(The following publications and brief were submitted for the record by Donald Richberg :)

A SUGGESTION FOR REVISION OF THE ANTITRUST LAWS1

(By Donald R. Richberg 2)

The primary question presented in considering any revision of the antitrust laws is this: How far is it necessary to regulate competition in order to preserve fair competition? This immediately leads to a second question: How far can competition be regulated without destroying the essentials of a competitve system of private enterprise? In order to deal dispassionately with these questions we must try to eliminate certain prejudices and illusions which commonly confuse our efforts to think clearly and to discuss candidly the problems of governmental supervision or control of business operations.

We talk loosely of free competition and free enterprise, as though we had in mind an ideal of absolute freedom from any political interference in a “natural” order of things in which producers, distributors, and consumers, unhampered by any laws, automatically would produce and exchange, in an unrestricted market, a supply of all possible goods and services equal to the demand, with assurance of a fair exchange between uncoerced sellers and buyers. But when we examine into the historical facts we find that no such order of things has ever existed in any large community-and no such order ever can be established in a modern nation. Disregarding a host of other causes for an increasing social control of private enterprise, let us concentrate our attention at the outset on the effect of monopolistic purposes and practices which develop early in business competition. An unregulated system of competition paradoxically produces at once the monopolistic seeds of its own destruction. The stronger competitors naturally eliminate weaker rivals and, with increasing dominance in the market, move steadily toward the alternatives of combination into one all-powerful organization or agreement among the large surviving units to maintain profitable prices and for that purpose to allocate production or areas of distribution. This trend is inevitable because unlimited unregulated competition must result in wasteful duplications of expenditure and narrow, uncertain profit margins, which any efficient businessman, seeking the obvious goal of secure and satisfactory profits, I will try to eliminate.

We can hardly question the conclusion that without some form of antimonopoly laws the eventual outcome of trade and industrial operations in serving the major essential needs of a modern community would be the concentration of control in organizations of such size and economic strength that effective competition would become impossible to inaugurate or to maintain. The trend toward such an outcome is now obvious in those fields of enterprise where a very large capital investment and far-reaching organization is essential, thus assuring enormous development losses to any small enterprise which might attempt to invade a well-occupied field-such as that of automobile manufacture.

On the other hand where a small amount of capital and a compact efficient organization can quickly establish an effective competition in price or service, the natural, monopolistic advantages of large-scale enterprises may be balanced by weaknesses inherent in big organizations. Bureaucracy, red tape, inertia, remote controls, inflexibiliity, and excessive conservatism are familiar examples of these weaknesses.

Here enters into our problem the factor of unfair competition developing both in the abuses of power by big business, evidenced, for example, by price wars or discriminations, and in those cutthroat practices of little business which may defraud the customer as to the quantity or quality of goods delivered, and deny to the worker a fair reward for his labor. Thus we find ourselves confronted with the need for eliminating those methods of competition which we try to define as "unfair," either because they promote a monopolistic control of what should be a free market, or because they promote a freedom to injure others which degrades the processes of production and exchange into a primitive warfare abhorrent to our standards of civilization.

1 The present article is a revision of two addresses delivered by the author before the mineral section and commerce committee of the American Bar Association on August 25 and 26, 1936, at the meeting of the association in Boston.

2 A. B., 1901, University of Chicago; LL. B., 1904, Harvard University; general counsel, NRA, 1933.

Up to the present time we have come to accept the need for such laws as will prevent monopolistic controls and outlaw the most generally disapproved forms of unfair competition. But on the whole these laws have been pretty unsatisfactory both to businessmen and to the consuming public. They have imposed a great many uncertain, hampering restraints upon legitimate business operations; and they have not prevented some of the most offensive methods of unfair competition. They have not protected consumers from excessive prices for many essential goods and services, although consumers have been partly compensated for such overcharges by the socially and economically unsound privilege of buying many other things for less than a reasonable cost of production.

In the antitrust laws the Government imposes a great variety of poorly defined restraints upon free competition which are theoretically intended to increase competition. Thus, by restraining the liberty of individuals controlling large economic powers, we seek to preserve the liberty of individuals of small economic power, and to relieve them from an oppressive and destructive competition. On the other hand, the Government provides protections as well as restraints for modern, private enterprise-notably such a protective tariffs to prevent free competition from abroad.

It might be assumed that the laws regulating competition would be based upon a consistent national economic policy. But when analyzed, we find they are, in fact, based largely upon conflicts of emotion arising out of shifting conflicts of temporary economic interests.

We begin, for example, with emotional enthusiasm for large enterprises, for mass production, for cheapening the price of things we buy and the variety of products offered for sale. Under this emotional stimulus the Government encourages large-scale industries. Then we find fear arising among small-business men and consumers that these great, powerful organizations will destroy the small-business man and, having ended his competition, will be able to exploit the consumer. Also, we have the fear of the workers, fear of increasing regimentation into the service of an economic power so strong that terms of employment will be dictated and not negotiated.

Out of these fears come demands to restrict the size of private enterprises and to restrain the powers of those who control them. There are demands to protect small-business men, workers, and consumers, not merely against abuses of power, but against the possibility of abuses; and many of these latter demands are impractical because in the creation of great power lies always the possibility of abuse.

Then further demands arise for a positive rather than a negative control, in order to compel the payment of better wages, the working of shorter hours, the reduction of prices, some provision for pensions, unemployment insurance, and other securities for workers against the hazards which are inevitable in competitive private business.

It becomes more and more apparent to the managers of private business that their responsibilities and risks are to be increased, while at the same time their freedom to meet such responsibilities is diminished and impaired. In ths situation charges fly back and forth that private enterprise is unwilling or unable to fulfill its public obligations; and that the Government is preventing the fulfillment of such obligations by restraining the freedom of private enterprise.

If we are to deal reasonably and not emotionally with our present business problems, we need to face the fact that we have had always a system of regulated competition; that individual freedom of competition has always been restricted by Government; and that what we must preserve, if we are to retain a competitive system, is not an absolute individual liberty nor absolutely free competition, but a reasonable freedom of action within a reasonably well-defined area of competition.

If, for example, we do not believe that it is socially healthy to compete in the payment of as low wages as possible, or in the employment of workers for as long hours as possible, or in the employment of child labor, we need a defined economic policy based either upon economic considerations, or moral considerations, or upon both. We generally agree that fraud and decit are not only socially undesirable, but that they degrade business and retard, instead of promoting, the growth of business. We ought to be able to agree that competi

3 See generally, Probst, The Failure of the Sherman Antitrust Law (1926), 75 University of Pennsylvania Law Review 122; Note (1931), 79 University of Pennsylvania Law Review, 602...

tion in overworking and underpaying labor has evil effects both socially and economically. But in seeking to establish such standards of regulated competition, we face not only practical difficulties, but the prejudices of those who have been accustomed by traditions to the enforcement of moral and health requirements by the police power but who are still convinced that any exercise of a similar power to improve economic conditions is an undue interference with individual liberty and destructive of free competition.

I read recently a typical statement made some time ago by a trusted adviser of business, who said that the economic worth of a worker can be determined only by competition. Strictly speaking, this may be true; but it does not follow that there should be no regulation of the competitive conditions under which economic worth is to be measured. This same man would agree probably that we should maintain protective tariffs, because he would not have the economic worth of an American worker measured by competition with foreign workers living on a very low standard. It is also a fact that our economy must provide in some way for those who have no employment, or who are incapable of earning their subsistence. Therefore, from an economic standpoint those enterprises which do not pay a subsistence wage must have their workers, either currently or eventually, supported out of the surplus product of other enterprises. Any intelligently regulated competition will not permit a competition in wasting human lives and energy any more than a competition in wasting natural resources.

The great difficulty, however, in governmental regulation is to draw the line between that minimum amount of necessary regulation which preserves the maximum area of competition and that dangerous expansion of regulation which may spread until there is not a sufficient area of competition left, so that as a result prices and wages will be legally fixed instead of competitively determined. We had innumerable examples of this difficulty in the operations of the NRA. When it was sought to raise an actual rate of 5 or 10 cents an hour to a minimum of 14 cents an hour, protest was inevitable that 14 cents an hour itself was an inadequate wage, according to ethical standards. Yet, as matter of cold fact, if raising the minimum wage for this particular service would reduce materially the demand for the product, the immediate and perhaps the final result would be increased unemployment. But how can we officially sanction an utterly inadequate wage?

The effort to regulate competition in wage payments must clearly be limited to an effort merely to prevent a competition for which there can be no social or economic justification; hours too long for efficient work, or for maintaining the health and decency of living conditions; wages too low to sustain the necessary cost of maintaining the human machine. Above these floor levels there is an ample field of competition, just as there is an ample field for competition in games, wherein the rules prevent the maiming or crippling of opponents. There is also a further field for the voluntary regulation of competition, wherein those engaged in a trade or industry can agree upon higher floor levels of working conditions and business practices, and can exert the full force of cooperative action to bring about the general acceptance of such levels, without attempting to use the compulsory powers of government to maintain such standards, at least until they have been clearly demonstrated to be economically sound.

Now, against such efforts of governmental and voluntary private regulation to improve the general standard of living and to increase the purchasing power of some submerged classes of workers, we find the objection of an economic theory, which crudely stated, is that increased labor costs are inevitably followed by increased prices and increased mechanization, resulting in diminished purchasing power and diminished employment. In pursuit of this theory, strong arguments are advanced in favor of a price reduction policy on the apparent assumption that prices can be reduced without wage reductions and that increased volume of production will supply more work and eventually more purchasing power.

It seems strange to me that the fallacy of applying either a wage increase or price decrease theory to the entire econome process is not obvious. It is undoubtedly true that in many instances increased labor costs will require increased prices. It is also true that in many instances increased labor costs, although increasing the prices of one group of products will add to the purchasing power for another group of products and thereby increase production. It is undoubtedly true that decreased prices of some products will increase volume of production and add employment, but it is also true that decreased prices are absolutely

impossible in many other lines without decreasing wages and diminishing purchasing power.

The one sound principle which it seems easy to state, but difficult to administer, is the principle of economic balance, which requires decreased prices for some commodities and increased wages for some workers. The application of this principle requires a constant readjustment of prices and wages, which will most fairly and readily take place if all the conflicting economic interests of management, labor and consumer concerned with agricultural and industrial production and distribution, are adequately organized to press for a fair consideration of their needs, with effective machineries of cooperation and adjustment. These should be encouraged and may be in part maintained by the Government, so that when one economic interest is being unfairly treated, there will be the probability of readjustment before the entire economic balance is seriously disturbed.

There are today too many public and private regulators of competition to justify the illusion that we can restore a self-regulating competitive system by any single or simple program. The effort simply to destroy monopoly by sweeping prohibitions and intermittent prosecutions has accomplished and will accomplish little except to add to the difficulties of maintaining by cooperative methods, an industrial security protecting alike the interest of investors and of labor. The effort to regulate wages and hours by law, unless carefully limited, will move us toward an increasing political control of industry. The dangers of such increasing political control do not lie merely in the restraint of individual freedom. They lie also in the difficulty of finding any tolerable standard for a fair price or a fair wage, except a competitive standard.

But it should be reasonably clear that the preservation of individual liberty in the conduct of private enterprise and the maintenance of competition as a regulator of prices and wages require at the outset an acceptance of the actualities of our present industrial civilization. We cannot arrive at a solution by emotional demands for complete individual liberty and absolutely free competi tion in a political economic system where social restraints on individual freedom and social restraints upon competition are a long established fact, and where what is needed is not the abolition of all restraints, but an improvement in their character and consistency.

We need to define the area in which the individual can freely determine his price policies and wage policies and be free to enter into contractual arrangements with all those to whom they are voluntarily acceptable. Within that same area of individual freedom men should be permitted to cooperate, but they should not be free to coerce others, nor free to exercise any monopolistic controls of trade or industry unless they are willing to submit their affairs to that regulation in the public interest which is necessary when competition, as a regulating force, has been eliminated.

We need definite and defined regulations of competition which are justified to preserve the health of individuals, the health of society and our economic well being. But we need also a clear understanding that we are not substituting regulation for competition in determining the compensation to which the worker is entitled for his services, or the owner is entitled for the use of his property, or the manager is entitled for his ability to organize and to direct the conduct of private enterprise.

We can and should maintain the principle that price fixing and wage fixing and production controls are inconsistent with the competitive system. But at the same time we can properly insist that competition in reducing wages or prices may become destructive of the public interest and that production controls which individuals always employ separately may sometimes be properly employed by groups, under public supervision, to protect public interests, as, for example, to prevent the waste of natural resources. Such questions of public policy should be submitted to the scientific determination of persons not authorized to regulate wages, prices, and production for the purpose of conforming them to any planned ideal economy, but for the purpose of preserving the regulative force of competition by restraining those excesses of competition, which in the end destroy a competitive system.

In final analysis we must maintain a competition in wages, prices and production if we are to maintain a competitive system. Otherwise we will move into the need of controlled wages, prices, and production-a politically planned economy-for which we can find nowhere adequate ability, information or scientific impartiality. We have no competent substitute for the automatic regulator

of a free purchasing power, which determines wages and prices and volume of production in a fair competitive system.

Let us agree that we have not yet arrived at a consistent national economic policy which is, or can be, expressed in law. Consider for example our attitude toward monopolies. Regardless of politics we all solemnly declare that "a private monopoly is indefensible and intolerable." But then we write laws establishing patent monopolies throughout the business world with no legal qualifications to prevent intolerable and indefensible abuses of the powers thus granted to regulate and stifle competition.

We write protective tariffs for the avowed purpose of protecting the earning power of not only American capital but also American labor-including, we should assume, agricultural labor. But we have no established and effective policy to insure to the worker and consumer behind that tariff wall the protection of his standard of living, which the limitation of imports is intended to provide. We not only permit, but by constitution and statute we secure, to the private owners of natural resources, unregulated monopolies of raw materials which are primary necessities. As a result, if controlled by a few, these essentials can be slowly sold at high prices; or, if widely held, they can be recklessly wasted in a scramble for sales at prices insufficient to pay even a decent wage for the labor employed in their production and distribution.

We not only permit, but by our corporation laws we encourage, the development of gigantic artificial persons with tremendous powers and economic advantages over the individual manufacturer or merchant or farmer or industrial worker; and then we legislate in haphazard fashion against big business operations in order that these giants of our own creation may not trample down all individual enterprise.5

Consider likewise our lack of any consistent or well-defined public policy in the protection of fair competition. Long, long ago we abandoned the notion that trading was a game of wits in which there were no moral obligations on either side. And in recent decades we have looked beyond the immediate interests of a seller and a buyer and have found a public interest in the methods of competition employed by sellers in their rivalry with each other. Still more recently the concept of a public moral interest in fair trading has been extended to recognition of an equally vital public economic interest in preventing industrial demoralization, business depressions and social insecurity, of which one contributing cause is cutthroat competition with its accompanying degradation of labor conditions.

The public economic interest, underlying the Clayton Act, was also concerned with unfair competition because (in the laguage of Mr. Justice Brandeis): "The belief was widespread that the great trusts had acquired their power, in the main, through destroying or overreaching their weaker rivals by resort to unfair practices." Thus the legislative policy embodied in the creation of the Federal Trade Commission seemed to be a logical effort to supplement the prohibitions of the Sherman Anti-Trust Law with an administrative regulation of competition so as to insure that the methods employed in selling goods should be fair.

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The latest and in many ways the most far-reaching extension of governmental power began with legislation designed to regulate maximum hours of work," minimum wages," the employment of child labor 12 and other labor conditions

One of the most compact expositions of this situation will be found in Mr. Gaskill's recent book the Regulation of Competition (1936) [see Crismore, Book Review (1936), 84 University of Pennsylvania Law Review 919]. Another more extended demonstration will be found by anyone who reviews without economic or political partisanship the history of the NRA-an effort which I undertook (with a less favorable bias than may be assumed) in a book entitled "The Rainbow" (1936).

5 Cf. Arrow-Hart & Hegeman Electric Co. v. Federal Trade Comm. (291 U. S. 587 (1934), 82 University of Pennsylvania Law Review 763); In the matter of Goodyear Tire & Rubber Co. v. Federal Trade Comm., March 5, 1936, 84 University of Pennsylvania Law Review 1030; Appalachian Coal, Inc. v. United States (288 U. S. 344 (1933), 81 University of Pennsylvania Law Review 1006).

638 Stat. 730 (1914), 15 U. S. C. A. §§ 12-27, 44; 18 U. S. C. A. § 412 (1927); 28 U. S. C.A. §§ 381-383, 386-390 (1928); 29 U. S. C. A. § 52 (1927).

7 Federal Trade Comm. v. Gratz (253 U. S. 421, 434 (1920)).

8 38 Stat. 717 (1914), 15 U. S. C. A. §§ 41-51 (1927).

926 Stat. 209 (1890), 15 U. S. C. A. §§ 1-7, 15 (1927).

10 15 Stat. 77 (1868); 27 Stat. 340 (1892), 40 U. S. C. A. §§ 321-323 (1928).

11 40 Stat. 960 (1918).

12 39 Stat. 675 (1916), held unconstitutional in Hammer v. Dagenhart (247 U. S. 251 (1918); 40 Stat. 1057, 1138, title XII (1919)), held unconstitutional in Bailey v. Drexel Furniture Co. (259 U. S. 20 (1922)).