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Anti-Antitrust Book Reviewed

October 17, 2005

And none too sympathetically. Curiously, after largely agreeing with the authors that the perfectly competitive model does not constitute a reliable welfare benchmark, that antitrust practice has often missed the mark, that entrepreneurs have a moral claim to the wealth they create, and so on, but criticizing the polemical style of the book, the reviewer concludes with his own polemic:

"Where the conditions of the market are not sufficient to constrain unbounded self-interest seeking, there lies a role for antitrust. Given the limited and evolving state of our knowledge of the economy, certainly modesty is called for in the ends pursued through antitrust actions, nonetheless where competition fails, antitrust represents society's second line of defense."

From EH.NET:

Gary Hull, editor, The Abolition of Antitrust. New Brunswick, NJ: Transaction Publishers, 2005. xii + 176 pp. $39.95 (hardcover), ISBN: 0-7658-0282-1
Reviewed for EH.NET by John Howard Brown, School of Economic Development, Georgia Southern University.
October 2005
It would be easy to turn this review into a tendentious attack on Ayn Rand's philosophy of Objectivism. However, this reviewer will resist the temptation and criticize this book purely on professional grounds. In that spirit of fairness it should be noted that the editor specifically claims in the introduction that the book is "...written for the intellectually active layman (sic)" (p. x). However, even the layperson, indeed especially the lay reader, should have the right to expect issues to be presented in an intellectually honest and non-polemical manner.
The book consists of seven essays. Two are reprints of previously published works, although both prior outlets are sufficiently obscure that they are likely to be new to most readers. It is divided into three parts, labeled, The Economics of Antitrust, The Legal History of Antitrust, and The Morality of Antitrust. The first part will be the focus of this review since it most likely to be of interest to readers on this list.
The Economics of Antitrust, begins with an essay by Dominick Armentano. Armentano will be remembered by many industrial organization economists for his blistering book, The Myths of Antitrust (1972). This book along with Robert Bork's Antitrust Paradox (1978) represented the counterattack on the Mason-Bain industrial organization tradition in antitrust analysis.
Armentano's essay is entitled "Barriers to Entry" and is a reprint, having previously appeared in Antitrust: The Case for Repeal (1999). Those, including, this reviewer, who were enlightened by The Myths of Antitrust, will find this contribution disappointing. There are two related problems. The first is stale and incomplete scholarship. The latest source other than Armentano's own works cited in the references is Douglas Greer's 1980 textbook. At minimum, one would have expected a citation of Demsetz's (1982) identically titled work, which is clearly sympathetic to the point Armentano attempts to make.
The other problem is the bulk of the essay is devoted to attacking stale antitrust doctrine. Much is made of product differentiation as a barrier to entry. However, aside from the FTC cereals investigation of the 1970s, antitrust litigation has rarely concerned itself with product differentiation. There is also a discussion of the role of entrepreneurs in unearthing new technological and economic opportunities in a world of limited information which is impossible to dispute but not particularly novel. Others barriers cursorily examined are advertising, absolute capital requirements, and predation.
In the discussion of predation, as in the other discussions, the role of consumer choice in the success of particular firms is highlighted, again neither controversial nor novel. This argument as applied to predation asserts that consumers, as fully rational and informed decision-makers, will recognize that a firm practicing predatory pricing is attempting to reduce future competition. This argument appears to attempt to have it both ways, entrepreneurs are needed to navigate a world of scarce information, but consumers don't suffer from that same scarcity in their decision-making.
The second essay, John Ridpath's "The Philosophical Origins of Antitrust," also reprinted, begins with this rousing sentence, "The antitrust laws of the United States are an obscene violation of individual rights that have thrown American business into a no-man's land of non-objective law" (p. 17). The unlikely victim of Ridpath's bile is Frank Knight whom Ridpath accuses of having provided the "conceptual underpinnings" of American antitrust. In particular, Knight's classic, Risk, Uncertainty, and Profit, with its general equilibrium model of a perfectly competitive economy is counted as providing a pernicious attack on profits that functioned as the 'camel's nose under the tent' for antitrust. The fact that antitrust laws were passed fully thirty years prior to Knight's book seems not to carry much weight with Ridpath.
As a part of his sustained attack on Knight, Ridpath accuses him of being a follower of Heraclitus, famous for his aphorism, "you can't step into the same river twice," whom Ridpath asserts has "created a fetid intellectual current" -- whatever that means. He also attacks Henri Bergson, Kantian philosophy, pragmatism, and, that particular bete noir of Randians -- altruism. To the extent that the discussion is not ad hominem attack or polemical, this reviewer would confess to being insufficiently informed to judge the philosophical issues.
The third essay, Richard M. Salsman's "The False Profits of Antitrust," is the weakest of the three. It is littered with errors in characterizing received economic doctrine. Salsman asserts, "Instead of refuting false profit theories, modern economists have imagined an 'ideal' world of 'pure and perfect competition' that expunges 'unearned profit' and the 'robber barons' who garnish it" (p. 27). I don't know of any economists who consider the perfectly competitive model relevant to antitrust analysis. Nor do I know any, in the past century at least, who would characterize entrepreneurs as "robber barons."
A more significant error appears three pages later, where he asserts, "The most bizarre stricture in perfect competition theory requires that firms not price their products above the variable costs of producing them" (p. 30). This is, of course, utter rubbish that would merit a failing grade in even a principles of economics course. The rest of the essay is no better, failing to grasp, for instance, that the zero profit condition is no more than a statement of long run tendency, unlikely to ever be observed. Nor does the disciplinary role of competition in enforcing efficient use of resources seem to make an impact. Frank Knight once again comes in for abuse, along with John Bates Clark, William Stanley Jevons, and others.
The overarching theme of this book, including the essays not discussed here, is casting entrepreneurs as near mythic heroes. Their contribution to the economy creates a moral claim to the wealth that they unlock. Mainstream economics has moved some direction towards this position in the past thirty years. However, the mainstream view dating to Adam Smith has always recognized that unlimited self-interest seeking can lead to many unsavory practices. It is only when channeled by competition that the pursuit of self-interest leads to socially benign ends. Where the conditions of the market are not sufficient to constrain unbounded self-interest seeking, there lies a role for antitrust. Given the limited and evolving state of our knowledge of the economy, certainly modesty is called for in the ends pursued through antitrust actions, nonetheless where competition fails, antitrust represents society's second line of defense. In summation, there is beyond a doubt a serious intellectual and professional case that could be made for abandoning current antitrust law and practice as it exists in the United States and Europe. However, this book does not make that case.
References: D. T. Armentano, 1972, The Myths of Antitrust: Economic Theory and Legal Cases. New Rochelle, NY, Arlington House.
D. T. Armentano, 1999, Antitrust: The Case for Repeal, revised second edition. Auburn, AL: Ludwig von Mises Institute, pp. 47-61.
Bork, Robert, 1978, The Antitrust Paradox: A Policy at War with Itself. New York: Basic Books.
Harold Demsetz, 1982, "Barriers to Entry," _American Economic Review_, Vol. 72, No. 1 (Mar.), pp. 47-57.
John Howard Brown is Associate Professor of Economics in the School of Economic Development of Georgia Southern University. His research is in the fields of industrial organization, economic history and history of economic thought. Currently he is working on an intellectual history of industrial organization.
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