff rode to the rescue. Morgan rounded up other robber barons, including John D. Rockefeller, and supplied tens of millions to arrest the run.
And here the irony only deepens. In the end, bankers saw that U.S. Steel’s purchase of a struggling company, Tennessee Coal and Iron, could halt the panic. This move, however, would violate the Sherman Act. The robber baron Henry Clay Frick won a meeting with the president, who agreed to suspend the act, allowing, “I would not feel like objecting to the purchase under these circumstances.”
This disingenuous concession did stop the panic but not the recession that ensued. As Robert Bruner and Sean Carr note in their underappreciated account The Panic of 1907: Lessons Learned from the Market’s Perfect Storm, workers whom antitrust was supposed to benefit saw unemployment rise to 8 percent from 2.8 percent. The dollar volume of bankruptcies increased by half.
The role of antitrust in the 1907 debacle was not lost on contemporaries. When Roosevelt went on safari after losing the 1912 election, J. P. Morgan reportedly raised a toast, telling dinner companions, “America expects that every lion will do his duty.”
Even the progressive to whom Theodore Roosevelt’s cousin Franklin would assign to antitrust enforcement, Thurman Arnold, conceded the record: “Historians now point out that Theodore Roosevelt never accomplished anything with his trust busting. Of course he didn’t.”
Borked
Such results explain why few presidents, even self-proclaimed antitrusters, have replayed Roosevelt. But for the “hibernation” of antitrust in the past three decades, Wu chooses to blame a pair of University of Chicago professors: Aaron Director and Robert Bork, later Judge Bork.
Judge Bork did not make it to the Supreme Court as Brandeis did, but he did put sanity into the antitrust exercise. He convinced the legal community that an accurate reading of the Sherman Act confines the government’s work to righting a narrower wrong: higher prices charged to consumers.
Where Bork narrowed, Wu would expand, and in precisely the worst way: by going big. Wu wants to enlarge the government’s authority and equipment to arbitrarily litigate “battleship” cases and break up big companies. A litigator government, he claims, is necessary to yield “a defensible division of the spoils of progress.”
Taking a page from the Federalist Society book, Wu fans argue for the appointment of Wu to the bench and envision seeding our courts with progressive judges.
The point here, however, is not merely antitrust’s failings but also our own in the imparting of history. Until more Americans know what happened in periods such as the Gilded Age, they can’t protect themselves from those who abuse history to advance poor policy. And these days, the danger of such abuse is—no other adjective will do—big.
Amity Shlaes chairs the Coolidge Foundation, is the author of Great Society, and is a fellow of National Review Institute. This article first appeared in National Review’s “Capital Matters.”